UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(Mark One)
         (X)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001
                                       OR
         ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number: 333-11625

                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                  --------------------------------------------
                           AL 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)

           Securities registered pursuant to Section 12(b) of the Act:

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
Common Stock $0.01 par value                    American Stock Exchange


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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (P. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.

As of April 5, 2002, the Registrant's common shares closed at $15.40 and the
aggregate market value of the Registrant's shares of Common Stock, $.01 par
value, held by nonaffiliates of the registrant was approximately $5,333,528. At
that date approximately 346,333 shares were held by non-affiliates. The shares
are listed on the American Stock Exchange.

<PAGE>
                                TABLE OF CONTENTS


PART I.........................................................................5

ITEM 1.  BUSINESS..............................................................5
     General...................................................................5

MORTGAGE INVESTMENT BUSINESS...................................................5
     General...................................................................5
     Mortgage Loan Portfolio...................................................5
     Financing.................................................................6

MORTGAGE CONDUIT BUSINESS......................................................6
     General...................................................................6
     Marketing and Production..................................................7
     Underwriting..............................................................7
     Whole Loan Sales..........................................................8

WAREHOUSE LENDING BUSINESS.....................................................8

HEDGING........................................................................9

SERVICING......................................................................9
     Geographical Distribution................................................10
     Interest.................................................................10
     Maturity.................................................................10
     Delinquencies............................................................11

REGULATION....................................................................11

COMPETITION...................................................................12

EMPLOYEES.....................................................................12

ITEM 2.  PROPERTIES...........................................................12

ITEM 3.  LEGAL PROCEEDINGS....................................................12

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS..................12

ITEM 5.  MARKET FOR REGISTRANT'S COMMON
     EQUITY AND RELATED STOCKHOLDER MATTERS...................................13

PART II.......................................................................15

ITEM 6.  SELECTED FINANCIAL DATA..............................................15

                                        2
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
     OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................16

     GENERAL..................................................................16
     Organization.............................................................16
     Operating Strategy.......................................................16
     Loan Origination and Loan Servicing......................................16
     Contingencies and Commitments............................................16

RESULTS OF OPERATIONS.........................................................17

YEAR ENDED DECEMBER 31, 2001
         COMPARED TO YEAR ENDED DECEMBER 31, 2000.............................17

YEAR ENDED DECEMBER 31, 2000
         COMPARED TO YEAR ENDED DECEMBER 31, 1999.............................18

INFLATION ....................................................................18

LIQUIDITY AND CAPITAL RESOURCES...............................................18

LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2001.................................18

LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2000.................................19
     Forwarding-Looking Statements............................................19
     Market Risk..............................................................19
     Asset and Liability Management...........................................20

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................21

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .......................22

PART III......................................................................23

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT......................23

DIRECTORS.....................................................................23

EXECUTIVE OFFICERS............................................................24

ITEM 11.  EXECUTIVE COMPENSATION..............................................25

COMPENSATION OF OFFICERS......................................................25

COMPENSATION OF DIRECTORS.....................................................25
     Director Fees............................................................25
     Committee and Other Meeting Fees.........................................25
     Reimbursements...........................................................25

                                        3
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN
     CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................25

ITEM 13.  CERTAIN RELATIONSHIPS
     AND RELATED TRANSACTIONS.................................................27
     Arrangements and Transactions with CAAI..................................27
     Sale and Purchase of Loans...............................................27
     Other Business Activities................................................28

PART IV.......................................................................29

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS
     SCHEDULES, AND REPORTS ON FORM 8-K.......................................29

(a)(1)   Financial Statements. The following Company Financial Statements are
         filed as part of this report:
         Independent Auditors' Report .......................................F-1
         Balance Sheets .....................................................F-2
         Statement of Operations.............................................F-3
         Statements of Changes in Stockholders' Equity.......................F-4
         Statement of Cash Flows.............................................F-5
         Notes to Financial Statements.......................................F-6

(a)(2)   Financial Statment Schedules are Listed in Part II Item 8.

(a)(3)   Exhibits.............................................................29
         --------

SIGNATURES....................................................................31

                                        4
<PAGE>
--------------------------------------------------------------------------------
                                     PART I
--------------------------------------------------------------------------------

ITEM 1.  BUSINESS

         General. Unless the context otherwise requires, references herein to
the "Company" refer to Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the "Trust"), and Capital Alliance Funding Corporation
("CAFC"), collectively.

         Capital Alliance Income Trust Ltd., A Real Estate Investment Trust is a
specialty mortgage finance company which, together with its subsidiary, operates
a mortgage banking concern with three divisions which are referred to herein as
(1) the Mortgage Investment Business, (2) the Mortgage Conduit Business, and (3)
the Warehouse Lending Business. The Trust directly conducts its Mortgage
Investment Business, which invests for the Trust's portfolio of
collateral-oriented, high-yielding, non-conforming residential mortgage loans
and home equity loans and its Warehouse Lending Business which provides secured
warehouse and repurchase financing to CAFC and an affiliated mortgage banker.
The Mortgage Conduit Business, which originates and purchases as a wholesale
mortgage banker, non-conforming residential mortgage loans is conducted through
CAFC in which the Trust holds a 99% economic interest. Both the Company and CAFC
are externally advised by Capital Alliance Advisors, Inc. ("CAAI" or "Manager").

         References to financial information of the Trust for the years ending
1999, 2000, and 2001 reflect the financial operations of the Trust and its
Mortgage Investment and Mortgage Warehouse businesses and the Trust's equity
interest in the Mortgage Conduit Business conducted by CAFC.

         MORTGAGE INVESTMENT BUSINESS

         General. The Trust, through its Mortgage Investment Business, acquires
mortgage loans which are principally nonconforming residential mortgage loans
with a maximum 75% combined loan-to-value ratio for long-term investment. The
Mortgage Investment Business invests in both first and junior mortgage loans.
Income is earned principally from the net interest income received by The Trust
on mortgage loans held in its portfolio and from fees received in connection
with their origination. Such acquisitions are financed with a portion of the
Trust's capital. Loans, other than warehouse lines of credit and repurchase
financing obtained by CAFC, are restricted by the Trust's Bylaws to four (4)
times the Trust's total shareholders' equity. (See "Mortgage Conduit Business.")

         Mortgage Loan Portfolio. The Trust (a) through its Manager originates
mortgage loans, through its Advisor's executive office in San Francisco and its
branch offices in Irvine and San Diego, California and through its network of
mortgage brokers and correspondents, and (b) invests a substantial portion of
its portfolio in non-conforming first and second mortgage loans. The Trust also
purchases such loans from third parties, including CAFC, for long-term
investment. Management believes that non-conforming mortgage loans provide an
attractive net earnings profile and produce higher yields without commensurately
higher credit risks when compared with conforming mortgage loans. As a matter of
investment policy, all loans held for the Trust's portfolio have a
loan-to-value, at the time of origination, of 75% or less. This is verified by
independent appraisal. At December 31, 2001 the Trust's loan portfolio totaled
$17,738,923 with an average loan size of $179,181, an average weighted yield of
13.21%, a weighted average adjusted maturity of 24.92 months and a weighted
average loan-to-value ratio of 65.10%. First deeds of trust comprised 26% of the
portfolio's dollar value and junior deeds of trust were 74%. The highest
concentration of nonconforming mortgage loans originated or purchased by the
Trust relates to properties located in California because of the generally
higher property values and mortgage loan balances prevalent there.

                                        5
<PAGE>
         Financing. The Mortgage Investment Business is financed by the Trust's
shareholders' equity and bank borrowings. The Trust's Bylaws restrict the
encumbrance of the Trust's assets to four (4) times the Trust's total
shareholders' equity. The Trust's portfolio of mortgage loans at December 31,
2001 was partially encumbered by two different bank lines of credit in the
amounts of $6,964,300 and $2,250,000 respectively. Such restriction does not
apply to CAFC which utilizes warehouse lines of credit from commercial lenders.

         The Trust may plan to issue Mortgage-backed Securities, such as
Collateralized Mortgage Obligations or mortgage pass-through certificates
representing an undivided interest in pools of mortgage loans formed by the
Trust. However, there is no assurance that the Trust will adopt financing
strategies in the future which will include the issuance of mortgage-backed
securities as an alternative for the financing of its Mortgage Investment
Business. Similarly, the investment policies of the Trust for its Mortgage
Investment Business and its Bylaws may be modified by the Trust's Board of
Directors.

         The Trust is negotiating for additional lines of credit secured by a
portion of the Trust's mortgage loan portfolio and at the rates that are
consistent with its financing objectives described herein. The Trust, through
CAFC, has obtained third-party warehouse financing at interest rates that are
consistent with its financing objectives described herein. The Trust also
extends a warehouse reverse repurchase facility to CAFC which at December 31,
2001 aggregated $4,217,407. A reverse repurchase agreement, although structured
as a sale and repurchase obligation, acts as a financing vehicle under which
CAFC effectively pledges its mortgage loans as collateral to secure a short-term
loan. Generally, the other party to the agreement makes the loan in an amount
equal to a percentage of the market value of the pledged collateral.

         MORTGAGE CONDUIT BUSINESS

         General. CAFC was organized on April 15, 1997 as a taxable subsidiary
and began its mortgage origination and whole loan sales operations on a start-up
basis in August, 1997. The Mortgage Conduit Business consists primarily of the
origination and the purchase and sale of mortgage loans with a complete spectrum
of credit grades secured by first liens and second liens on single (one-to-four)
family residential properties that are originated in accordance with its
underwriting guidelines. The Trust's Mortgage Conduit Business acts as a conduit
between the originators of such mortgage loans and permanent investors in such
loans. Capital Alliance Advisors, Inc. contracts with CAFC for its management
and for its mortgage origination, loan processing and underwriting, and
secondary sales services. The Trust's Manager owns a 1% economic interest and
100% of the of voting control of CAFC.

         The Management believes that non-conforming credit-rated mortgage
loans, when properly underwritten, provide an attractive net earnings profile,
producing higher yields without disproportionately higher credit risks when
compared to mortgage loans that qualify for purchase by FNMA or FHLMC. The
Trust's policy for its Mortgage Investment Business, which limits the financing
or leveraging of its mortgage loan portfolio, does not apply to its Mortgage
Conduit Business since such mortgage loans are generally held in CAFC for less
than ninety days prior to their sale to permanent investors who securitize such
loans in the secondary market and their acquisition or funding will generally be
facilitated through a warehouse line of credit or reverse repurchase agreement.

         Correspondents originate and close mortgage loans under CAFC's mortgage
loan programs on a loan-by-loan basis. Correspondents include mortgage bankers
and mortgage brokers. However, the Mortgage Conduit Business will assume the
potential risk of any increased delinquency rates and/or credit losses as well
as interest rate risk in the event there is a delay in the sale of such loans to
permanent investors. Normally, such on-going risks, upon the sale of a loan will
pass to the purchaser without recourse to CAFC and are reduced by the relatively
short period that such loans are held and accumulated prior to sale to permanent
investors.
                                        6
<PAGE>
         All non-conforming loans purchased or originated by CAFC which meet the
Trust's underwriting guidelines, including its 75% Combined Loan-to-Value
limitation, are made available for sale to the Trust at fair market value at the
date of sale and subsequent transfer to the Trust. Loans not purchased by the
Trust for its Mortgage Investment Business will be sold in the secondary market
through whole loan sales.

         The Mortgage Conduit Business acquires all of the servicing rights on
loans it originates or purchases and such servicing rights will normally be
relinquished when loans are sold into the secondary market. The Mortgage Conduit
Business generally has no on-going risk of loss after a whole loan sale other
than liability with respect to normal warranties and representations given in
such sales and for fraud in the origination process.

         Marketing and Production. CAFC's competitive strategy in its Mortgage
Conduit Business is to offer to its mortgage loan broker and correspondent
network, a complete spectrum of credit-grade residential mortgage loans to be
sold in the secondary market network. This should enable CAFC to shift the high
fixed costs of interfacing with the homeowner to the correspondents and brokers.
The marketing strategy for the Mortgage Conduit Business is designed to
accomplish three objectives: (1) attract a diverse group of loan originators and
loan correspondents throughout California and the western United States, (2)
establish relationships with such brokers and correspondents and, (3) originate
and/or purchase the loans on both an individual and bulk basis and sell them
into the secondary market or, where they meet the Trust's underwriting
standards, to the Trust's Mortgage Investment Business. To accomplish these
objectives, the Mortgage Conduit Business intends to provide responsive and
consistent underwriting and funding services to its mortgage broker and
correspondent networks. CAFC and the Trust emphasize flexibility in their
mortgage loan products to attract correspondents and establish relationships.
CAFC also maintains relationships with numerous end-investors so that it may
develop products that they may be interested in as market conditions change,
which in turn may be offered through the correspondent network.

         A substantial portion of the mortgage loans to be originated or
purchased through the Mortgage Conduit Business are non-conforming mortgage
loans. Such non-conforming loans may involve some greater risk as a result of
underwriting and product guidelines which will differ from those applied by FNMA
and FHLMC primarily with respect to loan size, borrower income or credit
history, required documentation, interest rates, and borrower occupancy of the
mortgaged property. In general, non- conforming residential mortgage loans made
to borrowers with lower credit ratings than borrowers of higher quality, or so
called "A" grade mortgage loans, are normally subject to higher rates of loss
and delinquency than the other non-conforming loans to be purchased by the
Mortgage Conduit Business. As a result, these loans normally bear a higher rate
of interest, and may be subject to higher fees (including greater prepayment
fees and late payment penalties), than non-conforming loans of "A" quality.

         The mortgage loans originated or acquired by the Mortgage Conduit
Business will be secured by first liens and/or second liens on single
(one-to-four) family residential properties with either fixed or adjustable
interest rates. Fixed-rate mortgage loans have a constant interest rate over the
life of the loan, which is generally 15, 20 or 30 years. The interest rate on an
adjustable rate mortgage ("ARM") is typically tied to an index (such as LIBOR)
and is adjusted periodically at various intervals.

                                       7
<PAGE>
         The Trust's Manager, through its correspondent and broker network,
including the Trust's subsidiary CAFC which is managed by CAAI, accounted for
100% of the total mortgage loans acquired by the Trust during the year ended
December 31,2001.

         Underwriting. The Trust's Manager, CAAI, provides documentation for the
origination or purchase of mortgage loans and performs the underwriting function
for all of the Trust's loans on a contract basis with the Trust. The Trust's
Manager also performs a full credit review and analysis to ensure compliance
with its loan eligibility requirements. This review specifically includes, among
other things, an analysis of the underlying property and associated appraisal
and an examination of the credit, employment and income history of the borrower.
Under all of these methods, loans are originated or purchased only after
completion of a legal documentation and eligibility criteria review.

         Under all of the Trust's and CAFC's underwriting methods, loan
documentation requirements for verifying the borrowers' income and assets vary
according to loan-to-value ratios, credit ratings and other factors. This
variation is necessary to be competitive and responsive to the needs of the
non-conforming mortgage loan sellers. Generally, as the standards for required
documentation are lowered, borrowers' down payment requirements are increased
and the required loan-to-value ratios are decreased. These types of loans with
less documentation are reviewed on a risk analysis underwriting basis. Reduced
documentation loans require the borrower to have a stronger credit history and
larger cash reserves and the appraisal of the property is validated by either an
enhanced desk or field review. The underwriters utilize a risk analysis approach
to determine the borrower's ability and willingness to repay the debt and to
determine if the property taken as security has sufficient value to recover the
debt in the event that the loan defaults. Each loan is reviewed for compensating
factors (i.e., credit reports, sufficient assets, appraisal, job stability,
ability to repay the loan), and overall compensating factors are reviewed to
fully analyze the risk.

         CAAI reviews each loan prior to the Trust's commitment to originate or
purchase a mortgage loan to ensure that the mortgage loans meet its quality
standards. The type and extent of the quality control review depends on the
nature of the seller and the characteristics of the loans. In performing a
quality control review on a loan, CAAI analyzes the underlying property
appraisal and examines the credit and income history of the borrower. In
addition, all documents submitted in connection with the origination or purchase
of the loans, including insurance policies, title policies, deeds of trust or
mortgages and promissory notes, are examined for compliance with the Trust's and
CAFC's guidelines and to ensure compliance with state and federal regulations.

         Whole Loan Sales. CAFC sells its mortgage loans on a loan-by-loan or
"flow" basis, service released. CAFC does not accumulate a pool of mortgage
loans for sale to investors in whole loan sale transactions. While the loans
sold by the Trust's Mortgage Conduit Business will generally be sold on a
non-resource basis with respect to economic interest and rate risk, such sales
will generally be made pursuant to agreements that provide for recourse by the
purchaser against the Trust's Mortgage Conduit Business in the event of a breach
of any representation or warranty made by the Trust's Mortgage Conduit Business,
any fraud or misrepresentation during the mortgage loan origination process or
upon early default on such mortgage loans. The Trust's Mortgage Conduit Business
will generally try to limit the remedies of such purchasers to the remedies the
Trust's Mortgage Conduit Business receives from the persons from whom the
Trust's Mortgage Conduit Business purchases a portion of such mortgage loans.
However, in some cases, the remedies available to a purchaser of mortgage loans
may be broader than those available to the Trust's Mortgage Conduit Business
against its seller, and should a purchaser exercise its remedies and rights
against it, the Mortgage Conduit Business may not always be able to enforce
whatever remedies it may have against its sellers.

                                       8
<PAGE>
         WAREHOUSE LENDING BUSINESS

         The Trust's third line of business is its Warehouse Lending Business.
Such operations consist primarily of financing for its affiliated mortgage
bankers, including CAFC and Calliance Realty Fund, LLC. The non-conforming
mortgage loans funded with such financing may be acquired by the Trust for its
portfolio when such loans meet its investment criteria. These facilities provide
reverse financing for mortgage loans from the time of closing the loan to the
time of its sale or other settlement with the pre-approved investor. The
Trust's financing is non-recourse and the Trust can only look to the sale or
liquidation of the mortgage loans as a source of repayment or repurchase. Any
claim of the Trust as a secured lender in a bankruptcy proceeding may be subject
to adjustment and delay. Borrowings under these facilities are presented on the
Trust's balance sheet as "Notes receivables from related party."

         The Trust provides $5 million and $1.5 million reverse repurchase
facilities to CAFC and Calliance Realty Fund, LLC. The lines of credit
outstanding on the Trust's balance sheet is structured to qualify under the REIT
asset tests and to generate income qualifying under the 75% gross income test.
The terms of the line are market based and may include a per loan fee of up to
$500 with an advance rate of 100% of the fair value of the mortgage loans
outstanding.

         Utilizing reverse repurchase agreements, at December 31, 2001, the
Trust had outstanding balances of $4,217,407 to CAFC and $0 to Calliance Realty
Fund, LLC, both affiliated mortgage banking companies.

         HEDGING

         The mortgage loans held by the Mortgage Investment Business mostly
carry fixed rates and have relatively short maturities. As the portfolio of
fixed-rate mortgage loans increases or if the portfolio's scheduled maturities
increase, it is anticipated that various hedging strategies will be implemented
to provide protection against interest rate risks. The nature and quantity of
hedging transactions will be determined by the Manager based on various factors,
including market condition, the expected volume of mortgage loan originations
and purchases for investment and the mortgage volume and period of time required
to accumulate and to sell mortgage loans.

         However, an effective hedging strategy is complex and no hedging
strategy can completely insulate the Mortgage Conduit Business or Mortgage
Investment Business from interest rate risks. In addition, hedging involves
transaction and other costs, and such costs could increase as the period covered
by the hedging protection increases or in period of rising and fluctuating
interest rates. Therefore, the Mortgage Conduit Business or Mortgage Investment
Business may be prevented from effectively hedging its interest rate risks,
without significantly reducing its return on equity.

         SERVICING

         As the Trust or CAFC originates mortgage loans, they acquire the
servicing rights. The Trust and CAFC subcontract all of their servicing
obligations under such loans to CAAI, the Trust's Manager. Servicing includes
collecting and remitting loan payments, making required advances, accounting for
principal and interest, holding escrow or impound funds for payment of
improvement holdbacks, interest, taxes and insurance, if applicable, making
required inspections of the mortgaged property, contacting delinquent borrowers
and supervising foreclosures and property dispositions in the event of
unremedied defaults in accordance with the Trust's guidelines. All or a portion
of the aforementioned servicing responsibilities may be subcontracted by the
Trust's Manager.

                                       9
<PAGE>
         Servicing Portfolio. The following tables sets forth certain
information regarding the Trust's servicing portfolio of loans for the years
ended

<TABLE>
<CAPTION>
                                                 December 31, 1999       December 31, 2000       December 31, 2001
                                                 -----------------       -----------------       -----------------

<S>                                                 <C>                      <C>                     <C>
Beginning servicing portfolio                       $8,968,645               $10,807,644             $11,906,586
Loans added to the servicing portfolio              $7,452,006                $7,457,537             $15,380,173

Loans sold, servicing released and principal
    paydowns (1)                                    $5,630,987                $6,358,592              $9,547,836
                                                  ------------              ------------            ------------

Ending servicing portfolio                         $10,807,644               $11,906,589             $17,738,923

Number of loans serviced                                    82                        84                      99
Average loan size                                     $131,801                  $141,745                $179,181
</TABLE>


     (1) Includes normal loan payoffs, principal amortization prepayments, and
         loans contributed as capital to CAFC, less reserves and foreclosures.

         Geographical Distribution. The following table sets forth the
geographic distribution of the Trust's servicing portfolio at the dates
presented:

<TABLE>
<CAPTION>
                   December 31, 1999               December 31, 2000                December 31, 2001
               ------------------------       --------------------------       --------------------------
                Number         $-% of          Number           $-% of          Number           $-% of
 State         of Loans       Portfolio       of Loans         Portfolio       of Loans         Portfolio
 -----         --------       ---------       --------         ---------       --------        ----------
<S>              <C>            <C>               <C>             <C>             <C>            <C>
   CA            80              97%              75               89%            95              96%
   OR             0               0%               1                1%             1               1%
   UT             2               3%               4                5%             2               2%
 Other            0               0%               4                5%             1               1%
                 --             ----              --              ----            --             ----
Totals:          82             100%              84              100%            99             100%
</TABLE>

      Interest. The weighted average interest for the Trust's portfolio of
loans in its Mortgage Investment Business at December 31, 1999 was 12.15%, at
December 31, 2000 it was 12.46%, and at December 31, 2001 it was 13.21%.

         Maturity. The weighted average adjusted maturity of the Trust's
portfolio of loans in its Mortgage Investment Business at December 31, 1999 was
22.57 months, at December 31, 2000 it was 27.48 months, and at December 31, 2001
it was 24.92 months. The following table shows the Trust's loan maturities at
the dates presented.

<TABLE>
<CAPTION>
                       December 31, 1999               December 31, 2000               December 31, 2001
                   ------------------------      ---------------------------      -------------------------
   Terms             Amount          $-%           Amount             $-%           Amount           $-%
  of Loans          of Loans      Portfolio       of Loans         Portfolio       of Loans       Portfolio
  --------         ---------      ---------      ---------         ---------      --------        ---------

<C>              <C>                <C>         <C>                  <C>        <C>                 <C>
0-12 months        6,548,777         61%         $3,254,592           27%         7,339,035          41%
13-24 months       1,365,577         13%          1,094,670            9%         1,143,689           6%
25-36 months         587,213          5%            505,576            4%            84,946           1%
37-48 months            None          0%            544,132            5%         2,208,485          13%
Over 48            2,306,077         21%          6,507,619           55%         6,962,768          39%
                 -----------        ----        -----------          ----       -----------         ----
Totals:          $10,807,644        100%        $11,906,589          100%       $17,738,923         100%

</TABLE>

                                       10
<PAGE>
         Delinquencies. The following table shows the Trust's delinquency
statistics for its servicing portfolio at the dates presented.

<TABLE>
<CAPTION>
                       December 31, 1999             December 31, 2000            December 31, 2001
                    -----------------------       -----------------------      -----------------------
    Loans            Number        $-% of          Number        $-% of         Number        $-% of
Delinquent For:     of Loans      Portfolio       of Loans      Portfolio      of Loans      Portfolio

<C>                    <C>           <C>            <C>           <C>            <C>          <C>
31-60 days              3             3%             3             3%             6            4%
61-90 days              2             4%             3             4%             8            5%
91 days+                7             8%             8(1)         10%             5(2)         3%
                       --            ---            -----         ---            -----        ---
Totals:                12            15%            14            17%            19           12%
</TABLE>

(1)  Four of the 91 days+ delinquent loans were either paid off in full or
     brought current by March 31, 2001.

(2)  Three of the 91 days+ delinquent loans were either paid off in full or
     brought current by March 31, 2002. REGULATION

         The Trust at all times intends to conduct its business so as not to
become regulated as an investment Trust under the Investment Trust Act. The
Investment Trust Act exempts entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interest"). Under the current
interpretation of the staff of the Commission, in order to qualify for this
exemption, the Trust must maintain at least 55% of its assets directly in
mortgage loans, and certain other Qualifying Interests in real estate. If the
Trust fails to qualify for exemption from registration as an investment Trust,
its ability to use leverage in its Mortgage Investment Business would be
substantially reduced, and it would be unable to conduct its business as
described herein. The Trust has not requested a legal opinion from counsel
indicating that, it will be exempt from the Investment Trust Act.

         Because the Trust's business is highly regulated, the laws, rules and
regulations applicable to the Trust are subject to regular modifications and
change. There are currently proposed various laws, rules and regulations which,
if adopted, could impact the Trust. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or regulations,
will not be adopted in the future which could make compliance much more
difficult or expensive, restrict the Trust's ability to originate, broker,
purchase or sell loans, further limit or restrict the amount of commissions,
interest and other charges earned on loans originated, brokered, purchased or
sold by the Trust, or otherwise affect the business or prospects of the Trust.
Also, members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Trust's loans are made to borrowers for
the purpose of consolidating consumer debt or financing other consumer needs,
the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Trust.

         Additionally, there are various state and local laws and regulations
affecting the Mortgage Conduit Business. CAFC is licensed in those states
requiring such a license. Mortgage operations also may be subject to applicable
state usury statutes. The Trust is presently in material compliance with all
material rules and regulations to which it is subject.

                                       11
<PAGE>
         COMPETITION

         The Trust believes that it will continue to be able to compete in both
its Mortgage Investment Business and its Mortgage Conduit Business on the basis
of providing prompt and responsive service and flexible underwriting for
independent mortgage brokers and correspondents to offer to their customers.

         Continued consolidation in the mortgage banking industry may also
reduce the number of current correspondents to the Mortgage Conduit Business,
thus reducing the Trust's potential customer base, resulting in CAFC or the
Trust purchasing a larger percentage of mortgage loans from a smaller number of
sellers. Such changes could negatively impact the Mortgage Conduit Business.

         The Trust faces competition in its Mortgage Investment Business and
Mortgage Conduit Business from other financial institutions, including but not
limited to banks and investment banks. At present such competition is not
material to the Trust's Warehouse Lending Operations. Many of the institutions
with which the Trust competes have significantly greater financial resources
than the Trust.

         EMPLOYEES

         The Trust has no employees. The Manager employs and provides all of the
persons required for the operation of the Trust and its Mortgage Investment
Business. At December 31, 2001, the Manager employed 15 persons. Additional
employees will be required to staff the anticipated growth of the Mortgage
Conduit Business. None of the Manager's employees is subject to a collective
bargaining agreement. The Manager believes that its relations with its employees
are satisfactory.

  ITEM 2.  PROPERTIES

         The Trust's Manager lease executive and administrative offices located
at 50 California Street, Suite 2020, San Francisco, California, 94111, and
consist of approximately 3,000 square feet.

         CAFC leases space in Irvine and San Diego, California for its branch
offices on a short-term basis.

         Management believes that the terms of the leases are at least as
favorable as could have been obtained from an unaffiliated third party.
Management believes that these facilities are adequate for the Manager's, the
Trust's and CAFC's foreseeable needs and that alternate space at reasonable
rental rates is available, if necessary.

  ITEM 3.  LEGAL PROCEEDINGS

         None.

  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         No matters were submitted to a vote of the Trust's security holders
during the last quarter of its fiscal year ended December 31, 2001.

                                       12
<PAGE>
  ITEM 5.  MARKET FOR REGISTRANT'S COMMON
  EQUITY AND RELATED STOCKHOLDER MATTERS

         The Trust's Common Stock was listed and began trading on the American
Stock Exchange under the symbol "CAA" on October 1, 1998. The range of high and
low split-adjusted sale prices of the Common Stock as quoted on the American
Stock Exchange and NASDAQ composite were:

                                                             Dividend
     Year        Quarter          High          Low          per Share
-----------  --------------  -------------  ------------  ---------------


     2000         1st*          $13.20         $6.73           0.255
                  2nd*           10.95          7.89           0.255
                  3rd*           10.71          6.63           0.255
                  4th*           10.53          6.93            ---


     2001         1st*           12.66          6.81           0.255
                  2nd*           13.50          8.73           0.255
                  3rd            13.41         11.91           0.255
                  4th            13.70         12.10           0.280

     2002         1st            14.20         12.91           0.300
               April 1-12        15.40         14.45           0.400

         * All information is adjusted to reflect the May 14, 2001 one-for-three
reverse stock split.

         On December 31, 2001, there were approximately 110 holders of record
(including holders who are nominees for an undetermined number of beneficial
owners) of the Trust's Common Stock and 138 holders of record of the Trust's
Preferred Stock which is not publicly traded. The Trust believes that its Common
Stock is beneficially held by in excess of 750 shareholders.

         On March 7, 2000, the Trust's Board of Directors authorized the Trust
to repurchase up to $250,000 of the Trust's Common Stock, in open market
purchases, from time to time, at the discretion of the Trust's management. On
December 21, 2000, the Board of Directors increased the Stock Purchase Plan to
$400,000, on June 19, 2001, to $550,000, and on March 13, 2002, to $695,000. As
of March 14, 2002, $240,438 is available to repurchase the Trust's Common Stock.
Separately, in a private transaction with Sutter Capital Management, the Board
authorized the purchase of 47,500 Common Shares at $13.50 per Share. This
transaction closed on September 3, 2001. The timing and extent of future
repurchases will depend on market conditions. The Trust intends to effect such
repurchase in compliance with Rule 10b-18 under the Securities Exchange Act of
1934. As of December 31, 2001, the Trust had acquired 91,066 post- split Common
Shares under the repurchase plan at a total cost of $1,095,808. On December 21,
2001, Treasury Shares totaling 6,000 were used to satisfy exercised Common Share
stock options. As of December 31, 2001, the Trust held 85,066 shares of Common
Stock in the treasury.

         On April 17, 2001, the Board of Directors duly approved the amendment
of the Corporation's Certificate of Incorporation to effect a one-for-three
reverse stock split of the Trust's Common and Preferred Shares, which approval
was duly ratified by the shareholders of the Trust at its annual shareholders'
meeting on August 8, 2001. The reverse stock split became effective after the
close of business on May 11, 2001.

                                       13
<PAGE>
         To maintain its qualification as a REIT, the Trust has made and intends
during 2002 to make annual distributions to stockholders of at least 90% of its
taxable income (which may not necessarily equal net income as calculated in
accordance with GAAP), determined without regard to the deduction for dividends
paid and excluding any net capital gains or loan loss reserves. The Trust
declares regular quarterly Common dividend distributions and monthly Preferred
dividend distributions. Any taxable income remaining after the distribution of
the regular quarterly or other dividends will be distributed annually on or
prior to the date of the first regular quarterly dividends payment date of the
following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for the Trust to maintain REIT status will be made by the Trust at the
discretion of the Board of Directors and will depend on the taxable earnings of
CAFC, the financial condition of the Trust and such other factors as the Board
of Directors deems relevant. The Board of Directors has not established a
minimum distribution level for the Trust's Common Stock. The Trust paid
quarterly dividends on the Trust's Common Stock for the quarters ending March
31, 2001, June 30, 2001, September 30, 2001, and December 31, 2001 at $0.255,
$0.255, $0.255, and $0.280 per post-split share respectively. The Trust during
2001 paid 12 consecutive monthly dividends on the Trust's Preferred Stock at an
average of $.197 per post-split share per month.

         Holders of the Preferred Shares 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 not cumulative.

         After declaring dividends for a given year to the Preferred Shares in
the amount of the dividend preference, no further distributions 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 Distributions associated with a payment date
that are declared after the Directors have declared Distributions on Common
Shares in the amount of the additional dividend generally will be allocated such
that the amount of dividends per share to the Preferred Shares and Common Shares
for the subject year are equal. The Preferred Shares additional dividend is not
cumulative.

         Distributions to stockholders will generally be taxable as ordinary
income, although a portion of such distributions may be designated by the Trust
as capital gain or may constitute a tax-free return of capital. the Trust will
annually furnish to each of its stockholders a statement setting forth
distributions paid during the preceding year and their characterization as
ordinary income, capital gains or return of capital.

                                       14
<PAGE>
--------------------------------------------------------------------------------
                                     PART II
--------------------------------------------------------------------------------


  ITEM 6.  SELECTED FINANCIAL DATA

         The following table presents selected historical financial data of the
Trust derived from the audited financial statements for the years ended December
31, 1997, December 31, 1998, December 31, 1999, December 31, 2000, and December
31, 2001.

         The historical financial information is not necessarily indicative of
future operations and should not be so construed. The selected financial data
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
                                              Twelve Month Year Ended December 31
                                              -----------------------------------
  Financial Summary                 1997         1998          1999          2000          2001
                                    ----         ----          ----          ----          ----

<S>                            <C>           <C>           <C>           <C>           <C>
 Operations:
Revenue                        $   776,405   $ 1,677,233   $ 1,243,866   $ 1,623,656   $ 2,858,179

Net income                         535,789     1,003,706       450,605       515,023     1,142,896

Per Share Data:

Weighted average basic
   earnings - split adjusted          --     $      1.05          --            --     $      1.46


Weighted average diluted
   earnings - split adjusted          --     $      1.02          --            --     $      1.05


Balance Sheet Data:

Mortgage notes receivable      $ 4,915,186   $ 8,986,645   $10,807,644   $11,906,589   $17,738,923

Total assets                    10,132,419    16,804,983    17,006,696    19,299,332    25,343,401

Total liabilities                  311,096       757,532     1,579,862     4,589,168    11,248,860

Shareholder's equity             9,821,323    16,047,451    15,426,834    14,710,164    14,094,541

Common share equity              3,946,199    10,259,271     9,754,458     9,125,847     8,510,224

Common shares (postsplit)          187,507       494,913       494,913       467,754       410,095

Common share book value        $     21.04   $     20.73   $     19.71   $     19.51   $     20.75
</TABLE>

                                       15
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The preparation of Trust's financial statements were based upon the
operating results of the Trust.

         GENERAL

         Organization. The Trust registered its common shares with the
Securities and Exchange Commission under the Securities Act of 1933 , as
amended, in May of 1997 in an offering of 1,500,000 common shares at $8.00 per
share. The shares are listed on the American Stock Exchange with the exchange
symbol of "CAA".

         On April 15, 1997 the Trust formed its non-qualified REIT subsidiary to
conduct a mortgage conduit business and holds a 99% economic interest in CAFC
through ownership of all of its Series "A" Preferred Stock. The Trust's Manager
holds all of the Common Shares of CAFC and a 1% economic interest in CAFC.

         On September 30, 1998, the initial public offering of Common Shares was
completed. As of December 31, 1998, 1,484,740 Common Shares were issued and
outstanding.

         On November 17, 2000, the Trust duly approved a one share for each
three share reverse stock split of its Common and Preferred Shares which became
effective at the close of business on May 11, 2001. After the split,
approximately 494,913 Common Shares were issued and outstanding and 213,761
Preferred Shares were issued and outstanding. These outstanding totals include
27,160 Common Shares and 3,176 Preferred Shares held in the Treasury on May 14,
2001.

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

         CAFC's operating strategy is to originate, through mortgage loan
brokers and the 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 an individual 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.

                                       16
<PAGE>
         Contingencies and Commitments. As of December 31, 2001, the Trust's
real estate investments included two properties held for sale at a capitalized
cost of $234,527 and a loan portfolio of $17,738,923 consisting of 99 loans, of
which 13 loans totaling $1,543,353 or 8% of the portfolio loan value were
delinquent over 60 days.

         As of December 31, 2000, the Trust's real estate investments included
three properties held for sale at a capitalized cost of $530,000 and a loan
portfolio of $11,906,589 consisting of 84 loans of which 11 loans totaling
$1,637,574 or 14% of the portfolio loan value were delinquent over 60 days.

         In assessing the collectibility of the real estate held for sale and
the delinquent mortgage loans, management estimates a net gain will be
recognized upon sale of the real estate and the properties securing these loans,
if it is necessary to foreclose the mortgage loans due the Trust. Management's
estimate is based on an anticipated sales price of the property that includes a
discount from the latest appraised value 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 all conditions.
Accordingly, the Trust did not have any commitments to fund loans as of December
31, 2001 and December 31, 2000.

         RESULTS OF OPERATIONS

         The results of operation for the years ended December 31, 2001,
December 31, 2000, and December 31, 1999 follows. The historical information
presented herein is not necessarily indicative of future operations.

         YEAR ENDED DECEMBER 31, 2001
         COMPARED TO YEAR ENDED DECEMBER 31, 2000

         Revenues for the year ended December 31, 2001 increased to $2,858,179
as compared to $1,623,656 for 2000, primarily from CAFC's 2001 operating gain of
$381,156 compared to CAFC's 2000 operating loss of $489,507 which was reported
as part of the Trust's gross revenues and CAIT's increased interest income from
a larger mortgage portfolio during 2001. Other income for the year ended
December 31, 2001 increased on account of prepayment fees from early mortgage
payoffs.

         At year ended December 31, 2001, the mortgage notes receivable balance
was $5,832,334 greater than the year ended December 31, 2000 mortgage notes
receivable balance. At year ended December 31, 2001, the warehouse lines of
credit balance to related parties was $527,266 less than the year ended December
31, 2000 warehouse lines of credit. At year ended December 31, 2001, the real
estate held for sale balance was $295,473 less than the year ended December 31,
2000 real estate held for sale balance.

         Expenses for the year ended December 31, 2001 increased to $1,695,149
as compared to $1,083,519 for the previous year. The increase in 2001 compared
to 2000 is primarily due to higher compensation to the Manager, higher interest
expenses from increased borrowings, and the increased general and administrative
expenses of operating a larger company.

         The 2000 and 2001 gains or losses from sales of real estate held and
real estate owned operating expenses were reported as a separate line item and
did not reduce either year's expenses or increase either year's revenues.

         Net Income for the year ended December 31, 2001was $1,142,896. Net
Income for the year ended December 31, 2000 was $515,023.

                                       17
<PAGE>
         YEAR ENDED DECEMBER 31, 2000
         COMPARED TO YEAR ENDED DECEMBER 31, 1999

         The Trust's operating revenues (after adjusting for CAFC's operating
loss, which is reported as part of the Trust's gross revenues) increased to
$2,113,163 as compared to $1,975,882 for 1999, primarily from the increased
interest income of a larger mortgage portfolio. Other income for the year ended
December 31, 2000 decreased on account of lower rental income from real estate
held for sale.

         At year ended December 31, 2000 the mortgage notes receivable balance
was $1,089,925 greater than the year ended December 31, 1999 mortgage notes
receivable balance. At year ended December 31, 1999, the lines of credit balance
was $1,555,357 more than the year ended December 31, 1999 lines of credit
balance. At year ended December 31, 2000 the real estate held for sale balance
was $114,326 less than the year ended December 31, 1999 real estate held for
sale balance.

         Expenses for the year ended December 31, 2000 increased to $1,083,519
as compared to $775,709 for the previous year. The increase in 2000 compared to
1999 is primarily due to higher interest expenses of $172,237, higher
compensation of $60,579 to the Manager, and higher general and administrative
expenses of $61,763.

         The 2000 and 1999 sale of real estate held and real estate owned
operating expenses were reported as a separate line item and did not reduce
either year's expenses or increase either year's revenues.

         Net income for the year ended December 31, 2000 was $515,023. Net
Income for the year ended December 31, 1999 was $450,605.

         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 operation primarily through
the effect on interest rates, since interest rates normally increase during
periods of high inflation and decrease during periods of low inflation. When
interest rate increase, the demand for mortgage loans and a borrower's ability
to qualify for mortgage financing may be adversely affected.

         LIQUIDITY AND CAPITAL RESOURCES

         Management believes that cash flow from operations, the mortgage loans
that are paid off, the disposition of real estate owned, bank loan facilities,
and warehouse lines of credit currently available and warehouse lines of credit
which the Trust and CAFC anticipate will be acquired during 2002 for the
Mortgage Conduit Business will be sufficient to meet the liquidity needs of the
Trust's businesses for the next twelve months.

         LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2001

         As of January 1, 2001, the Trust had $368,241 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2001 were $441,909. 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.

                                       18
<PAGE>
         The principal source of the Trust's increased liquidity was the
$5,875,781 increase in borrowings. Offsetting the increased loans payable
balance was a $5,832,334 increase in mortgage notes receivable.

         Net cash provided by the operating activities during the 12 months
ended December 31, 2001 was $1,388,545. Net Income of $1,142,898 and the
non-cash provision for loan losses of $203,421 were the primary suppliers of
cash. The primary operating activity use of cash was CAFC's net income of
$381,156.

         Net cash provided by financing activities during the 12 months ended
December 31, 2001 was $4,109,760. The provider of cash from financing activities
was $5,875,781 drawn from bank lines of credit. Dividends paid of $966,709 and
net treasury stock purchases of $791,812 were the largest users of cash from
financing activities.

         LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2000

         As of January 1, 2000, the Trust had $41,939 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2000 were $368,241. 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.

         The principal source of the Trust's increased liquidity was the
$2,832,761 increase in borrowings. Offsetting the increased loans payable
balance was a $1,098,925 increase in mortgage notes receivable.

         Net cash provided by the activities during the twelve months ended
December 31, 2000 was $1,789,050. Net income of $515,023 and the non-cash
accounting loss of $489,507 in CAFC were the primary suppliers of cash.

         Net cash provided in financing activities during the twelve months
ended December 31, 2000 was $1,499,818. The principal generators of cash from
financing activities was $2,832,761 provided from bank loans. Dividends paid of
$981,693 were the most significant users of cash from financing activities.

         QUANTITATIVE AND QUALITATIVE
         DISCLOSURE ABOUT MARKET RISK

         Forwarding-Looking Statements. Certain statements contained herein are
not, 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.

                                       19
<PAGE>
         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 December 31, 2001 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 one
month LIBOR. As the level of LIBOR increases or decreases, the Trust's interest
expense will move in the same direction.

         On account of the relatively short adjusted weighted average maturity
of the Trust's portfolio (25 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 reserve for loan losses in the Trust's
portfolio for 2001 would reduce the 2001 GAAP income applicable to common
shareholders by $180,000 or 28%.

         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 (25 months).

                                       20
<PAGE>
         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.

  ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and supplementary data listed in Item 14(a)(1)
are incorporated herein by reference and filed as part of this report.

         Selected Quarterly Financial Data required by Item 302(a) of Regulation
S-K is set forth in the financial statements filed as part of Registrant's Form
10-Qs for the quarters ended March 31, 2001, June 30, 2001 and September 30,
2001 are incorporated herein by reference and filed as part of this report.

         The unaudited 2001and 2000 fourth quarter operating statement is
presented below with the accompanying notes to the operating statement
incorporated herein by reference to the Financial Statements with Independent
Auditor's Report for the three year period ended December 31, 2001.


                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]

                                       21

<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                            STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                       December 31
                                                   2000            2001
                                                   ----            ----

 <S>                                            <C>            <C>
 REVENUES
     Interest income                           $   511,016    $   641,906
     Investment income from affiliates             (27,005)        49,908
     Other income                                    6,718         39,437
                                               -----------    -----------
        Total revenues                             490,729        731,251

  EXPENSES
     Loan servicing and origination
        fees to related party                      129,200        198,823
     Interest expense                               58,441         74,021
     Provisions for loan losses                     99,437         60,162
     Operating expenses of real estate owned         4,580          7,113
     General and Administrative                     43,262         90,367
                                               -----------    -----------

        Total expenses                             334,920        430,486

  NET INCOME BEFORE GAIN
  ON REAL ESTATE OWNED                             155,809        300,765

  GAIN ON REAL ESTATE OWNED                           --             --
                                               -----------    -----------

  NET INCOME                                   $   155,809    $   300,765
                                               ===========    ===========

  PREFERRED SHARE DIVIDENDS                    $   145,354    $   104,709

  WEIGHTED AVERAGE PREFERRED
     SHARE OUTSTANDING                             210,586        210,644

  BASIC EARNINGS PER
     COMMON SHARE                              $      0.02    $      0.48

  DILUTED EARNINGS PER
     COMMON SHARE                              $      0.02    $      0.33

  WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC EARNINGS                  473,033        406,095

  WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - DILUTED EARNINGS                473,033        587,720
</TABLE>

  ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         None.

                                       22
<PAGE>
--------------------------------------------------------------------------------
                                    PART III
--------------------------------------------------------------------------------


  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

         DIRECTORS

  Thomas B. Swartz, 70; Chairman and Chief Executive Officer (1)

         Class I Director since 1995; current term expires in 2003; Chairman and
Chief Executive Officer, Capital Alliance Advisors, Inc. (1989 to date);
Chairman, Capital Alliance Income Trust I (1991 to 1996) and Capital Alliance
Income Trust II (1994 to 1996); Chairman, Sierra Capital Acceptance (1995 to
2000); Chairman and Chief Executive Officer of Sierra Capital Companies and its
Affiliates (1980 to date); Founder Chairman, Chief Executive Officer and Trustee
of seven equity real estate investment trusts (1980-1991); Attorney at Law,
Thomas Byrne Swartz, Inc. (1980 to date), and Bronson, Bronson, & McKinnon, San
Francisco, California (Partner 1960-1980); Past President (1989-1990) and
Member, Board of Governors (1983 to 1993), National Association of Real Estate
Investment Trusts; Director (representing Federal Deposit Insurance Corporation)
of two subsidiaries of American Diversified Savings Bank (in liquidation) (1990
to 1992) Member, Real Estate Advisory Committee to California Commissioner of
Corporations (1972-1973); University of California at Berkeley Boalt School of
Law, L.L.B. 1959; Lieutenant, U.S.N.R. 1954-1956 (active) and to 1967 (reserve);
Yale University, A.B. 1954.

  Dennis R. Konczal, 51; President, Director and Chief Operating Officer (1)

         Class II Director since 1995; current term expires in 2004; President
(1996 to date) and Executive Vice President (1989 to 1996) and Chief Operating
Officer, Capital Alliance Advisors, Inc.; Executive Vice-President, Trustee and
Chief Operating Officer of Capital Alliance Income Trust I (1991 to 1996) and of
Capital Alliance Income Trust II (1994 to 1996); President and Director, Sierra
Capital Acceptance (1995 to 2000); President, Director and Chief Operating
Officer of Sierra Capital Companies (1984 to date) and of Capital Alliance
Investments Incorporated (a NASD broker-dealer and Registered Investment
Advisor) (1984 to 1999); Director, President and Chief Operating Officer,
Granada Management Corporation and Granada Financial Services, Inc.,
agribusiness concerns (1981-1984); Licensed Principal, NASD (1981 to date); B.S.
Agricultural Economics, Michigan State University (1972).

  Richard J. Wrensen, 46; Executive Vice-President, Director and Chief Financial
  Officer (1)

         Class III Director since 2000; current term expires 2002; Executive
Vice-President and Chief Financial Officer, Capital Alliance Advisors, Inc. and
its Affiliates (including Capital Alliance Income Trust Ltd. and of Sierra
Capital Companies and its affiliates) (1997 to date); Senior Vice-President and
Chief Financial Officer, SNK Realty Group (Japanese merchant builder) (1997);
Vice-President Finance, Mattison and Shidler (national real estate investment)
(1987 to 1997); Associate, Marakon Associates (1985 to 1987); Vice-President and
Controller, Ring Brothers Corp. (real estate syndication and management (1981 to
1983); Division Controller, Great Southwest Corp. (1979 to 1981); Certified
Public Accountant (1979); Coopers & Lybrand (1978 to 1979); B.S. Accounting,
University of Florida (1978); MBA, Haas School of Business Administration,
University of California, Berkeley (1985).

                                       23
<PAGE>
  Stanley C. Brooks, 52; Director (2)

         Class II Director since 1996; current term expires 2004; President and
Chairman, Brookstreet Securities Corporation (1990 to date); Executive
Vice-President, Toluca Pacific Securities Corporation (1987 to 1989); Senior
Vice-President, First Affiliated Securities (1983 to 1986); Senior
Vice-President, Private Ledger Financial Services (1976 to 1983); Member,
National Futures Association (1991 to date); Member, Securities Industry
Association (1995 to date); Member, Regional Investment Bankers Association
(1990 to date); Licensed Principal, NASD (1970 to date); California State
Polytechnic Institute, B.S. Business Administration 1970. Mr. Brooks was elected
to the Board of Directors pursuant to the Underwriting Agreement between the
Trust and Brookstreet Securities Corporation as the Managing Broker-Dealer of
the Trust's current public offering of its Common Stock.

  Harvey Blomberg, 61; Director (1)(2)

         Class I Director since 1996; current term expires 2003; Founder and
principal MRHB Real Estate (real estate management company) (1988 to date);
Regional Director, Connecticut Small Business Development Center (1996 to date);
Partner and Chief Financial Officer, Bay Purveyors, Inc. (1976 to 1995); General
Manager, Deerfield Communications (1987 to 1990); Consultant to numerous
companies (financial restructuring, refinancing and marketing) (1989 to date).
Renessler Polytechnic Institute, M.S. Management, 1995; Hofstra University,
M.B.A. 1985; B.S. Engineering, 1966.

  Donald R. Looper,49; Director (2)

         Class III Director since March 2001; current term expires 2002; Senior
Partner of the Houston-based law firm of Looper, Reed, & McGraw (1985 to date);
Mr. Looper's legal practice has involved the representation of both public and
privately-owned corporations and the complex structuring of substantial
financings involving mortgage financings of real estate and international
business transactions. University of Texas, B.A. degree (1974); Master of
Professional Accounting degree (specialization in Tax Accounting) (1976),
University of Texas; J.D. degree in Law, University of Houston (1979).

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

  (1)    Also is a member of the Executive Committee.

  (2)    Also is a member of the Audit Committee.

         EXECUTIVE OFFICERS

         The following persons currently serve as executive officers of the
Trust or, where indicated, the Trust's Manager. The Trusts's Executive Officers
hold office at the discretion of the Directors.

     Name                         Age              Position
     ----                         ---              --------

     Thomas B. Swartz             70            Chairman and Chief
                                                Executive Officer

     Dennis R. Konczal            51            President and Chief
                                                Operating Officer

     Richard J. Wrensen           46            Executive Vice President
                                                and Chief Financial Officer

     William W. Aubrey, II        42            Senior Vice President of Manager

     Linda St. John               46            Corporate Secretary

                                       24
<PAGE>
         The principal occupations of the non-Director Executive Officers of the
Trust during the last five years or more are set forth below:

  William W. Aubrey, II, 42; Senior Vice President of Manager

         Senior Vice-President, Capital Alliance Advisors, Inc. (1998 to date);
Senior Vice-President, Sierra Capital Acceptance (1995 to 2000); Vice-President,
Regional Supervisor, Citizens Thrift and Loan Association (responsible for
overall supervision of regional production and operations; specialized in non-
conforming, sub-prime residentially secured loans) (1990 to 1995); Branch
Manager, First Fidelity Thrift and Loan (negotiated and underwrote real estate
secured construction and equity loans) (1988 to 1990); Vice President, Topa
Thrift and Loan Association (established loan brokerage and mortgage banking
relationships) (1984 to 1988); B.S, Finance, La Roche College, Pittsburg, PA
(1983).

  Linda St. John, 46, Corporate Secretary

         Operations Officer and Secretary, Capital Alliance Advisors, Inc. (1995
to date); Secretary, Sierra Capital Companies and Affiliates (1995 to date).
Operations Manager, Gruen Gruen & Associates (1994- 1995); MIS Manager, Hannum
Associates (1991-1993); Rochester Business Institute, A.A. Business
Administration (1984).

  ITEM 11.  EXECUTIVE COMPENSATION

         COMPENSATION OF OFFICERS

         The Trust has no full time employees and is managed by Capital Alliance
Advisors, Inc. as Manager of the Trust under a Management Agreement which
requires CAAI to pay the employment expenses of its personnel. Accordingly, no
compensation was paid by the Trust to any of the named executives.

         COMPENSATION OF DIRECTORS

         Director Fees. The Trust pays each unaffiliated Director an annual fee
of $5,000. In 2001 Messrs. Brooks and Blomberg each received $5,000 as a
Director's fee. Mr. Looper received $3,750.

         Committee and Other Meeting Fees. The Directors are also entitled to
$500 for each director's or committee meeting attended in person and $300 if
attended by telephonic means. During 2001 total committee and meeting fees for
Mr. Brooks, Mr. Blomberg and Mr. Looper were $2,800, $3,000 and $2,400,
respectively.

         Reimbursements. All Directors are reimbursed for reasonable travel and
other out of pocket expenses incurred in attending board and committee meetings.

         Such compensation and reimbursement arrangements for Directors may be
changed by the Board of Directors pursuant to authority granted by the Trust's
Bylaws.

                                       25
<PAGE>
  ITEM 12.  SECURITY OWNERSHIP OF
  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information known to the Trust
with respect to beneficial ownership of the Trust's Common Shares and Preferred
Shares as of March 31, 2002 by (1) each person known to the Trust to
beneficially own more than five percent of the Trust's Common Shares or
Preferred Shares, (2) each Director, (3) the Trust's executive officers, (4) the
Manager's executive officers, and (5) all Directors and executive officers as a
group. Unless otherwise indicated in the footnotes to the table, the beneficial
owners name have, to the knowledge of the Trust, sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.

<TABLE>
<CAPTION>
                                                  Number of Shares               Percentage of Shares
                                                      of Stock                         Of Stock
                                                 Beneficially Owned               Beneficially Owned
                                                 ------------------               ------------------

  Name of Beneficial Owner                     Common        Preferred           Common       Preferred
  ------------------------                     ------        ---------           ------       ---------

<S>                                             <C>          <C>                  <C>           <C>
  Thomas B. Swartz (1)(4).................       1,029        1,263                 *            *
  Dennis R. Konczal (2)(4)................       9,632          984                2.3%          *
  Richard J. Wrensen (3)(4)...............      48,767        1,555               11.7%          *
  Linda St.  John (5).....................       3,750            0                *             0
  William W. Aubrey II (6)................       1,500            0                *             0
  Stanley C. Brooks (7)...................           0            0                0             0
  Harvey Blomberg (8).....................           0            0                0             0
  Donald R.  Looper.......................           0            0                0             0
  All directors and executive officers
    as a group (7 persons) (9)............      90,096        7,546               21.6%         3.6%
  Thomas Morford (10).....................           0       16,334                 0           7.7%
</TABLE>

  * Represents less than 1% of outstanding shares.
  --------------------

(1)   Mr. Swartz has unexercised options to purchase 55,687 shares of Common
      Stock.

(2)   Mr. Konczal has unexercised options to purchase 54,687 shares of Common
      Stock.

(3)   Mr. Wrensen has unexercised options to purchase 47,213 shares of Common
      Stock.

      Mr. Wrensen's wife owns 20,400 shares of Common Stock and 1,355 Series A
      Preferred Shares as of March 31, 2002, in which Mr. Wrensen claims no
      beneficial interest. Such holdings represent 4.9% of the outstanding
      Common Shares and less than 1% of the outstanding Preferred Shares.

(4)   Capital Alliance Advisors, Inc., the Trust's Manager, owns beneficially
      25,418 Shares of Common Stock and 3,661 shares of Series A Preferred
      Shares as of March 31, 2002, representing 6.2% of the outstanding Common
      Shares and 1.7% of the outstanding Series A Preferred Shares. Messrs.
      Swartz, Konczal and Wrensen are officers and directors of the Manager and
      collectively own all of the outstanding Common Shares of the Manager. The
      Manager has unexercised options to purchase 9,189 shares of Common Stock.

(5)   Ms. St. John has unexercised options to purchase 3,750 shares of Common
      Stock.
                                       26

<PAGE>
(6)   Mr. Aubrey has unexercised options to purchase 11,250 shares of Common
      Stock.

(7)   Mr. Brooks has unexercised options to purchase 12,375 shares of Common
      Stock.

(8)   Mr. Blomberg has unexercised options to purchase 12,375 shares of Common
      Stock.

(9)   This total includes the Common and Preferred Shares owned by Capital
      Alliance Advisors.

(10)  Mr. Morford, a private investor, owns beneficially 16,334 shares of Series
      A Preferred Shares as of March 31, 2002, representing 7.7% of the
      outstanding Series A Preferred Shares.

  ITEM 13.  CERTAIN RELATIONSHIPS
  AND RELATED TRANSACTIONS

         Arrangements and Transactions with CAAI. CAAI is the Manager of the
Trust and provides (a) management and advisory services to the Trust in
accordance with the Management Agreement and (b) mortgage origination and loan
servicing services to the Trust in accordance with the Mortgage Origination and
Servicing Agreement. As previously described, the Trust will utilize the
mortgage banking experience, management expertise and resources of CAAI in
conducting its Mortgage Investment and its Mortgage Conduit Business. In
addition, three of the six Directors and the officers of the Trust also serve as
Directors and/or officers of CAAI. However, Unaffiliated Directors constitute
100% of the Audit Committee of the Board of Directors of the Trust. CAAI owns
all of the voting common stock and a 1% economic interest in CAFC, the Trust's
Mortgage Conduit Subsidiary. The Trust owns all of the non- voting preferred
stock of CAFC representing 99% of the economic interest in CAFC. CAAI has the
power to elect all of the directors of CAFC and the ability to control the
outcome of all matters for which the consent of the holders of the common stock
of such subsidiary is required. CAAI and/or the officers and directors of CAFC
who may be officers and directors of the Trust, will be separately compensated
for their management services to the subsidiary and will provide origination,
financing and administrative services to the subsidiary through separate
agreements and an intercompany allocation of the cost of such services. The
Trustees, the Manager and their affiliates have fiduciary duties and obligations
which will require them to resolve any conflicts of interest by exercising the
utmost good faith and integrity. Additionally, the Bylaws provide that the
Manager must upon request by the Directors disclose any investments which are
within the purview of the Trust's investment policies.

         CAAI also has interests that may conflict with those of the Trust in
fulfilling certain duties. In addition, Messrs. Swartz, Wrensen and Konczal, the
officers and directors of CAAI are also officers and directors of the Trust. The
officers and directors of CAAI are also involved in other businesses including
Calliance Realty Fund which may generate profits or other compensation. The
Trust will not share in such compensation.

         It is the intention of the Trust and CAAI that any agreements and
transactions, taken as a whole, between the Trust, on the one hand, and CAAI or
its affiliates, on the other hand, are fair to both parties. However, there can
be no assurance that each of such agreements or transactions will be on terms at
least as favorable to the Trust as could have been obtained from unaffiliated
third parties.

                                       27
<PAGE>

         Sale and Purchase of Loans. To provide a source of mortgage loans for
the Trust's Mortgage Investment Business, CAFC, the Mortgage Conduit Subsidiary,
offers to the Trust for purchase all non- conforming mortgage loans and Home
Equity Loans meeting the Trust's investment criteria and policies. Commitments
to acquire loans will obligate the Trust to purchase such loans from the
Mortgage Conduit Subsidiary upon the closing and funding of the loans, pursuant
to the terms and conditions specified in the commitment.

         The Trust accounts for the purchase of loans from CAFC on a fair market
value basis. When the Trust computes the equity and earnings or loss of the
Mortgage Conduit Subsidiary, it will eliminate any intercompany profit.

         Other Business Activities. The Bylaws provide that the Directors and
the Trust's agents, officers and employees may engage with or for others in
business activities of the types conducted by the Trust and that they will not
have any obligation to present to the Trust any investment opportunities which
come to them other than in their capacities as Directors regardless of whether
those opportunities are within the Trust's investment policies. Each Director is
required to disclose any interest he has, and any interest known to him of any
person of which he is an Affiliate, in any investment opportunity presented to
the Trust.

                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]

                                       28
<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                              FINANCIAL STATEMENTS
                                      with
                          Independent Auditors' Report

                For the three-year period ended December 31, 2001



<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Capital Alliance Income Trust Ltd., A Real Estate Investment Trust:

We have audited the accompanying balance sheets of Capital Alliance Income Trust
Ltd., A Real Estate Investment Trust as of December 31, 2001 and 2000, and the
related statements of operations, changes in stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, the Trust changed its method
of accounting for organization costs in 1999.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Alliance Income Trust
Ltd., A Real Estate Investment Trust as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.




NOVOGRADAC & COMPANY LLP
San Francisco, California
April 16, 2002

                                      F-1
<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                                 BALANCE SHEETS
                        as of December 31, 2001 and 2000


<TABLE>
<CAPTION>
ASSETS                                                                           2001            2000
                                                                                 ----            ----

<S>                                                                          <C>             <C>
Cash and cash equivalents                                                    $    441,909    $    368,241
Restricted cash                                                                 1,285,382         654,084
Accounts receivable                                                               292,588         293,592
Notes receivable:
Lines of credit to related parties                                              4,217,408       4,744,674
Mortgage notes receivable                                                      17,738,923      11,906,589
Allowance for loan losses                                                        (180,000)        (80,000)
                                                                             ------------    ------------
Net receivable                                                                 21,776,331      16,571,263
Real estate owned                                                                 234,527         530,000
Investments in affiliate                                                        1,062,210         603,459
Origination costs                                                                 227,392         197,131
Loan fees, net of amortization of $128,750 in 2001,
   and $39,688 in 2000                                                             23,062          81,562
                                                                             ------------    ------------

Total assets                                                                 $ 25,343,401    $ 19,299,332
                                                                             ============    ============

LIABILITIES AND STOCKHOLDERS EQUITY

Liabilities
Mortgage note holdbacks                                                      $  1,285,382    $    654,084
Loans payable                                                                   9,613,292       3,737,511
Due to affiliates                                                                 126,984          42,190
Other liabilities                                                                 223,202         155,383
                                                                             ------------    ------------
Total liabilities                                                              11,248,860       4,589,168
                                                                             ------------    ------------

Stockholders' Equity
Preferred stock, $.01 par value, 675,000 shares authorized;
   213,819 shares issued and outstanding in 2001,
   641,238 shares issued and outstanding in 2000                                    2,138           6,413
Additional paid in capital-preferred stock                                      5,669,123       5,664,848
Less: treasury stock, 3,176 preferred shares in 2001,
9,526 unadjusted preferred shares in 2000, at cost                                (86,944)        (86,944)
Common stock, $.01 par value, 5,000,000 shares authorized;
495,161 shares issued and outstanding in 2001
and 1,484,740 shares issued and outstanding in 2000                                 4,952          14,847
Additional paid in capital-common stock                                         9,370,895       9,361,000
Less: treasury stock, 85,066 common shares in 2001,
 81,479 unadjusted common shares in 2000, at cost                              (1,041,812)       (250,000)
Retained earnings                                                                 176,189            --
                                                                             ------------    ------------
Total stockholders' equity                                                     14,094,541      14,710,164
                                                                             ------------    ------------

Total liabilities and stockholders' equity                                   $ 25,343,401    $ 19,299,332
                                                                             ============    ============
</TABLE>

                            See accompanying notes.

                                      F-2
<PAGE>
                      CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                             STATEMENT OF OPERATIONS
              For the years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>

REVENUES                                           2001           2000           1999
                                                   ----           ----           ----
<S>                                            <C>            <C>              <C>
Interest income                                $ 1,893,211    $ 1,614,889      1,611,363
Interest income from affiliates                    510,235        486,030        342,367
Equity in gain (loss) of affiliates                381,156       (489,507)      (732,016)
Other income                                        73,577         12,244         22,152
                                               -----------    -----------    -----------
Total revenues                                   2,858,179      1,623,656      1,243,866

EXPENSES
Loan servicing fees to related parties             407,701        277,224        251,655
Management fees to related party                   290,180        197,556        162,546
Interest expense on loans                          463,984        203,658        100,038
Interest expense on loans from related party        22,657           --             --
Interest expense on real estate owned                 --           68,617           --
Provision for loan loss                            203,549        175,937        162,500
Taxes                                               32,567         22,334         22,540
Amortization                                        66,625         35,730          3,333
General and administrative                         207,884        102,463         73,097
                                               -----------    -----------    -----------
Total expenses                                   1,695,147      1,083,519        775,709

INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE OWNED                                     1,163,032        540,137        468,157
Operating expenses of real estate owned            (20,134)       (22,590)        (5,427)
Gain (loss) on real estate owned                      --           (2,524)        (1,779)
                                               -----------    -----------    -----------

INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE                 1,142,898        515,023        460,951
Cumulative effect on prior years of
accounting change                                     --             --          (10,346)
                                               -----------    -----------    -----------

NET INCOME                                     $ 1,142,898    $   515,023    $   450,605
                                               ===========    ===========    ===========

NET INCOME PER PREFERRED SHARE                 $      2.37    $      2.45    $      2.14

WEIGHTED AVERAGE PREFERRED
SHARES OUTSTANDING                                 210,644        210,586        210,586

BASIC EARNINGS PER COMMON SHARE                $      1.46    $      --      $      --

DILUTED EARNINGS PER COMMON SHARE              $      1.05    $      --      $      --

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING-BASIC EARNINGS
PER SHARE                                          442,371        485,811        494,913
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING-DILUTED EARNINGS
PER SHARE                                          614,996        485,811        608,618
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              For the years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                                  (Common)
                                                                                 Additional
                                                   Common         Common           Paid in       Preferred
                                                   Shares          Stock           Capital         Shares
                                                   ------          -----           -------         ------

<S>                                            <C>             <C>             <C>             <C>
BALANCE AS OF JANUARY 1, 1999                     1,484,740    $     14,847    $ 10,244,424         631,757
Net income                                               --              --              --              --
Dividends                                                --              --        (504,813)             --
                                               ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 1999                   1,484,740          14,847       9,739,611         631,757
Purchase of 81,479 shares of Treasury Stock         (81,479)             --              --              --
Net income                                               --              --              --              --
Dividends                                                --              --        (378,611)             --
                                               ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 2000                   1,403,261          14,847       9,361,000         631,757
Three to one reverse stock split                   (935,507)         (9,898)          9,898        (421,171)
Issue of shares from rounding of stock split            247               3              --              58
Purchase of 63,906 shares of Treasury Stock         (63,906)             --              --              --
Exercise of options for 6,000 chares of
     Common stock                                     6,000              --              --              --
Net income                                               --              --              --              --
Dividends                                                --              --              --              --
                                               ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 2001                     410,095    $      4,952    $  9,370,898         210,644
                                               ============    ============    ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                               (Preferred)
                                                                Additional
                                                 Preferred       Paid in         Retained         Treasury
                                                   Stock         Capital         Earnings          Stock           Total
                                                   -----         -------         --------          -----           -----

<S>                                            <C>             <C>             <C>             <C>             <C>
BALANCE AS OF JANUARY 1, 1999                  $      6,413    $  5,868,711    $         --    $    (86,944)   $ 16,047,451
Net income                                               --              --         450,605              --         450,605
Dividends                                                --        (115,804)       (450,605)             --      (1,071,222)
                                               ------------    ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 1999                       6,413       5,752,907              --         (86,944)     15,426,834
Purchase of 81,479 shares of Treasury Stock              --              --              --        (250,000)       (250,000)
Net income                                               --              --         515,023              --         515,023
Dividends                                                --         (88,059)       (515,025)             --        (981,693)
                                               ------------    ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 2000                       6,413       5,664,848              --        (336,944)     14,710,164
Three to one reverse stock split                     (4,275)          4,275              --              --              --
Issue of shares from rounding of stock split             --              --              --              --              --
Purchase of 63,906 shares of Treasury Stock              --              --              --        (845,812)       (845,812)
Exercise of options for 6,000 chares of
     Common stock                                        --              --              --          54,000          54,000
Net income                                               --              --       1,142,898              --       1,142,898
Dividends                                                --              --        (966,709)             --        (966,709)
                                               ------------    ------------    ------------    ------------    ------------

BALANCE AS OF DECEMBER 31, 2001                $      2,138    $  5,669,123    $    176,189    $ (1,128,756)   $ 14,094,541
                                               ============    ============    ============    ============    ============
</TABLE>

                            See accompanying notes.

                                      F-4
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES                       2000            2000            1999
                                                           ----            ----            ----
<S>                                                   <C>             <C>             <C>
Net income                                            $  1,142,898    $    515,023    $    450,605
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization                                                66,625          35,730           3,333
Loss on real estate owned                                     --             2,524           1,779
(Income) loss from investment in affiliates               (381,156)        489,507         732,016
Provision for loan losses                                  203,549         175,937         162,500
(Increase) decrease in interest receivable                   1,004         (60,575)        (39,776)
Accrued interest capitalized to real estate owned             --           (16,847)        (34,075)
Decrease in organization costs                                --              --            10,346
Increase  in security deposits                                --              --            32,133
Increase (decrease) in due to affiliates                    84,794         679,681        (534,190)
Increase (decrease) in other liabilities                    67,819         (31,930)         25,099
                                                      ------------    ------------    ------------
Net cash provided by operating activities                1,185,533       1,789,050         809,770
                                                      ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Increase in origination costs                              (30,261)        (33,496)        (43,418)
(Increase) decrease in warehouse lines of credit           527,266      (1,056,928)      1,967,781
Increase in investments in affiliates                         --          (222,500)       (100,000)
Increase in related party note receivable                     --              --           (22,500)
Investment in mortgage notes receivable                (15,500,173)     (8,029,562)     (7,452,006)
Repayment of mortgage notes receivable                   9,486,695       5,338,680       4,395,441
Net proceeds from sale of real estate owned                295,473       1,072,675         147,884
Capital costs of real estate owned                            --           (31,435)        (45,251)
                                                      ------------    ------------    ------------
Net cash used in investing activities                   (5,221,000)     (2,962,566)     (1,152,069)
                                                      ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans                                 5,875,781       2,832,761         904,750
Loan fees paid                                              (8,125)       (101,250)        (20,000)
Purchase of treasury stock                                (845,812)       (250,000)           --
Sale of treasury stock                                      54,000            --              --
Common dividends paid                                     (468,102)       (378,611)       (504,813)
Preferred dividends paid                                  (498,607)       (603,082)       (566,409)
                                                      ------------    ------------    ------------
Net cash provided by (used in) financing activities      4,109,135       1,499,818        (186,472)
                                                      ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH                             73,668         326,302        (528,771)
CASH AT BEGINNING OF PERIOD                                368,241          41,939         570,710
                                                      ------------    ------------    ------------

CASH AT END OF PERIOD                                 $    441,909    $    368,241    $     41,939
                                                      ============    ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION
Interest expense paid                                 $    454,456    $    272,275    $    100,038
Taxes paid                                            $     32,567    $     16,900    $        800

NON-CASH INVESTING AND FINANCING ACTIVITY
Transfer of real estate owned to CAFC                 $       --      $    291,463    $       --
Transfer of mortgage loans to CAFC                    $     77,595    $    498,429    $    670,546
</TABLE>

                            See accompanying notes.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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 "Investments in affiliates" on the
     Trust's Balance Sheet and in "Equity in earnings of affiliates" in the
     Trust's Statement of Operations. CAFC's audited Balance Sheet and Statement
     of Operations are summarized in Note 10.

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


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

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

     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.

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

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

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     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 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.

     Concentration of credit risk. The Trust holds numerous mortgage notes
     receivable. These notes are secured by first and second 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.

     Loan loss reserve. Management reviews its loan loss provision periodically
     and the Trust maintains an allowance for losses on notes receivable at an
     amount that management believes is sufficient to protect against potential
     losses inherent in the loan portfolio. The Trust's actual losses may differ
     from the estimate. Accounts receivable deemed uncollectible are written off
     or reserved. The Trust does not accrue interest income on impaired loans
     (Note 7).

     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. 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 on the
     Statements of Operations (Note 8).

     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).

     The Trust held an investment in Sierra Capital Acceptance ("SCA"), a
     division of Sierra Capital Funding, LLC ("SCF"), a Delaware limited
     liability company that originated and sold residential mortgage loans. SCA
     operated as a separate operating division of SCF. The Trust's investment in
     SCA received a 15% preferential interest distribution per annum. Sierra
     Capital Services, Inc., a related party, owned 99% of the common shares of
     the Sierra Division of SCF and maintained voting control. SCA ceased
     operations in 2000 (Note 10)

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

     Cumulative effect of change in accounting principle. Effective for the year
     ended December 31, 1999, the Trust adopted SOP 98-5, "Reporting on the
     Costs of Start-Up Activities". As a result of this change, the Trust is
     required to expense organization costs as they are incurred. The cumulative
     effect of this accounting change was a reduction of income of $10,346.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     State taxes. The state of Delaware imposed a tax on the capitalization of
     the Trust. The Trust expensed $31,766, $16,100, and $21,740 for these taxes
     in 2001, 2000, and 1999. The Trust paid $800 in franchise tax to the state
     of California in 2001, 2000, and 1999.

     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% (95% in 2000 and 1999) of its taxable income to its stockholders. To
     qualify as a REIT, the Trust must elect to be so treated and must meet on a
     continuing basis certain requirements relating to the Trust's organization,
     sources of income, nature of assets, and distribution of income to
     stockholders. The Trust must maintain certain records and request certain
     information from its stockholders designed to disclose actual ownership of
     its stock. In addition the Trust must satisfy certain gross income
     requirements annually and certain asset tests at the close of each quarter
     of its taxable year.

     If the Trust fails to qualify for taxation as a REIT in any taxable year,
     and the relief provisions do not apply, the Trust will be subject to tax on
     its taxable income at regular corporate rates. Distributions to
     stockholders in any year in which the Trust fails to qualify will not be
     deductible by the Trust nor will they be required to be made. Unless
     entitled to relief under specific statutory provisions, the Trust will also
     be disqualified from taxation as a REIT for the four taxable years
     following the year during which qualification was lost.

     Based on the Trust's belief that it has operated in a manner so as to allow
     it to be taxed as a REIT since inception, no provision for federal income
     taxes has been made in the financial statements. For the years ended
     December 31, 2001, 2000, and 1999, the distributions per Preferred Share
     are allocated 100% as ordinary income. The distributions per Common share
     are allocated 100% as ordinary income.

     Reclassifications. Certain 1999 and 2000 amounts may have been reclassified
     to conform to 2001 classifications. Such reclassifications had no effect on
     reported net income.

     Earnings per share. Earnings per share and shares outstanding for 2000 and
     1999 have been adjusted on the Statement of Operations for the three to one
     reverse stock split made May 11, 2001.


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

     Pursuant to mortgage loan agreements between the Trust and its borrowers, a
     portion of the loan proceeds are held by the Trust in segregated accounts
     to be disbursed to borrowers upon completion of improvements on the secured
     property. As of December 31, 2001 and 2000, mortgage note holdbacks from
     the consummation of mortgage loans made amounted to $1,285,382 and
     $654,084, respectively.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and other amounts due from borrowers. As of December 31,
     2001 and 2000, accrued interest and other amounts due from borrowers were
     $292,588 and $293,592, respectively.


5.   Lines of credit to related parties
     ----------------------------------

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     Capital Alliance Funding Corporation ("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 December 31, 2001 and 2000, the Trust
     advanced to CAFC $4,217,408 and $3,501,940, respectively. The interest rate
     on this line of credit varies with market conditions and is payable
     monthly. As of December 31, 2001 and 2000 the applicable interest rate was
     7.0% and 10.0%, respectively. The Trust earned interest in the amount of
     $447,246, $310,495, and $180,345, during 2001, 2000, and 1999,
     respectively, of which $740, $25,930 and $18,348 was outstanding as of
     December 31, 2001, 2000, and 1999, 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. CRF had repaid the advances as of
     December 31, 2001 and owed the Trust $1,242,734 for advances as of December
     31, 2000. 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 $62,989,
     $97,663, and $23,760 during 2001, 2000, and 1999, respectively, of which
     $10,733 was outstanding as of December 31, 2000. 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 December 31, 2001 and 2000 the Trust had
     repaid all borrowings from CRF. The Trust paid interest in the amount of
     $22,657 in 2001, of which $2,250 remains outstanding.

     The Trust entered into a loan purchase agreement on November 1, 1997 with
     Sierra Capital Acceptance LLC ("SCA"), a division of Sierra Capital Funding
     LLC, a related party. Under the terms of the agreement, the Trust advanced
     funds to SCA to acquire mortgage loans secured by real estate. The Trust
     then acquired all of SCA's rights, titles and interest in such loans. SCA
     was obligated to reacquire the loans from the Trust at a preset price. SCA
     ceased operations on June 30, 2000. As of December 31, 1999, the Trust had
     advanced $428,250 to SCA. Annual interest on this line of credit was at
     prime plus one half of one percent for the first 60 days and prime plus
     four percent after 60 days. Interest was payable monthly. The Trust earned
     interest in the amount of $35,694 and $100,325 during 2000 and 1999,
     respectively, of which $4,610 was outstanding as of December 31, 1999.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


5. Lines of credit to related parties (continued)
   ----------------------------------------------

     The Trust entered into a loan purchase agreement on February 1, 1998 with
     Equity 1-2-3, a division of Sierra Capital Funding LLC, a related party.
     Under the terms of the agreement, the Trust advanced funds to Equity 1-2-3
     to acquire mortgage loans secured by real estate. The Trust then acquired
     all of Equity1-2-3's right, title and interest in such loans. Some of these
     loan balances exceeded the fair market value of the properties. Equity
     1-2-3 was obligated to reacquire the loans from the Trust at a preset
     price. Equity 1-2-3 ceased operations in 1999 as it transferred its
     remaining loans to the Trust. As of December 31, 1999 the Trust had
     advanced Equity 1-2-3 $621,707. On January 1, 2000 the Trust foreclosed on
     the purchased loans and these loans were retained in cancellation of the
     repurchase option. Annual interest on this line of credit was at prime plus
     one percent for the first 60 days and prime plus four percent after 60
     days. The Trust earned interest in the amount of $7,937 and $92,026 in 2000
     and 1999, respectively.


6.   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 but one loan have a combined loan-to-value equal to or
     less than 75% of the underlying collateral. The Trust is subject to the
     risks inherent in finance lending including the risk of borrower default
     and bankruptcy.

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

     A reconciliation of mortgage notes receivable is as follows:

<TABLE>
<CAPTION>
                                      December 31,      December 31,      December 31,
                                         2001              2000              1999
                                    --------------    -------------     -------------
<S>                                <C>                <C>               <C>
 Balance, beginning of period      $    11,906,589    $  10,807,664     $   8,986,645
 Additions during period:
    New mortgage loans                  15,500,173        8,029,562         7,452,006
 Deductions during period:
    Collections of principal             9,486,695        5,338,680         4,395,441
    Foreclosures, net of reserve               ---        1,093,528           565,000
    Write off of uncollectible loans       103,549              ---               ---
    Transfer to CAFC                        77,595          498,429           670,546
                                    --------------    -------------     -------------
 Balance, close of period           $   17,738,923    $  11,906,589     $  10,807,664
                                    ==============    =============     =============
</TABLE>

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     The Trust's mortgage notes receivable all relate to loans secured by deeds
     of trust on single-family residences. The following is a summary of the
     Trust's mortgage notes receivable at December 31, 2001.

<TABLE>
<CAPTION>

                                                                                                                          Principal
                                                                                                                          amountof
                                                                                                                         loans with
                                                                                                                         delinquent
                                                                   Monthly            Face amount                      principal or
                                                Final maturity     payment    Prior        of          Carrying amount    interest
     Principal outstanding      Interest rate        date          terms      liens    mortgage(s)     of mortgage(s)     (Note A)
     ---------------------      -------------   --------------   ---------   ------   -----------      --------------   ------------

Individual loans greater
<S>                           <C>               <C>                <C>       <C>      <C>              <C>                <C>
than $500,000:                     13.50%          07/01/02        $9,169     First   $   815,000          815,000        $    ---
                                   13.50%          08/01/06        $7,875     First       700,000          700,000             ---
                                   13.00%          09/01/06        $6,500    Second       600,000          600,000             ---
                                   13.00%          02/01/02        $6,496    Second       600,000          599,610             ---
                                   13.95%          05/01/05        $6,198     First       533,200          533,200             ---
                                   14.00%          02/01/06        $6,054     None        518,900          518,900             ---
Loans from $400,000-$500,000  11.75% to 13.50%  1 to 56 months                          1,900,000        1,900,000             ---
Loans from $300,000-$399,999  11.75% to 13.99%  1 to 60 months                          3,419,000        3,399,411             ---
Loans from $200,000-$299,999  10.62% to 13.50%  4 to 336 months                         2,164,538        2,167,410             ---
Loans from $100,000- 199,999   8.87% to 14.50%  1 to 130 months                         5,394,936        4,332,834          493,161
Loans up to $99,000            9.70% to 17.75%  1 to 327 months                         2,187,435        2,172,558          125,905
                                                                                      -----------      -----------        ---------
Total Mortgage Notes Receivable at December 31, 2001                                  $18,833,009      $17,738,923        $ 619,066
                                                                                      ===========      ===========        =========
</TABLE>



(A) Delinquent loans are loans where the monthly interest payments in arrears
are 90 or more days overdue. As of December 31, 2001, there were three (3) loans
totaling $344,874 of principal and $25,392 of interest that were 90 to 180 days
delinquent on interest payments. Two (2) loans with the principal amount of
$274,192 and $26,144 of interest have been delinquent for over 180 days.
Management has reviewed all of the delinquent loans and believes that the fair
value (estimated selling price less cost to dispose) of the collateral is equal
to or greater than the carrying value of the loan including any accrued
interest.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


7.   Loan loss reserve
     -----------------

     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 $180,000 loan loss reserve is adequate to
     protect against potential losses inherent in all receivables as of December
     31, 2001. The Trust's actual losses may differ from the estimate.

    A reconciliation of loan loss reserve is as follows:

                                            2001           2000          1999
                                        ----------    ----------     ----------
     Balance, beginning of period       $   80,000    $   85,000     $  170,000
     Provision for loan loss               203,549       175,937        162,500
     Write off of uncollectible loans     (103,549)     (180,937)           ---
     Write-off of note receivable
     to related party                          ---           ---       (225,000)
     Write-off of advance
     to related party                          ---           ---        (22,500)
                                        ----------    -----------    ----------
     Balance, end of period             $ 180,000     $   80,000     $   85,000
                                        ==========    ===========    ==========

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

     During 1999 the Trust foreclosed on four mortgage notes receivable and sold
     one property. At December 31, 1999, the Trust owned four properties. During
     2000 the Trust foreclosed on five mortgage notes receivable and sold six
     properties. At December 31, 2000, the Trust owned three properties. During
     2001 the Trust obtained a parcel split on one property, thereby creating
     two properties and sold two properties. At December 31, 2001 the Trust
     owned two properties.

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

<TABLE>
<CAPTION>
                                                                      2001           2000           1999
                                                                      ----           ----           ----

<S>                                                                <C>           <C>            <C>
Real estate owned at beginning of year                             $   530,000   $   644,326    $   149,663
Foreclosed mortgage notes, net of reserve (non-cash)                      --         912,591        565,000
Accrued interest capitalized (non-cash)                                   --          16,847         34,075
Capital costs of real estate owned (cash paid)                            --          31,435         45,251
Gain (loss) on sale (non-cash)                                            --          (2,524)        (1,779)
                                                                   -----------   -----------    -----------
                                                                       530,000     1,602,675        792,210

Less: Proceeds from sale of real estate owned (net of closing
costs of $35,116,  $30,429, and $11,116, in 2001, 2000 and 1999,
respectively)                                                          295,473     1,072,675        147,884
                                                                   -----------   -----------    -----------

Real estate owned at end of year                                   $   234,527   $   530,000    $   644,326
                                                                   ===========   ===========    ===========
</TABLE>

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


9.   Gain (loss) on real estate owned
     --------------------------------

     One real estate property was sold during 1999 for a net loss of $1,779. Six
     real estate properties were sold in 2000 for a net loss of $2,524. Two real
     estate properties were sold in 2001 at their carrying costs. Neither a gain
     nor loss from real estate owned was reported in 2001.


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

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

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

     In 1999, the Trust contributed $100,000 cash and four mortgage loans
     totaling $670,546. In 2000, the Trust contributed $100,000 cash and forgave
     liabilities previously owed to CAIT totaling $322,500. In 2001 the Trust
     contributed one mortgage loan totaling $77,595. The transfer of mortgage
     notes receivable is a non-cash transaction that is not shown on statements
     of cash flows.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


                      CAPITAL ALLIANCE FUNDING CORPORATION
                                  BALANCE SHEET
                             As of December 31, 2001

<TABLE>
<CAPTION>
ASSETS                                                                    2001
                                                                          ----
<S>                                                                  <C>
       Cash and cash equivalents                                     $    338,146
       Restricted cash                                                    517,655
       Accounts receivable                                                164,261
       Mortgage notes receivable                                        8,631,751
       Allowance for losses                                              (118,000)
                                                                     ------------
             Net receivable                                             8,513,751
       Real estate owned                                                  567,000
       Investment in affiliate                                              5,000
       Other assets                                                        45,934
                                                                     ------------

       Total assets                                                  $ 10,151,747
                                                                     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

       Liabilities
             Accounts payable                                        $     52,133
             Prepaid interest on mortgage loans                            92,851
             Mortgage note holdbacks                                      517,655
             Due to affiliates                                             12,283
             Warehouse lines of credit                                  8,423,103
                                                                     ------------
       Total liabilities                                                9,098,025
                                                                     ------------

       Stockholders' equity
             Preferred shares, no par value, 2,000 shares                    --
                   authorized, 2,000 shares issued and outstanding
             Common shares, no par value, 1,000 shares
                   authorized, 1,000 shares issued and outstanding           --
             Additional paid in capital                                 1,925,730
             Accumulated deficit                                         (872,008)
                                                                     ------------
       Total stockholders' equity                                       1,053,722
                                                                     ------------

Total liabilities and stockholders' equity                           $ 10,151,747
                                                                     ============
</TABLE>

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001

                      CAPITAL ALLIANCE FUNDING CORPORATION
                             STATEMENT OF OPERATIONS
                      For the year ended December, 31 2001


REVENUES                                                   2001
                                                           ----

       Interest income                                 $   907,434
       Loan origination income                             993,376
       Service release premium                              86,426
       Other income                                         23,886
                                                       -----------
             Total revenues                              2,011,122
                                                       -----------

EXPENSES

       Management fees to related party                     66,822
       Interest expense on warehouse lines of credit       556,246
       Loan origination costs                              137,755
       Wages and salaries                                  459,040
       General and administrative                          113,346
       Legal and professional                                9,457
       Taxes                                                11,818
       Provision for loan losses                           252,331
                                                       -----------
             Total expense                               1,606,815
                                                       -----------

INCOME BEFORE LOSSES ON REAL
ESTATE OWNED                                               404,307

       Gain on real estate owned                            20,207
       Property holding costs on real estate owned         (39,508)
                                                       -----------

NET INCOME                                             $   385,006
                                                       ===========
                                      F-15
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001

                      CAPITAL ALLIANCE FUNDING CORPORATION
                             STATEMENT OF CASH FLOWS
                      For the year ended December, 31 2001

<TABLE>
<CAPTION>
CASH FROM OPERATING ACTIVITIES                                              2001
                                                                            ----
<S>                                                                    <C>
         Net income                                                    $    385,006
         Adjustments to reconcile net income to cash
         provided by operating activities
                  Gain on real estate owned                                 (20,207)
                  Provision for loans losses                                252,331
                  Increase in accounts receivable                          (121,518)
                  Increase in other assets                                  (22,597)
                  Increase in accounts payable                               25,620
                  Decrease in interest payable                              (20,520)
                  Increase in prepaid mortgage
                  interest                                                    4,594
                  Increase in due to affiliates                               9,757
                                                                       ------------

                           Net cash provided by operating activities        492,466
                                                                       ------------

CASH FLOWS FROM INVESTING ACTIVITIES
         Investment in mortgage notes receivable                        (25,720,690)
         Repayment of mortgage notes receivable                           2,400,395
         Sale of mortgage notes                                          19,503,729
         Investment in affiliate                                             (5,000)
         Proceeds from sale of real estate owned                            308,403
                                                                       ------------

                  Net cash used in investing
                  activities                                             (3,513,163)
                                                                       ------------

CASH FLOWS FROM FINANCING ACTIVITIES
         Proceeds from warehouse lines of credit                          3,172,860
         Repayment of mortgage note                                        (394,434)
                                                                       ------------

                  Net cash provided by financing activities               2,778,426
                                                                       ------------

NET DECREASE IN CASH                                                       (242,271)
CASH AT BEGINNING OF PERIOD                                                 580,417
                                                                       ------------

CASH AT END OF YEAR                                                    $    338,146
                                                                       ============
</TABLE>

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

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

     Accounts receivable
     -------------------

     Accounts receivable consists primarily of 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. As of December 31, 2001, amounts due from borrowers were
     $49,071.

     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 is as follows:

                                                                December 31,
                                                                    2001
                                                              -------------
       Balance, beginning of period                           $   4,845,117
       Additions during period:
          New mortgage loans                                     25,720,690
          Transferred from CAIT                                      77,595
       Deductions during period:
          Repayment of mortgage loans                            (2,400,395)
          Sale of mortgage loans                                (19,503,729)
          Write off of uncollectible loans                         (107,527)
                                                              --------------

     Balance, close of period                                 $    8,631,751
                                                              ==============

     Some of the mortgage loans originated and purchased by CAFC are held for
     sale to CAIT. The remaining originations and purchases are designated for
     sale to independent third parties. CAIT'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 purchase price.

     Loan loss reserve
     -----------------

     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 $118,000 loan loss reserve is adequate to
     protect against potential losses inherent in all receivables as of December
     31, 2001. CAFC's actual losses may differ from the estimate.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     Activity in the loan loss reserve was as follows:

                                                 December 31,
                                                    2001
                                                 ------------
       Balance, beginning of period              $  78,000
       Provision for loan loss                     252,331
       Write off of uncollectible loans
         and write down of real estate owned      (212,331)
                                                 ---------

       Balance, end of period                   $ 118,000
                                                 =========


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

     As of December 31, 2001, the Company held one foreclosed property with a
     value of $567,000. In 2001, two properties were sold for a gain of $20,207.
     Two properties were written off and one property was written down for a
     total of $155,458. Net proceeds from the sales were $308,403. Costs
     incurred by holding the properties were $39,508 in 2001.

     A reconciliation of real estate owned is as follows:

                                                              2001
                                                              ----

     Real estate owned at beginning of year               $  960,000
     Capital costs of real estate owned (cash paid)           50,654
     Real estate sold                                       (288,196)
     Property written down                                  (155,458)
                                                          -----------

     Real estate owned at end of year                     $  567,000
                                                          ==========


     Warehouse lines of credit
     -------------------------

     As of December 31, 2001, the Company had borrowed $4,205,695 of funds under
     a warehouse line of credit. The Company receives advances under the
     agreement, up to a maximum of $5,000,000, with the mortgage loans pledged
     as collateral against the advances received and with a permissible
     warehouse period of ninety (90) days. Interest is at LIBOR (London
     Interbank Offered Rate for U.S. dollar deposits) plus 1.50% (3.46% at
     December 31, 2001) during the permissible warehouse period and is payable
     monthly. Interest on loans that are held for more than 90 days is LIBOR
     plus 3.00% (4.96% at December 31, 2001). Maturity date for this line of
     credit is March 31, 2002.

     As of December 31, 2001, the Company had borrowed $4,217,408 of funds under
     a warehouse line of credit with CAIT. The funds are secured by pledged
     mortgage loans as collateral. Interest on this warehouse line of credit is
     adjusted monthly depending on market rates and is currently at 7% per
     annum.

                                      F-18
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     The due dates on both warehouse lines of credit revolve monthly and are
     paid off as the mortgage loans held are sold.


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

     The Manager earns an administration fee equal to 25 basis points on home
     loans funded for the benefit of the Company as defined in the First Amended
     Residential Mortgage Loan Services Agreement. The Company expensed $66,822
     for these costs in 2001.

     As described in Note 7, the Company received an advance of $4,217,408 under
     a warehouse line of credit from CAIT, and accrued interest of $740 related
     to this line of credit as of December 31, 2001. CAIT 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 December 31,
     2001 is 7% per annum. The Company expensed interest of $447,246 in 2001 and
     paid interest of $472,436.

     On occasion the Company and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of December 31,
     2001, the Company had a payable of $12,283 to the Manager. This account is
     shown on the balance sheet as Due To Affiliates. No interest is charged on
     these inter-company accounts.

     The Company sold $15,500,173 loans to CAIT in 2001 at par value.

     The Company paid $5,000 in 2001 for an option to purchase Sierra Capital
     Corporate Advisors (SCCA).


     Sierra Capital Acceptance
     -------------------------

     As described in Note 5, the Trust held a $200,000 preferred share
     investment in Sierra Capital Acceptance, a division of Sierra Capital
     Funding LLC. The investment accrued distributions at 15% per annum. For the
     year ended December 31, 1999, the Trust earned $30,000 from this investment
     as interest income from affiliates. Sierra Capital Acceptance ceased
     operations in 2000. The Trust received cash and applied the over
     collateralized portion of a reverse repurchase agreement as settlement of
     the investment.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


11.  Notes Payable
     -------------

     As of December 31, 2001 and 2000, the Trust had borrowed $6,964,300 and
     $2,231,873, respectively, under a two-year warehouse line of credit. The
     Trust receives advances under the agreement up to a maximum of $7,000,000,
     with the mortgage loans pledged as collateral against the advances
     received. 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 December 31, 2001 was 1.96%) plus 2.00% and is payable
     monthly. Maturity date for this line of credit is September 26, 2002.

     As of December 31, 2001 and 2000, the Trust had borrowed $2,250,000 and
     $1,505,638, respectively, under a second warehouse line of credit. The
     Trust receives advances under the agreement up to a maximum of $2,250,000,
     with the mortgage loans pledged as collateral against the advances
     received. Annual interest is the applicable prime rate (4.75% as of
     December 31, 2001) plus 0.50% and is payable monthly. During the first
     quarter of 2002 the maximum advance was increased to $4,000,000 and the
     maturity date was extended to April 30, 2003.

     The due dates on both warehouse lines of credit revolve monthly and are
     paid off as the mortgage loans held are sold.

     The Trust financed a portion of its stock repurchases in 2001 by borrowing
     on margin from a brokerage. The amount borrowed on margin is charged at the
     broker call rate (3.5% as of December 31, 2001) plus 0.75%. Margin debt is
     callable at the discretion of the lender. As of December 31, 2001, the
     Trust owed $398,991 in margin debt.


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

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

     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 CAFC
     and includes any applicable incentive compensation. The total management
     fees paid by the Trust to the Manager were $219,046, $180,156, and $149,146
     for the year ended December 31, 2001, 2000, and 1999, respectively.

     The Manager also began earning a REO management fee for managing and
     servicing the properties that the Trust and CAFC have obtained through
     foreclosure of mortgage notes held. The fee for these services is $500 per
     month for each property held by the Trust and CAFC. The Trust paid the
     Manager $22,500 in REO management fees in 2001.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

     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 2001 was $26,684. No incentive
     compensation was earned in 2000 and 1999. Incentive compensation awards are
     reported as part of the management fees.

     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 capitalizes 55% (75% in 2000
     and 1999) of this fee as loan origination costs and amortizes them over the
     average life of the loans originated in the month. The remaining 45% (25%
     in 2000 and 1999) of the fee is expensed as the portion attributed for
     servicing. For the years ended December 31, 2001, 2000, and 1999 the Trust
     paid loan origination and servicing fees of $428,185, $310,720, and
     $295,073, respectively. In 2001, 2000, and 1999 the Trust expensed
     $192,683, $77,680 and $72,313, respectively, as servicing fees and
     $215,018, $199,544, and $179,342, respectively, as amortization of loan
     origination costs. As of December 31, 2001 and 2000, the Trust capitalized
     $235,502 and $233,040 of loan origination fees, respectively.

     During 1999, the Trust advanced $22,500 to Equity 1-2-3, a division of
     Sierra Capital Funding LLC, a related party, and recorded it as an addition
     to the $225,000 note receivable from Equity 1-2-3. The note bore interest
     at 15 percent per annum with interest payable quarterly. The Trust wrote
     off the note receivable and the advance and Equity 1-2-3 terminated
     operations in 1999.

     On occasions the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of December 31,
     2001, the Trust had a receivable of $740 from CAFC, a receivable of $150
     from Sierra Capital Corporate Advisors and a payable of $127,874 to the
     Manager. As of December 31, 2000, the Trust had a receivable of $10,773
     from CRF and a payable of $52,963 to the Manager. These accounts are netted
     on the balance sheet and shown as Due To Affiliates of $126,984 and $42,190
     as of December 31, 2001 and 2000, respectively. No interest is charged on
     these inter-company accounts.

     As described in Note 5, for the year ended December 31, 2001 the Trust
     advanced $4,217,408 under lines of credit to affiliates and earned interest
     of $510,235 on such financing. For the year ended December 31, 2000, the
     Trust advanced $4,744,674 under lines of credit to related parties and
     earned interest of $486,030 on such financing. For the year ending December
     31, 1999 the Trust earned interest of $342,367 from related party lines of
     credit.

     Equity 1-2-3 and Sierra Capital Acceptance, divisions of Sierra Capital
     Funding LLC, were partially owned by officers of the Trust and their
     affiliated entities. As previously mentioned, Equity 1-2-3 and SCA ceased
     operations and were liquidated in 1999 and 2000, respectively.

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

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001


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

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

     One Shareholder Warrant was issued for every 10 Common Shares purchased in
     the Trust's initial public offering. Each Shareholder Warrant entitled the
     holder to purchase one Common Share. The exercise price for each
     Shareholder Warrant was $5.60, which may be exercised during the 25th
     through the 48th month after April 28, 1997. In order to protect the
     Warrant holders against dilution, the exercise price of the Warrants and
     the number of shares which could be purchased upon the exercise of the
     Warrants will be adjusted should certain events occur (i.e. stock
     dividends, split-ups, combinations and reclassifications). Provision was
     also made to protect against dilution in the event

                                      F-22
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001

13. Preferred, common and treasury stock (continued)
    ------------------------------------------------

     of a merger, consolidation or disposition of all or substantially all of
     the Trust's assets. Warrant holders did not have the rights of a
     shareholder and they were not entitled to participate in a distribution of
     the Trust's assets in liquidation, dissolution or winding up of the Trust,
     unless the Warrants were exercised. On April 28, 2001 all issued warrants
     expired unexercised.

     The 1998 Incentive Stock Option Plan, adopted by the board of directors and
     approved by stockholders, provided options for the purchase of a total 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. Options for the purchase
     of 68,875 shares were granted April 1, 1999 with an exercise price of
     $13.50 per new Common Share (as adjusted for the 1 for 3 reverse stock
     split on May 11, 2001). As of December 31, 2001 and 2000, 68,875 of these
     options were outstanding. On February 2, 2000, options for the purchase of
     109,750 shares were granted with an adjusted exercise price of $9.00 per
     new Common Share. As of December 31, 2001 and 2000, 103,750 and 109,750,
     respectively, of these options were outstanding. On February 8, 2001,
     options for the purchase of 68,875 shares were granted with an adjusted
     exercise price of $9.06 per new Common Share. As of December 31, 2001,
     68,875 of these options were outstanding. On December 21, 2001 options to
     purchase 6,000 new Common Shares with an adjusted exercise price of $9.00
     per share were exercised. The exercise of common stock options reduced the
     number and cost of shares held in the Trust's treasury.

     During 2000, the Trust purchased the equivalent of 27,160 post-split common
     shares as treasury stock. The purchase was recorded at cost and as a
     reduction to common stock outstanding. During 2001 the Trust's cumulative
     Common Stock purchases reached 91,066. Exercised Common Stock options
     reduced the treasury's Common Stock balance to 85,066 shares.

     On March 7, 2000, the Board of Directors authorized the Trust to purchase
     up to $250,000 of the Trust's Common Stock. On December 21, 2000, the
     authorized repurchase ceiling was increased to $400,000. On June 19, 2001
     the repurchase authorization was increased to $550,000. Separately, in a
     private transaction the Board of Directors authorized the purchase of
     47,500 Common Shares at $13.50. This transaction closed on September 3,
     2001.

     On November 17, 2000, the Trust duly approved (subject to satisfaction of
     miscellaneous filing requirements) a one share for each three shares (1 for
     3) reverse stock split of its Common and Preferred Shares which became
     effective at the close of business on May 11, 2001. Upon effectiveness of
     the reverse split, one (1) new Common Share and one (1) new Series "A"
     Preferred Share was exchanged for each three (3) outstanding Common and
     Preferred Share, respectively, and there were approximately 495,161 issued
     and outstanding Common Shares and approximately 213,819 issued and
     outstanding Preferred Shares. As a result, the December 31, 2000 Common
     Share treasury balance became 27,160 post-split shares and the December 31,
     2000 Preferred Share treasury balance became 3,176 post-split shares, each
     with $.01 par value. On May 14, 2001, the commencement of post-split
     trading, the price of a Common Share on the American Stock Exchange was
     increased to three (3) times the closing price of such shares on May 11,
     2001 and the Adjusted Net Capital Contribution attributable to each Series
     "A" Preferred Share was increased to approximately $26.51 per share, three
     (3) times the existing Adjusted Net Capital Contribution of each such
     Preferred Share (approximately $8.83) as of March 31, 2001. The authorized
     capital of the Trust remained unchanged with 5,000,000 Common Shares and
     675,000 Series "A" Preferred Shares authorized.

                                      F-23
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                For the three-year period ended December 31, 2001

14.  Earnings per share
     ------------------

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

                                        Year Ended    Year Ended    Year Ended
                                       December 31,   December 31,  December 31,
                                       ------------  -------------  ------------
                                           2001        2000         1999
                                           ----        ----         ----
Numerator:
Net income                             $1,142,898    $  515,023    $  450,605
Preferred dividends attributable
      to income                           498,607       515,023       450,605
                                       ----------    ----------    ----------
Numerator for basic and diluted
     Earnings per share-income
available to common stockholders       $  644,291    $     --      $     --
                                       ==========    ==========    ==========
Denominator:
      Basic weighted average shares       442,371       485,811       494,913
(adjusted for 2001's 1-for-3
reverse stock split)
     Dilutive effect of warrants             --            --         113,705
     Dilutive effect of options           172,625          --            --
                                       ----------    ----------    ----------
     Diluted weighted average shares      614,996       485,811       608,618
                                       ==========    ==========    ==========
Basic earnings per common share        $    1.456    $     --      $     --
                                       ==========    ==========    ==========
Diluted earnings per common share      $    1.048    $     --      $     --
                                       ==========    ==========    ==========
                                      F-24
<PAGE>
--------------------------------------------------------------------------------
                                     PART IV
--------------------------------------------------------------------------------


  ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS
  SCHEDULES, AND REPORTS ON FORM 8-K.

  (a)(1) Financial Statements.  The following Company financial statements are
         filed as part of this report:

         Independent Auditors' Report........................................F-1
         Balance Sheets......................................................F-2
         Statements of Operation.............................................F-3
         Statements of Changes in Stockholders' Equity.......................F-4
         Statements of Cash Flows............................................F-5
         Notes to Financial Statements.......................................F-6

  (a)(2) Financial Statement Schedules are listed in Part II - Item 8.

  (a)(3) 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)
           4.2   Form of Shareholder's Warrant Agreement(4)
           4.4   Form of Common Warrant Certificate(4)
           5.1   Opinion of Ashby & Geddes(4)
           8.1   Opinion of Landels Ripley & Diamond, LLP(4)
          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)
          23.1   Consent of Landels Ripley & Diamond, LLP(4)
          23.2   Consent of Novogradac & Company LLP(4)
          23.3   Consent of Ashby & Geddes(4)
          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)
          24.3   Power of Attorney of Douglas A. Thompson(1)
          24.4   Power of Attorney of Stanley C. Brooks(1)
          24.5   Power of Attorney of Harvey Blomberg(1)
          24.6   Power of Attorney of Jeannette Hagey(1)
          24.7   Power of Attorney of Richard J. Wrensen(7)
          24.8   Power of Attorney of Donald R.  Looper(8)
          27.3   Revised Financial Data Schedule-Capital Alliance Income Trust,
                 A Real Estate Investment Trust(3)
          28.1   Impound and Escrow Agreement(4)
          28.2   Impound and Escrow Agreement, as amended October 23, 1997(5)
         --------------------

                                       29
<PAGE>
    (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.

    (4) These exhibits were previously contained in Post-Effective Amendment No.
        2 to the Registrant's Registration Statement filed on Form S-11 with the
        Commission on April 21, 1997, and are 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 are
        incorporated by reference herein.

    (b) Reports on Form 8-K.

        None.

    (c) See a(3) above.

    (d) Financial Statement Schedules.
        -----------------------------

         None.

                                       30
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(D) 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.
Dated:  April 15, 2002                       A Real Estate Investment Trust

By:  /s/ Richard J. Wrensen                  By:    /s/ Thomas B. Swartz
     ----------------------                         ----------------------------
     Richard J. Wrensen                             Thomas B. Swartz
     Executive Vice President                       Chairman and Chief
     Chief Financial Officer and                    Executive Officer
     Principal Financial and
     Accounting Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


/s/ Thomas B. Swartz                                Dated:   April 15, 2002
------------------------------------------
Thomas B. Swartz
Chairman and Chief Executive Officer
(Principal Executive Officer)


/s/ Richard J. Wrensen                              Dated:   April 15, 2002
------------------------------------------
Richard J. Wrensen
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)


/s/ Dennis R. Konczal                               Dated:   April 15, 2002
------------------------------------------
Dennis R. Konczal
President and Director



/s/ Stanley C. Brooks                               Dated:   April 15, 2002
------------------------------------------
Stanley C. Brooks
Director


/s/ Harvey Blomberg                                 Dated:   April 15, 2002
------------------------------------------
Harvey Blomberg
Director


/s/ Donald R. Looper                                Dated:   April 15, 2002
------------------------------------------
Donald R. Looper
Director

                                       31

<PAGE>
                                   EXHIBIT "A"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                ANNOUNCES IMPROVED EARNINGS AND OPERATING RESULTS
                             FOR THIRD QUARTER 2001

  SAN FRANCISCO - (BUSINESS WIRE) - November 7, 2001- Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news), a specialty residential mortgage finance
company, announced net income of $325,662 ($.47 basic and $.43 diluted per
share) for the three months ended September 30, 2001 and $842,131 ($.97 basic
and $.88 diluted per share) for the nine months ended September 30, 2001 as
compared to net income of $65,940 (-$.06 basic and diluted per share) and
$359,214 (-$.07 basic and diluted per share), respectively, for the like periods
in the year 2000.

  The 2001 third quarter net income reflect a 393% increase over net income for
the third quarter of 2000 and a 29% increase over the net income for the second
quarter of 2001. Similarly, the increase in net income for the nine months ended
September 30, 2001 reflects a 134% increase over the net income for the first
nine months of 2000.

  Thomas B. Swartz, Chairman and CEO of CAIT, noted that "management is very
pleased to see the dramatic improvement in CAIT's earnings for the last several
quarters since they reflect the benefit of CAIT's re-emphasis of its portfolio
lending operations, reduced interest costs, and improved profitability in both
its portfolio operations and its mortgage banking subsidiary." Richard J.
Wrensen, CAIT's CFO, also observed that the improvement in CAIT's earnings over
the last five quarters is poised to continue through the fourth quarter of 2001
despite the continued weakening in the general economy. Our earnings also
include significant and increased loan loss reserves to guard against a decline
in residential property values.

  CAIT is a specialty residential mortgage lender which invests in
higher-yielding, non-conforming residential mortgage loans on one-to-four unit
residential properties located in California and other western states. It also
originates non-conforming and conforming loans for sale to investors and Freddie
Mac on a whole loan basis for cash through its subsidiary, Capital Alliance
Funding Corporation.

  Certain oral and written statements of management of CAIT included in the
press release may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. The accuracy of such statements cannot be guaranteed, as
they may be subject to a variety of risks and contingencies.

  Contact:        Capital Alliance Income Trust Ltd., San Francisco
                  Richard J. Wrensen, 415/288-9575

                                       32
<PAGE>
                                   EXHIBIT "B"

                     CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
           SECOND CONSECUTIVE INCREASED QUARTERLY DIVIDEND AND REPORTS
                   CONTINUING IMPROVEMENT IN OPERATING RESULTS

  SAN FRANCISCO - (BUSINESS WlRE) - December 27, 2001 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX:CAA - news), a non-conforming specialty residential
finance company, announced that its Board has declared CAIT's second consecutive
increased Common Share dividend for the first quarter of 2002 at the increased
rate of $.30 per Common share. The increase in dividend rate is a 7.1 % increase
over the prior quarter's dividend and a 17.65% increase during the last two
quarters. The dividend will be payable on January 15,2002 to shareholders of
record on January 7, 2002. Richard J. Wrensen, executive vice president and
chief financial officer stated that "although home prices have held up better
than the rest of the California economy, it is unclear whether that strength can
continue. Therefore, CAIT is continuing to augment its loan loss reserves to
deal with that contingency and is confident and determined that it can continue
to build CAIT's long term earnings capacity to support future dividend
increases."

  Thomas B. Swartz, CAIT's chairman and CEO noted that "since REIT's must
distribute 90% of their net income, the recent dividend increases signal our
belief that CAIT, through its portfolio lending strategy, can continue to
improve its operating results."


  CAIT is a specialty residential mortgage lender which invests in
high-yielding, non-conforming and conforming residential mortgage loans on
one-to-four unit residential properties located primarily in California and
other western states. It also originates non-conforming and conforming loans for
sale to investors, including Freddie Mac, on a whole loan basis for cash through
its mortgage banking subsidiary, Capital Alliance Funding Corporation.

  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, 415/288-9575

                                       33
<PAGE>
                                   EXHIBIT "C"

                     CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
                 THIRD CONSECUTIVE INCREASED QUARTERLY DIVIDEND
                   AND RECORD OPERATING RESULTS FOR YEAR 2001

  SAN FRANCISCO - (BUSINESS WIRE) - March 28, 2002 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared
CAIT's third consecutive increased Common Share dividend at the increased rate
of $.40 per Common share - a 33 % increase over the prior quarter's dividend and
a 56.8 % increase during the last four quarters. Based on the current common
stock price of $14.00 per share, the annualized dividend yield is 11.4%.

  The dividend is payable on April 16, 2002 to shareholders of record on April
8, 2002.

  Dennis R. Konczal, CAIT's President and Chief Operating Officer, also
announced concurrently, earnings of $300,723 for the fourth quarter 2001 (as
compared to $155,809 for the fourth quarter of 2000) and $1,142,406 for the year
2001 (a 127.6% increase over earnings of $515,023 for the year 2000). Mr.
Konczal noted that CAIT's improved earnings reflect the continuing strength of
its portfolio lending operations and mortgage banking activities within
California and other western states. Despite softening in some parts of
California's economy, CAIT's results are indicative of its success in its
portfolio lending "niche" (only on property where the loan to value can be less
than 75%) and California's economic diversity. He also noted, that even though
interest rates are anticipated to rise throughout 2002, CAIT's profitability is
expected to be maintained as a result of loan portfolio growth and increased
loan origination activity.

  Richard J. Wrensen, CAIT's Executive Vice-President and Chief Financial
Officer, stated "Capital Alliance had a very strong year in 2001. The stock
posted a total return of approximately 70%, provided two quarterly dividend
increases and achieved a higher ROE while continuing to build substantial loan
loss reserves to offset any future declines in California residential property
values. Our goal for 2002 is to improve on these accomplishments and thereby
deliver on our commitment to build shareholder value." CAIT's 2001 fourth
quarter achieved basic and fully diluted earnings per share of $0.48 and $0.42
vs. split adjusted fourth quarter 2000 basic and fully diluted earnings per
share of $0.02 and $0.02. The twelve month results for the fiscal year ended
December 31, 2001 produced basic and fully diluted earnings per share of $1.19
and $1.06 vs. split adjusted 2000 basic and fully diluted earnings per share of
$0.00 and $0.00.

  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, including
Freddie Mac, on a whole-loan basis for cash through its mortgage banking
subsidiary, Capital Alliance Funding Corporation.

  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, 415/288-9575
                  www.calliance.com

                                       34