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 March 31, 2004

                        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 April 27, 2004, the registrant's common shares closed at $17.62 per share
and the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $5,920,320. At that date
approximately 336,000 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.

<PAGE>
                                TABLE OF CONTENTS

PART I

     ITEM 1          FINANCIAL STATEMENTS                                3-5

                     NOTES TO FINANCIAL STATEMENTS                      6-20

     ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS              21-25

     ITEM 3          CONTROLS AND PROCEDURES                              26

PART II

     OTHER INFORMATION                                                 26-27

     SIGNATURES                                                           28

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                     29

     CERTIFICATION OF FORM 10-QSB                                      30-31

     EXHIBITS                                                          32-34









                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                   [Pages 3-5]




                                       2
<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                           A REAL ESTATE INCOME TRUST

<TABLE>
<CAPTION>
                                                                           March 31,     December 31,
                                                                             2004            2003
                                                                             ----            ----
                                                                         (Unaudited)
<S>                                                                     <C>             <C>
ASSETS
    Cash and cash equivalents                                           $  1,326,784    $  1,038,010
    Restricted cash                                                          200,830         200,019
    Marketable securities                                                     10,073           9,705
    Accounts receivable                                                      730,895         605,742
    Other assets, net                                                         17,812          14,533
    Due from affiliates                                                       97,758         114,334
    Notes receivable:
       Warehousing facilities to related parties                           2,514,004       2,638,226
       Mortgage notes receivable                                          16,944,096      20,556,488
       Allowance for losses                                                 (230,000)       (206,000)
                                                                        ------------    ------------
          Net notes receivable                                            19,228,100      22,988,714
    Real estate owned                                                        395,000         415,000
    Investments in affiliates                                              1,013,519         923,362
    Origination costs (net)                                                  302,915         303,186
                                                                        ------------    ------------
    Total assets                                                        $ 23,323,686    $ 26,612,605
                                                                        ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities
        Mortgage note holdbacks                                         $    200,830    $    200,019
        Loans payable                                                      8,499,713      11,773,149
        Mortgage payable                                                     274,846         275,904
        Due to affiliate                                                       4,922           5,081
        Other liabilities                                                    114,387         147,790
                                                                        ------------    ------------
    Total liabilities                                                      9,094,698      12,401,943
                                                                        ------------    ------------

    Stockholders' Equity
        Preferred stock, $.01 par value; 430,000 shares authorized;            2,138           2,138
              213,820 shares issued and outstanding at March 31, 2004
              and December 31, 2003
        Additional paid in capital - preferred stock                       5,669,123       5,669,123
              Less treasury stock: 3,176 preferred shares
              at March 31, 2004 and December 31, 2003                        (86,944)        (86,944)

        Common stock, $.01 par value; 1,700,000 shares authorized;             4,972           4,972
              497,161 shares issued and outstanding at March 31, 2004
              and December 31, 2003
        Additional paid in capital - common stock                          9,388,875       9,388,875
          Less treasury stock: 61,292 and 62,392 common shares
          at March 31, 2004 and December 31, 2003                         (1,040,738)     (1,053,773)
        Accumulated other comprehensive income                                 3,270           2,902
        Retained earnings                                                    288,292         283,369
                                                                        ------------    ------------
    Total stockholders' equity                                            14,228,988      14,210,662
                                                                        ------------    ------------

    Total liabilities and stockholders' equity                          $ 23,323,686    $ 26,612,605
                                                                        ============    ============
</TABLE>

                See accompanying notes to financial statements.

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

                            Statements of Operations
                                  (Unaudited)

                                                        Three Months Ended
                                                             March 31,
                                                        2004        2003
                                                        ----        ----
REVENUES
    Interest income                                  $ 579,669    $ 692,578
    Interest income from affiliates                     41,622       30,656
    Equity in gain (loss) of affiliate                  90,157      (24,179)
    Other income                                           172        1,578
                                                     ---------    ---------
        Total revenues                                 711,620      700,633
                                                     ---------    ---------

EXPENSES
    Loan servicing fees to related parties             112,623      111,114
    Management fees to related parties                  76,231       87,954
    Interest expense on loans                           83,332      107,828
    Interest expense on loans from related parties        --            958
    Provision for loan losses                           24,000       20,000
    Taxes                                                5,000        3,000
    Amortization                                         8,619       13,275
    General and administrative                         101,012       62,356
                                                     ---------    ---------
          Total expenses                               410,817      406,485
                                                     ---------    ---------

INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE OWNED                                           300,803      294,148
                                                     ---------    ---------
    Operating expenses of real estate owned             (3,035)        --
    (Loss) on real estate owned                        (20,000)        --
                                                     ---------    ---------

NET INCOME                                           $ 277,768    $ 294,148
                                                     =========    =========

PREFERRED DIVIDENDS                                  $  76,788    $  80,281
                                                     ---------    ---------

NET INCOME AVAILABLE TO COMMON                       $ 200,980    $ 213,867
                                                     =========    =========

BASIC EARNINGS PER
    COMMON SHARE                                     $    0.46    $    0.50
                                                     =========    =========

DILUTED EARNINGS PER
    COMMON SHARE                                     $    0.39    $    0.43
                                                     =========    =========

DIVIDENDS PAID PER
    PREFERRED SHARE                                  $    0.36    $    0.38
                                                     =========    =========

DIVIDENDS PAID PER
    COMMON SHARE                                     $    0.45    $    0.45
                                                     =========    =========

WEIGHTED AVERAGE COMMON
    SHARES - BASIC                                     435,469      425,209

WEIGHTED AVERAGE COMMON
    SHARES - DILUTED                                   518,226      493,244

                See accompanying notes to financial statements.

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

                            Statements of Cash Flows
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                               March 31,
                                                                          2004           2003
                                                                          ----           ----
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income                                                     $   277,768    $   294,148
      Adjustments to reconcile net income to net cash provided by
      operating activities:
        Provision for loan losses                                         24,000         20,000
        Amortization                                                       8,619         13,275
        Loss on real estate owned                                         20,000           --
        Equity in (gain) loss of affiliate                               (90,157)        24,179
        (Increase) decrease in accounts receivable                      (125,153)       (18,401)
        (Increase) decrease in other assets                              (11,898)       (70,585)
            (adjusted for: amortization and capitalized loan fees)
        Increase (decrease) in due to / due from affiliates               16,417         50,445
        Increase (decrease) in other liabilities                         (33,403)        15,511
                                                                     -----------    -----------
          Net cash provided by operating activities                       86,193        328,572

CASH FLOWS FROM INVESTING ACTIVITIES
      (Increase) decrease in origination costs                               271        (10,886)
      (Increase) decrease in warehousing facilities                      124,222       (166,502)
      Investments in mortgage notes receivable                          (659,000)    (3,022,572)
      Repayments of mortgage notes receivable                          4,271,392      3,426,208
                                                                     -----------    -----------
        Net cash provided by investing activities                      3,736,885        226,248

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans                                              --          535,699
      Repayment of bank loans                                         (3,273,436)          --
      Repayment of mortgage payable                                       (1,058)          --
      Purchase of treasury stock                                          (1,833)      (253,969)
      Sale of treasury stock                                              14,868         11,190
      Preferred dividends paid                                           (76,788)       (80,281)
      Common dividends paid                                             (196,057)      (195,726)
                                                                     -----------    -----------
        Net cash provided by financing activities                     (3,534,304)        16,913


NET INCREASE IN CASH AND CASH EQUIVALENTS                                288,774        571,733
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                       1,038,010        494,443
                                                                     -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $ 1,326,784    $ 1,066,176
                                                                     ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION:
      Cash paid for interest                                         $    92,106    $   106,562
      Cash paid for taxes                                            $     2,798    $     3,996

NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Foreclosures, net of reserves                                  $      --      $      --
      Assumption of debt on real estate owned                        $      --      $      --
</TABLE>

                See accompanying notes to financial statements.

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

                          Notes to Financial Statements
                                   (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 loans 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 audited 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 financial information presented has been
     prepared from the unaudited books and records. The accompanying financial
     statements have been prepared in accordance with the instructions to Form
     10-QSB and do not include all of the information and the footnotes required
     by accounting principles generally accepted in the United States of America
     for complete statements. In the opinion of management, all adjustments,
     consisting only of normal recurring adjustments, necessary for a fair
     presentation of such financial statements, have been included.

     These financial statements should be read in conjunction with the financial
     statements and notes thereto for the year ended December 31, 2003 filed
     pursuant to 15d-2 on Form 10-KSB with the Securities and Exchange
     Commission.

     The unaudited interim financial statements for the three months ended March
     31, 2004 and 2003 represent the financial statements of the Company.

     Basis of accounting. The Company prepares its interim 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 from
     the date of acquisition. 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.

     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

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     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 holds numerous mortgage notes
     receivable. These 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.

     Allowance for loan 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 No.
     144), was adopted by the Company effective January 1, 2002. SFAS No. 144
     institutes one accounting model for long-lived assets to be disposed of be
     measured at the lower of carrying amount or fair market value less cost to
     sell. There were no impairment losses recognized during the three-month
     period ended March 31, 2004 and 2003.

     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

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     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. For the three-month period
     ended March 31, 2004 and 2003, the dividends paid per Preferred Share are
     allocated 100% as ordinary income and the dividends paid per Common Share
     are allocated as 79% and 100% as ordinary income, respectively.

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

     Stock options. Statement of Financial Accounting Standards No. 148 (SFAS
     No. 148) "Accounting for Stock-Based Compensation - Transition and
     Disclosure" was issued in December of 2002. This Statement amends Statement
     of Financial Accounting Standards No.123 (SFAS No. 123), "Stock-Based
     Compensation," to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     compensation. In addition, the Statement amends the disclosure requirements
     of SFAS No. 123 to require 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. The disclosure
     provision of SFAS 148 is effective for years ending after December 15,
     2002. The Company follows APB 25 in accounting for stock options. The
     disclosure provision of SFAS 148 is effective for years ending after
     December 15, 2002 and has been incorporated into these financial statements
     and accompanying footnotes (Note 15).

     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. 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 2003 amounts may have been reclassified to
     conform to the 2004 presentation. Such reclassifications had no effect on
     previously reported net income or earnings per share.

     Recent accounting pronouncements. During 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

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     residual returns of the entity. The provisions of this interpretation
     became effective upon issuance. FIN 46 may require consolidation of CAFC
     into the Trust's financial statements during 2004.

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

     Pursuant to mortgage loan agreements between the Trust and its borrowers, a
     portion of the proceeds are held by the Trust 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.

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 March 31, 2004
     and December 31, 2003, the Trust advanced to the CAFC $2,514,004 and
     $2,638,226, respectively. The interest rate on this line of credit varies
     with market conditions and is payable monthly. As of March 31, 2004 and
     2003 the applicable interest rate was 6.0% for both years. During the three
     months ended March 31, 2004 and 2003, the Trust earned interest in the
     amount of $41,622 and $30,656, 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 March 31, 2004 and December 31,
     2003, 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 months ended March 31, 2004 and 2003,
     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
     March 31, 2004 and December 31, 2003, the Trust had no borrowings from CRF.

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.

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

                          Notes to Financial Statements
                                   (Unaudited)

7.   Mortgage notes receivable (continued)
     -------------------------------------

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

<TABLE>
<CAPTION>
                                                 Three months ended        Twelve months ended
                                                   March 31, 2004           December 31, 2003
                                                   --------------           -----------------
<S>                                                 <C>                       <C>
     Balance, beginning of period                   $ 20,556,488              $ 19,906,391
     Additions during period:
         New mortgage loans                              659,000                14,827,987
     Deductions during period:
         Collections of principal                     (4,271,392)              (13,504,757)
         Foreclosures, net of reserve                        ---                  (439,096)
         Write off of uncollectible loans                    ---                  (234,037)
                                                    ------------              ------------
     Balance, end of period                         $ 16,944,096              $ 20,556,488
                                                    ============              ============
</TABLE>

8.  Allowance for loan 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 $230,000 and $206,000 allowance for loan
     losses are adequate to protect against potential losses inherent in all
     receivables as of March 31, 2004 and December 31, 2003, respectively. The
     Trust's actual losses may differ from the estimate.

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

<TABLE>
<CAPTION>
                                                 Three months ended       Twelve months ended
                                                   March 31, 2004          December 31, 2003
                                                   --------------          -----------------
<S>                                                 <C>                       <C>
     Balance, beginning of period                   $  206,000                $  310,000
     Provision for loan loss                            24,000                   130,037
     Write off of uncollectible loans                      ---                  (234,037)
                                                    ----------                ----------
     Balance, end of period                         $  230,000                $  206,000
                                                    ==========                ==========
</TABLE>

9.   Real estate owned
     -----------------
     On January 1, 2003, the Trust owned zero properties. During 2003 the Trust
     foreclosed on two properties and sold one property to CAFC at its estimated
     fair market value, which resulted in neither a net gain nor a net loss. As
     of March 31, 2004 and December 31, 2003, the Trust owned one property.

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

<TABLE>
<CAPTION>
                                                             Three months ended       Twelve months ended
                                                               March 31, 2004          December 31, 2003
                                                               --------------          -----------------
<S>                                                              <C>                     <C>
     Balance, beginning of period                                $  415,000              $      ---
     Foreclosed mortgage notes, net of reserve (non-cash)               ---                 439,096
     Assumption of senior debt                                          ---                 275,904
     Accrued interest capitalized (non-cash)                            ---                     ---
     Gain (loss) on sale or writedown (non-cash)                    (20,000)                    ---
                                                                  ---------              ----------
                                                                    395,000                 715,000
     Less: Proceeds from sale of real estate owned (net of
     closing costs of $0 in 2004 and 2003, respectively)                ---                (300,000)
                                                                  ---------              ----------
     Balance, end of period                                      $  395,000              $  415,000
                                                                 ==========              ==========
</TABLE>

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

                          Notes to Financial Statements
                                   (Unaudited)

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

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

     CAFC, a non-qualified REIT subsidiary, conducts the Trust's 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 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. FIN 46 may
     require the consolidation of CAFC into the Trust's financial statements
     during 2004.





                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]





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

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                   As of March 31, 2004 and December 31, 2003

                                                       March 31,    December 31,
                                                          2004          2003
                                                          ----          ----
ASSETS
   Cash and cash equivalents                         $ 1,949,759    $   166,503
   Restricted cash                                       188,904        260,705
   Accounts receivable                                   133,901        154,206
   Notes receivable:
       Mortgage notes receivable                       6,776,338      7,383,040
       Allowance for losses                             (101,500)      (100,000)
                                                     -----------    -----------
            Net notes receivable                       6,674,838      7,283,040
   Real estate owned                                      92,500        971,617
   Due from affiliates                                    30,380         13,012
   Investment in affiliate                                 5,000          5,000
   Other assets                                           47,434         57,129
                                                     -----------    -----------
   Total assets                                      $ 9,122,716    $ 8,911,212
                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
   Liabilities
       Mortgage note holdbacks                       $   188,904    $   260,705
       Warehousing facilities                          4,754,770      4,633,846
       Warehousing facilities from related parties     3,019,004      2,638,226
       Due to affiliates                                   4,542          9,736
       Mortgage notes payable                               --          300,000
       Other liabilities                                 155,008        159,279
                                                     -----------    -----------
   Total liabilities                                   8,122,228      8,001,792

   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                               (989,568)    (1,080,636)
                                                     -----------    -----------
   Total stockholders' equity                          1,000,488        909,420
                                                     -----------    -----------
   Total liabilities and stockholders' equity        $ 9,122,716    $ 8,911,212
                                                     ===========    ===========

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

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                                     2004        2003
                                                                     ----        ----
<S>                                                               <C>          <C>
REVENUES
           Interest income                                        $ 197,757    $ 140,316
           Loan origination income                                  161,132      177,657
           Service release premium                                   25,695        9,894
           Other income                                                --          1,050
                                                                  ---------    ---------
                      Total revenues                                384,584      328,917

EXPENSES
           Management fees to related party                          18,642       13,107
           Interest expense on warehousing facilities               120,698       40,153
           Interest expense on related party warehouse facility      41,904       30,656
           Loan origination costs                                    63,244       51,660
           Provision for loan losses                                  1,500       25,000
           Wages and salaries                                       136,678      132,621
           Taxes                                                      8,261          767
           General and administrative                                64,799       53,670
                                                                  ---------    ---------
                      Total expenses                                455,726      347,634
                                                                  ---------    ---------
LOSS BEFORE GAIN (LOSS) ON
     REAL ESTATE OWNED                                              (71,142)     (18,717)
                                                                  ---------    ---------
           Operating expenses of real estate owned                      (94)      (5,706)
           Gain on sale of real estate owned                        162,304         --
                                                                  ---------    ---------
NET INCOME (LOSS)                                                 $  91,068    $ (24,423)
                                                                  =========    =========
</TABLE>

                                       13
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         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 secured by first and junior
     deeds of trust on commercial and 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:

                                         Three months ended  Twelve months ended
                                           March 31, 2004     December 31, 2003
                                           --------------     -----------------

     Balance, beginning of period          $  7,383,040         $  6,092,094
     Additions during period:
         Originations                        13,077,861           31,295,682
     Deductions during period:
         Collections of principal              (481,337)          (4,906,286)
         Sales                              (13,203,226)         (24,604,030)
         Foreclosures, net of reserve               ---             (476,375)
         Write offs                                 ---              (18,045)
                                           ------------         ------------
     Balance, end of period                $  6,776,338         $  7,383,040
                                           ============         ============

     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.

     Allowance for loan 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 $101,500 and $100,000 allowance for losses
     is adequate to protect against potential losses inherent in all receivables
     as of March 31, 2004 and December 31, 2003, respectively. CAFC's actual
     losses may differ from the estimate.

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     Allowance for loan losses (continued)
     -------------------------------------

     A reconciliation of the allowance for losses follows:

<TABLE>
<CAPTION>
                                               Three months ended    Twelve months ended
                                                  March 31, 2004       December 31, 2003
                                                  --------------       -----------------
<S>                                                <C>                   <C>
     Balance, beginning of period                  $ 100,000             $  225,000
     Provision for loan loss                           1,500                 68,045
     Write off of uncollectible loans
         and write-down of real estate owned                               (193,045)
                                                         ---
     Balance, end of period                        $ 101,500             $  100,000
</TABLE>

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

     As of January 1, 2003 CAFC held four properties with a value of $1,676,261.
     During 2003, CAFC sold four properties for a loss of $152,733, one property
     was acquired by foreclosure and one property was purchased from the Trust
     for $300,000. Net proceeds from the sale were $3,032,646. As of December
     31, 2003, CAFC held two properties with a book value of $971,617. During
     the 3 months ending March 31, 2004, CAFC sold one property for a gain of
     $167,304 and incurred a $5,000 write-down on the one remaining property.
     Net proceeds from the sale were $1,085,065.

     A reconciliation of real estate owned follows:

<TABLE>
<CAPTION>
                                               Three months ended    Twelve months ended
                                                 March 31, 2004       December 31, 2003
                                                 --------------       -----------------
<S>                                                <C>                   <C>
     Balance, beginning of period                  $ 971,617             $ 1,676,261
     Properties purchased                                ---                 600,000
     Foreclosures                                        ---                 476,375
     Assumptions of senior debt                          ---                 769,234
     Additions                                        48,644                 810,126
     Real estate sold                               (922,761)             (3,185,379)
     Property written down                            (5,000)               (175,000)
     Balance, end of period                        $  92,500             $   971,617
</TABLE>

     Warehousing facilities
     ----------------------

     As of March 31, 2004 and December 31, 2003, CAFC had borrowed $2,514,004
     and $2,638,226, 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 March 31, 2004 and December 31, 2003, the interest rate
     was 6.0%. For the three month period ended March 31, 2004 and 2003, CAFC's
     interest expense totaled $41,622 and $30,656, respectively, of which
     $15,029 and $18,052 was outstanding as of March 31, 2004 and 2003,
     respectively. The facility is cancelable by either party upon 30 days
     written notice.

     As of March 31, 2004 and December 31, 2003, CAFC had borrowed $1,751,895
     and $3,970,782, respectively, under a $6,000,000 funding agreement. The
     agreement provides a 100% advance rate on the notes outstanding balance at
     an interest rate of Prime plus 1.00% with a floor of 6.00%. As of March 31,
     2004 and December 31, 2003, the Prime rate was 4.00%. Interest is payable
     monthly with $4,623 and $56,608 accrued and payable as

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     of March 31, 2004 and December 31, 2003, respectively. The facility is
     cancelable by either party upon 30 days written notice.

     As of March 31, 2004, CAFC has borrowed $3,002,875 under a $3,600,000
     funding agreement. The agreement provides a 95% advance rate on the notes
     outstanding balance at an interest rate of 9.50%. Interest is payable
     monthly with $7,877 accrued and payable as of March 31, 2004. The facility
     is cancelable by either party upon 30 days written notice. There was no
     amount due on this funding agreement as of December 31, 2003.

     During the quarter ended March 31, 2004, CAFC fully repaid a 100% advance
     rate mortgage secured credit facility at an interest rate of 10.75%.

     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 not greater than 25 basis points on
     home loans funded for the benefit of CAFC and reimbursed for specific
     direct expenses as defined in the First Amended Residential Mortgage Loan
     Services Agreement. As of March 31, 2004 and 2003, CAFC has expensed
     $18,642 and $13,107, respectively.

     CAFC received an advance of $2,514,004 and $2,638,226 under a warehouse
     line of credit from the Trust, as of March 31, 2004 and December 31, 2003,
     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 March 31, 2004 and December 31, 2003 was 6.0%.
     CAFC expensed interest of $41,622 and $30,656 as of March 31, 2004 and
     2003, 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 March 31, 2004,
     CAFC had a receivable of $27,666 from the Manager, a receivable of $2,714
     from the Trust, and a payable of $4,542 to CRF. As of December 31, 2003,
     CAFC had a receivable of $13,012 from the Manager and a payable of $9,736
     to the Trust. These account are shown on the balance sheet as part of Due
     to affiliates and Due from affiliates, respectively. No interest is charged
     on these accounts.

     During the first three months of 2004 and 2003, CAFC sold $659,000 and
     $3,022,572, respectively, in loans to the Trust, at par value.

11.  Loans payable
     -------------

     As of March 31, 2004 and December 31, 2003, the Trust had borrowed
     $8,499,713 and $9,000,000, respectively, under a line of credit term
     facility, up to a maximum of $8,500,000 and $10,000,000, respectively, with
     specific mortgage notes receivable pledged as collateral against the
     advances. The credit facility matures July 1, 2004. 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 March 31, 2004 and
     December 31, 2003 was 1.09% and 1.31%, respectively) plus 2.00% and is
     payable monthly.

     As of March 31, 2004 and December 31, 2003, the Trust had borrowed $0 and
     $2,750,000, 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% as of March
     31, 2004 and December 31, 2003) plus 0.50% and is payable monthly. The
     facility matured March 31, 2004 and was retired.

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

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

                          Notes to Financial Statements
                                   (Unaudited)

12.  Mortgage payable
     ----------------
     The Trust foreclosed on a property in 2003. As part of acquiring the
     property, the Trust assumed a mortgage note payable in the amount of
     $275,904 with an annual interest rate of 8.0%. Principal and interest
     payments of $2,102 are due monthly. The principal balance as of March 31,
     2004 and December 31, 2003 was $274,846 and $275,904, respectively.

13.  Related party transactions
     --------------------------
     The Trust has financed a portion of its treasury stock repurchases by
     borrowing on margin from an investment bank. The amount borrowed on margin
     accrues fees at the broker call rate (3.25% as of March 31, 2004 and
     December 31, 2003) plus 1.50%. Margin debt is callable at the discretion of
     the investment bank. As of March 31, 2004 and December 31, 2003, the Trust
     owed $0 and $23,149, respectively, in margin debt.

     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 Trust and the
     Company. The management fee paid by the Trust to the Manager was $57,747
     and $61,000, for the three-month period ended March 31, 2004 and 2003,
     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 paid the Manager $4,000 and $6,000 in REO management fees for the
     three-month period ended March 31, 2004 and 2003, 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-month period ended
     March 31, 2004 and 2003 was $14,484 and $20,954, 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 35.0%
     of this fee as loan origination costs and amortized them over the average
     life of the portfolio. The remaining 65.0% of the fee is expensed as the
     portion attributed for servicing. As of March 31, 2004, the Trust
     capitalized 35.0% of this fee as origination costs and amortized them over
     the average life of the portfolio. The remaining 65.0% of the fee was
     expensed as the portion attributed for servicing. For the three-month
     period ended March 31, 2004 and 2003, the Trust expensed loan origination
     and servicing fees of $112,623 and $111,114, respectively.

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of March 31, 2004,
     the Trust had a receivable of $14,094 from CAFC, a receivable of $83,392
     from the Manager, and a payable of $4,922 to CRF. As of December 31, 2003,
     the Trust had a receivable of $22,457 from CAFC, a receivable of $91,716
     from the Manager and a payable of $5,080 to CRF. No interest is charged on
     these inter-company accounts.

     As described in Note 6, as of March 31, 2004 and December 31, 2003, the
     Trust advanced to the CAFC $2,514,004 and $2,638,226, respectively. The
     interest rate on this line of credit varies with market conditions and is
     payable monthly. As of March 31, 2004 and 2003 the applicable interest rate
     was 6.0%. During the three months ended March 31, 2004 and 2003, the Trust
     earned interest in the amount of $41,622 and $30,656, respectively, of
     which $15,029 and $12,721 was outstanding as of March 31, 2004 and December
     31, 2003, respectively.

14.  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.

                                       18
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)

15.  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 three months ended March 31, 2004 and the
     twelve months ended December 31, 2003 follows:

                                                             Weighted average
                                                Options       exercise price
                                                -------       --------------
      Outstanding at January 1, 2003            220,551            $10.37
                     Granted                        ---               ---
                     Exercised                  (36,851)             9.22
                     Forfeited                      ---               ---
                                                -------            ------
      Outstanding at December 31, 2003          183,700            $10.60
                                                -------            ------
                     Granted                        ---               ---
                     Exercised                  (1,200)              9.01
                     Forfeited                      ---               ---
                                                -------            ------
      Outstanding at March 31, 2004             182,500            $10.59
                                                =======            ======
      Outstanding options exercisable as of
                     January 1, 2003            220,551            $10.37
                     December 31, 2003          183,700             10.60
                     March 31, 2004             182,500             10.59

     As of January 1, 2003, 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 March 31, 2004:

<TABLE>
<CAPTION>
                                                      Options outstanding
                                      ------------------------------------------------------
                                                      Weighted-average
                                      Number of    remaining contractual   Weighted- average
     Range of exercise prices          shares          life (years)          exercise price
                                      ------------------------------------------------------
<S>                                    <C>                <C>                  <C>
          $9.00 - $9.06                118,750            7.34                 $  9.03
          $13.50                        63,750            5.75                   13.50
                                       -------            ----                 -------
                                       182,500            6.79                 $ 10.59
</TABLE>

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     The Trust accounts for stock options under APB No. 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 No.
     123, is presented below for the three-month period ended March 31, 2004 and
     2003:

                                                            2004         2003
                                                            ----         ----

     Net income available to common stock                $ 200,980     $ 213,867
     Less: Stock based expense
          using the fair value method                          ---           ---
                                                         ---------     ---------
     Pro forma net income available to common stock      $ 200,980     $ 213,867
                                                         =========     =========
     Net income per common share:
     Basic:
          As reported                                      $0.46         $0.50
          Pro forma                                        $0.46         $0.50
     Diluted:
          As reported                                      $0.39         $0.43
          Pro forma                                        $0.39         $0.43

     Since no options were granted or vested during 2004 or 2003, the reported
     operating results are identical to the pro forma amounts.

16.  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-month period ended March 31, 2004 and 2003:

                                                            2004         2003
                                                            ----         ----
         Numerator:
    Net income                                           $ 277,768    $ 294,148

    Preferred dividends attributable to income             (76,788)     (80,281)
                                                         ---------    ---------
    Numerator for basic and diluted Earnings per share
        income available to common stockholders          $ 200,980    $ 213,867
                                                         =========    =========
    Denominator:
        Basic weighted average shares                      435,469      425,209
        Dilutive effect of options                          82,757       68,035
                                                         ---------    ---------
        Diluted weighted average shares                    518,226      493,244
                                                         =========    =========
    Basic earnings per common share                      $    0.46    $    0.50
                                                         =========    =========

    Diluted earnings per common share                    $    0.39    $    0.43
                                                         =========    =========

                                       20
<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 ledgers of the Trust.

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
months ended March 31, 2004 and 2003 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 loan 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.

Revenue recognition. The Company accrues interest income as it is earned. Loans
may be placed on a nonaccrual status when any portion of the principal or
interest is three scheduled payments past due or earlier when concern exists as
to the ultimate collectibility 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

                                       21
<PAGE>
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 March 31, 2004 and December 31, 2003 and the
Statement of Operations for the three months ended March 31, 2004 and 2003. 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 during 2004.

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".

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. 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 unremedied 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 March 31, 2004, the Trust's loan portfolio
included 73 loans totaling $16,944,096 of which 18 loans totaling $4,062,365
representing 24% of the loan portfolio were delinquent over two payments. Three
of these delinquent loans totaling $696,657 were paid down and one delinquent
loans totaling $150,786 was brought current by May 1, 2004. After adjusting the
March 31, 2004 delinquent balances for these payments, the delinquencies in
excess of two payments are fourteen loans totaling $3,214,922 or 19% of the loan
portfolio. In assessing the collectibility of these delinquent mortgage loans,
management has established a loan loss reserve of $230,000, if it is necessary
to foreclose upon the mortgage loans.

As of March 31, 2003, the Trust's loan portfolio included 99 loans totaling
$19,502,755 of which 17 loans totaling $2,903,807 representing 15% of the loan
portfolio were delinquent over two payments. Three of these delinquent loans
totaling $586,262 were paid down and six of these delinquent loans, totaling
$790,810 were brought current by

                                       22
<PAGE>
May 1, 2003. After adjusting the March 31, 2003 delinquent balances for these
payments, the delinquencies in excess of two payments are eight loans totaling
$1,536,735 or 8% of the loan portfolio. In assessing the collectibility of these
delinquent mortgage loans, management has established a loan loss reserve of
$330,000, 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 March 31, 2004 and
March 31, 2003.


   Maximum Other                      Amount of Commitment Expiration Per Period
     Commercial           Total
   Commitments (a)       Amounts       Less than     1 - 3     4 - 5     After 5
as of March 31, 2004    Committed       1 year       years     years      years
--------------------   -----------    ----------    ------    -------   --------

Lines of Credit (b)     $8,499,713    $8,499,713        0        0         0

Standby Repurchase         (c)            0             0        0         0
Obligations

Guarantees (d)              0             0             0        0         0

Total Commercial        $8,499,713    $8,499,713        0        0         0
Commitments


(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. Actual amounts outstanding as of March 31,
     2004 due in less than 1 year was $8,499,713.

(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.

RESULTS OF OPERATIONS

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

Three months ended March 31, 2004 and 2003. Revenues for the first quarter
increased to $711,620 as compared to $700,633 for the same period in the prior
year. The increase in revenue, during the first three months of 2004 was due to
greater interest income earned from CAFC of $10,966 and an increase in the
Equity in gain (loss) from CAFC of $114,336. CAIT's smaller portfolio provided
less interest revenue of $112,909.

Expenses for the first quarter 2003 increased to $410,817 as compared to
$406,485 for the same period in the prior year. The increased expenses during
the first three months of 2004 were primarily due to increased taxes of $2,000
and increased general and administrative costs of $38,656.

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 does 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 period 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.

                                       23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2004, the Trust has lines of credit of $8,500,000 with one
lender. Management believes that the cash flow from the payment of mortgage
notes receivable, existing bank loan facilities, and additional lines of credit
anticipated to be acquired during 2004 will be sufficient to meet the liquidity
needs of the Trust's businesses for the next twelve months.

Three months ended March 31, 2004 and 2003. As of January 1, 2004 and 2003, the
Trust had $1,038,010 and $494,443 of cash and cash equivalents, respectively.
During each three month period, cash and cash equivalents increased by $288,774
and $571,733, respectively. After taking into effect the various transactions
discussed below, cash and cash equivalents at March 31, 2004 and 2003 were
$1,326,784 and $1,066,176.

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 three months ended March
31, 2004 and 2003 was $86,193 and $328,572, respectively. During the first three
months of 2004, net income provided $277,768, a net increase in due from
affiliates provided $16,417 and an increase in accounts receivable used
$125,153. During the first three months of 2003, net income provided $294,148, a
net increase in due from affiliates provided $50,445 and an increase in accounts
receivable used $18,401.

Net cash provided by investing activities for the three months ended March 31,
2004 and 2003 was $3,736,885 and $226,248, respectively. During the first three
months of 2004, a net decrease in mortgage notes receivable provided $3,612,392
and a decrease in warehousing facilities to related parties provided $124,122.
During the first three months of 2003, a net decrease in mortgage notes
receivable provided $403,636. The net use of cash from investing activities in
2003 was primarily from an increase in warehousing facilities to related parties
used $166,502.

Net cash used in and provided by financing activities during the three months
ended March 31, 2004 and 2003 was $3,534,304 and $16,913, respectively. During
the first three months of 2004, decreased borrowings used cash of $3,274,494,
dividends reduced cash by $272,845 and treasury stock sales increased cash by
$13,035. During 2003, increased borrowings provided cash of $535,699, while
dividends and treasury stock purchases reduced cash by $276,007 and $253,969,
respectively.

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 Trust.
Changes in the general level of the U.S. Treasury yield curve can have
significant effects on the market value of the Trust's portfolio. The majority
of the Trust's assets are fixed-rate loans with a spread to U.S. Treasuries. The
Trust's loans are valued on the March 31, 2004 balance sheet of 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 Trust's assets are decreased, the market value
of the Trust'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 Trust's assets is increased, the market value of the Trust'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
Trust's loans. In addition, changes in the general level of the LIBOR money
market rates can affect the Trust's net interest income. The majority of the
Trust's liabilities are floating rate based on a spread over the average one
month LIBOR. A portion of the Trust'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 Trust's interest expense will move in the same direction.

                                       24
<PAGE>
On account of the relatively short adjusted weighted average maturity of the
Trust's portfolio (44 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
Trust.

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

The Trust 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
Trust 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 Trust's portfolio would
reduce first quarter 2004 GAAP income available to common shareholders by
$230,000 or 114%.

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 Trust's
liabilities to the portfolio's adjusted weighted average maturity (44 months).

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


--------------------------------------------------------------------------------
                              One Year - Historical
                     Interest Rate Adjustment in Basis Points
--------------------------------------------------------------------------------
   Borrowings         <200 bp>        <100 bp>          100 bp          200 bp

   Annual Net           12%              6%              <7%>           <16%>
     Income


                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]



                                       25
<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 PROCEEDINGS

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

ITEM 2     CHANGES IN SECURITIES

       During the first quarterly period ending March 31, 2004, options for
       1,200 common shares were exercised and 100 shares were purchased for
       treasury stock.

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

       Not applicable.

ITEM 4     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
quarterly period ended March 31, 2004.

ITEM 5     OTHER INFORMATION

       Press Release, Exhibit "A" attached hereto and incorporated herein, dated
       January 30, 2004 announcing 1st Quarter 2004 Common Share Dividend.

       Press Release, Exhibit "B" attached hereto and incorporated herein, dated
       April 29, 2004 announcing 2nd Quarter 2004 Common Share Dividend.

       Press Release, Exhibit "C" attached hereto and incorporated herein, dated
       May 13, 2004 announcing 1st Quarter 2004 Net Income.


                                       26
<PAGE>
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(6)
         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(5)
         23.5    Consent of Novogradac & Company LLP(5)
         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(7)
         24.8    Power of Attorney of Donald R. Looper(8)

(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.

(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)      This exhibit was previously contained in Amendment No. 2 to the
         Registrant's Registration Statement filed on Form S-11 with the
         Commission on February 6, 1997 and is incorporated by reference herein.

(5)      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.

(6)      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.

(7)      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.

(8)      This exhibit was previously contained in From 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 period ending March 31, 2004.

                                       27

<PAGE>
                                   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: May 13, 2004                     By: /s/ Thomas B. Swartz
                                            --------------------
                                            Thomas B. Swartz,
                                            Chairman and Chief Executive Officer


Dated: May 13, 2004                     By: /s/ Richard J. Wrensen
                                            ----------------------
                                            Richard J. Wrensen,
                                            Chief Financial Officer
                                            Executive Vice President




                                       28
<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 March 31, 2004 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: May 13, 2004


                            /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




                                       29
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                          PERIOD ENDING MARCH 31, 2004


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 May 13, 2004 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.

                            [SIGNATURES ON NEXT PAGE]



                                       30
<PAGE>
Date: May 13, 2004


                           /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






                                       31
<PAGE>
                                  EXHIBIT "A"

Press Release

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

SAN FRANCISCO - (BUSINESS WIRE) - January 30, 2004 - 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 first quarter of 2004. Based on the
current common stock price of $18.78 per share, the annualized dividend yield is
9.58%. The dividend is payable on February 17, 2004 to shareholders of record on
February 12, 2004.

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, Executive Vice President and CFO - 415/288-9575
             rwrensen@calliance.com
             www.calliance.com



                                       32
<PAGE>
                                   EXHIBIT "B"
Press Release

                  CAPITAL ALLIANCE INCOME TRUST LTD. ANNOUNCES
             CONTINUATION OF QUARTERLY DIVIDEND AT $1.80 ANNUAL RATE

SAN FRANCISCO - (BUSINESS WIRE) - April 29, 2004 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared CAIT's
second quarter Common Share dividend at the rate of $0.45 per Common share -
continuing its dividend at a $1.80 annual rate. Based on the current common
stock price of $17.70 per share, the annualized dividend yield is 10.17%. The
dividend is payable on May 17, 2004 to shareholders of record on May 10, 2004.

Richard J. Wrensen, CAIT's Executive Vice-President and Chief Financial Officer,
stated that CAIT would be filing its Form 10-QSB and releasing its first quarter
earnings on Friday, May 7, 2004.

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, Executive Vice President and CFO, 415/288-9575
              rwrensen@calliance.com
              www.calliance.com


                                       33
<PAGE>
                                   EXHIBIT "C"
Press Release

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                      ANNOUNCES EARNINGS FOR FIRST QUARTER

SAN FRANCISCO - (BUSINESS WIRE) - May 13, 2004 - 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
$277,768 ($0.46 basic and $0.39 diluted per share) for the three months ending
March 31, 2004, as compared to net income of $294,148 ($0.50 basic and $0.43
diluted per share) for the same period in 2003. Revenues were reported as
$711,620 for the three months ending March 31, 2004, as compared to $700,633 for
the same period in 2003.

As a REIT, CAIT is required to distribute 90% of its taxable income. Last month
CAIT's Board of Directors declared the quarterly common dividend of $0.45 per
share, payable May 17, 2004 to shareholders of record on May 10, 2004.

CAIT's Form 10-QSB and its financial statements included therein, scheduled to
be filed, May 13, 2004 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



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