Independent Auditors' Report

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

We have audited the  accompanying  balance  sheets of Church Loans & Investments
Trust (a real estate  investment  trust) as of March 31, 1999 and 1998,  and the
related statements of income, shareholders' equity, and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Church Loans &  Investments
Trust as of March 31, 1999 and 1998,  and the results of its  operations and its
cash  flows for the years  then  ended in  conformity  with  generally  accepted
accounting principles.

/s/ Clifton Gunderson P.L.L.C.

Amarillo, Texas
May 7, 1999

                                      -16-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                                 Balance Sheets
                             March 31, 1999 and 1998

                  ASSETS                                1999            1998
                                                   ------------    -------------

CASH AND CASH EQUIVALENTS ......................   $    181,068    $     32,403

RECEIVABLES
     Mortgage loans and church bonds - performing    23,109,175      22,165,629
     Interim construction loans - performing ...     10,406,937      10,732,915
     Nonperforming mortgage loans, church bonds
         and interim construction loans ........      3,555,029       2,492,095
     Less: Allowance for possible credit losses      (1,215,213)     (1,035,213)
                                                   ------------    ------------
                                                     35,855,928      34,355,426
     Accrued interest receivable ...............        323,396         341,360
     Notes receivable ..........................        407,111         405,860
                                                   ------------    ------------
                  Total receivables ............     36,586,435      35,102,646
                                                   ------------    ------------
Property and equipment, net of accumulated
     depreciation of $476,395 and $460,721 in
     1999 and 1998, respectively ...............        181,947         197,619
REAL ESTATE ACQUIRED THROUGH FORECLOSURE .......        314,196       1,479,486
Unamortized debt expense AND OTHER ASSETS ......         28,891          62,960
                                                   ------------    ------------
TOTAL ASSETS ...................................   $ 37,292,537    $ 36,875,114
                                                   ============    ============
                      LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
     Notes payable and line of credit:
         Related party .........................   $  1,921,680    $  1,969,938
         Other .................................     10,185,984       5,740,773
                                                   ------------    ------------
                                                     12,107,664       7,710,711
     Secured savings certificates:
         Related party .........................           --           240,000
         Other .................................      2,763,376       6,823,823
                                                   ------------    ------------
                                                      2,763,376       7,063,823
     Accrued interest payable ..................        104,785          29,768
     Other .....................................      1,059,035         781,455
                                                   ------------    ------------
                  Total liabilities ............     16,034,860      15,585,757
                                                   ------------    ------------
SHAREHOLDERS' EQUITY
     Shares of beneficial interest, no par value;
       authorized shares unlimited, 7,007,402
       shares issued ............................    20,623,866      20,623,866
     Undistributed net income ..................        650,301         665,491
     Treasury shares, at cost (6,596 shares) ...        (16,490)           --
                                                   ------------    ------------
                  Total shareholders' equity ...     21,257,677      21,289,357
                                                   ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .....   $ 37,292,537    $ 36,875,114
                                                   ============    ============
        These financial statements should be read only in connection with
         the accompanying summary of significant accounting policies and
                         notes to financial statements.

                                      -17-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                              Statements of Income
                       Years ended March 31, 1999 and 1998
                                                            1999        1998
                                                            ----        ----
INTEREST INCOME AND FEES
     Interest and fees on loans and notes receivable      $4,526,221  $3,926,008
     Interest on temporary investments ..............         34,996      62,705
                                                          ----------  ----------
                  Total interest income and fees ....      4,561,217   3,988,713
DEBT EXPENSE
     Interest .......................................      1,139,875     921,787
     Amortization of:
         Registration costs .........................           --         4,984
         Commissions paid to brokers ................         35,929      56,314
                                                          ----------  ----------
                  Total debt expense ................      1,175,804     983,085
                                                          ----------  ----------
                  Net interest income ...............      3,385,413   3,005,628
PROVISION FOR POSSIBLE CREDIT LOSSES ................        180,000     180,000
                                                          ----------  ----------
                  Net interest income less provision
                      for possible credit losses ....      3,205,413   2,825,628
                                                          ----------  ----------
OTHER INCOME ........................................         17,580     122,183
OTHER OPERATING EXPENSES
     General and administrative .....................        631,265     650,446
     Board of Trust Managers' fees ..................         53,441      47,692
                                                          ----------  ----------
                  Total other operating expenses ....        684,706     698,138
                                                          ----------  ----------
                  Income before provision for
                      income taxes ..................      2,538,287   2,249,673
PROVISION FOR INCOME TAXES ..........................         32,461      23,140
                                                          ----------  ----------
NET INCOME ..........................................     $2,505,826  $2,226,533
                                                          ==========  ==========
NET INCOME PER SHARE                                           $ .36       $ .32
                                                               =====       =====

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

                                      -18-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                       Statements of Shareholders' Equity
                       Years ended March 31, 1999 and 1998

                SHARES OF BENEFICIAL INTEREST
                 --------------------------- UNDISTRIBUTED TREASURY
                       SHARES       AMOUNT    NET INCOME    SHARES    TOTAL
                    -----------  -----------  ----------  --------- -----------
Balance,
     March 31, 1997   7,007,402  $20,623,866  $  611,253  $    -    $21,235,119

    Cash dividends
     ($.31 per share)     -            -      (2,172,295)      -     (2,172,295)

    Net income            -            -       2,226,533       -      2,226,533
                      ---------  -----------  ----------- ---------- -----------
Balance,
     March 31, 1998   7,007,402   20,623,866     665,491       -     21,289,357

    Cash dividends
      ($.36 per share)    -            -      (2,521,016)      -     (2,521,016)

    Net income            -            -       2,505,826       -      2,505,826

    Treasury shares
      purchased           -            -           -       (16,490)     (16,490)
                      ---------  -----------  ----------- ---------- -----------
Balance,
     March 31, 1999   7,007,402  $20,623,866  $   650,301 $(16,490)  $21,257,677
                      =========  ===========  =========== =========  ===========

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

                                      -19-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                            Statements of Cash Flows
                       Years ended March 31, 1999 and 1998

                                                        1999            1998
                                                        ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income .................................   $  2,505,826    $  2,226,533
    Adjustments to reconcile net income to net
     cash provided by operating activities:
        Depreciation ...........................         15,672          15,672
        Amortization of debt expense ...........         35,929          61,298
        Amortization of loan discounts .........       (330,074)       (236,512)
        Provision for possible credit losses ...        180,000         180,000
        Changes in:
            Accrued interest receivable ........         17,964         (37,604)
            Accrued interest payable ...........         75,017         (15,443)
            Other liabilities ..................       (114,884)        225,881
        Other, net .............................         (1,860)        (42,816)
                                                   ------------    ------------
                Net cash provided by
                 operating activities ..........      2,383,590       2,377,009
                                                   ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Investment in mortgage and interim
     construction loans and church bonds .......    (35,518,740)    (33,238,225)
    Payments received on mortgage and
     interim construction loans and
     church bonds ..............................     35,610,274      31,194,006
    Advances on notes receivable ...............       (374,954)       (270,836)
    Payments received on notes receivable ......        373,703         401,429
    Proceeds from sale of other
     real estate owned .........................        115,792            --
                                                   ------------    ------------
                  Net cash provided (used)
                   by investing activities .....        206,075      (1,913,626)
                                                   ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
    Sale of secured savings certificates .......           --         3,314,121
    Borrowings on notes payable and line
     of credit .................................     33,684,821       6,358,320
    Principal payments on:
       Secured savings certificates ............     (4,300,447)     (3,824,270)
       Notes payable and line of credit ........    (29,287,868)     (4,693,485)
    Cash dividends paid ........................     (2,521,016)     (2,172,295)
    Treasury shares purchased ..................        (16,490)           --
                                                   ------------    ------------
                  Net cash used by
                   financing activities ........     (2,441,000)     (1,017,609)
                                                   ------------    ------------
                  Increase (decrease) in
                   cash and cash equivalents ...        148,665        (554,226)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ...         32,403         586,629
                                                   ------------    ------------
CASH AND CASH EQUIVALENTS, END OF YEAR .........   $    181,068    $     32,403
                                                   ============    ============
       These financial statements should be read only in connection with
         the accompanying summary of significant accounting policies and
                         notes to financial statements.

                                      -20-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                   Summary of Significant Accounting Policies
                             March 31, 1999 and 1998

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 U.S.  Church  Loans  requires  that real estate
properties  be pledged  against  loans as security  which could be foreclosed by
Church  Loans  should  the  borrower  default.   Repayment  of  each  borrower's
obligations is generally  expected to be repaid from  contributions  from church
members  or  from  operations  of  the  borrower,  or in  the  case  of  interim
construction loans, by permanent financing provided by others.

USE OF ESTIMATES

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

Actual results could differ from those estimates.

CURRENT OPERATING ENVIRONMENT

Church Loans has historically invested in long-term,  fixed-rate mortgage loans,
generally funded by relatively  short-term secured savings  certificates  (SSCs)
and 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, 1999 and 1998 as
follows:

                                   LOAN AND CHURCH      TOTAL       NET INTEREST
                                   BOND PORTFOLIO    INDEBTEDNESS   RATE MARGIN
                                   --------------    ------------   -----------
March 31, 1999 ....................    10.06%            6.90%          3.16%
March 31, 1998 ....................    10.95%            7.44%          3.51%

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

CHURCH BONDS

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

                                      -21-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                   Summary of Significant Accounting Policies
                             March 31, 1999 and 1998

LOANS AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES

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

Impaired loans are measured  based on the present value of expected  future cash
flows  discounted at the loan's  effective  interest rate or the market price or
the  fair  value of the  collateral  if the loan is  collateral  dependent.  The
accrual of interest is  generally  discontinued  on loans and church  bonds more
than 90 days past due or when there is sufficient  doubt as to the collection of
interest. When interest accrual is discontinued,  all unpaid accrued interest is
reversed.  Cash  interest  payments  received  are  applied  to  principal  when
collection of principal is in doubt or are  recognized  as interest  income when
recovery of principal is reasonably assured.

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

Commitment fees received on interim  construction  loans are recognized over the
interim commitment period for loans that are not permanently  financed by Church
Loans  and over the life of the  mortgage  loan for loans  that are  permanently
financed by Church Loans.  Amounts are being amortized  using the  straight-line
method.  This method was not  materially  different from the method of deferring
commitment fees until the commitment is exercised and  recognizing  such fees as
an adjustment to yield by the interest  method over the related  loans' lives as
prescribed by generally accepted accounting principles for the years ended March
31, 1999 and 1998.

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

PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation is provided on the  straight-line  method over the estimated useful
lives of the assets, which range from 3 to 18 years.

REAL ESTATE ACQUIRED THROUGH FORECLOSURE

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

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

                                      -22-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                   Summary of Significant Accounting Policies
                             March 31, 1999 and 1998

UNAMORTIZED DEBT EXPENSE

Commissions paid to brokers in connection with the sale of SSCs are deferred and
amortized  over the terms of the related  certificates  on the interest  method.
Costs  incurred in  connection  with the  registration  of SSCs are deferred and
amortized on the straight-line  method over the period the related  certificates
are sold,  but no longer than two years from the date the  registration  becomes
effective.

INCOME TAXES

Income taxes are accounted for under  Statement No. 109,  Accounting  for Income
Taxes.  Under the asset and  liability  method of  Statement  109,  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.  Under Statement 109, the effect on deferred tax assets
and  liabilities  of a change in tax rates is recognized in income in the period
that includes the enactment date.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

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

CASH FLOWS

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

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

                                      -23-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

NOTE 1 - LOANS AND CHURCH BONDS

Mortgage loans  receivable  consist of  conventional  loans of  $25,129,877  and
$23,974,905  and church  bonds of  $401,172  and  $488,839 at March 31, 1999 and
1998, respectively. Interim construction loans of $12,126,462 and $11,695,994 at
March 31, 1999 and 1998,  respectively,  consist  primarily of loans to churches
for the construction of church facilities and assisted living centers.  Mortgage
loans,  church bonds and interim  construction  loans are  generally  secured by
first liens on real estate  comprised  primarily of church  buildings  and other
real  estate.  The  amount of a loan is  generally  limited  to  66-2/3%  of the
appraised  value of the  related  property.  Certain  loans  are  guaranteed  by
individual  members of the  congregations or other individuals or congregations,
depending on the circumstances.

Church  Loans'  portfolio  included  mortgage  loans,  church  bonds and interim
construction  loans with  interest  rates ranging from 7.50% to 17% at March 31,
1999.  The weighted  average  annual  interest  rates of Church  Loans' loan and
church  bond  portfolio  were  10.06%  and  10.95% at March  31,  1999 and 1998,
respectively.

Generally accepted accounting principles require disclosure of information about
certain current vulnerabilities due to certain concentrations.  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,  1999,  Church  Loans had eight loans to two  borrowers  which were
secured by assisted living centers and totaled approximately  $12,233,000.  Four
of these loans were to the same borrower and totaled approximately $9,001,000 at
March 31, 1999.  In addition,  Church Loans had four loan  commitments  to these
same two  borrowers  at March 31, 1999 for interim  construction  and  permanent
financing of assisted living centers which totaled approximately $3,825,000.

                                      -24-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

The following schedule is a summary of the combined  mortgage,  church bonds and
interim construction loan portfolios by size of loan at March 31, 1999 and 1998:

                                          1999                      1998
                                   -----------------         -------------------
                                   No. of  Carrying          No. of     Carrying
   Description                     loans    amount            loans      amount
------------------------           -----    ------            -----      ------

Over $1,500,000 ........             7   $15,656,676             6  $13,940,641
$1,300,000-1,499,999 ...             1     1,490,000             2    2,655,842
$1,000,000-1,299,999 ...             1     1,249,254             1    1,296,980
$900,000-999,999 .......             1       900,000             2    1,840,381
$800,000-899,999 .......             1       819,668             1      847,948
$700,000-799,999 .......             2     1,502,314             3    2,203,579
$600,000-699,999 .......             3     1,917,206             3    1,905,673
$500,000-599,999 .......             -         -                 -         -
$400,000-499,999 .......             7     2,963,901             3    1,339,271
$300,000-399,999 .......             7     2,544,781             5    1,819,868
$200,000-299,999 .......            17     4,138,814            12    3,083,597
$100,000-199,999 .......            17     2,313,281            20    2,824,929
Under $100,000 .........            57     2,161,616            71    2,401,029
                                   ---   -----------           ---   ----------
                                   121    37,657,511           129    6,159,738
                                   ===                         ===
Less:  unamortized purchase discounts
        on mortgage loans ........          (586,370)                  (769,099)
Less:  allowance for possible credit
        losses ...................         1,215,213                 (1,035,213)
                                         -----------                -----------
TOTAL ............................       $35,855,928                $34,355,426
                                         ===========                ===========

                                      -25-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

The mortgage and interim  construction  loan  portfolios  included the following
loans at March 31, 1999, with  individual  balances in excess of 3% of the total
carrying amount of the combined portfolios:

MeadeMinistries,  Lake City, Florida; interest at prime
     plus 2%, with a floor of 9.75% (9.75% at March 31,
     1999); monthly payments of $27,014 to maturity on
     April 1, 2014 ................................................   $2,550,000

Great Plains Assisted Living L.L.C., Lincoln,  Nebraska;
    interest at prime plus 2%, with a floor of 10.50%
    (10.50% at March 31, 1999); monthly payments of
    $28,741 to maturity on January 1, 2013 .......................    2,506,557*

Great Plains Assisted Living L.L.C., Omaha, Nebraska;
    interest at prime plus 2%, with a floor of 10.50%
    (10.50% at March 31, 1999); monthly payments of
    $26,480 to maturity on May 1, 2013 ...........................    2,338,031*

Great Plains Assisted Living L.L.C.,  Sioux City,  Iowa;
    interest at prime plus 2%, with a floor of 10.50%
    (10.50% at March 31, 1999); monthly payments of
    $25,149 to maturity on December 10, 2012 .....................    2,182,645*

Biltmore Group,  Sedona,  Arizona;  interest at prime
    plus .5%,  with a floor of 8.75% (8.75% at March 31,
    1999); principal and interest due at maturity on May
    1, 1999 .......................................................    2,174,025

Great Plains Assisted Living L.L.C., Urbandale, Iowa;
    interest at prime plus 2%, with a floor of 10.50%
    (10.50% at March 31, 1999); principal and interest
    due at maturity on December 1, 1998 ...........................   1,973,603*

Triumph Baptist Church, Philadelphia, Pennsylvania;
    interest at 10.50%; monthly payments of $26,988 to
    maturity on August 1, 2008 ....................................    1,931,815

Living Word  Family  Church,  Raleigh,  North  Carolina;
    interest at prime plus 1.50%, with a floor of 9.25%
    (9.25% at March 31, 1999); principal and interest due
    at maturity on September 8, 1999 ..............................    1,490,000

Bethany Baptist Church, Melbourne, Florida; interest at
    10.50%; monthly payments of $15,138 to maturity on
    June 30, 2011 .................................................    1,249,254
                                                                ----------------
                                                                $     18,395,930
                                                                ================
*   Same borrower

                                      -26-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

In the normal  course of  business,  Church  Loans makes  commitments  to extend
credit which are not reflected in the financial  statements.  These  commitments
involve elements of credit risk,  interest rate risk,  liquidity risk and market
risk.  At March 31, 1999,  Church Loans had  outstanding  loan  commitments  (by
contract  amounts) of approximately  $11,452,000  including  $3,825,000 for four
loans to two  borrowers  to finance  the  construction  of four  assisted-living
centers.  Church Loans has no other financial instruments with off-balance-sheet
risk.

Nonperforming  mortgage loans,  church bonds and interim  construction  loans at
March 31, 1999 and 1998 were $3,555,029 and $2,492,095,  respectively.  Interest
income which would have been recorded under the original terms of  nonperforming
loans and church bonds amounted to  approximately  $288,000 and $339,000 for the
years ended  March 31, 1999 and 1998,  respectively.  Interest  income  actually
recognized  for the  years  ended  March  31,  1999 and  1998 was  approximately
$145,000 and $111,000, respectively.

The  original  terms of the  individual  loans  included  in the loan  portfolio
generally vary from 1 to 30 years.  Scheduled  maturities  during the five years
subsequent to March 31, 1999, are:

                        2000 ...............     $13,376,084
                        2001 ...............       1,616,852
                        2002 ...............       1,580,016
                        2003 ...............       1,604,578
                        2004 ...............       1,690,149

At March 31, 1999, mortgage loans were pledged to support indebtedness of Church
Loans as follows:

Line of credit payable to bank   ......................         $      9,304,931
Secured savings certificates     ......................                5,406,722
                                                                ----------------

TOTAL MORTGAGE LOANS PLEDGED     ......................         $     14,711,653
                                                                ================
A summary of  transactions  in the allowance for possible  credit losses for the
years ended March 31, 1999 and 1998 follows:

                                                        1999              1998
                                                        ----              ----
BALANCE AT BEGINNING OF YEAR  ................  $    1,035,213   $       855,213
Provisions charged to operating expenses  ....         180,000           180,000
                                                --------------   ---------------
BALANCE AT END OF YEAR                          $    1,215,213    $    1,035,213
                                                ==============    ==============


At March  31,  1999 and  1998,  the  recorded  investment  for  loans  for which
impairment was recognized in accordance with Statement No. 114 was approximately
$2,477,000 and $1,038,000, respectively. The related allowance for credit losses
was $590,000 and $270,000, respectively, at March 31, 1999 and 1998.

                                      -27-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

NOTE 2 - DEBT OBLIGATIONS

Information relating to debt obligations follows:

<TABLE>
<CAPTION>
                                                      WEIGHTED           MAXIMUM                        WEIGHTED
                                                      AVERAGE            AMOUNT         AVERAGE         AVERAGE
                                   BALANCE AT       INTEREST RATE     OUTSTANDING AT   MONTH-END     INTEREST RATE
                                 END OF PERIOD     AT END OF PERIOD   ANY MONTH-END     BALANCE     FOR THE PERIOD
                                 -------------     ----------------   --------------  -----------   --------------
<S>                              <C>                     <C>           <C>            <C>                <C>
Line of credit payable to bank   $  3,850,000            6.75%*        $  7,700,000   $  4,586,538       7.50%
Other demand notes payable          8,257,664            6.75%            8,257,664      6,053,159       6.93%
Secured savings certificates        2,763,376            7.58%            7,063,823      4,852,980       7.47%
                                 ------------            -----         ------------   ------------       -----

TOTAL                            $ 14,871,040            6.90%         $ 18,457,062   $ 15,492,677       7.27%
                                 ============            =====         ============   ============       =====

     March 31, 1998

Line of credit payable to bank   $  2,800,000            7.50%*        $  2,800,000   $    505,078       7.81%
Other demand notes payable          4,910,711            7.50%            4,910,711      4,503,880       7.56%
Secured savings certificates        7,063,823            7.38%            7,863,480      7,452,851       7.29%
                                 ------------           ------         ------------   ------------      ------

TOTAL                            $ 14,774,534            7.44%         $ 14,774,534   $ 12,461,809       7.26%
                                 ============           ======         ============   ============      ======
 </TABLE>
* Does not consider commitment fees.

Maturities of debt for years subsequent to March 31, 1999, are:

              2000  .......................  $     14,145,040
              2001  .......................           726,000
                                             ----------------
                                             $     14,871,040
                                             ================

Included in maturities  for the year ended March 31, 2000 are other demand notes
payable of $8,257,664.

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

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

                                      -28-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

NOTE 2 - DEBT OBLIGATIONS (CONTINUED)
Descriptions of the various categories of debt obligations follow:

SECURED SAVINGS CERTIFICATES

SSCs were  issued in amounts of $1,000 or more and have  single  maturity  dates
from 30 days to 10 years  from  date of issue.  With  respect  to an  individual
certificate, interest rate and frequency of payment of interest (either monthly,
quarterly,  semiannually,  annually  or at  maturity)  are  fixed at the time of
issuance of the certificate.  Effective July 1997, Church Loans discontinued the
sale of SSCs.

The certificates are secured under the terms of certain indentures that require,
among other things,  the pledge of mortgage notes  receivable  with total unpaid
principal  amounts  not less  than  100% of the  aggregate  principal  amount of
certain respective SSC registrations outstanding. As of March 31, 1999 and 1998,
Church Loans was in compliance with the requirement.

LINE OF CREDIT PAYABLE TO BANK

The line of credit payable to bank consists of borrowings under a loan agreement
effective  through  September 1, 1999,  that provides for a $15,000,000  line of
credit with certain commitment fees. The loan agreement requires Church Loans to
pledge  mortgage  loans  receivable  having  unpaid  principal  balances with an
aggregate  present  value,  discounted at 2% over the prime rate (9.75% at March
31, 1999), of not less than 110% of all indebtedness owed to the bank.  Interest
accrued at the prime rate less one percent  from  September 1, 1997 to March 31,
1999,  and at the prime rate less one quarter of one percent  from April 1, 1997
to August 31, 1997. Interest is payable semiannually.

Additionally,  the line of credit  requires  that Church  Loans' net worth be no
less than  $18,000,000 and its total  indebtedness  shall not exceed 150% of its
net worth. At March 31, 1999, Church Loans' total indebtedness was approximately
$17,000,000 less than the maximum amount permitted under the agreement.

DEMAND NOTES PAYABLE

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

NOTE 3 - INCOME TAX PROVISION

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

Deferred  taxes were not  significant  to Church Loans' 1999 and 1998  financial
statements.
                                      -29-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

Total  income tax  expense  for the years  ended March 31, 1999 and 1998 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:

                                                       1999              1998
                                                       ----              ----
Computed "expected" federal income tax expense   $    888,400     $     787,386
Increases (decreases) in taxes resulting from:
    Dividends                                        (857,599)         (784,829)
    Graduated rate differential                       (11,702)          (12,669)
    Difference in provision for loan losses for

       financial and tax purposes                     (33,123)          (28,127)
    Difference in accounting for interest
       recognized for financial and tax purposes       46,485            58,102
    Other                                                -                3,277
                                                 ------------     -------------
ACTUAL TAX EXPENSE                               $     32,461     $      23,140
                                                 ============     =============

NOTE 4 - NET INCOME PER SHARE

Net income per share of  beneficial  interest is based on the  weighted  average
number of shares  outstanding,  which was  7,004,337 and 7,007,402 for the years
ended March 31, 1999 and 1998, respectively.  There were no share equivalents or
other  potentially  dilutive  securities  outstanding  during any of the periods
presented.

NOTE 5 - DIVIDENDS

All  dividends  paid by  Church  Loans are  taxable  as  ordinary  income to the
recipient.  A schedule of  dividends  paid during the years ended March 31, 1999
and 1998 follows:

                                                        Divdend amount
                                                    ---------------------
          Date of record             Date paid      Per share     Total
          ------------------------   ------------   ---------  ----------
          March 31, 1997 .........   May 1997       $   .10    $  700,740
          December 31, 1997 ......   January 1998       .21     1,471,555
          March 31,1998 ..........   May 1998           .11       770,814
          December 31, 1998 ......   January 1999       .25     1,750,202


In April  1999,  a  dividend  of  $700,081  ($.10 per share)  was  declared  for
stockholders of record on March 31, 1999.

NOTE 6 - RELATED PARTY TRANSACTIONS

Other demand notes  payable at March 31, 1999 and 1998 included  notes  totaling
$1,921,680 and $1,969,938, respectively, which represent borrowings from related
parties.  The  notes  bear  interest  at 1% less  than  the  prime  rate and are
unsecured. Interest expense incurred on related party other demand notes payable
was not significant for 1999 or 1998.

                                      -30-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

Secured savings  certificates at March 31, 1998 included  certificates  totaling
$240,000,  which  represented  liabilities to related parties.  Interest expense
incurred on savings certificates of related parties was not significant for 1999
or 1998.

NOTE 7 -      CASH FLOW INFORMATION

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

                                                         1999           1998
                                                         ----           ----
Supplemental cash flow information:
    Interest paid  .............................      $ 1,064,858   $    937,230
                                                      ===========   ============

Income taxes paid was not material in 1999 or 1998.

                                                         1999           1998
                                                         ----           ----

Schedule of noncash investing and financing activity:
    Real estate acquired through foreclosure .....    $     -        $ 1,359,536
                                                      ============== ===========

    Portion of sale of real estate acquired through
      foreclosure financed by Church Loans   .....    $    1,441,963 $    -
                                                      ============== ===========

    Deferred gain on sale of real estate acquired through
      foreclosure (included in other liabilities)..   $      392,465 $    -
                                                      ============== ===========


NOTE 8 - COMMITMENTS

Church Loans is a party to financial instruments with  off-balance-sheet risk in
the normal course of business.  Commitments  to extend credit are  agreements to
lend to a customer as long as there is no violation of any condition established
in the contract.  Commitments  generally  have variable  interest  rates,  fixed
expiration  dates or other  termination  clauses and  require  payment of a fee.
Since some of the  commitments  may expire  without being drawn upon,  the total
commitment amounts do not necessarily represent future cash requirements. Church
Loans  evaluates each  customer's  credit  worthiness on a  case-by-case  basis.
Collateral  generally  includes real estate  properties.  The exposure to credit
loss in the event of  nonperformance  by the other party to the  commitments  to
extend  credit is  represented  by the  contractual  amount.  At March 31, 1999,
Church  Loans  had  outstanding  loan  commitments  (by  contract   amounts)  of
approximately  $11,452,000,  including $3,825,000 to finance the construction of
or provide permanent financing for assisted living centers.  Management does not
anticipate any losses as a result of these transactions.

NOTE 9 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

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

CASH AND CASH EQUIVALENTS

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

                                      -31-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

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

LOANS AND CHURCH BONDS

Fair  values  are  estimated  for  portfolios  of loans with  similar  financial
characteristics.  Loans are  segregated  by type,  such as mortgage  and interim
construction  loans and church bonds.  Each loan  category is further  segmented
into  fixed  and  adjustable  rate  interest  terms.  For  variable-rate  loans,
primarily  interim  construction  loans,  that  reprice  frequently  and with no
significant  change in credit risk,  fair values are based on carrying  amounts.
The fair value of fixed-rate  mortgage loans and bonds is generally estimated by
discounting  the future cash flows  through  the  estimated  maturity  using the
current  rates at which  similar  loans would be made to borrowers  with similar
credit  ratings.  The estimate of maturity is based on Church Loans'  historical
experience with repayments for each loan classification,  modified, as required,
by an estimate of the effect of current  economic  and lending  conditions.  The
carrying  value of loans,  net of the allowance for loan losses was  $35,855,928
and  $34,355,426 and the fair value of loans was  approximately  $36,800,000 and
$34,800,000 at March 31, 1999 and 1998, respectively.

NOTES PAYABLE AND LINE OF CREDIT

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

SECURED SAVINGS CERTIFICATES

The fair value of secured  savings  certificates  is  estimated  using the rates
currently  offered for financial  instruments  of similar  characteristics.  The
carrying value of secured savings certificates was $2,763,376 and $7,063,823 and
the fair value of secured savings certificates was approximately  $2,811,000 and
$7,200,000 at March 31, 1999 and 1998, respectively.

COMMITMENTS TO EXTEND CREDIT

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

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.

                                      -32-
<PAGE>
                        CHURCH LOANS & INVESTMENTS TRUST
                        (A Real Estate Investment Trust)
                          NOTES TO FINANCIAL STATEMENTS
                             March 31, 1999 and 1998

NOTE 10 - YEAR 2000

Like most businesses,  Church Loans may be exposed to risks associated with Year
2000 dating  problems.  This problem  affects  computer  software and  hardware;
transactions  with  customers,   vendors,  and  other  entities;  and  equipment
dependent on  microchips.  Church Loans has begun,  but not yet  completed,  the
process of identifying and remediating  potential Year 2000 problems.  It is not
possible  for any  business  to  guarantee  the  results of its own  remediation
efforts or to  accurately  predict  the impact of Year 2000  dating  problems on
third parties with which Church Loans conducts business.  If remediation efforts
of Church Loans or third parties with which it does business are not successful,
it is possible  the Year 2000 dating  problem  could  negatively  impact  Church
Loans' financial position and results of operations.

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

                                      -33-
<PAGE>