---

## 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,  2002 and
2001, and the related statements of income, shareholders' equity, and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Trust's  management.  Our  responsibility  is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects,  the financial position of Church Loans & Investments
Trust as of March 31,  2002 and 2001,  and the results of its operations and its
cash flows for the years then ended in  conformity  with  accounting  principles
generally accepted in the United States of America.

/s/ Clifton Gunderson LLP
Amarillo, Texas
April 30, 2002

# -16-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 2002 and 2001

`Assets
                                                                                      2002                2001
                                                                                ----------------   -----------------
CASH AND CASH EQUIVALENTS                                                       $        134,889   $         113,142
Receivables
     Mortgage loans and church bonds - performing                                     30,507,636          25,537,346
     Interim construction loans - performing                                          15,317,011          11,537,684
     Nonperforming mortgage loans, church bonds
         and interim construction loans                                                1,151,907           5,655,875
     Less: Allowance for credit losses                                                (1,748,172)         (1,568,172)
                                                                                ----------------   -----------------
                                                                                      45,228,382          41,162,733
     Accrued interest receivable                                                         580,139             433,076
     Notes receivable                                                                    695,361             752,647
                                                                                ----------------   -----------------
                  Net receivables                                                     46,503,882          42,348,456

Property and equipment, net of accumulated
     depreciation of $523,411 and $507,739 in 2002
     and 2001, respectively                                                              134,931             150,603

REAL ESTATE ACQUIRED THROUGH FORECLOSURE                                               1,256,298                 -

OTHER ASSETS                                                                              30,716               7,417
                                                                                ----------------   -----------------
TOTAL ASSETS                                                                    $     48,060,716   $      42,619,618
                                                                                ================   =================

                                                 Liabilities and Shareholders' Equity

Liabilities
     Notes payable and line of credit:
         Related parties                                                        $      3,616,397   $       2,813,584
         Other                                                                        22,238,158          17,862,217
                                                                                ----------------   -----------------
                                                                                      25,854,555          20,675,801
     Accrued interest payable                                                             43,784             146,798
     Federal income tax payable                                                           73,810                 -
     Other                                                                               962,095             731,972
                                                                                ----------------   -----------------
                  Total liabilities                                                   26,934,244          21,554,571
                                                                                ----------------   -----------------
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                                                            519,096             457,671
     Treasury shares, at cost (6,596 shares)                                             (16,490)            (16,490)
                                                                                ----------------   -----------------
                  Total shareholders' equity                                          21,126,472          21,065,047
                                                                                ----------------   -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $     48,060,716   $      42,619,618
                                                                                ================   =================

 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, 2002 and 2001

`2002              2001
                                                                                ----------------   -----------------
Interest income and fees on receivables                                         $      5,291,814   $       4,914,251
Debt expense
     Interest                                                                            989,219           1,568,994
     Amortization of commissions paid to brokers                                             -                 1,183
                                                                                ----------------   -----------------
                  Total debt expense                                                     989,219           1,570,177
                                                                                ----------------   -----------------
                  Net interest income                                                  4,302,595           3,344,074

Provision for CREDIT LOSSES                                                              180,000             180,000
                                                                                ----------------   -----------------
                  Net interest income less provision
                   for possible credit losses                                          4,122,595           3,164,074
                                                                                ----------------   -----------------
Other income, including gains on sale of other
     real estate of $-0- and $180,662 in 2002 and
     2001, respectively                                                                   32,203             200,452

Other operating expenses
     General and administrative                                                          733,957             676,149
     Board of Trust Managers' fees                                                        51,555              55,375
                                                                                ----------------   -----------------
                  Total other operating expenses                                         785,512             731,524
                                                                                ----------------   -----------------
                  Income before provision for income taxes                             3,369,286           2,633,002

Provision for income taxes                                                                87,491               4,770
                                                                                ----------------   -----------------

NET INCOME                                                                      $      3,281,795   $       2,628,232
                                                                                ================   =================
Net income per share                                                                       $ .47               $ .38
                                                                                           =====               =====
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, 2002 and 2001

`Shares of beneficial interest
                                     -----------------------------    Undistributed      Treasury
                                         Shares          Amount         net income        shares          Total
                                     ------------    -------------    -------------    ----------    --------------

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

    Cash dividends ($.46 per share)           -                -         (3,220,370)            -        (3,220,370)

    Net income                                -                -          3,281,795             -         3,281,795
                                     ------------    -------------    -------------    ----------    --------------
Balance, March 31, 2002                 7,007,402    $  20,623,866     $    519,096    $  (16,490)   $   21,126,472
                                     ============    =============    =============    ==========    ==============

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, 2002 and 2001

`2002               2001
                                                                                   --------------   ---------------
Cash flows from operating activities
    Net income                                                                     $    3,281,795   $     2,628,232
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation                                                                     15,672            15,672
          Amortization of debt expense                                                        -               1,183
          Amortization of loan discounts                                                 (264,694)          (42,033)
          Provision for credit losses                                                     180,000           180,000
          Gain on sale of other real estate                                                   -            (180,662)
          Changes in:
              Accrued interest receivable                                                (147,063)         (174,483)
              Accrued interest payable                                                   (103,014)           38,478
              Federal income tax payable                                                   73,810               -
              Other liabilities                                                           230,123            75,529
          Other, net                                                                      (23,298)            3,518
                                                                                   --------------   ---------------
                  Net cash provided by operating activities                             3,243,331         2,545,434
                                                                                   --------------   ---------------
Cash flows from investing activities
    Investment in mortgage and interim construction
       loans and church bonds                                                         (32,691,886)      (30,618,186)
    Payments received on mortgage and interim construction
       loans and church bonds                                                          27,454,632        24,866,228
    Advances on notes receivable                                                         (511,502)         (734,477)
    Payments received on notes receivable                                                 568,788           581,799
    Proceeds from sale of other real estate owned                                             -           1,149,011
                                                                                   --------------   ---------------
                  Net cash used by investing activities                                (5,179,968)       (4,755,625)
                                                                                   --------------   ---------------
Cash flows from financing activities
    Borrowings on notes payable and line of credit                                     31,265,173        33,946,360
    Principal payments on:
       Secured savings certificates                                                           -            (726,000)
       Notes payable and line of credit                                               (26,086,419)  (28,133,751)
    Cash dividends paid                                                                (3,220,370)       (3,150,363)
                                                                                   --------------   ---------------
                  Net cash provided by financing activities                             1,958,384         1,936,246
                                                                                   --------------   ---------------
                  Increase (decrease) in cash and cash equivalents                         21,747          (273,945)

Cash and cash equivalents, beginning of year                                              113,142           387,087
                                                                                   --------------   ---------------
Cash and cash equivalents, end of year                                             $      134,889   $       113,142
                                                                                   ==============   ===============

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, 2002 and 2001

#### 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, 2002 and 2001 as follows:

`Loan and church               Total            Net interest
                        bond portfolio            indebtedness          rate margin
                        ---------------           ------------         ------------
March 31, 2002               9.14%                    3.75%                5.39%
March 31, 2001              10.28%                    7.00%                3.28%`

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, 2002 and 2001

#### LOANS

Loans  that  Church  Loans  has  the  intent  and  ability  to  hold  for the
foreseeable  future or until maturity or pay-off generally are reported at their
outstanding  unpaid principal  balances adjusted for charge-offs,  the allowance
for credit losses, and any deferred fees or costs on originated loans.  Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct  origination  costs, are deferred and recognized as an adjustment
of the related loan yield.

The accrual of interest is generally  discontinued  on loans and church bonds
more than 60 days past due unless the credit is well  secured  and in process of
collection.  In  all  cases,  loans  and  bonds  are  placed  on  nonaccrual  or
charged-off  at an earlier  date if  collection  of  principal  or  interest  is
considered doubtful.

All  interest  accrued  but not  collected  for  loans  that  are  placed  on
nonaccrual or charged-off is reversed against  interest income.  The interest on
these loans is accounted for on the cash-basis or  cost-recovery  method,  until
qualifying for return to accrual.  Loans are returned to accrual status when all
the principal and interest  amounts  contractually  due are brought  current and
future payments are reasonably assured.

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, 2002 and 2001.

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

#### ALLOWANCE FOR CREDIT LOSSES

The  allowance  for credit losses is  established  as losses are estimated to
have occurred  through a provision for credit losses  charged to earnings.  Loan
losses are  charged  against  the  allowance  when  Church  Loans  believes  the
uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any,
are credited to the allowance.

The  allowance  for credit  losses is evaluated on a regular  basis by Church
Loans and is based upon  management's and the board of trust managers'  periodic
review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio,  adverse situations that may affect the
borrower's  ability to repay,  estimated value of any underlying  collateral and
prevailing economic conditions.  This evaluation is inherently  subjective as it
requires  estimates  that  are  susceptible  to  significant  revision  as  more
information becomes available.

# -22-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2002 and 2001

#### ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

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 or interest when due according to the contractual terms of
the loan agreement. Factors considered by Church Loans in determining impairment
include  payment  status,  collateral  value,  and the probability of collecting
scheduled  principal  and  interest  payments  when due.  Loans that  experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired.

Church  Loans  determines  the  significance  of payment  delays and  payment
shortfalls  on a  case-by-case  basis,  taking  into  consideration  all  of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay,  the borrower's prior payment record,  and the
amount  of the  shortfall  in  relation  to the  principal  and  interest  owed.
Impairment  is measured on a  loan-by-loan  basis by either the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's  obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.

#### 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.

#### 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.

# -23-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2002 and 2001

#### 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 STANDARDS

On April 1, 2001, Church Loans adopted Financial  Accounting  Standards Board
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
The adoption of the new standard did not have a material impact on Church Loans'
financial statements.

In June 2001, the Financial  Accounting  Standards Board issued Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.

Church  Loans will apply the new rules on  accounting  for goodwill and other
intangible  assets  as of  April 1,  2002.  Application  of the  nonamortization
provisions  of the  Statement  will not have an effect  on net  income as Church
Loans currently has no goodwill or other intangibles.

This  information  is an  integral  part  of  the  accompanying
financial statements.

# -24-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

#### NOTE 1 - LOANS AND CHURCH BONDS

Mortgage  loans receivable  consist of conventional  loans of $30,640,302 and
$26,210,414  and church bonds of $751,809  and  $737,614 at  March 31,  2002 and
2001, respectively. Interim construction loans of $15,760,519 and $16,202,191 at
March 31, 2002 and 2001,  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 5% to 13% at March 31, 2002.
The weighted average annual interest rates of Church Loans' loan and church bond
portfolio were 9.14% and 10.28% at March 31, 2002 and 2001, respectively.

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,  2002,  Church  Loans had five loans to two
borrowers   which  were   secured  by  assisted   living   centers  and  totaled
approximately  $8,042,000. At March 31, 2001, Church Loans had six such loans to
two borrowers totaling approximately $13,105,000.

The following  schedule is a summary of the combined  mortgage,  church bonds
and interim  construction loan portfolios by size of loan at March 31,  2002 and
2001:

`2002                     2001
                         ---------------------     --------------------
                         No. of     Carrying       No. of    Carrying
  Description            loans       amount        loans      amount
                         ------   ------------     ------  ------------
Over $1,500,000             8     $ 21,153,925        9    $ 21,142,612
$1,300,000-1,499,999        -             -                        -
$1,000,000-1,299,999        6        6,641,465        2       2,125,893
$900,000-999,999            -         -               2       1,824,074
$800,000-899,999            1          830,000        1         871,305
$700,000-799,999            1          731,358        3       2,312,272
$600,000-699,999            4        2,508,509        3       1,970,221
$500,000-599,999            5        2,666,948        2       1,149,544
$400,000-499,999            6        2,690,649        3       1,316,950
$300,000-399,999            6        2,121,277        8       2,797,507
$200,000-299,999           18        4,598,901       14       3,670,116
$100,000-199,999           14        2,041,367       19       2,739,193
Under $100,000             27        1,168,231       30       1,230,532
                         ------   ------------     ------  ------------
                           96       47,152,630       96      43,150,219
                         ======                    ======
Less:  unamortized purchase discounts
        on mortgage loans             (176,076)                (419,314)
Less:  allowance for possible
        credit losses               (1,748,172)              (1,568,172)
                                  ------------             ------------
Total                             $ 45,228,382             $ 41,162,733
                                  ============             ============`

# -25-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

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

`The mortgage and interim  construction  loan  portfolios  included the following
loans at March 31,  2002, 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 April 1, 2002         $ 3,900,000

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, 2002);
    monthly payments of $31,130 to maturity on January 1, 2026                3,383,826 (a)

Faith Bible Church, Arvada, Colorado; interest at prime plus 1%, with
    a floor of 7.75% (7.75% at March 31, 2002); principal and interest
    due at maturity on January 1, 2004                                        3,322,937

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, 2002);
    monthly payments of $27,450 to maturity on January 1, 2026                2,986,243 (a)

Meade Ministries, Lake City, Florida; interest at prime plus 2%,
    with a floor of 9.75% (9.75% at March 31, 2002); monthly
    payments of $27,014 to maturity on April 1, 2014                          2,490,454

West Freeway Church, Fort Worth, Texas; interest at prime plus 2%, with
    a floor of 6.75% (6.75% at March 31, 2002); principal and interest due
    at maturity on September 1, 2002                                          2,028,697

Rose of Sharon Ministries, Miami, Florida; interest at prime plus
    1.5%, with a floor of 11.0% (11.0% at March 31, 2002);
    monthly payments of $18,186 to maturity on June 1, 2015                   1,535,576

Triumph Baptist Church, Philadelphia, Pennsylvania; interest
    at 10.5%; monthly payments of $26,988 to maturity on
    August 1, 2008                                                            1,506,192
                                                                            -----------
                                                                            $21,153,925
                                                                            ===========
(a)  Same borrower - Great Plains Assisted Living L.L.C.`

# -26-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

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

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, 2002, are:

`2003                                 16,762,703
              2004                                  1,596,543
              2005                                  1,709,079
              2006                                  1,788,598
              2007                                  1,819,658`

At March 31, 2002,  mortgage loans of $12,617,124 were pledged to support the
indebtedness of Church Loans.

A summary of  transactions  in the  allowance for credit losses for the years
ended March 31, 2002 and 2001 follows:

`2002              2001
                                            -----------      -----------
Balance at beginning of year                $ 1,568,172      $ 1,388,172

Provisions charged to operating expenses        180,000          180,000
                                            -----------      -----------
Balance at end of year   $                  $ 1,748,172      $ 1,568,172
                                            ===========      ===========`

At  March 31,  2002 and 2001,  the  recorded  investment  for loans for which
impairment was recognized in accordance with Statement No. 114 was approximately
$1,152,000  and  $5,656,000,  respectively.  There was no related  allowance for
credit  losses at March 31,  2002 and 2001.  The average  investment in impaired
loans was approximately  $3,404,000 and $5,812,000 for the years ended March 31,
2002 and 2001,  respectively.  Interest  income  which would have been  recorded
under  the  original  terms of  impaired  loans and  church  bonds  amounted  to
approximately $126,000 and $614,000 for the years ended March 31, 2002 and 2001,
respectively.  Interest income actually recognized for the years ended March 31,
2002 and 2001 was approximately $109,000 and $483,000, respectively.

# -27-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

#### 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 theperiod
                                     -------------   ----------------  --------------    ------------  --------------
     March 31, 2002
------------------------------

Line of credit payable to bank       $ 10,660,000         3.75%*        $ 10,660,000     $  4,758,077       4.99%
Other demand notes payable             15,194,555         3.75%           15,680,620       14,367,049       5.16%
                                     ------------    ----------------  -------------     ------------  --------------
TOTAL                                $ 25,854,555         3.75%         $ 26,340,620     $ 19,125,126       5.12%
                                     ============    ================   ============     ============  ==============
     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%
                                     ============    ================   ============     ============  ==============

* Does not consider commitment fees.`

Debt obligations of $25,854,555 mature during the year ending 2003, including
other demand notes payable of $15,194,555.

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, 2002 and 2001

#### 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,  2002  and  2001,   Church  Loans  had  no  SSCs
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,  2002, 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  (6.75% at
March 31,  2002),  of not less than 110% of all  indebtedness  owed to the bank.
Interest  accrued  at the prime  rate  less one  percent  during  2002 and 2001.
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, 2002, Church Loans' total indebtedness was approximately
$6,000,000 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 90% and 95% for 2002 and 2001, respectively,  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
subsequent 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, 2002 and 2001

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

Deferred  taxes were not significant to Church Loans' 2002 and 2001 financial
statements.

Total  income tax expense for the years ended March 31, 2002 and 2001 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:

`2002          2001
                                                       -----------   -----------
Computed "expected" federal income tax expense         $ 1,179,250   $   921,551
Increases (decreases) in taxes resulting from:
    Dividends                                           (1,176,135)   (1,004,616)
    Graduated rate differential                             (6,108)      (12,598)
    Difference in provision for credit losses for
       financial and tax purposes                          164,500       135,023
    Difference in accounting for interest
       recognized for financial and tax purposes           (74,497)      (22,296)
    Other                                                      481       (12,294)
                                                        ----------   -----------
Actual tax expense                                      $   87,491   $     4,770
                                                        ==========   ===========`

#### 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,
2002 and 2001.  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, 2002 and 2001 follows:

`Dividend amount
                                                        ----------------------
 Date of record                  Date paid              Per share      Total
-----------------               ------------            ---------   ----------
March 31, 2000                  May 2000                  .14       $  980,113
December 31, 2000               January 2001              .31        2,170,250
March 31, 2001                  May 2001                  .10          700,080
December 31, 2001               January 2002              .36        2,520,290`

In April  2002,  a dividend of  $840,097  ($.12 per share) was  declared  for
stockholders of record on March 31, 2002.

# -30-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

#### NOTE 6 - RELATED PARTY TRANSACTIONS

Other demand notes payable at March 31, 2002 and 2001 included notes totaling
$3,616,397 and $2,813,584, 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 $177,000 and $226,000 in 2002 and 2001, respectively.

#### NOTE 7 - CASH FLOW INFORMATION

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

`2002         2001
                                                      -----------  -----------
Supplemental cash flow information:

    Interest paid                                     $ 1,092,233  $ 1,530,516
                                                      ===========  ===========
Income taxes paid was not material in 2002 or 2001.

Schedule of noncash investing and financing activity:

    Real estate acquired through foreclosure          $ 1,256,298 $      -
                                                      ===========  ===========`

#### NOTE 8 - COMMITMENTS AND CONTINGENCIES

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, 2002,
Church  Loans  had  outstanding  loan  commitments  (by  contract   amounts)  of
approximately $9,959,000.  Management does not anticipate any losses as a result
of these transactions.

Church  Loans is involved in litigation in the normal course of business and,
in the opinion of management,  such  litigation  will have no material effect on
Church Loans' financial statements.

# -31-

---

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2002 and 2001

#### 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 and bonds,  net of the  allowance for credit losses was
$45,228,382  and  $41,162,733  and  the  fair  value  of  loans  and  bonds  was
approximately   $50,600,000   and  $41,700,000  at  March  31,  2002  and  2001,
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.

#### 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, 2002 and 2001

#### 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-

---