FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

                    For the Fiscal Year Ended March 31, 1997

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                For the transition period from _______to_______.

                         Commission File NO. 000-18887


                             COLONIAL TRUST COMPANY
                 ----------------------------------------------
                 (Name of small business issuer in its charter)


       ARIZONA                                           75-2294862
------------------------                    ------------------------------------
(State of Incorporation)                    (IRS Employer Identification Number)

                              5336 N. 19th Avenue
                             Phoenix, Arizona 85015
                    ----------------------------------------
                    (Address of principal executive offices)

                                  602-242-5507
                          ---------------------------
                          (Issuer's telephone number)


      Securities registered under Section 12(b) of the Exchange Act: None
                                                                    --------
         Securities registered under Section 12(g) of the Exchange Act:

                           Common Stock, No Par Value
                           --------------------------

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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
                                                             ----   ----
Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  of Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

Issuers' revenues for its most recent fiscal year: $1,786,245.

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
Registrant was $1,879,206 as of June 1, 1997

As of June 1,  1997,  7,777,401  shares of the  Registrant's  Common  Stock were
outstanding.
<PAGE>


                               TABLE OF CONTENTS

                                                                         Page
                                                                         ----
PART I
         Item  1:    Description of Business  . . . . . . . . . . . .      3

         Item  2:    Description of Properties  . . . . . . . . . . .     10

         Item  3:    Legal Proceedings  . . . . . . . . . . . . . . .     10

         Item  4:    Submission of Matters to a Vote of
                     Security-Holders . . . . . . . . . . . . . . . .     10
PART II
         Item  5:    Market for Common Equity and Related
                     Stockholder Matters  . . . . . . . . . . . . . .     11

         Item  6:    Management's Discussion and Analysis
                     or Plan of Financial Condition and Results
                     Of Operations  . . . . . . . . . . . . . . . . .     11

         Item  7:    Financial Statements . . . . . . . . . . . . . .     16

         Item  8:    Changes in and Disagreements with
                     Accountants on Accounting and
                     Financial Disclosure . . . . . . . . . . . . . .     33
PART III
         Item  9:    Directors, Executive Officers, Promoters
                     and Control Persons; Compliance with
                     Section 16(a) of the Exchange Act  . . . . . . .     33

         Item 10:    Executive Compensation . . . . . . . . . . . . .     35

         Item 11:    Security Ownership of Certain Beneficial
                     Owners and Management  . . . . . . . . . . . . .     37

         Item 12:    Certain Relationships and Related
                     Transactions . . . . . . . . . . . . . . . . . .     39

         Item 13:    Exhibits and Reports on Form 8-K . . . . . . . .     39






                                       2
<PAGE>

                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

         Colonial Trust Company (the "Company") was incorporated  under the laws
of the State of Arizona on August  15,  1989.  The  business  operations  of the
Company  commenced on  September  11,  1989.  From the time of its  organization
through September 30, 1990, the Company was a wholly-owned  subsidiary of Church
Loans and Investments  Trust ("Church  Loans"),  a real estate  investment trust
located in Amarillo,  Texas. On October 1, 1990, all of the capital stock of the
Company was distributed to the  stockholders of Church Loans on the basis of one
share of common  stock of the Company for each share of Church Loans stock owned
on such date.

         On September 11, 1989,  the Company began  providing  trust services to
the  public.  These  services  included  serving as  trustee on inter  vivos and
testamentary trusts, serving as the legal representative of estates of decedents
and wards,  serving as the custodian under individual  retirement accounts ("IRA
Accounts"),  and serving as trustee  for bond  offerings  of churches  and other
non-profit  organizations.  The Company is  presently  primarily  engaged in the
business of serving as trustee and paying agent on bond programs of churches and
other non-profit organizations,  and to a lesser extent is engaged in serving as
trustee for IRA  Accounts.  Through its  Personal  Trust  Division,  the Company
provides  traditional  investment   management,   administration  and  custodial
services for customers with trust assets.  See "Trust  Services,  Personal Trust
Division."

BOND OFFERING SERVICES

         The Company's primary business historically has been serving as trustee
and  paying  agent  for  bond   offerings  of  churches  and  other   non-profit
organizations.  According to the National Association of Securities Dealers, the
total principal amount of bonds sold in the U.S. by non-profit  organizations in
1996 and 1995 was approximately $352 million and $350 million, respectively. The
overwhelming  majority of these bonds are sold by  broker-dealers  in  offerings
which are exempt from registration under federal and state securities laws.

         In  its  capacity  as  trustee  for  bond   offerings   of   non-profit
organizations,  the  Company  receives  proceeds  from the sale of the bonds and
distributes those proceeds  according to the purposes of the bond offering.  The
Company invests such proceeds in U.S.  Treasury  Obligation  Money Market Mutual
Funds  according  to the  terms  of the  Company's  investment  policy  and  the
applicable  trust  indenture.  The Company also receives  periodic  sinking fund
payments  (payments  of interest on the bonds by the  non-profit  organizations,
typically made on a weekly basis) on their respective due dates. In its capacity
as  paying  agent,  the  Company  distributes  the  sinking  funds  payments  to
bondholders pursuant to a trust indenture between the Company and the non-profit
organization.  If the  non-profit  organization  defaults under the terms of the
trust indenture, the Company forecloses on the  property securing the payment of

                                        3
<PAGE>

the  bonds  (typically  real  estate  and  related  improvements  owned  by  the
non-profit organization,  such as a church),  attempts to sell the property, and
thereafter  distributes the proceeds (if any) received from the foreclosure sale
to bondholders.

         The Company is compensated for its services as trustee and paying agent
in one of three ways. The first fee structure allows the Company to invest trust
funds held for  disbursement  and retain the gains and earnings  therefrom.  The
second fee structure requires the issuing institution to pay a percentage of the
bond proceeds to the Company for set-up and bond printing costs during the first
year.  Additionally,  an annual maintenance fee is required each year. The third
fee  structure  entitles  the Company to  interest  earnings up to 2.5% of daily
trust  funds held in bond  proceeds  accounts  in lieu of a set-up  fee.  Annual
maintenance  fees and bond  printing  costs are charged as a  percentage  of the
related bond issue.  The Company's  policy is to allow the non-profit  issuer to
choose between the three fee structures. The Company believes that the third fee
structure is currently utilized by a majority of the Company's competitors.

         As of March 31,  1997,  the  Company  had served as trustee  and paying
agent on 360 bond  offerings  totaling  approximately  $332  million in original
principal  amount.  The  foregoing  includes  a total  of 75 bond  offerings  in
original  principal amount of approximately $75 million originated in the fiscal
year  ended  March 31,  1997.  The  Company's  revenues  from  these  activities
represented  approximately 69% of the Company's  aggregate revenues for the year
ended  March 31,  1997.  See "Item  6-Management's  Discussion  and  Analysis of
Financial  Condition and Results of  Operations-Results  of  Operations  for the
Years Ended March 31, 1997 and 1996."

         As of March 31,  1997,  all bond  programs  for which the  Company  was
serving  as  trustee  and  paying   agent  had  been   originated   by  thirteen
broker/dealers,   and  four  of  those   broker/dealers   had  originated  bonds
representing  approximately  85% of the aggregate  principal amount of all bonds
for which the Company was serving as trustee  and paying  agent.  The  Company's
ability  to  generate  bond  servicing  fees is  dependent  upon the  ability of
broker/dealers to originate bond offerings for non-profit  organizations and the
Company's ability to maintain or develop a relationship with  broker/dealers who
are successful in originating such bond offerings.

         The Company intends to attempt to develop relationships with additional
broker/dealers  who are active in the non-profit bond financing  market. To that
end, in February 1996 the Company entered into an employment agreement with Marv
Hoeflinger  pursuant to which Mr.  Hoeflinger  currently serves as the Company's
Vice  President of Marketing.  Until  joining the Company,  Mr.  Hoeflinger  was
employed  as Senior Vice  President  with  Reliance  Trust  Company,  one of the
Company's  primary  competitors in the non-profit bond servicing  business.  Mr.
Hoeflinger  is  primarily  responsible  for  attempting  to  procure  additional
business  from  the  broker/dealers  with  whom  the  Company  currently  has  a

                                        4
<PAGE>

relationship,  and for  attempting  to develop  relationships  with and  procure
business from  broker/dealers  with whom the Company does not  currently  have a
relationship.

IRA ACCOUNT SERVICES

         The Company also serves as trustee for IRA  Accounts.  As trustee,  the
Company receives all contributions to these accounts,  invests the contributions
as directed by the account participant and distributes the funds of the accounts
pursuant to the terms of each individual  account.  For its services as trustee,
the Company  receives an annual base fee of $40 and a transaction  fee of $5 per
transaction  for each  transaction  in excess of 12 per year.  The Company  also
retains,  as a portion  of its fee,  earnings  up to 2% of the daily  uninvested
balance in each IRA Account.

         At March 31, 1997, the Company was serving as trustee for approximately
6,200 IRA  Accounts  with an  aggregate  value of  approximately  $124  million,
including 104 IRA Accounts with an aggregate value of approximately  $26 million
serviced by the Company's  Personal Trust  Division.  Revenue from the Company's
activities in this area represented approximately 20% of the Company's aggregate
revenues for the year ended March 31, 1997. See "Item 6-Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results of  Operations-Results  of
Operations for the Years Ended March 31, 1997 and 1996."

         The  majority of the IRA  Accounts  serviced  by the Company  have been
originated by the  broker/dealers who originate the bond offerings for which the
Company  serves as trustee  and  paying  agent.  Currently,  there are a limited
number of IRA  trustees who allow  church  bonds as an  investment  in their IRA
accounts. The Company has been able to grow its IRA servicing business primarily
through marketing efforts directed at the  broker/dealers  with whom the Company
has a bond servicing relationship.

         The Company intends to attempt to grow this business  primarily through
marketing efforts of Mr. Hoeflinger  directly to non-profit  organizations.  Mr.
Hoeflinger  promotes the  Company's  IRA services  through  investment  seminars
emphasizing  the Company's  ability and  willingness  to allow church bonds as a
self-directed IRA investment.

TRADITIONAL TRUST SERVICES; PERSONAL TRUST DIVISION

         On  November  1,  1995,  the  Company  purchased  all of the issued and
outstanding common stock of Camelback Trust Company ("Camelback"). Camelback was
merged with and into the Company on July 31, 1996. Camelback now operates as the
Company's Personal Trust Division.

                                        5
<PAGE>

         The Personal Trust Division provides traditional investment management,
administration   and  custodial   services  for  customers  with  assets  (cash,
securities,  real  estate  or other  assets)  held in trust or in an  investment
agency account.  It also serves as custodian for self-directed IRA Accounts.  At
March 31, 1997, the Personal  Trust Division  served as trustee or agent for 154
trust, other accounts, or investment agency accounts with a fair market value of
approximately  $29 million,  and served as custodian for  approximately  104 IRA
Accounts with a fair market value of approximately $26 million.

         The  Personal  Trust  Division  generates  revenues  based  on two  fee
structures.  The first fee  structure  represents a percentage  of the fiduciary
assets  which the  Company  holds as trustee or agent.  Fees are  assessed  on a
quarterly basis to individual accounts according to the fair market value of the
supporting  fiduciary  assets in such account at the end of each quarter.  Under
the second fee structure,  the Personal Trust Division charges a flat annual fee
based on the type of asset and the services  rendered for its services.  The fee
varies depending the level of investment  management the customer  desires.  The
Personal Trust  Division  charges a flat annual fee of $500 and a fee of $25 per
special  asset  held in the  account  for IRA  Accounts  for  which it serves as
custodian.

         The  Company  is  party  to  an  investment  advisory  agreement  dated
September 1995 with Hackett  Investment  Advisors,  Inc. ("HIA"),  an investment
advisor located in Scottsdale,  Arizona. Pursuant to this agreement, the Company
designates  HIA,  and HIA  serves  for the  Company,  as  investment  advisor on
substantially  all of the designated  investment  accounts of the Personal Trust
Division.  HIA  further  refers to the  Personal  Trust  Division  all  business
opportunities  for which an  independent  corporate  fiduciary  is  necessary or
appropriate. The Company pays HIA 30% of the gross fees collected by the Company
from  the  Company's  investment  management  accounts  receiving  HIA  advisory
services,  and 20% of the gross fees  collected by the Company in the first year
from new accounts  initiated by HIA. The agreement  with HIA continues in effect
through  January  31, 1998 and  thereafter  continues  in effect for  successive
two-year periods unless terminated by either party upon 90 days' written notice.

         The majority of trust accounts for which the Personal Trust Division is
currently serving as trustee or agent were originated by HIA. Moreover,  for the
year ended March 31, 1997, approximately 26% of the Company's trust fee revenues
were derived from five affiliated trust accounts.

         The Company is also party to an employment agreement dated January 1996
with A.R.  "Bud" Olson  pursuant to which Mr. Olson is employed as the Company's
Vice  President of Marketing for the Personal Trust  Division.  Mr. Olson has 37
years of experience as a trust professional,  including 6 years of experience as

                                        6
<PAGE>

a trust  professional  in  Phoenix.  Mr.  Olson has primary  responsibility  for
developing trust business for the Personal Trust Division.  The profitability of
the  Personal  Trust  Division is  dependent in large part on the efforts of Mr.
Olson and, to a lesser extent,  HIA, to generate new trust business and upon the
ability  of HIA to manage  the trust  accounts  resulting  from  these  efforts.
Revenues from the Personal Trust Division  represented  approximately 13% of the
Company's  aggregate  gross  revenues  for the year ended  March 31,  1997.  See
"-Growth Plans", "Item 10 - Executive  Compensation  Employment  Agreements" and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations-Results of Operations for the Years Ended March 31, 1997 and 1996."

GROWTH PLANS

         The Company  intends to attempt to expand its non-profit bond servicing
operations,  its  IRA  Account  servicing  operations,  and the  Personal  Trust
Division's   traditional  trust  and  investment  agency  servicing  operations.
Although the Company may make additional acquisitions in the event opportunities
arise on favorable  terms,  the Company  anticipates  that expansion will result
primarily from internal development.

         The Company  intends to attempt to expand its non-profit bond servicing
operations by(I) attempting to increase the number of bond offerings it services
which are  initiated  by  broker/dealers  with whom the  Company has an existing
relationship,  and (ii)  attempting  to develop  relationships  with  additional
broker/dealers from whom the Company will receive bond servicing referrals.  The
Company  also  intends to attempt  to develop  additional  sources of revenue by
serving as paying agent for non-profit loan funds  established by  denominations
of various  religious  organizations.  The  Company  may  establish  a bond loan
program  whereby a bond issuer meeting certain  financial  criteria could borrow
funds from the Company by pledging  unsold bonds of the  offering as  collateral
for such loan in an amount equal to the loan.  Bonds held as collateral  for the
loan would accrue  interest to the Company  offsetting the interest  charged for
the loan. In addition to the interest  earned on the loaned  funds,  the Company
would  earn  a  loan  commitment  fee.  Mr.  Hoeflinger  will  bear  significant
responsibility  for such matters.  See "Item 9- Directors,  Executive  Officers,
Promoters and Control  PersonsEmployment  Agreements." There may be no assurance
that the Company will be successful  in its efforts to increase  bond  servicing
revenues  or  to  develop  additional  sources  of  revenue.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Results
of Operations for the Years Ended March 31, 1997 and 1996."

         The  Company  intends to attempt  to expand its IRA  Account  servicing
business through (I) attempting to develop relationships with new broker/dealers
with whom the Company has not previously had

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<PAGE>

a relationship,  and (ii) investment seminars  emphasizing the Company's ability
and willingness to allow church bonds as a self-directed  IRA investment.  There
may be no  assurance  that the  Company  will be  successful  in its  efforts to
increase  IRA Account  servicing  revenues.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of  Operations-Results of Operations
for the Year Ended March 31, 1997 and 1996."

         The Company  also  intends to attempt to expand its  traditional  trust
account and  investment  agency  account  business by (I)  attempting to procure
additional  business from lawyers,  accountants and other trust professionals in
the Phoenix  area with whom the Company has an existing  relationship,  and (ii)
attempting to develop  relationships with additional trust  professionals in the
Phoenix  area who will serve as referral  sources for the  Company.  The Company
will be dependent  primarily  upon the efforts of Bud Olson,  the Personal Trust
Division's  Vice  President of Marketing,  and HIA, with whom the Company has an
investment  advisory  agreement,  with respect to these matters.  See "Item 10 -
Executive Compensation - Employment Agreements." There may be no assurances that
the Company  will be  successful  in its efforts to increase  trust  account and
investment agency account servicing revenues.  See "Management's  Discussion and
Analysis of Financial Condition and Results of  Operations-Results of Operations
for the Years Ended March 31, 1997 and 1996."

         The   foregoing    discussion    entitled   "Growth   Plans"   contains
forward-looking  statements  within the meaning of Section 27A of the Securities
Act, as amended,  and Section 21E of the  Securities  Exchange  Act of 1934,  as
amended,  and is subject to the safe  harbors  created  thereby.  The  Company's
actual  future  operations  could  differ  materially  because of the  following
factors,  among  others:  the  Company's  continued  involvement  in each of its
current  businesses;  the  continued  employment  of key  management,  including
Messrs.  Hoeflinger,  Olson and John  Johnson,  the  Company's  Chief  Executive
Officer;  the  success  of  Messrs.  Hoeflinger  and  Olson in their  respective
business  development  efforts;  the Company's success in developing  additional
sources of  revenue;  the  continuation  of the  Company's  investment  advisory
agreement  with HIA and HIA's success in managing the trust and IRA Accounts for
which it provides  services;  no material  changes in  existing  laws,  rules or
regulations  affecting the Company's  operations;  competitive factors,  such as
increased  competition  for the  Company's  services in one or more of the above
businesses;  and an increase in interest rates or other economic  factors having
an adverse impact on the Company's non-profit bond servicing business.

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<PAGE>

COMPETITION

         The Company's  primary  competitors  in the  non-profit  bond servicing
business are Reliance  Trust Company,  Boatmens  First  National Bank,  American
Church  Trust  Company and  National  City Bank.  Some of these  companies  have
significantly greater financial and other resources than the Company.  Increased
success by these  competitors or increased  competition from additional  sources
could have a material  adverse effect on the Company's  financial  condition and
results of operations.

         Competition in the IRA Account servicing business is intense.  However,
to date the Company has focused its efforts on procuring  IRA account  servicing
business from non-profit  organizations  and their members.  Thus, the Company's
primary  competition comes from the relatively small number of trustees who will
allow  church  bonds  as  a  self-directed  investment.  The  Company's  primary
competitors in this business  include  Reliance Trust Company,  American  Church
Trust,  First  National Bank of Onaga and, to a lesser  extent,  broker/dealers,
banks and other financial  institutions,  investment advisors,  money management
firms  and other  trust  companies,  many of which  have  significantly  greater
financial and other resources than the Company.

         The Company  competes  with the trust  departments  of large banks (and
other financial  institutions)  and, to a lesser extent,  with other independent
trust  companies  for trust  account and  investment  agency  account  business.
Although the Company has focused its efforts on trust accounts which are smaller
than those  typically  serviced by large banks,  increased  competition by large
banks for these accounts and/or  increased  success by other  independent  trust
companies  could  have a  material  adverse  impact on the  Company's  financial
condition  and  results  of  operations.  The  large  banks,  and  some  of  the
independent  trust  companies  located in the Phoenix area,  have  significantly
greater financial and other resources than the Company.

REGULATION, LICENSING AND SUPERVISION

         The Company's  operations are subject to ongoing regulation,  licensing
and supervision under various federal, state and local statutes,  ordinances and
regulations,  including but not limited to regulation by the Arizona  Department
of Banking.  Under applicable rules and regulations of the Arizona Department of
Banking,  the Company files periodic  reports with the Department and is subject
to periodic examinations of that Department.

         Under  legislation  effective on July 20, 1996, the Company is required
to maintain  net capital of at least  $500,000;  the  Company's  net capital was
approximately  $1,556,000 on March 31, 1997. The legislation  also requires that
the Company's  net capital meet certain  liquidity  requirements.  Specifically,
$166,666,  $333,332 and $500,000 of such net capital must meet the  Department's
liquidity  requirements by December 31, 1997, December 31, 1998 and December 31,
1999, respectively. At March 31, 1997, none of the Company's net capital met the
Department's liquidity  requirements.  The Company believes that it will be able
to satisfy  the  foregoing  liquidity  requirements  from cash on hand and other
assets of the Company.

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<PAGE>

         Notwithstanding the foregoing,  the Company is currently  attempting to
raise  additional  capital  through  a  private  placement  stock  offering.  If
successful,  the first  proceeds of which will be used to satisfy the liquid net
capital requirement.

         The Company  believes  that it is currently in  substantial  compliance
with all applicable federal, state and local laws and regulations.

EMPLOYEES

         At March  31,  1997,  the  Company  employed  27  persons.  None of the
Company's  employees  are  covered by a  collective  bargaining  agreement.  The
Company considers its relations with its employees to be good.


ITEM 2. DESCRIPTION OF PROPERTIES.

         On March 15, 1995, the Company  purchased an office building located at
5336 N. 19th Avenue in Phoenix,  Arizona.  The building is approximately  10,000
square  feet in size and serves as the  Company's  executive  offices.  Prior to
March 15, 1995,  the Company  leased  approximately  1,500 square feet of office
space for its  executive  offices at 2510 West  Dunlap,  Suite 232,  in Phoenix,
Arizona. On March 15, 1995, the lease was assigned to an unrelated third party.
The lease terminated in September 1996.

         The  Company  is also  party to a lease  for  commercial  office  space
formerly  occupied by Camelback as its executive office in Scottsdale,  Arizona.
The office lease terminates on February 14, 1998.

ITEM 3. LEGAL PROCEEDINGS.

         On November 1, 1996, a former employee of the Company filed a charge of
race  discrimination  before the Civil Rights  Division of the Arizona  Attorney
General's  office  (the  "Agency").  The  action  was  filed  subsequent  to the
employee's discharge by the Company. The Company filed its statement of position
on  December  12,  1996,  in  which  the  Company  denied  all   allegations  of
discrimination or wrongdoing with respect to the former employee, and on January
27, 1997, the Company also filed responses to the Agency's interrogatories.  The
matter remains  pending before the Agency.  At the present time, the Company has
been advised by its counsel in this matter that, in the opinion of such counsel,
it is too early in the administrative process to make a determination concerning
the  potential  outcome of such  proceeding  or the  potential  liability of the
Company as a result of this proceeding or other potential proceedings.  However,
an adverse  finding by the Agency could  result in  subsequent  litigation  that
could lead to an award of substantial  monetary  damages to the former  employee
and against the Company, in addition to an award of attorney's fees,  litigation
costs and potential equitable relief such as an injunction and/or reinstatement.
The former  employee  might also  attempt to file a lawsuit  against the Company
even in the face of a finding  by the Agency  adverse  to the former  employee's
position.

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

         None.


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                                     PART II

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

         On June 1, 1997, the Company had  approximately  3,100  stockholders of
record.  There is no established  public trading market for the Company's Common
Stock.  The Company does not expect to pay dividends in the  foreseeable  future
but instead intends to retain future earnings, if any, to increase stockholders'
equity.

         Initial  purchases and sales of the Company's  Common Stock occurred in
January 1991.  See Item 1 -  "Description  of Business."  The high and low sales
prices for the Company's Common Stock during the year ended March 31, 1997, were
$.30 and $.24 per share,  respectively.  Such prices represent  negotiated sales
between buyers and sellers without mark-up,  mark-down or retail commission. The
Company served as transfer agent in connection with all such transactions.

Item 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         RESULTS OF OPERATIONS  FOR THE YEARS ENDED MARCH 31, 1997 AND 1996. The
Company had net  earnings of  $163,725,  or $.02 per share,  for the fiscal year
ended March 31, 1997,  compared to net earnings of $142,360,  or $.02 per share,
for the year ended March 31, 1996.  The Company had total  revenue of $1,786,245
for the year ended March 31, 1997,  compared to total revenue of $1,190,356  for
the prior year.

         The Company's  bond  servicing  income  increased to $1,226,591 for the
year ended March 31, 1997, compared to $889,601 for the prior year. The increase
in bond  servicing  income was  primarily  attributable  to the  increase in the
number of bond accounts serviced by the Company.  At March 31, 1997, the Company
had  served  as  trustee  and  paying  agent  on  360  bond  offerings  totaling
approximately  $332,000,000 in original principal amount; at March 31, 1996, the
Company had served as trustee and paying  agent on 314 bond  offerings  totaling
approximately $243,000,000 in original principal amount. The Company anticipates
that its bond servicing  income will increase in the year ending March 31, 1998,
by  approximately  20% - 40% over current year levels as a result of an increase
in the number  and  principal  amount of bond  offerings  for which the  Company
serves as trustee and paying agent. The foregoing  statement is a forwardlooking
statement  within the meaning of Section 27A of the  Securities  Act of 1933, as
amended,  and Section 21 E of the  Securities  Exchange Act of 1934, as amended,
and is subject to the safe harbors created thereby.  Actual results could differ
materially  because  of the  following  factors,  among  others:  the  Company's
continued  involvement in the bond servicing  business  during such period;  the
continued  employment of key management,  including John Johnson,  the Company's
Chief Executive  Officer,  and Mr.  Hoeflinger,  the Company's Vice President of
Marketing; the success of Mr. Hoeflinger in his efforts

                                       11
<PAGE>

to  develop  additional  bond  servicing  business  for the  Company;  increased
competition for the Company's services;  competitive pressures on prices for the
Company's services;  and an increase in interest rates or other economic factors
having an adverse impact on the Company's bond servicing business.

         Revenue from the Company's IRA Account servicing  activities  increased
to $352,018 in fiscal 1997, from $212,033 in the prior year, due primarily to an
increase in the number of IRA  Accounts  serviced by the  Company.  At March 31,
1997,  the  Company  serviced  6,200 IRA  Accounts  with an  aggregate  value of
approximately  $124,000,000,  including 104 IRA Accounts with an aggregate value
of approximately  $26,000,000 serviced by the Personal Trust Division;  at March
31, 1996,  the Company  serviced  4,723 IRA Accounts with an aggregate  value of
approximately  $90,000,000.  The  Company  anticipates  that  its IRA  servicing
revenue will increase in the fiscal year ending March 31, 1998 by  approximately
20% - 30% over  current-year  levels as a result of an increase in the number of
IRA  Accounts   serviced  by  the  Company.   The   foregoing   statement  is  a
forward-looking  statement  within the meaning of Section 27A of the  Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended,  and is subject to the safe harbors created thereby.  Actual results
could differ  materially  because of the following  factors,  among others:  the
Company's  continued  involvement in the IRA Account  servicing  business during
such period; the continued employment of key management, including John Johnson,
the Company's Chief Executive Officer, as well as Messrs.  Hoeflinger and Olson;
the  success  of  Messrs.  Hoeflinger  and  Olson in their  efforts  to  develop
additional IRA Account servicing  business for the Company;  the continuation of
the Company's  investment  advisory agreement with HIA and the success of HIA in
managing the IRA Accounts for which it provides services;  increased competition
for the Company's  services;  competitive  pressures on prices for the Company's
services;  and changes in rules and regulations  adversely  impacting the use of
IRA's as investment and savings tools.

         Trust income  derived from the Personal  Trust Division for fiscal 1997
increased to $173,603  from $56,088 in fiscal 1996.  The trust income for fiscal
1996 represents revenues derived from the trust accounts, other accounts and the
investment  management  accounts of the Personal  Trust  Division for the period
November 1, 1995 to March 31, 1996.

         The  Company   anticipates   that  trust   income   will   increase  by
approximately   30-50%  in  fiscal   1998.   The   foregoing   statement   is  a
forward-looking  statement  within the meaning of Section 27A of the  Securities
Act of 1933 as amended,  and Section 21E of the Securities Exchange Act of 1934,
as amended,  and is subject to the safe harbors created thereby.  Actual results
could differ  materially  because of the following  factors,  among others:  the
Company's continued involvement in the traditional trust company business during
such

                                       12
<PAGE>

period; the continued  employment of key management,  including Messrs.  Johnson
and Olson;  the  success of Mr.  Olson in his  business  development  efforts on
behalf of the Company;  the  continuation of the Company's  investment  advisory
agreement  with HIA and the success of HIA in managing the trust and  investment
agency accounts for which it provides  services;  increased  competition for the
Company's services;  competitive pressures on prices for the Company's services;
and changes in rules and regulations  adversely  impacting the traditional trust
business.

         Interest income increased slightly to $34,033 in fiscal 1997,  compared
to $32,634 in the prior year.  The increase was  primarily  attributable  to the
overall rise in interest rates.

         The  Company's  general and  administrative  expenses  increased in the
aggregate  to  $1,522,020  in fiscal  1997  from  $951,092  in  fiscal  1996 and
increased  to 85.2% of revenues in the fiscal 1997 from 79.9% of revenues in the
previous fiscal year. This increase was  attributable to the following  factors:
(I) salary and related costs  attributable to the addition of Mr. Hoeflinger and
nine administrative staff members; and (ii) other additional expenses related to
administering  the Company's  increased  bond  servicing  business.  The Company
anticipates  that  general  and  administrative  expenses  will  increase in the
aggregate  in  fiscal  1998 but will  remain  relatively  constant  or  decrease
slightly  as a  percentage  of  revenues  from fiscal 1997 levels as a result of
spreading  these  increased  costs over a larger  revenue  base.  The  foregoing
statement is a  forward-looking  statement  within the meaning of Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  21E of the  Securities
Exchange Act of 1934,  as amended,  and is subject to the safe  harbors  created
thereby.  Actual  results  could  differ  materially  because  of the  following
factors,  among  others:  the  Company's  continued  involvement  in each of its
current lines of business;  the success of the Company's  efforts to develop new
sources of revenue; the continued  employment of key management;  the success of
Messrs.  Hoeflinger and Olson in their business development efforts on behalf of
the Company;  the continuation of the Company's  investment  advisory  agreement
with HIA and the  success of HIA in  managing  the trust and  investment  agency
accounts for which it provides services;  increased staffing or office needs not
currently  anticipated;   increased  competition  for  the  Company's  services,
competitive pressures or prices for the Company's services; and changes in rules
and regulations adversely impacting the Company's lines of business.

RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995.

         The Company had net  earnings of $142,360,  or $.02 per share,  for the
fiscal year ended March 31, 1996, compared to net earnings of $118,229,  or $.02
per share,  for the year ended March 31, 1995.  The Company had total revenue of
$1,190,356  for the year ended  March 31,  1996,  compared  to total  revenue of
$747,741 for the prior year.

                                       13
<PAGE>

         The Company's bond servicing  income increased to $889,601 for the year
ended March 31, 1996,  compared to $584,532 for the prior year.  The increase in
bond servicing  income was primarily  attributable to the increase in the number
of bond accounts serviced by the Company.  At March 31, 1996, the Company served
as  trustee  and  paying  agent on 314  bond  offerings  totaling  approximately
$243,000,000  in  principal  amount;  at March 31, 1995,  the Company  served as
trustee  and  paying  agent  on  263  bond  offerings   totaling   approximately
$184,000,000 in principal amount.

         Revenue  from the  Company's  IRA  servicing  activities  increased  to
$212,033 in fiscal 1996,  from  $107,580 in the prior year,  due primarily to an
increase in the number of IRA  Accounts  serviced by the  Company.  At March 31,
1996,  the  Company  serviced  4,723 IRA  Accounts  with an  aggregate  value of
$89,947,034,  including 74 selfdirected  IRA accounts with an aggregate value of
$17,037,284  serviced by Camelback Trust Company; at March 31, 1995, the Company
serviced 3,115 IRA Accounts with an aggregate value of $34,466,963.

         Trust  income  for  fiscal  1996  totaled  $56,088.  The  trust  income
represents revenues derived from Camelback's  investment management accounts for
the period November 1, 1995 to March 31, 1996.

         Interest  income  decreased  to $32,634  in fiscal  1996,  compared  to
$55,629 in the prior  year.  The  decrease  was  primarily  attributable  to the
reduction  of cash  and  cash  equivalents  as a result  of the  Company's  cash
purchase of an office building in March 15, 1995,  which serves as the Company's
executive offices.

         The  Company's  general and  administrative  expenses  increased in the
aggregate to $951,092 in fiscal 1996 from  $552,944 in fiscal 1995 and increased
to 79.9% of revenues  in the fiscal 1996 from 73.9% of revenues in the  previous
fiscal year.  This  increase was  attributable  to the  following  factors:  (I)
increased staff and payroll expense  required to service the Company's  expanded
bond and IRA account portfolio;  (ii) additional payroll and lease expenses as a
result of the Camelback acquisition; and (iii) expenses related to the Company's
acquisition of the building which serves as its corporate headquarters.

LIQUIDITY AND CAPITAL RESOURCES

         Under  legislation  effective on July 20, 1996, the Company is required
to maintain  net capital of at least  $500,000;  the  Company's  net capital was
approximately  $1,556,000 on March 31, 1997. The legislation  also requires that
the Company's  net capital meet certain  liquidity  requirements.  Specifically,
$166,666,  $333,332 and $500,000 of such net capital must meet the  Department's
liquidity  requirements by December 31, 1997, December 31, 1998 and December 31,
1999, respectively. At March 31, 1997, none of the Company's net capital met the
Department's liquidity  requirements.  The Company believes that it will be able
to satisfy the foregoing liquidity

                                       14
<PAGE>

requirements from cash on hand and other assets of the Company.  Notwithstanding
the foregoing,  the Company is currently  attempting to raise additional capital
through a private placement stock offering. If successful, the first proceeds of
which will be used to satisfy the liquid net capital requirement.  See "Item 1 -
Business-Regulation, Licensing and Supervision."

ACCOUNTING MATTERS

         Statement of Financial  Accounting  Standards No. 121,  "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS  No.  121),  which the  Company  adopted  April 1,  1996,  requires  "that
long-lived  assets and certain  identifiable  intangibles be held and used by an
entity be reviewed for impairment  whenever  events or changes in  circumstances
indicate  that the  carrying  amount  of an asset may not be  recoverable."  The
adoption of SFAS No. 121 did not have any  significant  effect on the  Company's
financial position.

         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
Stock-Based  Compensation," (SFAS No. 123) establishes  financial accounting and
reporting  standards for stock-based  employees  compensation plans. These plans
include all  arrangements  by which  employees  receive shares of stock or other
equity  instruments  of the  employer  or the  employer  incurs  liabilities  to
employees  in  amounts  based on the  price of the  employer's  stock.  Examples
include  stock  purchase  plans,  stock  options,  restricted  stock,  and stock
appreciation  rights.  SFAS No.  123 also  applies to  transactions  in which an
entity  issues  its  equity  instruments  to  acquire  goods  or  services  from
nonemployees. These transactions must be accounted for, or at least disclosed in
the  case of stock  options,  based  on the  fair  value  of the  considerations
received  or the  equity  instruments  issued,  whichever  is the more  reliable
measure. The Company adopted the disclosure requirements of SFAS No. 123 for its
fiscal year ended March 31, 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

         Earnings  per  share:  In  February  1997,  the  Financial   Accounting
Standards  Board  issued SFAS No. 128,  "Earnings  Per  Share".  This  Statement
establishes  standards for computing and presenting  earnings per share ("EPS"),
and  supersedes  APB Opinion No. 15. This  Statement  replaces  primary EPS with
basic  EPS and  requires  dual  presentation  of basic  and  diluted  EPS.  This
Statement is effective  for periods  ending after  December 15, 1997.  Basic and
diluted EPS, as calculated under SFAS No. 128, would have been $.02 and $.02 for
the year ended March 31, 1997.

ITEM 7. FINANCIAL STATEMENTS.

         The Company's audited financial  statements,  containing balance sheets
as of March 31, 1997 and 1996, and related statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1997, are set forth on the following pages.

                                       15
<PAGE>









                             COLONIAL TRUST COMPANY

                              Financial Statements

                          March 31, 1997, 1996 and 1995

                   (With Independent Auditors' Report Thereon)






                                       16
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Colonial Trust Company:


We have  audited  the  accompanying  balance  sheets of Colonial  Trust  Company
(Company) as of March 31, 1997 and 1996, and the related statements of earnings,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended March 31, 1997. These financial  statements are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 Colonial Trust Company as of
March 31, 1997 and 1996,  and the results of its  operations  and its cash flows
for  each  of the  years  in the  three-year  period  ended  March  31,  1997 in
conformity with generally accepted accounting principles.


KPMG Peat Marwick LLP

Phoenix, Arizona
May 16, 1997

                                       17
<PAGE>
                             COLONIAL TRUST COMPANY

                                 Balance Sheets

                             March 31, 1997 and 1996


                                    ASSETS                    1997        1996
                                    ------                    ----        ----
Cash and cash equivalents                                 $  132,426     217,638
Investment securities (notes 2 and 3)                             --     464,883
Receivables                                                  150,228     110,245
Note receivable (note 4)                                     361,057     335,544
Property and equipment, net (note 5)                         739,456     632,276
Excess of cost over fair value acquired (note 2)             165,590     185,047
Other assets (note 11)                                       166,443     104,751
                                                          ----------  ----------
                                                          $1,715,200   2,050,384
                                                          ==========  ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                  $  113,610      59,808
Note payable (note 2)                                             --     540,000
Income taxes payable (note 7)                                 25,617      35,833
Deferred income taxes (note 7)                                19,429      21,322
                                                          ----------  ----------
                                                             158,656     656,963
                                                          ----------  ----------

Stockholders' equity (notes 8, 10 and 11):
    Common stock, no par value; 10,000,000 shares 
      authorized, 7,777,401 issued and outstanding 
      at March 31, 1997 and 1996                             554,942     554,942
    Additional paid-in capital                               505,347     505,347
    Retained earnings                                        496,255     332,530
    Unrealized holding gains on securities
      available for sale                                          --         602
                                                          ----------  ----------
           Total stockholders' equity                      1,556,544   1,393,421

Commitments and contingencies (notes 6 and 10)
                                                          ----------  ----------
                                                          $1,715,200   2,050,384
                                                          ==========  ==========

See accompanying notes to financial statements.

                                       18
<PAGE>
                             COLONIAL TRUST COMPANY

                             Statements of Earnings

                    Years ended March 31, 1997, 1996 and 1995


                                                 1997       1996       1995
                                                 ----       ----       ----
Revenue (note 1):
    Bond servicing income                    $1,226,591    889,601    584,532
    IRA servicing fees                          352,018    212,033    107,580
    Interest income                              34,033     32,634     55,629
    Trust income                                173,603     56,088         --
                                             ----------  ---------  ---------
           Total revenue                      1,786,245  1,190,356    747,741

General and administrative expenses           1,522,020    951,092    552,944
                                             ----------  ---------  ---------

           Income before income taxes           264,225    239,264    194,797

Income taxes (note 7)                           100,500     96,904     76,568
                                             ----------  ---------  ---------

           Net earnings                      $  163,725    142,360    118,229
                                             ==========  =========  =========

Net earnings per common share                $      .02        .02        .02
                                             ==========  =========  =========

Weighted average common shares out-standing   7,777,401  7,328,059  7,007,402
                                             ==========  =========  =========


See accompanying notes to financial statements.

                                       19
<PAGE>
                             COLONIAL TRUST COMPANY

                       Statements of Stockholders' Equity

                    Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                             Unrealized
                                                                            Holding Gains              
                                     Common Stock      Additional           on Securities    Total
                               ---------------------    Paid-in    Retained   Available   Stockholders'
                                 Shares       Amount    Capital    Earnings   For Sale       Equity
                               ----------  ----------  ----------  --------  ----------      ------
<S>                            <C>        <C>          <C>         <C>        <C>          <C>
Balances at March 31, 1994      7,007,402  $  500,000    390,889     71,941          --      962,830

Net earnings                           --          --         --    118,229          --      118,229
                               ----------  ---------- ---------- ----------  ----------   ----------

Balances at March 31, 1995      7,007,402     500,000    390,889    190,170          --    1,081,059

Issuance of stock (note 2)        769,999      54,942    114,458         --          --      169,400

Net earnings                           --          --         --    142,360          --      142,360

Change in unrealized holding
  gains on securities available
  for sale                             --          --         --         --         602          602
                               ----------  ---------- ---------- ----------  ----------   ----------

Balances at March 31, 1996      7,777,401     554,942    505,347    332,530         602    1,393,421

Net earnings                           --          --         --    163,725          --      163,725

Change in unrealized holding
  gains on securities available
  for sale                             --          --         --         --        (602)        (602)
                               ----------  ---------- ---------- ----------  ----------   ----------
Balances at March 31, 1997      7,777,401  $  554,942    505,347    496,255          --    1,556,544
                               ==========  ========== ========== ==========  ==========   ==========
</TABLE>

See accompanying notes to financial statements.

                                       20
<PAGE>
                             COLONIAL TRUST COMPANY

                            Statements of Cash Flows

                    Years ended March 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                    1997        1996         1995
                                                    ----        ----         ----
<S>                                              <C>           <C>         <C>
Cash flows from operating activities:
  Net earnings                                   $ 163,725     142,360     118,229
  Adjustments to reconcile net earnings to net
    cash provided by operating activities:
    Loss on sale of investments                      1,702          --          --
    Depreciation and amortization                   70,475      51,331      28,220
    Deferred income taxes                           (1,893)      1,888      13,693
    Increase in receivables                        (39,983)    (25,282)         --
    Increase in other assets                       (61,692)    (69,704)    (37,935)
    Increase (decrease) in accounts payable and
      accrued liabilities                           61,089      14,591      (1,530)
    Increase (decrease) in income taxes payable    (10,216)     11,997     (15,029)
                                                 ---------   ---------   ---------
         Net cash provided by operating
            activities                             183,207     127,181     105,648
                                                 ---------   ---------   ---------
Cash flows from investing activities:
  Cash acquired in Camelback acquisition                --      71,702          --
  Costs incurred in Camelback acquisition               --     (56,389)         --
  Repayment (purchase) of note receivable          (25,513)         --     457,257
  Proceeds from sale of investments                462,579          --          --
  Purchase of property and equipment              (165,485)    (60,646)   (560,986)
  Proceeds from sale of furniture and equipment         --       3,441          --
                                                 ---------   ---------   ---------
         Net cash provided by (used in)
            investing activities                   271,581     (41,892)   (103,729)
                                                 ---------   ---------   ---------
Cash flows from financing activity:
  Repayment of note payable                       (540,000)         --          --
                                                 ---------   ---------   ---------
         Net cash used in financing activities
                                                  (540,000)         --          --
                                                 ---------   ---------   ---------
(Decrease) increase in cash and cash equivalents   (85,212)     85,289       1,919

Cash and cash equivalents at beginning of year     217,638     132,349     130,430
                                                 ---------   ---------   ---------
Cash and cash equivalents at end of year         $ 132,426     217,638     132,349
                                                 =========   =========   =========
SUPPLEMENTAL DISCLOSURES:
Interest paid                                    $  27,195          --          --
                                                 =========   =========   =========
Income taxes paid                                $ 100,813      83,062      28,464
                                                 =========   =========   =========
</TABLE>

See accompanying notes to financial statements.

                                       21
<PAGE>

                             COLONIAL TRUST COMPANY

                          Notes to Financial Statements

                          March 31, 1997, 1996 and 1995


(1)    SIGNIFICANT ACCOUNTING POLICIES

       NATURE OF BUSINESS

       Colonial Trust Company  (Colonial or Company) was  incorporated on August
       15,  1989 in the state of  Arizona  for the  purpose of  engaging  in the
       business of acting as a fiduciary.  The Company is domiciled in the state
       of Arizona, is regulated by the Arizona State Banking Department, and the
       Company's common stock is registered under the Securities Exchange Act of
       1934.

       Colonial  serves as trustee under various bond  indentures for issuers of
       bonds  in 24  states.  The  issuers  are  primarily  churches  and  other
       religious  organizations.   As  trustee,  the  Company  receives,  holds,
       invests,  and disburses  the bond proceeds as directed by the  applicable
       trust indenture and receives weekly or monthly sinking fund payments from
       the  issuer of bonds,  and in turn,  pays the  semiannual  principal  and
       interest payments to the bondholders.  As of March 31, 1997, Colonial was
       serving  as  trustee  for the  benefit  of the  bondholders  on 360  bond
       offerings  totaling  approximately  $267,000,000  in  original  principal
       amount.  The  amount  of sold and  unmatured  bonds  total  approximately
       $216,000,000  at March 31,  1997.  Colonial  also  serves as a trustee of
       self-directed  individual  retirement accounts for certain bondholders or
       employees  of  6,082  religious   organizations   totaling  approximately
       $98,000,000 at March 31, 1997.

       Colonial also serves as trustee or agent, provides investment management,
       administration,  and custodial  services.  As trustee or agent,  Colonial
       receives,  holds,  invests  and tracks  the  performance  of the  various
       securities held in trust,  or investment  agency  accounts.  Colonial was
       serving as trustee or agent for 154  accounts  with a fair  market  value
       totaling approximately  $29,000,000 at March 31, 1997. Colonial also acts
       as custodian for self-directed  IRA accounts.  Colonial held 104 accounts
       as custodian  with a fair market value of  approximately  $26,000,000  at
       March 31, 1997.

       BASIS OF PRESENTATION

       During 1996,  Colonial  acquired 100% of the outstanding  common stock of
       Camelback  Trust  Company  (Camelback).   All  significant   intercompany
       balances and  transactions  were  eliminated  in the 1996  consolidation.
       During  fiscal  1997,  the  asset  and   liabilities  of  Camelback  were
       transferred to Colonial and Camelback was dissolved.

                                       22
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       REVENUE RECOGNITION

       Under the trust indentures with  organizations  issuing bonds,  Colonial,
       for  its  services,   principally  earns  revenues  based  on  three  fee
       structures. The first fee structure allows Colonial to invest trust funds
       held for  disbursement and retain the gains and earnings  therefrom.  The
       second fee structure requires the issuing institution to pay a percentage
       of the bond proceeds to the Company for set-up and printing  costs during
       the first year. Additionally,  an annual maintenance fee is required each
       succeeding  year. The third fee structure  entitles  Colonial to interest
       earnings  up to 2.5% of  daily  trust  funds  held in bond  program  fund
       accounts  in lieu of a  set-up  fee.  Annual  maintenance  fees  and bond
       printing costs are charged as a percentage of the related bond issuance.

       Colonial  also  receives  fees for  services  provided as  custodian  for
       self-directed individual retirement accounts.

       The profitability of Colonial is dependent upon the ability of investment
       bankers to originate bond programs for which Colonial  serves as trustee.
       At March 31, 1997,  approximately  85% of the total bond issues processed
       were originated by 4 brokers.

       In connection with providing  investment  management,  administration and
       custodial  services,  Colonial earns revenue based on two-fee structures.
       The first fee structure is  established  as a percentage of the fiduciary
       assets which Colonial  holds as trustee or agent.  Fees are assessed on a
       quarterly  basis to  individual  accounts  according to the quarter's end
       fair market  value of the  supporting  fiduciary  assets.  The second fee
       structure  relates  to an  annual  fee  which  is  set  up to  cover  the
       maintenance  of fiduciary  assets which  Colonial holds in both trust and
       self-directed IRA accounts.

       At March 31, 1997, 41% of Colonial's  trust  account  assets were held in
       trust for members of one family. The trust accounts  combined  for 26% of
       Colonial's trust fee revenues.

       CASH  EQUIVALENTS, NONCASH SUPPLEMENTAL  DISCLOSURE AND  CONCENTRATION OF
       CREDIT RISK

       Colonial  considers  all highly  liquid debt  instruments  with  original
       maturities  at the date of  purchase  of three  months or less to be cash
       equivalents.  Cash  equivalents  at  March  31,  1997  and  1996  consist
       primarily of money market  accounts which invest  primarily in short-term
       government securities.

       During 1996, Colonial acquired Camelback (note 2). In connection with the
       acquisition, excess of cost over fair value acquired was recorded:

            Fair value of assets acquired                        $ 594,008
            Common stock issued                                   (169,400)
            Note payable assumed                                  (540,000)
            Liabilities assumed                                    (74,726)
                                                                 ---------
            Excess of cost over fair value acquired              $ 190,118
                                                                 =========

       During  fiscal  1997,  the excess of cost over fair value of $190,118 was
reduced by $7,288 to reflect  the fair  market  value of assets and  liabilities
assumed.

                                       23
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       Colonial  places its cash in insured  financial  institutions  and United
       States government  securities with original maturities of three months or
       less.  At  March  31,  1997,   Colonial  had  no  deposits  at  financial
       institutions in excess of the FDIC insurance limit of $100,000.

       NOTE RECEIVABLE

       Colonial  considers  a note to be impaired  when it is probable  that the
       Company  will be unable to  collect  all  amounts  due  according  to the
       contractual  terms of the note. When a loan is considered to be impaired,
       the amount of the  impairment  is measured  based on the present value of
       expected future cash flows  discounted at the note's  effective  interest
       rate. Impairment losses are charged to expense.  Generally, cash receipts
       will  first be  applied  to reduce  accrued  interest  and then to reduce
       principal.

       INVESTMENT SECURITIES

       Investments  are stated at fair value and  classified  as  available  for
       sale. Unrealized holding gains (losses) are shown as a separate component
       of stockholders'  equity, net of the related tax effect. Cost is adjusted
       for the  amortization of premiums to the earlier of maturity or call date
       and the  accretion of discounts  to maturity  using the interest  method.
       Gains and losses  from the sale of  investment  securities  are  computed
       under the specific identification method.

       PROPERTY AND EQUIPMENT

       Property and equipment is recorded at cost less accumulated depreciation.
       Depreciation on furniture and equipment is recorded on the  straight-line
       method over the estimated  useful lives of the assets ranging from 3 to 7
       years.  Colonial's  building  is  depreciated  over 39.5 years  using the
       straight-line method.

       ORGANIZATIONAL COSTS

       Certain  costs  incurred  in  the  organization  of  Colonial  have  been
       capitalized.  These costs were being amortized, through March 1995, using
       the straight-line method over five years.

       EXCESS OF COST OVER FAIR VALUE ACQUIRED (GOODWILL)

       Goodwill  arose  in  connection  with the  acquisition  of  Camelback  by
       Colonial  on November 1, 1995 and is  amortized  using the  straight-line
       method over 15 years. Goodwill is carried net of accumulated amortization
       of $17,240 and $5,071 at March 31, 1997 and 1996, respectively.

                                       24
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       INCOME TAXES

       Colonial  uses the asset and liability  method of  accounting  for income
       taxes.  Deferred tax assets and liabilities are recognized for the future
       tax  consequences  attributable  to  differences  between  the  financial
       statement  carrying  amounts of existing assets and liabilities and their
       respective tax bases.  Deferred tax assets and  liabilities  are measured
       using enacted tax rates  expected to apply to taxable income in the years
       in which those  temporary  differences  are  expected to be  recovered or
       settled. The effect on deferred tax assets and liabilities of a change in
       tax rates is  recognized  in  income  in the  period  that  includes  the
       enactment date.

       COMPUTATION OF NET EARNINGS PER COMMON SHARE

       Earnings  per  share is based on the  weighted  average  number of common
       shares outstanding plus dilutive common stock equivalents.

       STOCK OPTION PLAN

       Prior to April 1, 1996,  Colonial  accounted for its stock option plan in
       accordance  with the  provisions of Accounting  Principles  Board ("APB")
       Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and related
       interpretations.  As such,  compensation expense would be recorded on the
       date of grant only if the current market price  underlying stock exceeded
       exercise  price.  On April 1, 1996,  the  Company  adopted  SFAS No. 123,
       Accounting  for  Stock-Based  Compensation,  which  permits  entities  to
       recognize  as  expense  over the  vesting  period  the fair  value of all
       stock-based awards on the date of the grant. Alternatively,  SFAS No. 123
       also allows  entities to continue to apply  provisions of APB Opinion No.
       25 and provide pro forma net  earnings  and pro forma  earnings per share
       disclosures  for  employee  stock  option  grants made in 1995 and future
       years as if the fair-value-based  method defined in SFAS No. 123 had been
       applied.  The Company has elected to continue to apply the  provisions of
       APB Opinion No. 25 and provide  the pro forma  disclosure  provisions  of
       SFAS No. 123.

       IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

       Colonial  adopted  the  provisions  of SFAS No. 121,  Accounting  for the
       Impairment of Long-Lived  Assets and for Long-Lived Assets to Be Disposed
       Of, on April 1, 1996. This Statement  requires that long-lived assets and
       certain  identifiable  intangibles  be reviewed for  impairment  whenever
       events or changes in  circumstances  indicate that the carrying amount of
       an asset may not be recoverable.  Recoverability of assets to be held and
       used is measured by a comparison  of the  carrying  amount of an asset to
       future net undiscounted cash flows expected to be generated by the asset.
       If such  assets are  considered  to be  impaired,  the  impairment  to be
       recognized is measured by the amount by which the carrying  amount of the
       assets exceed the fair value of the assets.  Assets to be disposed of are
       reported at the lower of the carrying  amount or fair value less costs to
       sell.  Adoption  of this  Statement  did not have a  material  impact  on
       Colonial's financial position, results of operations, or liquidity.

                                       25
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       USE OF ESTIMATES

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions that affect the reported amount of assets and liabilities and
       disclosure  of  contingent  assets  and  liabilities  at the  date of the
       financial  statements  and the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.

(2)    ACQUISITION

       On November 1, 1995,  Colonial  purchased all the issued and  outstanding
       common stock of Camelback.  As of the date of its acquisition,  Camelback
       served  as   trustee   or   agent,   providing   investment   management,
       administration,   and  custodial  services  for  customers  with  various
       securities held in trust, or investment agency accounts.

       The total consideration paid by Colonial for the net assets,  including a
       $540,000 note payable,  of Camelback was $197,046.  This amount  included
       $27,646 cash and 769,999 shares of unregistered  common stock of Colonial
       valued at $169,400  ($.22 per share).  The carrying  value of Camelback's
       net  assets   approximated  their  fair  market  value  at  the  date  of
       acquisition  resulting in goodwill of $190,118.  During fiscal 1997,  the
       goodwill was reduced by $7,288 to reflect the fair market value of assets
       and liabilities assumed. The goodwill will be amortized over 15 years. In
       connection with the $540,000 note payable,  Colonial assumed  Camelback's
       pledge of  investment  securities as  collateral  for the debt.  The note
       payable was repaid in full on August 1, 1996 including  accrued interest.
       The  statement  of earnings for 1996  includes the five month  results of
       operations of Camelback from November 1, 1995.

       The  following  unaudited  pro forma  summary  presents  the  results  of
       operation as if Colonial had acquired  Camelback as of April 1, 1994. The
       pro forma results have been prepared for comparative purposes only and do
       not  purport to be  indicative  of the results of  operations  that would
       actually  have  resulted had the  combination  been in effect on the date
       indicated:
                                                          (UNAUDITED)
                                                    ----------------------
                                                      1996          1995
                                                    ---------      -------

           Total revenues                           1,274,506      850,090
           Net earnings                               100,540      104,432
           Net earnings per common share                  .01          .01


                                       26
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

(3)    INVESTMENT SECURITIES

       SECURITIES AVAILABLE FOR SALE

       The amortized cost and estimated market value of securities available for
       sale at March 31, 1996 are as follows:

                                            Gross        Gross        Estimated
                              Amortized   Unrealized   Unrealized      Market
                                Cost        Gains        Losses        Value
                                ----        -----        ------        -----
        U.S. Government and
          corporate bonds     $136,433       1,059      (1,309)        136,183
        Mortgage-backed
          securities           327,447       2,175        (922)        328,700
                              --------    --------    --------        --------
                              $463,880       3,234      (2,231)        464,883
                              ========    ========    ========        ========


       The amortized cost and estimated market value of investment securities at
       March 31,  1996,  by  contractual  maturity,  are shown  below.  Expected
       maturities will differ from contractual  maturities because borrowers may
       have the  right to call or prepay  obligations  with or  without  call or
       prepayment penalties.

                                                                 Estimated
                                                    Amortized     Market
                                                      Cost        Value
                                                    --------     -------

        Due in one year or less                     $150,456     151,093
        Due after one through five years             176,991     177,607
        Mortgage-backed securities                   136,433     136,183
                                                    --------    --------

                                                    $463,880     464,883
                                                    ========    ========


       During 1997, Colonial used proceeds from the investment securities to pay
       the $540,000 note payable. Colonial realized gains of $584 from the sale 
       of the investment securities.

(4)    NOTE RECEIVABLE

       On  December  1, 1990,  Colonial  entered  into a Master  Note and Letter
       Agreement  with  Church  Loans,  a  real  estate   investment  trust  and
       Colonial's  former  parent  corporation.  The Master  Note in the maximum
       amount of $1,000,000 is due on demand,  bears interest payable monthly at
       1% less than the prime interest rate and is unsecured.  Amounts  advanced
       to Church Loans may be repaid and reborrowed.

                                       27
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

(5)    PROPERTY AND EQUIPMENT

       Property and equipment consists of the following:

                                                     1997         1996
                                                     ----         ----
        Land                                       $157,241      157,241
        Building                                    428,545      375,991
        Furniture                                   108,329       75,914
        Equipment                                   271,461      190,945
                                                   --------     --------
                                                    965,576      800,091
        Less accumulated depreciation               226,120      167,815
                                                   --------     --------
                                                   $739,456      632,276
                                                   ========     ========
 (6)   LEASE COMMITMENTS

       Colonial  leases  office  space and  certain   equipment   under  various
       noncancelable operating lease arrangements.  Rent expense totaled $17,507
       for 1997, $7,876 for 1996, and $23,773 for 1995.

       On March 15,  1995,  Colonial's  former  office  lease was assigned to an
       unrelated party.  Colonial has no future obligation on the lease,  except
       that Colonial  remains  liable for rent and other charges under the lease
       in the event the assignee of the lease fails to pay such costs. The lease
       terminated on September 30, 1996.

       The equipment lease has one year  remaining as of March 31, 1997.  Future
       minimum lease payment required for 1998 is $11,925.

(7)    INCOME TAXES

       Income taxes amounted to $100,500, $96,904 and $76,568 for 1997, 1996 and
       1995, respectively. The actual income tax expense differs from "expected"
       income tax expense for those years (computed by applying the U.S. federal
       corporate  statutory  income tax rate of 34% to  earnings  before  income
       taxes) as follows:

                                               1997          1996         1995
                                               ----          ----         ----
        Computed "expected" income taxes    $  89,837       81,350       66,231
        State taxes (net of federal income
          tax benefit)                         12,458       13,111        4,045
        Surtax exemption                           --       (1,045)
        Other items, net                       (1,795)       2,443        7,337
                                            ---------    ---------    ---------
                                            $ 100,500       96,904       76,568
                                            =========    =========    =========
        Effective tax rate                       38.0%        40.5%        39.3%
                                            =========    =========    =========

                                       28
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       Components of income taxes consist of:

                      Current         Deferred         Total
                      -------         --------         -----
        1997:
          Federal     $  83,026         (1,401)        81,625
          State          19,367           (492)        18,875
                      ---------      ---------      ---------
                      $ 102,393         (1,893)       100,500
                      =========      =========      =========
        1996:
          Federal     $  75,646          1,393         77,039
          State          19,370            495         19,865
                      ---------      ---------      ---------
                      $  95,016          1,888         96,904
                      =========      =========      =========
        1995:
          Federal     $  59,622         10,817         70,439
          State           3,253          2,876          6,129
                      ---------      ---------      ---------
                      $  62,875         13,693         76,568
                      =========      =========      =========

       The tax effects of temporary  differences  that give rise to  significant
       portions of the deferred tax  liabilities  at March 31, 1997 and 1996 are
       presented below:

                                                               1997       1996
                                                               ----       ----
        Deferred tax liability:
          Property and equipment, principally due
            to differences in depreciation and deductions    $19,429     18,129
          Prepaid expenses                                        --      3,193
                                                             -------    -------
                  Net deferred tax liability                 $19,429     21,322
                                                             =======    =======

                                       29
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

(8)    STOCK OPTION PLAN

       Colonial's  shareholders  approved  Colonial's Employee Stock Option Plan
       (the "ESOP") and Colonial's Non-Employee Directors Stock Option Plan (the
       "Directors Plan") on April 25, 1996.

       Pursuant to the ESOP, the Colonial's  Board of Directors is authorized to
       grant either incentive stock options or nonstatutory  stock options.  The
       exercise price of incentive  stock options granted under the ESOP must be
       equal to the fair  market  value per share on the date of grant,  and the
       exercise price of nonstatutory  stock options must be at least 50% of the
       fair market  value per share on the date of grant.  A total of  2,000,000
       shares have been reserved for issuance under the ESOP.

       Pursuant to the Directors Plan, each  non-employee  director  received an
       option  to  purchase  50,000  shares on the date the  Directors  Plan was
       approved by Colonial's stockholders and options to purchase 15,000 shares
       are  automatically  granted  on  January  1,  1997 and on each  January 1
       thereafter  to each person  then  serving as a  non-employee  director of
       Colonial.  The exercise price of all options  granted under the Directors
       Plan  must be equal to the fair  market  value  per  share on the date of
       grant.  A total of 500,000  shares have been reserved for issuance  under
       the Directors Plan.

       At March 31, 1997,  there were 1,376,710 shares available for grant under
       the ESOP Plan and 305,000 shares  available for grant under the Directors
       Plan. The per share weighted  average fair value of stock options granted
       during 1997 was $.25 on the date of grant using the Black  Scholes  Model
       with the following weighted average assumptions:  expected dividend yield
       0%,  volatility  of 10%,  risk free interest rate of 6.5% and an expected
       life of 6 years.

       At March 31, 1997,  the exercise  price and  weighted  average  remaining
       contractual life of options was $.25 and 5 years, respectively.

                                                                Weighted
                                                                 Average
                                                              Exercise Price
                                                    Number      Per Share
                                                    ------      ---------
        Outstanding, March 31, 1996                      --       $ --
        Granted during the year                     818,290        .25
        Canceled during the year                         --         --
        Exercised during the year                        --         --
                                                    -------       ----
        Outstanding, March 31, 1997                 818,290       $.25
                                                    =======       ====
        Eligible for exercise at March 31, 1997     528,290       $.25
                                                    =======       ====

                                       30
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

       Colonial  applies  APB Opinion  No. 25 in  accounting  for its plans and,
       accordingly,  no  compensation  cost has been  recognized  for its  stock
       options in the financial statements. Had Colonial determined compensation
       cost  based on the fair  value at the grant  date for its  stock  options
       under SFAS No. 123, the Company's net earnings would have been reduced to
       the pro forma amount indicated below:

        Net earnings:
          As reported                                   $163,725
                                                        ========
          Pro forma                                     $152,725
                                                        ========
        Earnings per share:
          As reported                                   $    .02
                                                        ========
          Pro forma                                     $    .02
                                                        ========

(9)    FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting  Standards No. 107,  "Disclosures about
       Fair Value of Financial  Instruments," requires that the Company disclose
       estimated  fair  values  for its  financial  instruments.  The  following
       summary presents a description of the  methodologies and assumptions used
       to determine such amounts.

       CASH AND CASH EQUIVALENTS

       The  carrying  amount is  assumed  to be the fair  value  because  of the
       liquidity of these instruments.

       RECEIVABLES AND NOTES RECEIVABLE

       Fair  value  is  considered  to be  equal  to the  carrying  value of the
       accounts  and notes  receivables,  as they are  generally  short-term  in
       nature and the related amounts  approximate  fair value or are receivable
       on demand.

       LIMITATIONS

       Fair value  estimates are made at a specific  point in time and are based
       on  relevant  market  information  and  information  about the  financial
       instrument.  These  estimates do not reflect any premium or discount that
       could  result from  offering  for sale at one time the  Company's  entire
       holdings of a particular  financial  instrument.  Changes in  assumptions
       could  significantly  affect  these  estimates.  Since the fair  value is
       estimated as of March 31, 1997 and 1996,  the amounts that will  actually
       be realized or paid at settlement or maturity of the instruments could be
       significantly different.

                                       31
<PAGE>
                             COLONIAL TRUST COMPANY

                    Notes to Financial Statements, Continued

(10)   COMMITMENTS AND CONTINGENCIES

       Colonial is subject to the maintenance of a minimum  capital  requirement
       of $500,000 pursuant to State of Arizona banking regulations.

       Colonial is involved in lawsuits  and claims  incidental  to the ordinary
       course  of its  operations.  In  the  opinion  of  management,  based  on
       consultation with legal counsel, the effect of such matters will not have
       a material adverse effect on the Company.


(11)   PRIVATE PLACEMENT MEMORANDUM

       During  fiscal  1997,  Colonial  began  soliciting  equity  capital via a
       $1,000,000 private placement memorandum.  The time period for Colonial to
       sell its  common  stock  under this  memorandum  expires  June 30,  1997.
       Colonial  has  capitalized  $54,692  of costs  included  in other  assets
       associated with the offering as of March 31, 1997.

                                       32
<PAGE>

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

         None.

                                    PART III

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

         The following  table contains  information  regarding the directors and
executive officers of the Company at March 31, 1997:

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

    Lynn R. Camp            Chairman of the Board         60
                            and Director

    Michael W. Borger       Director                      42


    Gerald G. Morgan        Director                      41

    John K. Johnson         President and Chief           39
                            Executive Officer and
                            Director

    Cecil E. Glovier        Sr.Vice President             45
                            Secretary

    Marvin D. Hoeflinger    Vice President                54

    Christopher J. Olson    Vice President/Treasurer      31

    A.R. Olson              Vice President                61


                                       33
<PAGE>

         All directors hold office until the next annual meeting of shareholders
and the election and  qualification of their successors.  Both Messrs.  Camp and
Borger were  members of the Board of Directors of Church Loans prior to becoming
directors of the Company.

         Lynn R. Camp has served as a director  of the  Company  since June 1990
and as Chairman of the Board since  October 1990.  Mr. Camp is President,  Chief
Executive  Officer and a director of Turnkey Computer  Systems,  Inc.  ("Turnkey
Computer"). Mr. Camp has served in these capacities for in excess of five years.
Turnkey  Computer sells computer  equipment and software and furnishes  computer
maintenance and repair services in Amarillo, Texas.

         Michael W. Borger has served as a director  of the  Company  since June
1990. He previously  served the Company as Vice  President of the Company August
1991 until November  1995.  From June 1990 to August 1991 he served as President
of the Company. Mr. Borger is President,  Chief Executive Officer and a director
of Turnkey  Leasing Corp.  ("Turnkey  Leasing").  Mr. Borger has served in these
capacities for in excess of five years.  Turnkey  Leasing,  located in Amarillo,
Texas, leases computers,  general office equipment and construction equipment to
business  users.  Turnkey  Leasing  is also  engaged in the  business  of making
business loans.

         Gerald G. Morgan has served as a director of the Company  since October
1990.  Mr.  Morgan is a partner in the law firm of  Burdett,  Morgan and Thomas,
located in Amarillo,  Texas. Mr. Morgan has served in this capacity for a period
in excess of 5 years.

         John K.  Johnson has served as the  Company's  President  since  August
1991. He previously  served as the Company's  Vice  President  from June 1990 to
August 1991. Mr. Johnson was Vice President of Trust Company of America, a trust
company engaged in the business of furnishing  trust services in connection with
bond offerings by churches and other  non-profit  organizations,  from June 1979
until December 1989.

         Cecil E. Glovier has served as Vice  President/Secretary of the Company
since November 1995. He previously  served as the Company's  Secretary/Treasurer
from June 1990 to November 1995.  Prior to his employment with the Company,  Mr.
Glovier was engaged in the business of furnishing computer  programming services
for a period in excess of 5 years.  During  this period he also was engaged as a
mutual fund and life insurance sales representative.

         Marvin D.  Hoeflinger has served as Vice President of the Company since
February 1996.  Prior to his  employment  with the Company,  Mr.  Hoeflinger was
Senior Vice  President and a Managing  Principal of Reliance  Trust  Company,  a
Georgia full service trust  company,  from October 1984 until February 1996. Mr.
Hoeflinger is employed pursuant to the terms of an employment agreement with the
Company.  See "Item 1 - Executive  Compensation  -  Employment  Agreements"  and
Exhibit 10(e) hereto.
                                       34
<PAGE>

         Christopher  J.  Olson has served as  Treasurer  of the  Company  since
November  1995.  Mr.  Olson also serves as Vice  President  of  Camelback  Trust
Company.  Prior to his employment  with the Company,  he served as President and
Chief Executive Officer of Camelback Trust Company from January 1993 to November
1995.

         A. R. Olson has served as Vice  President  of Camelback  Trust  Company
since January 1996. Prior to his employment with Camelback he was Vice President
of Norwest Trust in St. Cloud,  Minnesota  from April 1993 to January 1996.  Mr.
Olson  was Sr.  Vice  President  for  Administration  of  Harris  Trust  Bank in
Scottsdale,  Arizona from  September  1986 to April 1993.  Mr. Olson is employed
through  January 2, 1998 pursuant to the terms of an employment  agreement  with
Camelback.  See "Item 10 - Executive  Compensation - Employment  Agreements" and
Exhibit 10(f) hereto.

         Based on information  provided to it, the Company  believes that all of
its  directors  and  executive  officers have complied with Section 16(a) of the
Exchange Act during the fiscal year ended March 31, 1997.

ITEM 10. EXECUTIVE COMPENSATION

         The  following   table  sets  forth  certain   information   concerning
compensation  paid during each of the Company's  last three fiscal years to John
K.  Johnson,  the  Company's  Chief  Executive  Officer  (the  "Named  Executive
Officer").  The Company has no executive officer whose salary, bonuses and other
compensation  earned  during  the  fiscal  year ended  March 31,  1997  exceeded
$100,000.00:

                           SUMMARY COMPENSATION TABLE

                                 Annual Compensation      Long-Term Compensation
                                 -------------------      ----------------------
     Name and          Fiscal                             Securities Underlying
Principal Position      Year     Salary        Bonus         Options Sars (#)
------------------      ----     ------        -----         ----------------
CEO-John K. Johnson     1997     80,000       12,872           300,000(a)
    President           1996     55,000        8,811                 0
                        1995     55,000        7,200                 0

(a)  On July 1, 1996, Mr. Johnson was granted options to purchase 300,000 shares
     of Common  Stock of the Company  with an exercise  price of $.25 per share,
     options to purchase 150,000 shares vested  immediately upon grant;  options
     to purchase the remaining  150,000 shares vest in three equal  installments
     of 50,000 each on July 1, 1997, 1998 and 1999, respectively.

                                       35
<PAGE>
         The following table sets forth certain  information  concerning  option
grants during the Company's  last fiscal year to the Company's  Named  Executive
Officer:
                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (Individual Grants)
<TABLE>
<CAPTION>
                                            Percent of Total
                     Number of Securities   Options Granted
     Name and         Underlying Options    to Employees in     Exercise of     Expiration
Principal Position       Granted (#)          Fiscal Year     Base Price($/Sh)   Date (A)
------------------       -----------          -----------     ----------------   --------
<S>                    <C>                     <C>             <C>              <C> 
CEO-John K. Johnson       300,000                48.1%            $.25/sh        7/1/2002
   President
</TABLE>

(a)  Options to  purchase  150,000  shares  expire on July 1,  2002;  options to
     purchase  50,000 shares expire on July 1, 2003;  options to purchase 50,000
     shares expire on July 1, 2004;  options to purchase 50,000 shares expire on
     July 1, 2005.

         The following table sets forth certain information concerning (a) stock
option  exercises  during the Company's last fiscal year by the Company's  Named
Executive  Officer,  and (b) the value of unexercised  stock options held by the
Named Executive Officer at March 31, 1997:

          AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
                                OPTION/SAR VALUES
<TABLE>
<CAPTION>
                                                   Number of Securities     Value of Unexercised
                                                  Underlying Unexercised    In-the-Money Options
                          Shares                    Options at FY-End           at FY-End ($)
Name and               Acquired On     Value (#)      Exercisable/              Exercisable/
Principal Position     Exercise(#)    Realized($)    Unexercisable             Unexercisable
------------------     -----------    -----------    -------------             -------------
<S>                     <C>           <C>           <C>                       <C>
CEO-John K. Johnson        0             $0           150,000/150,000                $0
    President
</TABLE>

EMPLOYMENT AGREEMENTS

         The Company has entered into  employment  agreements  with Mr. Johnson,
the  Company's  President,  Mr.  Hoeflinger,  the  Company's  Vice  President of
Marketing, and Mr. Olson, a Vice President.

         Mr.  Johnson's  agreement has a three-year term which runs through June
30, 1999.  Under the agreement,  Mr.  Johnson's base salary is $80,000 per year.
Mr.  Johnson is also  entitled to an annual bonus each year in which the Company
generates net earnings,  calculated  according to the following formula: (y) net
earnings  per share,  multiplied  by (z) a number of shares  equal to 10% of the
Company's issued and outstanding  shares of Common Stock at March 31, 1997. Such
bonus,  if any, is payable 100 days from the end of the  Company's  fiscal year.
The agreement also provided for 300,000 incentive stock options with an exercise

                                       36
<PAGE>

price of $.25 per share,  a total of 150,000 of which  vested  immediately  upon
grant. The remaining 150,000 options vest in three equal  installments of 50,000
each on July 1, 1997, 1998 and 1999,  respectively.  The agreement also contains
confidentiality and non-compete covenants.

         Mr. Hoeflinger's agreement,  entered into in February 1996, calls for a
base salary of $65,000 per year, plus potential  bonuses payable annually in the
event stated  performance  goals are met.  Mr.  Hoeflinger  is also  entitled to
receive options to purchase up to 35,000 shares of the Company's Common Stock on
January  1,  1997  and on each  January  1  thereafter  during  the  term of the
Agreement; the exercise price for such options shall be equal to the fair market
value of the  Company's  Common Stock on the date such options are granted.  Mr.
Hoeflinger   is  also   entitled  to  health  and  other   insurance   benefits,
reimbursement of reasonable  business  expenses,  and other benefits on the same
basis  as the  Company's  other  executive  officers.  The  agreement  with  Mr.
Hoeflinger  runs through  December 31, 2000,  unless  terminated  earlier by the
Company for "cause" or for Mr.  Hoeflinger's  failure to meet certain  objective
performance goals contained in the agreement.

         Under the agreement  with Mr. Olson,  entered into in January 1996, Mr.
Olson is paid a base salary of $24,000 per year,  plus  additional  compensation
equal to a certain  percentage of the fees  collected by the Company's  Personal
Trust  Division  in  the  twelve  months  following  origination  from  accounts
originated  by Mr.  Olson.  Mr.  Olson is also  entitled  to  health  and  other
insurance  benefits,  reimbursement  of  business  related  expenses  and  other
benefits  on the same  basis as the  Company's  other  executive  officers.  The
agreement  with Mr. Olson runs through  December  31,  1998,  unless  terminated
earlier by the Company for "cause" or by Mr. Olson upon 60 days written notice.

DIRECTORS' COMPENSATION

         The  Company's  non-employee  directors  were paid $15,600 in cash as a
group  during the fiscal year ended March 31,  1997 for  services as  directors.
Each director is paid $200 per month for serving as a director and $200 for each
meeting attended.  The Chairman is paid an additional $100 per month for serving
as Chairman.  The Company's  non-employee directors also receive an annual grant
of  15,000  stock  options  with an  exercise  price  equal to the  then-current
exercise price of the Company's Common Stock on the date of grant. Directors who
are also  officers  of the  Company are not  compensated  for their  services as
directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The  following  table  sets  forth  information  as of  June  1,  1997,
concerning the Common Stock  beneficially owned by each director of the Company,
by the Company's Named Executive  Officer,  and by all officers and directors of
the Company as a group. To the Company's knowledge,  no person owns more than 5%
of the Company's issued and outstanding Common Stock.

                                       37
<PAGE>

       Name and Address             Amount and Nature           Percent
     of Beneficial Owner          of Beneficial Owner(1)       of Class
     -------------------          ----------------------       --------

     Lynn R. Camp                     130,443 shares*            1.7%
     3517 Tripp
     Amarillo, Texas 79121

     Michael W. Borger                 94,718 shares             1.2%
     1602 S. Travis
     Amarillo, Texas 79102

     Gerald G. Morgan, Jr.             85,100 shares             1.1%
     4705 Olsen
     Amarillo, Texas 79106

     John K. Johnson(2)               280,531 shares             3.0%
     3414 E. Clark Road
     Phoenix, Arizona 85024

     Directors and Executive          809,826 shares            10.4%
         Officers as a Group(3)

----------
(1)  A person is deemed to be the  beneficial  owner of  securities  that can be
     acquired  within 60 days from the date set forth above through the exercise
     of any  option,  warrant,  or  right.  Shares of Common  Stock  subject  to
     options, warrants, or rights which are currently exercisable within 60 days
     are deemed  outstanding  for computing the percentage of the person holding
     such  options,  warrants  or  rights,  but are not deemed  outstanding  for
     computing the percentage of any other person.  The amounts and  percentages
     are based upon  7,777,401  shares of Common  Stock  outstanding  on June 1,
     1997.

(2)  The total for Mr. Johnson  includes  150,000 shares of Common Stock subject
     to immediately  exercisable  options,  which have an exercise price of $.25
     per share, and 50,000 shares of Common Stock subject to exercisable options
     which vest on July 1, 1997, which have an exercise price of $.25 per share.

(3)  The total for all  directors  and  executive  officers as a group  includes
     578,290 shares subject to unexercised  options that are exercisable on June
     1, 1997 or within 60 days thereafter.

         The Company has no knowledge of any  arrangement  which may result in a
change of control of the Company.

                                       38
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         None.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)(1) Financial  Statements  of the Company are set forth in Part II,
                Item 7.

            (2) Exhibits

  Exhibit Number                                              Page Number
  --------------                                              -----------

     3.  (I)  Articles of Incorporation                            **
         (ii) By-Laws                                              **

    10.  (a)  Agreement with Great Nation Investment
              Corporation                                         ***
         (b)  Form of IRA Account Agreement                       ***
         (c)  Form of Trust Indenture Agreement                   ***
         (d)  Agreements between Church Loans &                  ****
              Investments Trust, Ben C. Powell
              and Secured Investors Securities, Inc.
         (e)  Employment Agreement with Marvin Hoeflinger       *****
         (f)  Employment Agreement with A. R. "Bud" Olson       *****

    11.       Schedule of Computation of Earnings Per Share         *

    27.       Financial Data Schedule                               *

    ----------

    *     Filed herewith

    **    Incorporated by reference to Exhibit No. 3 to the Registrant's Form 10
          dated October 24, 1990.

    ***   Incorporated by reference to Exhibit No. 10 to Registrant's Annual
          Report on Form 10-K dated June 21, 1991.

    ****  Incorporated by reference to Exhibit No. 10 to Registrant's Form 10
          dated October 24, 1990.

    ***** Incorporated by reference to Exhibit No. 10 to Registrant's Annual
          Report Dated June 27, 1996.

         (b)  REPORTS ON FORM 8-K

              None.

                                       39
<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                           COLONIAL TRUST COMPANY

                                           BY:/S/ Cecil E. Glovier
                                              ----------------------------------
                                              Cecil E. Glovier
                                              Vice President/Secretary
                                              (Principal Financial Officer)
Date:  June 20, 1997

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

    Signature                         Title                      Date
    ---------                         -----                      ----

/s/ Lynn R. Camp                 Chairman of the Board         June 20, 1997
---------------------------
Lynn R. Camp

/s/ Michael W. Borger            Director                      June 20, 1997
---------------------------
Michael W. Borger

/s/ Gerald G. Morgan             Director                      June 20, 1997
---------------------------
Gerald G. Morgan

/s/ John K. Johnson              President and                 June 20, 1997
---------------------------      Director
John K. Johnson                  (Principal Executive
                                 Officer)



                                       40