---

## INDEPENDENT AUDITOR'S REPORT

#### The Board of Trust Managers and Shareholders
Church Loans & Investments Trust
Amarillo, Texas

We have audited the accompanying  balance sheets of Church Loans
& Investments  Trust (a real estate  investment  trust) as of March 31, 2001 and
2000, and the related statements of income, shareholders' equity, and cash flows
for the years then ended.  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 Church Loans
&  Investments  Trust as of  March 31,  2001 and 2000,  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.

/s/ Clifton Gunderson LLP
Amarillo, Texas
May 1, 2001

# -16-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 2001 and 2000

`Assets
                                                                                        2001              2000
                                                                                ----------------   -----------------
CASH AND CASH EQUIVALENTS                                                       $        113,142   $         387,087

RECEIVABLES
     Mortgage loans and church bonds - performing                                     25,537,346          22,141,873
     Interim construction loans - performing                                          11,537,684           8,827,383
     Nonperforming mortgage loans, church bonds
         and interim construction loans                                                5,655,875           5,967,657
     Less: Allowance for possible credit losses                                       (1,568,172)         (1,388,172)
                                                                                ----------------   -----------------
                                                                                      41,162,733          35,548,741
     Accrued interest receivable                                                         433,076             258,593
     Notes receivable                                                                    752,647             599,969
                                                                                ----------------   -----------------
                  Net receivables                                                     42,348,456          36,407,303
                                                                                ----------------   -----------------
Property and equipment, net of accumulated
     depreciation of $507,739 and $492,067 in 2001
     and 2000, respectively                                                              150,603             166,275

REAL ESTATE ACQUIRED THROUGH FORECLOSURE                                                     -               968,349

OTHER ASSETS                                                                               7,417              15,926
                                                                                ----------------   -----------------
TOTAL ASSETS                                                                    $     42,619,618     $    37,944,940
                                                                                ================   =================

                                                 Liabilities and Shareholders' Equity

LIABILITIES
     Notes payable and line of credit:
         Related party                                                          $      2,813,584   $       2,820,128
         Other                                                                        17,862,217          12,043,064
                                                                                ----------------   -----------------
                                                                                      20,675,801          14,863,192
     Secured savings certificates                                                           -                726,000
     Accrued interest payable                                                            146,798             108,320
     Other                                                                               731,972             660,250
                                                                                ----------------   -----------------
                  Total liabilities                                                   21,554,571          16,357,762
                                                                                ----------------   -----------------

Shareholders' equity
     Shares of beneficial interest, no par value; authorized
         shares unlimited, 7,007,402 shares issued                                    20,623,866          20,623,866
     Undistributed net income                                                            457,671             979,802
     Treasury shares, at cost (6,596 shares)                                             (16,490)            (16,490)
                                                                                ----------------   -----------------
                  Total shareholders' equity                                          21,065,047          21,587,178
                                                                                ----------------   -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $     42,619,618   $      37,944,940
                                                                                ================   =================

 These financial statements should be read only in connection with the accompanying
                   summary of significant accounting policies
                       and notes to financial statements.`

# -17-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Income
Years ended March 31, 2001 and 2000

`2001              2000
                                                                                   --------------   ---------------
Interest income and fees on receivables                                            $    4,914,251   $     4,716,800
Debt expense
     Interest                                                                           1,568,994         1,110,202
     Amortization of commissions paid to brokers                                            1,183            11,862
                                                                                   --------------   ---------------
                  Total debt expense                                                    1,570,177         1,122,064
                                                                                   --------------   ---------------
                  Net interest income                                                   3,344,074         3,594,736
Provision for possible CREDIT LOSSES                                                      180,000           180,000
                                                                                   --------------   ---------------
                  Net interest income less provision
                      for possible credit losses                                        3,164,074         3,414,736
                                                                                   --------------   ---------------
Other income, including gains on sale of other
     real estate of $180,662 and $421,367 in 2001 and
     2000, respectively                                                                   200,452           429,136
Other operating expenses
     General and administrative                                                           676,149           695,719
     Board of Trust Managers' fees                                                         55,375            55,398
                                                                                   --------------   ---------------
                  Total other operating expenses                                          731,524           751,117
                                                                                   --------------   ---------------
                  Income before provision for income taxes                              2,633,002         3,092,755

Provision for income taxes                                                                  4,770            32,940
                                                                                   --------------   ---------------
NET INCOME                                                                          $   2,628,232    $    3,059,815
                                                                                   ==============   ===============
Net income per share                                                                    $ .38             $ .44
                                                                                   =============    ===============

These financial statements should be read only in connection with the accompanying
                   summary of significant accounting policies
                       and notes to financial statements.`

# -18-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Shareholders' Equity
Years ended March 31, 2001 and 2000

`Shares of beneficial interest
                                     -----------------------------    Undistributed      Treasury
                                         Shares          Amount         net income        shares          Total
                                     ------------    -------------    -------------    ----------    --------------
Balance, March 31, 1999                 7,007,402    $  20,623,866     $    650,301    $  (16,490)   $   21,257,677

    Cash dividends ($.39 per share)            -               -         (2,730,314)           -         (2,730,314)

    Net income                                 -               -          3,059,815            -          3,059,815
                                     ------------    -------------    -------------    ----------    --------------

Balance, March 31, 2000                 7,007,402       20,623,866          979,802       (16,490)       21,587,178

    Cash dividends ($.45 per share)            -               -         (3,150,363)           -         (3,150,363)
    Net income                                 -               -          2,628,232            -          2,628,232
                                     ------------    -------------    -------------    ----------    --------------

Balance, March 31, 2001                 7,007,402    $  20,623,866     $    457,671    $  (16,490)   $   21,065,047
                                     ============    =============    =============    ==========    ==============

These financial statements should be read only in connection with the accompanying
                   summary of significant accounting policies
                       and notes to financial statements.`

# -19-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows
Years ended March 31, 2001 and 2000

`2001               2000
                                                                                   --------------   ---------------
Cash flows from operating activities
    Net income                                                                     $    2,628,232   $     3,059,815
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation                                                                     15,672            15,672
          Amortization of debt expense                                                      1,183            11,862
          Amortization of loan discounts                                                  (42,033)         (125,022)
          Provision for possible credit losses                                            180,000           180,000
          Gain on sale of other real estate                                              (180,662)          (28,902)
          Recognition of deferred gain on sale of other real estate                            -          (392,465)
          Changes in:
              Accrued interest receivable                                                (174,483)           64,803
              Accrued interest payable                                                     38,478             3,535
              Other liabilities                                                            75,529           (58,646)
          Other, net                                                                        3,518             5,646
                                                                                   --------------   ---------------
                  Net cash provided by operating activities                             2,545,434         2,736,298
                                                                                   --------------   ---------------

Cash flows from investing activities
    Investment in mortgage and interim construction
       loans and church bonds                                                         (30,618,186)      (26,748,968)
    Payments received on mortgage and interim construction
       loans and church bonds                                                          24,866,228        26,342,866
    Advances on notes receivable                                                         (734,477)         (541,641)
    Payments received on notes receivable                                                 581,799           348,783
    Proceeds from sale of other real estate owned                                       1,149,011            80,843
                                                                                   --------------   ---------------
                  Net cash used by investing activities                                (4,755,625)         (518,117)
                                                                                   --------------   ---------------
Cash flows from financing activities
    Borrowings on notes payable and line of credit                                     33,946,360        31,979,801
    Principal payments on:
       Secured savings certificates                                                      (726,000)       (2,037,376)
       Notes payable and line of credit                                               (28,133,751)      (29,224,273)
    Cash dividends paid                                                                (3,150,363)       (2,730,314)
                                                                                   --------------   ---------------
                  Net cash provided (used) by financing activities                      1,936,246        (2,012,162)
                                                                                   --------------   ---------------
                  Increase (decrease) in cash and cash equivalents                       (273,945)          206,019
Cash and cash equivalents, beginning of year                                              387,087           181,068
                                                                                   --------------   ---------------
Cash and cash equivalents, end of year                                             $      113,142   $       387,087
                                                                                   ==============   ===============

These financial statements should be read only in connection with the accompanying
                   summary of significant accounting policies
                       and notes to financial statements.`

# -20-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2001 and 2000

#### NATURE OF OPERATIONS

Church  Loans &  Investments Trust (Church Loans) is a real
estate   investment  trust  that  invests  primarily  in  mortgage  and  interim
construction  loans to  churches  and other  borrowers  (see note 1) across  the
United States, particularly in the southern portion of the United States. Church
Loans requires that real estate  properties be pledged against loans as security
which could be foreclosed by Church Loans should the borrower default. Repayment
of  each  borrower's  obligations  is  generally  expected  to  be  repaid  from
contributions from church members or from operations of the borrower,  or in the
case  of  interim   construction  loans,  by  permanent  financing  provided  by
others.

#### 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  amounts 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.

#### CURRENT OPERATING ENVIRONMENT

Church Loans has historically invested in long-term,  fixed-rate
mortgage loans,  generally funded by relatively  short-term debt obligations and
secured  savings  certificates  (SSCs).  The  volatility  of interest  rates and
increased  competition  to attract  customers'  funds have caused  Church Loans'
liability  structure  to become  short-term  and rate  sensitive.  Church  Loans
reflected an average  interest yield on its loan and church bond  portfolio,  an
average  interest rate on its total  indebtedness and a net interest rate margin
at March 31, 2001 and 2000 as follows:

`Loan and church               Total            Net interest
                  bond portfolio            indebtedness          rate margin
                  ---------------           ------------         -------------
March 31, 2001         10.28%                  7.00%                 3.28%
March 31, 2000         10.14%                  8.00%                 2.14%`

Church  Loans finances  maturities of SSCs and debt obligations
through its  available  lines of credit and principal  payments  received on its
mortgage and interim construction loans.

#### CHURCH BONDS

Church bonds,  secured by first  mortgage  liens on church  facilities,  are stated at cost, as there is no traded market for the bonds
and management intends to hold such securities until maturity.

# -21-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2001 and 2000

#### LOANS AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES

Loans are stated at the amount of unpaid  principal,  reduced by  unamortized
purchase discounts and the allowance for possible credit losses. Interest income
is recognized when earned.

A loan is considered  impaired when, based on current information and events,
it is  probable  that  Church  Loans  will be unable to  collect  the  scheduled
payments of principal and interest when due according to the  contractual  terms
of the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's  effective  interest rate or
the market price or the fair value of the  collateral  if the loan is collateral
dependent.  The accrual of interest is generally  discontinued on mortgage loans
and church  bonds more than 90 days past due (180 days for interim  construction
loans) or when there is sufficient doubt as to the collection of interest.  When
interest accrual is discontinued,  all unpaid accrued interest is reversed. Cash
interest payments received are applied to principal when collection of principal
is in doubt or are  recognized as interest  income when recovery of principal is
reasonably assured.

The  allowance for possible credit losses is established  through a provision
for  possible  credit  losses  charged to  expense.  Loans and church  bonds are
charged against the allowance when  collectibility of the principal is unlikely.
Recoveries of amounts previously charged off are credited to the allowance.  The
charge to operations is based on  management's  and the board of trust managers'
evaluation of the loan and church bond portfolio,  including such factors as the
security  collateralizing the loans or church bonds, past credit loss experience
and general economic  conditions.  The allowance is subjective in nature and may
be  adjusted  in the near term  because of changes in the  borrower's  financial
status or economic conditions.

Commitment  fees received on interim  construction  loans are recognized over
the interim  commitment  period for loans that are not  permanently  financed by
Church  Loans  and  over  the  life of the  mortgage  loan  for  loans  that are
permanently  financed by Church  Loans.  Amounts are being  amortized  using the
straight-line  method. This method was not materially  different from the method
of deferring  commitment  fees until the commitment is exercised and recognizing
such fees as an  adjustment  to yield by the  interest  method  over the related
loans' lives as prescribed by generally accepted  accounting  principles for the
years ended March 31, 2001 and 2000.

Purchase discounts on loans are amortized based on the interest method.

#### PROPERTY AND EQUIPMENT

Property  and equipment are stated at cost,  less  accumulated  depreciation.
Depreciation is provided on the  straight-line  method over the estimated useful
lives of the assets.

#### REAL ESTATE ACQUIRED THROUGH FORECLOSURE

Real estate acquired  through,  or in lieu of, loan foreclosure is to be sold
and is  initially  recorded  at  estimated  fair  value  at date of  foreclosure
establishing a new cost basis. Other real estate owned,  after  foreclosure,  is
carried at the lower of carrying  amount or the property's  estimated fair value
minus estimated costs to sell (fair value). Declines in the estimated fair value
below cost are recognized as a valuation allowance.  If the estimated fair value
subsequently  increases  above its carrying  value,  the valuation  allowance is
reduced,  but not below zero.  Increases or decreases in the valuation allowance
are charged or credited to operations.

The  valuation of other real estate owned is  subjective in nature and may be
adjusted  in the near term  because of changes in economic  conditions  or other
factors.

# -22-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2001 and 2000

#### 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.

#### OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

In  the  ordinary   course  of  business,   Church  Loans  has  entered  into
off-balance-sheet  financial  instruments  consisting of  commitments  to extend
credit. Such financial instruments are recorded in the financial statements when
they become payable.

#### CASH FLOWS

For  purposes of  reporting  cash flows,  cash and cash  equivalents  include
cash-on-hand  and investment in a money market mutual fund and  certificates  of
deposit with maturities of less than 90 days at the time of acquisition.

#### NEW ACCOUNTING STANDARD

In June 1998, the Financial  Accounting  Standards Board issued Statement No.
133,  Accounting  for  Derivative  Instruments  and  Hedging  Activities,  which
addresses the  accounting for derivative  transactions  and hedging  activities.
Church  Loans will adopt the new standard  beginning  with its 2002 fiscal year,
the year in which  adoption is first  required.  Management  has  evaluated  the
impact of adopting  this new  standard  and believes it will not have a material
impact.



# -23-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 1 - LOANS AND CHURCH BONDS

Mortgage  loans receivable  consist of conventional  loans of $26,210,414 and
$23,504,519  and church bonds of $737,614  and  $389,511 at  March 31,  2001 and
2000, respectively. Interim construction loans of $16,202,191 and $13,504,230 at
March 31, 2001 and 2000,  respectively,  consist  primarily of loans to churches
for the construction of church facilities and assisted living centers.  Mortgage
loans,  church bonds and interim  construction  loans are  generally  secured by
first liens on real estate  comprised  primarily of church  buildings  and other
real  estate.  The  amount of a loan is  generally  limited  to  66-2/3%  of the
appraised  value of the  related  property.  Certain  loans  are  guaranteed  by
individual  members of the  congregations or other individuals or congregations,
depending on the circumstances.

Church Loans'  portfolio  included  mortgage loans,  church bonds and interim
construction loans with interest rates ranging from 8% to 13% at March 31, 2001.
The weighted average annual interest rates of Church Loans' loan and church bond
portfolio were 10.28% and 10.14% at March 31, 2001 and 2000, respectively.

Generally  accepted  accounting  principles require disclosure of information
about  certain  concen-trations.  In  addition  to a  concentration  of loans to
churches,  Church Loans makes certain interim real estate construction loans and
permanent loans to entities other than churches. At March 31, 2001, Church Loans
had six loans to two borrowers which were secured by assisted living centers and
totaled  approximately  $13,105,000.  At March 31, 2000,  Church Loans had seven
such loans to two borrowers totaling approximately $12,483,000.

# -24-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)

The following  schedule is a summary of the combined  mortgage,  church bonds
and interim  construction loan portfolios by size of loan at March 31,  2001 and
2000:

`2001                    2000
                         ---------------------     --------------------
                         No. of     Carrying       No. of    Carrying
  Description            loans       amount        loans      amount
                         ------   ------------     ------  ------------
Over $1,500,000             9     $ 21,142,612        9    $ 18,738,951
$1,300,000-1,499,999        -           -             -          -
$1,000,000-1,299,999        2        2,125,893        1       1,014,389
$900,000-999,999            2        1,824,074        1         900,000
$800,000-899,999            1          871,305        -              -
$700,000-799,999            3        2,312,272        2       1,473,742
$600,000-699,999            3        1,970,221        3       1,981,972
$500,000-599,999            2        1,149,544        3       1,667,646
$400,000-499,999            3        1,316,950        6       2,603,661
$300,000-399,999            8        2,797,507        4       1,437,014
$200,000-299,999           14        3,670,116       13       3,059,172
$100,000-199,999           19        2,739,193       21       2,918,668
Under $100,000             30        1,230,532       42       1,603,045
                           --      -----------      ---    ------------
                           96     $ 43,150,219      105    $ 37,398,260`

# -25-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 1 - LOANS AND CHURCH BONDS (CONTINUED)

`2001                    2000
                                           ---------------------     --------------------
                                           No. of     Carrying       No. of    Carrying
            Description                     loans       amount        loans      amount
-----------------------------------------  ------   ------------     ------  ------------
Less:  unamortized purchase discounts
        on mortgage loans                               (419,314)                (461,347)
Less:  allowance for possible credit losses           (1,568,172)              (1,388,172)
                                                    ------------             ------------
Total                                               $ 41,162,733             $ 35,548,741
                                                    ============             ============

The mortgage and interim  construction  loan  portfolios  included the following
loans at March 31,  2001, with individual  balances in excess of 3% of the total
carrying amount of the combined portfolios:

Bandera Road Community Church, San Antonio, Texas; interest at
    10.25%; principal and interest due at maturity on June 1, 2001         $  3,500,000

Great Plains Assisted Living L.L.C., Omaha, Nebraska; interest at
    prime plus .5%, with a floor of 10.0% (10.0% at March 31, 2001);
    monthly payments of $31,130 to maturity on January 1, 2026                3,417,170 (a)

Great Plains Assisted Living L.L.C., Sioux City, Iowa; interest at
    prime plus .5%, with a floor of 10.0% (10.0% at March 31, 2001);
    monthly payments of $27,450 to maturity on January 1, 2026                3,015,414 (a)

Great Plains Assisted Living L.L.C., Urbandale, Iowa; interest at
    prime plus 2%, with a floor of 10.5% (10.5% at March 31, 2001);
    monthly payments of $28,495 to maturity on May 1, 2014                    2,403,541 (a)

Meade Ministries, Lake City, Florida; interest at prime plus 2%,
    with a floor of 9.75%  (9.75% at March 31, 2001); monthly
    payments of $27,014 to maturity on April 1, 2014                          2,391,502

Triumph Baptist Church, Philadelphia, Pennsylvania; interest
    at 10.5%; monthly payments of $26,988 to maturity on
    August 1, 2008                                                            1,662,846

Biltmore Group, Farmerville, Louisiana; interest at prime plus
    1.5% with a floor of 10.0% (10.5% at March 31, 2001);
    principal and interest currently due                                      1,600,000 (b)`

# -26-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 1 - LOANS AND CHURCH BONDS (CONTINUED)

`Biltmore Group, Natchitoches, Louisiana; interest at prime plus
    1.5%, with a floor of 10.0% (10.5% at March 31, 2001);
    principal and interest currently due                                      1,585,000 (b)

Rose of Sharon Ministries, Miami, Florida; interest at prime plus
    1.5%, with a floor of 11.0% (11.0% at March 31, 2001);
    monthly payments of $18,186 to maturity on June 1, 2015                   1,567,139
                                                                       ----------------
                                                                       $     21,142,612
                                                                       ================
(a)  Same borrower - Great Plains Assisted Living L.L.C.
(b)  Same borrower - Biltmore Group`

Nonperforming  mortgage loans,  church bonds and interim  construction  loans at
March 31, 2001 and 2000 were $5,655,875 and $5,967,657,  respectively.  Interest
income which would have been recorded under the original terms of  nonperforming
loans and church bonds amounted to  approximately  $614,000 and $460,000 for the
years ended  March 31, 2001 and 2000,  respectively.  Interest  income  actually
recognized  for the  years  ended  March  31,  2001 and  2000 was  approximately
$483,000 and $69,000, respectively.

The  original  terms of the  individual  loans  included  in the loan  portfolio
generally vary from 1 to 30 years.  Scheduled  maturities  during the five years
subsequent to March 31, 2001, are:

`2002                          $      16,814,534
              2003                                  1,266,320
              2004                                  1,352,108
              2005                                  1,360,798
              2006                                  1,426,492`

At March 31, 2001,  mortgage loans of $14,737,863 were pledged to support the
indebtedness of Church Loans.

A summary of transactions in the allowance for possible credit losses for the
years ended March 31, 2001 and 2000 follows:

`2001             2000
                                                   -----------      -----------
Balance at beginning of year                       $ 1,388,172      $ 1,215,213

Provisions charged to operating expenses               180,000          180,000

Loans charged off                                           -            (7,041)
                                                   -----------      -----------
Balance at end of year                             $ 1,568,172      $ 1,388,172
                                                   ===========      ===========`

# -27-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 1 - LOANS AND CHURCH BONDS (CONTINUED)

At  March 31,  2001 and 2000,  the  recorded  investment  for loans for which
impairment was recognized in accordance with Statement No. 114 was approximately
$5,656,000  and  $5,968,000,  respectively.  There was no related  allowance for
credit  losses at March 31,  2001 and 2000.  The average  investment in impaired
loans was $5,812,000 and $4,762,000 for the years ended March 31, 2001 and 2000,
respectively.

#### NOTE 2 - DEBT OBLIGATIONS

Information relating to debt obligations follows:

`Weighted          Maximum                        Weighted
                                                          average          amount            Average       average
                                      Balance at     interest rate at  outstanding at       month-end   interest rate
                                     end of period     end of period    any month-end        balance   for the period
                                     -------------   ----------------  --------------    ------------  --------------
     March 31, 2001
------------------------------
Line of credit payable to bank       $  7,660,000         7.00%*        $  8,335,000     $  5,921,538       7.91%
Other demand notes payable             13,015,801         7.00%           13,738,526       12,709,447       8.48%
Secured savings certificates                   -             -               726,000          223,385       6.42%
                                     -------------   ----------------  --------------    ------------  --------------
TOTAL                                $ 20,675,801         7.00%         $ 22,799,526     $ 18,854,370       8.33%
                                     =============   ================  ==============    ============  ==============

     March 31, 2000
------------------------------
Line of credit payable to bank       $  3,810,000         8.00%*        $  8,585,000     $  3,905,769       7.31%
Other demand notes payable             11,053,192         8.00%           11,053,192        9,219,179       7.41%
Secured savings certificates              726,000         7.96%            2,763,377        1,608,549       7.81%
                                     -------------   ----------------  --------------    ------------  --------------
TOTAL                                $ 15,589,192         8.00%         $ 22,401,569     $ 14,733,497       7.43%
                                     =============   ================  ==============    ============  ==============

* Does not consider commitment fees.`

Debt obligations of $20,675,801 mature during the year ending 2002, including
other demand notes payable of $13,015,801.

All debt obligations,  except for other demand notes payable, are secured by the
pledge of specific mortgage notes receivable.

Maturities of debt obligations are financed through principal  payments received
on loans, advances on other demand notes payable and advances on the $15,000,000
line of credit which is expected to be renewed on an annual basis.

# -28-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 2 - DEBT OBLIGATIONS (CONTINUED)

Descriptions of the various categories of debt obligations follow:

#### Secured Savings Certificates

SSCs were issued in amounts of $1,000 or more and have single  maturity dates
from 30 days to 10 years  from  date of issue.  With  respect  to an  individual
certificate, interest rate and frequency of payment of interest (either monthly,
quarterly,  semiannually,  annually  or at  maturity)  are  fixed at the time of
issuance of the certificate.  Effective July 1997, Church Loans discontinued the
sale of SSCs. At March 30, 2001, Church Loans had no SCCs outstanding.

#### Line of Credit Payable to Bank

The  line of credit  payable  to bank  consists  of  borrowings  under a loan
agreement effective through  December 30,  2001, that provides for a $15,000,000
line of credit with certain  commitment fees. The loan agreement requires Church
Loans to pledge mortgage loans receivable having unpaid principal  balances with
an  aggregate  present  value,  discounted  at 2% over the prime rate  (10.0% at
March 31,  2001),  of not less than 110% of all  indebtedness  owed to the bank.
Interest  accrued  at the prime  rate  less one  percent  during  2001 and 2000.
Interest is payable semiannually.

Additionally,  the line of credit requires that Church Loans' net worth be no
less than  $18,000,000 and its total  indebtedness  shall not exceed 150% of its
net worth. At March 31, 2001, Church Loans' total indebtedness was approximately
$11,000,000 less than the maximum amount permitted under the agreement.

#### Demand Notes Payable

The demand notes  payable bear  interest at 1% less than the prime rate (payable
monthly) and are unsecured (see note 6).

#### NOTE 3 - INCOME TAX PROVISION

Church Loans has elected to be taxed as a real estate investment trust under the
provisions of the Internal Revenue Code. To qualify as a real estate  investment
trust under the Code, Church Loans must, among other things, distribute at least
95% of its taxable income to its shareholders through dividends. Church Loans is
required to pay  dividends  of at least 85% of its calendar  year  undistributed
income by February 1 or be subject to a special  federal excise tax of 4% on the
undistributed amount.

# -29-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 3 - INCOME TAX PROVISION (CONTINUED)

Deferred  taxes were not significant to Church Loans' 2001 and 2000 financial
statements.

Total  income tax expense for the years ended March 31, 2001 and 2000 is less
than the amount computed by applying the applicable statutory federal income tax
rate (35%) to income before provision for income taxes as follows:

`2001              2000
                                                         -------------   ---------------
Computed "expected" federal income tax expense           $     921,551   $     1,082,464
Increases (decreases) in taxes resulting from:
    Dividends                                               (1,004,616)       (1,053,621)
    Graduated rate differential                                (12,598)          (11,949)
    Difference in provision for credit losses for
       financial and tax purposes                              135,023           213,738
    Difference in accounting for interest
       recognized for financial and tax purposes               (22,296)         (200,575)
    Other                                                      (12,294)            2,883
                                                         -------------   ---------------
Actual tax expense                                       $       4,770   $        32,940
                                                         =============   ===============`

#### NOTE 4 - NET INCOME PER SHARE

Net income per share of beneficial  interest is based on the weighted average
number of shares outstanding,  which was 7,000,806 for the years ended March 31,
2001 and 2000.  There were no share  equivalents or other  potentially  dilutive
securities outstanding during any of the periods presented.

#### NOTE 5 - DIVIDENDS

All  dividends paid by Church Loans are taxable to the recipient.  A schedule
of dividends paid during the years ended March 31, 2001 and 2000 follows:

`Dividend amount
                                                        ----------------------
 Date of record                  Date paid              Per share      Total
-----------------               ------------            ---------   ----------
March 31, 1999                  May 1999                  .10       $  700,081
December 31, 1999               January 2000              .29        2,030,233
March 31, 2000                  May 2000                  .14          980,113
December 31, 2000               January 2001              .31        2,170,250`

In April  2001,  a dividend of  $700,081  ($.10 per share) was  declared  for
stockholders of record on March 31, 2001.  Approximately  $.06 per share of this
dividend will be classified as capital gain.

# -30-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 6 - RELATED PARTY TRANSACTIONS

Other demand notes payable at March 31, 2001 and 2000 included notes totaling
$2,813,584 and $2,820,128, respectively, which represent borrowings from related
parties.  The  notes  bear  interest  at 1% less  than  the  prime  rate and are
unsecured. Interest expense incurred on related party other demand notes payable
was approximately $226,000 and $158,000 in 2001 and 2000, respectively.

#### NOTE 7 - CASH FLOW INFORMATION

Supplemental  information  on  cash  flows  and  noncash  transactions  is as
follows:

`2001         2000
                                                      -----------  ------------
Supplemental cash flow information:
    Interest paid                                     $ 1,530,516   $ 1,106,667
                                                      ===========   ===========

Income taxes paid was not material in 2001 or 2000.

Schedule of noncash investing and financing activity:

    Real estate acquired through foreclosure          $      -      $   658,312
                                                      ===========   ===========`

#### NOTE 8 - COMMITMENTS

Church Loans is a party to financial instruments with  off-balance-sheet risk
in the normal course of business. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract.  Commitments  generally  have variable  interest  rates,  fixed
expiration  dates or other  termination  clauses and  require  payment of a fee.
Since some of the  commitments  may expire  without being drawn upon,  the total
commitment amounts do not necessarily represent future cash requirements. Church
Loans  evaluates each  customer's  credit  worthiness on a  case-by-case  basis.
Collateral  generally  includes real estate  properties.  The exposure to credit
loss in the event of  nonperformance  by the other party to the  commitments  to
extend  credit is  represented  by the  contractual  amount.  At March 31, 2001,
Church  Loans  had  outstanding  loan  commitments  (by  contract   amounts)  of
approximately $4,803,990.  Management does not anticipate any losses as a result
of these transactions.

# -31-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial  instruments,  the results of applying  such methods and
assumptions to the financial  instruments and limitations inherent in fair value
estimates:

#### Cash and Cash Equivalents

The  assets are  considered  short-term  instruments  for which the  carrying
amount is a reasonable estimate of fair value.

#### Loans and Church Bonds

Fair  values are  estimated for  portfolios  of loans with similar  financial
characteristics.  Loans are  segregated  by type,  such as mortgage  and interim
construction  loans and church bonds.  Each loan  category is further  segmented
into  fixed  and  adjustable  rate  interest  terms.  For  variable-rate  loans,
primarily  interim  construction  loans,  that  reprice  frequently  and with no
significant  change in credit risk,  fair values are based on carrying  amounts.
The fair value of fixed-rate  mortgage loans and bonds is generally estimated by
discounting  the future cash flows  through  the  estimated  maturity  using the
current  rates at which  similar  loans would be made to borrowers  with similar
credit  ratings.  The estimate of maturity is based on Church Loans'  historical
experience with repayments for each loan classification,  modified, as required,
by an estimate of the effect of current  economic  and lending  conditions.  The
carrying  value of loans,  net of the allowance for loan losses was  $41,162,733
and  $35,548,741 and the fair value of loans was  approximately  $41,700,000 and
$34,800,000 at March 31, 2001 and 2000, respectively.

#### Notes Payable and Line of Credit

The  fair  value of notes  payable  and the line of  credit  are equal to the
carrying value as such liabilities are deemed to be short-term borrowings.

#### Secured Savings Certificates

The fair value of secured  savings  certificates is estimated using the rates
currently  offered for financial  instruments  of similar  characteristics.  The
carrying  value of secured  savings  certificates  was $-0- and $726,000 and the
fair value of secured savings  certificates was approximately  $-0- and $729,000
at March 31, 2001 and 2000, respectively.

#### Commitments to Extend Credit

Generally,   Church  Loans  enters  into  commitments  to  extend  credit  at
adjustable  interest terms.  Accordingly,  the commitment amount is a reasonable
estimate of fair value.

#### Other

The carrying  amounts of notes  receivable and accrued  interest  approximate
fair value.

# -32-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 and 2000

#### NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

#### Limitations

Fair value estimates are made at a specific point in time,  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 Church  Loans'  entire  holdings of a particular  financial
instrument.  Because no market exists for a significant portion of Church Loans'
financial  instruments,  fair value  estimates are based on judgments  regarding
future   expected   loss   experience,   current   economic   conditions,   risk
characteristics  of various  financial  instruments,  and other  factors.  These
estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant  judgment  and,  therefore,  cannot be  determined  with  precision.
Changes in assumptions could significantly affect the estimates.

# -33-

---