## INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying balance sheets of Church Loans
& Investments Trust (a real estate investment trust) as of March 31, 2000
and 1999, 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, 2000 and 1999, 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 1, 2000

# -16-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Balance Sheets
March 31, 2000 and 1999

`Assets
                                                                                        2000            1999
                                                                                  ------------    ------------
CASH AND CASH EQUIVALENTS .....................................................   $    387,087    $    181,068

Receivables
     Mortgage loans and church bonds - performing .............................     22,141,873      23,109,175
     Interim construction loans - performing ..................................      8,827,383      10,406,937
     Nonperforming mortgage loans, church bonds
         and interim construction loans .......................................      5,967,657       3,555,029
     Less: Allowance for possible credit losses ...............................     (1,388,172)     (1,215,213)
                                                                                  ------------    ------------
                                                                                    35,548,741      35,855,928
     Accrued interest receivable ..............................................        258,593         323,396
     Notes receivable .........................................................        599,969         407,111
                                                                                  ------------    ------------
                  Total receivables ...........................................     36,407,303      36,586,435
                                                                                  ------------    ------------
Property and equipment, net of accumulated
     depreciation of $492,067 and $476,395 in 2000
     and 1999, respectively ...................................................        166,275         181,947
REAL ESTATE ACQUIRED THROUGH FORECLOSURE ......................................        968,349         314,196
OTHER ASSETS ..................................................................         15,926          28,891
                                                                                  ------------    ------------
TOTAL ASSETS ..................................................................   $ 37,944,940    $ 37,292,537
                                                                                  ============    ============
                                           Liabilities and Shareholders' Equity
Liabilities
     Notes payable and line of credit:
         Related party ........................................................   $  2,820,128    $  1,921,680
         Other ................................................................     12,043,064      10,185,984
                                                                                  ------------    ------------
                                                                                    14,863,192      12,107,664
     Secured savings certificates .............................................        726,000       2,763,376
     Accrued interest payable .................................................        108,320         104,785
     Other ....................................................................        660,250       1,059,035
                                                                                  ------------    ------------
                  Total liabilities ...........................................     16,357,762      16,034,860
                                                                                  ------------    ------------
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 .................................................        979,802         650,301
     Treasury shares, at cost (6,596 shares) ..................................        (16,490)        (16,490)
                                                                                  ------------    ------------
                  Total shareholders' equity ..................................     21,587,178      21,257,677
                                                                                  ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................   $ 37,944,940    $ 37,292,537
                                                                                  ============    ============

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

# -17-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Income
Years ended March 31, 2000 and 1999

`2000         1999
                                                             ----------   ----------
Interest income and fees
     Interest and fees on loans and notes receivable .....   $4,633,199   $4,526,221
     Interest on temporary investments ...................       83,601       34,996
                                                             ----------   ----------
                  Total interest income and fees .........    4,716,800    4,561,217
Debt expense
     Interest ............................................    1,110,202    1,139,875
     Amortization of commissions paid to brokers .........       11,862       35,929
                                                             ----------   ----------
                  Total debt expense .....................    1,122,064    1,175,804
                                                             ----------   ----------
                  Net interest income ....................    3,594,736    3,385,413
Provision for possible credit losses .....................      180,000      180,000
                                                             ----------   ----------
                  Net interest income less provision
                      for possible credit losses .........    3,414,736    3,205,413
                                                             ----------   ----------
Other income, including gains on sale of other
     real estate of $421,367 in 2000 .....................      429,136       17,580
Other operating expenses
     General and administrative ..........................      695,719      631,265
     Board of Trust Managers' fees .......................       55,398       53,441
                                                             ----------   ----------
                  Total other operating expenses .........      751,117      684,706
                                                             ----------   ----------
                  Income before provision for income taxes    3,092,755    2,538,287
Provision for income taxes ...............................       32,940       32,461
                                                             ----------   ----------
NET INCOME ...............................................   $3,059,815   $2,505,826
                                                             ==========   ==========
Net income per share                                             $ .44        $ .36
                                                                 =====        =====

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

# -18-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Shareholders' Equity
Years ended March 31, 2000 and 1999

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

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

    Net income ....................       -               -          3,059,815           -              3,059,815
                                      ---------   -------------   ------------    --------------     ------------
Balance, March 31, 2000 ...........   7,007,402   $ 20,623,866    $    979,802    $    (16,490)      $ 21,587,178
                                      =========   =============   ============    ==============     ============

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

# -19-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Statements of Cash Flows
Years ended March 31, 2000 and 1999

`2000           1999
                                                                            ----           ----
Cash flows from operating activities
    Net income ....................................................   $  3,059,815    $  2,505,826
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation ............................................         15,672          15,672
          Amortization of debt expense ............................         11,862          35,929
          Amortization of loan discounts ..........................       (125,022)       (330,074)
          Provision for possible credit losses ....................        180,000         180,000
          Gain on sale of other real estate .......................        (28,902)              -
          Recognition of deferred gain on sale of other real estate       (392,465)              -
          Changes in:
              Accrued interest receivable .........................         64,803          17,964
              Accrued interest payable ............................          3,535          75,017
              Other liabilities ...................................        (58,646)       (114,884)
          Other, net ..............................................          5,646          (1,860)
                                                                         ---------       ---------
                  Net cash provided by operating activities .......      2,736,298       2,383,590
                                                                         ---------       ---------
Cash flows from investing activities
    Investment in mortgage and interim construction
       loans and church bonds .....................................    (26,748,968)    (35,518,740)
    Payments received on mortgage and interim construction
       loans and church bonds .....................................     26,342,866      35,610,274
    Advances on notes receivable ..................................       (541,641)       (374,954)
    Payments received on notes receivable .........................        348,783         373,703
    Proceeds from sale of other real estate owned .................         80,843         115,792
                                                                         ---------       ---------
                  Net cash provided (used) by investing activities        (518,117)        206,075
                                                                         ---------       ---------
Cash flows from financing activities
    Borrowings on notes payable and line of credit ................     31,979,801      33,684,821
    Principal payments on:
       Secured savings certificates ...............................     (2,037,376)     (4,300,447)
       Notes payable and line of credit ...........................    (29,224,273)    (29,287,868)
    Cash dividends paid ...........................................     (2,730,314)     (2,521,016)
    Treasury shares purchased .....................................              -         (16,490)
                                                                         ---------       ---------
                  Net cash used by financing activities ...........     (2,012,162)     (2,441,000)
                  Increase in cash and cash equivalents ...........        206,019         148,665
Cash and cash equivalents, beginning of year ......................        181,068          32,403
                                                                         ---------       ---------
Cash and cash equivalents, end of year ............................   $    387,087    $    181,068
                                                                         =========       =========

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

# -20-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2000 and 1999

#### 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 debt obligations and
secured savings certificates (SSCs). The volatility of interest rates and
increased competition to attract customers funds have caused Church
Loans liability structure to become short-term and rate sensitive. Church
Loans reflected an average interest yield on its loan and church bond portfolio,
an average interest rate on its total indebtedness and a net interest rate
margin at March 31, 2000 and 1999 as follows:

`Loan and church               Total               Net interest
                             bond portfolio            indebtedness            rate margin
                             --------------            ------------            -----------
March 31, 2000                    10.14%                  8.00%                    2.14%
March 31, 1999                    10.06%                  6.90%                    3.16%`

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

#### CHURCH BONDS

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

# -21-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2000 and 1999

#### 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
mortgage loans and church bonds more than 90 days past due (180 days for interim
construction loans) or when there is sufficient doubt as to the collection of
interest. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Cash interest payments received are applied to principal when
collection of principal is in doubt or are recognized as interest income when
recovery of principal is reasonably assured.

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

Commitment fees received on interim construction loans are
recognized over the interim commitment period for loans that are not permanently
financed by Church Loans and over the life of the mortgage loan for loans that
are permanently financed by Church Loans. Amounts are being amortized using the
straight-line method. This method was not materially different from the method
of deferring commitment fees until the commitment is exercised and recognizing
such fees as an adjustment to yield by the interest method over the related
loans lives as prescribed by generally accepted accounting principles for
the years ended March 31, 2000 and 1999.

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

#### PROPERTY AND EQUIPMENT

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

#### REAL ESTATE ACQUIRED THROUGH FORECLOSURE

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

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

# -22-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Summary of Significant Accounting Policies
March 31, 2000 and 1999

#### 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-

#### CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2000 and 1999

#### NOTE 1 - LOANS AND CHURCH BONDS

Mortgage loans receivable consist of conventional loans of
$23,504,519 and $25,129,877 and church bonds of $389,511 and $401,172 at
March 31, 2000 and 1999, respectively. Interim construction loans of
$13,504,230 and $12,126,462 at March 31, 2000 and 1999, respectively, consist
primarily of loans to churches for the construction of church facilities and
assisted living centers. Mortgage loans, church bonds and interim construction
loans are generally secured by first liens on real estate comprised primarily of
church buildings and other real estate. The amount of a loan is generally
limited to 66-2/3% of the appraised value of the related property. Certain loans
are guaranteed by individual members of the congregations or other individuals
or congregations, depending on the circumstances.

Church Loans portfolio included mortgage loans, church
bonds and interim construction loans with interest rates ranging from 8% to 17%
at March 31, 2000. The weighted average annual interest rates of Church
Loans loan and church bond portfolio were 10.14% and 10.06% at
March 31, 2000 and 1999, respectively.

Generally accepted accounting principles require disclosure of
information about certain concen-trations. In addition to a concentration of
loans to churches, Church Loans makes certain interim real estate construction
loans and permanent loans to entities other than churches. At March 31, 2000,
Church Loans had seven loans to two borrowers which were secured by assisted
living centers and totaled approximately $12,483,000. At March 31, 1999, Church
Loans had eight such loans to two borrowers totaling approximately $12,233,000.

# -24-

`The following  schedule is a summary of the combined  mortgage,  church bonds and interim  construction  loan portfolios by
size of loan at March 31, 2000 and 1999:
                                                             2000                            1999
                                                   ------------------------         ----------------------
                                                   No. of        Carrying           No. of      Carrying
      Description                                   loans         amount             loans       amount

Over $1,500,000 ............................              9    $ 18,738,951               7   $ 15,656,676
$1,300,000-1,499,999 .......................              -               -               1      1,490,000
$1,000,000-1,299,999 .......................              1       1,014,389               1      1,249,254
$900,000-999,999 ...........................              1         900,000               1        900,000
$800,000-899,999 ...........................              -           -                   1        819,668
$700,000-799,999 ...........................              2       1,473,742               2      1,502,314
$600,000-699,999 ...........................              3       1,981,972               3      1,917,206
$500,000-599,999 ...........................              3       1,667,646               -          -
$400,000-499,999 ...........................              6       2,603,661               7      2,963,901
$300,000-399,999 ...........................              4       1,437,014               7      2,544,781
$200,000-299,999 ...........................             13       3,059,172              17      4,138,814
$100,000-199,999 ...........................             21       2,918,668              17      2,313,281
Under $100,000 .............................             42       1,603,045              57      2,161,616
                                               ------------    ------------    ------------   ------------
                                                        105      37,398,260             121     37,657,511

Less:  unamortized purchase discounts on
        mortgage loans .....................                       (461,347)                      (586,370)
Less:  allowance for possible credit losses                      (1,388,172)                    (1,215,213)
                                                               ------------                   ------------
Total ......................................                   $ 35,548,741                   $ 35,855,928
                                                               ============                   ============`

# -25-

The mortgage and interim construction loan portfolios included
the following loans at March 31, 2000, with individual balances in excess
of 3% of the total carrying amount of the combined portfolios:

`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, 2000);
    monthly payments of $28,199 to maturity on May 1, 2014 ................  $ 2,482,709 (a)

Meade Ministries, Lake City, Florida; interest at prime plus 2%,
    with a floor of 9.75%  (9.75% at March 31, 2000); monthly
    payments of $27,014 to maturity on April 1, 2014 ......................    2,477,869

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, 2000);
    monthly payments of  $28,741 to maturity on January 1, 2013 ...........    2,420,804 (a)

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, 2000);
    monthly payments of $26,480 to maturity on May 1, 2013 ................    2,262,183 (a)

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, 2000);
    monthly payments of $25,149 to maturity on December 10, 2012 ..........    2,106,437 (a)

Houston International Church of Christ, Houston, Texas; interest at
    prime plus 1.5% with a floor of 10.25% (10.50% at March 31, 2000);
    principal and interest due at maturity on September 1, 2000 ...........    2,000,000

Triumph Baptist Church, Philadelphia, Pennsylvania; interest
    at 10.50%; monthly payments of $26,988 to maturity on
    August 1, 2008 ........................................................    1,803,949

Biltmore Group, Farmerville, Louisiana; interest at prime plus 1.5%
    with a floor of 10.0% (10.5% at March 31, 2000); principal and interest
    due at maturity on July 20, 2000 ......................................    1,600,000 (b)

Biltmore Group, Natchitoches, Louisiana; interest at prime plus 1.5%,
    with a floor of 10.0% (10.50% at March 31, 2000); principal and
    interest due at maturity on July 20, 2000 .............................    1,585,000 (b)
                                                                            ------------
                                                                            $ 18,738,951
                                                                            ============
(a)   Same borrower - Great Plains Assisted Living L.L.C.
(b)   Same borrower - Biltmore Group`

# -26-

Nonperforming mortgage loans, church bonds and interim
construction loans at March 31, 2000 and 1999 were $5,967,657 and $3,555,029,
respectively. Interest income which would have been recorded under the original
terms of nonperforming loans and church bonds amounted to approximately $460,000
and $288,000 for the years ended March 31, 2000 and 1999, respectively. Interest
income actually recognized for the years ended March 31, 2000 and 1999 was
approximately $69,000 and $145,000, 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, 2000, are:

`2001           .............          $14,463,653
          2002           .............            1,548,764
          2003           .............            1,635,166
          2004           .............            1,513,953
          2005           .............            1,516,775`

At March 31, 2000, mortgage loans were pledged to support
indebtedness of Church Loans as follows:

`Line of credit payable to bank....... $ 10,416,156
          Secured savings certificates  .......      701,346
                                                ------------
          Total mortgage loans pledged  ....... $ 11,117,502
                                                ============

A summary of  transactions  in the  allowance  for  possible  credit  losses for the years  ended  March 31,  2000 and 1999
follows:

                                               2000           1999
                                           -----------    -----------
Balance at beginning of year ...........   $ 1,215,213    $ 1,035,213
Provisions charged to operating expenses       180,000        180,000
Loans charged off ......................        (7,041)          -
                                           -----------    -----------
Balance at end of year .................   $ 1,388,172    $ 1,215,213
                                           ===========    ===========`

At March 31, 2000 and 1999, the recorded investment for loans
for which impairment was recognized in accordance with Statement No. 114 was
approximately $1,814,000 and $2,477,000, respectively. The related allowance for
credit losses was $540,000 and $590,000, respectively, at March 31, 2000 and
1999.

# -27-

#### NOTE 2 - DEBT OBLIGATIONS

`Information relating to debt obligations follows:

                                                         Weighted          Maximum                        Weighted
                                                          average          amount            Average       average
                                      Balance at     interest rate at  outstanding at       month-end   interest rate
                                     end of period     end of period    any month-end        balance   for the period
                                     -------------     -------------    -------------        -------   --------------
     March 31, 2000
     --------------
Line of credit payable to bank ....  $  3,810,000         8.00%*        $  8,585,000     $  3,905,769       7.31%
Other demand notes payable     ....    11,053,192         8.00%           11,053,192        9,219,179       7.41%
Secured savings certificates   ....       726,000         7.96%            2,763,377        1,608,549       7.81%
                                     ------------         ----          ------------     ------------       ----
TOTAL                          ....  $ 15,589,192         8.00%         $ 22,401,569     $ 14,733,497       7.43%
                                     ============         ====          ============     ============       ====
     March 31, 1999
     --------------
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%
                                     ============         ====          ============     ============       ====

* Does not consider commitment fees.`

Debt obligations of $15,589,192 mature during the year ending
2001, including other demand notes payable of $11,053,192.

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-

#### 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.
At March 31, 1999, Church Loans was in compliance with the requirement. As
of March 31, 2000, Church Loans was not in compliance with this requirement.
Subsequent to year end, Church Loans pledged additional mortgage notes
receivables in order to meet the collateral obligation.

#### Line of Credit Payable to Bank

The line of credit payable to bank consists of borrowings under
a loan agreement effective through December 30, 2000, 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 (11% at March 31, 2000), of not less than 110% of all
indebtedness owed to the bank. Interest accrued at the prime rate less one
percent during 2000 and 1999. 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, 2000, 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.

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

Deferred taxes were not significant to Church Loans 2000
and 1999 financial statements.

Total income tax expense for the years ended March 31, 2000 and
1999 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:

`2000            1999
                                                    ----------       --------
Computed "expected" federal income tax expense .   $ 1,082,464    $   888,400
Increases (decreases) in taxes resulting from:
    Dividends ..................................    (1,053,621)      (857,599)
    Graduated rate differential ................       (11,949)       (11,702)
    Difference in provision for loan losses for
       financial and tax purposes ..............       213,738        (33,123)
    Difference in accounting for interest
       recognized for financial and tax purposes      (200,575)        46,485
    Other ......................................         2,883           --
                                                    ----------       --------
Actual tax expense .............................   $    32,940    $    32,461
                                                    ==========       ========`

#### NOTE 4 - NET INCOME PER SHARE

Net income per share of beneficial interest is based on the
weighted average number of shares outstanding, which was 7,000,806 and 7,004,337
for the years ended March 31, 2000 and 1999, 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, 2000 and 1999 follows:

`Dividend amount
                                                                            ----------------------------
    Date of record                           Date paid                      Per share              Total
    --------------                           ---------                      ---------              -----
March 31, 1998                            May 1998                            .11                 $  770,814
December 31, 1998                         January 1999                        .25                  1,750,202
March 31, 1999                            May 1999                            .10                    700,081
December 31, 1999                         January 2000                        .29                  2,030,233`

In April 2000, a dividend of $980,113 ($.14 per share) was
declared for stockholders of record on March 31, 2000. Approximately $.07 per
share of this dividend will be classified as capital gain.

#### NOTE 6 - Related Party Transactions

Other demand notes payable at March 31, 2000 and 1999 included
notes totaling $2,820,128 and $1,921,680, respectively, which represent
borrowings from related parties. The notes bear interest at 1% less than the
prime rate and are unsecured. Interest expense incurred on related party other
demand notes payable was approximately $158,000 in 2000 and was not significant
in 1999.

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#### NOTE 7 - CASH FLOW INFORMATION

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



`2000           1999
                                                                                   -----------   --------------
Supplemental cash flow information:
    Interest paid                                                                  $ 1,106,667   $   1,064,858
                                                                                   ===========   ==============
Income taxes paid was not material in 2000 or 1999.

Schedule of noncash investing and financing activity:

    Real estate acquired through foreclosure                                       $   658,312   $         -
                                                                                   ===========   ==============
    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, 2000, Church Loans had outstanding loan commitments (by contract amounts) of
approximately $2,601,000. 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.

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#### 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 $35,548,741 and $35,855,928 and the fair value of loans was approximately
$34,800,000 and $36,800,000 at March 31, 2000 and 1999, 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 $726,000
and $2,763,376 and the fair value of secured savings certificates was
approximately $729,000 and $2,811,000 at March 31, 2000 and 1999, 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.

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



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