UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB/A
(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, 2003
                                       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.,
                         A REAL ESTATE INVESTMENT TRUST

             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------

           Delaware                                              94-3240473
-------------------------------                           ----------------------
(State or other Jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                           Identification Number)
         50 California Street
         Suite 2020
         San Francisco, California                                  94111
         -------------------------                                  -----
         (Address of principal executive office)                  (zip code)

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

           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

Securities registered pursuant to Section 12(g) of the Act: None.

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    .
                                                ---

Registrant meets the condition of General Instruction G(1)(a) and (b) of Form
10-KSB and is filing this form 10-KSB pursuant to its reduced disclosure format.

[X] No disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is
contained herein and no disclosure will 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-KSB or any amendment to
this Form 10-KSB.

Registrants Revenues for its most recent fiscal year were $2,605,765.

As of March 29, 2004, the Registrant's common shares closed at $20.60 and the
aggregate market value of the Registrant's shares of Common Stock, $.01 par
value, held by non-affiliates of the registrant was approximately $6,798,000. At
that date approximately 435,000 common shares were outstanding and 330,000
common shares were held by non-affiliates.

<PAGE>
                                TABLE OF CONTENTS

PART I........................................................................4


ITEM 1. DESCRIPTION OF BUSINESS...............................................4
      General.................................................................4

MORTGAGE INVESTMENT BUSINESS..................................................4
      General.................................................................4
      Mortgage Loan Portfolio.................................................4
      Financing...............................................................5

MORTGAGE CONDUIT BUSINESS.....................................................5
      General.................................................................5
      Marketing and Production................................................6
      Underwriting............................................................6
      Whole Loan Sales........................................................7

WAREHOUSE LENDING BUSINESS....................................................7

HEDGING.......................................................................7

SERVICING.....................................................................8
      Servicing Portfolio.....................................................8
      Geographical Distribution...............................................8
      Interest................................................................8
      Maturity................................................................9
      Delinquencies...........................................................9

REGULATION....................................................................9

COMPETITION..................................................................10

EMPLOYEES....................................................................10

SELECTED FINANCIAL DATA......................................................11

ITEM 2. DESCRIPTION OF PROPERTY..............................................11

ITEM 3. LEGAL PROCEEDINGS....................................................11

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

PART II......................................................................12

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............12

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............13

OVERVIEW.....................................................................13

CRITICAL ACCOUNTING POLICIES.................................................13
      Operating Strategy.....................................................14
      Loan Origination and Loan Servicing....................................15
      Contingencies and Commitments..........................................15

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002........16

INFLATION....................................................................16

LIQUIDITY AND CAPITAL RESOURCES..............................................16

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2003.........16

                                       2
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2002.........17

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................17
      Market Risk............................................................17
      Asset and Liability Management.........................................18

ITEM 7. FINANCIAL STATEMENTS.................................................18

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES................................................20

PART III.....................................................................20

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
        REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT........20

DIRECTORS....................................................................20

AUDIT COMMITTEE - FINANCIAL EXPERTS..........................................21

EXECUTIVE OFFICERS...........................................................21

ITEM 10. EXECUTIVE COMPENSATION..............................................22

COMPENSATION OF OFFICERS.....................................................22

COMPENSATION OF DIRECTORS....................................................22
      Director Fees..........................................................22
      Committee and Other Meeting Fees.......................................22
      Reimbursements.........................................................22

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         AND RELATED STOCKHOLDER MATTERS.....................................23
      (a)   Equity Compensation Plan Information.............................23
      (b)   Security Ownership of Certain Non-Management or Non-Affiliate
            Beneficial Owners................................................23
      (c)   Security Ownership of Management.................................23
      (d)   Changes in Control...............................................24

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................25
      Arrangements and Transactions with Members of the Management CAAI......25
      Sale and Purchase of Loan..............................................25
      Other Business Activities..............................................25

PART IV......................................................................26

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................26
      (a)   Exhibits.........................................................26
      (b)   Reports on Form 8-K..............................................26
      (c)   Miscellaneous Exhibits...........................................27

ITEM 14. CONTROLS AND PROCEDURES.............................................27

ITEM 15. NOT APPLICABLE......................................................27

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................27

SIGNATURES...................................................................28

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002.........................................................................29

CERTIFICATION OF FORM 10-KSB OF CAPITAL ALLIANCE INCOME TRUST LTD.,..........30

                                       3
<PAGE>
--------------------------------------------------------------------------------
                                     PART I
--------------------------------------------------------------------------------

ITEM 1. DESCRIPTION OF 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. The Trust was incorporated in Delaware on December 12, 1995. On
April 29, 1996 two Delaware business trusts, Capital Alliance Income Trust I and
Capital Alliance Income Trust II were merged into the Trust. 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

         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 that emphasizes three areas referred to
herein as (1) the Mortgage Investment Business, (2) the Mortgage Conduit
Business, and (3) the Warehouse Lending Business. All mortgage investments
originated by the Company are originated by CAFC and portfolio investments are
sold to the Trust by CAFC at par. 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
2001, 2002, and 2003 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 non-conforming residential mortgage loans with a
maximum 75% combined loan-to-value ratio for 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 secondarily from fees received in connection with
their origination. Such acquisitions are financed with the Trust's shareholders'
equity and borrowings. The Company's borrowings, 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.

Mortgage Loan Portfolio
-----------------------
         The Trust invests a substantial portion of its portfolio in
non-conforming first and second mortgage loans. Although the Trust may purchase
such loans from unaffiliated third parties, mortgage investments are primarily
purchased from CAFC. 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 combined loan-to-value, at the time of origination, of not more than 75% of
the collateral's value. The collateral's value is verified by independent
appraisal. As of December 31, 2003 the Trust's loan portfolio totaled
$20,556,488 with an average loan size of $221,038, an average weighted yield of
12.26%, a weighted average adjusted maturity of 44 months and a weighted average
combined loan-to-value ratio of 69.5%. First deeds of trust comprised 28% of the
portfolio's dollar value and junior deeds of trust comprised 72%. As of December
31, 2002 the Trust's loan portfolio totaled $19,906,391 with an average loan
size of $199,064, an average weighted yield of 13.19%, a weighted average
adjusted maturity of 30 months and a weighted average combined loan-to-value
ratio of 66.9%. First deeds of trust comprised 36% of the portfolio's dollar

                                       4
<PAGE>
value and junior deeds of trust comprised 64%. The highest concentration of
nonconforming mortgage loans, owned by the Trust, are located in California
because of the general prevalence of higher property values and mortgage loan
balances.

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,
2003 was partially encumbered by two different bank lines of credit in the
amounts of $9,000,000 and $2,750,000 respectively. This encumbrance limitation
does not apply to CAFC.

         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 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 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, 2003
aggregated $2,638,226. 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. CAFC has its executive offices in San Francisco, a
branch office in Irvine, and a satellite office in San Diego, California. The
Trust's Manager owns a 1% economic interest and 100% of the voting control of
CAFC.

         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 investors who securitize such loans in
the secondary market.

         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.
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 their sale. All
non-conforming loans purchased or originated by CAFC which meet the Trust's
underwriting guidelines, which include its 75% 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

                                       5
<PAGE>
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, fraud in the origination process or early default on such mortgage
loan.

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, establish and maintain
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 origination 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, nonconforming 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 that are identified for sale into the secondary mortgage market 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.

         The Trust's Manager, through its origination network, including the
Trust's subsidiary CAFC which is managed by CAAI, accounted for 100% of the
total mortgage loans purchased by the Trust during the year ended December 31,
2003. These loans were purchased at par.

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.

                                       6
<PAGE>
         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-recourse 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.

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, 2003, the
Trust had outstanding balances of $2,638,226 to CAFC and $0 to Calliance Realty
Fund. As of December 31, 2002, the Trust had outstanding balances of $3,382,940
to CAFC and $0 to Calliance Realty Fund, LLC. Both CAFC and Calliance Realty
Fund, LLC are 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 a period of rising and fluctuating

                                       7
<PAGE>
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.


Servicing Portfolio
-------------------
         The following tables set forth certain information regarding the
Trust's servicing portfolio of loans for the years ended.

<TABLE>
<CAPTION>
                                            December 31, 2001     December 31, 2002     December 31, 2003
                                            -----------------     -----------------     -----------------
<S>                                            <C>                   <C>                   <C>
Beginning servicing portfolio                  $11,906,586           $17,738,923           $19,906,391
Loans added to the servicing portfolio         $15,380,173           $14,195,708           $14,827,987

Loans sold, servicing released and principal
     paydowns (1)                              $ 9,547,836           $12,028,240           $14,177,890
              --                               -----------           -----------           -----------

Ending servicing portfolio                     $17,738,923           $19,906,391           $20,556,488

Number of loans serviced                                99                   100                    93
Average loan size                              $   179,181           $   199,064           $   221,038
</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, 2001             December 31, 2002            December 31, 2003
             -----------------             -----------------            -----------------
            Number         $-% of       Number          $-% of        Number         $-% of
State      of loans       Portfolio    of loans       Portfolio      of loans      Portfolio
-----      --------      ---------      -------       ---------      -------       ---------
<S>            <C>           <C>           <C>           <C>              <C>          <C>
CA             95             96%           96            97%             91            99%
OR              1              1%            0             0%              0             0%
UT              2              2%            2             2%              0             0%
Other           1              1%            2             1%              2             1%
               --            ---           ---           ---              --           ---

Totals:        99            100%          100           100%             93           100%
</TABLE>

Interest
--------
         The weighted average interest for the Trust's portfolio of loans in its
Mortgage Investment Business at December 31, 2001 was 13.21%, at December 31,
2002 was 13.19%, and at December 31, 2003 was 12.26%.

                                       8
<PAGE>
Maturity
--------
         The weighted average adjusted maturity of the Trust's portfolio of
loans in its Mortgage Investment Business at December 31, 2001 was 25 months, at
December 31, 2002 was 30 months, and at December 31, 2003 was 44 months. The
following table shows the Trust's loan maturities at the dates presented.

<TABLE>
<CAPTION>
                    December 31, 2001             December 31, 2002               December 31, 2003
                    -----------------             -----------------               -----------------
  Terms            Amount          $-% of         Amount          $-% of        Amount           $-% of
  of Loans        of loans       Portfolio      of loans       Portfolio       of loans         Portfolio
  --------        --------       ---------      --------       ---------       --------         ---------
<S>            <C>                  <C>       <C>                 <C>         <C>                  <C>
0-12 months     $7,339,035           41%       $6,659,116          34%        $2,776,410            13%
13-24 months     1,143,689            6%        2,097,044          10%         2,027,664            10%
25-36 months        84,946            1%        1,227,613           6%         2,704,179            13%
37-48 months     2,208,485           13%        3,816,916          19%         2,993,039            15%
Over 48          6,962,768           39%        6,105,703          31%        10,055,196            49%
                 ---------          ---         ---------         ---         ----------           ---

  Totals:      $17,738,923          100%      $19,906,392         100%        20,556,488           100%
               ===========          ===       ===========         ===         ==========           ===
</TABLE>

Delinquencies
-------------
         The following table shows the Trust's delinquency statistics for its
servicing portfolio at the dates presented.

<TABLE>
<CAPTION>
                       December 31, 2001            December 31, 2002                December 31, 2003
                       -----------------            -----------------                -----------------
    Loans              Number         $-% of      Number          $-% of           Number         $-% of
Delinquent For:       of loans      Portfolio    of loans       Portfolio         of loans      Portfolio
---------------       --------      ---------    --------       ---------         --------      ---------
<S>                     <C>            <C>           <C>           <C>                <C>           <C>
31-60 days               6              4%           10            11%                 7             8%
61-90 days               8              5%            0             0%                 6            10%
91 days +                5(1)           3%           16(2)         19%                 8(3)         12%
--                      --             --            --            --                 --            --
Totals:                 19             12%           26            30%                21            30%
                        ==             ==            ==            ==                 ==            ==
</TABLE>

     (1) Three of the 91 days+ delinquent loans were either paid off in full or
brought current by March 31, 2002. (2) 12 of the 91 days+ delinquent loans were
either paid off in full or brought current by March 31, 2003. (3) Two of the 91
days+ delinquent loans were either paid off in full or brought current by March
15, 2004.

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

                                       9
<PAGE>
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.

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.

         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, investment banks, specialty finance companies and private
mortgage investors. 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, 2003, the Manager employed 18 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.


                 [ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

                                       10
<PAGE>
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, 1999, 2000, 2001, 2002 and 2003.

         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>
                                                          Year Ended December 31
                                                          ----------------------

Financial Summary                     1999          2000         2001          2002          2003
                                      ----          ----         ----          ----          ----
<S>                              <C>           <C>           <C>           <C>           <C>
Operations:
Revenue                          $ 1,243,866   $ 1,623,656   $ 2,858,179   $ 2,866,253   $ 2,605,765

Net income                           450,605       515,023     1,142,896     1,108,264       909,530

Per Share Data:
Weighted average basic
     earnings (split-adjusted)          --            --     $      1.46   $      1.81   $      1.40

Weighted average diluted
     earnings (split-adjusted)          --            --     $      1.05   $      1.50   $      1.19

Balance Sheet Data:
Mortgage notes receivable        $10,807,644   $11,906,589   $17,738,923   $19,906,391   $20,556,488

Total assets                      17,006,696    19,299,332    25,343,401    25,973,457    26,612,605

Total liabilities                  1,579,862     4,589,168    11,248,860    11,713,401    12,401,943

Stockholders' equity              15,426,834    14,710,164    14,094,541    14,260,056    14,210,662

Common share equity                9,754,458     9,125,847     8,510,224     8,675,739     8,626,165

Common shares (split-adjusted)       494,913       467,754       410,095       424,144       434,769

Common share book value          $     19.71   $     19.51   $     20.75   $     20.45   $     19.84
</TABLE>

ITEM 2. DESCRIPTION OF PROPERTY

         The Trust and its Manager leases executive and administrative offices
located at 50 California Street, Suite 2020, San Francisco, California, 94111,
that consists of approximately 3,000 square feet.

         CAFC leases space in Irvine and San Diego, California for its branch
and satellite 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.

                                       11
<PAGE>
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, 2003.

--------------------------------------------------------------------------------
                                     PART II
--------------------------------------------------------------------------------

ITEM 5. MARKET FOR 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 for the last two years were:

 Year             Quarter           High              Low            Dividend
 ----             -------           ----              ---            per Share
                                                                     --------
2001                1st*           $11.70            $8.25            $0.255
                    2nd*            13.50            10.56             0.255
                    3rd             13.42            11.90             0.255
                    4th             13.70            12.10             0.28

2002                1st             14.20            12.91             0.30
                    2nd             22.50            14.45             0.40
                    3rd             21.15            17.70             0.45
                    4th             18.99            17.25             0.45

2003                1st             17.25            15.90             0.45
                    2nd             19.20            16.00             0.45
                    3rd             19.48            17.01             0.45
                    4th             19.38            17.77             0.00

2004           Jan 1 - Mar 15       20.90            17.96             0.45

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

         Holders: On December 31, 2003, there were approximately 68 holders of
record (including holders who are nominees for an undetermined number of
beneficial owners) of the Trust's Common Stock and 145 holders of record
(including holders who are nominees for an undetermined number of beneficial
owners) 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.

         In a separate, private transaction with Sutter Capital Management that
closed on September 3, 2001, the Board authorized the purchase of 47,500 Common
Shares at $13.50 per Share. The Trust intends to effect all share repurchase in
compliance with Rule 10b-18 under the Securities Exchange Act of 1934. During
2002, the Manager was authorized to repurchase up to $695,000 of the Trust's
Common Stock, in open market purchases. As of December 31, 2002, $119,489 was
available to repurchase the Trust's Common Stock. During 2003, the net Common
Stock repurchase allowance increased to $1,000,000. As of December 31, 2003,
$270,808 is available to repurchase the Trust's Common Stock.

         As of December 31, 2002, the Trust had acquired 97,966 Common Shares
under the repurchase plan at a total cost of $575,511. During 2003, the Trust
repurchased an additional 10,800 Common Shares for $153,681, which increased the
total Common Shares repurchased to 108,766 at a cost of $729,192.

         During 2002 and 2003, Treasury Shares totaling 20,949 and 34,851 were
used to satisfy exercised Common Share stock options. As of December 31, 2002,
the Trust held 71,017 shares of Common Stock in the treasury. As of December 31,
2003, the Trust held 62,392 shares of Common Stock in the treasury.

         To maintain its qualification as a REIT, the Trust has made and intends
during 2004 to make annual distributions to stockholders of at least 90% of its

                                       12
<PAGE>
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, 2003, June 30, 2003, September 30, 2003, and December 31, 2003 at $0.45,
$0.45, $0.45, and $0.00 per post-split share respectively. The Trust reinstated
its Common Share dividend in the first quarter of 2004 at $0.45 per Common
Share. The Trust paid 12 consecutive monthly dividends during 2003 on the
Trust's Preferred Stock at an average of approximately $.125 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.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

         Preparation of Trust's financial statements is based upon the operating
results of the Trust. Management's discussion and analysis of the results of
operation for the years ended December 31, 2003 and December 31, 2002 follow.

OVERVIEW

         In May of 1997, the Trust registered its common shares with the
Securities and Exchange Commission under the Securities Act of 1933. On
September 30, 1998, the initial public offering of Common Shares was completed.
Since October 1, 1998, the common shares have been listed on the American Stock
Exchange with the exchange symbol of "CAA".

CRITICAL ACCOUNTING POLICIES

         The accounting and reporting policies of the Company are in accordance
with accounting principles generally accepted in the United States of America.
The Company's significant accounting policies are described in the notes to the
consolidated financial statements. Certain accounting policies require
management to make significant estimates and assumptions, which have a material

                                       13
<PAGE>
impact on the carrying value of certain assets and liabilities, and the Company
considers these to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which
management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could
have a material impact on the carrying value of assets and liabilities at the
balance sheet dates and results of operations for the reporting periods.

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

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

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

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

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

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

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

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

         CAFC's operating strategy is to originate, through mortgage loan
brokers and a correspondent network, conforming and non-conforming home equity
loans to be sold to the Trust and to be sold in the secondary mortgage market
for cash. Although the loans currently made are concentrated in California, CAFC
plans to originate and/or purchase loans on both an individual and bulk basis
throughout the western United States. Loans will then be sold into the secondary

                                       14
<PAGE>
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.

Contingencies and Commitments
-----------------------------
         As of December 31, 2003, the Trust owned a loan portfolio of
$20,556,488 consisting of 93 loans, of which 14 loans totaling $4,518,527 or 22%
of the portfolio loan value were delinquent over 60 days. As of March 15, 2004,
four of the delinquent loans were brought current or paid off. 10 loans totaling
$2,788,312 or 14% of the December 31, 2003 portfolio balance remained
delinquent. As of December 31, 2003, the Trust held one property as a real
estate investment.

         As of December 31, 2002, the Trust owned a loan portfolio of
$19,906,391 consisting of 100 loans, of which 16 loans totaling $3,714,094 or
19% of the portfolio loan value were delinquent over 60 days. As of March 31,
2003, 12 of the delinquent loans were brought current or paid off. Four loans
totaling $837,788 or 4% of the December 31, 2002 portfolio balance remained
delinquent. As of December 31, 2002, the Trust held 0 properties as real estate
investments.

         In assessing the delinquent mortgage loans, management estimates a net
gain will be recognized, if it is necessary to foreclose on the delinquent
mortgage loans due the Trust. Management's estimate is based on an anticipated
sales price of the foreclosed 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, 2003 and December 31, 2002.

         As of December 31, 2003, the following table summarizes the Trust's
repayment obligations.

<TABLE>
<CAPTION>
        Maximum Other              Total
 Commercial Commitments (a)       Amounts                 Amount of Commitment Expiration Per Period
   as of December 31, 2003       Committed      --------------------------------------------------------------
 -------------------------     -------------
                                                 Less than           1 - 3            3 - 5            After 5
                                                   1 year            years             years            years
                                                   ------            -----             -----            -----
<S>                             <C>             <C>                    <C>               <C>              <C>
Lines of Credit (b)             $11,798,189     $11,798,189            0                 0                0
Standby Repurchase                  (c)              0                 0                 0                0
Obligations
Total Commercial Commitments    $11,798,189     $11,798,189            0                 0                0
</TABLE>

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

(b)  Maximum potential liability. Actual amounts outstanding as of December 31,
     2003 due in less than 1 year was $11,798,189.

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

                                       15
<PAGE>
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

         Revenues for the year ended December 31, 2003 decreased to $2,605,765
as compared to $2,866,253 for 2002. The Trust's larger mortgage portfolio
provided $147,024 of less interest income due to lower interest rates while
interest income from affiliates borrowings increased $26,014. Investment income
decreased by $129,730 on account of CAFC's loss of $155,372. Other income for
the year ended December 31, 2003 decreased on account of fewer prepayment fees
from early mortgage payoffs.

         At year ended December 31, 2003, the mortgage notes receivable balance
was $650,097 greater than the year ended December 31, 2002 mortgage notes
receivable balance. At year ended December 31, 2003, the warehouse lines of
credit balance to related parties was $744,714 less than the year ended December
31, 2002 warehouse lines of credit. At year ended December 31, 2003, the real
estate held for sale balance was $415,000 more than the year ended December 31,
2002 balance.

         Expenses for the year ended December 31, 2003 decreased to $1,696,235
as compared to $1,724,753 for the previous year. The decrease in 2003 compared
to 2002 is due to lower interest expenses to related parties of $19,216, lower
tax expenses of $3,843 and decreased general and administrative expenses of
$28,208. During 2003, compensation to the manager from management and loan
servicing fees increased $65,000, provisions for loan losses decreased $64,963,
interest expenses on loans from unrelated parties increased $17,666, and
amortization expenses increased $5,046.

         During 2003, there were no real estate owned gains, losses, or
expenses. The 2002 losses from sales of real estate held and real estate owned
operating expenses were reported as a separate line item and did not reduce the
year's expenses or increase either year's revenues.

         Net income for the year ended December 31, 2003 was $909,530. Net
Income for the year ended December 31, 2002 was $1,108,264.

INFLATION

         The financial statements of the Trust, prepared in accordance with
accounting principles generally accepted in the United States of America, report
the Trust's financial position and operating results in terms of historical
dollars and do not consider the impact of inflation. Inflation affects the
Trust's 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

         As of January 1, 2003, the Trust had lines of credit of $9,000,000 and
$2,750,000 with two different lenders. Both of these credit facilities mature in
2004 and may not be renewed. Management believes that cash flow from operations,
the mortgage loans that are paid off, additional lines of credit anticipated to
be acquired during 2004 and, if necessary, the limited sale of investment
mortgages, 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, 2003

         As of January 1, 2003, the Trust had $494,443 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2003 were $1,038,010. 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 from
operating activities. The primary us of cash was investing activities.

         Net cash provided by the operating activities during the year ended
December 31, 2003 was $1,020,824. Net Income of $909,530 and the non cash equity
in loss of affiliate of $155,372 were the primary providers of cash. The primary

                                       16
<PAGE>
operating activity uses of cash was the increase in accounts receivable of
$115,796, and the decrease in other liabilities of $71,221.

         Net cash of $314,507 was used in investing activities. $14,827,987 was
invested in mortgage notes receivable and repayments provided $13,504,757. A
decrease in affiliate warehousing provided $744,714.

         Net cash used in financing activities during the year ended December
31, 2003 was $162,750. The primary provider of cash from financing activities
was $800,799 drawn from bank lines of credit while net treasury stock
transactions and exercised options used $91,111 in financing activities.
Dividends paid of $890,438 was the largest use of cash from financing
activities.

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2002

         As of January 1, 2002, the Trust had $441,909 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2002 were $494,443. 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 from
operating activities. The primary us of cash was investing activities.

         Net cash provided by the operating activities during the year ended
December 31, 2002 was $937,970. Net Income of $1,108,264 and the non-cash
provision for loan losses of $195,000 were the primary providers of cash. The
primary operating activity use of cash was the increase in affiliates
receivables of $254,023.

         Net cash of $1,283,968 was used in investing activities. $14,195,708
was invested in mortgage notes receivable and repayments provided $11,378,857.

         Net cash provided by financing activities during the year ended
December 31, 2002 was $398,532. The primary provider of cash from financing
activities was $1,359,058 drawn from bank lines of credit. Net treasury stock
sales of $79,150 also provided cash from financing activities. Dividends paid of
$1,020,176 were the largest use of cash from financing activities.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market Risk
-----------
         Market risk is the exposure to loss resulting from changes in interest
rates, credit spreads, foreign exchange rates, commodity prices, and equity
prices. The primary market risks to which the Trust is exposed are Greenspan
risk, 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, 2003 balance sheet
at the lower of cost or market.

         As U.S. Treasury securities are priced to a lower yield and/or the
spread to U.S. Treasuries used to price the 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. A portion of the Trust's liabilities are also based on a spread
over the daily Prime Rate. As the level of LIBOR and/or the Prime Rate increases
or decreases, the Trust's interest expense will move in the same direction.

                                       17
<PAGE>
         On account of the relatively short adjusted weighted average maturity
of the Trust's portfolio (44 months), a variety of financial instruments
available to limit the effects of interest rate fluctuations on its operations
have not been utilized. The use of these types of derivatives (such as interest
rate swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments. As the level of variable rate mortgage financing
of the portfolio increases or the weighted average maturity of the portfolio
increases, the Trust may utilize a variety of financial instruments to limit the
effects of interest rate fluctuations.

         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 2003 would reduce the 2003 GAAP income applicable to common
shareholders by $206,000 or 34%.

Asset and Liability Management
------------------------------
         Asset and liability management is concerned with the timing and
magnitude of the maturity of assets and liabilities. In general, management's
strategy is to approximately match the term of the Trust's liabilities to the
portfolio's adjusted weighted average maturity (44 months).

         The majority of the Trust's assets pay a fixed coupon and the income
from such assets are relatively unaffected by interest rate changes. The Trust's
borrowings are currently under variable rate lines of credit that reset 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 7. 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

         The unaudited 2003 and 2002 fourth quarter operating statement is
presented on the next page with the accompanying notes to the operating
statement incorporated herein by reference to the Financial Statements with
Independent Auditor's Report for the two year period ended December 31, 2003.

                                       18
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST
                            STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                         Three Months Ended
                                                            December 31
                                                         2003         2002
                                                         ----         ----
REVENUES
     Interest income                                  $ 605,119    $ 665,113
     Interest income from affiliates                     65,892       51,290
     Investment income from affiliates                  (34,201)       9,278
     Other income                                          (335)       1,712
                                                      ---------    ---------
         Total revenues                                 636,475      727,393

EXPENSES
     Loan servicing fees to related party               120,933       97,109
     Management fees to related parties                  70,872       76,532
Interest expense on loans                               113,101       98,876
     Interest expense on loans from related parties       5,400        9,456
     Provisions for loan losses                          51,893      100,000
     Taxes                                                4,800       (3,704)
     Amortization                                         9,176        3,900
     General and Administrative                          59,555       54,200
                                                      ---------    ---------
         Total expenses                                 435,730      436,369

INCOME BEFORE GAIN (LOSS) ON REO                      $ 200,745    $ 291,024
     Operating Expenses of REO                             --         (1,010)
Gain (loss) on Real Estate Owned                           --         (7,000)
                                                      ---------    ---------

NET INCOME                                            $ 200,745    $ 283,014
                                                      =========    =========

PREFERRED DIVIDENDS                                   $  76,788    $  87,257
                                                      ---------    ---------

NET INCOME AVAILABLE TO COMMON                        $ 123,957    $ 195,757
                                                      =========    =========

BASIC EARNINGS PER
     COMMON SHARE                                     $    0.29    $    0.47

DILUTED EARNINGS PER
     COMMON SHARE                                     $    0.24    $    0.39

DIVIDENDS PAID PER
     PREFERRED SHARE                                  $    0.36    $    0.41

DIVIDENDS PAID PER
     COMMON SHARE                                     $    0.00    $    0.45

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC EARNINGS                       429,769      418,923

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - DILUTED EARNINGS                     507,735      505,550

                 See accompanying notes to financial statements.

                                       19
<PAGE>
                                   NOVOGRADAC
                                  & COMPANY LLP

                          CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
ATLANTA                          SAN FRANCISCO                   WASHINGTON,  DC
KANSAS                                                                    AUSTIN


            Report of Novogradac & Company LLP, Independent Auditors


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, 2003 and 2002, and the
related statements of operations, changes in stockholders' equity and cash flows
for the years then ended. 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 audit 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.

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, 2003 and 2002, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                                    /s/ Novogradac & Company LLP

San Francisco, California
April 6, 2004


FIRST STREET 5TH FLOOR SAN FRANCISCO CALIFORNIA 94105 TELEPHONE (415) 356-8000
FACSIMILE (415) 356-8001 HTTP://WWW.NOVOCO.COM
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST
                                 Balance Sheets
                           December 31, 2003 and 2002
<TABLE>
<CAPTION>
ASSETS                                                                                2003            2002
------                                                                                ----            ----
<S>                                                                              <C>             <C>
    Cash and cash equivalents                                                    $  1,038,010    $    494,443
    Restricted cash                                                                   200,019         519,321
    Marketable securities                                                               9,705           8,215
    Accounts receivable                                                               605,742         489,946
    Other assets, net                                                                  14,533           7,453
    Due from affiliates                                                               114,334         129,758
    Notes receivable:
       Warehousing facilities to related parties                                    2,638,226       3,382,940
       Mortgage notes receivable                                                   20,556,488      19,906,391
       Allowance for loan losses                                                     (206,000)       (310,000)
                                                                                 ------------    ------------
          Net notes receivable                                                     22,988,714      22,979,331
    Real estate owned                                                                 415,000            --
    Investments in affiliate                                                          923,362       1,080,930
    Origination costs, net                                                            303,186         264,060
                                                                                 ------------    ------------

    Total assets                                                                 $ 26,612,605    $ 25,973,457
                                                                                 ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

    Liabilities
         Mortgage note holdbacks                                                 $    200,019    $    519,321
         Loans payable                                                             11,773,149      10,972,350
         Mortgage payable                                                             275,904               0
         Due to affiliate                                                               5,081           2,719
         Other liabilities                                                            147,790         219,011
                                                                                 ------------    ------------
    Total liabilities                                                              12,401,943      11,713,401

    Stockholders' equity
       Preferred stock, $.01 par value; 430,000 shares authorized;                      2,138           2,138
           213,820 shares issued and outstanding at December 31, 2003 and 2002
       Additional paid in capital - preferred stock                                 5,669,123       5,669,123
         Less treasury stock: 3,176 preferred shares
           at December 31, 2003 and 2002 at cost                                      (86,944)        (86,944)

       Common stock, $.01 par value; 1,700,000 shares authorized;                       4,972           4,952
           497,161 and 495,161 shares issued and outstanding at
           December 31, 2003 and 2002, respectively
       Additional paid in capital - common stock                                    9,388,875       9,370,895
    Less treasury stock: 62,392 and 71,017 common shares at
           December 31, 2003 and 2002, respectively                                (1,053,773)       (962,662)
       Accumulated other comprehensive income                                           2,902          (1,723)
       Retained earnings                                                              283,369         264,277
                                                                                 ------------    ------------

    Total stockholders' equity                                                     14,210,662      14,260,056
                                                                                 ------------    ------------

    Total liabilities and stockholders' equity                                   $ 26,612,605    $ 25,973,457
                                                                                 ============    ============
</TABLE>

                See accompanying notes to financial statements.

                                      F-2
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST
                            Statements of Operations
                 For the years ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                            2003           2002
                                                            ----           ----
<S>                                                     <C>            <C>
REVENUES
       Interest income                                  $ 2,511,027    $ 2,658,051
       Interest income from affiliates                      242,181        216,167
       Equity in gain (loss) of affiliate                  (155,372)       (25,642)
       Other income                                           7,929         17,677
                                                        -----------    -----------
           Total revenues                                 2,605,765      2,866,253

EXPENSES
       Loan servicing fees to related parties               470,054        451,638
       Management fees to related parties                   334,703        288,119
       Interest expense on loans                            451,232        433,566
       Interest expense on loans from related parties         9,109         28,325
       Provision for loan losses                            130,037        195,000
       Taxes                                                 16,144         19,987
       Amortization                                          42,409         37,363
       General and administrative                           242,547        270,755
                                                        -----------    -----------
             Total expenses                               1,696,235      1,724,753
                                                        -----------    -----------

INCOME BEFORE GAIN (LOSS) ON REAL
    ESTATE OWNED                                            909,530      1,141,500
       Operating expenses of real estate owned                 --           (3,709)
       (Loss) on real estate owned                             --          (29,527)
                                                        -----------    -----------

NET INCOME                                              $   909,530    $ 1,108,264
                                                        ===========    ===========

PREFERRED DIVIDENDS                                         315,302        350,205
                                                        -----------    -----------

NET INCOME AVAILABLE TO COMMON                          $   594,228    $   758,059
                                                        ===========    ===========

BASIC EARNINGS PER
       COMMON SHARE                                     $      1.40    $      1.81
                                                        ===========    ===========

DILUTED EARNINGS PER
       COMMON SHARE                                     $      1.19    $      1.50
                                                        ===========    ===========

DIVIDENDS PAID PER
       PREFERRED SHARE                                  $      1.50    $      1.66
                                                        ===========    ===========

DIVIDENDS PAID PER
       COMMON SHARE                                     $      1.35    $      1.60
                                                        ===========    ===========

WEIGHTED AVERAGE COMMON
       SHARES - BASIC                                       424,373        418,923
                                                        ===========    ===========

WEIGHTED AVERAGE COMMON
       SHARES - DILUTED                                     498,982        505,550
                                                        ===========    ===========
</TABLE>

See accompanying notes to financial statements.

                                      F-3
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST
                  Statements of Changes in Stockholder's Equity
                 For the years ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                     Preferred                                        Common
                                                                    Additional                                      Additional
                                         Preferred    Preferred       Paid in          Common         Common          Paid in
                                           Shares       Stock         Capital          Shares          Stock          Capital
                                           ------       -----         -------          ------          -----          -------
<S>                                    <C>          <C>             <C>             <C>              <C>             <C>
BALANCE, JANUARY 1, 2002                  210,644   $    2,138      $5,669,123         410,095       $    4,952      $9,370,895
Three-to-one reverse stock split             --           --              --              --               --              --
Purchase of Treasury Stock                   --           --              --            (6,900)            --              --
Exercise of options for common stock         --           --              --            20,949             --              --
Unrealized gain / (loss)                     --           --              --              --               --              --
Net income                                   --           --              --              --               --              --
Dividends                                    --           --              --              --               --              --
                                       ----------   ----------      ----------      ----------       ----------      ----------

BALANCE, DECEMBER 31, 2002                210,644        2,138       5,669,123         424,144            4,952       9,370,895
Purchase of Treasury Stock                   --           --              --           (10,800)            --              --
Exercise of options for common stock         --           --              --            21,425               20          17,980
Unrealized gain / (loss)                     --           --              --              --               --              --
Net income                                   --           --              --              --               --              --
Dividends                                    --           --              --              --               --              --
                                       ----------   ----------      ----------      ----------       ----------      ----------

BALANCE, DECEMBER 31, 2003                210,644   $    2,138      $5,669,123         434,769       $    4,972      $9,388,875
                                       ==========   ==========      ==========      ==========       ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                           Accumulated
                                                              Other
                                          Treasury        Comprehensive       Retained
                                            Stock            Income           Earnings           Total
                                            -----            ------           --------           -----

<S>                                    <C>               <C>               <C>               <C>
BALANCE, JANUARY 1, 2002               $ (1,128,756)     $       --        $    176,189      $ 14,094,541
Three-to-one reverse stock split               --                --                --                --
Purchase of Treasury Stock                 (174,949)             --                --            (174,949)
Exercise of options for common stock        254,099              --                --             254,099
Unrealized gain / (loss)                       --              (1,723)             --              (1,723)
Net income                                     --                --           1,108,264         1,108,264
Dividends                                      --                --          (1,020,176)       (1,020,176)
                                       ------------      ------------      ------------      ------------
                                                                                               14,260,056
BALANCE, DECEMBER 31, 2002               (1,049,606)           (1,723)          264,277      $ 14,260,056
Purchase of Treasury Stock                 (153,681)             --                --            (153,681)
Exercise of options for common stock         62,570              --                --              80,570
Unrealized gain / (loss)                       --               4,625              --               4,625
Net income                                     --                --             909,530           909,530
Dividends                                      --                --            (890,438)         (890,438)
                                       ------------      ------------      ------------      ------------

BALANCE, DECEMBER 31, 2003             $ (1,140,717)     $      2,902      $    283,369      $ 14,210,662
                                       ============      ============      ============      ============
</TABLE>

                See accompanying notes to financial statements.

                                      F-4
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST
                            Statements of Cash Flows
                 For the years ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                          2003            2002
                                                                          ----            ----
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income                                                     $    909,530    $  1,108,264
      Adjustments to reconcile net income to net cash provided by
        operating activities:
        Provision for loan losses                                         130,037         195,000
        Amortization                                                       42,409          37,363
        Loss on real estate owned                                            --            29,527
        Equity in loss of affiliate                                       155,372          25,642
        Increase in accounts receivable                                  (115,796)       (197,358)
        Increase in other assets                                          (47,293)         (2,254)
            (adjusted for: amortization and capitalized loan fees)
        Change in due to / due from affiliates                             17,786        (254,023)
        Increase in other liabilities                                     (71,221)         (4,191)
                                                                     ------------    ------------
          Net cash provided by operating activities                     1,020,824         937,970

CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of (investment in) marketable securities                         3,135          (9,938)
      Increase in origination costs                                       (39,126)        (36,668)
      Decrease in warehousing facilities                                  744,714         834,468
      Net proceeds from sale of real estate owned                         300,000         745,021
      Investments in mortgage notes receivable                        (14,827,987)    (14,195,708)
      Repayments of mortgage notes receivable                          13,504,757      11,378,857
                                                                     ------------    ------------
        Net cash used by investing activities                            (314,507)     (1,283,968)

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans                                            800,799       1,359,058
      Loan fees paid                                                         --           (19,500)
      Issuance of common stock                                             18,000            --
      Purchase of treasury stock                                         (599,201)       (174,949)
      Sale of treasury stock and exercised options                        508,090         254,099
      Preferred dividends paid                                           (315,302)       (350,205)
      Common dividends paid                                              (575,136)       (669,971)
                                                                     ------------    ------------
        Net cash provided  (used in) by financing activities             (162,750)        398,532
                                                                     ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      543,567          52,534
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                          494,443         441,909
                                                                     ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $  1,038,010    $    494,443
                                                                     ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
      Cash paid for interest                                         $    437,605    $    466,210
                                                                     ============    ============
      Cash paid for taxes                                            $     16,144    $     19,987
                                                                     ============    ============

NON-CASH INVESTING AND FINANCING ACTIVITIES
      Foreclosures, net of reserves                                  $    439,096    $    540,021
                                                                     ============    ============
      Assumption of debt on real estate owned                        $    275,904    $       --
                                                                     ============    ============
      Transfer/sale of mortgage notes receivable to CAFC             $       --      $     44,362
                                                                     ============    ============
</TABLE>

See accompanying notes to financial statements.

                                      F-5
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

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

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

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

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

     Basis of 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.

     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.

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

     Concentration of credit risk. The Trust holds numerous mortgage notes
     receivable. These notes are secured by deeds of trust on residential
     properties located primarily in California, which results in a
     concentration of credit risk. The value of the loan portfolio may be
     affected by changes in the economy or other conditions of the geographical
     area.

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

     Real estate owned. Real estate owned results from foreclosure of mortgage
     notes receivable and at time of foreclosure is recorded at the lower of
     carrying amount or fair value of the property minus estimated costs to

                                      F-6
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     sell. Subsequent to foreclosure, the foreclosed asset value is periodically
     reviewed and is adjusted to fair value. No depreciation is taken on the
     real estate owned. Income and expenses related to real estate owned are
     recorded as rental income, interest expense and operating expenses of real
     estate owned in the statements of operations.

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

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

     Impairment policy. Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
     144), was adopted by the Company effective January 1, 2002. SFAS No. 144,
     which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to be disposed of", institutes one
     accounting model for long-lived assets to be disposed of based on the
     framework established by SFAS No. 144, which requires that long-lived
     assets to be disposed of be measured at the lower of carrying amount or
     fair market value less cost to sell. There were no impairment losses
     recognized during the years ended December 31, 2002 and 2003.

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

     Income taxes. The Trust intends at all times to qualify as a real estate
     investment trust ("REIT") for federal income tax purposes, under Sections
     856 through 860 of the Internal Revenue Code of 1986, as amended and
     applicable Treasury Regulations. Therefore, the Trust generally will not be
     subject to federal corporate income taxes if the Trust distributes at least
     90% of its taxable income to its stockholders. To qualify as a REIT, the
     Trust must elect to be so treated and must meet on a continuing basis
     certain requirements relating to the Trust's 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, 2003 and 2002, the dividends paid per Preferred Share are
     allocated 100% as ordinary income. For the year ended December 31, 2003 the
     dividends paid per common share are allocated as 91% as ordinary

                                      F-7
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     income and 9% as a return of capital. For the year ended December 31, 2002
     the dividends paid per common share are allocated 100% as ordinary income.

     State taxes. The state of Delaware imposed a tax on the capitalization of
     the Trust. The Trust expensed $15,344 and $19,178 for these taxes in 2003
     and 2002. The Trust paid $800 in franchise tax to the state of California
     in 2003 and 2002.

     Stock options. Statement of Financial Accounting Standards No. 148 (SFAS
     No. 148) "Accounting for Stock-Based Compensation - - Transition and
     Disclosure" was issued in December of 2002. This Statement amends Statement
     of Financial Accounting Standards No.123 (SFAS No. 123), "Stock-Based
     Compensation," to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     compensation. In addition, the Statement amends the disclosure requirements
     of SFAS No. 123 to require prominent disclosures in both annual and interim
     financial statements about the method used on reported results. The
     alternative methods of transition of SFAS 148 follows Accounting Principles
     Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
     Employees", in accounting for stock options to employees. The disclosure
     provision of SFAS 148 is effective for years ending after December 15,
     2002. The Company follows APB 25 in accounting for stock options. The
     disclosure provision of SFAS 148 is effective for years ending after
     December 15, 2002 and has been incorporated into these financial statements
     and accompanying footnotes (Note 14).

     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 review the
     likelihood that the loan will be repaid. For these delinquent loans,
     management continues to record interest income and establishes a loan loss
     reserve as necessary to protect against losses in the loan portfolio
     including accrued interest. However, if the mortgage's collateral is
     considered insufficient to satisfy the outstanding balance, after estimated
     foreclosure and selling costs, interest is not accrued.

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

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


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

     Pursuant to mortgage loan agreements between the Trust and its borrowers, a
     portion of the proceeds are held by the Trust in segregated accounts to be
     disbursed to borrowers upon completion of improvements on the secured
     property. As of December 31, 2003 and 2002, mortgage note holdbacks from
     the consummation of mortgage loans made amounted to $200,019 and $519,321,
     respectively.

                                      F-8
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     Marketable securities consist of equity securities and are accounted for as
     available-for-sale securities. During 2003 the trust recognized a net loss
     of $458 from the sale of equity securities. As of December 31, 2003 the
     fair value of the Trust's marketable securities totaled $9,705, which
     includes an unrealized gain of $2,902. During the year ended December 31,
     2002, the Trust realized a net gain of $1,762 from the sale of equity
     securities. As of December 31, 2002 the Trust's marketable securities
     totaled $8,215, which includes an unrealized loss of $1,723. Unrealized
     gains and losses are excluded from earnings and reported in accumulated
     other comprehensive income.

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

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and other amounts due from borrowers. As of December 31,
     2003 and 2002, accrued interest and other amounts due from borrowers were
     $605,742 and $489,946 respectively.

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

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     CAFC. Under the terms of the agreement, the Trust advances funds to CAFC to
     acquire mortgage loans secured by real estate. The Trust then acquires all
     of CAFC's right, title and interest in such loans. CAFC is obligated to
     reacquire the loans from the Trust at a preset price. As of December 31,
     2003 and 2002, the Trust advanced to CAFC $2,638,226 and $3,382,940,
     respectively. The interest rate on this line of credit varies with market
     conditions and is payable monthly. As of December 31, 2003 and 2002 the
     applicable interest rate was 6.0% for both years. The Trust earned interest
     in the amount of $242,181 and $216,167 during 2003 and 2002, respectively,
     of which $12,721 and $5,449 was outstanding as of December 31, 2003 and
     2002, respectively.

     The Trust entered into a loan purchase agreement on January 1, 1998 with
     Calliance Mortgage Trust, which subsequently merged into the Mortgage
     Division of Calliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
     terms of the agreement, the Trust advances funds to CRF to acquire mortgage
     loans secured by real estate. The Trust then acquires all of CRF's right,
     title and interest in such loans. CRF is obligated to reacquire the loans
     from the Trust at a preset price. As of December 31, 2003 and 2002, CRF
     owed the Trust $0. Annual interest on this line of credit is between 7.0%
     and 12.0% and is payable monthly. The Trust earned interest in the amount
     of $0 and $0 during 2003 and 2002, respectively, none of which was
     outstanding as of December 31, 2003 or 2002. 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, 2003 and 2002 the Trust had
     repaid all borrowings from CRF. During 2003, the Trust paid interest in the
     amount of $9,109, of which $5,080 remained outstanding as of December 31,
     2003. During 2002 the Trust paid interest in the amount of $28,325 of which
     $2,719 remained outstanding as of December 31, 2002.


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

     Mortgage notes receivable represent home equity loans primarily secured by
     deeds of trust on one-to-four unit residential real estate. At the time of
     origination, all 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.

                                      F-9
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     A reconciliation of mortgage notes receivable for the years ended December
     31, 2003 and 2002 follows:

                                           2003             2002
                                           ----             ----

Balance, beginning of year            $ 19,906,391    $ 17,738,923
Additions during period:
   New mortgage loans                   14,827,987      14,195,708
Deductions during period:
   Collections of principal            (13,504,757)    (11,378,857)
   Foreclosures, net of reserve           (439,096)       (540,021)
   Write off of uncollectible loans       (234,037)        (65,000)
   Contributions to CAFC                      --           (44,362)
                                      ------------    ------------
Balance, end of year                  $ 20,556,488    $ 19,906,391
                                      ============    ============




                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      F-10
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

7. Mortgage notes receivable (continued)

The Trust's mortgage notes receivable all relate to loans secured by deeds of
trust on one-to-four unit residential properties. The following is a summary of
the Trust's mortgage notes receivable at December 31, 2003:

<TABLE>
<CAPTION>
                                                                                                                    Principal amount
                                                                                                                      of loans with
                                                                                                                        delinquent
                                                                                                                      principal or
                                                       Final        Monthly    Lien     Face amount   Carrying amount   interest
   Principal outstanding         Interest rate     maturity date    payment  Priority  of mortgage(s)  of mortgage(s)   (Note A)
   ---------------------         -------------     -------------    -------  --------  --------------  --------------   --------

<S>                            <C>                <C>               <C>        <C>       <C>          <C>              <C>
 Individual loans greater
    than $499,999:                  14.00%            02/01/06       6,542     First     $ 518,900    $   560,700            ---

                                    12.50%            07/01/07       5,427     First       521,000        521,000             ---
                                    12.50%            04/01/08      11,198     Second    1,075,000      1,075,000       1,075,000
                                    12.50%            06/01/04       8,490     Second      815,000        815,010             ---
                                    10.75%            03/01/09       7,167     Second      800,000        800,000             ---
                                    11.99%            07/01/09       7,337     Second      550,000        734,341             ---
                                    11.25%            12/01/08       6,563     Second      700,000        700,000         665,000
                                    13.50%            03/01/07       7,481     Second      665,000        665,000             ---
Loans from $400,000-$499,999    5.75% to 13.50%    4 to 60 months                                       2,617,029         924,657
Loans from $300,000-$399,999    7.63% to 13.50%   21 to 177 months                                      2,418,008         650,000
Loans from $200,000-$299,999    8.38% to 14.00%   10 to 353 months                                      4,434,292         201,123
Loans from $100,000- 199,999   10.99% to 17.95%    0 to 62 months                                       3,193,973         922,747
Loans up to $99,000             9.70% to 14.99%    0 to 302 months                      14,617,173      2,022,135          80,000
                                                                                       -----------    -----------      ----------
Total Mortgage Notes Receivable at December 31, 2002                                   $20,262,073    $20,556,488      $4,518,527
                                                                                       ===========    ===========      ==========
</TABLE>

(A) Delinquent loans are loans where the monthly interest payments in arrears
are 90 or more days overdue. As of December 31, 2003, there were nine (9) loans
totaling $2,121,557 of principal and $163,028 of interest that were 90 to 180
days delinquent on interest payments. One loan with the principal amount of
$168,969 and $31,518 of interest has 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 years ended December 31, 2003 and 2002

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

The Trust's mortgage notes receivable all relate to loans secured by deeds of
trust on one-to-four unit residential properties. The following is a summary of
the Trust's mortgage notes receivable at December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                                    Principal amount
                                                                                                                      of loans with
                                                                                                                        delinquent
                                                                                                                       principal or
                                                       Final       Monthly    Lien     Face amount    Carrying amount    interest
   Principal outstanding         Interest rate     maturity date   payment  Priority  of mortgage(s)  of mortgage(s)     (Note A)
   ---------------------         -------------     -------------   -------  --------  --------------  --------------     --------
<S>                            <C>                <C>               <C>       <C>     <C>             <C>              <C>
Individual loans greater
   than $499,999:                   14.00%            02/01/06       6,542    First   $   560,700     $  560,700             ---

                                    13.50%            06/01/07       6,469    First       575,000         575,000             ---
                                    12.50%            07/01/07       5,427    First       521,000         521,000             ---
                                    14.00%            02/01/03      12,781    Second    1,100,000       1,095,500             ---
                                    13.50%            02/01/03       9,169    Second      815,000         815,000             ---
                                    13.50%            03/01/04       6,750    Second      600,000         600,000             ---
                                    13.95%            05/01/05       6,198    Second      533,200         533,200             ---
                                    13.00%            09/01/06       5,417    Second      500,000         500,000             ---
                                    12.50%            04/01/08      11,198    Second    1,075,000       1,075,000             ---
Loans from $400,000-$499,999    5.75% to 13.50%    4 to 60 months                                       1,731,033             ---
Loans from $300,000-$399,999   13.00% to 14.99%    4 to 52 months                                       2,116,408         316,504
Loans from $200,000-$299,999   11.50% to 14.00%   5 to 316 months                                       3,050,284         277,670
Loans from $100,000- 199,999   11.99% to 14.50%    1 to 58 months                                       4,478,322         485,755
Loans up to $99,000             9.70% to 14.00%    1 to 319 months                     13,560,175       2,254,344         101,715
                                                                                      -----------     -----------      ----------
Total Mortgage Notes Receivable at December 31, 2002                                  $19,840,075     $19,905,791      $1,181,644
                                                                                      ===========     ===========      ==========
</TABLE>

(A) Delinquent loans are loans where the monthly interest payments in arrears
are 90 or more days overdue. As of December 31, 2002, there were three (3) loans
totaling $481,407 of principal and $29,235 of interest that were 90 to 180 days
delinquent on interest payments. Four (4) loans with the principal amount of
$700,237 and $78,782 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-12
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     The Trust measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $206,000 and $310,000 loan loss reserve is
     adequate to protect against potential losses inherent in all receivables as
     of December 31, 2003 and 2002, respectively. The Trust's actual losses may
     differ from the estimate.

     A reconciliation of the allowance for loan losses for the years ended
     December 31, 2003 and 2002 follows:

                                                        2003            2002
                                                        ----            ----

       Balance, beginning of year                    $ 310,000      $ 180,000
       Provision for loan loss                         130,037        195,000
       Write off of uncollectible loans               (234,037)       (65,000)
                                                     ---------      ---------
       Balance, end of year                          $ 206,000      $ 310,000


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

     On January 1, 2002 the Trust owned two properties. During 2002 the Trust
     foreclosed on one property and sold three properties to CAFC for their
     estimated fair market value which resulted in a net loss of $29,527. As of
     December 31, 2002 the Trust did not own any properties. During 2003, the
     trust foreclosed on two properties and sold one property to CAFC at its
     estimated fair market value. As of December 31, 2003, the Trust owned one
     property.

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities for the years ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                   2003         2002
                                                                   ----         ----
<S>                                                             <C>          <C>
Balance, beginning of year                                      $    --      $ 234,527
Foreclosed mortgage notes, net of reserve (non-cash)              439,096      506,567
Assumption of senior debt                                         275,904         --
Accrued interest capitalized (non-cash)                              --         33,454
Gain (loss) on sale (non-cash)                                       --        (29,527)
                                                                ---------    ---------
                                                                  715,000      745,021
Less: Proceeds from sale of real estate owned (net of closing
costs of $0 and $0 in 2003 and 2002, respectively)
                                                                 (300,000)    (745,021)
                                                                ---------    ---------

Balance, end of year                                            $ 415,000    $    --
                                                                =========    =========

</TABLE>

                                      F-13
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

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

     On April 11, 1997 the Trust formed a non-qualified REIT subsidiary, 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 under the equity method of
     accounting.

     In 2003 the Trust contributed zero mortgage loans to CAFC while in 2002,
     one mortgage loan totaling $44,362, was contributed. The transfer of
     mortgage notes receivable is a non-cash transaction that is not shown on
     statements of cash flows.





               [ REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK ]



                                      F-14
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002


                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                           December 31, 2003 and 2002
<TABLE>
<CAPTION>

ASSETS                                                                      2003           2002
                                                                            ----           ----
<S>                                                                    <C>            <C>
       Cash and cash equivalents                                       $   166,503    $   248,008
       Restricted cash                                                     260,705        412,624
       Accounts receivable                                                 154,206         81.229
       Notes receivable:
              Mortgage notes receivable                                  7,383,040      6,092,094
              Allowance for loan losses                                   (100,000)      (225,000)
                                                                       -----------    -----------
                   Net notes receivable                                  7,283,040      5,867,094
       Real estate owned                                                   971,617      1,676,261
       Due from affiliate                                                   13,012           --
       Investment in affiliate                                               5,000          5,000
       Other assets                                                         57,129         33,285
                                                                       -----------    -----------
       Total assets                                                    $ 8,911,212    $ 8,323,501
                                                                       ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

       Liabilities
              Mortgage note holdbacks                                  $   260,705    $   412,624
              Warehousing facilities                                     4,633,846      2,460,643
              Warehousing facilities from related parties                2,638,226      3,382,940
              Due to affiliates                                              9,736         12,093
              Mortgage notes payable                                       300,000        950,410
              Other liabilities                                            159,279         32,608
                                                                       -----------    -----------
       Total liabilities                                                 8,001,792      7,251,318

       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                                 1,990,056      1,990,056
              Accumulated deficit                                       (1,080,636)      (917,873)
                                                                       -----------    -----------
        Total stockholders' equity                                         909,420      1,072,183
                                                                       -----------    -----------

        Total liabilities and stockholders' equity                     $ 8,911,212    $ 8,323,501
                                                                       ===========    ===========
</TABLE>

                                   See Note 10

                                      F-15

<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
                 For the years ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
REVENUES                                                              2003            2002
--------                                                              ----            ----

<S>                                                               <C>            <C>
           Interest income                                        $   760,012    $   743,026
           Loan origination income                                    818,484        582,255
           Service release premium                                    175,913         42,534
           Other income                                                 7,545          7,775
                                                                  -----------    -----------
                      Total revenues                                1,761,954      1,375,590

EXPENSES

           Management fees to related party                            85,786         44,474
           Interest expense on warehousing facilities                 285,869        139,097
           Interest expense on related party warehouse facility       228,579        216,167
           Loan origination costs                                     261,975        132,889
           Provision for loan losses                                   68,045        192,576
           Wages and salaries                                         547,803        487,024
           Taxes                                                       12,719         12,534
           General and administrative                                 233,008        186,664
                                                                  -----------    -----------
                      Total expenses                                1,723,784      1,411,425
                                                                  -----------    -----------

INCOME BEFORE GAIN (LOSS) ON
     REAL ESTATE OWNED                                                 38,170        (35,835)
           Operating expenses of real estate owned                    (48,200)       (11,383)
           Gain on sale of real estate owned                         (152,733)        21,317
                                                                  -----------    -----------

NET LOSS                                                          $  (162,763)   $   (25,901)
                                                                  ===========    ===========
</TABLE>

                                   See Note 10

                                      F-16
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
                 For the years ended December, 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                                 2003            2002
                                                                                 ----            ----
<S>                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net loss                                                          $   (162,763)   $    (25,901)
         Adjustments to reconcile net loss to cash
             provided by operating activities
               Gain on real estate owned                                        152,733         (21,317)
               Provision for loan losses                                         68,045         192,576
               Decrease (increase) in accounts receivable                       (72,977)         83,032
               Increase in due from related parties                             (13,012)           --
               (Increase) decrease in other assets                              (23,844)         12,649
               Increase (decrease) in other liabilities                          64,337        (112,376)
               Decrease in due to affiliates                                     (2,357)           (190)
                                                                           ------------    ------------
                   Net cash provided by operating activities                     10,162         128,473

CASH FLOWS FROM INVESTING ACTIVITIES
               Investment in mortgage notes receivable                      (31,295,682)    (16,436,099)
               Repayment of mortgage notes receivable                         4,906,286       2,572,728
               Sale of mortgage notes to third parties                        9,991,043       1,902,612
               Sale of mortgage notes to related parties                     14,612,987      14,195,708
               Proceeds from sale of real estate owned                        3,032,646         824,310
               Purchase of real estate owned from Trust                        (300,000)       (698,350)
               Additions to real estate owned                                  (810,326)           --
                                                                           ------------    ------------
                   Net cash provided by investing activities                    136,954       2,360,909

CASH FLOWS FROM FINANCING ACTIVITIES
               Net proceeds from (payments to) warehouse lines of credit      2,173,203      (1,745,052)
               Net payments to related party line of credit                    (682,380)       (834,468)
               Repayment of mortgage note                                    (1,719,444)             --
                                                                           ------------    ------------
                   Net cash used in financing activities                       (228,621)     (2,579,520)
                                                                           ------------    ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                       (81,505)        (90,138)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                  248,008         338,146
                                                                           ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                   $    166,503    $    248,008
                                                                           ============    ============

</TABLE>

                                   See Note 10

                                      F-17
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

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

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

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

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

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and amounts due from borrowers for items such as property
     taxes, insurance, and interest on a first deed mortgage that were paid by
     CAFC on behalf of the property securing the mortgage notes. As of December
     31, 2003 and December 31, 2002, amounts due from borrowers were $154,206
     and $81,229, respectively.

     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 for the years ended
     December 31, 2003 and 2002 follows:

                                             2003             2002
                                             ----             ----

       Balance, beginning of year       $  6,092,094     $  8,631,751
       Additions during period:
          Originations                    31,295,682       16,436,099
          Contributions from Trust               ---           44,362
       Deductions during period:
          Repayments                      (4,906,286)      (2,572,728)
          Sales                          (24,604,030)     (16,098,320)
          Foreclosures                      (476,375)        (271,499)
          Write-offs                         (18,045)         (77,571)
                                        ------------     ------------

     Balance, end of year               $  7,383,040     $  6,092,094
                                        ============     ============

     Some of the mortgage loans originated and purchased by CAFC are held for
     sale to the Trust. The remaining originations and purchases are designated
     for sale to independent third parties or Calliance Realty Fund, an
     affiliated entity. The Trust's purchase price is the mortgage loans
     outstanding balance (par value) plus any accrued interest. Loans designated
     for sale to a third party are pre-approved for purchase by the third party,
     before the loan is acquired by CAFC. Sales to third parties are usually
     greater than CAFC's total 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 $100,000 and $225,000 loan loss reserve is
     adequate to protect against potential losses inherent in all receivables as
     of December 31, 2003 and 2002, respectively. CAFC's actual losses may
     differ from the estimate.

                                      F-18
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     Activity in the loan loss reserve for the years ended December 31, 2003 and
     2002 follows:

                                                        2003           2002
                                                        ----           ----

       Balance, beginning of year                    $ 225,000    $   118,000
       Provision for loan loss                          68,045        192,576
       Write-off of uncollectible loans
         and write-down of real estate owned          (193,045)       (85,576)
                                                      --------        -------

       Balance, end of year                          $ 100,000    $   225,000
                                                     =========    ===========


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

     As of January 1, 2002 CAFC held one property with a value of $567,000.
     During 2002, CAFC sold two properties for a gain of $21,317, two properties
     were acquired by foreclosure and three properties were purchased from the
     Trust for $1,648,760. Net proceeds from the sales were $824,310. As of
     December 31, 2002, CAFC held four properties with a book value of
     $1,676,261.

     During 2003, CAFC sold four properties for a loss of $152,733, one property
     was acquired by foreclosure and one property was purchased from the Trust
     for $300,000. Net proceeds from the sale were $3,032,646. As of December
     31, 2003, CAFC held two properties with a book value of $971,617.

     A reconciliation of real estate owned for the years ended December 31, 2003
     and 2002 follows:

                                                      2003           2002
                                                      ----           ----

     Balance, beginning of year                  $ 1,676,261    $   567,000
     Properties purchased                            600,000      1,648,760
     Foreclosures                                    476,375        271,499
     Assumptions of senior debt                      769,234            ---
     Additions                                       810,126            ---
     Real estate sold                             (3,185,379)      (802,993)
     Property written down                          (175,000)        (8,005)
                                                    --------         ------

     Balance, end of year                        $   971,617    $ 1,676,261
                                                 ===========    ===========

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

     As of December 31, 2003 and 2002, CAFC had borrowed $2,638,226 and
     $3,382,940, respectively, under a warehouse line of credit with the Trust.
     The borrowings are secured by pledged mortgage loans as collateral.
     Interest on this warehouse line of credit is adjusted monthly depending on
     market rates. As of December 31, 2003 and 2002 the interest rate was 6.0%
     for both years. CAFC's 2003 and 2002 interest expense totaled $242,181 and
     $216,167, respectively, of which $13,602 and $5,449 was outstanding as of
     December 31, 2003 and 2002, respectively. The facility is cancelable by
     either party upon 30 days written notice.

     As of December 31, 2003 and 2002, CAFC had respectively borrowed $3,970,782
     and $2,054,560 under a $6,000,000 and $5,000,000 funding agreement. The
     agreement provides a 100% advance rate on the notes outstanding balance at
     an interest rate of Prime plus 1.50% and 1.00%, respectively, with a floor
     of 6.00%. As of December 31, 2003 and 2002, the Prime rate was 4.00% and
     4.25%, respectively. Interest is payable monthly

                                      F-19
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     with $56,608 and $5,952 accrued and payable as of December 31, 2003 and
     2002. The facility is cancelable by either party upon 30 days written
     notice.

     As of December 31, 2003 and 2002, CAFC had respectively borrowed $69,064
     and $406,083 from a mortgage secured credit facility. The facility provides
     a 100% advance rate on the notes outstanding balance at an interest rate of
     10.75%. Interest is payable monthly with accrued interest of $640 and
     $3,762 as of December 31, 2003 and 2002, respectively. As the mortgage
     notes outstanding balance is reduced, CAFC's borrowings are repaid. The
     Trust has guaranteed the repayment of both principal and interest. The
     facility was fully repaid during the first quarter of 2004.

     As of December 31, 2003, CAFC had borrowed $594,000 under a $5,000,000
     funding agreement. The agreement provides a 100% advance rate on the notes
     outstanding balances at an interest rate of Prime with a floor of 5.25%. As
     of December 31, 2003, the Prime rate was 4.00%. Interest is payable monthly
     with $2,079 accrued and payable as of December 31, 2003. The facility is
     cancelable by either party upon 30 days written notice.

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

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

     The Manager earns an administration fee equal to 25 basis points on home
     loans funded for the benefit of CAFC as defined in the First Amended
     Residential Mortgage Loan Services Agreement. CAFC expensed $85,786 and
     $44,474 for these costs in 2003 and 2002, respectively.

     CAFC received an advance of $2,638,226 and $3,382,940 under a warehouse
     line of credit from the Trust, as of December 31, 2003 and 2002,
     respectively. The Trust charges a variable interest rate on this warehouse
     line of credit determined by current market rates. The rate charged to CAFC
     on the line of credit as of December 31, 2003 and 2002 was 6.0% for both
     years. CAFC expensed interest of $228,677 and $216,167 in 2003 and 2002,
     respectively. The facility is cancelable by either party upon 30 days
     written notice.

     On occasion, CAFC and its affiliates had related party receivables and
     payables arising from ordinary business transactions. As of December 31,
     2003 and 2002, CAFC had a receivable of $13,012 from and a payable of
     $12,093 to the Manager, respectively. No interest is charged on these
     accounts. As of December 31, 2003, CAFC had a payable of $9,736 to
     Calliance Realty Fund, LLC. These accounts are shown on the balance sheet
     as due to or from affiliates.

     CAFC sold $14,612,987 and $14,195,708 in loans to the Trust in 2003 and
     2002, respectively, at par value.

     CAFC paid $5,000 in 2001 for an option to purchase Sierra Capital Corporate
     Advisors (SCCA), a related entity.

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

     As of December 31, 2003 and 2002, the Trust had borrowed $9,000,000 and
     $6,999,102, respectively, under a line of credit term facility. The Trust
     receives advances under the agreement up to a maximum of $10,000,000, with
     specific mortgage notes receivable pledged as collateral against the
     advances. The credit facility matures July 1, 2004. The annual interest
     rate is the preceding 30-day average of 1-month LIBOR (London Interbank
     Offered Rate for U.S. dollar deposits 30-day average at December 31, 2003
     and 2002 was 1.15% and 1.31%, respectively) plus 2.00% and is payable
     monthly.

                                      F-20
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

11. Loans payable (continued)
    ------------------------

     As of December 31, 2003 and 2002, the Trust had borrowed $2,750,000 and
     $3,840,000, respectively, under a second warehouse line of credit. The
     Trust received advances under the agreement up to a maximum of $4,000,000,
     with specific mortgage notes receivable pledged as collateral against the
     advances. Annual interest is the applicable prime rate (4.00% and 4.25% as
     of December 31, 2003 and 2002, respectively) plus 0.50% and is payable
     monthly. The credit facility matures March 31, 2004.

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

     The Trust financed a portion of its treasury stock repurchases in 2003 and
     2002 by borrowing on margin from an investment bank. The amount borrowed on
     margin accrues fees at the broker call rate (2.75% and 3.25% as of December
     31, 2003 and 2002, respectively) plus 1.50%. Margin debt is callable at the
     discretion of the investment bank. As of December 31, 2003 and 2002, the
     Trust owed $23,149 and $133,248, respectively, in margin debt.

12.  Mortgage payable
     ----------------

     The Trust foreclosed on a property in 2003. As part of acquiring the
     property, The Trust assumed a mortgage note payable in the amount of
     $275,904 with an annual interest rate of 8.0%. Principal and interest
     payments of $2,102 are due monthly. The principal balance as of December
     31, 2003 was $275,904. There was no mortgage note payable as of December
     31, 2002.

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

     The Manager, which is owned by several of the directors and their
     affiliates, has contracted with the Trust since its inception 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.
     The management fee paid by the Trust to the Manager was $260,448 and
     $247,017, for the years ended December 31, 2003 and 2002, respectively.

     The Manager also earns 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 $21,000 and
     $17,500 in REO management fees in 2003 and 2002, respectively.

     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 2003 and 2002 was $53,255 and
     $23,602, respectively. Incentive compensation awards are reported as part
     of the management fees.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2003 the Trust capitalized

                                      F-21
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     35.0% of this fee as loan origination costs and amortized them over the
     average life of the portfolio. The remaining 65.0% of the fee is expensed
     as the portion attributed for servicing. During 2002 the Trust capitalized
     47.5% of this fee as origination costs and amortized them over the average
     life of the portfolio. The remaining 52.5% of the fee was expensed as the
     portion attributed for servicing.

     For the years ended December 31, 2003 and 2002, the Trust paid loan
     origination and servicing fees of $508,401 and $488,307, respectively. In
     2003 and 2002, the Trust expensed $330,461 and $256,361, respectively, as
     servicing fees and $139,593 and $195,277, respectively, as amortization of
     loan origination costs. As of December 31, 2003 and 2002, the Trust
     capitalized $177,941 and $231,946 of loan origination fees, respectively.

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of December 31,
     2003, the Trust had a receivable of $22,457 from CAFC, a receivable of
     $91,716 from the Manager and a payable to CRF of $5,080. As of December 31,
     2002, the Trust had a receivable of $12,093 from CAFC, a receivable of
     $117,665 from the Manager and a payable to CRF of $2,719. No interest is
     charged on these inter-company accounts.

     As described in Note 6, as of December 31, 2003, the Trust advanced
     $2,638,226 under lines of credit to affiliates and during the year earned
     interest of $242,181 on such financing. As of December 31, 2002, the Trust
     advanced $3,382,940 under lines of credit to affiliates and during the year
     earned interest of $216,167 on such financing.

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

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

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

     Preferred Shareholders are entitled to receive all liquidating
     distributions until they have received an amount equal to their aggregate
     adjusted net capital contribution. Thereafter, Common Shareholders are
     entitled to all liquidation distributions until the aggregate adjusted net
     capital contributions of all Common Shares have 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.

                                      F-22
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     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.

     During 2003, the Common Share repurchase authorization was increased to
     $1,000,000. In a separate, private transaction that closed on September 3,
     2001, the Board of Directors authorized the purchase of 47,500 Common
     Shares at $13.50. As of December 31, 2003, the Trust's cumulative net
     Common Stock purchases totaled 108,766. Exercised Common Stock options
     reduced the treasury's Common Stock balance to 62,392 shares.

15.  Common stock options
     --------------------

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

     The activity in the Plan for the years ended December 31, 2003 and December
     31, 2002 are as follows:

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

      Outstanding at January 1, 2002               241,500           10.30
                     Granted                           ---             ---
                     Exercised                    (20,949)            9.55
                     Forfeited                         ---             ---
                                                   -------          ------
      Outstanding at December 31, 2002             220,551          $10.37
                                                   =======          ======
                     Granted                           ---             ---
                     Exercised                    (36,851)            9.22
                     Forfeited                         ---             ---
                                                   -------          ------
      Outstanding at December 31, 2003             183,700          $10.60
                                                   =======          ======
      Outstanding options exercisable as of
                    January 1, 2002                241,500           10.30
                    December 31, 2002              220,551           10.37
                    December 31, 2003              183,700           10.60

     All the Plan's stock options have been granted. The remaining unexercised
     stock options are 100% vested.

                                      F-23
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

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

     The following table summarizes information with respect to stock options
     outstanding at December 31, 2003:

                                           Options outstanding
                              --------------------------------------------------
                                                Weighted-
                                                 average
                                                remaining          Weighted-
                                Number of    contractual life   average exercise
    Range of exercise prices     shares          (years)             price
                              --------------------------------------------------

        $9.00 - $9.06           122,750            6.75            $  9.03
        $13.50                   60,950            5.25              13.50
                                -------            ----            -------
                                183,700            6.22            $ 10.60
                                =======            ====            =======

     The 2003 and 2002 calculation of the fair value of the Trust's stock-based
     awards to the Manager and its employees is not applicable because no awards
     were issued. If such a calculation was performed, then the following
     weighted-average assumptions are necessary:

                                               2003                  2002
                                               ----                  ----

     Expected life (in years)                   ---                   ---
     Expected volatility                        ---                   ---
     Risk free interest rate                    ---                   ---
     Expected dividends                         ---                   ---

     The Trust accounts for stock options under APB No. 25. Since the exercise
     price of each option granted has been equal to or higher than the closing
     market price of the Company's Common Shares at the date of grant, no
     expense is recognized. The pro forma results of reporting the Company's
     stock option grants using the fair value method consistent with SFAS No.
     123, is presented below for the years ended December 31, 2003 and 2002:

                                                           2003          2002
                                                           ----          ----

     Net income available to common stock               $ 594,228      $ 758,059
     Less: Stock based expense using the fair
         value method                                         ---            ---
                                                        ---------      ---------
     Pro forma net income available to common stock     $ 594,228      $ 758,059
                                                        =========      =========

     Net income per common share:
     Basic:
         As reported                                        $1.40        $1.81
         Pro forma                                          $1.40        $1.81
     Diluted:
         As reported                                        $1.19        $1.50
         Pro forma                                          $1.19        $1.50

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

                                      F-24
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

16.  Earnings per share
     ------------------

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     years ended December 31, 2003 and 2002:


     Numerator:                                         2003            2002
                                                        ----            ----
     Net income                                     $  909,530     $ 1,108,264
     Preferred dividends attributable
           to income                                  (315,302)       (350,205)
                                                    ----------     -----------
     Numerator for basic and diluted
          Earnings per share- income available
            to common stockholders                  $  594,228     $   758,059
                                                    ==========     ===========
     Denominator:
           Basic weighted average shares               424,373         418,923
           Dilutive effect of options                   74,609          86,627
           Diluted weighted average shares             498,982         505,550
                                                    ==========     ===========
     Basic earnings per common share                $     1.40     $      1.81
                                                    ==========     ===========
     Diluted earnings per common share              $     1.19     $      1.50
                                                    ==========     ===========


                 [ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]

                                      F-25
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                          Notes to Financial Statements
                 For the years ended December 31, 2003 and 2002

17.  Selected quarterly financial data (unaudited)
     ---------------------------------------------

     Selected quarterly financial data are present below by quarter for the
     years ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                         For the year ended December 31, 2003
                                                         ------------------------------------

                                         Total          4th Qtr        3rd Qtr        2nd Qtr       1st Qtr
                                         -----          -------        -------        -------       -------
<S>                                  <C>            <C>            <C>            <C>           <C>
Revenue before gain (loss) from
    affiliate                        $ 2,761,137    $   670,606    $   681,562    $   684,157   $   724,812

Equity in gain (loss) of affiliate      (155,372)       (34,201)      (144,455)        47,463       (24,179)
                                        --------        -------       --------         ------       -------

Total revenue                          2,605,765        636,405        537,107        731,620       700,633

Net income                               909,530        200,745        101,708        312,929       294,148

Preferred dividends                      315,302         76,788         77,952         80,281        80,281
                                         -------         ------         ------         ------        ------

Net income applicable
    to common stock                  $   594,228    $   123,957    $    23,756    $   232,648   $   213,867
                                     ===========    ===========    ===========    ===========   ===========

Basic earnings per share             $      1.40    $      0.29    $      0.06    $      0.55   $      0.50

Diluted earnings per share           $      1.19    $      0.24    $      0.05    $      0.47   $      0.43
</TABLE>

<TABLE>
<CAPTION>
                                                        For the year ended December 31, 2002
                                                        ------------------------------------

                                         Total          4th Qtr       3rd Qtr        2nd Qtr       1st Qtr
                                         -----          -------       -------        -------       -------
<S>                                  <C>            <C>           <C>            <C>           <C>
Revenue before gain (loss) from
    affiliate                        $ 2,891,895    $   718,115   $   709,106    $   724,248   $   740,426

Equity in gain (loss) of affiliate       (25,642)         9,278       (69,998)        34,026         1,052
                                         -------          -----       -------         ------         -----

Total revenue                          2,866,253        727,393       639,108        758,274       741,478

Net income                             1,108,264        283,014       208,685        309,586       306,979

Preferred dividends                      350,205         87,257        87,257         87,269        88,422
                                         -------         ------        ------         ------        ------

Net income applicable
    to common stock                  $   758,059    $   195,757   $   121,428    $   222,317   $   218,557
                                     ===========    ===========   ===========    ===========   ===========

Basic earnings per share             $      1.81    $      0.47   $      0.29    $      0.53   $      0.53

Diluted earnings per share           $      1.50    $      0.39   $      0.23    $      0.43   $      0.42
</TABLE>

                                      F-26
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES None.

--------------------------------------------------------------------------------
                                    PART III
--------------------------------------------------------------------------------

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS

Thomas B. Swartz, 72; Chairman and Chief Executive Officer (1)

         Class I Director since 1995; current term expires in 2006; 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, 53; 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, 48; Executive Vice-President, Director and Chief Financial
Officer (1)

         Class III Director since 2000; current term expires 2005; 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).

Stanley C. Brooks, 55; Director (2)(3)(4)

         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, National Investment Bankers
Association (1990 to date); Licensed Principal, NASD (1976 to date); California
State Polytechnic Institute, B.S. Business Administration 1970.

                                       20
<PAGE>
Harvey Blomberg, 63; Director (1)(2)(3)

         Class I Director since 1996; current term expires 2006; 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, 51; Director (2)(3)(4)

         Class III Director since March 2001; current term expires 2005; 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). Licensed
to practice law in Colorado (1979) and Texas (1981).
_________________________

(1)  Also is a member of the Executive Committee.
(2)  Also is a member of the Audit Committee.
(3)  Also is an Independent Director as defined in Rule 121A of the American
     Stock Exchange.
(4)  Also is an Audit Committee Financial Expert

AUDIT COMMITTEE - FINANCIAL EXPERTS

         Relevant qualifying experience of the designated Audit Committee
Financial Expert, in addition to that set forth above under Item 9, is as
follows:

Stanley C. Brooks

       Chairman, President, and Registered Financial Principal of Brookstreet
Securities Corporation; Responsible for arranging all financings obtained,
managing cash flow, preparing and filing with the SEC monthly focus reports, and
the monthly closing and reviewing of the books of Brookstreet Securities
accounting record, ledgers, and financial statements.

Donald R. Looper

       Senior Partner of Looper, Reed, & McGraw; Responsible for providing tax
advice and financial accounting advice to several public companies, conforming
footnote descriptions and text reports within financial statements to regulatory
standards, and preparing private offerings for transactions secured by real
estate.

EXECUTIVE OFFICERS

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

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

Thomas B. Swartz        72  Chairman and Chief Executive Officer

Dennis R. Konczal       53  President and Chief Operating Officer

Richard J. Wrensen      48  Executive Vice President and Chief Financial Officer

William W. Aubrey, II   44  Senior Vice President

Robert G. Johnson       43  Senior Vice President

Jennifer S. Austin      41  Corporate Secretary

                                       21
<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, 44; 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
nonconforming, 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).

Robert G. Johnson, 43; Senior Vice President of Manager

         Senior Vice-President, Capital Alliance Advisors, Inc. (2004); Owner
and President, Johnson Mortgage Acceptance Corporation (1994-2003); Registered
Representative, Whitehall-Parker Securities (1995-1999); Vice-President of Sales
and Marketing, American Mortgage Network, (1990-1994); Financial consultant,
Merrill Lynch (1994); California Real Estate Broker's license, Life Insurance
license and NASD series 7, 63, and 65 licenses; B.S. Finance, University of San
Francisco, San Francisco, CA.

Jennifer S. Austin, 41, Corporate Secretary

         Office Manager/Executive Assistant/Secretary, (2002 to date); Capital
Alliance Advisors, Inc.; Executive Assistant, Assistant Operations Manager,
Oceanic Society Expeditions (2001-2002, 1993-1998), Retail Operations Manager,
America True, America's Cup Challenge 2000 (1998-2000); Employee Benefits
Coordinator, Westin Hotel, San Francisco Airport (1987-1993); Area Manager,
Great America Theme Park (1980-1986); BS, Travel/Tourism Management, San Jose
State University, San Jose, CA (1987).

ITEM 10. 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 executive personnel. 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 $10,000. In
2003 Messrs. Brooks, Blomberg and Looper each received $10,000 as a Director's
fee.

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 2003 total committee and meeting fees for Mr. Brooks, Mr. Blomberg and
Mr. Looper were $1,700, $3,000 and $2,600, 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.

                                       22
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

(a)      Equity Compensation Plan Information
         ------------------------------------

<TABLE>
<CAPTION>
                                Number of securities      Weighted-average        Number of securities
                                  to be issued upon      exercise price of       remaining available for
                                     exercise of        outstanding options,      future issuance under
                                outstanding options,    warrants and rights     equity compensation plans
                                warrants and right *                              (excluding securities
                                                                               reflected in column (a)) *
                                ---------------------- ----------------------- ----------------------------
                                       Column                  Column                    Column
                                         (a)                    (b)                        (c)

<S>                                    <C>                     <C>                          <C>
Equity compensation plans              183,700                 $10.60                       0
 approved by security holders

Equity compensation plans not             0                     N/A                         0
 approved by security holders

            Total                      183,700                 $10.60                       0
</TABLE>

* Reflects status of Plan as of December 31, 2003.


(b)  Security Ownership of Certain Non-Management or Non-Affiliate Beneficial
     Owners

     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 15, 2004 by each Non-Management or Non-Affiliated
     Beneficial Owner:

                                    Number of Shares        Percentage of Shares
                                         of Stock                 of Stock
                                    Beneficially Owned      Beneficially Owned
                                    ------------------      ------------------

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

     Thomas Morford (1)........     0            16,334          0        7.7%

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

     (1) Mr. Morford is a private investor.

(c)  Security Ownership of 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 15, 2004 by (1) each Management 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 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.

                                       23
<PAGE>
<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>          <C>
Thomas B. Swartz (1)(4) . . . . . . .     2,262          1,879            *            *
Dennis R. Konczal (2)(4) . . . . . .     18,332            984          4.2%           *
Richard J. Wrensen (3)(4) . . . . . .    58,380          2,145         13.4%           *
William W. Aubrey II (5) . . . . . .      2,500              0             *           0
Stanley C. Brooks (6) . . . . . . . .         0              0             0           0
Harvey Blomberg (7) . . . . . . . . .         0              0             0           0
Donald R. Looper . . . . . . . . . . .        0              0             0           0
Robert G. Johnson . . . . . . . . . .     1,500              0             *           0
Jennifer S. Austin. . . . . . . . . .         0              0             0           0
All directors and executive officers
as a group (9 persons) (8) . . . . .    108,592          8,669          25.0%        4.1%
</TABLE>

     * Represents less than 1% of outstanding shares.
      ____________________

     (1) Mr. Swartz has unexercised options to purchase 53,687 shares of Common
     Stock, all of which he has the right to acquire within 60 days from the
     date hereof. Mr. Swartz's spouse owns 633 shares of Series "A" Preferred
     Shares in which Mr. Swartz claims no beneficial interest. Such holdings
     represent less than 1% of the outstanding Preferred Shares.

     (2) Mr. Konczal has unexercised options to purchase 38,124 shares of Common
     Stock, all of which he has the right to acquire within 60 days from the
     date hereof.

     (3) Mr. Wrensen has unexercised options to purchase 29,800 shares of Common
     Stock, all of which he has the right to acquire within 60 days from the
     date hereof. Mr. Wrensen's spouse owns 24,000 shares of Common Stock and
     2,709 Series "A" Preferred Shares as of March 15, 2003, in which Mr.
     Wrensen claims no beneficial interest. Such holdings represent 5.5% of the
     outstanding Common Shares and 1.3% of the outstanding Preferred Shares.

     (4) Capital Alliance Advisors, Inc., the Trust's Manager, owns beneficially
     25,618 Shares of Common stock and 3,661 shares of Series "A" Preferred
     Shares as of March 15, 2003, representing 5.9% 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 16,689 shares of Common Stock
     and has the right to acquire such Shares within 60 days from the date
     hereof.

     (5) Mr. Aubrey has unexercised options to purchase 4,750 shares of Common
         Stock.

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

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

     (8)  The totals include the Common and Preferred Shares owned by Capital
          Alliance Advisors Inc.


(d)   Changes in Control
      ------------------
      None

                                       24
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Arrangements and Transactions with Members of the Manager
---------------------------------------------------------
         CAAI is the Manager of the Trust and provides (a) management and
advisory services to the Trust and CAFC in accordance with the Management
Agreements with each entity and (b) mortgage origination and loan servicing
services to the Trust and CAFC in accordance with the Mortgage Origination and
Servicing Agreements with each entity. 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.
Three of the six Directors and the officers of the Trust, Messrs. Swartz,
Konczal and Wrensen, own and serve as Directors and 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 nonvoting 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 inter-company 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, LLC whose Mortgage Division invests in mortgages
encumbering commercial and mixed-use properties as well as residential
properties and which may generate profits or other compensation. The Trust will
not share in such profits or 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.

Sale and Purchase of Loan
-------------------------
         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 nonconforming 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 at the lower of cost, par value or fair market value.

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.

         The Board of Directors has adopted a Code of Business Conduct and
Ethics, which is included as Exhibit E.

                                       25
<PAGE>
--------------------------------------------------------------------------------
                                     PART IV
--------------------------------------------------------------------------------

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

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

         Exhibit No.
         3.1     Certificate of Incorporation and Amendment No. 1(1)
         3.2     Bylaws of the Registrant(1)
         3.3     Certificate of Amendment of Certificate of Incorporation(6)
         4.1     Form of Stock Certificate of Common Shares of the Registrant(2)
         10.1    Form of Management Agreement between the Registrant and Capital
                 Alliance Advisors, Inc.(1)
         10.2    Form of Indemnity Agreement between the Registrant and its
                 Directors and Officers(1)
         10.3    Form of Loan Origination and Loan Servicing Agreement between
                 the Registrant and Capital Alliance Advisors, Inc.(1)
         23.4    Consent of Landels Ripley & Diamond, LLP(5)
         23.5    Consent of Novogradac & Company LLP(5)
         24.1    Power of Attorney of Thomas B. Swartz(1)
         24.2    Power of Attorney of Dennis R. Konczal(1)
         24.4    Power of Attorney of Stanley C. Brooks(1)
         24.5    Power of Attorney of Harvey Blomberg(1)
         24.7    Power of Attorney of Richard J. Wrensen(7)
         24.8    Power of Attorney of Donald R. Looper(8)

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

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

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

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

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

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

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

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

         None.

                                       26
<PAGE>
(c)      Miscellaneous Exhibits
         ----------------------

         Exhibit "A":   Press Release, dated November 19, 2003 regarding
                        Earnings for Third Quarter (1.1)

         Exhibit "B":   Press Release, dated December 24, 2003 regarding
                        Earnings Forecast for Fourth Quarter (1.2)

         Exhibit "C":   Press Release, dated January 14, 2004 regarding WULA
                        Joint Venture (1.3)

         Exhibit "D":   Press Release, dated January 30, 2004 regarding Dividend
                        for First Quarter (1.4)

         Exhibit "E":   Press Release, dated March 22, 2004 regarding Rob
                        Johnson (1.5)

         Exhibit "F":   Code of Business Conduct and Ethics  (1.6)

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer, the President and Chief Operating Officer, and the Executive
Vice-President and Chief Financial Officer of the Trust have, based on their
evaluation of the Trust's disclosure controls and procedures within 90 days of
the filing date of this annual report, evaluated the effectiveness of such
controls and procedures. Based on such evaluations, they have concluded that the
Trust's disclosure controls and procedures have effectively operated to ensure
that all material information relating to the Trust and its operations and
financial condition has been made known to them by other officers and employees
within the Trust and its Manager on a timely basis.

(b) Changes in Internal Controls. There were no significant changes in the
Trust's internal controls or in other factors that could significantly affect
those controls subsequently to the date of the evaluation set forth in item
14(a).

ITEM 15. NOT APPLICABLE

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The Company's independent auditors also provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors' their independence.

         As our independent auditors, Novogradac & Company LLP audits our
financial statements and performs audit-related services and consultation in
connection with various accounting and financial reporting matters. Novogradac &
Company LLP also performs certain non-audit services for the Company. The Audit
Committee has determined that the provision of the services provided by
Novogradac & Company LLP as set forth herein are compatible with maintaining
Novogradac & Company LLP's independence and the prohibitions on performing
non-audit services set forth in the Sarbanes-Oxley Act and relevant Securities
and Exchange Commission rules.

         Audit Fees. Fees for the fiscal year ended December 31, 2003 audit and
the quarterly review of Forms 10-Q were $36,500. Fees for the fiscal year ended
December 31, 2002 were $35,446.

         Audit Related Fees. Aggregate fees for all other audit related services
rendered by Novogradac & Company LLP for fiscal years ended December 31, 2003
and 2002 were $1,613 and $1,466, respectively.

         Tax Fees. Aggregate fees for all other tax services rendered by
Novogradac & Company LLP for fiscal years ended December 31, 2003 and 2002 were
$3,400 and $3,400, respectively.

         All Other Fees. Aggregate fees for all other services rendered by
Novogradac & Company LLP for the fiscal years ended December 31, 2003 and 2002
were $0 and $0, respectively.

         Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee review of the representations of
management and the report of the independent accountants to the Audit

                                       27
<PAGE>
Committee, the Audit Committee recommended that the Board of Directors include
the Company's audited financial statements in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2003 filed with the Securities and
Exchange Commission.

                                   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 14, 2004                        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
    Chief Financial Officer                      Chief Executive 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 14, 2004
--------------------
Thomas B. Swartz
Chairman and Chief Executive Officer
(Principal Executive Officer)


/s/ Richard J. Wrensen                                    Dated: April 14, 2004
----------------------
Richard J. Wrensen
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)


/s/ Dennis R. Konczal                                     Dated: April 14, 2004
---------------------
Dennis R. Konczal
President and Director


/s/ Stanley C. Brooks                                     Dated: April 14, 2004
---------------------
Stanley C. Brooks
Director


/s/ Harvey Blomberg                                       Dated: April 14, 2004
-------------------
Harvey Blomberg
Director


/s/ Donald R. Looper                                      Dated: April 14, 2004
--------------------
Donald R. Looper
Director

                                       28
<PAGE>
                                  CERTIFICATION
          CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
           PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of Capital Alliance Income Trust Ltd. (the
"Company") on Form 10-KSB for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas B. Swartz, Chief Executive Officer of the Company, Richard J. Wrensen,
Chief Financial Officer of the Company, and I, Dennis R, Konczal, President and
Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

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

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


Date: April 14, 2004
                                         /s/ Thomas B. Swartz
                                         --------------------
                                         Thomas B. Swartz
                                         Chairman and Chief Executive Officer


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


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



                                       29
<PAGE>
       CERTIFICATION OF FORM 10-KSB OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                         PERIOD ENDING DECEMBER 31, 2003

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

The undersigned each individually certifies that:

1.   I have reviewed this Form 10-KSB, dated April 14, 2004 of Capital Alliance
     Income Trust, Ltd., A Real Estate Investment Trust:

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

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

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

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

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

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

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

 [SIGNATURES ON NEXT PAGE]

                                       30
<PAGE>
Date: April 14, 2004



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


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


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




                                       31
<PAGE>
                                   EXHIBIT "A"
Press Release
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                      ANNOUNCES EARNINGS FOR THIRD QUARTER

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

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

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

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

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

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

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

                                       32
<PAGE>
                                   EXHIBIT "B"
Press Release
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                          FORECAST 4TH QUARTER EARNINGS

SAN FRANCISCO - (BUSINESS WIRE) - December 24, 2003 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-News) a residential mortgage REIT, operating both
mortgage investment and mortgage banking businesses, forecast the return of
normalized earnings for the quarter ending December 31, 2003. Since year end
2000, CAIT has regularly produced quarterly net income in excess of $200,000.

The prior quarter's results were adversely impacted by two REO losses from the
same borrower. Richard J. Wrensen, CAIT's Executive Vice President and Chief
Financial Officer noted that, "the losses were fully recognized during the 3rd
quarter and will not impact the 4th quarter's operating results. I expect CAIT's
4th quarter net income will again exceed $200,000 and the Board of Director's
will consider the resumption of a common share dividend that is not a return of
capital."

As a REIT, CAIT is required to distribute 90% of its taxable income. Earlier
this quarter, the Board of Directors postponed a decision regarding the 4th
quarter dividend action, but now has decided to omit the 4th quarter dividend to
avoid a return of capital. During 2003 CAIT had declared and paid three common
share dividends of $0.45 each, which is sufficient for CAIT to maintain its REIT
qualification.

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

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

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

                                       33
<PAGE>
                                   EXHIBIT "C"
Press Release
                     CAPITAL ALLIANCE INCOME TRUST LTD. AND
                    WESTERN UNITED LIFE ASSURANCE CORPORATION
                     ANNOUNCE NEW FINANCIAL RELATIONSHIP AND
                       SALE OF SENIOR LOAN PARTICIPATIONS

SAN FRANCISCO, - (BUSINESS WIRE) - January 14, 2004 - Capital Alliance Income
Trust Ltd ("CAIT") (AMEX:CAA-News) a residential mortgage REIT operating both
mortgage investment and mortgage banking businesses, announced that on December
31, 2003 Capital Alliance Funding Corporation ("CAFC"), its mortgage banking
subsidiary (collectively "Capital Alliance"), had executed an agreement to sell,
on a service retained basis, $3,600,000 in senior 95% loan participations to
Western United Life Assurance Corporation ("Western United"), of Spokane,
Washington. Under the agreement Capital Alliance retains the right to repurchase
at any time the senior participation interests in the loans at par.

Dennis R. Konczal, Capital Alliance's President and Chief Operating Officer,
stated that "we are pleased to add Western United to the group of financial
institutions with which Capital Alliance is working, especially since the letter
of intent on which this transaction is based contemplates an "evergreen"
quarterly sale to Western United of up to $7,000,000 in senior participations in
single family and one-to-four unit residential loans. This relationship will
enable Capital Alliance to more fully take advantage of favorable interest rate
spreads, while increasing the size and diversity of our mortgage portfolio."

Bill Smith, Chief Financial Officer of Western United noted that Western
United's senior participation interests in the loans will not only provide
Western United with additional investment diversification, but are expected to
enhance the credit quality of Western United's mortgage loan investment
portfolio.

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

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.
                  Richard J. Wrensen, EVP & CFO - 415/288-9575
                  rwrensen@calliance.com
                  www.calliance.com

                  Western United Life Assurance Corporation
                  Bill Smith, Chief Financial Officer, 509/835-2383

                                       34
<PAGE>
                                   EXHIBIT "D"
Press Release
                  CAPITAL ALLIANCE INCOME TRUST LTD. ANNOUNCES
                     QUARTERLY DIVIDEND AT $1.80 ANNUAL RATE

SAN FRANCISCO - (BUSINESS WIRE) - January 30, 2004 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared a
dividend of $0.45 per Common Share for the first quarter of 2004. Based on the
current common stock price of $18.78 per share, the annualized dividend yield is
9.58%. The dividend is payable on February 17, 2004 to shareholders of record on
February 12, 2004.

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

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


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

                                       35
<PAGE>
                                   EXHIBIT "E"
Press Release
                 CAPITAL ALLIANCE FUNDING CORPORATION ANNOUNCES
                     "ROB" JOHNSON AS SENIOR VICE PRESIDENT

SAN FRANCISCO - (Business Wire) - March 22, 2004 - Capital Alliance Funding
Corporation, ("Capital Alliance"), its Manager, Capital Alliance Advisors, Inc.,
(collectively "Capital Alliance") today announced that Robert G. "Rob" Johnson,
has joined Capital Alliance as a Senior Vice President. Capital Alliance is
involved in all aspects of residential mortgage banking, originating and funding
loans secured by residential properties ranging from single family residences
through mixed use and multi family housing. Rob Johnson will manage all aspects
of the residential loan origination process through third party mortgage brokers
by marketing an array of unique loan products. In addition, he will be
responsible for refining Capital Alliance's capabilities in working directly
with retail borrowers.

Rob Johnson brings to Capital Alliance extensive experience in both residential
and commercial mortgage originations. As owner and President of Johnson Mortgage
Acceptance Corporation of San Francisco, Rob and his group have generated over
$45 million per year in mortgage originations. Prior to forming JMAC in 1999,
Rob was Vice-President of Sales and Marketing with American Mortgage Network,
San Francisco (1990-1994). During 1994, Rob was a financial consultant with
Merrill Lynch and from 1995-1999 was a Registered Representative with
Whitehall-Parker Securities. Rob holds a California Real Estate Broker's
license, Life Insurance license and NASD series 7, 63, and 65 licenses. Rob, his
wife Tara and their three children are San Francisco residents.

Capital Alliance is headquartered in San Francisco, CA with offices in Irvine
and San Diego, CA. It is also a subsidiary of Capital Alliance Income Trust
Ltd., a mortgage REIT (AMEX symbol: "CAA") and an affiliate of Calliance Realty
Fund LLC.


Contact:          Capital Alliance Funding Corporation
                  Dennis R. Konczal, President, 415/288-9575
                  drkonczal@calliance.com
                  www.calliance.com

                                       36
<PAGE>
                                   EXHIBIT "F"

                     Code of Business Conduct and Ethics of
                          Capital Alliance Income Trust
Introduction
This Code of Business Conduct and Ethics (the "Code") embodies the commitment of
Capital Alliance Income Trust Ltd. and its Manager, Capital Alliance Advisors
Inc. and its employees (collectively "Capital Alliance" and the "Company") and
its subsidiary to conduct our business in accordance with all applicable laws,
rules and regulations and the highest ethical standards. All employees and
members of our Board of Directors are expected to adhere to those principles and
procedures set forth in this Code that apply to them. (For purposes of Section
406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder,
Section I of this Code shall be our code of ethics for Senior Financial Officers
(as defined below).)

Integrity and honesty are at the heart of our business. We expect our people to
maintain high ethical standards in everything they do, both in their work for
the Company and in their personal lives.

Section I
A. Compliance and Reporting
Employees and directors should strive to identify and raise potential issues
before they lead to problems, and should ask about the application of this Code
whenever in doubt. Any employee or director who becomes aware of any existing or
potential violation of this Code should promptly notify, in the case of
employees, the Chairman and Chief Executive Officer, the President and/or the
Chief Financial Officer (the "Senior Financial Officers"), (we refer to such
contacts as "Appropriate Ethics Contacts"). The Company will take such
disciplinary or preventive action, as it deems appropriate to address any
existing or potential violation of this Code brought to its attention. Any
questions relating to how these policies should be interpreted or applied should
be addressed to an Appropriate Ethics Contact.

B. Personal Conflicts of Interest
A "personal conflict of interest" occurs when an individual's private interest
improperly interferes with the interests of the Company. Personal conflicts of
interest are prohibited as a matter of Company policy, unless they have been
approved by the Company. In particular, an employee or director must never use
or attempt to use his or her position at the Company to obtain any improper
personal benefit for himself or herself, for his or her family members, or for
any other person, including loans or guarantees of obligations, from any person
or entity. Service to the Company should never be subordinated to personal gain
and advantage. Conflicts of interest should, to the extent possible, be avoided.
Any employee or director who is aware of a material transaction or relationship
that could reasonably be expected to give rise to a conflict of interest should
discuss the matter promptly with an Appropriate Ethics Contact.

C. Public Disclosure
It is the Company's policy that the information in its public communications,
including SEC filings, be full, fair, accurate, timely and understandable. All
employees and directors who are involved in the company's disclosure process,
including the Senior Financial Officers, are responsible for acting in
furtherance of this policy. In particular, these individuals are required to
maintain familiarity with the disclosure requirements applicable to the Company
and are prohibited from knowingly misrepresenting, omitting, or causing others
to misrepresent or omit, material facts about the Company to others, whether
within or outside the Company, including the Company's independent auditors. In
addition, any employee or director who has a supervisory role in the Company's
disclosure process has an obligation to discharge his or her responsibilities
diligently.

D. Compliance with Laws, Rules and Regulations
It is the Company's policy to comply with all applicable laws, rules and
regulations. It is the personal responsibility of each employee and director to
adhere to the standards and restrictions imposed by those laws, rules and
regulations. Generally, it is both illegal and against Company policy for any
employee or director who is aware of material nonpublic information relating to
the Company, to buy or sell any securities of the Company, or recommend that
another person buy, sell or hold the securities of the Company. More detailed
rules governing the trading of securities by the Company's employees and
directors are set forth in the Company's Insider Trading Rules. Any employee or
director who is uncertain about the legal rules involving his or her purchase or
sale of any Company securities should consult with an Appropriate Ethics Contact
before making any such purchase or sale.

                                       37
<PAGE>
SECTION II
A. Corporate Opportunities
Employees and directors owe a duty to the Company to advance the Company's
legitimate business interests when the opportunity to do so arises. Employees
and directors are prohibited from taking for themselves (or directing to a third
party) a business opportunity that is discovered through the use of corporate
property, information or position, unless the Company has already been offered
the opportunity and turned it down. More generally, employees and directors are
prohibited from using corporate property, information or position for personal
gain or from competing with the Company. Sometimes the line between personal and
Company benefits is difficult to draw, and sometimes both personal and Company
benefits may be derived from certain activities. The only prudent course of
conduct for our employees and directors is to make sure that any use of Company
property or services that is not solely for the benefit of the Company is
approved beforehand through the Appropriate Ethics Contact.

B. Confidentiality
In carrying out the Company's business, employees and directors often learn
confidential or proprietary information about the Company, its
clients/customers, prospective clients/customers or other third parties.
Employees and directors must maintain the confidentiality of all information so
entrusted to them, except when disclosure is authorized or legally mandated.
Confidential or proprietary information includes, among other things, any
non-public information concerning the Company, including its businesses,
financial performance, results or prospects, and any non-public information
provided by a third party with the expectation that the information will be kept
confidential and used solely for the business purpose for which it was conveyed.

C. Fair Dealing
We have a history of succeeding through honest business competition. We do not
seek competitive advantages through illegal or unethical business practices.
Each employee and director should endeavor to deal fairly with the Company's
clients, service providers, suppliers, competitors and employees. No employee or
director should take unfair advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of material
facts, or any unfair dealing practice.

D. Equal Employment Opportunity and Harassment
Our focus in personnel decisions is on merit and contribution to the Company's
success. Concern for the personal dignity and individual worth of every person
is an indispensable element in the standard of conduct that we have set for
ourselves. The Company affords equal employment opportunity to all qualified
persons without regard to any impermissible criterion or circumstance. This
means equal opportunity in regard to each individual's terms and conditions of
employment and in regard to any other matter that affects in any way the working
environment of the employee. We do not tolerate or condone any type of
discrimination prohibited by law, including harassment.

E. Protection and Proper Use of Company Assets
All employees should protect the Company's assets and ensure their efficient
use. All Company assets should be used for legitimate business purposes only.

SECTION III
Reporting of Concerns
Our Board of Directors adopted a policy, effective on March 12, 2004, on
reporting of concerns regarding accounting and other matters. This policy is
designed to provide a channel of communication for employees and others who have
concerns about the conduct of Capital Alliance or any of its people, including
with respect to the Company's accounting controls or auditing matters.

Such concerns may be communicated, in a confidential or anonymous manner, to
Capital Alliance's Chairman who will communicate concerns regarding accounting,
internal accounting controls and other auditing matters (including confidential,
anonymous submissions by the people of Capital Alliance) to the Board's Audit
Committee. The Chairman will communicate other concerns, depending on the nature
of the matter, to the Company's non-management directors or to appropriate
personnel within the Company. Such non-accounting concerns expressed by the
people of Capital Alliance will be communicated in accordance with the
procedures described in the Employee Handbook. The Company strictly prohibits
any retaliation for reporting a possible violation of law, ethics or Company
policy, no matter whom the report concerns.

                                       38

<PAGE>
SECTION IV
Waivers of This Code
From time to time, the Company may waive certain provisions of this Code. Any
employee or director who believes that a waiver may be called for should discuss
the matter with an Appropriate Ethics Contact. Waivers for executive officers
(including Senior Financial Officers) or directors of the Company may be made
only by the Board of Directors or a committee of the Board.