UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                           ---------------------------

                                   FORM 10-QSB

(Mark One)

        (X)    Quarterly Report Under Section 13 or 15(d)of the
                      Securities Exchange Act of 1934
               For the quarterly period ended September 30, 2003

                        Commission File Number: 333-11625

                           ---------------------------

                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

          -----------------------------------------------------------

             (Exact name of registrant as specified in its charter)

           Delaware                                              94-3240473
-------------------------------                           ----------------------
(State or other Jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

       50 California Street
       Suite 2020
       San Francisco, California                                  94111
--------------------------------------                          ----------
(Address of principal executive office)                         (zip code)

                                 (415) 288-9575
               --------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                    Yes  X         No
                                        ---          ---


As of November 12, 2003, the registrant's common shares closed at $19.35 per
share and the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $6,211,350. At that date
approximately 321,000 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.

                                       1
<PAGE>
                                TABLE OF CONTENTS



PART I

     ITEM 1          FINANCIAL STATEMENTS                                  3-5

                     NOTES TO FINANCIAL STATEMENTS                        6-22

     ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS                23-29

     ITEM 3          CONTROLS AND PROCEDURES                                30

PART II

     OTHER INFORMATION                                                      30

     SIGNATURES                                                             32

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                       33

     CERTIFICATION OF FORM 10-QSB                                        34-35

     EXHIBITS                                                            36-38










                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                   [Pages 3-5]

<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                                                (Unaudited)      (Audited)
                                                                                                September 30,    December 31,
                                                                                                    2003            2002
                                                                                                    ----            ----
ASSETS

<S>                                                                                           <C>             <C>
Cash and cash equivalents                                                                     $    228,292    $    494,443
Restricted cash                                                                                    137,042         519,321
Marketable securities                                                                               10,341           8,215
Accounts receivable                                                                                535,060         489,946
Other Assets (net)                                                                                  30,469           7,453
Due from affiliates                                                                                123,704         129,758
Notes receivable:
   Warehousing facilities to related parties                                                     5,835,903       3,382,940
   Mortgage notes receivable                                                                    20,126,463      19,906,391
   Allowance for losses                                                                           (240,000)       (310,000)
                                                                                              ------------    ------------
      Net notes receivable                                                                      25,722,366      22,979,331
Investments in affiliates                                                                          957,562       1,080,930
Origination costs (net)                                                                            295,290         264,060
                                                                                              ------------    ------------

Total assets                                                                                  $ 28,040,126    $ 25,973,457
                                                                                              ============    ============

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities
     Mortgage note holdbacks                                                                  $    137,042    $    519,321
     Loans payable                                                                              13,588,626      10,972,350
     Due to affiliate                                                                              300,000           2,719
     Other liabilities                                                                             116,640         219,011
                                                                                              ------------    ------------
Total liabilities                                                                               14,142,308      11,713,401
                                                                                              ------------    ------------

Stockholders' equity
    Preferred stock, $.01 par value; 1,600,000 shares authorized;                                    2,138           2,138
          213,820 shares issued and outstanding at September 30, 2003 and December 31, 2002
    Additional paid in capital - preferred stock                                                 5,669,123       5,669,123
          Less treasury stock: 3,176 preferred shares
          at September 30, 2003 and December 31, 2002                                              (86,944)        (86,944)

    Common stock, $.01 par value; 2,000,000 shares authorized;                                       4,972           4,952
          497,161 shares issued and outstanding at September 30, 2003
          495,161 shares issued and outstanding at  December 31, 2002
    Additional paid in capital - common stock                                                    9,388,875       9,370,895
      Less treasury stock: 72,392 and 71,017 common shares
      at September 30, 2003 and December 31, 2002                                               (1,240,158)       (962,662)
    Accumulated other comprehensive income                                                             402          (1,723)
    Retained earnings                                                                              159,410         264,277
                                                                                              ------------    ------------

Total stockholders' equity                                                                      13,897,818      14,260,056
                                                                                              ------------    ------------

Total liabilities and stockholders' equity                                                    $ 28,040,126    $ 25,973,457
                                                                                              ============    ============
</TABLE>

See accompanying note to financial statements.

                                       3
<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                               Income Statements
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                               Three Months Ended           Nine Months Ended
                                                                  September 30,                September 30,
                                                               2003           2002           2003           2002
                                                               ----           ----           ----           ----
<S>                                                       <C>            <C>            <C>            <C>
REVENUES
   Interest income                                        $   586,964    $   660,673    $ 1,905,909    $ 1,992,938
   Interest income from affiliates                             90,239         46,258        176,289        164,877
   Equity in gain of affiliate                               (144,455)       (69,998)      (121,171)       (34,920)
   Other income                                                 4,289          2,175          8,263         15,965
                                                          -----------    -----------    -----------    -----------
       Total revenues                                         537,037        639,108      1,969,290      2,138,860

EXPENSES
   Loan servicing & origination fees to related parties       122,404        124,492        349,121        354,529
   Management fees to related parties                          73,904         62,690        263,831        211,587
   Interest expense on loans                                  120,114        106,703        338,131        334,690
   Interest expense on loans from related parties               2,139          9,208          3,708         18,869
   Provision for loan losses                                   40,000         53,000         78,144         95,000
   Taxes                                                        4,544          5,700         11,344         23,691
   Amortization                                                 9,375          9,816         33,325         33,463
   General and administrative                                  62,849         57,630        182,902        216,555
                                                          -----------    -----------    -----------    -----------
         Total expenses                                       435,329        429,239      1,260,506      1,288,384
                                                          -----------    -----------    -----------    -----------

INCOME BEFORE GAIN (LOSS) ON
   REAL ESTATE OWNED                                          101,708        209,869        708,784        850,476
   Operating expenses of real estate owned                       --           (1,184)          --           (2,699)
   (Loss) on real estate owned                                   --             --             --          (22,527)
                                                          -----------    -----------    -----------    -----------

NET INCOME                                                    101,708        208,685        708,784        825,250
                                                          ===========    ===========    ===========    ===========

PREFERRED DIVIDENDS                                            77,952         87,257        238,514        262,948
                                                          -----------    -----------    -----------    -----------

NET INCOME AVAILABLE TO COMMON                            $    23,756    $   121,428    $   470,270    $   562,302
                                                          ===========    ===========    ===========    ===========

BASIC EARNINGS PER
   COMMON SHARE                                           $      0.06    $      0.29    $      1.11    $      1.35

DILUTED EARNINGS PER
   COMMON SHARE                                           $      0.05    $      0.23    $      0.95    $      1.12

DIVIDENDS PAID PER
   PREFERRED SHARE                                        $      0.37    $      0.41    $      1.13    $      1.25

DIVIDENDS PAID PER
   COMMON SHARE                                           $      0.45    $      0.45    $      1.35    $      1.15

WEIGHTED AVERAGE COMMON
   SHARES - BASIC                                             422,596        423,036        422,575        417,226

WEIGHTED AVERAGE COMMON
   SHARES - DILUTED                                           500,173        525,023        496,065        502,641
</TABLE>

                See accompanying notes to financial statements.

                                       4
 <PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                            Statements of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                               September 30,
                                                                           2003            2002
                                                                           ----            ----
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income                                                     $    708,784    $    825,250
      Adjustments to reconcile net income to net cash provided by
        operating activities:
        Provision for loan losses                                         (70,000)         95,000
        Amortization                                                       33,325          33,463
        Loss on real estate owned                                            --            22,527
        Equity in gain of affiliate                                       121,171          34,920
        (Increase) decrease in accounts receivable                        (45,114)       (251,666)
        (Increase) decrease in other assets                               (54,143)        (24,962)
            (adjusted for: amortization and capitalized loan fees)
        Change in due to / due from affiliates                            303,335        (102,182)
        Increase (decrease) in other liabilities                         (102,371)        (49,818)
                                                                     ------------    ------------
          Net cash provided by operating activities                       894,987         582,532

CASH FLOWS FROM INVESTING ACTIVITIES
      Investment in marketable securities                                    --            (9,939)
      (Increase) decrease in investments                                     --           (44,362)
      (Increase) decrease in origination costs                            (31,230)           --
      (Increase) decrease in warehousing facilities                    (2,452,963)      1,171,711
      Net proceeds from sale of real estate owned                            --           120,000
      Investments in mortgage notes receivable                        (11,718,189)     (7,580,115)
      Repayments of mortgage notes receivable                          11,498,117       6,358,673
                                                                     ------------    ------------
        Net cash used by investing activities                          (2,704,265)         15,968

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans                                          2,616,276        (159,595)
      Loan fees paid                                                         --           (19,500)
      Purchase of treasury stock                                         (599,085)        (71,924)
      Sale of treasury stock and exercised options                        339,589         174,221
      Preferred dividends paid                                           (238,514)       (262,948)
      Common dividends paid                                              (575,139)       (477,752)
                                                                     ------------    ------------
        Net cash provided by financing activities                       1,543,127        (817,498)
                                                                     ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     (266,151)       (218,998)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          494,443         441,909
                                                                     ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $    228,292    $    222,911
                                                                     ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid for interest                                         $    346,905    $    364,191
      Cash paid for taxes                                            $     12,154    $     33,978
</TABLE>

                 See accompanying notes to financial statement.

                                       5
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
               As of September 30, 2003 and December 31, 2002 and
              For the nine months ended September 30, 2003 and 2002
                                   (Unaudited)
1.   Organization
     ------------

     Capital Alliance Income Trust Ltd., A Real Estate Investment Trust (the
     "Trust"), a Delaware corporation, invests primarily in mortgage loans
     secured by real estate. The Trust was formed December 12, 1995 as a
     mortgage investment trust, which invests primarily in loans secured by
     deeds of trust on one-to-four unit residential properties as the loan's
     primary collateral.

     The Trust acquired an investment in Capital Alliance Funding Corporation
     ("CAFC"), a taxable subsidiary, during the second quarter of 1997. The
     investment in CAFC is accounted for by the equity method and its financial
     statements are not consolidated with those of the Trust. The Trust holds
     100% of the non-voting preferred stock of CAFC with a 99% economic interest
     in CAFC. CAFC acquires loans for sale, secured by deeds of trust on
     one-to-four unit residential property as the loan's primary collateral. The
     investment in CAFC is reported in "Investment in affiliate" on the Trust's
     balance sheets and in "Equity in gain (loss) of affiliates" in the Trust's
     statement of operations. CAFC's balance sheets and statements of operations
     are summarized in Note 10. References herein to the "Company" refer to the
     Trust and CAFC, collectively

     Capital Alliance Advisors, Inc. (the "Manager") originates, services and
     sells the Trust's and CAFC's loans.

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------

     Basis of presentation. The accompanying financial statements as of
     September 30, 2003 are unaudited. The unaudited interim financial
     statements have been prepared in accordance with the instructions to Form
     10-QSB and on the same basis as the annual financial statements and, in our
     opinion, reflect all adjustments, which include only normal recurring
     adjustments, necessary for a fair presentation of such financial
     statements. These financial statements and notes thereto should be read in
     conjunction with the audited financial statements included in the Trust's
     Form 10-KSB for the year ended December 31, 2002. The results for the three
     and nine months ended September 30, 2003 are not necessarily indicative of
     the expected results for the year ended December 31, 2003.

     Basis of accounting. The Company prepares its financial statements on the
     accrual basis of accounting consistent with accounting principles generally
     accepted in the United States of America. The Trust's year-end for tax and
     financial reporting purposes is December 31.

     Use of estimates. The preparation of financial statements in conformity
     with accounting principles generally accepted in the United States of
     America requires management to make estimates and assumptions that affect
     the amounts reported in the financial statements and accompanying notes.
     Actual results could differ from those estimates.

     Cash and cash equivalents. Cash and cash equivalents include cash and
     liquid investments with an original maturity of three months or less. The
     Company deposits cash in financial institutions insured by the Federal
     Deposit Insurance Corporation. At times, the Trust's account balances may
     exceed the insured limits.

                                       6
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     -----------

     Marketable securities. Marketable securities are classified as either
     trading, or available-for-sale. Management has not acquired any securities
     positions classified as trading securities. Trading securities, if
     acquired, would be reported at fair value, and changes in their fair value
     would be reported in the statement of operations. Available-for-sale
     securities are reported at fair value with unrealized gains and losses
     excluded from earnings and reported in accumulated other comprehensive
     income. Realized gains and losses on sales of both trading and
     available-for-sale securities are determined on an average cost basis and
     are reported in the statement of operations.

     Concentration of credit risk. The Company assumes certain risks inherent in
     the numerous mortgage notes receivable held, including, but not limited to,
     credit risk, liquidity risk, interest rate risk, prepayment risk, market
     value risk, and capital risk. The mortgage notes are secured by deeds of
     trust on residential properties located primarily in California, which
     results in a concentration of credit risk. The value of the loan portfolio
     may be affected by changes in the economy or other conditions of the
     geographical area. The Trust seeks to actively manage such risks while also
     providing the stockholders an appropriate rate of return for such risks.
     There can be no assurances that such risks and uncertainties are adequately
     provided for in the financial statements. The Trust has prepared the
     financial statements in accordance with accounting principles generally
     accepted in the United States and in an effort to properly present the
     risks taken.

     Allowance for losses. Management reviews its allowance for losses provision
     periodically and the Company maintains an allowance for losses on mortgage
     notes receivable at an amount that management believes is sufficient to
     protect against potential losses inherent in the loan portfolio. The
     Company's actual losses may differ from the estimate. Accounts receivable
     deemed uncollectible are written off. The Company does not accrue interest
     income on impaired loans.

     Real estate owned. Real estate owned results from foreclosure of mortgage
     notes receivable and at time of foreclosure is recorded at the lower of
     carrying amount or fair value of the property minus estimated costs to
     sell. Subsequent to foreclosure, the foreclosed asset value is periodically
     reviewed and is adjusted to fair value. No depreciation is taken on the
     real estate owned. Income and expenses related to real estate owned are
     recorded as rental income, interest expense and operating expenses of real
     estate owned in the statements of operations.

     Investments. The Trust owns 100% of the non-voting preferred shares and has
     a 99% economic interest in CAFC. As the Trust does not own the voting
     common shares of CAFC or control CAFC, its investment in CAFC is presented
     by the equity method of accounting. Under this method, original equity
     investments are recorded at cost and adjusted by the Trust's share of
     earnings or losses and decreased by dividends received (Note 10).

     Origination costs. Origination costs relating to mortgage notes receivable
     are capitalized and amortized over the term of the mortgage notes
     receivable.

     Impairment policy. Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
     144), requires that long-lived assets to be disposed of be measured at the
     lower of carrying amount or fair market value less cost to sell.

     The Trust reviews its long-lived assets for impairment whenever events or
     changes in circumstances indicate that the carrying value may not be
     recoverable. Recoverability is measured by a comparison

                                       7
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     -----------

     of the carrying amount to the future net undiscounted cash flow expected to
     be generated and any estimated proceeds from the eventual disposition. If
     the long-lived asset is considered to be impaired, the impairment to be
     recognized is measured at the amount by which the carrying amount exceeds
     the fair value as determined from an appraisal, discounted cash flow
     analysis, or other valuation technique. There were no impairment losses
     recognized during the three and nine months ended September 30, 2003 and
     2002.

     Fair value of financial instruments. For cash and cash equivalents, the
     carrying amount is a reasonable estimate of fair value. For mortgage notes
     receivable, fair value is estimated by discounting the future cash flows
     using current interest rates at which similar loans would be made to
     borrowers with similar credit ratings and for the same remaining
     maturities. It was determined that the difference between the carrying
     amount and the fair value of the mortgage notes receivable is immaterial.
     For loans payable, fair value is estimated by discounting the future cash
     flows using current interest rates as determined by the Trust's current
     borrowing rates. It was determined that the difference between the carrying
     amount and the fair value of loans payable is immaterial.

     Income taxes. The Trust intends at all times to qualify as a real estate
     investment trust ("REIT") for federal income tax purposes, under Sections
     856 through 860 of the Internal Revenue Code of 1986, as amended and
     applicable Treasury Regulations. Therefore, the Trust generally will not be
     subject to federal corporate income taxes if the Trust distributes at least
     90% of its taxable income to its stockholders. To qualify as a REIT, the
     Trust must elect to be so treated and must meet on a continuing basis
     certain requirements relating to the Trust's organization, sources of
     income, nature of assets, and distribution of income to stockholders. The
     Trust must maintain certain records and request certain information from
     its stockholders designed to disclose actual ownership of its stock.

     In addition the Trust must satisfy certain gross income requirements
     annually and certain asset tests at the close of each quarter of its
     taxable year.

     If the Trust fails to qualify for taxation as a REIT in any taxable year,
     and the relief provisions do not apply, the Trust will be subject to tax on
     its taxable income at regular corporate rates. Distributions to
     stockholders in any year in which the Trust fails to qualify will not be
     deductible by the Trust nor will they be required to be made. Unless
     entitled to relief under specific statutory provisions, the Trust will also
     be disqualified from taxation as a REIT for the four taxable years
     following the year during which qualification was lost. Based on the
     Trust's belief that it has operated in a manner so as to allow it to be
     taxed as a REIT since inception, no provision for federal income taxes has
     been made in the financial statements.

     State taxes. The state of Delaware imposes a tax on the capitalization of
     the Trust. Each year, the Trust also incurs a franchise tax from the state
     of California.

     Stock options. Statement of Financial Accounting Standards No. 148 (SFAS
     148) "Accounting for Stock-Based Compensation - Transition and Disclosure"
     provides alternative methods of transition

                                       8
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     -----------

     for a voluntary change to the fair value based method of accounting for
     stock-based compensation and requires prominent disclosures in both annual
     and interim financial statements about the method used on reported results.
     The alternative methods of transition of SFAS 148 follows Accounting
     Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
     Employees", in accounting for stock options to employees.

     Revenue recognition. Interest income is recorded on the accrual basis of
     accounting in accordance with the terms of the loans. When the payment of
     principal or interest is 90 or more days past due, management reviews the
     likelihood that the loan will be repaid. For these delinquent loans,
     management continues to record interest income and establishes a loan loss
     reserve as necessary to protect against losses in the loan portfolio
     including accrued interest. However, if the mortgage's collateral is
     considered insufficient to satisfy the outstanding balance, after estimated
     foreclosure and selling costs, interest is not accrued.

     Reclassifications. Certain 2002 amounts may have been reclassified to
     conform to the 2003 presentation. Such reclassifications had no effect on
     reported net income or earnings per share.

     Recent accounting pronouncements. In January 2003, the Financial Accounting
     Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"),
     "Consolidation of Variable Interest Entities." The objective of this
     interpretation is to provide guidance on how to identify a variable
     interest entity and determine when the assets, liabilities, non-controlling
     interests and results of operation of a variable interest entity need to be
     included in a company's consolidated financial statements. A company that
     holds variable interests in an entity will need to consolidate the entity
     if the company's interest in the variable interest entity is such that the
     company will absorb a majority of the variable interest entity's expected
     losses and/or receive a majority of the entity's expected residual returns.
     The provisions of this interpretation became effective upon issuance. FIN
     46 may require consolidation of CAFC into the Trust's financial statements
     commencing with the Trust's January 1, 2004 reporting period.

3.   Restricted cash and mortgage note holdbacks
     -------------------------------------------

     Pursuant to mortgage loan agreements between the Company and its borrowers,
     a portion of the proceeds are held by the Company in segregated accounts to
     be disbursed to borrowers upon completion of improvements on the secured
     property.

4.   Marketable securities
     ---------------------

     Marketable securities consist of equity securities and are accounted for as
     available-for-sale securities. Unrealized gains and losses are excluded
     from earnings and reported in accumulated other comprehensive income.

5.   Accounts receivable
     -------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and other amounts due from borrowers.

                                       9
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

6.   Warehousing facilities to related parties
     -----------------------------------------

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     CAFC. Under the terms of the agreement, the Trust advances funds to CAFC to
     acquire mortgage loans secured by real estate. The Trust then acquires all
     of CAFC's right, title and interest in such loans. CAFC is obligated to
     reacquire the loans from the Trust at a preset price. As of September 30,
     2003 and December 31, 2002, the Trust advanced to CAFC $5,835,903 and
     $3,382,940, respectively. The interest rate on this line of credit varies
     with market conditions and is payable monthly. As of September 30, 2003 and
     December 31, 2002 the applicable interest rate was 6.0%. During the three
     and nine months ended September 30, 2003 and 2002, the Trust earned
     interest in the amount of $81,969 and $46,258 and $168,019 and $164,877,
     respectively.

     The Trust entered into a loan purchase agreement on January 1, 1998 with
     Calliance Mortgage Trust, which subsequently merged into the Mortgage
     Division of Calliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
     terms of the agreement, the Trust advances funds to CRF to acquire mortgage
     loans secured by real estate. The Trust then acquires all of CRF's right,
     title and interest in such loans. CRF is obligated to reacquire the loans
     from the Trust at a preset price. As of September 30, 2003 and December 31,
     2002, CRF owed the Trust $0. Annual interest on this line of credit is
     between 7.0% and 12.0% and is payable monthly. The Trust earned interest in
     the amount of $0 during the three and nine months ended September 30, 2003
     and 2002, respectively. The Trust also borrows on an unsecured basis from
     CRF with interest payable monthly at an annual rate of between 5.0% and
     12.0%. As of September 30, 2003 and December 31, 2002, the Trust owed CRF
     $300,000 and $0 respectively.

7.   Mortgage notes receivable
     -------------------------

     Mortgage notes receivable represent home equity loans primarily secured by
     deeds of trust on one-to-four unit residential real estate. At the time of
     origination, all loans have a combined loan-to-value equal to or less than
     75% of the underlying collateral. The Trust is subject to the risks
     inherent in finance lending including the risk of borrower default and
     bankruptcy.

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the mortgages is due monthly and principal is usually due as a balloon
     payment at loan maturity.

     A reconciliation of the Trust's mortgage notes receivable follows:

                                     Nine months ended            Year ended
                                     September 30, 2003        December 31, 2002
                                     ------------------        -----------------

Balance, beginning of period           $ 19,906,391              $ 17,738,923
Additions during period                  11,718,189                14,195,708
Deductions during period:
    Collections of principal            (11,049,973)              (11,378,857)
    Foreclosures, net of reserve           (300,000)                 (540,021)
    Write off of uncollectible loans       (148,144)                  (65,000)
    Transfer to CAFC                           --                     (44,362)
                                       ------------              ------------
Balance, end of period                 $ 20,126,463              $ 19,906,391
                                      ============              ============

                                       10
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

8.   Allowance for losses
     --------------------

     The Trust measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $240,000 and $310,000 allowance for losses
     are adequate to protect against potential losses inherent in all
     receivables as of September 30, 2003 and December 31, 2002, respectively.
     The Trust's actual losses may differ from the estimate.

     A reconciliation of the Trust's allowance for losses follows:

                                          Nine months ended       Year ended
                                         September 30, 2003    December 31, 2002
                                         ------------------    -----------------

     Balance, beginning of period          $   310,000           $  180,000
     Provision for loan loss                    78,144              195,000
     Write off of uncollectible loans         (148,144)             (65,000)
                                           ------------          -----------
     Balance, end of period                $   240,000           $  310,000
                                           ===========           ==========

9.   Real estate owned
     -----------------

     On January 1, 2002, the Trust owned two properties. During 2002 the Trust
     foreclosed on one property and sold three properties to CAFC for their
     estimated fair market value, which resulted in a net loss of $29,527.
     During 2003, the Trust foreclosed on one property and sold this property to
     CAFC for its estimated fair market value, which resulted in neither a gain
     nor a loss. As of September 30, 2003 and December 31, 2002, the Trust did
     not own any properties.

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities follows:

<TABLE>
<CAPTION>
                                                                Nine months ended          Year ended
                                                          September 30, 2003      December 31, 2002
                                                          ------------------      -----------------
<S>                                                           <C>                    <C>
Balance, beginning of period                                  $     ---              $  234,527
Foreclosed mortgage notes, net of reserve (non-cash)            300,000                 506,567
Accrued interest capitalized (non-cash)                             ---                  33,454
Gain (loss) on sale (non-cash)                                      ---                 (29,527)
                                                              ---------              -----------
                                                                300,000                 745,021
Less: Proceeds from sale of real estate owned (net of
closing costs of $0 in 2003 and 2002, respectively)
                                                                300,000                 745,021
                                                              ---------              -----------

Balance, end of period                                        $     ---              $      ---
                                                              =========              ===========
</TABLE>

                                       11
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates
     ------------------------

     Capital Alliance Funding Corporation
     ------------------------------------

     On April 11, 1997 the Trust formed CAFC, a non-qualified REIT subsidiary,
     to conduct a mortgage banking business. The Trust owns all of the
     outstanding Series "A" Preferred Stock (2,000 shares of non-voting stock),
     which constitutes a 99% economic interest in CAFC. The Trust's Manager owns
     all of the Common Shares (1,000 shares) of CAFC, which constitutes a 1%
     economic interest, and has 100% voting control. The Trust's Manager also
     manages CAFC and provides mortgage origination and sale services for CAFC.
     The Trust accounts for its investment in CAFC under the equity method of
     accounting.

     During the nine months ended September 30, 2003 and 2002, the Trust did not
     contribute any mortgage loans to CAFC. The transfer of mortgage notes
     receivable is a non-cash transaction that is not shown on statements of
     cash flows.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




                                       12
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                 As of September 30, 2003 and December 31, 2002


<TABLE>
<CAPTION>
                                                            September 30,    December 31
                                                                2003,            2002
                                                                -----            ----
<S>                                                         <C>             <C>
ASSETS
   Cash and cash equivalents                                $    129,596    $    248,008
   Restricted cash                                               247,494         412,624
   Accounts receivable                                            83,478          81,229
   Due from affiliates                                            30,711            --
   Notes receivable:
       Mortgage notes receivable                               9,363,480       6,092,094
       Allowance for losses                                     (100,000)       (225,000)
                                                            ------------    ------------
            Net notes receivable                               9,263,480       5,867,094
   Real estate owned                                           2,743,330       1,676,261
   Investment in affiliate                                         5,000           5,000
   Other assets                                                   58,748          33,285
                                                            ------------    ------------
   Total assets                                             $ 12,561,837    $  8,323,501
                                                            ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
   Liabilities
       Mortgage note holdbacks                              $    247,494    $    412,624
       Warehousing facilities                                  4,251,660       2,460,643
       Warehousing facilities from related parties             5,863,490       3,382,940
       Due to affiliates                                          44,086          12,093
       Mortgage notes payable                                  1,084,342         950,410
       Other liabilities                                         120,981          32,608
                                                            ------------    ------------
   Total liabilities                                          11,612,053       7,251,318
                                                            ------------    ------------

   Stockholders' Equity
      Preferred shares, no par value                                --              --
          2,000 shares authorized, issued and outstanding

      Common shares, no par value                                   --              --
          1,000 shares authorized, issued and outstanding
      Additional paid in capital                               1,990,056       1,990,056
      Accumulated deficit                                     (1,040,272)       (917,873)
                                                            ------------    ------------
   Total stockholders' equity                                    949,784       1,072,183
                                                            ------------    ------------
   Total liabilities and stockholders' equity               $ 12,561,837    $  8,323,501
                                                            ============    ============
</TABLE>

                                       13
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                          Three months ended,            Nine months ended,
                                                              September 30                  September 30
                                                           2003           2002          2003           2002
                                                           ----           ----          ----           ----
<S>                                                   <C>            <C>            <C>            <C>
REVENUES
       Interest income                                $   209,088    $   164,459    $   529,317    $   540,144
       Loan origination income                            210,121        206,498        637,055        441,325
       Service release premium                             25,632         17,173         82,487         14,478
       Other income                                         3,000          3,600          7,545         28,483
                                                      -----------    -----------    -----------    -----------
                    Total revenues                        447,841        391,730      1,256,404      1,024,430

EXPENSES
       Management fees to related party                    22,163         14,028         63,916         32,738
       Interest expense on loans                           56,301         48,025        158,448         96,463
       Interest expense on loans from related party        81,969         46,258        168,019        164,877
       Loan origination costs                              49,581         17,142        145,341         91,103
       Provision for loan losses                           15,000        155,643         60,000        179,788
       Wages and salaries                                 139,834        119,279        412,185        367,495
       General and administrative                          53,800         60,513        158,265        123,411
       Taxes                                                5,152          3,500         10,173         14,514
                                                      -----------    -----------    -----------    -----------
                    Total expenses                        423,800        464,388      1,176,347      1,070,389
                                                      -----------    -----------    -----------    -----------

INCOME BEFORE GAIN (LOSS) ON                               24,041        (72,658)        80,057        (45,959)
                                                      -----------    -----------    -----------    -----------
REAL ESTATE OWNED
       Operating expenses of real estate owned            (14,220)         1,953        (48,193)       (10,631)
       Gain on sale of real estate owned                 (155,735)          --         (154,262)        21,317
                                                      -----------    -----------    -----------    -----------

NET INCOME (LOSS)                                     $  (145,914)   $   (70,705)   $  (122,398)   $   (35,273)
                                                      ===========    ===========    ===========    ===========
</TABLE>

                                       14
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     The following are selected footnote disclosures from CAFC's financial
     statements:

     Basis of presentation.
     ----------------------

     The accounting and financial reporting policies of CAFC conform to
     accounting principles generally accepted in the United States of America
     and with the policies adopted by the Trust. CAFC's selected financial
     information has been prepared on the accrual basis of accounting and
     consistent with the periods reported by the Trust.

     Accounts receivable.
     --------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and amounts due from borrowers for items such as property
     taxes, insurance, and interest on a first deed mortgage that were paid by
     CAFC on behalf of the property securing the mortgage notes.

     Mortgage notes receivable.
     --------------------------

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the loans is due monthly. The loans are primarily secured by first and
     junior deeds of trust on residential properties. CAFC is subject to the
     risks inherent in finance lending including the risk of borrower default
     and bankruptcy.

     A reconciliation of the mortgage notes receivable follows:


                                          Nine months ended         Year ended
                                             September 30,         December 31,
                                             -------------         ------------
                                                 2003                  2002
                                                 ----                  ----
     Balance, beginning of period           $  6,092,094         $  8,631,751
     Additions during period:
         Originations                         24,044,257           16,436,099
         Transfers from Trust                       --                 44,362
     Deductions during period:
         Collections of principal               (563,449)          (2,572,728)
         Sales                               (18,923,177)         (16,098,320)
         Foreclosures, net of reserve         (1,111,245)            (271,499)
        Write off of uncollectible loans       (175,000)              (77,571)
                                            -----------          ------------
     Balance, end of period                 $  9,363,480         $  6,092,094
                                            ============         ============


     Some of the mortgage loans originated and purchased by CAFC are held for
     sale to the Trust. The remaining originations and purchases are designated
     for sale to independent third parties. The Trust's purchase price is the
     mortgage loans outstanding balance (par value) plus any accrued interest.
     Loans designated for sale to a third party are pre-approved for purchase by
     the third party, before the loan is acquired by CAFC. Sales to third
     parties are usually greater than CAFC's total acquisition cost.

                                       15
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     Allowance for losses.
     ---------------------

     CAFC measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $100,000 and $225,000 allowance for losses
     is adequate to protect against potential losses inherent in all receivables
     as of September 30, 2003 and December 31, 2002, respectively. CAFC's actual
     losses may differ from the estimate.

     A reconciliation of the allowance for losses follows:

                                                   Nine months      Year ended
                                                      ended
                                                   September 30,    December 31,
                                                   -------------    ------------
                                                       2003             2002
                                                       ----             ----
     Balance, beginning of period                  $  225,000       $  118,000
     Provision for loan loss                           60,000          192,576
     Write off of uncollectible loans
         and write-down of real estate owned         (185,000)         (85,576)
                                                   ----------       ----------
     Balance, end of period                        $  100,000       $  225,000
                                                   ==========       ==========

     Real estate owned.
     ------------------

     As of January 1, 2002, CAFC held one property with a value of $567,000.
     During 2002, CAFC sold two properties for a gain of $21,317, two properties
     were acquired by foreclosure and three properties were purchased from the
     Trust for $1,648,760. Net proceeds from the sales were $824,310. As of
     December 31, 2002, CAFC held four properties at a value of $1,676,261.
     During 2003, CAFC purchased one property from the Trust for $600,000
     (including assumption of a $300,000 mortgage), one property was acquired by
     foreclosure and two properties were sold for a gain of $1,473. As of
     September 30, 2003, CAFC held three properties at a value of $2,743,330.

     A reconciliation of real estate owned follows:

<TABLE>
<CAPTION>
                                                        Nine months          Year ended
                                                           ended
                                                        September 30,       December 31,
                                                        -------------       ------------
                                                            2003                2002
                                                            ----                ----
<S>                                                    <C>                  <C>
Balance, beginning of period                           $ 1,676,261          $   567,000
Properties purchased                                       600,000            1,648,760
Foreclosed mortgage notes, net of reserve (non-cash)     1,111,245              271,499
Capital costs of real estate owned                         649,560                  ---
Real estate sold                                        (1,129,474)            (802,993)
Property written down                                     (164,262)              (8,005)
                                                       -----------          -----------
Balance, end of period                                 $ 2,743,330          $ 1,676,261
                                                       ===========          ===========
</TABLE>

During the fourth quarter, CAFC sold an REO with a balance of $1,911,732 as of
September 30, 2003.  In addition to reducing the REO balance in the subsequent
reporting period by $1,911,732, a loss of $22,770 was reported in the period
ending September 30, 2003.

                                       16
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     Warehousing facilities.
     -----------------------

     As of September 30, 2003 and December 31, 2002, CAFC had borrowed
     $5,835,903 and $3,382,940, respectively, under a warehouse line of credit
     with the Trust. The borrowings are secured by pledged mortgage loans as
     collateral. Interest on this warehouse line of credit is adjusted monthly
     depending on market rates. As of September 30, 2003 and December 31, 2002,
     the interest rate was 6.0%. For the three and nine month periods ended
     September 30, 2003 and 2002, CAFC's interest expense totaled $81,969 and
     $168,019 and $46,258 and $164,877, respectively, of which $27,588 and
     $14,770 was outstanding as of September 30, 2003 and 2002, respectively.
     During the three months ended September 30, 2003, interest payments of
     $8,270 paid to the Trust were capitalized in CAFC's REO balance. The
     facility is cancelable by either party upon 30 days written notice.

     As of September 30, 2003 and December 31, 2002, CAFC had borrowed
     $4,026,795 and $2,054,560, respectively, under a $5,000,000 funding
     agreement. The agreement provides a 95% advance rate on the notes
     outstanding balance at an interest rate of Prime plus 1.00% with a floor of
     6.00%. As of September 30, 2003 and December 31, 2002, the Prime rate was
     4.00% and 4.25%, respectively. Interest is payable monthly with $10,290 and
     $5,952 accrued and payable as of September 30, 2003 and December 31, 2002,
     respectively. The facility is cancelable by either party upon 30 days
     written notice.

     As of September 30, 2003, CAFC had borrowed $0 from a $4,000,000 mortgage
     secured credit facility. The facility provides a 97 % to 99% advance rate
     on the notes outstanding balance at a rate of Prime to Prime plus 7.00%
     with a floor of 5.25%. The applicable interest rate increases the longer
     the financed mortgage remains on the credit facility. Interest is payable
     monthly with $0 accrued and payable as of September 30, 2003. The facility
     is cancelable by either party upon 30 days written notice.

     As of September 30, 2003 and December 31, 2002, CAFC had borrowed $212,667
     and $406,083, respectively, from a mortgage secured credit facility. The
     facility provides a 100% advance rate on the notes outstanding balance at
     an interest rate of 10.75%. Interest is payable monthly with accrued
     interest of $1,907 and $3,762 as of September 30, 2003 and December 31,
     2002, respectively. As the mortgage notes outstanding balance is reduced,
     CAFC's borrowings are repaid. The Trust has guaranteed the repayment of
     both principal and interest. The facility matures October 2003.

     The above warehouse facilities revolve monthly and are paid off as the
     mortgage loans held are sold or repaid by the loan's borrower.

     Related party transactions.
     ---------------------------

     The Manager earns an administration fee equal to 25 basis points on home
     loans funded for the benefit of CAFC as defined in the First Amended
     Residential Mortgage Loan Services Agreement. As of September 30, 2003 and
     2002 CAFC has expensed $63,916 and $32,738, respectively.

     CAFC received an advance of $5,835,903 and $3,382,940 under a warehouse
     line of credit from the Trust, as of September 30, 2003 and December 31,
     2002, respectively. The Trust charges a variable interest rate on this
     warehouse line of credit determined by current market rates. The rate
     charged to CAFC on the line of credit as of September 30, 2003 and December
     31, 2002 was 6.0%. CAFC expensed interest of $81,969 and $46,258 and
     $168,019 and $164,877 for the three and nine months

                                       17
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

10.  Investment in affiliates (continued)
     ------------------------------------

     ended September 30, 2003 and 2002, respectively. For the three months ended
     September 30, 2003, additional interest payments of $8,270 paid to the
     Trust were capitalized in CAFC's REO balance. As of September 30, 2003 and
     December 31, 2002, CAFC had a payable to the Trust of $22,196 and $0,
     respectively. The facility is cancelable by either party upon 30 days
     written notice.

     On occasion, CAFC and its affiliates had related party receivables and
     payables arising from ordinary business transactions. As of September 30,
     2003 and December 31, 2002, CAFC had a payable to the Manager of $4,989 and
     $12,093, respectively, and a payable to the Trust of $11,100 and $0,
     respectively. This account is shown on the balance sheet as Due to
     affiliates. No interest is charged on these accounts.

     CAFC also borrows on an unsecured basis from CRF with interest payable
     monthly at an annual rate of between 5.0% and 12.0%. As of September 30,
     2003 and December 31, 2002, no borrowings were outstanding from CRF.

     During the first nine months of 2003 CAFC sold $11,718,189 in loans to the
     Trust, at par value.

11.  Notes payable
     -------------

     As of September 30, 2003 and December 31, 2002, the Trust had borrowed
     $10,000,000 and $6,999,102, respectively, under a line of credit term
     facility, with specific mortgage notes receivable pledged as collateral
     against the advances. During 2002, the Trust secured a 21-month extension
     of the maturity date of this existing $7,000,000 term credit facility
     through September 30, 2004. As part of the borrowing, the lender also
     agreed to provide the Trust with up to an additional $3,000,000 credit
     facility to allow the Trust to "bulge" its aggregate borrowings to
     $10,000,000 during the facility's term. The annual interest rate is the
     preceding 30-day average of 1-month LIBOR (London Interbank Offered Rate
     for U.S. dollar deposits 30-day average at September 30, 2003 and December
     31, 2002 was 1.12% and 1.31%, respectively) plus 2.00% and is payable
     monthly.

     As of September 30, 2003 and December 31, 2002, the Trust had borrowed
     $3,500,000 and $3,840,000, respectively, under a second warehouse line of
     credit. The Trust receives advances under the agreement up to a maximum of
     $4,000,000, with specific mortgage notes receivable pledged as collateral
     against the advances. Annual interest is the applicable prime rate (4.00%
     and 4.25% as of September 30, 2003 and December 31, 2002, respectively)
     plus 0.50% and is payable monthly. The facility matures December 31, 2003.

     The above warehouse lines of credit revolve monthly and are paid off as the
     mortgage notes receivable held are sold.

     The Trust finances a portion of its treasury stock repurchases by borrowing
     on margin from an investment bank. The amount borrowed on margin accrues
     fees at 4.75%. Margin debt is callable at the discretion of the investment
     bank. As of September 30, 2003 and December 31, 2002, the Trust owed
     $88,626 and $133,248, respectively, in margin debt.

                                       18
<PAGE>

                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

12.  Related party transactions
     --------------------------
     The Manager, which is owned by several of the directors and their
     affiliates, contracted with the Trust to provide management and advisory
     services and receives fees for these services from the Trust. The Manager
     is also entitled to reimbursement by the Company for direct expenses and
     administrative services at cost and for clerical and administrative
     services based on relative utilization of facilities and personnel.

     The Manager receives a management fee equal to one-twelfth (1/12) of 1%
     annually of the book value of mortgages, mortgage-related investments and
     real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
     (1/12) of one-half percent (1/2%) of the book value of the non-mortgage
     assets of the Trust computed at the end of each month. The management fee
     also includes reimbursement for the direct costs of overseeing the
     administration and disposition of real estate owned by the Company. The
     management fee paid by the Trust to the Manager was $68,404 and $62,690 and
     $195,076 and $211,587, for the three and nine-month period ended September
     30, 2003 and 2002, respectively. Within the financial statements, the
     management fees are included in the Management fees to related parties.

     The Manager also earns a REO management fee for managing and servicing the
     properties that the Company has obtained through foreclosure of mortgage
     notes held. The fee for these services is $500 per month for each property.
     The Trust incurred $5,500 and $4,000 and $17,500 and $12,500 in REO
     management fees for the three and nine-month periods ended September 30,
     2003 and 2002, respectively. Within the financial statements, REO
     management fees are included in the Management fees to related parties.

     The Manager's incentive compensation for each fiscal quarter equals 25% of
     the net income of the Trust in excess of an annualized return on common
     equity for such quarter equal to the ten year U.S. Treasury Rate plus 2.00%
     provided that the payment of such incentive compensation does not reduce
     the Trust's annualized return on common equity for such quarter to less
     than the ten-year U.S. Treasury Rate after the preferred dividend has been
     paid. The incentive compensation for the three and nine-month periods ended
     September 30, 2003 and 2002 were $0 and $0 and $51,255 and $13,466,
     respectively. Within the financial statements, incentive compensation
     awards are included in the Management fees to related parties.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2003 the Trust capitalized 40% of
     this fee as loan origination costs and amortized them over the average life
     of the portfolio. The remaining 60% of the fee is expensed as the portion
     attributed for servicing. As of December 31, 2002 the Trust capitalized
     47.5% of this fee as origination costs and amortized them over the weighted
     average life of the portfolio. The remaining 52.5% of the fee was expensed
     as the portion attributed for servicing. For the three and nine-month
     periods ended September 30, 2003 and 2002, the Trust paid loan origination
     and servicing fees of $122,404 and $124,492 and $349,121 and $354,529,
     respectively.

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of September 30,
     2003, the Trust had a receivable of $12,239 from CAFC, a receivable of
     $22,636 from the Manager and a payable to CRF of $300,000. As of December
     31, 2002, the Trust had a receivable of $12,093 from CAFC, a receivable of
     $117,665 from the Manager and a payable of $2,719 to CRF. No interest is
     charged on these inter-company accounts.

                                       19
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

12.  Related party transactions (continued)
     --------------------------------------

     As described in Note 6, as of September 30, 2003 and December 31, 2002, the
     Trust advanced to the CAFC $5,835,903 and $3,382,940, respectively. The
     interest rate on this line of credit varies with market conditions and is
     payable monthly. As of September 30, 2003 and December 31, 2002, the
     applicable interest rate was 6.0%. During the three and nine months ended
     September 30, 2003 and 2002, the Trust earned interest in the amount of
     $81,969 and $168,019 and $46,258 and $164,877, respectively, of which
     $27,586 and $14,770 was outstanding as of September 30, 2003 and 2002,
     respectively.

13.  Preferred, common and treasury stock
     ------------------------------------

     The Preferred Shareholders are entitled to a dividend preference in an
     amount equal to an annualized return on the adjusted net capital
     contribution of Preferred Shares at each dividend record date during such
     year (or, if the Directors do not set a record date, as of the first day of
     the month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50 %
     over the Prime Rate (determined on a not less than quarterly basis) or (c)
     the rate set by the Board of Directors. The preferred dividend preference
     is non-cumulative.

     After declaring dividends for a given year to the Preferred Shareholders in
     the amount of the dividend preference, no further dividends may be declared
     on the Preferred Shares for the subject year, until the dividends declared
     on each Common Share for that year equals the dividend preference for each
     Preferred Share for such year. Any additional dividends generally will be
     allocated such that the amounts of dividends per share to the Preferred
     Shareholders and Common Shareholders for the subject year are equal. The
     Preferred Shareholder's additional dividends, if any, are non-cumulative.

     Preferred Shareholders are entitled to receive all liquidating
     distributions until they have received an amount equal to their aggregate
     adjusted net capital contribution. Thereafter, Common Shareholders are
     entitled to all liquidation distributions, until the aggregate adjusted net
     capital contributions of all Common Shares has been reduced to zero. Any
     subsequent liquidating distributions will be allocated among Common
     Shareholders and Preferred Shareholders pro rata.

     The Preferred Shares are redeemable by a shareholder, subject to the
     consent of the Board of Directors, annually on June 30 for redemption
     requests received by May 15 of such year. The Board of Directors may in its
     sole discretion deny, delay, postpone or consent to any or all requests for
     redemption. The redemption amount to be paid for redemption of such
     Preferred Shares is the adjusted net capital contribution plus unpaid
     accrued dividends, divided by the aggregate net capital contributions plus
     accrued but unpaid dividends attributable to all Preferred Shares
     outstanding, multiplied by the net asset value of the Trust attributable to
     the Preferred Shares which shall be that percentage of the Trust's net
     asset value that the aggregate adjusted net capital contributions of all
     Preferred Shares bears to the adjusted net capital contributions of all
     Shares outstanding.

     The Trust has the power to redeem or prohibit the transfer of a sufficient
     number of Common and/or Preferred Shares or the exercise of warrants and/or
     options and to prohibit the transfer of shares to persons that would result
     in a violation of the Trust's shareholding requirements. The Bylaws provide
     that only with the explicit approval of the Trust's Board of Directors may
     a shareholder own more than 9.8% of the total outstanding shares.

                                       20
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

14.  Common stock options
     --------------------

     The 1998 Incentive Stock Option Plan ("Plan") adopted by the Board of
     Directors and approved by stockholders, provided non-qualified Common Stock
     options for the purchase of 247,500 Common Shares of the Trust. Officers
     and employees of the Manager, and Directors of the board are the eligible
     recipients of the options. The options have a term of 10 years with a first
     exercise date generally two (2) to six (6) months after the date of the
     grant. Under the terms of the Plan, the exercise price of each option will
     not be less than 100% of the Common Shares closing stock price on the date
     of grant.

     The activity in the Plan for the nine months ended September 30, 2003 and
     the year ended December 31, 2002 follows:

                                                           Weighted average
                                         Options            exercise price
                                         -------            --------------

Outstanding at January 1, 2002           241,500              $   10.30
               Granted                        --                     --
               Exercised                 (20,949)                  9.55
               Forfeited                      --                     --
                                         -------              ---------
Outstanding at December 31, 2002         220,551              $   10.37
               Granted                        --                     --
               Exercised                 (36,851)                  9.02
               Forfeited                      --                     --
                                         -------              ---------
Outstanding at September 30, 2003        183,700              $   10.60
                                         =======              =========
Outstanding options exercisable as of
              January 1, 2002            241,500              $   10.30
               December 31, 2002
                                         220,551                  10.37
               September 30, 2003        183,700                  10.60


     As of January 1, 2002, all the Plan's stock options have been granted and
     the unexercised stock options are 100% vested.

     The following table summarizes information with respect to stock options
     outstanding at September 30, 2003:

<TABLE>
<CAPTION>
                                                Options outstanding and exercisable
                                       -------------------------------------------------------
                                                       Weighted-average
                                                           remaining             Weighted-
                                       Number of       contractual life      average exercise
                                        shares            (years)                  price
Range of exercise prices               -------------------------------------------------------

<S>                                      <C>                <C>                  <C>
   $9.00 - $9.06                         119,050            6.85                 $  9.03
   $13.50                                 64,650            5.50                   13.50
                                         -------            ----                 -------
                                         183,700            6.37                 $ 10.60
                                         =======            ====                 =======
</TABLE>

                                       21
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

14.  Common stock options (continued)
     --------------------------------

     The Trust accounts for stock options under APB 25. Since the exercise price
     of each option granted has been equal to or higher than the closing market
     price of the Company's Common Shares at the date of grant, no expense is
     recognized. The pro forma results of reporting the Company's stock option
     grants using the fair value method consistent with SFAS 123, is presented
     below for the three and nine-month periods ended September 30, 2003 and
     2002:

<TABLE>
<CAPTION>
                                             Three Months Ended     Nine Months Ended
                                                September 30           September 30
                                              2003       2002        2003        2002
                                              ----       ----        ----        ----
<S>                                        <C>        <C>         <C>         <C>
Net income available to common stock       $ 23,756   $ 121,428   $ 470,270   $ 562,302
Less: Stock based expense
     using the fair value method               --          --          --          --
                                           --------   ---------   ---------   ---------
Pro forma net income available to
common stock                               $ 23,756   $ 121,428   $ 470,270   $ 562,302
                                           ========   =========   =========   =========

Net income per common share:
Basic:
     As reported                             $0.06       $0.29       $1.11       $1.35
     Pro forma                               $0.06       $0.29       $1.11       $1.35
Diluted:
     As reported                             $0.05       $0.23       $0.95       $1.12
</TABLE>


     Since no options were granted or vested during 2002 or 2003, the reported
     operating results are identical to the pro forma amounts.

15.  Earnings per share
     ------------------

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     three and nine-month periods ended September 30, 2003 and 2002:

<TABLE>
<CAPTION>
                                                       Three Months Ended        Nine Months Ended
                                                          September 30              September 30
                                                        2003        2002          2003        2002
                                                        ----        ----          ----        ----
<S>                                                  <C>          <C>          <C>          <C>
Numerator:
Net income                                           $ 101,708    $ 208,685    $ 708,784    $ 825,250
Preferred dividends attributable to income             (77,952)     (87,257)    (238,514)    (262,948)

Numerator for basic and diluted Earnings per share
income available to common
stockholders                                         $  23,756    $ 121,428    $ 470,270    $ 562,302
Denominator:
    Basic weighted average shares                      422,596      423,036      422,575      417,226
    Dilutive effect of options                          77,577      101,987       73,490       85,415
                                                     ---------    ---------    ---------    ---------
    Diluted weighted average shares                    500,173      525,023      496,065      502,641
                                                     =========    =========    =========    =========

Basic earnings per common share                      $    0.06    $    0.29    $    1.11    $    1.35
                                                     =========    =========    =========    =========
Diluted earnings per common share                    $    0.05    $    0.23    $    0.95    $    1.12
                                                     =========    =========    =========    =========
</TABLE>

                                       22
<PAGE>
                                     PART I
                                     ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

The financial statements of Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the Trust") dated herein were prepared from the unaudited
books and records of the Trust. Capital Alliance Funding Corporation ("CAFC") is
an unconsolidated subsidiary of the Trust. References to the "Company" refer to
the Trust and CAFC, collectively.

Certain statements contained herein are not based on historical information and
certain statements contained in future filings by the Trust with the SEC, in the
Trust's press releases or in the Trust's public and stockholder communications
may not be based on historical facts and are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by reference to a future period or
periods, or by the use of forward-looking terms such as "may", "will", "expect",
"anticipate", or similar terms. Actual results could materially differ from
those in the forward-looking statements due to a variety of factors.

Management's discussion and analysis of the results of operations for the three
and nine month periods ended September 30, 2003 and 2002 follows:

 CRITICAL ACCOUNTING POLICIES

 The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States of America. The
Company's significant accounting policies are described in the notes to the
consolidated financial statements. Certain accounting policies require
management to make significant estimates and assumptions, which have a material
impact on the carrying value of certain assets and liabilities, and the Company
considers these to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which
management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could
have a material impact on the carrying value of assets and liabilities at the
balance sheet dates and results of operations for the reporting periods.

 The Company believes the following are critical accounting policies that
require the most significant estimates and assumptions that are particularly
susceptible to a significant change in the preparation of the Company's
financial statements.

Allowance for losses. A provision for losses in based on management's evaluation
of an amount that is adequate to absorb losses inherent in the existing loan
portfolio. The evaluation, which includes a review of all loans on which full
collection may not be reasonable assumed, considers among other matters, general
economic conditions, the fair market value or the estimated net realizable value
of the underlying collateral, past experience, trends in loan delinquency and
other factors that warrant recognition in providing for an adequate allowance to
absorb inherent losses. However, the recovery of all loan balances is
susceptible to future market forces beyond the Company's control.

Real estate owned. Real estate owned represents property acquired in foreclosure
of mortgage notes receivable. The real estate is carried at the lower of the
value of the mortgage note receivable less selling costs on the real estate or
fair market value. Certain estimates and assumptions are required in determining
the cost to sell or in estimating the fair market value of the real estate.

                                       23
<PAGE>
Interest recognition. The Company accrues interest income as it is earned. Loans
may be placed on a non-accrual status when any portion of the principal or
interest is three scheduled payments past due or earlier when concern exists as
to the ultimate collectability of principal or interest. Nonaccrual status loans
are returned to an accrual status when principal and interest become current and
are anticipated to be fully collectible.

Stock option. The Trust has issued stock options to certain employees of the
Manager and to its Directors. The stock options issued are accounted for using
the intrinsic-value method. Because the options were issued with exercise prices
no less than the market price of the Trust's common stock on the dates of grant
and because other key terms are fixed, use of the intrinsic-value method results
in the Trust not recognizing compensation expense for these options. If the
terms of these options were changed, variable accounting might need to be used,
and the Trust might then need to begin recognizing compensation expense for the
options.

Equity method of accounting. The Trust's 99% economic interest in CAFC is
presented in the Trust's financial statements according to the equity method of
accounting. This presentation requires the Trust to report the CAFC interest as
an investment. Included in the footnotes to the Trust's financial statements are
CAFC's Balance Sheet as of September 30, 2003 and December 31, 2002 and the
Statement of Operations for the three and nine-month periods ended September 30,
2003 and 2002. If required, consolidation of CAFC's financial information into
the Trust may materially change the Trust's financial statement balances, but
would not affect the Trust's net income or the earnings per common share
calculations. FASB Interpretation No. 46 may require consolidation commencing
with the Trust's January 1, 2004 reporting period.

Management has discussed the Company's critical accounting policies and the
development, selection and disclosure of the estimates and alternatives with the
Audit Committee of the Board of Directors and obtained their approval prior to
filing this report with the Securities and Exchange Commission.

OVERVIEW

In May of 1997, the Trust registered its common shares with the Securities and
Exchange Commission under the Securities Act of 1933. On September 30, 1998, the
initial public offering of Common Shares was completed. Since October 1, 1998,
the common shares are listed on the American Stock Exchange with the exchange
symbol of "CAA". On November 17, 2000, the Trust duly approved a one share for
each three share reverse stock split of its Common and Preferred Shares which
became effective at the close of business on May 11, 2001.

Operating Strategy. The Trust invests as a portfolio lender primarily in
non-conforming mortgage loans on one-to-four unit residential properties
primarily secured by first and second deeds of trust. Management believes that
this segment of the mortgage market is inadequately served and that there is a
large demand for non-conforming mortgage loans with a complete spectrum of
credit grades.

CAFC's operating strategy is to originate, through mortgage loan brokers and a
correspondent network, conforming and non-conforming home equity loans to be
sold to the Trust and to be sold in the secondary mortgage market for cash.
Although the loans currently made are concentrated in California, CAFC plans to
originate and/or purchase loans on both an individual and bulk basis throughout
the western United States. Loans will then be sold into the secondary market for
a premium or to the Trust at fair market value, when they meet the Trust's
underwriting standards (which include a combined loan-to-value ratio that does
not exceed 75% of the underlying collateral).

Loan Origination and Loan Servicing. Mortgage loan origination consists of
establishing a relationship with a borrower or his broker, obtaining and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising properties that are proposed as the collateral for a
home equity loan, processing such information and underwriting and funding the
mortgage loan.

                                       24
<PAGE>
Mortgage loan servicing consists of collecting payments from borrowers,
accounting for interest payments, holding borrowed proceeds in escrow until
fulfillment of mortgage loan requirements, contacting delinquent borrowers,
foreclosing in the event of un-remedied defaults and performing other
administrative duties. Mortgage loan origination and loan servicing are provided
to the Trust by CAAI, its Manager.

 Commitments and Contingencies. As of September 30, 2003, the Trust's loan
portfolio included 96 loans totaling $20,126,463 of which nine loans totaling
$1,681,915 representing 8% of the loan portfolio were delinquent over two
months. One delinquent loan, totaling $178,326, was brought current by October
31, 2003. After adjusting the September 30, 2003 delinquent balances for this
payment, the delinquencies in excess of two months are eight loans totaling
$1,503,589 or 7% of the loan portfolio. In assessing the collectability of these
delinquent mortgage loans, management has established a loan loss reserve of
$240,000, if it is necessary to foreclose upon the mortgage loans.

As of September 30, 2002, the Trust's loan portfolio included 98 loans totaling
$18,960,365 of which 13 loans totaling $2,844,240 representing 15% of the loan
portfolio were delinquent over two months. One delinquent loan totaling $79,939
was brought current by October 31, 2002. After adjusting the September 30, 2002
delinquent balances for this payment, the delinquencies in excess of two months
are 12 loans totaling $2,764,301 or 15% of the loan portfolio. In assessing the
collectability of these delinquent mortgage loans, management had established a
loan loss reserve of $275,000, if it is necessary to foreclose upon the mortgage
loans.

 The Trust generally issues loan commitments only on a conditional basis and
generally funds such loans promptly upon removal of any conditions. Accordingly,
the Trust did not have any commitments to fund loans as of September 30, 2003
and September 30, 2002.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
       Maximum Other                                      Amount of Commitment Expiration Per Period
        Commercial                  Total
       Commitments (a)             Amounts     ---------------------------------------------------------------------
     as of September 30,          Committed       Less than       1 - 3 years          4 - 5           After 5
            2003                                    1 year                              years            years
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
<S>                              <C>             <C>
Lines of Credit (b)              $14,088,626     $14,088,626           -                 -                -
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
Standby Repurchase                  (c)               -                -                 -                -
Obligations
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
Guarantees (d)                    212,667            212,667           -                 -                -
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
Total Commercial Commitments    $14,301,393      $14,301,393           -                 -                -
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
</TABLE>

(a)  Commercial commitments are funding commitments that could potentially
     require registrant performance in the event of demands by third parties or
     contingent events, such as under lines of credit extended or under
     guarantees of debt.

(b)  Maximum potential liability. The Trust's outstanding balances, as of
     September 30, 2003, that are due in less than 1 year and due in 1 to 3
     years are $13,588,626 and $0, respectively.

(c)  The Company's mortgage conduit business has an unquantified ongoing
     liability with respect to normal warranties and representations, which
     includes fraud in the origination process or early default on loans sold
     into the secondary mortgage market.

(d)  The Trust's guarantee of CAFC's borrowings.

                                       25
<PAGE>
RESULTS OF OPERATIONS

The historical information presented herein is not necessarily indicative of
future operations.

Three and Nine months ended September 30, 2003 and 2002. Revenues for the three
months ended September 30, 2003 decreased to $537,037 as compared to $639,108
for the same period in the prior year. The decrease in revenue during this
period was primarily due to a net decrease of $74,457 in Equity in gain from
CAFC and lower interest income earned from mortgages reduced revenues of
$73,709. The decrease in mortgage interest was due to a smaller average monthly
portfolio loan balance, while the increase in interest income from CAFC was due
higher CAFC borrowings.

Expenses for the three months ended September 30, 2003 increased to $435,329 as
compared to $429,239 for the same period in the prior year. The increased
expenses during the period were nominal. Specifically, higher interest expenses
of $13,411 and higher management fees of $11,214 were nearly offset by reduced
provisions for loan losses of $13,000 and lower interest expense from related
parties of $7,609.

Revenues for the nine months ended September 30, 2003 decreased to $1,969,290 as
compared to $2,138,860 for the same period in the prior year. The decreased
revenues during the period were due to lower interest income earned from
mortgages of $87,029 and a reduction in the Equity in gain from CAFC of $86,251.
Interest income from CAFC's warehouse borrowings increased $11,412, which was
due to greater borrowings.

Expenses for the nine months ended September 30, 2003 decreased to $1,260,506 as
compared to $1,288,384 for the same period in the prior year. The decreased
expenses during the period were primarily due to reduced interest expenses of
$11,720, reduced taxes of $12,347 and reduced general and administrative costs
of $33,653. Increased management fees of $46,836 were primarily due to an
increase in notes receivable.

INFLATION

The financial statements of the Trust, prepared in accordance with accounting
principles generally accepted in the United States of America, report the
Trust's financial position and operating results in terms of historical dollars
and do not consider the impact of inflation. Inflation affects the Trust's
operations primarily through its effect on interest rates, since interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation. When interest rates increase, the demand for mortgage loans
and a borrower's ability to qualify for mortgage financing may be adversely
affected.

LIQUIDITY AND CAPITAL RESOURCES

During the third quarter of 2003, the Company added a new $4,000,000 line of
credit. As of September 30, 2003, the Company has lines of credit for
$23,000,000 with four different lenders. During the fourth quarter of 2003, two
of these facilities will contract requiring the payment of $4,500,000.
Management believes that the cash flow from the payment of mortgage notes
receivable, existing bank loan facilities, the renewal of existing bank loan
facilities and additional credit facilities anticipated to be acquired will be
sufficient to meet the liquidity needs of the Trust's businesses for the next
twelve months. However, if the existing credit facilities are not renewed and if
replacement facilities are not obtainable, the Trust could experience a decrease
in net income and default upon existing loan covenants. The loans pledged to
secure the Company's borrowings are short-term, performing assets. The Company
has encountered increasing difficulty renewing credit facilities that permit the
warehousing of loans in excess of 90 days.

                                       26
<PAGE>
There is no assurance that the Company can renew or replace the existing credit
facilities to avoid default.

As of January 1, 2003 and 2002, the Trust had $494,443 and $441,909 of cash and
cash equivalents, respectively. During the nine-month period ended September 30,
2003, cash and cash equivalents decreased by $266,151 and it decreased by
$218,998 during the same period for the prior year, 2002. After taking into
effect the various transactions discussed below, cash and cash equivalents at
September 30, 2003 and 2002 were $228,292 and $222,911.

The following summarizes the changes in net cash provided by operating
activities, net cash used for investing activities, and net cash provided by
financing activities.

Net cash provided by operating activities during the nine months ended September
30, 2003 and 2002 was $894,987 and $582,532, respectively. During the first nine
months of 2003, net income provided $708,784, a net increase in due to
affiliates provided $303,335 and a net decrease in other liabilities used
$102,371. During the same period in the prior year, net income provided
$825,250, an increase in accounts receivable used $251,666 and a net decrease in
due from affiliates used $102,182.

Net cash of $2,704,265 was used in investing activities for the nine months
ended September 30, 2003 whereas net cash of $15,968 was provided from investing
activities for the nine months ended September 30, 2002. During the first nine
months of 2003, a net increase in mortgage notes receivable used $220,072 and an
increase in warehousing facilities to related parties used $2,452,963. During
the same period in the prior year, increased net mortgage notes receivable used
$1,221,442, which was partially offset by reduced affiliate warehouse borrowing
which provided $1,171,711.

Net cash of $1,543,127 was provided while net cash of $817,653 was used by
financing activities during the nine months ended September 30, 2003 and 2002,
respectively. During the first nine months of 2003, increased borrowings
provided cash of $2,616,276 while dividends and net treasury stock purchases
reduced cash by $813,653 and $259,496, respectively. During the same period in
the prior year, cash was reduced by $159,595 for repayment of borrowings and by
$740,700 for the payment of dividends whereas net treasury stock sales increased
cash by $102,297.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk. Market risk is the exposure to loss resulting from changes in
interest rates, credit spreads, foreign exchange rates, commodity prices, and
equity prices. The primary market risks to which the Trust is exposed are
interest rate risk and credit risk.

Interest risk. Interest rate risk is highly sensitive to many factors, including
governmental, monetary and tax policies, domestic and international economic and
political considerations and other factors beyond the control of the Company.
Changes in the general level of the U.S. Treasury yield curve can have
significant effects on the market value of the Company's portfolio. The majority
of the Company's assets are fixed-rate loans with a spread to U.S. Treasuries.
The Company's loans are valued on the September 30, 2003 balance sheets at the
lower of cost or market.

 As U.S. Treasury securities are priced to a lower yield and/or the spread to
U.S. Treasuries used to price the Company's assets are decreased, the market
value of the Company's portfolio may increase. Conversely, as U.S. Treasury
securities are priced to a higher yield and/or the spread to U.S. Treasuries
used to price the Company's assets is increased, the market value of the
Company's portfolio may decline. Changes in the level of the U.S. Treasury yield
curve can also affect, among other things, the prepayment assumptions used to
value certain of the Company's loans. In addition, changes in the

                                       27
<PAGE>
general level of the LIBOR money market rates can affect the Company's net
interest income. The majority of the Company's liabilities are floating rate
based on a spread over the average one month LIBOR. A portion of the Company's
liabilities is also based on a spread over the daily Prime Rate. As the level of
LIBOR and/or the Prime Rate increases or decreases, the Company's interest
expense will move in the same direction.

On account of the relatively short adjusted weighted average maturity of the
Company's portfolio (37.6 months), a variety of financial instruments available
to limit the effects of interest rate fluctuations on its operations have not
been utilized. The use of these types of derivatives (such as interest rate
swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments.

Credit risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Company.

All loans are subject to a certain probability of default and foreclosure. An
increase in default rates will reduce the book value of the Company's assets and
the Company's earnings and cash flow available to fund operations and pay
dividends.

The Company manages credit risk through the underwriting process, limiting loans
at the time of funding to 75% of the collateral's appraised value, establishing
loss assumptions and carefully monitoring loan performance. Nevertheless, the
Company assumes that a certain portion of its loans will default and adjusts the
allowance for loan losses based on that assumption. For purposes of
illustration, a doubling of the assumed losses in the Company's portfolio would
reduce third quarter 2003 net income available to common shareholders by
$240,000. Such an event would reduce net income available to common shareholders
to a loss of $138,292.

Asset and liability management. Asset and liability management is concerned with
the timing and magnitude of the maturity of assets and liabilities. In general,
management's strategy is to approximately match the term of the Company's
liabilities to the portfolio's adjusted weighted average maturity (37.6 months).

The majority of the Company's assets pay a fixed coupon and the income from such
assets are relatively unaffected by interest rate changes. The Company's
borrowings are currently under a variable rate line of credit that resets
monthly. Given this relationship between assets and liabilities, the Company's
interest rate sensitivity gap is negative. This implies that a period of falling
short-term interest rates will tend to increase the Company's net interest
income, while a period of rising short-term rates will tend to reduce the
Company's net interest income.

The information presented in the following table projects the impact of sudden
changes in interest rates on the Company's annual projected net income. Many
assumptions are made to present this information and there can be no assurance
that assumed events will occur or that other events will not occur that would
affect the outcomes. This table and all related disclosures constitute
forward-looking statements.

The table quantifies the potential changes in annual net income should interest
rates immediately change 100 and 200 basis points. The cash flows calculated
with each rate change are based on a variety of assumptions, including
prepayment speed, time until yield adjustments, yield on future investments, the
slope of the yield curve, the size of the investment portfolio, financial
leverage, and a historically

                                       28
<PAGE>
consistent level of originations and sales into the secondary market. Actual
results could differ significantly from those estimated in the table.

--------------------------------------------------------------------------
                     Interest Rate Change in Basis Points
------------------------------------------------------------- ------------
                    (200 bp)        (100 bp)        100 bp        200 bp
---------------- --------------- -------------- ------------- ------------
     Annual            15%             8%           (10%)         (21%)
   Net Income
---------------- --------------- -------------- ------------- ------------



                  [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]






                                       29
<PAGE>
                                     PART I
                                     ITEM 3.

                             CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures. The principal executive
and financial officers of the Trust have reviewed and evaluated the
effectiveness of the design and operation of the Trust's disclosure controls and
procedures within the 90 days preceding the date of this report and have
determined (i) that such controls and procedures are operating properly and
adequately to ensure that material information relating to the Trust's
operations and required to be disclosed in this report is being made known to
them by the responsible persons involved in the Trust's operations; and (ii)
that there are neither significant deficiencies in the design and operation of
such controls and procedures that could affect the Trust's ability to record,
process, summarize and report financial data nor is there any fraud that
involves management or other employees who have a significant role in the
Trust's internal controls. The results of such review and evaluation have been
disclosed to the Trust's auditors and the Trust's audit committee.

(B) Changes in Internal Controls. There have been no significant changes in the
Trust's internal controls or in other factors that could significantly affect
those controls subsequent to the date of their evaluation. Accordingly, no
corrective actions with regard to such controls or procedures have been
required.


                                     PART II

                                OTHER INFORMATION

ITEM 1  LEGAL PROCEEDING

     The Trust is not involved in any legal proceedings at this time.

ITEM 2  CHANGES IN SECURITIES

     During the three-month period ending September 30, 2003, the Trust did not
     purchase any common shares and options for 5,500 common shares were
     exercised. 2,000 of the exercised options were satisfied pursuant to a S-8
     filing.

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

       None

ITEM 4  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     The Trust's 2003 Annual Meeting, at which a quorum was present, was duly
     convened on June 27, 2003 and recessed to August 7, 2003. At the Annual
     Meeting, Directors Thomas B. Swartz and Harvey Blomberg were reelected as
     Class III Directors for a three-year term with 561,001 in favor, 3,906
     abstaining and 557,485 in favor and 4,088 abstaining, respectively.
     Directors Stanley C. Brooks, Dennis R. Konczal, Richard J. Wrensen, and
     Donald R. Looper, whose terms continue for one, one, two, and two years
     respectively, continue as directors.

                                       30
<PAGE>
     The Shareholders approved the amendment of the Corporation's Certificate of
     Incorporation to increase the Corporation's authorized capital to 3,600,000
     shares consisting of 2,000,000 authorized Shares of Common Stock with a par
     value of $0.01 per Share and 1,600,000 authorized Shares of Preferred Stock
     with a par value of $.01 per Share with 318,303 or 50.22% of the shares
     issued, outstanding and entitled to vote approving the amendment, 12,534
     against and 5,965 abstaining. 228,105 shares did not vote on this proposal.

     The Shareholders ratified the selection of Novogradac & Company LLP as
     independent public accountants and auditors for the Trust with 477,888
     shares voting in favor of such approval, 46,974 shares against, and 40,045
     abstaining.


ITEM 5  OTHER INFORMATION

     Press Release, Exhibit "A" attached hereto and incorporated herein, dated
     November 19, 2003, announcing Results of Earnings and Revenues for the 3rd
     Quarter 2003.

     Press Release, Exhibit "B" attached hereto and incorporated herein, dated
     July 28, 2003, announcing Fifth Consecutive Dividend at $1.80 Annual Rate.

     Press Release, Exhibit "C" attached hereto and incorporated herein, dated
     August 12, 2003, announcing Results of Earnings and Revenues for the 2nd
     Quarter 2003.


ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits
     --------

     Exhibit No.
     3.1   Charter Certificate of Incorporation and Amendment No. 1 (1)
     3.2   Bylaws of the Registrant (1)
     3.3   Certificate of Amendment of Certificate of Incorporation (5)
     4.1   Form of Stock Certificate of Common Shares of the Registrant (2)
     10.1  Form of Management Agreement between the Registrant and Capital
           Alliance Advisors, Inc. (1)
     10.2  Form of Indemnity Agreement between the Registrant and its Directors
           and Officers (1)
     10.3  Form of Loan Origination and Loan Servicing Agreement between the
           Registrant and Capital Alliance Advisors, Inc. (1)
     23.4  Consent of Landels Ripley & Diamond, LLP (4)
     23.5  Consent of Novogradac & Company LLP (4)
     24.1  Power of Attorney of Thomas B. Swartz (1)
     24.2  Power of Attorney of Dennis R. Konczal (1)
     24.4  Power of Attorney of Stanley C. Brooks (1)
     24.5  Power of Attorney of Harvey Blomberg (1)
     24.7  Power of Attorney of Richard J. Wrensen (5)
     24.8  Power of Attorney of Donald R. Looper (6)

(1)  These exhibits were previously contained in Registrant's Registration
     Statement filed on Form S-11 with the Commission on September 9, 1996, and
     are incorporated by reference herein.

                                       31
<PAGE>
(2)  These exhibits were previously contained in Amendment No. 1 to the
     Registrant's Registration Statement filed on Form S-11 with the Commission
     on January 15, 1997, and are incorporated by reference herein.

(3)  These exhibits were previously contained in Post-Effective Amendment No. 3
     to the Registrant's Registration Statement filed on Form S-11 with the
     Commission on December 10, 1997, and are incorporated by reference herein.

(4)  These exhibits were previously contained in Form 10-Q for the period ending
     June 30, 1997 filed with the Commission on August 14, 1997, and are
     incorporated by reference herein.

(5)  This exhibit was previously contained in Form 10-K for the period ending
     December 31, 1998 filed with the Commission on April 10, 1999, and is
     incorporated by reference herein.

(6)  This exhibit was previously contained in Form 10-KSB for the period ending
     December 31, 2002 filed with the Commission on April 15, 2003, and is
     incorporated by reference herein.

(b)  Reports on Form 8-K.
     --------------------

     No reports on Form 8-K were filed for the three months ended September 30,
2003


                                   SIGNATURES


 Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A Real Estate Investment Trust


Dated: November 18, 2003                By:/s/ Thomas B. Swartz
                                           --------------------
                                           Thomas B. Swartz,
                                           Chairman and Chief Executive Officer


Dated: November 18, 2003                By:/s/ Richard J. Wrensen
                                           ----------------------
                                           Richard J. Wrensen,
                                           Chief Financial Officer and
                                           Executive Vice President


                                       32
<PAGE>
                                  CERTIFICATION


          CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
           PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Capital Alliance Income Trust Ltd.
(the "Company") on Form 10-QSB for the period ending September 30, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Thomas B. Swartz, Chief Executive Officer of the Company, Richard J. Wrensen,
Chief Financial Officer of the Company, and I, Dennis R, Konczal, President and
Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully compiles with the requirements of section 13(a) or
     15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all
     material respects, the financial condition and result of operations of the
     Company.



Date: November 17, 2003


                               /s/Thomas B. Swartz
                               -------------------
                               Thomas B. Swartz
                               Chairman and Chief Executive Officer



                               /s/Richard J. Wrensen
                               ---------------------
                               Richard J. Wrensen
                               Chief Financial Officer and
                               Executive Vice President




                               /s/Dennis R. Konczal
                               --------------------
                               Dennis R. Konczal
                               President and Chief Operating Officer



                                       33
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                        PERIOD ENDING SEPTEMBER 30, 2003


Under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934

The undersigned each individually certifies that:

1.   I have reviewed this Form 10QSB, dated November 17, 2003 of Capital
     Alliance Income Trust, Ltd., A Real Estate Investment Trust:

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers are responsible for establishing
     and maintaining disclosure controls and procedures (as defined in Exchange
     Act Rules 13a-14 and 15d-14) for the registrant and we have:

          o    designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, is made known to
               us by others within those entities, particularly during the
               period in which this report in being prepared;
          o    evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date); and
          o    presented in this report our conclusions about the effectiveness
               of the disclosure controls and procedures based on our evaluation
               as of the Evaluation Date;

     5.   The registrant's other certifying officers have disclosed, based on
          our most recent evaluation, to the registrant's auditors and the audit
          committee of registrant's board of directors:

          o    all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and
          o    any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

6.   The registrant's other certifying officers have indicated in this quarterly
     report, whether there were significant changes in internal controls or in
     other factors that could significantly affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.

                                       34
<PAGE>
Date: November 17, 2003


                                /s/Thomas B. Swartz
                                -------------------
                                Thomas B. Swartz
                                Chairman and Chief Executive Officer



                                /s/Richard J. Wrensen
                                ---------------------
                                Richard J. Wrensen
                                Chief Financial Officer and
                                Executive Vice President



                                /s/Dennis R. Konczal
                                --------------------
                                Dennis R. Konczal
                                President and Chief Operating Officer


                                       35
<PAGE>
                                   EXHIBIT "A"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                      ANNOUNCES EARNINGS FOR THIRD QUARTER

SAN FRANCISCO - (BUSINESS WIRE)- November 19, 2003 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-News) a residential mortgage REIT, operating both
mortgage investment and mortgage banking businesses, announced net income of
$101,708 ($.06 basic and $0.05 diluted per share) for the three months ending
September 30, 2003 and $708,784 ($1.11 basic and 0.95 diluted per share) for the
nine months ended September 30, 2003, as compared to net income of $208,685
($0.29 basic and $0.23 diluted per share) and $825,250 ($1.35 basic and $1.12
diluted per share), respectively, for the like periods in 2002. Revenues were
reported as $537,037 for the three months ending September 30, 2003 and
$1,969,290 for the nine month period ending September 30, 2003, as compared to
$639,108 and $2,138,860 for the same periods in 2002.

As a REIT, CAIT is required to distribute 90% of its taxable income. Earlier
this month CAIT's Board of Directors declared the monthly preferred dividend of
$0.12 per share, payable November 19, 2003 but has postponed a decision on the
quarterly common dividend until mid-December 2003.

Thomas Swartz, CAIT's Chairman and Chief Executive Officer explained that CAIT's
earnings were unfavorably impacted by two REO losses of $155,735 recognized in
Capital Alliance Funding Corporation, CAIT's unconsolidated mortgage banking
business. The losses were incurred from two loans to the same borrower. Neither
CAIT nor its mortgage banking business has participated in any other transaction
with this borrower. During the third quarter, CAIT's loan loss reserve increased
$40,000 to $240,000 and the mortgage banking business's loan loss reserve
increased $15,000 to $100,000.

CAIT's Form 10-QSB and its financial statements included therein, scheduled to
be filed, will be duly certified pursuant to the Sarbanes-Oxley Act of 2002.

CAIT is a specialty residential lender, which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four-unit-residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation. All loans with a combined loan-to-value ratio of
greater than 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only residential loans with a combined
loan-to-value of 75% or less are retained in CAIT's portfolio of mortgage
investments.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:    Capital Alliance Income Trust Ltd., San Francisco
            Richard J. Wrensen, EVP & CFO - 415/288-9575
            rwrensen@calliance.com
            www.calliance.com

                                       36
<PAGE>
                                   EXHIBIT "B"

                  CAPITAL ALLIANCE INCOME TRUST LTD. ANNOUNCES
            FIFTH CONSECUTIVE QUARTERLY DIVIDEND AT $1.80 ANNUAL RATE

SAN FRANCISCO - (BUSINESS WIRE) - July 28, 2003 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared a dividend
of $0.45 per Common Share for the third quarter of 2003. This is CAIT's fifth
consecutive quarterly dividend at an annualized rate of $1.80. Based on the
current common stock price of $19.08 per share, the annualized dividend yield is
9.43%. The dividend is payable on August 15, 2003 to shareholders of record on
August 7, 2003.

CAIT is a specialty residential lender, which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four-unit-residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation. All loans with a combined loan-to-value ratio of
greater than 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only residential loans with a combined
loan-to-value of 75% or less are retained in CAIT's portfolio of mortgage
investments.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:      Capital Alliance Income Trust Ltd., San Francisco
              Richard J. Wrensen, EVP & CFO - 415/288-9575
              rwrensen@calliance.com
              www.calliance.com

                                       37
<PAGE>
                                   EXHIBIT "C"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                       ANNOUNCES RECORD QUARTERLY EARNINGS

SAN FRANCISCO - (BUSINESS WIRE)- August 12, 2003 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-News) a residential mortgage REIT, operating both
mortgage investment and mortgage banking businesses, announced record net income
of $312,929 ($0.55 basic and $0.47 diluted per share) for the three months
ending June 30, 2003 and $607,077 ($1.06 basic and 0.90 diluted) for the six
months ended June 30, 2003, as compared to net income of $309,587 ($0.53 basic
and $0.43) diluted per share) and $616,564 ($1.06 basic and $0.89 diluted per
share), respectively, for the like periods in 2002. Revenues were reported as
$731,620 for the three months ending June 30, 2003 and $1,432,253 for the six
month period ending September 30, 2003, as compared to $758,274 and $1,499,751
for the same periods in 2002.

As a REIT, CAIT is required to distribute 90% of its taxable income. CAIT's
Board of Directors recently declared a cash dividend of $0.45 per share, payable
August 15, 2003. Based upon the closing stock price of August 11, 2003, CAIT's
$1.80 annualized common share dividend yield is 9.86%.

Thomas Swartz, CAIT's Chairman and Chief Executive Officer, noted "the quality
of CAIT's earnings is poised to continue for the remainder of 2003 and our
management team remains focused on creating shareholder value, notwithstanding
the uncertainty afflicting the general economy, residential real estate values,
and recent interest rate volatility. During 2003 CAIT's senior executive
management exercised stock options in acquiring 30,826 common shares."

CAIT's Form 10-QSB and its financial statements included therein, scheduled to
be filed August 14, 2003, will be duly certified pursuant to the Sarbanes-Oxley
Act of 2002.

CAIT is a specialty residential lender, which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four-unit-residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation. All loans with a combined loan-to-value ratio of
greater than 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only residential loans with a combined
loan-to-value of 75% or less are retained in CAIT's portfolio of mortgage
investments. On September 30, 2003 the combined loan to value of CAIT's
portfolio was 68%.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:      Capital Alliance Income Trust Ltd., San Francisco
              Richard J. Wrensen, EVP & CFO - 415/288-9575
              rwrensen@calliance.com
              www.calliance.com

                                       38