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







August 17, 2000



SECURITIES & EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C.  20549

Re:      Capital Alliance Income Trust Ltd., A Real Estate Investment Trust
         ------------------------------------------------------------------
         SEC File No. 333-11625
         Our File No. 76021.0002

         Dear Sir/Madam:

         Pursuant to Sections 13 and 15(d) of the Securities Exchange Act of
1934, enclosed for filing via EDGAR please find a Form 10-Q for the quarter
ended June 30, 2000. If you have any questions, please do not hesitate to call.

                                                     Very truly yours,

                                                     /s/ Richard J. Wrensen

                                                     Richard J. Wrensen
                                                     Executive Vice President
                                                     Chief Financial Officer


Enclosures
<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

(Mark One)

      (X)  Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
           Act of 1934 For the quarterly period ended June 30, 2000

                        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 12 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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

As of August 6, 2000, the aggregate market value of the  registrant's  shares of
Common  Stock,  $.01 par value,  held by non  affiliates of the  registrant  was
approximately  $4,401,270.  At that date  1,467,090  shares of common stock were
outstanding.  The shares are listed and publicly  traded on the  American  Stock
Exchange.

<PAGE>
                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                       2
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
                                  Balance Sheets


                                                                                       (Unaudited)       (Audited)
                                                                                     June 30, 2000   December 31, 1999
                                                                                     -------------   -----------------

<S>                                                                                   <C>             <C>
ASSETS
      Cash and cash equivalents                                                       $    923,651    $     41,939
      Restricted cash                                                                      491,781         487,174
      Accounts receivable                                                                  220,827         233,017
      Due from affiliates                                                                  717,282         637,491
      Notes receivable:
         Warehouse lines of credit to related parties                                    3,606,519       3,189,317
         Mortgage notes recievable                                                      11,216,031      10,807,664
         Allowance for loan losses                                                         (35,500)        (85,000)
                                                                                      ------------    ------------
            Net Receivable                                                              14,787,050      13,911,981
      Real estate owned                                                                  1,619,501         644,326
      Security deposits                                                                          0
      Investments in affiliates                                                            787,958         870,466
      Origination costs                                                                    163,635         163,635
      Loan fee                                                                               7,917          16,667
                                                                                      ------------    ------------
      Total assets                                                                    $ 19,719,604    $ 17,006,696
                                                                                      ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY

      Liabilities
           Mortgage note holdbacks                                                    $    491,781    $    487,174
           Mortgages payable                                                               900,805               0
           Notes payable                                                                 2,250,000         904,750
           Other liabilities                                                               919,924         187,938
                                                                                     ------------     ------------
      Total liabilities                                                                  4,562,510       1,579,862
                                                                                      ------------    ------------
      Stockholders' Equity
            Preferred stock, $.01 par value (liquidation value $9.50                         6,413           6,413
              per share); 675,000 shares authorized; 641,283 shares
              issued at June 30, 2000 and December 31, 1999
            Additional paid in capital-preferred stock                                   5,752,907       5,752,907
            Less: 9,526 preferred shares held in treasury                                  (86,944)        (86,944)

            Common stock, $.01 par value; 5,000,000 shares                                  14,847          14,847
              authorized ; 1,484,740 shares issued and 1,483,040 outstanding at
              June 30, 2000 and 1,484,740 shares issued and outstanding
              at December 31, 1999
            Additional paid in capital - common stock                                    9,474,922       9,739,611
            Less: 1,700 common shares held in treasury                                      (5,050)              0
                                                                                      ------------    ------------
      Total stockholders' equity                                                        15,157,095      15,426,834
                                                                                      ------------    ------------
      Total liabilities and stockholders' equity                                      $ 19,719,604    $ 17,006,696
                                                                                      ============    ============
</TABLE>
                See accompanying notes to financial statements.

                                       3
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
                            Statements of Operations
                                  (Unaudited)


                                                     Three Months Ended             Six Months Ended
                                                          June 30,                      June 30,
                                                     2000           1999           2000           1999
                                                     ----           ----           ----           ----
<S>                                             <C>            <C>            <C>            <C>
REVENUES
       Interest income                          $   385,760    $   434,571    $   805,950    $   833,011
       Interest income from affiliates              123,344         93,946        212,192        212,390
       Investment income from affiliates           (189,208)      (265,919)      (248,508)      (416,234)
       Other income                                   3,872            548          4,297          5,436
                                                -----------    -----------    -----------    -----------
           Total revenues                           323,768        263,146        773,931        634,603
                                                -----------    -----------    -----------    -----------
EXPENSES
       Loan servicing fees to related parties        76,022         74,744        152,424        150,353
       Management fees to related parties            37,500         37,775         75,656         76,008
       Interest expense                              77,866         44,170        110,154         84,120
       Provision for loan losses                     18,000         45,000         35,500         77,500
       Operating expenses of REO                     (3,084)         5,213         10,736         10,833
       Taxes                                          4,500          5,000         12,700         10,300
       General and administrative                    44,902         46,202         82,683         77,056
                                                -----------    -----------    -----------    -----------
             Total expenses                         255,706        258,104        479,853        486,170
                                                -----------    -----------    -----------    -----------

Income Before Loss on Real Estate Owned         $    68,062    $     5,042    $   294,078    $   148,433
       Gain (Loss) on Real Estate Owned               2,500         (1,779)        (2,524)        (1,779)
                                                -----------    -----------    -----------    -----------

NET INCOME                                      $    70,562    $     3,263    $   291,554    $   146,654
                                                ===========    ===========    ===========    ===========

PREFERRED DIVIDENDS                             $   153,793    $   138,789    $   303,834    $   277,577

BASIC EARNINGS PER
       COMMON SHARE                             $     (0.06)   $     (0.09)   $     (0.01)   $     (0.09)

DILUTED EARNINGS PER
       COMMON SHARE                             $     (0.06)   $     (0.09)   $     (0.01)   $     (0.09)

WEIGHTED AVERAGE COMMON
       SHARES - BASIC EARNINGS                    1,484,692      1,484,740      1,484,716      1,484,740

WEIGHTED AVERAGE COMMON
       SHARES - DILUTED EARNINGS                  1,484,740      1,484,740      1,484,740      1,484,740

</TABLE>
                See accompanying notes to financial statements.

                                       4
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
                            Statements of Cash Flows
                                  (Unaudited)

                                                                       Six Months Ended
                                                                           June 30,
                                                                      2000           1999
                                                                      ----           ----
<S>                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income                                                 $   291,554    $   146,654
      Adjustments to reconcile net income to net cash provided
      by operating activities:
        Amortization                                                   8,750          2,202
        (Increase) decrease in  accounts receivable                   12,190        (51,420)
        Increase (decrease) in loan loss reserve                     (49,500)        77,500
        (Increase) decrease in security deposits                        --           14,899
        Increase (decrease) in due to / due from affiliates          (79,791)        13,764
        Increase (decrease) in other liabilities                     731,986         42,228
                                                                 -----------    -----------
          Net cash provided by (used in) operating activities        915,189        102,436
                                                                 -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
      (Increase) decrease in restricted cash                          (4,607)        24,626
      Increase (decrease) in mortgage note holdbacks                   4,607        (24,626)
      (Increase) decrease in warehouse lines of credit              (417,202)     1,385,574
      (Increase) in investments                                       82,508        106,234
      (Increase) in related party note receivable                       --          (22,500)
      Investments in mortgage notes receivable                    (4,532,043)    (5,285,459)
      Repayments of mortgage notes receivable                      4,123,670      2,609,167
      Capital costs of real estate owned                            (975,175)      (174,323)
                                                                 -----------    -----------
        Net cash provided by (used in) investing                  (1,718,242)    (1,524,698)
                                                                 -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Redemption of shares                                            (5,050)          --
      Proceeds from issuance of shares                                  --             --
      Proceeds of notes payable                                    2,250,000           --
      Proceeds of mortgage notes payable                              (3,945)     1,392,771
      Organizational and offering costs                                 --             --
      Preferred dividends paid                                      (303,834)      (277,577)
      Common dividends paid                                         (252,406)      (252,406)
                                                                 -----------    -----------
        Net cash provided by (used in) financing activities        1,684,765        862,788
                                                                 -----------    -----------

NET INCREASE (DECREASE) IN CASH                                      881,712       (559,474)
CASH AT BEGINNING OF PERIOD                                           41,939        570,710
                                                                 -----------    -----------

CASH AT END OF PERIOD                                            $   923,651    $    11,236
                                                                 ===========    ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
      Interest expense paid                                      $   110,154    $    74,255
      Taxes paid                                                 $       800    $       800
</TABLE>

                 See accompanying notes to financial statements.

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)

1.   Organization
     ------------

     Capital  Alliance  Income Trust Ltd., A Real Estate  Investment  Trust (the
     "Trust"),  a Delaware  corporation,  primarily  invests in  mortgage  loans
     secured by real  estate.  The Trust was formed  December 12, 1995 to invest
     primarily  in  loans  secured  by  deeds  of  trust  on  one-to-four   unit
     residential properties.  The Manager,  Capital Alliance Advisors, Inc. (the
     "Manager") originates, services and sells the Trust's loans.

     Effective  February 12, 1997,  the Trust  registered its common shares with
     the  Securities and Exchange  Commission  pursuant to the Securities Act of
     1933, as amended in connection with a"best efforts"  offering of common. On
     September  30,1998  the  offering  closed and a total of  1,484,700  common
     shares  were  issued  at $8.00 per  share  with  warrants  to  purchase  an
     additional 148,470 common shares at $5.60 per share.


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

     The accompanying  financial  statements  include the accounts of the Trust.
     The  financial  information  presented has been prepared from the books and
     records  without audit.  The  accompanying  financial  statements have been
     prepared  in  accordance  with  the  instructions  to Form  10-Q and do not
     include all of the  information  and the  footnotes  required by  generally
     accepted accounting  principles 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.

     The  preparation of the financial  statements in conformity  with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions. Actual results could differ from those estimates.

     These financial statements should be read in conjunction with the financial
     statements  and notes  thereto for the year ended  December  31, 1999 filed
     pursuant to 15d-2 on Form 10-K with the Securities and Exchange Commission.

     The unaudited  interim  financial  statements for the six months ended June
     30, 2000 and June 30, 1999 represent the financial statements of the Trust.


3.   Summary of significant accounting policies
     ------------------------------------------

     Use of estimates.  The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principals requires management to make
     estimates and  assumptions  that effect the accounts  reported in financial
     statements  and the  accompanying  notes.  Actual results could differ from
     those estimates.


     Cash and cash  equivalents.  Cash and  cash  equivalents  include  cash and
     liquid  investments with an original  maturity of three months or less. The
     Trust deposits cash in financial institutions insured

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)

     by the Federal Deposit Insurance Corporation. At times, the Trust's account
     balances  may  exceed  the  insured  limits.   Restricted  cash  represents
     segregated cash and is to be disbursed only to mortgage loan borrowers upon
     completion of certain improvements to the secured property (see Note 4).

     Revenue  recognition.  Interest  income is recorded on the accrual basis of
     accounting in accordance  with the terms of the loans.  When the payment of
     principal or interest is 90 or more days past due,  management  reviews the
     likelihood  that the loan  will be  repaid.  For  these  delinquent  loans,
     management  continues to record interest income and establishes a loan loss
     reserve  as  necessary  to  protect  against  losses in the loan  portfolio
     including accrued interest.

     Concentration  of credit  risk.  The Trust 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 portfolio may be affected by
     changes in the  economy  or other  conditions  of the  geographic  area.  A
     portion of the portfolio is secured by second trust deeds on real estate.

     Loan loss reserve.  Management review its loan loss provision  periodically
     and  the  Trust  maintains  an  allowance  for  losses  on  mortgage  notes
     receivable at an amount that  management  believes is sufficient to protect
     against  losses  in  the  loan  portfolio.   Accounts   receivable   deemed
     uncollectible  are  written  off or  reserved.  The Trust  does not  accrue
     interest  income on  impaired  loans (Note 5). As of June 30, 2000 and June
     30, 1999 the loan loss reserves were $35,500 and $247,500, respectively.


     Investments.  The Trust holds an  investment in Sierra  Capital  Acceptance
     ("SCA") , a Delaware Limited  Liability  Company which originates and sells
     residential  mortgages.  The  Trust  owns  100%  of the  non-voting  Sierra
     preferred  shares of SCF. Sierra capital  Services,  Inc., a related party,
     owns 99% of the Sierra common shares of SCF and maintains  voting  control.
     As of June 30, 2000 SCA is in the process of dissolution.

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

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)

     of 1986, as amended and applicable  Treasury  Regulations.  Therefore,  the
     Trust will not be subject to federal  corporate  income taxes, if the Trust
     distributes  at least 95% of its  taxable  income to its  shareholders.  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 Trusts organization,
     sources  of  income,  nature  of  assets,  and  distribution  of  assets to
     shareholders.  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  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 elect to be taxed as a REIT since inception, no provision for federal
     income taxes has been made in the financial statements.

     For the  six-month  period  ended  June 30,  2000,  the  distributions  per
     preferred  share are allocated 100% as ordinary income and the common share
     distribution is allocated 91% ordinary income and 9% as a return of capital
     for tax purposes. For the period ended June 30, 1999, the distributions per
     preferred  share are allocated  100%  ordinary  income and the common share
     distribution is allocated 100% ordinary income.

     Fair value of financial  instruments.  For cash and cash  equivalents,  the
     carrying amount is a reasonable  estimate of fair value.  For mortgage note
     receivables,  fair value is estimated by discounting  the future cash flows
     using the 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.

     Origination costs.  Origination costs relating to mortgage notes receivable
     are deferred and  recognized as an adjustment to yield over the term of the
     notes.

     Real estate owned.  Real estate owned results from foreclosure of loans and
     at time of foreclosure is recorded at the lower of carrying  amount or fair
     value of the property  minus  estimated  costs to sell. At this time senior
     debt to which  the  asset is  subject  is  reported  as  mortgage  payable.
     Subsequent  to  foreclosure,  the  foreclosed  asset value is  periodically
     reviewed  and is adjusted to fair value.  No  depreciation  is taken on the
     real estate held for sale. Income and expenses related to real estate owned
     are   recorded  as  other   income,   interest   expense  and  general  and
     administrative expenses on the Statements of Operations.

     Reclassifications.  Certain 1999 amounts have been  reclassified to conform
     with 2000 classifications. Such reclassifications had no effect on reported
     net income.

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)


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

     Pursuant to mortgage loan  agreements  between the Trust and certain of its
     borrowers,  a  portion  of the  loan  proceeds  are  held by the  Trust  in
     segregated  accounts to be disbursed only to such borrowers upon completion
     of certain  improvements on the secured  property.  As of June 30, 2000 and
     December  31,1999 mortgage note holdbacks from the consummation of mortgage
     loans made amounted to $491,781 and $487,174 respectively.


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

     Mortgage   notes   receivable   represent  home  equity  loans  secured  by
     residential real estate.  At their original  origination,  all loans have a
     combined  loan-to-value of not more 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 due as a balloon  payment
     at loan maturity.


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

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


7.   Mortgage notes payable
     ----------------------

     As of June 30, 2000 the Trust held a mortgage notes payable of $900,805. As
     of June 30, 1999 the Trust,  through a warehouse  line of credit  issued to
     CAFC had borrowed  $1,392,771  to finance a portion of its  mortgage  notes
     receivable.


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

     The Manager, which is owned by several of the Trustees and their affiliate,
     contracted with the Trust to provide administration services and receives a
     fee for these  services  from the Trust.  The  Manager is also  entitled to
     reimbursement  for  clerical and  administrative  services at cost based on
     relative  utilization of facilities  and  personnel.  The Manager bears all
     expenses of services for which it is separately compensated.

     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 Asset") 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 Trust paid the Manager a
     management fee of $75,656 and $76,08 for the six months ended June 30, 2000
     and June 30, 1999, respectively.

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)


     The Manager also  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.  The  Trust  paid the  manager  a loan
     origination  and  servicing fee of $152,424 and $150,353 for the six months
     ended June 30, 2000 and June 30, 1999, respectively.

     The Manager also receives  incentive  compensation for each fiscal quarter,
     equal to 25% of the net  income of the  Trust in  excess  of an  annualized
     return on equity for such quarter equal to the ten year U.S.  Treasury Rate
     plus 2% provided that the payment of such incentive  compensation  does not
     reduce the  Trust's  annualized  return on equity for such  quarter to less
     than the ten year U.S.  Treasury Rate plus 2% after the preferred  dividend
     has  been  paid.  As of June  30,  2000  and  June  30,  1999 no  incentive
     compensation was paid.

     As described  in Note 3, the Trust holds an  investment  in Sierra  Capital
     Funding.  For the six months ended June 30, 2000, the interest was deferred
     and for the six months  ended June 30,  1999 the Trust  earned  interest of
     $15,000.

     As  described  in Note 3, the Trust has a  non-qualified  REIT  subsidiary,
     Capital  Alliance  Funding  Corporation.  For the six months ended June 30,
     2000 and June 30,  1999 the Trust was  allocated  losses  of  $248,508  and
     $431,234,  respectively.  Both the 2000 and 1999 losses are attributable to
     the expansion of the subsidiaries wholesale loan origination capacity.

     During 1998,  the Trust  advanced  $225,000 to Equity 1-2-3,  a division of
     Sierra Capital  Funding LLC, a related party,  and recorded it as a related
     party note  receivable.  The note accrued  interest at 15% per annum. As of
     June 30,  1998  $14,062 was earned on this note.  On February  10, 1999 the
     Trust  advanced an additional  $22,500 to Equity 1-2-3.  For the six months
     ending June 30, 1999 the Trust has not  recognized  any interest  from this
     note. The note was written off during the second half of 1999.

9.   Preferred stock and common stock
     --------------------------------

     The Preferred Shares are entitled to a distribution preference in an amount
     equal to an annualized return on the 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)  equal to the
     lesser of 10.25% or 150 basis points over the Prime Rate  (determined  on a
     not less than quarterly basis).

     After  declaration of dividends for a given quarter to the Preferred Shares
     in the amount of the distribution preference,  no further distributions may
     be  declared  on the  Preferred  Shares for the  quarter  until the current
     Distributions  declared on each Common  Share for that  quarter  equals the
     distribution  preference  for each  Preferred  Share for such quarter.  Any
     additional  distributions  generally will be allocated such that the amount
     of  distributions  per share to the  holders  of the  Preferred  Shares and
     Common Shares for the quarter are equal. The distribution preference of the
     Preferred Shares is not cumulative.

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                  (Unaudited)

     Preferred  Shares 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 the holders of the Common
     Shares and Preferred Shares pro rata.

     The  Preferred  Shares,  at the  option  of the  Board  of  Directors,  are
     redeemable by a  Shareholder  annually on June 30 for  redemption  requests
     received by May 15 of such year.  The Board of Directors  may in their 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.  A  liquidation  charge may be charged by the Trust in
     connection with a redemption.

     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 to
     prohibit  the  transfer of shares to persons that would result in violation
     of the Trust's share holding requirements.  In addition, the Bylaws provide
     that no shareholder may own more than 9.8% of the total outstanding  shares
     after the conclusion of the initial public offering of Common Shares.

     One  Shareholder  Warrant was issued for every 10 Common Shares  purchased.
     Each shareholder  Warrant entitles the holder to purchase one Common Share.
     The exercise price for each Shareholder  warrant is $5.60. The Warrants may
     be  exercised  through  April 28,  2001.  In order to protect  the  Warrant
     holders against dilution, the exercise price of the Warrants and the number
     of which may be purchased  upon  exercise of the Warrants  will be adjusted
     should certain events occur (i.e. stock dividends, split-ups, combinations,
     and reclassifications).  Provision is also made to protect against dilution
     in  the  event  of a  merger,  consolidation,  or  disposition  of  all  or
     substantially  all of the Trust's  assets.  Warrant holders do not have the
     rights of a  shareholder  and they are not  entitled  to  participate  in a
     distribution  of the  Trust's  assets  in a  liquidation,  dissolution,  or
     winding up of the trust, unless the Warrants have been exercised. The Trust
     may  refuse  to allow  the  exercise  of a  warrant  if the  effect of such
     exercise would  disqualify  the Trust as a REIT under the Internal  Revenue
     Code.

     Under  the 1998  Incentive  Stock  Option  Plan,  adopted  by the  board of
     directors and approved by the  stockholders,  options for the purchase of a
     total  of  150,000  common  shares  of the  Trust  were  granted  effective
     September 30, 1998. 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 six (6) months after the date
     of the grant.  The initial options for the purchase of 75,000 common shares
     can be  exercised  at $8.00 per share.  The options for the purchase of the
     remaining  75,000 of common shares can be exercised at the closing price of
     the Trust's  common shares on the American Stock Exchange on April 1, 1999,
     which was $4.50 per common share.

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

                          Notes to Financial Statements
                 For the six months ended June 30, 2000 and 1999
                                   (Unaudited)

     During 1999 the Trust did not  purchase  any common or  preferred  stock as
     treasury  shares.  During  the second  quarter of 2000 the Trust  purchased
     1,700 common shares for the treasury. These shares are recorded at cost and
     as a reduction to common shares.

10.  Earnings per share
     ------------------

     The following table is a  reconciliation  of the numerator and denominators
     of the basic and diluted earnings per common share.


                                     Six  months ended  Three months ended
     Numerator:                        June 30, 2000       June 30, 2000
                                       -------------       -------------
      Net income                        $   291,554        $    70,562
      Less: Preferred Dividend          $   303,834        $   153,793
                                        -----------        -----------

     Numerator for basic and diluted
     earnings per share                 $   (12,280)       $   (83,231)
                                        -----------        -----------

     Denominator:
       Basic weighted average shares      1,484,716          1,484,740

       Diluted weighted average shares    1,484,740          1,484,740
                                        -----------        -----------

     Basic earnings per common share    $     (0.01)       $     (0.06)
                                        -----------        -----------
     Diluted earnings per common share  $     (0.01)       $     (0.06)
                                        -----------        -----------

                                       12
<PAGE>
                                     PART I
                                     ITEM 2.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION

                                       13
<PAGE>
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     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.

General

     Recent  Trends.  The  Trust invests  in non-conforming  mortgage  loans  on
one-to-four unit residential  properties because management  believes that there
is a large demand for non-conforming mortgage loans on these kinds of properties
which produce higher yields without comparably higher credit risks when compared
with conforming  mortgage  loans.  Management  invests  primarily in A-, B/C (or
less) credit rated home equity loans  secured by deeds of trust.  In general,  B
and C credit  rated home equity  loans are made to  borrowers  with lower credit
ratings than  borrowers of higher  credit  quality,  such as A credit rated home
equity  loans.  Home  equity  loans  rated A-, B/C (or less) tend to have higher
rates of loss and  delinquency,  but higher rates of interest than  borrowers of
higher credit quality.

     Management believes there is strong demand for high-yielding non-conforming
mortgage  loans  caused by a demand by  investors  for higher  yields due to low
interest  rates  over the past few years  and  securitization  of  high-yielding
non-conforming mortgage loans by the investment banking industry.

     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 subject of 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  escrow  funds  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  were
provided to the Trust by CAAI, its Manager.

     Commitments  and  Contingencies.   As of June 30 , 2000,  the  Trust's loan
portfolio  included  78 loans  totaling  $11,949,718  of which 7 loans  totaling
$1,190,250 of the loan portfolio were delinquent  over sixty days.  There were 5
delinquent loans  representing  $888,250 of the portfolio were in the process of
foreclosure  at  June  30,  2000.  In  assessing  the  collectibility  of  these
delinquent  mortgage  loans,  management  estimates  the loan  loss  reserve  is
adequate.  Management's  estimate  is based on a  discounted  sales price of the
property less the sum of pre-existing  liens,  costs of sale, the face amount of
the mortgage loan and accrued  interest  receivable.  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 June 30, 2000 and June 30, 1999.

Results of Operations

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

     Three months and six months ended June 30, 2000 and 1999.  Revenues for the
second  quarter of 2000  increased  to $323,768 as compared to $263,146  for the
same period in the previous  year.  Revenues for six months of 2000 increased to
$773,931 as compared to $634,603 for the same period of the previous year.

     The 2000 interest income and interest  income from affiliates  approximated
the results  for the quarter and six months,  compared to the same period in the
previous year.  The increase is due to the improved operating results of Capital
Alliance Funding  Corporation.  mortgage notes receivable and warehouse

                                       14
<PAGE>
lines  of  credit  balances  than in the  same  period  of  previous  year.  The
origination expansion costs of Capital Alliance Funding Corporation were $76,711
lower for the comparable quarter and $167,726 lower for the six month period.

     Expenses for the second quarter 2000  decreased to $255,706 as  compared to
$258,104 for the same  period in the previous year.  Expenses for the six months
period of 2000 decreased to $479,853 as compared to $486,170 for the same period
of the previous year.

     The decrease in the second quarter of 2000  compared  to 1999  is due  to a
$27,000 lower  reserve for loan losses which was  partially  offset by increased
costs of borrowing in a higher interest rate  environment and the carrying costs
of real estate owned. The increase in the six months of 2000 compared to 1999 is
similarly  explained.  Increased  interest  expenses of $26,034 were incurred to
finance real estate owned and the result of a higher  interest rate  environment
than the comparable period and an net reduction in the allowance for loan losses
of $42,000.

Inflation

     The  financial  statements  of  the Trust,  prepared  in  accordance   with
generally accepted accounting principles,  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.

 Liquidity and Capital Resources

     The liquidity of the Trust  will be based upon the need to fund investments
in  mortgage  loans.  The  Trust's  liquidity  requirements  will be  funded  by
periodical  payoffs of existing loans which are generally short term in duration
and by the sale of foreclosed  properties.  Restrictions  on cash  attributed to
holdbacks do not significantly impact the Trust's liquidity.

     Net cash provided by operating activities during the six  months ended June
30, 2000 and 1999 was $915,189 and $102,436 respectively.

     Net cash (used in) investing activities for  he six  months ended  June 30,
2000 and 1999 was $(1,718,242) and $(1,524,698), respectively.

     Net cash provided by financing activities during the six months  ended June
30, 2000 and 1999 was $1,684,765  and $862,788,  respectively.  The 2000 results
are primarily from the proceeds of the $2,250,000 borrowing facility in placo of
1999's borrowing fron the warehouse line of credit.

     CAIT maintains a $2,250,000  bank loan  and  CAFC  maintains  a  $4,000,000
warehouse line of credit from different lenders.  Both borrowings are guaranteed
by the Trust.  Management believes that cash flow from operations,  the proceeds
of loan repayments plus the  establishment  of the warehouse lines of credit for
the Mortgage  Conduit Business will be sufficient to meet the liquidity needs of
the Trust's businesses for the next twelve months.

Year 2000

     The  Trust  has  not  incurred  any  significant  costs   or  suffered  any
operational problems from Year 2000 compliance.

                                       15
<PAGE>
                                     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 second  quarterly  period  ending  June 30, 2000 the Trust
           purchased 1,700 common shares.

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           The Trust's 2000 Annual Meeting was held on July 7, 2000. The results
           of the annual  meeting will be  reported in the 10-Q  filing for  the
           quarter ending September 30, 2000.

ITEM 5     OTHER INFORMATION

           Not applicable.

           ITEM 6   REPORTS ON FORM 8-K

           Not applicable.

                                       16
<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 thereunto duly authorized.


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


Dated: August 21, 2000         By:  /s/ Thomas B. Swartz
                                    --------------------
                                    Thomas B. Swartz, Chairman and
                                    Chief Executive Officer


Dated: August 21, 2000         By:  /s/ Richard J. Wrensen
                                    ----------------------
                                    Richard J. Wrensen, Executive Vice President
                                    and Chief Financial Officer

                                       17