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|United StatesSecurities and Exchange Commission                                                                                                                                                                                                                                                                                                   |  
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|Washington, D.C. 20549                                                                                                                                                                                                                                                                                                                            |  
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|____________                                                                                                                                                                                                                                                                                                                                      |  
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|FORM 10-KSB                                                                                                                                                                                                                                                                                                                                       |  
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|xANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                   |  
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|For the Fiscal Year Ended March 31, 2006                                                                                                                                                                                                                                                                                                          |  
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|oTRANSITION REPORT UNDER SECTION 13 OR 15[d] OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                               |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|For the transition period from ________ to ________ .                                                                                                                                                                                                                                                                                             |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|Commission File No. 0-8117                                                                                                                                                                                                                                                                                                                        |  
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|____________                                                                                                                                                                                                                                                                                                                                      |  
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|CHURCH LOANS & INVESTMENTS TRUST                                                                                                                                                                                                                                                                                                                  | ®
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|(Name of small business issuer in its charter)                                                                                                                                                                                                                                                                                                    |  
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|Texas                                                                                                                                                                                                                                                                                                                                             |  
|(State or other jurisdiction ofincorporation or organization)                                                                                                                                                                                                                                                                                     |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|5305 W Interstate 40, Amarillo, Texas                                                                                                                                                                                                                                                                                                             |  
|(Address of principal executive office)                                                                                                                                                                                                                                                                                                           |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|Issuers telephone number: (806) 358-3666                                                                                                                                                                                                                                                                                                         |  
|____________                                                                                                                                                                                                                                                                                                                                      |  
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|Securities registered pursuant to Section 12(b) of the Exchange Act:None                                                                                                                                                                                                                                                                          |  
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|Securities registered pursuant to Section 12(g) of the Exchange Act:Shares of Beneficial Interest                                                                                                                                                                                                                                                 |  
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|____________                                                                                                                                                                                                                                                                                                                                      |  
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|Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.o                                                                                                                                                                                                                                    |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo                               |  
|                                                                                                                                                                                                                                                                                                                                                  |  
|Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.x |  
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|Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YesoNox                       
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|                                                                                                                                               
|Issuers revenues for its most recent fiscal year:$6,375,184.                                                                                  
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|The aggregate market value of the voting stock held by non-affiliates of the registrant is$30,438,363as ofMay 10, 2006.                        
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|The number of shares outstanding of each of the issuers classes of common stock, as ofMarch 31, 2006is10,217,094shares of beneficial interest.
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|Documents Incorporated by Reference:                                                                                                           
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|Exhibit 3                                                                                                                                      
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|Exhibit 10                                                                                                                                     
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|Transitional Small Business Disclosure Format (check one) YesoNox                                                                              













|TABLE OF CONTENTSFORM 10-KSB ANNUAL REPORT  2006CHURCH LOANS & INVESTMENTS TRUST                                                                                   
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|Page                                                                                                                                                                
|Forward-Looking Statements Disclosure.........................................................................................................                      
|                                                                                                                                                                    
|Part I                                                                                                                                                              
|Item 1:                                                                                                                                                             
|Item 2:                                                                                                                                                             
|Item 3:                                                                                                                                                             
|Item 4:                                                                                                                                                             
|                                                                                                                                                                    
|Part II                                                                                                                                                             
|Item 5:                                                                                                                                                             
|Item 6:                                                                                                                                                             
|Item 7:                                                                                                                                                             
|Item 8:                                                                                                                                                             
|Item 8A:                                                                                                                                                            
|Item 8B:                                                                                                                                                            
|                                                                                                                                                                    
|Part III                                                                                                                                                            
|Item 9:                                                                                                                                                             
|Item 10:                                                                                                                                                            
|Item 11:                                                                                                                                                            
|Item 12:                                                                                                                                                            
|Item 13:                                                                                                                                                            
|Item 14:                                                                                                                                                            
|                                                                                                                                                                    
|Index to Exhibits.................................................................................................................................................  
|Signatures..........................................................................................................................................................













FORWARD-LOOKING STATEMENTS DISCLOSURE



This Annual Report includes forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact made in this discussion are forward-looking, which can be identified by the use of forward-looking terminology such as may, will, expect, anticipate, estimate, believe, continue or other similar words. The forward-looking statements are based upon managements current plans and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including:



| | Competition in the business of making loans to churches;                                                          
|- | ------------------------------------------------------------------------------------------------------------------
| | A decline in general economic conditions;                                                                         
| | A decline in real estate values affecting the value of the collateral securing our loans;                         
| | A rise in interest rates resulting in higher cost of funds to us prior to the re-pricing of the loans owing to us;
| | Our inability to borrow funds and at reasonable rates of interest;                                                
| | General risks of lending;                                                                                         
| | Change in federal or state laws affecting our operations;                                                         
| | Loss of critical management; and                                                                                  
| | Other risks.                                                                                                      



These risks and uncertainties are not intended to be exhaustive and should be read in conjunction with other cautionary statements made in this Annual Report.



| | CAUTIONARY STATEMENTS
| | ---------------------



You should carefully consider the following Cautionary Statements and other information provided in this Annual Report. The risk and uncertainties described below are those that we believe may materially affect our operations and, in turn, the value of our shares. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that effect our operations.



It may be necessary for us to raise additional funds in order to meet all of our financial obligations and these funds may not be available on acceptable terms or at all.



It may be necessary for us to raise additional funds in order to meet all of our financial obligations. There is no assurance that we would be able to raise sufficient additional funds through borrowings. In this event, it would be necessary for us to liquidate a portion of our mortgage loans. We have little experience in selling our loans, but we anticipate that it may be necessary to discount loans in order to timely sell them. A sale of a substantial portion of our loans at discounts would reduce our equity to the detriment of our shareholders. The extent, if any, to which we would have to discount our loan portfolio cannot be determined at this time.



Our master note agreements are due on demand. Demand of a significant amount of these master notes would adversely affect our operations.



Since the master notes owing by us are due on demand, any holder could immediately demand payment of the holders note. In such an instance, we believe that we would be able to meet this demand from available operating funds or by drawing upon our line of credit. Although our master note agreements provide that we may limit withdrawals to a maximum of $250,000 per note per 30-day period, there is no assurance that we would have sufficient funds available to be drawn on the line of credit or otherwise to pay any demanded master note. In the event that we failed to pay a master note upon demand, if known, other holders of master notes, would likely also demand payment of their master notes resulting in a series of demands. In this event if there are not sufficient funds available from the line of credit to pay the demanded master notes, we would have to sell loans in our portfolio to retire the demanded master notes.
We have very limited experience in selling loans and would expect that it will take some time to accomplish a sale and possibly at substantial discounts. We would be in default in the payment of the master notes and might have to seek protection under the bankruptcy laws in order to obtain the necessary time to sell assets to meet this demand. Even if we are able to meet the demands, these events would adversely affect our operations.







- 1 -











Interest rate changes may result in the realization of substantially less net income.



Our interim loans are normally made at rates of interest that change as the prime rate of interest changes. Most of our permanent mortgage loans are made at rates of interest that are fixed for a period of time, either one year, three years or five years, and then reprice based upon the prime rate of interest within certain interest rate caps provided in the loans. However, all of our debt is either directly or indirectly tied to the prime rate of interest charged by major domestic banks and is subject to the day-to-day fluctuation of the prime rate without any interest rate cap. As the prime rate of interest increases, causing an increase in our interest expense, our net income decreases for a period of time until the permanent mortgage loans reprice. Correspondingly, as the prime rate of interest decreases our interest expense would decrease and our net income would generally increase until the permanent mortgage loans
reprice. In the event of a significant or rapid increase in the prime rate of interest, our interest expense could increase to an extent that we actually incurred a loss on our permanent mortgage loans until these loans could reprice. Even the repricing of these loans may not cure the deficit between the interest income on a loan and the interest expense incurred in carrying the loan if the prime rate of interest increases have exceeded the interest rate cap provided in the note. These factors could lower our net income or cause a net loss during periods of rising interest rates, which would negatively impact our financial condition, cash flows and results of operations and, correspondingly, the value of our shares.



General economic and financial conditions in mortgage and financial markets may negatively affect our results of operations.



|The performance of our mortgage loan portfolio depends on, among other things:
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|In addition, the following factors cannot be predicted with any certainty:    
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There are inherent general risks involved in investing in mortgage loans including risks related to the collateral securing the loan, prior liens, property taxes and costs to enforce the mortgages.



All real property investments are subject to some degree of risk. The mortgage loans in which we invest normally will not be insured or otherwise guaranteed by any institution or agency. In the event of a default by a borrower it may be necessary for us to foreclose our mortgage or engage in negotiations which may involve further outlays to protect our investment. The mortgages securing our loans may be or become, in some instances, subordinated to mechanics' or materialmen's liens or property tax liens. In these instances it may become necessary in order to protect a particular investment for us to make payments in order to maintain the current status of a prior lien or discharge it entirely. It is possible that the total amount recovered by us in these cases may be less than our total investment, resulting in a loss. In the event of a major loan default or several loan defaults resulting in losses, our profitability
would be materially and adversely affected and our ability to pay dividends to our shareholders would be impaired.









- 2 -











Our lending decision is based upon an appraisal of the property to secure the loan which is made prior to the making of the loan. In the event of default, the actual value of the collateral securing the loan may differ. A decline in real estate values will adversely affect the value of our loans, the value of the mortgages securing our loans and the value of our Shares.



Originally, our Declaration of Trust required that our loans not exceed 66 2/3% of the value of the real estate securing the loan. At our annual shareholders meeting on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85%. However, the determination of the value of the real estate securing the loan is based upon a real estate appraisal made near the time of the making of the loan. In the event of a default and the resulting foreclosure of the property securing a loan, the property may sell for more or less than the appraised amount. This difference may be the result of mistaken assumptions made by the appraiser or changes in market conditions since the time of the appraisal. We obtain an appraisal prior to making the loan to determine loan qualification. However, we do not normally obtain new appraisals or updates to the
appraisals after the making of the initial loan.



Our church loans are normally secured by single-purpose properties that may not be readily marketable in the event of default.



In the event of default by a borrower in the payment of a mortgage loan owing to us, we may proceed to foreclose the property securing our loan. However, the property securing the loan is normally a single-purpose church facility that may not be readily marketable. It may take longer to secure a buyer for a property. During a significant holding period, we may have to expend additional funds to secure and maintain the property and pay taxes on the property. Furthermore, during the holding period the value of the property may decline. Due to the limited number of potential buyers of the property, we may not be able to realize enough from the sale of the property to retire the entire principal, interest and expenses that we have invested in the loan.



It is inevitable that some loans will become delinquent and we will not be able to collect the interest on the loan or may even have a loss of principal on the loan.



It is generally our practice to discontinue the accrual of interest upon mortgage loans which are 60 days or more past due, and to discontinue the accrual of interest upon church bonds where the issuer of the bonds fails to make a semi-annual payment of principal or interest upon the bonds. At March 31, 2006, we had discontinued the accrual of interest upon mortgage loans and church bonds totaling $1,959,450. All payments which are received by us from churches upon mortgage loans or bonds where the accrual of interest has been discontinued is currently being applied to the reduction of the principal of the debt obligation of the church and not to the accrued interest.



A church loan is normally repaid from contributions by the congregations members which may vary thereby affecting the congregations ability to timely meet its obligations.



As mentioned, most of our loans are made to churches. Churches are normally dependent on the contributions of its members to meet its obligations. If a borrowing church has a decline in membership or contributions, then it may not be able to timely make its payments to us. A church can experience a decline in membership or contributions as a result of:



| | a general economic decline in the community in which the church is located,                                         
|- | --------------------------------------------------------------------------------------------------------------------
| | a specific economic decline that affects a significant number of the members of the church,                         
| | a conflict or division in the church that results in a loss of membership,                                          
| | a withholding of members normal contributions, or                                                                  
| | the loss of a popular pastor or minister of the church resulting in a significant loss of members and contributions.



Our mortgage loans are subject to normal credit risks and the loss of the underlying collateral.



Our mortgage loans are subject to the normal, general risks associated with mortgage loans, including risks of borrower defaults, bankruptcies and special hazard losses that are not covered by standard hazard insurance (including earthquakes, floods and the like). In the event of a default on a loan, we will bear the risk of loss of principal to the extent of any deficiency between the value of the property securing the loan and the amount owing on the loan. Mortgage loans that are in default are not eligible collateral for securing our bank line of credit with the Amarillo National Bank. Although we attempt to establish and maintain adequate reserves to cover these risks, there can be no assurance that such reserves will be sufficient to offset losses on mortgage loans in the future.





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Even assuming that properties securing our mortgage loans do provide adequate security for these loans, substantial delays could be encountered in connection with the foreclosure of defaulted mortgage loans, with corresponding delays in the receipt of proceeds from the sale of these properties.



Interim loans represent a greater risk of loss than a permanent loan that amortizes over the term of the loan.



Although we are engaged in the business of making both long-term permanent loans and short-term interim loans to churches and other non-profit organizations, during the past several years a significant number of the loans that we made were interim loans. In fact, we attempt to maintain a loan portfolio that consists of 30-40% of interim loans. Most of these loans are for the purpose of financing the purchase or construction of church buildings and facilities, or for the renovation of these facilities. Most of these interim loans were associated with bond offerings of the borrowers where the proceeds from the sale of the bonds are used to repay our interim loan. The timely repayment of these interim loans is primarily dependent upon the success of the borrower in selling its bonds. Since these bonds are generally sold on a best efforts basis, with no firm underwriting or commitment by the broker-dealer
to purchase any of the bonds, there is no assurance that bonds in sufficient amounts will be sold in order to timely repay the interim loan owing to us. All permanent and interim loans are secured by a first mortgage on the property of the borrower. In situations where we make an interim loan to be repaid from the proceeds of a bond offering of the borrower, if any of the bonds of the offering are sold, the mortgage securing the interim loan would be of equal priority with the mortgage securing the payment of the bonds which are actually sold. Should the borrower be unable to sell bonds in a sufficient amount to repay the interim loan, we would have the option to either foreclose on the property securing the interim loan or to extend the term of the loan over a longer period. In either instance, our interest in the property securing the payment of our loan by virtue of our mortgage would be in proportion to the respective indebtedness of the borrower to us and the bondholders.



Furthermore, in the event of a default of an interim loan that is secured by a mortgage jointly securing us and the bondholders, we and the indenture trustee, acting on behalf of the bondholders, must cooperate in all collection actions or foreclosure proceedings. Therefore, we are not solely in control of the proceedings relating to a defaulted interim loan.



In addition, in the event that a borrower does not have or loses its permanent source of financing and is unable to retire the interim loan at maturity, then we may foreclose the property securing the loan, extend the interim loan to allow additional time for the borrower to obtain permanent financing, or convert the interim loan into a permanent loan. Any of these courses of action may either reduce our rate of return on the loan or result in a risk or loss to our loan portfolio.



Construction loans offer higher risks of loss due to problems related to construction which may result in a loss to our investment portfolio.



We make construction loans primarily to churches that carry with them a higher degree of risk commensurate with construction loans, including: dealing with the general contractor and subcontractors, cost over-runs, mechanic and materialmen liens, local building and construction codes, construction delays, incomplete construction and weather. Any of these risks could result in a higher risk loan to our portfolio or even a default which in turn may result in a loss.



Ownership of our shares is restricted somewhat to insure our REIT qualification. Such restrictions could adversely affect the liquidity and marketability of such shares.



In order to insure our qualification as a REIT, our Bylaws prohibit any 5 persons, associations or corporations from owning more than 50% of our total outstanding shares. This restriction may eliminate some potential purchasers of our shares in any offering of shares and in the secondary market. Fewer buyers of shares in the secondary market will tend to adversely affect the price of shares in the secondary market.



Changes in federal and local tax laws may adversely affect our operations and the value of our shares.



Increases in income taxes, service taxes, mortgage taxes or other taxes generally are not passed through to borrowers and, in some cases, cannot be passed on to borrowers according to local law. These increases may adversely affect our funds from operations and the value of our shares.



We enjoy favorable income tax treatment due to our REIT status. However, in the event that federal or state income tax laws were amended to either eliminate this tax advantage or to grant similar tax advantages to corporations, then the value of our shares could be adversely impacted.







- 4-











Federal or State law may limit or prevent a change of control even if a change of control would increase our ability to operate more profitably.



In order to maintain our qualification as a REIT under the Internal Revenue Code our Shares must be held by 100 or more persons and not more than 50% in value of the outstanding Shares may be held directly or indirectly by or for five or fewer individuals at any time during the last half of the tax year. This ownership limit may discourage a change of control even if a change would increase our ability to operate more profitably.



There is no assurance that a shareholder can sell their shares since there is a limited trading market for our shares.



There is no established public trading market for our shares. We attempt to maintain a list of persons desiring to sell shares and persons desiring to purchase shares. We provide this list to anyone upon request. There is no assurance that there will be sufficient buyers to meet the demand of shareholders desiring to sell. In the event that there are not sufficient buyers, it is expected that the price for shares in the secondary market will decline. It may even be possible that significant number of shares that are offered for sale will remain unsold for a substantial period of time.



We face significant competition in providing financing to churches and other non-profit entities which may make it difficult to obtain quality mortgage loans in which to invest.



In the field of long-term mortgage financing, we will be competing against church bond programs, commercial banks, other REITs and other lenders to make loans to churches for the purpose of providing funds for financing the purchase, refinancing or construction of church buildings and facilities. Loans to churches, as in the case of commercial loans, generally are competitive as to rate of interest and other costs associated with the loan, the term of the loan, and the security to be given by the borrower for the payment of the loan. Any loans which may be made by us will be competitive with other lending institutions as to the rate of interest to be paid by the borrower and as to the term which the loan is to be repaid. An increase in the availability of investment funds may increase competition for suitable investment opportunities, resulting in a reduced yield on those available.



Although we primarily invest in mortgage loans to churches, we are not prohibited from investing in other assets normally allowed for investment by a real estate investment trust.



It has been our primary purpose and intent to limit our investments to that of mortgage loans made to churches, assisted living centers, private schools and the like. However, our Declaration of Trust and Bylaws allow us to invest in any other assets that are allowed by law for investment by real estate investment trusts. In the event that our policies change to allow for investment in real estate and mortgages of for-profit entities, you should be aware that we do not have experience or expertise in these types of loans and may not be able to conduct our operations with the success that we have historically experienced in our normal business operations.



The risks and the general illiquidity of real estate investments may prohibit us from disposing of certain investments in response to changes in economic and other conditions.



All real estate investments are subject to some degree of risk. As a result, real estate loans are relatively illiquid; therefore, we have a limited ability to vary our portfolio promptly in response to changes in economic or other conditions.



Environmental compliance costs and liabilities relating to the real estate securing our loans may adversely affect our results of operations.



Under various federal, state and local laws, ordinances and regulations, an owner of property or a secured lender may be liable in certain circumstances for the cost, removal or remediation of certain hazardous or toxic substances or petroleum products disposed, stored, released, generated, manufactured or discharged from, on, at, into or below the property. We do not obtain an environmental report on all properties securing a mortgage loan owing to us. Even the existence of an environmental report does not necessarily disclose the existence of an environmental hazard or problem or protect an owner or lender from potential liability. The cost of any required remediation or removal can be quite extensive.



An environmental, toxic or hazardous conditions can dramatically reduce the ability of a borrower to meet its obligations, including its obligations to pay its mortgage loan owing to us. Furthermore, the existence of such a condition can greatly reduce the value of the collateral securing our loan. In the event that the borrower does not remedy an environmental condition and further defaults on its loan owing to us, we must carefully determine whether or not it is in our best interest to foreclose the property securing the loan which is environmentally impaired. It could be that the cost of remedying the environmental condition could well exceed the resulting value of the property.



- 5 -











Even if we have no liability to remove or remedy the environmental condition, the existence of such may still result in a loss to us in the cash flow from the loan or the proceeds resulting from a foreclosure of the property in the event of default.



We are not currently supervised or regulated by any federal or state agency.



We are not supervised or regulated by any federal or state agency. Nor are we insured or guaranteed by any federal or state agency.



| | PART I
| | ------





|Item 1: | DESCRIPTION OF BUSINESS
|------- | -----------------------



We are a real estate investment trust organized under the laws of the State of Texas in March 1963. Although we have the authority to engage in the business of buying, selling and leasing of real estate, we have heretofore restricted our business activities primarily to making loans to churches and other nonprofit organizations and assisted living centers which are secured by a first mortgage on real estate owned by such borrowers.



The period of duration of the Trust, unless dissolved in accordance with law, or by the consent of the owners of our shares of beneficial interest, is perpetual. We may be dissolved by the affirmative vote of not less than fifty percent of the owners of our outstanding shares.



The control and management of our properties, and all powers necessary or appropriate to effect any and all of the purposes for which we are organized, is vested in the Board of Trust Managers.



The number of shares of beneficial interest which we are authorized to issue is unlimited.



We are qualified as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code of 1986 as amended (the "Internal Revenue Code" or "Code"). It is our intention to continue to qualify as a real estate investment trust under the Code.



We maintain an office located at 5305 I-40 West, Amarillo, TX 79106 (telephone 806/358-3666).



As mentioned above, we are primarily engaged in the business of making mortgage loans to churches and other nonprofit organizations and assisted living centers. Originally, our Declaration of Trust required a debt-to-value ratio of not greater than 66 2/3%. However, at our annual meeting of shareholders held on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85% unless substantial justification exists because of the presence of other underwriting criteria. Most of our present loans were made based upon the prior 66 2/3% debt-to-value ratio. Although we have been primarily in the business of making long-term mortgage loans, during the past several years we have also been actively involved in making short-term interim or construction loans to finance the construction of church buildings, the construction of assisted
living centers, the purchase of real estate, or the refinancing of existing indebtedness. Most of the interim loans presently being made are associated with bond offerings of churches and other nonprofit organizations and assisted living centers. These interim loans are scheduled to be repaid from the proceeds of the bond offerings.



We are not limited to the location of the property securing any loans in which we may invest and we seek to spread our investments in areas of the United States where favorable yields prevail.



As of March 31, 2006 we had 121 permanent and interim mortgage loans and investments in church bonds having a principal balance of $71,063,449, with the average principal amount thereof being $587,301. The interest rates on these loans vary from 5.15% to 12% per annum with the weighted average interest rate of mortgage loans and church bonds being 7.82% per annum at March 31, 2006. The original terms of these loans vary from one year to thirty years, with the majority being for a term of twenty years.



During the fiscal year ending March 31, 2006, our net income was $3,236,950, as compared to $2,917,699 in fiscal 2005, an increase of 10.94%. Such increase in our net income was due to an increase in our net interest income. Net interest income was higher in fiscal 2006 as compared to fiscal 2005 primarily due to an increase in loans held by us. This increase was offset by a decrease in our net interest rate margin from 2.69% at March 31, 2005 to 1.18% at

March 31, 2006.



Our net income for each of the quarters during fiscal 2006 was as follows: first quarter $747,339; second quarter $1,050,775; third quarter $796,687; and fourth quarter $642,149.



- 6 -











Net income for the second quarter was unusually high due to the recognition of $395,961 in income from the payment of a loan that was previously in default. The income was characterized as discount income on mortgage loans since this loan was acquired at a price below the principal balance of the loan.



Our operating expenses increased from $1,056,816 during fiscal 2005 to $1,091,909 in fiscal 2006. Our operating expenses included general and administrative expenses and compensation to members of the Board of Trust Managers.



During fiscal 2006, we advanced loan proceeds of $48,633,320 on 48 interim loans and 17 permanent loans. Most, if not all, of such loans bear interest at a variable rate varying from 1.5% to 2% per annum in excess of the prime rate of interest published by the Wall Street Journal and known as the "Wall Street Journal Prime."



During fiscal 2006, we employed a total of 6 full-time employees and employed, as needed, 2 additional part-time persons who worked on a contract basis.



The business conditions in which we operate have become more competitive in the past several years as more and more banks are re-entering the business of making loans to churches, especially the more desirable, less risky, church loans. If this trend continues, the rates and fees which we can charge may decrease. However, loan demand remains good as evidenced by the number of loan requests we receive and the number of loan commitments outstanding as of March 31, 2006.



At your request, we will provide you, without charge, a copy of any exhibits to this Annual Report on Form 10-KSB. If more information is needed, please call, write or e-mail us at:



| | Church Loans & Investments Trust

Attn: Mr. Kelly Archer

5305 I-40 West

Amarillo, Texas 79106

Telephone: (806) 358-3666

E-mail:karcher@churchloans.com
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------



Our fiscal year ends on March 31. We file annual, quarterly and other information with the Securities and Exchange Commission (the SEC). You may read and copy any materials we file with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Furthermore, our SEC filings are also available to the public at the SEC maintained internet site atwww.sec.gov.Our internet address iswww.churchloans.com.Our website includes a link to the SEC website referred to above at which our SEC filings are available.



|Item 2: | DESCRIPTION OF PROPERTY
|------- | -----------------------



We maintain as our only place of business our offices located at 5305 I-40 West, in Amarillo, Texas. Such building is owned by us and is occupied solely by us. There is no debt owed by us in regard to this real property.



Our real properties, net of depreciation and excluding real estate acquired through foreclosure, are not a significant portion of our assets, representing less than 1% of our total assets.



As previously mentioned, our primary business is the making of mortgage loans, almost exclusively, first mortgage loans, to churches and other nonprofit organizations and assisted living centers. Our Bylaws, as amended, restrict our investments to loans secured by a mortgage, deed of trust, or other lien covering real property with the amount of such loans not to exceed 85% of the value of the real property securing such loan. The Bylaws may be amended by majority vote of the Board of Trust Managers. The Board of Trust Managers' general policy is to limit investment of our assets in any one mortgage loan to not more than $3,000,000. However, at the discretion of the Board of Trust Managers, we may make and have made loans in excess of such limit. All of our investment in mortgage loans is for the purpose of earning income.



|Item 3: | LEGAL PROCEEDINGS
|------- | -----------------



None.



|Item 4: | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



None.



- 7 -







PART II



|Item 5: | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------- | --------------------------------------------------------



|(a) | Market Information
|--- | ------------------



There is no established public trading market for our shares of beneficial interest. During fiscal year 2006, a total of 161,228 shares were sold in the secondary market at prices ranging from $3.00 to $3.50 per share. The last sale during the fiscal year was at $3.50 per share. During fiscal year 2005, a total of 142,977 shares were sold in the secondary market at prices ranging from $2.90 to $3.30 per share.



The range of high and low bid information for shares of beneficial interest for each quarter within the last two fiscal years is as follows:



| | Quarter          |  | Fiscal 2006 |      | Fiscal 2005 |     
| | ---------------- |  | ----------- | ---- | ----------- | ----
| |                  |  | High        | Low  |             | High
| |                  |  |             |      |             |     
| | April-June       |  | 3.50        | 3.00 |             | 3.05
| |                  |  |             |      |             |     
| | July-September   |  | 3.50        | 3.00 |             | 3.00
| |                  |  |             |      |             |     
| | October-December |  | 3.40        | 3.05 |             | 3.30
| |                  |  |             |      |             |     
| | January-March    |  | 3.50        | 3.00 |             | 3.15
| |                  |  |             |      |             |     



The source of the above information is our own records. We serve as the Transfer Agent for our shares.



|(b) | Holders
|--- | -------



At March 31, 2006, we had 2,726 shareholders.



|(c) | Dividends
|--- | ---------



Cash dividends on all our outstanding shares of beneficial interest are declared twice annually, for the 3 month period ending March 31, and the 9-month period ending December 31. In fiscal year 2005, we paid a total cash dividend of $.28 per share. In fiscal year 2006, we paid a total cash dividend of $.29 per share. In April 2006, a dividend of $.07 per share was declared for shareholders of record on March 31, 2006.



|(d) | Securities authorized for issuance under equity compensation plans.
|--- | -------------------------------------------------------------------



None.



|(e) | Sales of Unregistered Securities.
|--- | ---------------------------------



None.



|(f) | Report of Use of Proceeds of Sales of Recently Registered Securities
|--- | --------------------------------------------------------------------



We registered an additional 7,000,000 shares or Certificates of Beneficial Interest pursuant to a registration statement filed with the Securities & Exchange Commission (SEC) on July 3, 2003. The registration statement, file no. 333-106810, became effective on August 14, 2003. After completing the registration with several key states, we commenced sales of the shares in December 2003 and ended the offering on August 14, 2004. The name of the managing underwriter was Great Nation Investment Corporation and the additional participating underwriter was Commonwealth Church Finance, Inc. The class of securities registered and offered were Certificates of Beneficial Interest. This is the only class of securities that we have registered and offered.



As mentioned, the amount of shares registered and offered pursuant to our offering that became effective on August 14, 2003 was 7,000,000 shares. The price at which the offering was made was $3.00 per share for an aggregate offering price of $21,000,000. During the offering, we sold an additional 3,216,288 shares for a total aggregate offering price of $9,648,864.



- 8 -













The total issuance and offering expenses that we incurred since date of the offering through March 31, 2005 was $510,439, leaving a net proceeds from the sale of such shares as of March 31, 2005 of $9,138,425. None of the offering expenses represent direct or indirect payments to directors, officers or their associates, to persons owning 10% or more of our shares or to our affiliates. Such offering expenses consist of brokerage commissions paid to applicable broker-dealer, state and federal filing fees, accounting fees and legal fees associated with the offering.



The net proceeds in the amount of $9,138,425 have been used, as provided in the registration statement, in the short term to reduce the balance owing on our line of credit owing to the Amarillo National Bank and, ultimately, to fund mortgage loans made by us. None of such proceeds were used directly or indirectly to make payments to directors, officers or their associates, to persons owning 10% or more of our shares or to our affiliates.



|(g) | Repurchases of Shares
|--- | ---------------------



None.



|Item 6: | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|------- | ---------------------------------------------------------



Critical Accounting Policies



Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Our significant accounting policies are described in the notes to the financial statements. Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies. The estimates and assumptions used are based on historical experience, as well as other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.



We believe that the following critical accounting policies require the most significant estimates and assumptions that are particularly susceptible to a significant change in the preparation of our financial statements.



Revenue Recognition. We accrue interest income as it is earned. All past due loans are reviewed monthly by management and the Audit Committee. A past due loan is evaluated based upon the payment history, opinion of the ultimate collectibility of the principal and interest and other experience factors. 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.



Once a loan is placed on non-accrual, the loan will be classified as either cash basis or capital recovery. A loan is typically classified as cash basis if the Audit Committee believes, based upon several factors, that there is a strong likelihood that the principal of the loan will be recovered, but is concerned that all of the interest will be recovered. If a loan is classified as cash basis, then payments received will be applied to interest first and then to principal. A loan is typically classified as capital recovery if the Audit Committee believes, based upon several factors, that there is a strong likelihood that we may not be able to recover all of the principal balance of the loan. In the event that a loan is classified as capital recovery, then payments received are applied to principal first and then to interest.



The actual decision to place a loan on non-accrual and the classification of the loan as either cash basis or capital recovery is made by the Audit Committee with input from management.



Non-accrual status loans are returned to an accrual status when in the opinion of the Audit Committee, based upon input from management, that such is warranted based upon the passing of a sufficient time period during which the principal and interest have become current and remain current and, therefore, the loan, both principal and interest, is anticipated to be fully collectible.









- 9 -











Allowance for Credit Loss. The Audit Committee reviews the allowance for credit loss at the end of each quarter. The provision for losses is based on an amount that is adequate, in the opinion of the Audit Committee, based upon input from management, to absorb losses inherent in the existing portfolio. The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other factors, general economic conditions, the fair market value or estimated net realizable value of the underlying collateral securing the loan, past experience, trends in loan delinquency and other factors that warrant recognition in providing for an adequate allowance to absorb inherent losses. The evaluation by the Audit Committee includes a review of a quarterly grading methodology performed by management on all past-due loans. The Audit Committee, based upon its
evaluation and review, then makes a recommendation to the full Board of Trust Managers as to the recommended amount of the credit loss reserve. The Board of Trust Managers, based upon the recommendation of the Audit Committee, establishes the amount of the allowance for credit loss and any adjustments to such allowance.



Other Real Estate Owned. Other real estate owned (OREO) represents property acquired as a result of a foreclosure of a mortgage note(s) held by the Trust. OREO is recorded at estimated fair value at date of foreclosure, establishing a new cost basis. After foreclosure, OREO is carried at the lower of the carrying amount or estimated fair value minus estimated cost to sell. Impairment losses are charged to operations. Costs of the foreclosure, insurance and other costs associated with carrying the property is expensed.



Management has discussed our critical accounting policies and the development, selection and disclosure of the estimates and alternatives with the Audit Committee of the Board of Trust Managers and obtained their approval of the applicable disclosures contained in this report.



Overview



The Trust was founded in May of 1959 and was organized to assist churches with the financing of purchases and construction of church facilities. The Trust has also made loans for the financing of assisted living centers. Although we were originally organized under the corporate structure, we reorganized in 1963 as a real estate investment trust in order to take advantage of the favorable provisions of the federal tax law applicable to real estate investment trusts.



Our loan portfolio consists primarily of loans to churches and is comprised of both permanent loans and interim construction loans. Although, we have purchased existing loans from other lenders, our primary operating strategy is to originate, either through mortgage loan brokers, church bond broker-dealers or directly to churches, mortgage loans secured by a first mortgage against a churchs buildings and related facilities. We rarely, if ever, sell a loan and, therefore, we intend to hold our loan portfolio to maturity. Our underwriting standards normally include compiled, reviewed or audited financial statements depending on the size of the loan, a fair market value appraisal prepared by an independent appraiser, a first mortgage on the property of the church insured by a title insurance policy issued by a national title company, applicable fire and extended casualty insurance on the collateral and such other
requirements as determined by management on a case by case basis. Also, as part of our due diligence, management normally makes, prior to funding, an onsite inspection of the property that is to secure the loan.



Originally, our Declaration of Trust required a debt-to-value ratio of not greater than 66 2/3%. However, at our annual meeting of shareholders held on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85% unless substantial justification exists because of the presence of other underwriting criteria. Most of our present loans were made based upon the prior 66 2/3% debt-to-value ratio.



On August 14, 2003, we registered an additional 7,000,000 shares of beneficial interest in the Trust with the SEC and began sales of such shares in December 2003. Such sales continued until August 14, 2004. During this offering, we sold an additional 3,216,288 shares resulting in an increase of $9,138,425, net of issuance costs of $510,439, in our shareholders equity. This was the first offering of additional shares by the Trust since our initial offering.



Management is aggressively pursuing quality new loans, both interim and permanent. This is evident by the 20% increase in our loan portfolio during the year ended March 31, 2006.



Results of Operations2006 compared to 2005



During the fiscal year ended March 31, 2006, interest income and fees increased by $1,617,637 (34.64%) over the previous fiscal year. The increase in interest income and fees was primarily the result of an increase in the amount of mortgage loans, interim construction loans and church bonds that we held during the fiscal year, plus the recognition of $395,961 of income from the payment of a loan that was previously in default.



- 10 -













Total performing and non-performing mortgage loans, church bonds and interim loans increased from $59,319,446 as of March 31, 2005, to $71,063,449 as of March 31, 2006. There was an increase in the amount of our performing interim loans from $18,043,873 as of March 31, 2005, to $20,268,706 as of March 31, 2006, and there was also an increase in our performing mortgage loans and church bonds during the recent fiscal year from $38,103,729 as of March 31, 2005, to $48,835,293 as of March 31, 2006. These increases resulted in an increase in performing loans, church bonds and interim loans from $56,147,602 as of March 31, 2005 to $69,103,999 as of March 31, 2006. In addition, non-performing loans decreased from $3,171,844 as of March 31, 2005, to $1,959,450 as of March 31, 2006.



This increase in our loan portfolio is evidenced by the difference in our investment in mortgage and interim loans and bonds during fiscal 2006 of $48,633,320 as compared to the payments we received on our loan portfolio during fiscal 2006 in the amount of $37,361,673.



The increase in interest income and fees was diminished by a decrease in the net interest rate margin on our loan portfolio. The average interest rate on loans and church bonds held by us increased from 7.37% as of March 31, 2005, to 7.82% as of March 31, 2006. During the same period, the average interest rate on our total indebtedness increased from 4.68% as of March 31, 2005 to 6.64% as of March 31, 2006. Therefore, our net interest rate margin decreased from 2.69% as of March 31, 2005 to 1.18% as of March 31, 2006, a decrease of 151 basis points.



Our net income for fiscal 2006 was $3,236,950, an increase of $319,251 (10.94%) from the previous fiscal year. Such increase was primarily attributable to an increase in our net interest income. Net interest income increased from $3,878,000 in fiscal 2005 to $4,314,996 in fiscal 2006, an increase of $436,996 (11.27%) from fiscal 2005.



Total operating expenses increased from $1,056,816 for the fiscal year ended March 31, 2005 to $1,091,909 for the fiscal year ended March 31, 2006, an increase of $35,093 or 3.32%. This increase is attributable to an increase in general and administrative expenses of $38,243 or 3.81%.



Income from the realization of loan discounts from loan purchases increased from $23,177 for the year ended March 31, 2005, to $472,356 for the year ended March 31, 2006, an increase of $449,179. The increase in income from the realization of loan discounts is primarily the result of a payment of a loan owing by St. Luke Missionary Baptist Church. On July 1, 2005, we accepted $1,425,000 in full and final payment on the loan. The payment of this loan resulted in the recognition of $395,961 in income. This income, which is included in interest income, was characterized as discounted income on mortgage loans since this loan was acquired by us at a price below the principal balance of the loan.



Dividends related to fiscal 2006, without regard to dates they were declared, were $3,065,128 or $.30 per share as compared to $2,758,616 or $.27 per share for fiscal 2005. The increase in dividends paid was primarily attributable to an increase in net income.



As a real estate investment trust, we are required by Section 857 of the Internal Revenue Code, as amended, to distribute not less than 90% of our taxable net income to our shareholders. Dividends are based on taxable income which varies from net income reported in the financial statements because of temporary differences (differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years). Future dividends may be more or less than the net income reported in the financial statements because of variances in these temporary differences.



Other income decreased from $159,164 for fiscal 2005 to $87,817 for fiscal 2006.Included in fiscal 2005 other income is a gain of $15,578 on the sale of other real estate owned as compared to none in fiscal 2006.



Liquidity and Capital Resources



Liquidity is a measurement of our ability to meet potential cash requirements, including the repayment of borrowings by us, fund loan commitments, maintain investments and meet our general business expenses and needs. Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income.



We are engaged primarily in the business of making permanent and interim loans to churches and other non-profit organizations, and to other borrowers, including businesses engaged in the building and operation of assisted living centers. At March 31, 2006 we had seven loans to three different borrowers which are secured by assisted living centers and commercial properties which totaled approximately $9,177,000. Our assets primarily consist of our loan portfolio, real estate acquired through foreclosure and our office building and facilities.



-11-











Our operating expenses are comprised of the maintenance of our office building, the payment of the salaries of our management and support staff, office expenses, fees paid to the Board of Trust Managers, and the payment for legal and accounting services. Substantially all of our assets are invested in the permanent and interim loans. Our only potential liquidity problems relate to the timely and proper repayment of the leveraged funds we have borrowed to make loans in excess of our capital and the ability to fund loan commitments which totaled approximately $21,560,000 at March 31, 2006.



Our primary sources of funds for liquidity consist of cash reserves, net cash provided by operations, payments received from the loans comprising our loan portfolio, and funds available through debt financing, including our line of credit agreement with the Amarillo National Bank.



Our level of liquidity based upon cash and cash equivalents increased by $68,101 during the year ended March 31, 2006. During this same period, we invested $48,633,320 in mortgage and interim construction loans using net borrowings on our bank line of credit and Master Note agreements in the amount of $11,309,068, net cash provided by operating activities in the amount of $2,974,765, principal payments received on our loan portfolio in the amount of $37,361,673, and payments received on other notes receivables of $18,872. The total liquidity available to invest in mortgage and interim construction loans was reduced by $2,962,957 paid in cash dividends during the year ended March 31, 2006.



Our primary debt obligations consist of our bank line of credit owing to Amarillo National Bank and Master Note Agreements with various persons. The line of credit is made pursuant to a Loan Agreement dated December 31, 2004, which was amended effective November 4, 2005 to increase the line of credit from $25,000,000 to $30,000,000. On December 31, 2005, we entered into an extension agreement with the bank, thereby, extending the term of the existing loan agreement to January 31, 2006 while we were in negotiations with the bank on a new loan agreement. Pursuant to such negotiations, we have entered into a new loan agreement with the bank that increases the line of credit to $35,000,000, is for a term of three years, maturing December 31, 2008, instead of being renewed each year as in the past, and provides for a rate of interest that is more favorable to us.



The line of credit, effective January 31, 2006, provides for a term maturing at December 31, 2008. As of March 31, 2006, our total liabilities outstanding was $40,523,383. The amount owing on the line of credit as of May 31, 2006 was $20,755,000. It is anticipated that the line of credit will be renewed at the expiration of such three-year term. In the event that the bank elects not to renew the line of credit, we may, under the terms of the loan agreement, retire the line of credit over a period of time, not to exceed five years, equal to the weighted average remaining term of a pool of our real estate lien notes which would be pledged to secure the remaining balance of the bank line of credit.



At March 31, 2006, loans to us under Master Note Agreements, which are in effect demand notes, totaled $18,135,110. In the past, we have utilized our bank line of credit and the principal paid to us upon our outstanding loan portfolio in order to meet our maturing obligations.



Although our cash and cash equivalents as of March 31, 2006 were only $128,955, the balance which could be borrowed by us upon our bank line of credit as of March 31, 2006 was $14,245,000. The principal payments scheduled to be received on our loan portfolio for the fiscal years ending March 31, 2007, 2008 and 2009 are $23,693,834, $2,423,180 and $2,460,634 respectively. Assuming all of these scheduled principal payments are received, these payments, together with the balance available to us on our bank line of credit, should provide us with sufficient funds to meet our maturing obligations and fund loan commitments without the necessity of borrowing funds from other sources. Based upon our success in obtaining borrowings in the past, we are confident that, should it be necessary, we will be able to obtain additional bank financing in the future in sufficient amounts for us to timely meet all of our
obligations.



Should all the scheduled principal payments upon loans not be received, and should we be unable to borrow against our line of credit, and should borrowings from other sources not be available, it would be necessary to sell a portion of our mortgage loan portfolio in order for us to meet all of our financial obligations. At March 31, 2006, the principal balance of our loan and church bond portfolio was $71,063,449, net of unamortized purchase discounts. The weighted average interest rate on loans and church bonds was 7.82% per annum. In view of the normal marketability of conventional loans, we might be required to discount a majority of these loans in order for them to be attractive for purchase. The principal amount of these loans if discounted to yield a weighted average interest rate of 12%, 14% and 16% would be $46,309,681, $39,694,012, and $34,732,261, respectively. There is no assurance that we would be able to sell
all, or a portion of, our portfolio of loans, in which event, it would be necessary to secure a loan, or loans, from a lender in order to meet our financial obligations. There is no assurance that we would be able to secure a loan in such instance. We have sold only one of our loans in our mortgage loan portfolio and, therefore, have limited experience in this area. Furthermore, if required to discount our loans in excess of 13.7%, then we would not realize sufficient funds from the sale of the loans to retire all of our debt.



- 12 -













Principal payments scheduled to be received upon our permanent loan portfolio during the years ending March 31, 2007, 2008 and 2009, if not used to fund new loan commitments, would be used to reduce our outstanding indebtedness. Should we use the payments of principal which shall be received upon our loan portfolio to reduce our outstanding indebtedness, our interest expense will decrease. In such instance, whether the decrease in the interest income will exceed, or be less than, the decrease in the interest expense will largely be dependent upon the prime rate of interest prevailing at such time due to the fact that the interest to be earned upon our mortgage loan portfolio is generally based upon a fixed rate of interest or a variable rate of interest that periodically reprices, while the interest to be paid upon our outstanding debts is directly, or indirectly, tied to the prime rate of interest charged by major
banks.



Pursuant to the new agreement with the bank, we have pledged all of our mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit. The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of the performing mortgage loans and church bonds and 50% of the outstanding principal amount of the performing interim construction loans. Applying that borrowing limit to our loan portfolio as of March 31, 2006, we can borrow up to the entire $35,000,000 line of credit limit. However, during the term of the new loan agreement, we would not have the right to sell our loans, without the banks consent, since all of our loans have been pledged to the bank to secure the line of credit. Therefore, under our new loan agreement, it will be very difficult, if not impossible, to sell our loans to meet our financial obligations.



Cash flows from operating activities consist primarily of net income. The primary components of net income are interest income and expense. Interest income should continue to be the main source of cash provided by operating activities; however, the availability of this cash flow is dependent upon the ability of the borrowers to repay loans. Cash provided by operating activities has been and is expected to be a relatively stable source of cash flow.



Cash flows from investing activities results primarily from investment in and payments received on mortgage and interim construction loans and church bonds.



Cash flows from financing activities relate primarily to the borrowings and payments on notes payable and the line of credit. Borrowings are made as funds are needed to make loans or as current obligations become due. Based upon our success to obtain borrowings in the past, we are confident that it will be able to obtain borrowings in the future in sufficient amounts, along with payments to be received on loans, to timely meet its obligations.



Inflation



At March 31, 2006, the weighted average interest rate on our mortgage loan and church bond portfolio was 7.82% per annum while the weighted average interest rate upon all our borrowings was 6.64% per annum resulting in a net interest rate margin of 1.18%. By comparison, as of March 31, 2005, the weighted average interest rate on our mortgage loan and church bond portfolio was 7.37% per annum while the weighted average interest rate on our borrowings was 4.68% per annum resulting in a net interest rate margin of 2.69% per annum. Therefore, our net interest rate margin has decreased by 151 basis points during the year ending March 31, 2006. Although a majority of the loans constituting our loan portfolio have been made at variable rates of interest that generally reprice either daily, annually, or otherwise periodically, a portion of the loans constituting our loan portfolio have been made at fixed rates of interest and
therefore are not subject to being increased or decreased during the term of the loan. All of our indebtedness is either directly or indirectly tied to the prime rate of interest charged by major banking institutions and, therefore, is subject to fluctuation.



During periods of inflation, the prime rate of interest charged by major banking institutions, as well as the interest rate or cost of borrowing money from any lender, generally increases. Consequently, during an inflationary period our interest expense would increase. Since our interest income would not increase as rapidly, an increase in the interest expense would decrease our net income. However, interest income should subsequently increase as variable rate loans reprice. Should the amount of the loans and the amount of the indebtedness remain constant, and should the weighted average interest rate upon the indebtedness increase to approximately 14.29% per annum, interest income and interest expense would be substantially equal.



Under the terms of the new line of credit agreement with Amarillo National Bank effective January 1, 2006, the interest rate on our line of credit adjusts in accordance with the lesser of the 30-day, 60-day, 90-day or 180-day London Interbank Offered Rates (LIBOR) or the J.P. Morgan Chase & Co. prime rate. The interest rate on our Master Note Agreements adjusts as and when the Prime Rate as published by the Wall Street Journal changes. Most of our loans are made on interest rates that are tied to the Prime Rate as published by the Wall Street Journal or a similar index used by major U.S. banking institutions. Therefore, our cost of funds should be tied to an index that is equal to or less than the index used to price our loan portfolio.



- 13 -













Off-Balance Sheet Arrangements



The Trust has no off-balance sheet arrangements or commitments other than its normal loan commitments.



New Accounting Standards



The Trust does not believe the adoption of any recently issued pronouncements by the Financial Accounting Standards Board will have a significant impact on its financial statements.



|Item 7: | FINANCIAL STATEMENTS
|------- | --------------------







Report of Independent Registered Public Accounting Firm



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, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2006 and 2005, 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

May 30, 2006











- 14 -













|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)Balance SheetsMarch 31, 2006 and 2005                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ASSETS                                                                                                                                                                  
|                                                                                                                                                                        
|                                                                                                                                                                        
|CASH AND CASH EQUIVALENTS                                                                                                                                               
|RECEIVABLES                                                                                                                                                             
|Mortgage loans and church bonds  performing                                                                                                                            
|Interim construction loans  performing                                                                                                                                 
|Nonperforming mortgage loans, church bonds andinterim construction loans                                                                                                
|Less: Allowance for credit losses                                                                                                                                       
|                                                                                                                                                                        
|Accrued interest receivable                                                                                                                                             
|Notes receivable                                                                                                                                                        
|Net receivables                                                                                                                                                         
|PROPERTY AND EQUIPMENT,net of accumulateddepreciation of $532,008 and $529,944 in 2006and 2005, respectively                                                            
|OTHER REAL ESTATE OWNED                                                                                                                                                 
|OTHER ASSETS                                                                                                                                                            
|TOTAL ASSETS                                                                                                                                                            
|                                                                                                                                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                    
|LIABILITIES                                                                                                                                                             
|Notes payable and line of credit:                                                                                                                                       
|Related parties                                                                                                                                                         
|Other                                                                                                                                                                   
|                                                                                                                                                                        
|Accrued interest payable                                                                                                                                                
|Other                                                                                                                                                                   
|Total liabilities                                                                                                                                                       
|                                                                                                                                                                        
|SHAREHOLDERS EQUITY                                                                                                                                                    
|Shares of beneficial interest, no par value; authorizedshares unlimited, 10,223,690 shares issued atMarch 31, 2006 and 2005                                             
|Undistributed net income                                                                                                                                                
|Treasury shares, at cost (6,596 shares)                                                                                                                                 
|Total shareholders equity                                                                                                                                              
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                              
|These financial statements should be read only in connection withthe accompanying summary of significant accounting policiesand notes to financial statements.



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|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)STATEMENTS OF INCOMEYears ended March 31, 2006 and 2005
|-----------------------------------------------------------------------------------------------------------------------
|                                                                                                                       





|                                                                                                                                                                         |                                                                                   |   | 2006      |  |   | 2005      |   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------- | - | --------- |  | - | --------- | - | 
|                                                                                                                                                                         | INTEREST INCOME AND FEES ON RECEIVABLES                                           | $ | 6,287,367 |  | $ | 4,669,730 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | DEBT EXPENSE                                                                      |   |           |  |   |           |   | 
|                                                                                                                                                                         | Interest                                                                          |   | 1,972,371 |  |   | 791,730   |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | Net interest income                                                               |   | 4,314,996 |  |   | 3,878,000 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | PROVISION FOR CREDIT LOSSES                                                       |   | --        |  |   | (20,000   | ) | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | Net interest income less provision forpossible credit losses                      |   | 4,314,996 |  |   | 3,898,000 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | OTHER INCOME,including gains on sale of otherreal estate owned of $15,578 in 2005 |   | 87,817    |  |   | 159,164   |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | OTHER OPERATING EXPENSES                                                          |   |           |  |   |           |   | 
|                                                                                                                                                                         | General and administrative                                                        |   | 1,041,874 |  |   | 1,003,631 |   | 
|                                                                                                                                                                         | Board of Trust Managers fees                                                     |   | 50,035    |  |   | 53,185    |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | Total other operating expenses                                                    |   | 1,091,909 |  |   | 1,056,816 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | Income before provision for income taxes                                          |   | 3,310,904 |  |   | 3,000,348 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | PROVISION FOR INCOME TAXES                                                        |   | 73,954    |  |   | 82,649    |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | NET INCOME                                                                        | $ | 3,236,950 |  | $ | 2,917,699 |   | 
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 
|                                                                                                                                                                         | NET INCOME PER SHARE                                                              | $ | .32       |  | $ | .29       |   | 
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|These financial statements should be read only in connection withthe accompanying summary of significant accounting policiesand notes to financial statements.



- 16 -
|                                                                                                                                                                         |                                                                                   |   |           |  |   |           |   | 



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)STATEMENTS OF SHAREHOLDERS EQUITYYears ended March 31, 2006 and 2005
|-------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                     



|                                                                        |                                                                                                                                                                        | Shares of beneficial interest |   | Undistributed |  | Treasury   |             |        |  
|----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------------- |  | ---------- | ----------- | ------ | -
|                                                                        |                                                                                                                                                                        | Shares                        |   | Amount        |  | net income |             | shares |  
|Balance, March 31, 2004                                                 | 8,986,208                                                                                                                                                              |                               | $ | 26,245,401    |  | $          | 804,362     |        | $
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  
|Net income                                                              | --                                                                                                                                                                     |                               |   | --            |  |            | 2,917,699   |        |  
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  
|Issuance of shares of beneficialinterest, net of issue costsof $195,556 | 1,237,482                                                                                                                                                              |                               |   | 3,516,890     |  |            | --          |        |  
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  
|Cash dividends($0.28 per share)                                         | --                                                                                                                                                                     |                               |   | --            |  |            | (2,774,172) |        |  
|Balance, March 31, 2005                                                 | 10,223,690                                                                                                                                                             |                               |   | 29,762,291    |  |            | 947,889     |        |  
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  
|Net income                                                              | --                                                                                                                                                                     |                               |   | --            |  |            | 3,236,950   |        |  
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  
|Cash dividends($0.29 per share)                                         | --                                                                                                                                                                     |                               |   | --            |  |            | (2,962,957) |        |  
|Balance, March 31, 2006                                                 | 10,223,690                                                                                                                                                             |                               | $ | 29,762,291    |  | $          | 1,221,882   |        | $
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        |                                                                                                                                                                        |                              
|                                                                        | These financial statements should be read only in connection withthe accompanying summary of significant accounting policiesand notes to financial statements.

- 17 - |                              
|                                                                        |                                                                                                                                                                        |                               |   |               |  |            |             |        |  



|                                                                                                                                                                       | CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)Statements of Cash FlowsYears ended March 31, 2006 and 2005 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       | CASH FLOWS FROM OPERATING ACTIVITIES                                                                                        |  
|                                                                                                                                                                       | Net income                                                                                                                  | $
|                                                                                                                                                                       | Adjustments to reconcile net income to net cashprovided by operating activities:                                            |  
|                                                                                                                                                                       | Depreciation                                                                                                                |  
|                                                                                                                                                                       | Amortization of loan discounts                                                                                              |  
|                                                                                                                                                                       | Provision for loan loss                                                                                                     |  
|                                                                                                                                                                       | Gain on sale of other real estate owned                                                                                     |  
|                                                                                                                                                                       | Changes in:                                                                                                                 |  
|                                                                                                                                                                       | Accrued interest receivable                                                                                                 |  
|                                                                                                                                                                       | Accrued interest payable                                                                                                    |  
|                                                                                                                                                                       | Federal income tax payable                                                                                                  |  
|                                                                                                                                                                       | Other liabilities                                                                                                           |  
|                                                                                                                                                                       | Other, net                                                                                                                  |  
|                                                                                                                                                                       | Net cash provided by operating activities                                                                                   |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       | CASH FLOWS FROM INVESTING ACTIVITIES                                                                                        |  
|                                                                                                                                                                       | Investment in mortgage and interim constructionloans and church bonds                                                       |  
|                                                                                                                                                                       | Payments received on mortgage and interim constructionloans and church bonds                                                |  
|                                                                                                                                                                       | Payments received on notes receivable                                                                                       |  
|                                                                                                                                                                       | Proceeds from sale of other real estate owned                                                                               |  
|                                                                                                                                                                       | Purchase of property and equipment                                                                                          |  
|                                                                                                                                                                       | Net cash used by investing activities                                                                                       |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       | CASH FLOWS FROM FINANCING ACTIVITIES                                                                                        |  
|                                                                                                                                                                       | Borrowings on notes payable and line of credit                                                                              |  
|                                                                                                                                                                       | Principal payments on notes payable and line of credit                                                                      |  
|                                                                                                                                                                       | Cash dividends paid                                                                                                         |  
|                                                                                                                                                                       | Issuance of shares of beneficial interest, net ofissue cost of $195,556 in 2005                                             |  
|                                                                                                                                                                       | Net cash provided by financing activities                                                                                   |  
|                                                                                                                                                                       | Increase (decrease) in cash and cash equivalents                                                                            |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       | CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                                                              |  
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       | CASH AND CASH EQUIVALENTS AT END OF YEAR                                                                                    | $
|                                                                                                                                                                       |                                                                                                                             |  
|                                                                                                                                                                       |                                                                                                                            
|                                                                                                                                                                       |                                                                                                                            
|These financial statements should be read only in connection withthe accompanying summary of significant accounting policiesand notes to financial statements.

- 18 - |                                                                                                                            
|                                                                                                                                                                       |                                                                                                                             |  



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESMarch 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 Church Loans or 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. A material estimate that is particularly susceptible to significant changes in the near term relates to the determination of the allowance for credit losses.                                                                                                                                                                                                                                        
|CURRENT OPERATING ENVIRONMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Church Loans has historically invested in long-term, fixed-rate mortgage loans, generally funded by relatively short-term debt obligations. 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, 2006 and 2005 as follows:                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|March 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Church Loans finances maturities of 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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.



- 19 -











|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESMarch 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|LOANS(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|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. For the years ended March 31, 2006 and 2005, this method is 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.



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.



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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- 20 -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            









|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESMarch 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|OTHER REAL ESTATE OWNED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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). Impairment losses are measured as the amount by which the carrying amount of a property exceeds its fair value, and losses are charged to operations.                                                                         
|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, investments in a money market mutual fund, and certificates of deposit with maturities of less than 90 days at the time of acquisition.







































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



- 21 -                                                                                                                                                                                                                                





|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1 - LOANS AND CHURCH BONDS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Mortgage loans receivable consist of conventional loans of $49,447,215 and $40,340,040 and church bonds of $302,467 and $362,829 at March 31, 2006 and 2005, respectively. Interim construction loans of $21,368,706 and $19,143,873 at March 31, 2006 and 2005, 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. Historically, the amount of a loan has been generally limited to 66-2/3% of the appraised value of the related property. During the fiscal year 2005, the debt-to-value ratio was increased to 85% unless substantial justification exists because of the presence of other underwriting criteria. 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 5.15% to 12.0% at March 31, 2006. The weighted average annual interest rates of Church Loans' loan and church bond portfolio were 7.82% and 7.37% at March 31, 2006 and 2005, 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, 2006 and 2005, Church Loans had seven loans to three borrowers and five loans to two borrowers, respectively, which were secured by assisted living centers and commercial properties and totaled approximately $9,177,000 and $6,363,000, respectively.



The following schedule is a summary of the combined mortgage, church bonds and interim construction loan portfolios by size of loan at March 31, 2006 and 2005:

|                                                       |  | 2006        |  | 2005
|------------------------------------------------------ |  | ----------- |  | ----
|Description                                            |  | No. ofLoans |  |     
|Over $1,500,000                                        |  | 12          |  | $   
|$1,300,000-1,499,999                                   |  | 2           |  |     
|$1,000,000-1,299,999                                   |  | 4           |  |     
|$900,000-999,999                                       |  | 5           |  |     
|$800,000-899,999                                       |  | 1           |  |     
|$700,000-799,999                                       |  | 6           |  |     
|$600,000-699,999                                       |  | 9           |  |     
|$500,000-599,999                                       |  | 14          |  |     
|$400,000-499,999                                       |  | 8           |  |     
|$300,000-399,999                                       |  | 10          |  |     
|$200,000-299,999                                       |  | 16          |  |     
|$100,000-199,999                                       |  | 12          |  |     
|Under $100,000                                         |  | 22          |  |     
|                                                       |  | 121         |  |     
|Less: unamortized purchase discounts on mortgage loans |  |             |  |     
|Less: allowance for credit losses                      |  |             |  |     
|Total                                                  |  |             |  | $   
|- 22 -                                                



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1 - LOANS AND CHURCH BONDS(CONTINUTED)                                                                                                                                                            
|The mortgage and interim construction loan portfolios included the following loans at March 31, 2006, with individual balances in excess of 3% of the total carrying amount of the combined portfolios:

|                                                                                                                                                                                                                                            |      |            |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ---------- | ----------
|Living Word Bible, Mesa, AZ ; interest at prime plus 2.0%, with a floorof 9.0% (9.75% at March 31, 2006); principal and interest due onmaturity on December 1, 2006                                                                         | $    | 3,500,000  |           
|                                                                                                                                                                                                                                            |      |            |           
|Community Protestant Church of Co-Op City, Bronx, NY; interest atprime plus 2.0%, with a floor of 9.25% (9.25% at March 31, 2006,not scheduled to reprice until January 1, 2009); monthly paymentsof $26,249 to maturity on January 1, 2026 |      | 2,857,654  |           
|                                                                                                                                                                                                                                            |      |            |           
|Great Plains Assisted Living L.L.C., Sioux City, IA; interest atprime plus 1.5%, with a floor of 5.5% (5.5% at March 31, 2006,not scheduled to reprice until January 1, 2009); monthly paymentsof $17,960 to maturity on January 1, 2029    |      | 2,799,111  |           
|                                                                                                                                                                                                                                            |      |            |           
|Christ Temple Pentecostal Church, Kansas City, MO; interest atprime plus 2.0%, with a floor of 7.0% (9.75% at March 31, 2006);principal and interest due on maturity on June 1, 2006                                                        |      | 2,566,891  |           
|                                                                                                                                                                                                                                            |      |            |           
|Bickford Cottage LLC, Lafayette, IN; interest at prime plus 1.5%, witha floor of 8.0% (8.0% at March 31, 2006, not scheduled to repriceuntil September 1, 2010); monthly payments of $18,949 to maturityon September 1, 2030                |      | 2,439,245  |           
|                                                                                                                                                                                                                                            |      |            |           
|                                                                                                                                                                                                                                            | $    | 14,162,901 |           
|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, 2006, are:                                                 
|                                                                                                                                                                                                                                            |      |            |           
|                                                                                                                                                                                                                                            | 2007 | $          | 23,693,834
|                                                                                                                                                                                                                                            | 2008 |            | 2,423,180 
|                                                                                                                                                                                                                                            | 2009 |            | 2,460,634 
|                                                                                                                                                                                                                                            | 2010 |            | 2,526,322 
|                                                                                                                                                                                                                                            | 2011 |            | 2,684,172 
|At March 31, 2006, mortgage loans and interim construction loans of $70,815,921 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, 2006 and 2005 follows:
|-----------------------------------------------------------------------------------------------------------------

|                                        |   | 2006      |   | 2005      | 
|--------------------------------------- | - | --------- | - | --------- | 
|                                        |   |           |   |           | 
|Balance at beginning of year            | $ | 1,713,249 | $ | 1,733,249 | 
|                                        |   |           |   |           | 
|Charge-offs                             |   | --        |   | --        | 
|                                        |   |           |   |           | 
|Recoveries                              |   | --        |   | --        | 
|                                        |   |           |   |           | 
|Provision charged to operating expenses |   | --        |   | (20,000)  | 
|                                        |   |           |   |           | 
|Balance at end of year                  | $ | 1,713,249 | $ | 1,713,249 | 
|- 23 -                                 



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1  LOANS AND CHURCH BONDS(CONTINUTED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|At March 31, 2006 and 2005, the recorded investment for loans for which impairment was recognized in accordance with Statement No. 114 was approximately $1,959,000 and $3,172,000, respectively. The related allowance for credit losses at March 31, 2006 and 2005 was $463,000 and $558,000, respectively.The average investment in impaired loans was approximately $2,566,000 and $3,217,000 for the years ended March 31, 2006 and 2005, respectively. Interest income which would have been recorded under the original terms of impaired loans and church bonds amounted to approximately $97,000 and $277,000 for the years ended March 31, 2006 and 2005, respectively.Interest income actually recognized for the years ended March 31, 2006 and 2005 was approximately $46,000 and
$685,000, respectively. In 2005, interest income actually recognized includes amounts received from a nonaccrual loan paid off during the year.
|NOTE 2  DEBT OBLIGATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Information relating to debt obligations follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Balance atend of year |            | Weightedaverageinterest rate atend of year |        | Maximumamountoutstanding atany month-end |   | Averagemonth-endbalance |   | Weightedaverageinterest ratefor the year
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | ---------- | ------------------------------------------ | ------ | ---------------------------------------- | - | ----------------------- | - | ----------------------------------------
|March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                       |            |                                            |        |                                          |   |                         |   |                                         
|Line of credit payable to bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                     | 20,755,000 |                                            | 6.54%* |                                          | $ | 23,630,000              | $ | 17,500,000                              
|Other demand notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                       | 18,135,110 |                                            | 6.75%  |                                          |   | 18,135,110              |   | 17,158,381                              
|TOTAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $                     | 38,890,110 |                                            | 6.64%  |                                          | $ | 41,765,110              | $ | 34,658,381                              
|March 31, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                       |            |                                            |        |                                          |   |                         |   |                                         
|Line of credit payable to bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                     | 10,495,000 |                                            | 4.57%* |                                          | $ | 11,145,000              | $ | 5,562,231                               
|Other demand notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                       | 17,086,042 |                                            | 4.75%  |                                          |   | 17,086,042              |   | 14,980,929                              
|TOTAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $                     | 27,581,042 |                                            | 4.68%  |                                          | $ | 28,231,042              | $ | 20,543,160                              
|* Does not consider commitment fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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 line of credit.



Descriptions of the various categories of debt obligations follow:



Line of Credit Payable to Bank



As of January 31, 2006 the line of credit payable to bank consists of borrowings under a loan agreement that provides for a $35,000,000 line of credit with certain commitment fees. The line of credit is due and payable in one payment of all outstanding principal plus all accrued unpaid interest on December 31, 2008. Pursuant to the new agreement with the bank, Church Loans has pledged all mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit. The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of the performing mortgage loans and church bonds and 50% of the outstanding principal amount of the performing interim construction loans. Interest accrues at the six-month LIBOR rate plus 1.60% (6.54% at March 31, 2006). Interest is payable monthly.





- 24 -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                       |            |                                            |        |                                          |   |                         |   |                                         

|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005
|--------------------------------------------------------------------------------------------------------------------
|NOTE 2  DEBT OBLIGATIONS(CONTINUTED)                                                                               

|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 250% of its net worth. At March 31, 2006, Church Loans' total indebtedness was $14,245,000 less than the maximum amount permitted under the agreement.



Demand Notes Payable



Debt obligation consists of demand notes payable of $18,135,110 which mature during the year ended March 31, 2007. The demand notes payable bear interest at 1% less than the prime rate (payable monthly) and are unsecured(see note 7).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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% 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.



Deferred taxes were not significant to Church Loans' 2006 and 2005 financial statements.

|Total income tax provision for the years ended March 31, 2006 and 2005 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: | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                                                   | 
|                                                                                                                                                                                                                                   | 
|Computed "expected" federal income tax provision                                                                                                                                                                                   | 
|Increases (decreases) in taxes resulting from:                                                                                                                                                                                     | 
|Dividends                                                                                                                                                                                                                          | 
|Graduated rate differential                                                                                                                                                                                                        | 
|Difference in provision for credit losses for financial and tax purposes                                                                                                                                                           | 
|Difference in accounting for interest income recognized for financial and tax purposes                                                                                                                                             | 
|Other                                                                                                                                                                                                                              | 
|                                                                                                                                                                                                                                   | 
|Actual provision for income taxes                                                                                                                                                                                                  | 
|                                                                                                                                                                                                                                   | 

|NOTE 4  SECURITIES OFFERING
|----------------------------

|Church Loans filed a Form S-11 Registration Statement, (the Statement) with the Securities and Exchange Commission indicating its intent to offer 7,000,000 additional shares at a price of $3.00 per share. The purpose of this offering was to raise additional capital in order for Church Loans to make additional mortgage loans and as a result, to further grow the company. The effective date of the registration was August 14, 2003. In addition, on various dates subsequent to August 14, 2003, this offering became effective in various states. Sales of shares ceased as of August 14, 2004, and as of such date, Church Loans had sold and issued an additional 3,216,288 shares resulting in an increase of $9,138,425, net of issuance costs of $510,439, in Church Loans' shareholders' equity.





- 25 -
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 5  NET INCOME PER SHARE                                                                                                                                                                                                                                                                                                     
|Net income per share of beneficial interest is based on the weighted average number of shares outstanding, which was 10,217,094 and 9,898,521 for the years ended March 31, 2006 and 2005, respectively. There were no share equivalents or other potentially dilutive securities outstanding during any of the periods presented.
|NOTE 6  DIVIDENDS                                                                                                                                                                                                                                                                                                                

|All dividends paid by Church Loans are taxable to the recipient. A schedule of dividends paid during the years ended March 31, 2006 and 2005 follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                     
|Date of record                                                                                                                                       
|                                                                                                                                                     
|March 31, 2004                                                                                                                                       
|December 31, 2004                                                                                                                                    
|March 31, 2005                                                                                                                                       
|December 31, 2005                                                                                                                                    
|In April 2006, a dividend of $715,197 ($0.07 per share) was declared for shareholders of record on March 31, 2006.                                   
|                                                                                                                                                     

|NOTE 7  RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                    
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Other demand notes payable at March 31, 2006 and 2005 included notes totaling $2,845,753 and $3,598,662, respectively, which represent borrowings from related parties. The notes bear interest at 1% less than the prime rate (6.75% at March 31, 2006) and are unsecured. Interest expense incurred on related party other demand notes payable was approximately $200,000 and $90,000in 2006 and 2005, respectively.
|NOTE 8  CASH FLOW INFORMATION                                                                                                                                                                                                                                                                                                                                                                                         
|Supplemental information on cash flows and noncash transactions for the years ended March 31, 2006 and 2005 is as follows:                                                                                                                                                                                                                                                                                             

|                                                                  |  |   | 2006      |   | 2005    | 
|----------------------------------------------------------------- |  | - | --------- | - | ------- | 
|Supplemental cash flow information                                |  |   |           |   |         | 
|                                                                  |  |   |           |   |         | 
|Interest paid                                                     |  | $ | 1,891,715 | $ | 786,523 | 
|                                                                  |  |   |           |   |         | 
|Income taxes paid                                                 |  | $ | 76,252    | $ | 138,208 | 
|                                                                  |  |   |           |   |         | 
|Schedule of noncash investing activity:                           |  |   |           |   |         | 
|                                                                  |  |   |           |   |         | 
|Mortgage loan issued in connection with sale of other real estate |  | $ | --        | $ | 235,000 | 
|                                                                  |  |   |           |   |         | 
|Deferred gain from sale of other real estate                      |  | $ | --        | $ | 116,027 | 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|- 26 -                                                           
|                                                                 
|                                                                 
|                                                                  |  |   |           |   |         | 



|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005
|--------------------------------------------------------------------------------------------------------------------
|NOTE 9  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, 2006, Church Loans had outstanding loan commitments (by
contract amounts) of approximately $21,560,000. 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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 10  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-rateloans, 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 $69,350,200 and $57,606,197 and the fair value of loans and bonds was approximately $63,315,000and $55,777,000 at March 31, 2006 and 2005, respectively.



Notes Payable and Line of Credit



The fair value of notes payable is equal to the carrying value as such liabilities are deemed to be short-term borrowings. The fair value of the line of credit is equal to the carrying value as such amounts are variable rate debt.



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.



- 27 -





|CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)NOTES TO FINANCIAL STATEMENTSMarch 31, 2006 and 2005
|--------------------------------------------------------------------------------------------------------------------
|NOTE 10  DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS(CONTINUTED)                                      

|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.









































































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



- 28 -
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







|Item 8: | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None



|Item 8A: | CONTROLS AND PROCEDURES
|-------- | -----------------------



Our chief executive officer and our chief financial officer are charged with making an evaluation of our disclosure controls and procedures. These controls and procedures are designed to ensure that information required to be disclosed in reports mandated by the Securities Exchange Act of 1934 is recorded, communicated to management, and accurately reported within the required time periods. Our chief executive officer and chief financial officer have concluded, based upon their evaluation of these controls and procedures as of March 31, 2006, that our disclosure controls and procedures are effective.



There have been no significant changes in our internal controls or in the other factors that could significantly affect these controls subsequent to the date of their evaluation.



|Item 8B: | OTHER INFORMATION
|-------- | -----------------



We have entered into a new loan agreement with the Amarillo National Bank on January 31, 2006. The primary differences in the loan agreement and past agreements with the bank are:



| | The new agreement increases the line of credit from $30,000,000 to $35,000,000;                                  
|- | -----------------------------------------------------------------------------------------------------------------
| | The new agreement is for a term maturing on December 31, 2008, instead of being renewed each year as in the past;
| | The new agreement provides for a rate of interest that is more favorable to us; and                              
| | The new agreement provides for a pledge of all of our loan portfolio to the bank instead of a set pool of loans. 



Pursuant to the new line of credit loan agreement with the bank effective January 31, 2006, the interest rate on our line of credit owing to the Amarillo National Bank adjusts, at our option, in accordance with the 30-day, 60-day, 90-day or 180-day London Interbank Offered Rates (LIBOR) or the J.P. Morgan Chase & Co. prime rate. We may choose at each adjustment date a rate equal to the 30-day, 60-day, 90-day or 180-day LIBOR plus 1.6% or the J.P. Morgan Chase & Co. prime rate minus 1%.



During the period from January 1, 2006 to January 31, 2006, the December 31, 2004 loan agreement was extended pursuant to an extension agreement entered into with the bank. This was done to allow additional time for negotiations of the new loan agreement. During this one month extension, the bank reduced the interest rate on the line of credit from the 30 day LIBOR plus 1.75% to the 30 day LIBOR plus 1.60%.



Pursuant to the new agreement with the bank, we have pledged all of our mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit. We will continue to hold all of the loan files and service the loans as long as we are not in default under the loan agreement. This should reduce some of our legal costs associated with pledging a specific pool of loans to secure the line of credit as we have done it in the past.



The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of our performing mortgage loans and church bonds and 50% of the outstanding principal amount of our performing interim construction loans. Applying that borrowing limit to our loan portfolio as of March 31, 2006, we can borrow up to the entire $35,000,000 line of credit limit.



We believe that this new agreement is upon terms and conditions that are more favorable to us.













- 29 -















| | PART III
| | --------



|Item 9: | DIRECTORS AND EXECUTIVE OFFICERS
|------- | --------------------------------



|(a) | Board of Trust Managers. The following information is furnished as to each individual who now serves as a member of our Board of Trust Managers:                                       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|(b) | Executive Officers. The following information is furnished as to each individual who now serves as an executive officer and who is not mentioned under "Board of Trust Managers" above:
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        
|    |                                                                                                                                                                                        



|(c) | Family Relationships.
|--- | ---------------------



None.



|(d) | Involvement in Certain Legal Proceedings.
|--- | -----------------------------------------



None.



|(e) | Audit Committee Financial Expert.
|--- | ---------------------------------



We do not have an audit committee financial expert serving on our Audit Committee. However, we believe that our Audit Committee, as a whole, meets the requirements of a financial expert.



- 30 -









|(f) | Identification of the Audit Committee.
|--- | --------------------------------------



We have an Audit Committee which consists of Messers McMorries, Smith, Vincent and Borger. This committee, which met twelve times during our last fiscal year, is primarily responsible for: reviewing the activities of our independent auditors; reviewing and evaluating recommendations of the auditors; recommending areas of review to our management; reviewing our loans to determine the recommended loan loss reserve and review and classification of past due loans; and reviewing and evaluating our accounting policies, reporting practices and internal controls.



|(g) | Changes in Recommending Nominees to the Board of Trust Managers.
|--- | ----------------------------------------------------------------



None.



|(h) | Compliance with Section 16(a) of the Securities Exchange Act of 1934.
|--- | ---------------------------------------------------------------------



Based upon information provided to us by individual Trust Managers and Executive Officers and shareholders, we believe that during the preceding fiscal year our Managers and Executive Officers and shareholders have complied with all such applicable filing requirements.



|(i) | Code of Ethics for Officers
|--- | ---------------------------



We have adopted a Code of Ethics applicable to our executive officers. A copy of the Code of Ethics is attached hereto as Exhibit 14. The Code of Ethics is also posted on our website atwww.churchloans.com.We will provide, free of charge, to any person so requesting a copy of the Code of Ethics. Requests can be made to:



| | Church Loans & Investments Trust

Attn: Mr. Kelly Archer

5305 I-40 West

Amarillo, Texas 79106

Telephone: (806) 358-3666

E-mail:karcher@churchloans.com
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 10: | EXECUTIVE COMPENSATION
|-------- | ----------------------



(a) Executive Officers:



The following table sets forth certain information regarding compensation paid during each of our last three fiscal years to our CEO. We have no other executive officers whose salary, bonuses and other compensation earned during fiscal 2006 exceeded $100,000 for services rendered in all capacities.



|                            |              | Annual Compensation
|--------------------------- | ------------ | -------------------
|Name and Principal Position | Fiscal

Year | Salary             
|CEO-M. Kelly Archer         | 2006         | $110,850           
|                            | 2005         | 108,413            
|                            | 2004         | 108,150            



Other Annual Compensation paid to or for the benefit of Mr. Archer represents annual contributions to Mr. Archers SEP (Simplified Employee Pension) account.











- 31 











(b) Trust Managers' Compensation:



Our Board of Trust Managers was paid $48,200 in cash as a group during the last fiscal year for services as Trust Managers. The Chairman of the Board of Trust Managers, B. R. McMorries, is paid $500 per month for serving in such capacity. The remaining members of the Board of Trust Managers are paid $300 per month for serving as a member of the board. All Trust Managers are paid an additional $100 per board or committee meeting attended. In addition, a Trust Manager receives $400 per day for their services when out of town on trust business.



The members of the Board of Trust Managers are not otherwise employed or compensated by us.



|Item 11: | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------



|(a) | The following table indicates the persons known by us to own beneficially more than 5 percent of our shares of beneficial interest:
|--- | -----------------------------------------------------------------------------------------------------------------------------------



| | Name and Address ofBeneficial Owner             |  | Amount of and Natureof Beneficial Ownership |  | Percentof Class | 
| | ----------------------------------------------- |  | ------------------------------------------- |  | --------------- | 
| | Edith M. Brandon3001 Teckla, Amarillo, TX 79106 |  | 605,323 shares                              |  | 5.930%          | 



|(b) | The following table indicates the number of our shares of beneficial ownership owned by the Board of Trust Managers and Executive Officers, individually and as a group:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  | Name and Address ofBeneficial Owner                                                                                                                                                                                   |  | Amount of and Natureof Beneficial Ownership* |  | Percentof Class | 
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------- |  | --------------- | 
|  | B. R. McMorries1601 Jordan, Amarillo, TX 79106                                                                                                                                                                        |  | 400,072                                      |  | 3.916%          | 
|  | Larry G. Brown4210 Palacio Dr, Amarillo, TX 79109                                                                                                                                                                     |  | 42,787                                       |  | 0.419%          | 
|  | Jack R. Vincent6303 Stoneham Dr, Amarillo, TX 79109                                                                                                                                                                   |  | 12,500                                       |  | 0.122%          | 
|  | Steven Rogers6206 Calumet, Amarillo, TX 79106                                                                                                                                                                         |  | 2,800                                        |  | 0.027%          | 
|  | Michael A. Bahn1612 S. Travis, Amarillo, TX 79102                                                                                                                                                                     |  | 1,650                                        |  | 0.016%          | 
|  | Alfred J. Smith21 Hogan Dr, Amarillo, TX 79124                                                                                                                                                                        |  | 38,393                                       |  | 0.376%          | 
|  | Michael W. Borger43 Cypress Point, Amarillo, TX 79124                                                                                                                                                                 |  | 13,850                                       |  | 0.136%          | 
|  | M. Kelly Archer7200 Dreyfuss Rd, Amarillo, TX 79106                                                                                                                                                                   |  | 177,734                                      |  | 1.740%          | 
|  | Robert E. Fowler7629 Tarrytown Av., Amarillo, TX 79121                                                                                                                                                                |  | 8,218                                        |  | 0.080%          | 
|  | Robert E. Martin8 Country Club Dr, Amarillo, TX 79124                                                                                                                                                                 |  | 9,011                                        |  | 0.088%          | 
|  | Joshua D. Shields6825 Blacksmith LN, Amarillo, TX 79109                                                                                                                                                               |  | 4,650                                        |  | 0.046%          | 
|  | All Trust Managers andExecutive Officers as a Group                                                                                                                                                                   |  | 711,665                                      |  | 6.965%          | 
|* | The nature of beneficial ownership of such shares is either directly by such named person, indirectly through such persons spouse or through Individual Retirement Accounts directed by such person or their spouse.
|  |                                                                                                                                                                                                                       |  |                                              |  |                 | 



- 32 -



(c)Change in control.



We know of no arrangements which may result in a change of control.



|(d) | Securities Authorized for Issuance under Equity Compensation Plans.
|--- | -------------------------------------------------------------------



None.



|Item 12: | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



We issue a limited number of "Master Notes" which are unsecured debt instruments. We pay the obligee of such notes interest at the rate of one percent per annum (1%) less than the prime lending rate of Amarillo National Bank, our primary lender. As of March 31, 2006, we had entered into Master Note Agreements with B. R. McMorries, Chairman of the Board of Trust Managers, and related parties, in the amount of $806,188; Larry Brown, Vice-Chairman of the Board of Trust Managers and related persons, in the amount of $574,592; Jack R. Vincent, a member of the Board of Trust Managers, and related parties in the amount of $167,159; M. Kelly Archer, President, Manager of Operations and CEO of the Trust and related persons, in the amount of $295,646; and Michael W. Borger, and related parties, in the amount of $1,002,168. The terms of such Master Notes are the same as Master Notes entered into with other unrelated persons, except
as to the amounts thereof.



Jack R. Vincent serves as a member of our Board of Trust Managers and serves also as a member of the Board of Directors of Happy State Bank and Trust Company, Happy, Texas. Happy State Bank and Trust Company competes with us for loans to churches, including interim loans to churches. This competition may have a significant impact on the number of interim loans we acquire through referrals from church bond broker-dealers. These church bond broker-dealers are a substantial source of our interim loans.



|Item 13: | EXHIBITS
|-------- | --------



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



The Exhibits listed on the accompanying Index to Exhibits are filed as a part of this Annual Report.



|Item 14: | PRINCIPAL ACCOUNTANTS FEES AND SERVICES
|-------- | ----------------------------------------



The Board of Trust Managers has selected Clifton Gunderson LLP, independent certified public accountants, as the auditors of our financial statements for the fiscal year ending March 31, 2007. At the meeting of the shareholders to be held on August 29, 2006, the shareholders will vote upon a proposal to ratify the selection of this firm as auditors. No member of such firm, or any associate thereof, has any financial interest in us.



Audit Fees



The aggregate fees billed for professional services rendered for the audit of our annual financial statements for the most recent fiscal year, the review of the financial statements included in our Form 10-QSB for such fiscal year, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $68,000 as compared to $63,900 for the fiscal year ended March 31, 2005.



Audit-Related Fees



None.



Tax Fees



The aggregate fees billed us for tax services, including preparation of our tax return and tax related matters, were $7,395 for the most recent fiscal year as compared to $6,275 for the fiscal year ended March 31, 2005.







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All Other Fees



There were no other fees billed in each of the last two fiscal years for services rendered by the principal accountant, Clifton Gunderson LLP for other services not included above.



Before Clifton Gunderson LLP is engaged by us to render audit or non-audit services, the engagement is approved by our Audit Committee. Furthermore, the accountants engagement to render tax services is also approved by our Audit Committee prior to the engagement. There were no other fees not included above.



All hours expended on the principal accountants engagement to audit our Financial Statements for the most recent fiscal year were attributed to work performed by Clifton Gunderson LLPs full-time, permanent employees.





















































































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|CHURCH LOANS & INVESTMENTS TRUSTINDEX TO EXHIBITSItem 13(a)
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|SIGNATURES                                                                                                                                                                   
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|In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  
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|DATE: June 27, 2006                                                                                                                                                          
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|In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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|Service Mark and Copyright Notice



Copyright © 2006 by Church Loans & Investments TrustThis report is copyrighted material ofChurch Loans & Investments Trust.Church Loans & Investments Trust is a service markof the Trustees of Church Loans & Investments Trust.The unauthorized use of the service marks and copyrightsof Church Loans & Investments Trust without the express,written permission of Church Loans & Investments Trust,is strictly prohibited. All rights reserved.



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