As filed with the Securities and Exchange Commission on March 31, 1998

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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[X]  Annual Report Under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934 For the Fiscal Year Ended December 31, 1997
       or

[    ] Transition  Report Under Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 For the Transition Period from __________ to __________.
--------------------------------------------------------------------------------


                         Commission File Number 33-87570


                        American Church Mortgage Company

--------------------------------------------------------------------------------


              (Exact name of small business issuer in its charter)

                            10237 Yellow Circle Drive
                              Minneapolis, MN 55343
                            Telephone: (612) 945-9455

                  I.R.S. Employer Identification No. 41-1793975

     State or other jurisdiction of incorporation or organization: Minnesota

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes x No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.[ x ]

State issuer's revenues for its most recent fiscal year:      $384,118

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock sold,  or the average bid
and asked prices of such stock, as of a specified date within the past 60 days:
Not applicable.

The number of shares  outstanding  of the  issuer's  $.01 par value  common
stock as of February 28, 1998 was: 624,233

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>




                        AMERICAN CHURCH MORTGAGE COMPANY
                                   FORM 10-KSB


                                    INDEX                                 Page
                                                                           No.

                                     PART I

Item 1.    Description of Business.................................        3

Item 2.    Description of Property.................................       10

Item 3.    Legal Proceedings.......................................       10

Item 4.    Submission of Matters to a Vote of Security Holders.....       10

                                     PART II

Item 5.    Market for Registrant's Common Equity and
           Related Stockholder Matters.............................       10

Item 6.    Management's Discussion and Analysis
           or Plan of Operation....................................       12

Item 7.    Financial Statements:...................................       14

                  Balance Sheet
                  December 31, 1997 and 1996.......................      F-2

                  Statement of Operations
                  Years Ended December 31, 1997 and
                      December 31, 1996............................      F-4

                  Statements of Stockholders' Equity
                  December 31, 1997 and 1996.......................      F-5

                  Statements of Cash Flows
                  Years Ended December 31, 1997 and
                      December 31, 1996............................      F-6

                  Notes to Financial Statements....................      F-8

Item 8.    Changes In and Disagreements With
           Accountants on Accounting and Financial Disclosure......       14

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control
           Persons; Compliance With Section 16 (a) of the
           Exchange Act............................................       14

Item 10.   Executive Compensation..................................       16

Item 11.   Security Ownership of Certain Beneficial Owners and
           Management..............................................       17

Item 12.   Certain Relationships and Related Transactions..........       18

Item 13.   Exhibits and Reports on Form 8-K........................       20


<PAGE>



                                     PART I

Item 1.    Description of Business

General

           Incorporated as a Minnesota  corporation on May 27, 1994, the Company
operates  as a Real  Estate  Investment  Trust  ("REIT")  and is  engaged in the
business of making  mortgage  loans to churches and other  non-profit  religious
organizations.  The  Company  makes  loans  throughout  the United  States.  The
principal  amount of such loans ranges from $100,000 to $1,000,000.  The Company
may also invest up to 30% of its  Average  Invested  Assets in mortgage  secured
debt  securities  (bonds)  issued by  churches  and other  non-profit  religious
organizations.  As of the date of this  Report,  the  Company  has made loans to
fifteen  churches in the aggregate  amount of $5,351,000,  with the average size
being  $356,000.  The Company has also  purchased  in the  secondary  market for
$47,282 (which includes $407 in accrued interest) First Mortgage Church Bonds in
the face amount of $52,000,  and for $72,805 Second Mortgage Church Bonds in the
face  amount of  $100,000.  Subject to  supervision  of the  Company's  Board of
Directors,  the business of the Company is managed by Church Loan Advisors, Inc.
(the "Advisor"),  which provides investment advisory and administrative services
to the Company.  The  principals of the Advisor  include  principals of American
Investors   Group,   Inc.,  an  NASD  member   broker-dealer   which  serves  as
dealer-manager of the Company's current public offering of its common stock. Two
of the Advisor's principals serve as directors of the Company.

Current Public Offering

           On  September  26,  1997,  the  Securities  and  Exchange  Commission
declared effective the Company's second offering of 1,500,000 common shares at a
price of $10.00 per share ($15,000,000) under SEC File 33-87570. The Offering is
currently being  co-underwritten by American  Investors Group,  Inc.("American")
and  LaSalle  St.  Securities,  Inc.,  ("LaSalle").  American  is  the  Managing
Underwriter and is an affiliate of the Company. This Offering is being conducted
on  a"best-efforts"  basis  pursuant to applicable  rules of the  Securities and
Exchange Commission and will terminate no later than 365 days from September 26,
1997,  subject to extension by mutual  agreement of the Company and the Managing
Underwriter  for an additional 120 days, or until  completion of the sale of all
Shares, whichever occurs first. The Company reserves the right to terminate this
Offering  at any time.  As of February  28,  1998 the  Company has sold  624,233
shares of its common stock and has a total of 248,945 issued and  outstanding in
this offering.

The Company's Business Activities

           The  Company's  business  is managed by Church Loan  Advisors,  Inc.,
Minnetonka,  Minnesota (the "Advisor").  The Advisor's affiliate,  American have
been engaged since 1987 in the business of underwriting first mortgage bonds for
churches  throughout the United States.  In  underwriting  such bonds,  American
reviews  financing   proposals,   analyzes   prospective   borrowers'  financial
capability, and structures,  markets and sells, mortgage-backed securities which
are debt obligations  (notes) of such borrowers to the investing general public.
The shareholders,  officers and directors of American,  have been engaged in the
business  of  church  financing  since  1983,  with  a  combined  experience  of
approximately  53 years in this  business.  Since its  inception,  American  has
underwritten  approximately 120 church bond financings,  in which  approximately
$165 million in first  mortgage  bonds have been sold to public  investors.  The
average size of single church bond financings underwritten by American since its
inception is approximately $1.5 million.

           In the course of its business,  American has identified a demand from
potential borrowers for smaller loans of $100,000 to $1,000,000.  Because of the
regulatory  and  administrative  expenses  associated  with the  bond  financing
business,  American  determined  that the economic  feasibility  of this form of
financing has diminished for financings under $750,000. As a result, the Company
believes  that many  churches are forced to either  forego the project for which
their  financing  request  was made,  fund their  project  from cash flow over a
period  of time and at  greater  expense,  or seek bank  financing  at terms not
always favorable or available to them, due to the historic reticence of banks to
lend to churches for other than economic reasons.  The Company's objective is to
provide a lending  source to this segment of the industry,  capitalizing  on the
human  resources  and  experience  available at American and the Advisor and the
marketing, advertising and general goodwill of American.

Financing Business

           The Company's  primary  business is to make first  mortgage  loans in
amounts  ranging from $100,000 to $1,000,000,  to churches and other  non-profit
religious  organizations,  and selecting and investing in mortgage-secured  debt
instruments  ("Church Bonds") issued by churches and other non-profit  religious
organizations  throughout the United States. The Company applies essentially all
of its working  capital  (after  adequate  reserves  determined  by the Advisor)
toward making mortgage loans and investing in Church Bonds. The Company seeks to
enhance  returns on  investments on such loans by (i)  emphasizing  shorter-term
(0-5 years) and mid-term  (5-15 years) loans and  construction  loans  (although
there is no limit on the term of loans the  Company  will  make);  (ii)  seeking
origination  fees (i.e.  "points") from the borrower at the outset of a loan and
upon any renewal of a loan;  (iii)  making a limited  amount of  higher-interest
rate second mortgage loans to qualified borrowers; and (iv) purchasing a limited
amount of mortgage- secured debt securities having various  maturities issued by
churches and other non-profit religious organizations. The Company's

                                        3

<PAGE>



policies  limit  the  amount of second  mortgage  loans to 20% of the  Company's
Average Invested Assets on the date any second mortgage loan is closed and limit
the amount of mortgage-secured debt securities to 30% of Average Invested Assets
on the date of their purchase.  All other mortgage loans made by the Company (or
Church Bonds purchased for  investment)  will be secured by a first mortgage (or
deed of trust) lien in favor of the  Company.  Although the Company will attempt
to make  mortgage  loans for terms of short (0-5 years) or medium  (5-15  years)
duration, and/or with variable interest rate provisions, it may make longer-term
fixed-rate  loans in its discretion,  in order to reduce the risk to the Company
of downward interest rate fluctuations.

           The   Company's   lending   and   investing   operations,   including
determination  of a prospective  borrower's  or church bond  issuer's  financial
credit worthiness,  are made on behalf of the Company by the Advisor.  Employees
and  agents of the  Advisor  conduct  all  aspects  of the  Company's  business,
including (i) marketing and  advertising;  (ii)  communication  with prospective
borrowers;  (iii)  processing  loan  applications;  (iv) closing the loans;  (v)
servicing the loans;  (vi)  shareholder  relations and (vii)  administering  the
Company's day-to-day business.  In consideration of its services to the Company,
the  Advisor  is  entitled  to  receive  a fee equal to 1 1/4%  annually  of the
Company's Average Invested Assets,  plus one-half of any origination fee charged
to  borrowers  on  mortgage  loans  made by the  Company  payable  monthly.  The
Advisor's management fees are computed and payable monthly.

Current First Mortgage Loan Terms

           The Company offers prospective borrowers a selection of "Loan Types,"
which  include a choice of fixed or variable  rates of  interest  indexed to the
"prime" rate of interest,  the U.S.  Treasury  10-Year Notes, or other generally
recognized  reference index,  and having various terms to maturity,  origination
fees and other terms and  conditions.  The Loan Types,  interest  rates and fees
offered and charged by the Company may from time-to-time be limited,  changed or
otherwise  unilaterally  amended by the Advisor in its discretion as a result of
such  factors  (among  others) as (i)  balance  of Loan  Types in the  Company's
portfolio;  (ii)  competition  from other  lenders;  (iii)  anticipated  need to
increase the overall yield to the Company on its mortgage loan  portfolio;  (vi)
local and national  economic  factors;  and (v) actual  experience in borrowers'
demand for the loans. In addition,  the Company may make mortgage loans on terms
other  than  those  identified  in its list of Loan  Types.  Subject  to change,
modification  or  elimination  at the complete  discretion  of the Company,  the
following  is a list  of the  Loan  Types  which  the  Company  currently  makes
available:


<TABLE>
<CAPTION>
            Loan Type                          Interest Rate (1)             Origination Fee (2)
<S>                                <C>                                                 <C>
15 Year Term (3)                   Fixed @ Prime + 3.0%                                4.0%
20 Year Term (3)                   Variable Annually @ Prime + 1.25%                   3.0%
Renewable Term  (4)                Fixed @ Prime plus:
     3 Year                               1.75%                                        3.5%
     5 Year                               2.00%                                        3.5%
     7 Year                               2.25%                                        3.5%
Construction 1 Year Term           Fixed @ Prime + 3.50%                               2.0%
=================================  ========================================= =========================
</TABLE>

     (1)  "Prime"  means  the  prime  rate  of  interest  charged  to  preferred
customers, as published by a federally chartered bank identified by the Company.

     (2) Origination fees are based on the original principal amount of the loan
and are  collected  from the borrower at the  origination  and renewal of loans,
one-  half of  which is  payable  directly  to the  Advisor.  See "The  Advisory
Agreement."

     (3) Fully amortized repayment term.

     (4)  Renewable  term  loans  are  repaid  based on a  20-year  amortization
schedule,  and are  renewable  at the  conclusion  of  their  initial  term  for
additional  like  terms up to an  aggregated  maximum of 20 years  provided  the
borrower has not committed an event of default  during the service period of the
loan.  A fee of 1% is charged by the Company upon the date of each  renewal.  If
renewed by the  borrower,  the interest  rate is adjusted  upon renewal to Prime
plus two percent (2%).

The above table describes  certain material terms of Loan Types,  interest rates
and fees  currently  offered  and  charged by the  Company.  The table does not,
however, purport to identify all possible Loan Types, terms, rates, and fees the
Company may offer from  time-to-time.  The Company may  determine at any time to
modify the terms  identified above and/or offer loan terms different than any of
the Loan Types,  interest  rates and fees  identified  above and does,  in fact,
negotiate these terms and fees with many of its borrowers.

Mortgage Loan Processing and Underwriting

     Mortgage  loan  applications  are prepared  and  verified by the  Advisor's
personnel  in  the  Company's  Loan  Origination  and  Underwriting  Department.
Verification procedures are designed to assure a borrower's  qualification under
the Company's  Financing  Policies which are specifically  identified herein and
include, among other things,  obtaining; (i) written applications (and exhibits)
signed and  authenticated  by the  prospective  borrower  in form and  substance
dictated by the Company; (ii) financial statements in

                                        4

<PAGE>



accordance with the Company's  Financing  Policies;  (iii) corporate records and
other organizational documents of the borrower; (iv) preliminary title report or
commitment for mortgagee  title  insurance;  and (v) a real estate  appraisal in
accordance with the Financing Policies.  All appraisals and financial statements
are prepared by independent third-party professionals who are pre-approved based
on their  experience,  reputation  and education.  Completed loan  applications,
together with a written summary are then presented to the Company's Underwriting
Committee which is comprised of the Advisor's President and Vice-President,  the
Company's President,  Chairman and the Director of Underwriting of American. The
Advisor may arrange for the  provision of mortgage  title  insurance and for the
services of professional  independent  third-party accountants and appraisers on
behalf of borrowers in order to achieve pricing efficiencies on their behalf and
to assure the efficient delivery of title commitments, preliminary title reports
and  title  policies,  and  financial  statements  and  appraisals  meeting  the
Company's  underwriting criteria. The Advisor may arrange for the direct payment
for such  professional  services and for the direct  reimbursement to it of such
expenditures by borrowers and prospective borrowers. Upon closing and funding of
mortgage  loans, a negotiable  origination  fee based on the original  principal
amount of each loan may be charged, of which one-half is payable to the Advisor.

 Loan Commitments

     Subsequent to approval by the Company's Underwriting  Committee,  and prior
to  funding  a loan,  the  Company  may  issue a loan  commitment  to  qualified
applicants.  A loan commitment  deposit is normally  required from the borrowing
church to commence the loan preparation  procedure.  These deposits are directly
applied by the Advisor to engage  accountants  and  appraisers  to prepare their
respective  reports  on  the  Church.  Commitments  indicate  the  loan  amount,
origination  fees,  closing  costs,  underwriting  expenses  (if  any),  funding
conditions,  approval  expiration  dates  and  interest  rate and  other  terms.
Commitments  generally set forth a "prevailing" interest rate that is subject to
change in accordance with market interest rate fluctuations until the final loan
closing  documents are prepared,  at which time the Company  commits to a stated
interest  rate. In certain cases the Company may establish  ("lock in") interest
rate commitments up to sixty (60) days from the commitment to closing;  however,
interest rate  commitments  beyond sixty days will not normally be issued unless
the Company receives an appropriate fee premium based upon the assessment of the
risk associated with a longer period.

Loan Portfolio Management

     The Company's  portfolio of mortgage  loans and Church Bonds is managed and
serviced by the Advisor in accordance with the Advisory  Agreement.  The Advisor
is  responsible  for  all  aspects  of the  Company's  mortgage  loan  business,
including  closing and  recordation of mortgage  loans;  collecting  payments of
principal  and  interest  payments  regularly  and upon the  maturity of a loan;
enforcing loan payments and other lender's requirements; periodic review of each
mortgage  loan  file  and  determination  of  its  reserve  classification;  and
exercising  the  Company's   remedies  in  connection   with  any  defaulted  or
non-performing  loans. Fees and costs of attorneys,  insurance,  bonds and other
direct  expenses  incurred in connection  with the exercise of such remedies are
the  responsibility  of the  Company,  although  they may be  recouped  from the
borrower in the process of pursuing the Company's remedies. The Advisor will not
receive any additional  compensation  for services  rendered in connection  with
loan portfolio management or exercising the Company's remedies in the event of a
loan default.

Loan Funding and Bank Borrowing

     The Company's mortgage loans (and purchases of Church Bonds) will be funded
with  available  cash  resources  and, at the  discretion  of the Advisor,  with
borrowings under a line of credit with a commercial  lender or bank. The Company
does not  presently  have a line of  credit,  and does not  presently  intend to
obtain  one.  Nonetheless,  the Company may borrow up to 50% of the value of its
Average  Invested Assets to make loans  regardless of the Company's  capacity to
(i) sell the Shares on a continuing basis, or to (ii) reposition assets from the
maturity or early repayment of mortgage loans in its portfolio.  Initially,  the
cash resources available to the Company will be limited to the net proceeds from
the sale of the Shares,  minus  reserves for  operating  expenses,  and bad-debt
reserves,  as determined by the Advisor. As the business of the Company develops
and over the course of time, cash resources available to the Company for lending
purposes  will  include,  in addition to the net  proceeds  from future sales of
Shares (if any),  (i) principal  repayments  from borrowers on loans made by the
Company,  (ii) dividends reinvested in the Company by shareholders  electing the
Company's  Dividend  Reinvestment  Plan, and (iii) funds (if any) borrowed under
any line of credit arrangement, if obtained.

The Advisory Agreement

     The Company has entered  into a contract  with the Advisor  (the  "Advisory
Agreement")  under which the Advisor  will  furnish  advice and  recommendations
concerning the affairs of the Company,  provide  administrative  services to the
Company and manage the Company's  day-to-day  affairs.  Among other things,  the
Advisor:  (i) serves as the Company's  mortgage loan  underwriter and advisor in
connection with its primary  business of making loans to churches;  (ii) advises
and selects Church Bonds to be purchased and held for investment by the Company;
(iii) provides  marketing and  advertising and generates loan leads directly and
through its

                                        5

<PAGE>



Affiliates; (iv) on behalf of the Company, deals with borrowers, lenders, banks,
consultants,  accountants,  brokers, attorneys, appraisers, insurers and others;
(v)  supervises  the  preparation,  filing and  distribution  of tax returns and
reports to governmental  agencies and to Shareholders  and acts on behalf of the
Company in connection with Shareholder relations; (vi) provides office space and
personnel as required for the performance of the foregoing  services as Advisor;
and (vii) as  requested  by the  Company,  makes  reports to the  Company of its
performance  of the foregoing  services and furnish  advice and  recommendations
with respect to other aspects of the business of the Company.  In performing its
services under the Advisory Agreement, the Advisor may use facilities, personnel
and support  services of its  Affiliates.  Expenses such as legal and accounting
fees,  stock  transfer  agent,  registrar  and paying  agent fees,  and dividend
reinvestment  agent fees are direct expenses of the Company and are not provided
for by the Advisor as part of its services.

     The Advisory  Agreement  is renewable  annually by the Company for one-year
periods, subject to a determination by the Company,  including a majority of the
Independent Directors,  that the Advisor's performance has been satisfactory and
that the compensation  paid the Advisor by the Company has been reasonable.  The
Advisory  Agreement may be terminated with or without cause by the Company on 60
days written notice. Upon termination of the Advisory Agreement by either party,
the  Advisor  may require the Company to change its name to a name that does not
contain  the  word  "American,"  "America"  or the  name of the  Advisor  or any
approximation or abbreviation  thereof,  and that is sufficiently  dissimilar to
the word "America" or "American" or the name of the Advisor as to be unlikely to
cause  confusion  or  identification  with  either the  Advisor or any person or
entity using the word "American" or "America" in its name, however,  the Company
may continue to use the word "church" in its name. In addition, upon non-renewal
or  termination  of the Advisory  Agreement  by the Company,  the Advisor may be
entitled to a termination fee. The Company's  Directors shall determine that any
successor  Advisor  possess  sufficient  qualifications  to perform the advisory
function  for the  Company  and justify  the  compensation  provided  for in its
contract with the Company.

     Pursuant to the Advisory  Agreement,  the Advisor is required to pay all of
the expenses it incurs in providing services to the Company,  including, but not
limited to, personnel  expenses,  rental and other office expenses,  expenses of
Directors,  officers and employees of the Advisor (except out-of-pocket expenses
of such persons who are  directors or officers of the Company  incurred in their
capacities as Directors  and officers of the  Company),  and all of its overhead
and  miscellaneous  administrative  expenses  relating  to  performance  of  its
functions under the Advisory Agreement.  The Company will be required to pay all
other expenses of the Company,  including the costs and expenses of reporting to
various  governmental  agencies  and  the  Shareholders  and of  conducting  its
operations as a mortgage  lender,  fees and expenses of  appraisers,  directors,
auditors, outside legal counsel and transfer agents, and costs directly relating
to closing of loan transactions.

     In the event that Total  Operating  Expenses of the  Company  exceed in any
calendar  year the  greater  of (a) 2% of the  Average  Invested  Assets  of the
Company or (b) 25% of the  Company's  net income,  the Advisor is  obligated  to
reimburse the Company, to the extent of its fees for such calendar year, for the
amount by which the aggregate annual operating  expenses paid or incurred by the
Company exceed the limitation.  The Independent Directors may, upon a finding of
unusual and non-recurring  factors which they deem sufficient,  determine that a
higher level of expenses is justified in any given year.

     The  Company's  Bylaws  provide  that  the  Independent  Directors  are  to
determine at least annually the  reasonableness  of the  compensation  which the
Company pays to the Advisor.  Factors to be considered in reviewing the Advisory
Fee  include  the size of the  fees of the  Advisor  in  relation  to the  size,
composition and profitability of the Company's loan portfolio, the rates charged
by other investment advisors performing comparable services,  the success of the
Advisor  in  generating   opportunities  that  meet  the  Company's   investment
objectives,  the amount of additional revenues realized by the Advisor for other
services performed for the Company, the quality and extent of service and advice
furnished by the Advisor,  the quality of the Company's  investments in relation
to  investments  generated by the Advisor for its own  account,  if any, and the
performance of the Company's investments.

     The Advisory Agreement  provides for  indemnification by the Company of the
Advisor and each of its  directors,  officers and employees  against  expense or
liability arising out of such person's  activities in rendering  services to the
Company,  provided  that  the  conduct  against  which  the  claim  is made  was
determined  by such person,  in good faith,  to be in the best  interests of the
Company and was not the result of negligence or misconduct.

Financing Policies

     The Company's business of mortgage lending to churches and other non-profit
religious  organizations  is  managed  in  accordance  with and  subject  to the
policies,   guidelines,   restrictions   and   limitations   identified   herein
(collectively, the "Financing Policy"). The intent of the Financing Policy is to
identify for its Shareholders not only the general business in which the Company
is  involved,  but the  parameters  of the  Company's  lending  business.  These
policies may not be changed (except in certain  immaterial  respects by majority
approval of the Board of  Directors)  without the  approval of a majority of the
Independent  Directors,  and the holders of a majority of the outstanding Shares
of the Company at a duly held meeting for that purpose:


                                        6

<PAGE>





         (i)    Loans made by the Company  will be limited to churches and other
                non-profit  religious  organizations,  and  will be  secured  by
                mortgages.  The total  principal  amount of all second  mortgage
                loans  funded by the Company  shall be limited to 20% of Average
                Invested Assets. All other loans will be first mortgage loans.

         (ii)   The  loan  amount  cannot  exceed  75% of the  value of the real
                estate and  improvements  securing  each loan,  such value being
                determined based on a written appraisal prepared by an appraiser
                acceptable to the Advisor.  On loans over $500,000,  the Company
                will  require a written  appraisal  certified by a member of the
                Appraisal Institute ("MAI"), or a state-certified appraiser.

         (iii)  An ALTA (American Land Title Association) or equivalent Mortgage
                Title  Policy must be  furnished  to the Company by the borrower
                insuring the mortgage interest of the Company.

         (iv)   The  borrower's  long-term  debt  (including  the proposed loan)
                cannot exceed four (4) times the borrower's gross income for the
                previous twelve (12) months.

         (v)    The borrower must furnish the Company with financial  statements
                (balance  sheet and income and expense  statement)  for the last
                two (2) complete fiscal years and a current financial  statement
                as of and for the  period  within  ninety  (90) days of the loan
                closing date. On loans equal to or less than $500,000,  the last
                complete   fiscal  year  must  be  reviewed  by  an  independent
                accounting  firm.  On  loans in  excess  of  $500,000,  the last
                complete fiscal year financial  statements must be audited by an
                independent auditor.  Borrowers in existence for less than three
                fiscal years must provide financial  statements since inception.
                No loan will be extended to a borrower  in  operation  less than
                two years (24 months) absent  express  approval by the Company's
                Board of Directors.

         (vi)   In its discretion,  the Advisor,  on behalf of the Company,  may
                require  the  borrower to arrange for  automatic  electronic  or
                drafting of monthly payments.

         (vii)  In its discretion,  the Advisor,  on behalf of the Company,  may
                require (i)  key-man  life  insurance  on the life of the senior
                pastor of a church;  (ii) personal  guarantees of church members
                and/or affiliates; and (iii) other security enhancements for the
                benefit of the Company.

         (viii) The borrower must agree to provide to the Company annual reports
                (including financial  statements) within 120 days of each fiscal
                year end beginning  with the fiscal year end next  following the
                funding of the loan.

         (ix)   In its discretion,  the Advisor,  on behalf of the Company,  may
                require the borrower to grant to the Company a security interest
                in all  personal  property  located  and to be located  upon the
                mortgaged premises (excluding property leased by the borrower).

         These Financing Policies are in addition to the prohibited  investments
and activities  identified  hereinafter and which are set forth in the Company's
By Laws.

Prohibited Investments and Activities

         The Company's  Bylaws impose certain  prohibitions  and restrictions on
various   investment   practices  and  activities  of  the  Company,   including
prohibitions against:

         (i)      Investing more than 10% of its total assets in unimproved real
                  property or mortgage loans on unimproved real property;

         (ii)     Investing in commodities or commodity  futures contracts other
                  than  "interest  rate  futures"  contracts  intended  only for
                  hedging purposes;

         (iii)    Investing in mortgage loans (including  construction loans) on
                  any  one  property  which  in the  aggregate  with  all  other
                  mortgage  loans  on  the  property  would  exceed  75%  of the
                  appraised   value   of   the   property   unless   substantial
                  justification   exists   because  of  the  presence  of  other
                  underwriting criteria;

         (iv)     Investing  in  mortgage  loans  that  are  subordinate  to any
                  mortgage or equity interest of the Advisor or the Directors or
                  any of their Affiliates;

                                        7

<PAGE>



         (v)      Investing in equity securities;

         (vi)     Engaging  in any short  sales of  securities  or in  trading,
                  as distinguished from investment activities;

         (vii)    Issuing redeemable equity securities;

         (viii)   Engaging  in   underwriting  or  the  agency   distribution
                  of securities issued by others;

         (ix)     Issuing  options  or  warrants  to  purchase  its Shares at an
                  exercise  price less than the fair market  value of the Shares
                  on the date of the issuance or if the issuance  thereof  would
                  exceed 10% in the aggregate of its outstanding Shares;

         (x)      Issuing debt securities  unless the debt service  coverage for
                  the most recently completed fiscal year, as adjusted for known
                  changes, is sufficient to properly service the higher level of
                  debt;

         (xi)     Investing  in  real  estate  contracts  of  sale  unless  such
                  contracts  are  in  recordable  form  and  are   appropriately
                  recorded in the chain of title;

         (xii)    Selling or leasing to the Advisor, a Director or any Affiliate
                  thereof unless approved by a majority of Directors  (including
                  a majority of Independent Directors), not otherwise interested
                  in such  transaction,  as  being  fair and  reasonable  to the
                  Company;

         (xiii)   Acquiring  property  from  any  Advisor  or  Director,  or any
                  Affiliate thereof, unless a majority of Directors (including a
                  majority of Independent Directors) not otherwise interested in
                  such  transaction  approve the  transaction  as being fair and
                  reasonable  to the  Company  and at a price to the  Company no
                  greater than the cost of the asset to such  Advisor,  Director
                  or any Affiliate thereof, or if the price to the Company is in
                  excess of such cost, that substantial  justification  for such
                  excess exists and such excess is reasonable. In no event shall
                  the  cost of such  asset to the  Company  exceed  its  current
                  appraised value;

         (xiv)    Investing or making  mortgage  loans unless a  mortgagee's  or
                  owner's  title  insurance  policy  or  commitment  as  to  the
                  priority of the mortgage or condition of title is obtained; or

         (xv)     Issuing its shares on a deferred payment basis or other
                  similar arrangement.


         The  Company  does not  intend  to invest  in the  securities  of other
issuers for the purpose of  exercising  control,  to engage in the  purchase and
sale of investments  other than as described in this Report, to offer securities
in exchange for property  unless deemed  prudent by a majority of the Directors,
to issue  senior  securities  or to make  loans to other  persons  except in the
ordinary course of its business as described herein.

         The  Company in the future  will not make loans to or borrow  from,  or
enter into any contract,  joint  venture or  transaction  with,  any director or
officer of the Company,  the Advisor or any  Affiliate  of any of the  foregoing
unless a majority of the  Directors,  including  a majority  of the  Independent
Directors,  approves the  transaction  as fair and reasonable to the Company and
the transaction is on terms and conditions no less favorable to the Company than
those available from unaffiliated  third parties.  Any investment by the Company
in  any  property,  mortgage  or  other  real  estate  interest  pursuant  to  a
transaction  with the Advisor or any Directors or officers thereof will be based
upon an appraisal  of the  underlying  property  from an  independent  qualified
appraiser selected by the Independent  Directors and will not be made at a price
greater than fair market value as determined by such appraisal.

Competition

         The real estate financing industry generally is highly competitive. The
Company  will  compete  within its  geographic  areas of  operation  with a wide
variety of investors, including banks, savings and loan associations,  insurance
companies,  pension funds and fraternal  organizations which may have investment
objectives  similar to those of the Company.  A number of these competitors have
greater financial  resources,  larger staffs and longer operating histories than
those of the Company.  The Company competes principally by limiting its business
"niche" to lending to churches  and other  non-profit  religious  organizations,
offering  loans  with  competitive  and  flexible  terms,  and  emphasizing  the
expertise  of the  Company  in the  specialized  industry  segment of lending to
churches and other religious organizations.




                                        8

<PAGE>



Employees

         The Company has no employees, as it will be managed by the Advisor on a
"turn-key"  basis using  employees  of the  Advisor  and/or its  affiliates.  At
present,  certain  officers  and  directors  of  American  and the  Advisor  are
providing  services to the Company at no charge and which will not be reimbursed
to them.  These  services  include,  among others,  legal and analytic  services
relating to the  development of the Company's  business plan,  organization  and
incorporation of the Company, development and preparation of reports to be filed
under the Securities  Exchange Act, and  development and drafting of proprietary
forms and  documents  to be  utilized  by the  Advisor  in  connection  with the
Company's business operations.

         Subject to the  supervision  of the Company's  Board of Directors,  the
business  of  the  Company  is  managed  by  Church  Loan  Advisors,  Inc.  (the
"Advisor"),  which provides investment  advisory and administrative  services to
the  Company and is owned by V. James  Davis,  David G.  Reinhart  and Philip J.
Myers.  Mr. Reinhart and Mr. Davis are officers and directors of the Company and
directors  of the  Advisor.  Philip J. Myers is  President of the Advisor and of
American. The Advisor is not a registered advisor under the Investment Advisor's
Act of 1940,  nor is the  Company  a  registered  investment  company  under the
Investment  Company  Act of 1940.  As of the date of this  Report,  the  Advisor
employs  three  persons on a part-time  or other  basis.  The  Company  does not
presently expect to directly employ any persons in the foreseeable future, since
all  administrative  functions and operations will be contracted for through the
Advisor.  However, legal and accounting services to the Company will be provided
by outside  professionals  and paid for  directly  by the  Company.  See Item 11
"Security  Ownership of Certain  Beneficial  Owners and Management," and Item 12
"Certain Relationships and Related Transactions."

Year 2000 Issue

         The  "Year  2000  Issue"  is a data  management  problem  that may have
significant  financial  consequences for some companies.  Many computer programs
use only two digits to identify the year in the date field.  As a result,  those
programs cannot distinguish  between the year 2000 and the year 1900. On January
1,  2000,  these  programs  may  inaccurately  process  data,  or in worst  case
scenario, stop processing entirely.

         Although the Company does rely on computer based financial  software to
process its books and  records,  the  software  utilized by the Company will not
impact  the  Company  financially,  if at all,  with  respect  to the "Year 2000
Issue." The financial  software  utilized by the Company  requires that the date
field be completed in its entirety. For example: the year "1900" must be entered
as "1900" and the year  "2000"  must be entered  as  "2000".  Therefore,  a date
cannot be entered as "00" causing problems in many programs as to what year "00"
is  representing,  either  "1900" or "2000." The Company  utilizes  window-based
"off-the-  shelf"  software  to process its books and  records.  "Off-the-shelf"
software  implies its public use and  availability.  It can be purchased at most
computer or retail  stores,  at minimal cost, it is easy to learn to use and can
be replaced inexpensively if a "Year 2000 Issue", or other factors unique to the
Company's  needs,  becomes  problematic.  Finally,  "off-the-shelf"  software is
continually  being  upgraded  by the  software  manufacturer  and the "Year 2000
Issue" has been  addressed by many of these  companies,  including the Company's
current  software  product,  in the form of new  upgrades or new versions of the
software.  Companies most affected by the "Year 2000 Issue" are primarily  large
companies  with assets and  resources  substantially  greater than the Company's
which utilize customized software residing on large "main-frame" systems to meet
specific needs of their company or industry.

         Finally, the Company utilizes the services of Gemisys  Corporation,  of
Englewood,  Colorado for its shareholder  services,  transfer agent and dividend
and proxy  disbursement  agent.  Gemisys has stated that its current  "Universe"
platform  has been  programmed  so that any date in the  system  as "00"  (e.g.,
2/1/00) will be interpreted as the year 2000, not 1900.  This is due to the fact
that Gemisys uses an "internal date" that  correlates to the actual date.  These
"internal  dates" are in sequential  order and not  repeated.  This includes any
data  conversions to Gemisys's  system.  The Company as well as its  shareholder
services  agent have  addressed the "Year 2000 Issue" and have  determined  this
issue will not affect its continuing operations.




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                                        9

<PAGE>



Operations

         The Company's operations currently are located in the 8,400 square foot
offices of the Advisor's affiliate, American Investors Group, Inc., 10237 Yellow
Circle Drive,  Minnetonka,  Minnesota  55343.  These facilities are owned by DRM
Holdings,  Inc.  which is the parent  company of  American.  The  Company is not
charged  any  rent for its use of these  facilities,  or for its use of  copying
services,  telephones,  facsimile machines,  postage service, office supplies or
employee services, since these costs are covered by the advisory fee paid to the
Advisor. The Company believes that the terms of this arrangement are at least as
favorable to the Company as those available from  unaffiliated  third parties on
an arm's-length basis.


Item 2.   Description of Property

Shared Operations Facilities

         The Company's  operations are located in the leased offices of American
Investors Group,  Inc., in Minneapolis,  Minnesota.  It is expected that for the
foreseeable future the Company's  operations will continue to be housed in these
or similar  leased  premises along with  American's  operations and those of its
Affiliates.  The Company is not  directly  charged  for rent,  nor does it incur
other costs  relating to such leased space,  since the Advisor is including this
expense in the Advisory Fee. The office  building is owned by American's  parent
corporation, DRM Holdings, Inc.

Item 3.   Legal Proceedings.

         Not applicable.

Item 4.   Submission of Matters to a Vote of Security Holders.

         Not applicable.

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

         (a)  Market Information

         As of February 28, 1998,  624,233 shares of the Company's common shares
were issued and outstanding in the public,  excluding 20,000 shares owned by the
Company's  initial  shareholder DRM Holdings,  Inc. The Company's initial public
offering (SEC file  33-87570)  which began July 11, 1995 was closed  November 8,
1996 with 335,481  shares having been sold. In addition,  on September 26, 1997,
the  Securities  and  Exchange   Commission  declared  effective  the  Company's
secondary  offering of  1,500,000  common  shares at a price of $10.00 per share
($15,000,000)  under SEC File 33-87570.  As of February 28, 1998, 248,945 shares
of the Company's  common stock has been sold during the current public offering.
At this time, however,  there is no organized secondary market for the Company's
outstanding shares.

         (b)  Holders

         As of  February  28,  1998,  there  were  (475)  record  holders of the
Company's  $.01 par common  stock,  including  DRM  Holdings,  Inc., a Minnesota
corporation,  which owns 20,000  shares for which it paid  $200,000  ($10.00 per
share).










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                                       10

<PAGE>





         (c)  Dividends

         The Company has paid  dividends for the prior fiscal year on its common
stock as follows:


<TABLE>
<CAPTION>

 Distribution Date:         For Quarter Ended:       Dollar Amount Distributed            Annualized Yield Per
                                                      Per Share:                           Share Represented:
<S>                           <C>                    <C>                                  <C>
   April 30, 1997             March 31, 1997         $.2250                               9.00%
    July 30, 1997             June 30, 1997          $.22875                              9.15%
  October 30, 1997          September 30, 1997       $.2375                               9.50%
  January 30, 1998          December 31, 1997        $.25625                              10.25%
</TABLE>

         As a Real Estate  Investment Trust, the Company intends to make regular
quarterly  distributions  to  Shareholders in an amount equal to at least 95% of
the Company's "real estate investment trust taxable income." Such amount will be
estimated for the first three quarters of each fiscal year and adjusted annually
based upon the Company's audited year-end  financial report.  Cash available for
distribution to Shareholders will be derived primarily from the interest portion
of monthly  mortgage  payments  received from churches  borrowing money from the
Company,  from  origination  and other fees paid to the Company by  borrowers in
connection  with such loans,  interest  income from  mortgage-backed  securities
issued by churches and other non-profit  religious  organizations  purchased and
held by the Company  for  investment  purposes,  and  earnings on any  Permitted
Temporary  Investments  made by the Company.  All dividends  will be paid by the
Company at the  discretion  of the Board of  Directors  and will depend upon the
earnings and  financial  condition of the  Company,  maintenance  of real estate
investment  trust  status,   funds  available  for   distribution,   results  of
operations,  economic  conditions,  and  such  other  factors  as the  Board  of
Directors deems relevant.

          During any period where shares of the Company's common stock are being
offered  and sold and the  proceeds  therefrom  accumulated  for the  purpose of
funding loans made by the Company, the relative yield generated by such capital,
and, thus, dividends (if any) to Shareholders,  could be less than expected once
the Company has fully invested such funds in accordance  with its business plan.
The Company  intends to ameliorate to some extent the  possibility of low yields
during the periods where it is selling shares by (i)  collecting  from borrowers
an  origination  fee at the  time a loan  is  made  (of  which  one-half  of any
origination  fee  charged  in  connection  with a loan is paid  directly  to the
Advisor  as  additional  compensation--the  other  one-half  is  payable  to the
Company), and (ii) timing its lending activities to coincide as much as possible
with sales of the Shares. However, there can be no assurance that either or both
of these  strategies  will improve  current yields to Shareholders in periods of
the Company's business  operations when capital is being raised through the sale
of  additional  common  shares.  In  order to  qualify  for the  beneficial  tax
treatment  afforded real estate  investment trusts by the Internal Revenue Code,
the  Company is  required  to pay  dividends  to holders of its Shares in annual
amounts which are equal to at least 95% of the Company's "real estate investment
trust taxable  income." For the fiscal year ended  December 31, 1997 the Company
distributed 99.8% of its taxable income to shareholders in the form of quarterly
dividends. The Company intends to continue distributing all or a portion of such
income to the  Shareholders  on a quarterly  basis,  subject to (i)  limitations
imposed by  applicable  state law, and (ii) the factors  identified  above.  The
portion of any dividend that exceeds the Company's  earnings and profits will be
considered  a return of  capital  and will not  currently  be subject to federal
income tax to the extent that such dividends do not exceed a Shareholder's basis
in the Shares.

         Funds available to the Company from the repayment of principal (whether
at maturity or  otherwise)  of loans made by the Company,  or from sale or other
disposition of any properties or any of its other  investments may be reinvested
in additional loans to churches,  invested in mortgage-backed  securities issued
by  churches  or  other  non-profit  organizations,  or in  Permitted  Temporary
Investments,  rather than distributed to the Shareholders.  The Company can pass
through the capital gain character of any income  generated by computing its net
capital  gains  and  designating  a  like  amount  of  its  distribution  to the
Shareholders as capital gain dividends. The distribution requirement to maintain
qualification as a real estate investment trust does not require distribution of
net capital  gains,  if generated.  Thus, the Company has a choice of whether to
distribute  any such gains.  Undistributed  net  capital  gains (if any) will be
taxable to the  Company.  The Board of  Directors,  including  a majority of the
Independent Directors, will determine whether and to what extent the proceeds of
any disposition of property will be distributed to Shareholders.




                                       11

<PAGE>





Item 6.  Management's Discussion and Analysis or Plan of Operation.

         The following  discussion  regarding  the  financial  statements of the
Company  should be read in conjunction  with the financial  statements and notes
thereto included in this Report beginning at page F-1.


         (a)  Plan of Operation

         The Company was founded in May 1994, began a "best efforts" offering of
its common stock on July 11, 1995, and commenced  active business  operations on
April 15, 1996 after  completion of the "Minimum  Amount" in its initial  public
offering (described below). Consequently,  for the years ended December 31, 1994
and 1995,  the Company had no operating  revenues,  and expenses were limited to
organizational and offering-related costs.

         On July 11,  1995,  the  Securities  and Exchange  Commission  declared
effective the Company's offering of 2,000,000 common shares at a price of $10.00
per share.  The Company achieved the Minimum Offering of at least 200,000 shares
($2,000,000)  sold to not less than 100 individuals (the "Minimum  Offering") on
April 15, 1996. Until the Minimum  Offering was achieved,  the Company could not
commence its active business of making mortgage loans to churches. Consequently,
business  operations  from inception (May 27, 1994) to completion of the Minimum
Offering (April 15, 1996) were limited to daily business organizational efforts,
activities relating to the offering,  reviewing potential  candidates for church
mortgage loans to be made by the Company once the Minimum Offering was achieved,
and conducting informational meetings with brokers and broker-dealers identified
to the Company by the Dealer/Manager--American, an affiliate of the Company. The
Company  concluded its initial  public  offering on November 8, 1996. As of such
date the Company had sold 335,481 shares to approximately  281 individuals,  not
including 20,000 shares ($200,000) previously purchased by the Company's initial
shareholder -- DRM Holdings, Inc.

         On September 26, 1997, the Securities and Exchange  Commission declared
effective the Company's secondary offering of 1,500,000 common shares at a price
of $10.00 per share  ($15,000,000)  under SEC File  33-87570.  The  Offering  is
currently being  co-underwritten by American  Investors Group,  Inc.("American")
and  LaSalle  St.  Securities,  Inc.,  ("LaSalle").  American  is  the  Managing
Underwriter and is an affiliate of the Company. This Offering is being conducted
on  a"best-efforts"  basis  pursuant to applicable  rules of the  Securities and
Exchange Commission and will terminate no later than 365 days from September 26,
1997,  subject to extension by mutual  agreement of the Company and the Managing
Underwriter  for an additional 120 days, or until  completion of the sale of all
Shares,  whichever fist occurs. The Company reserves the right to terminate this
Offering  at any time.  As of February  28,  1998 the  Company has sold  248,945
shares of its common stock.

         Between  the  date  upon  which  the  Company  began  active   business
operations (April 15, 1996), and as of the date of this Report,  the Company has
made loans to fifteen churches in the aggregate  amount of $5,351,000,  with the
average size being  $356,000.  The Company has also  purchased in the  secondary
market for $47,282  (which  includes $407 in accrued  interest)  First  Mortgage
Church Bonds in the face amount of $52,000,  for $72,805 Second  Mortgage Church
Bonds in the face amount of $100,000. Funding of additional first mortgage loans
is expected to continue on an on-going basis as the Company's  investable assets
become available through (i) the sale of additional shares in its current public
offering;  (ii)  prepayment  and repayment at maturity of existing  loans;  (iv)
borrowed  funds;  and (v)  dividends  reinvested  under the  Company's  Dividend
Reinvestment Plan.


         (b)   Management's Discussion and Analysis of Financial Condition and
               Results of Operation

         Financial Condition

         During the year ended  December  31,  1997 total  assets of the Company
increased by $1,948,419  due  primarily to sale of the  Company's  common stock.
Total  liabilities  increased  by $86,981 due to deferred  income and  dividends
declared but not yet paid as of December 31, 1997.

         Results of Operations

         The Company commenced active business  operations on or about April 15,
1996, therefore,  results of operations through December 31, 1996 are reflective
of  approximately  255 days of operations.  As of December 31, 1997, the Company
completed  its first full  fiscal  year of  operations.  During the fiscal  year
ending December 31,1997 the Company funded an

                                       12

<PAGE>



additional five first mortgage loans and three second mortgage loans to churches
for an aggregate  amount of $2,665,712 and purchased  $2,000 principal amount of
First Mortgage  Church Bonds for a purchase price of $871. All loans made by the
Company range in interest rate charged to the borrowers  from 9.75% for annually
adjustable, 20 year amortized loans, 11.25% for fixed 15 year amortized loans to
12.00%  for a 2-year  interim  loan.  As of  December  31,  1997,  the  average,
principal-adjusted interest rate on the Company's portfolio of loans was 11.15%.
The Company's portfolio of bonds has an average current yield of 11.20% .

         Net operating  income for the Company's  fiscal year ended December 31,
1997 was $360,814 on total revenues of $384,118.  Interest  income earned on the
Company's  portfolio of loans was $343,695,  reflecting  the fact that the eight
new loans were originated at various dates during the year and,  therefore,  did
not all accrue  interest for the entire  fiscal year.  Excluded from revenue for
the year ended December 31, 1997 is $42,480 of origination  income, or "points,"
received  by  the  Company,   recognition  of  which  under  generally  accepted
accounting  principles  ("GAAP") must be deferred over the expected life of each
loan.  However,  under tax principles,  origination  income is recognized in the
period received. Accordingly, because the status of the Company as a real estate
investment trust requires,  among other things, the distribution to shareholders
of at least 95% of "Taxable  Income," the  dividends  declared and to be paid to
Shareholders for the quarters ended March 30, 1997, June 30, 1997, September 30,
1997 and December  31, 1997  includes  origination  income even though it is not
recognized in its entirety for the period under GAAP.

         The Company's Board of Directors  declared dividends of $.2250 for each
share held of record on March 31,  1997,  $.22875  for each share held of record
June 30, 1997,  $.2375 for each share held of record  September  30,  1997,  and
$.25625 for each share held of record on December 31, 1997. During the Company's
public offering,  dividends are computed and paid to each  Shareholder  based on
the  number  of days  during a  quarter  that the  Shareholder  owned his or her
shares.  Based on the four quarters of operations  for the quarter  ending March
31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997, the dividends
paid  represented  a  9.00%,   9.15%,  9.50%  and  10.25%  annualized  yield  to
Shareholders respectively. Total dividends paid in 1997 represent a 9.48% annual
rate of return on each share of common  stock  owned and  purchased  for $10 per
share.

         Total assets of the Company  increased  from  $3,414,977 as of December
31, 1996 to  $5,363,396  as of December 31,  1997,  primarily as a result of the
sale and issuance of the Company's common stock pursuant to its secondary public
offering,  the proceeds of which were  deployed  into eight new mortgage  loans,
church bonds  purchased in the secondary  market,  and cash and cash  equivalent
money  market  obligations.   Shareholders'   Equity  rose  from  $3,280,141  to
$5,141,579  for the same reason.  Company  liabilities  at the end of the fiscal
year ending  December 31, 1997 are  primarily  comprised of a "Deferred  Income"
item,  reflecting  the practice of the Company of  recognizing  its  origination
income -- fees charged to borrowers at the commencement of its loans -- over the
life of each loan and  dividends  declared as of  December  31, 1997 but not yet
paid.

Liquidity and Capital Resources

         The Company's revenue is derived  principally from interest income, and
secondarily,  origination fees and renewal fees generated by mortgage loans made
by it. The Company also earns income through interest on funds that are invested
pending their use in funding mortgage loans or distributions of dividends to its
Shareholders,  and on income  generated on church bonds it may purchase and own.
The Company generates revenue through (i) permitted temporary investments of the
net  proceeds  from  the sale of the  shares,  and  (ii)  implementation  of its
business  plan of  making  mortgage  loans  to  churches  and  other  non-profit
religious organizations.  The principal expenses of the Company will be Advisory
Fees, legal and accounting fees, communications costs with its Shareholders, and
the expenses of its stock transfer  agent,  registrar and dividend  reinvestment
agent.

         The  Company's  future  capital  needs  are  expected  to be met by (i)
additional  sale of its  shares to the  public  (ii)  prepayment,  repayment  at
maturity and renewal of mortgage  loans made by the Company,  and (iii) borrowed
funds.  The  Company  believes  that the  "rolling"  effect  of  mortgage  loans
maturing,  together  with  dividends  reinvested  under the  Company's  Dividend
Reinvestment  Plan,  will provide a  supplemental  source of capital to fund its
business operations in future years. Nevertheless,  the Company believes that it
may be desirable,  if not necessary,  to sell additional shares of common stock,
in order to enhance its capacity to make mortgage  loans on a continuous  basis.
There can be no  assurance  that the  Company  will be able to raise  additional
capital on terms  acceptable for such purposes.  Although the Company may borrow
funds in an amount not to exceed 50% of its Average  Invested Assets in order to
increase its lending capacity,  it has no present intention of doing so, nor has
it secured a source for such borrowing.





                                       13

<PAGE>



Item 7.  Financial Statements.

         Financial  Statements  required by this item can be found  beginning on
page F-1 of this Form-10KSB and are deemed incorporated herein by reference.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
              Financial Disclosure.

         Changes in Company's Certifying Accountants.

         Not Applicable


                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
              Compliance With Section 16(a) of the Exchange Act.

         (a)  Directors  are  elected  for a term  expiring  at the next  annual
meeting of the  Company's  Shareholders  and serve for one-year  terms and until
their  successors are duly elected and qualified.  Officers of the Company serve
at the discretion of the Company's Board of Directors. Among other requirements,
in order to maintain its REIT status, a majority of the Company's directors must
be "independent." The Company's executive officers and Directors are as follows:


<TABLE>
<CAPTION>
       Name                         Age    Office                                 Director Since

<S>                                <C>  <C>                                           <C>
   V. James Davis                  54   President, Treasurer and Director             1994
   David G. Reinhart               45   Vice President, Secretary and Director        1994
   Kirbyjon H. Caldwell            45   Independent Director                          1994
   Robert O. Naegele, Jr.          58   Independent Director                          1994
   Dennis J. Doyle                 45   Independent Director                          1994
   John M. Clarey                  56   Independent Director                          1994
</TABLE>

         V. James Davis,  has been the  President  and a Director of the Company
since its inception.  From November 1986 to November 1996 he served as President
and a Director of American  Investors  Group,  Inc. (the  Dealer-Manager  of the
Company's  public stock offering).  Prior to November,  1986, he was employed as
President  of Keenan &  Clarey,  Inc.,  Minneapolis,  Minnesota,  a church  bond
underwriter and broker-dealer,  where he also served as Financial and Operations
Principal  and as a Director.  From  January  1976 to March 1984,  Mr. Davis was
employed  as  Administrative   Vice-President,   and  Financial  and  Operations
Principal,  by  Offerman  &  Co.,  Inc.,  Minneapolis,   Minnesota,  a  national
broker-dealer and originator of corporate bond financing projects. Mr. Davis has
been in the  securities  business  since 1970 and was  previously  employed with
other securities firms in Appleton, Wisconsin and Rockford, Illinois. He holds a
Bachelor of Science  degree in Liberal Arts from the  University  of Wisconsin -
Whitewater  (1967) and completed course work at St. Joseph College,  Rensselaer,
Indiana.  Mr. Davis holds a General Operations Principal license and a Financial
Operations  Principal  license  with  the  National  Association  of  Securities
Dealers, Inc.

         David  G.  Reinhart,  has  been  the  Vice-President,  Secretary  and a
Director of the Company since its inception. He is also Chairman of the Board of
American  Investors Group,  Inc., a Director and General Counsel of the Advisor,
and  President,  director  and  shareholder  of DRM, the parent  corporation  of
American. Mr. Reinhart has served as legal counsel to banks, trust companies and
broker-dealers in the area of church financings since  approximately March 1984.
He was  employed  in the St.  Paul  firm of  Reinhart  Law  Offices,  P. A. from
November  1985 to  February  1987,  and from July 1983 to  November  1985 he was
employed as an Associate Attorney with the law firm of Robins,  Kaplan, Miller &
Ciresi,  Minneapolis,  Minnesota. Mr. Reinhart received his Juris Doctor degree,
cum  laude,  in May 1979,  from  Hamline  University  School of Law,  St.  Paul,
Minnesota and received his Bachelor of Science degree in May 1976, from Northern
Michigan University,  Marquette, Michigan. Mr. Reinhart has practiced law in the
areas of corporate finance and general business law since 1979 and has developed
expertise in the area of church financing.




                                       14

<PAGE>



         Kirbyjon  H.  Caldwell,  has served as an  Independent  Director of the
Company since  September  1994. He currently is Senior Pastor of Windsor Village
United  Methodist  Church and St.  John's  United  Methodist  Church in Houston,
Texas, in which  capacities he has served since January 1982 and September 1992,
respectively.  Membership in both churches is  approximately  7,500 combined and
their ministries reach a broad segment of the Houston region.  Kirbyjon Caldwell
received his B.A. degree in Economics from Carlton College (1975),  an M.B.A. in
Finance from the University of  Pennsylvania's  Wharton  School (1977),  and his
Masters in  Theology  from  Southern  Methodist  University  School of  Theology
(1981).  He is a member  of the  Boards  of  Directors  of Texas  Commerce  Bank
(Houston),  Hermann Hospital (Houston),  Greater Houston Partnership, The United
Way of The Texas Gulf Coast,  and the American  Cancer  Society.  He is also the
founder  and  member of  several  foundations  and other  community  development
organizations.

         Robert O. Naegele,  Jr., has served as an  Independent  Director of the
Company since  September 1994. For more than the past five years Mr. Naegele has
been actively involved as a part-owner of outdoor advertising  companies located
in Indiana;  Illinois;  Iowa; Kansas; Missouri and Georgia. He has served on the
Executive Committee of the Outdoor  Advertising  Association of America and as a
Planning Commission Member and Councilman for the City of Shorewood,  Minnesota,
and as a member  of the  Advisory  Board of Speak  the  Word  Church  and  World
Outreach, Minneapolis, Minnesota.

         Dennis J. Doyle,  has served as an Independent  Director of the Company
since September 1994. He is the owner and co-founder of Welsh  Companies,  Inc.,
Minneapolis,  Minnesota  -- a  full-service  real  estate  company  involved  in
property management,  brokerage,  investment sales, construction and residential
and commercial development. Welsh Companies was co-founded by Mr. Doyle in 1980,
and has five regional  offices and 220 employees.  Mr. Doyle is the recipient of
numerous civic awards  relating to his business  skills.  He also is a member of
the Board of  Directors of HEART (a  non-profit  organization),  The  Children's
Theater (Minneapolis) and Grow Biz International,  a publicly-owned  company. He
is also a member of the Board of Advisors of the Minnesota Real Estate  Journal,
and a member  of the  International  Commercial  Realty  Services  ("ICRS")  and
National Association of Office and Industrial Parks ("NAIOP").

         John M. Clarey,  has served as an  Independent  Director of the Company
since  September  1994.  Since  January 1992, he has been employed as First Vice
President of Miller & Schroeder Financial, Inc., a Minneapolis,  Minnesota based
investment  banking  firm and  NASD-member  broker-dealer.  From  February  1991
through  December  1991,  Mr.  Clarey was a general  partner  of the  Clarepoint
Partners,  LP,  a  private  venture  capital  firm,  of  which he was one of the
founders.  From July 1989 to February  1991,  he was a Senior Vice  President of
Miller,  Johnson  and  Kuehn,  Inc.,  a  Minneapolis-based  broker-dealer.  From
November 1980 to July 1989,  Mr. Clarey served as President and Chief  Executive
Officer of  Allison-Williams  Company,  a Minneapolis-  based investment banking
firm  specializing  in municipal and corporate  finance.  From September 1965 to
November  1970, he was employed as Executive  Vice President of Keenan & Clarey,
Inc., a Minneapolis broker-dealer specializing in structuring and development of
corporate  debt  issues  and  financings  for  churches  and  other   non-profit
corporations.  During his career in the  securities  and finance  industry,  Mr.
Clarey has been active as a senior officer and director of local,  regional, and
national  trade and  professional  associations  and has  served as a  volunteer
officer and director of various  charitable  organizations.  He  graduated  from
Marquette University, Milwaukee, Wisconsin (1963) with a B.A. in economics.

         Administration of the day-to-day  operations of the Company is provided
by the  Advisor  under the  Advisory  Agreement.  The Company  currently  has no
employees and the Company's officers receive no compensation for their services,
other than through their  interests in affiliates of the Company.  The Company's
officers  have no employment  contracts  with the Company or the Advisor and are
considered  employees "at will." The Company believes that, because of the depth
of  management  of the Advisor and its  Affiliates,  the loss of one or more key
employees of the Advisor, or one or more officers of the Company, would not have
a material adverse effect upon its operations.  Accordingly,  their  association
with the Company or the Advisor  could be terminated at any time. As required by
the Company's  Bylaws, a majority of the Directors are Independent  Directors in
that they are otherwise  unaffiliated with and do not receive  compensation from
the Company  (other than in their  capacity as Directors) or from the Advisor or
the Dealer Manager.

         The  Directors  are  responsible  for  considering  and  approving,  by
majority  vote,  the  policies  of the Company and meet as often and devote such
time to the  business  of the  Company as their  oversight  duties may  require.
Pursuant  to  the  Company's   Bylaws,   the  Independent   Directors  have  the
responsibility  of evaluating the capability and  performance of the Advisor and
determining  that the  compensation  being paid to the Advisor by the Company is
reasonable.

         The Company currently pays each Independent  Director a fee of $500 for
each board meeting ($200 for telephonic  meetings),  limited to $2,500 per year.
In addition,  the Company  reimburses  directors for travel expenses incurred in
connection  with their duties as Directors of the Company.  The Company also has
adopted a Stock  Option Plan for  Directors  and the  Advisor,  under which each
Director and the Advisor's  president are granted  annually  options to purchase
3,000  Shares each of the  Company's  common  stock at a price equal to the fair
market value at the date of the grant.


                                       15

<PAGE>



         Directors and officers are  permitted to engage in other  activities of
the type  conducted  by the  Company,  and  neither  the  Company's  Articles of
Incorporation  or Bylaws nor any policy of the  Company  restricts  officers  or
Directors  from  conducting,  for their  own  account  or on  behalf of  others,
business  activities  of the type  conducted by the Company.  The  Directors and
officers are nevertheless not relieved of their duties of loyalty to the Company
and its  Shareholders.  The  Directors  may be removed by a majority vote of all
Shares outstanding and entitled to vote at any annual meeting or special meeting
called for such purpose.

         (b) The  requirements of Section 16(a) of the Exchange Act do not apply
to the Company or any of its Directors, Executive Officers, Promoters or Control
Persons.


Item 10.    Executive Compensation.

     The Company's two executive  officers do not receive  compensation from the
Company,  however,  Mr. Davis and Mr. Reinhart each own a one-third  interest in
the Advisor. See Item 12 Certain Relationships and Related Transactions.

         The Company currently pays each Independent  Director a fee of $500 for
each board meeting ($200 for telephonic  meetings),  limited to $2,500 per year.
In addition,  the Company  reimburses  directors for travel expenses incurred in
connection  with their duties as Directors of the Company.  The Company also has
adopted a Stock  Option Plan for  Directors  and the  Advisor,  under which each
Director and the Advisor's  president are granted  annually  options to purchase
3,000  Shares each of the  Company's  common  stock at a price equal to the fair
market value at the date of the grant.

Warrants and Options

         On September  30, 1994,  the Board of Directors  adopted a Stock Option
Plan for Directors and the Advisor (the "Option Plan") to be administered by the
Directors,  which  provides for a grant of an option to purchase 3,000 shares of
$.01 par value Common Stock, subject to certain adjustments,  to a Director upon
his or her  appointment  or election and upon each  re-election  (directors  are
elected  annually) or to the Advisor upon the  Advisor's  appointment  or annual
re-appointment. The purchase price of the Common Stock granted under each option
shall be the fair market  value,  as defined in the Option Plan, at the time the
option is granted.  On November 15, 1994,  the Company  issued options under the
Option Plan to each of the six Directors  and the  president of the Advisor,  to
purchase 3,000 shares each (an aggregate of 21,000 shares) at a price of $10 per
share. These options vest and are thus exercisable on or after November 15, 1995
and expire November 15, 1999.

         The Company  may,  from time to time,  grant  full-time  employees  and
existing  Directors  and  officers  of the  Company  and the  Advisor  warrants,
options, stock purchase rights,  incentive stock options or similar arrangements
to purchase shares of Common Stock of the Company. In accordance with applicable
state law,  the  Company  has agreed to limit the number of options or  warrants
issuable to the Advisor, Affiliates or any Directors to ten percent (10%) of the
outstanding  Shares  of the  Company  on the  date of grant  of any  options  or
warrants.  The purchase  price of Shares  issuable  pursuant to such warrants or
options will not be less than the fair market value at the time of the grant.

         The Company may refuse to allow the  exercise of a warrant  into Common
Stock if the effect of such  exercise  or  conversion  would,  in the opinion of
counsel for the Company,  disqualify or jeopardize  the Company as a real estate
investment trust under the Code.










                   (Balance of page intentionally left blank)






                                       16

<PAGE>



Item 11.      Security Ownership of Certain Beneficial Owners and Management.


         The  following  table  sets  forth as of the date of this  Report,  the
number  of  Shares  beneficially  owned by each  Director  and by all  executive
officers and Directors as a group.  Except as identified  below,  the Company is
unaware  of  any  beneficial  owner  of  more  than  five  percent  (5%)  of the
outstanding Shares of the Company's capital stock.


<TABLE>
<CAPTION>

                                                                         Number of          Percent
                                                                         Shares (1)        Of Class
<S>                                                                      <C>                    <C>
        V. James Davis............................................       1,112                  .18%
        David G. Reinhart.........................................       10,200  (2)            1.63%
        Kirbyjon H. Caldwell......................................       ----                   ----
        Robert O. Naegele, Jr. ...................................       5,000                   .80%
        Dennis J. Doyle...........................................       ----                   ----
        John M. Clarey............................................       ----                   ----
        All Executive Officers and Directors
             as a Group (six individuals).........................       16,312                 2.61%
</TABLE>

(1)      Excludes  3,000  Shares which each  Director  and the  President of the
         Advisor has an option to purchase pursuant to the Stock Option Plan for
         Directors and the Advisor, which options expire November 15, 1999.

(2)      Shares indicated are owned of record by DRM Holdings, Inc., a Minnesota
         corporation  ("DRM")  which  owns  a  total  of  20,000  shares  of the
         Company's   stock  for  which  it  paid  $200,000.   These  shares  are
         "restricted  securities" and their sale,  transfer or assignment may be
         subject to restrictions imposed by states in which the Shares were sold
         in the initial public offering.  DRM is owned by David G. Reinhart, the
         Company's Vice  President,  Secretary and a Director,  and by Philip J.
         Myers,  the Advisor's  President.  Messrs.  Reinhart and Myers are also
         directors  of the  Advisor  and of  American.  The number of shares and
         percentages  set forth above are  calculated by  multiplying  the total
         number  of  Shares  owned by DRM by the  percentage  such  individuals'
         ownership  of stock in DRM relates to the total  outstanding  shares of
         stock of DRM.  Philip  J.  Myers,  the  Advisor's  President,  could be
         considered the beneficial  owner of 9,800 shares which is 1.57% percent
         of the class outstanding.









                   (Balance of page intentionally left blank)












                                       17

<PAGE>



Item 12.      Certain Relationships and Related Transactions.

The Advisor

     Subject  to the  supervision  of the  Company's  Board  of  Directors,  the
business of the Company is managed by the  Advisor,  which  provides  investment
advisory  and  administrative  services  to the  Company.  The  Advisor is owned
equally by V. James Davis, David G. Reinhart and Philip J. Myers. Messrs.. Davis
and Reinhart are officers and  Directors of the Company.  Messrs..  Reinhart and
Myers are also shareholders, officers and directors of DRM Holdings, Inc., which
owns 100% of American Investors Group, Inc. Messrs.. Reinhart and Myers together
own all  outstanding  common stock of DRM Holdings,  Inc. As of the date of this
Report,  the  Advisor  employed,  directly  or  otherwise,  three  persons  on a
part-time basis, including Philip J. Myers, President and Scott J. Marquis, Vice
President of the Company.

         Pursuant to the  Advisory  Agreement,  the Company must pay the Advisor
certain  advisory  fees and  expenses,  as  defined in the  agreement  and remit
one-half of any  origination  fee collected  from a borrower in connection  with
mortgage loans made or renewed by the Company.

American Investors Group, Inc.

         Pursuant to the Underwriting Agreement in connection with the Company's
secondary  public offering which  commenced  September 26, 1997, the Company has
agreed to pay the Managing  Underwriter and Co-Underwriter  selling  commissions
equal to 5.95% of the gross  proceeds  form the sale of the  Shares,  all or any
part of which  commissions  may be re-allowed  to the  Soliciting  Dealers.  The
Company has also  agreed to pay the  non-accountable  expenses  of the  Managing
Underwriter (American) in the amount of $35,000 on the first 100,000 Shares sold
and $7,000 on each increment of 100,000 Shares sold thereafter. In addition, the
Company  has  agreed  to  indemnify  the  Underwriters   against  certain  civil
liabilities,  including liabilities under the Securities Act of 1933. The public
offering price of the Shares was determined by negotiations  between the Company
and the Managing  Underwriter  based on the price paid ($10.00 per share) by the
Company's  initial  shareholder and  shareholders and shareholders who purchased
shares in the Company's initial public offering  completed November 8, 1996. The
Managing  Underwriter  (American) is an affiliate of the Advisor.  The following
table sets forth the name and positions of certain officers and all directors of
American:

<TABLE>
<CAPTION>
                                 Name                                  Position
<S>                   <C>                                         <C>
                      Philip J. Myers                             President, Secretary and Director
                      Scott J. Marquis                            Vice President
                      David G. Reinhart                           Chairman, Board of Directors
</TABLE>


         In the course of its  business,  it is expected  that the Company  will
purchase  church bonds being  underwritten  and sold by  American.  Although the
Company would not pay any commissions, American would benefit from such purchase
as a result of commissions paid to it by the issuer of such bonds. American also
would benefit from mark-ups on bonds bought from it and mark-downs on bonds sold
through it by the Company on the secondary market. Any church bonds purchased by
the  Company  will be  purchased  for  investment  purposes  only at the  public
offering price.  Church bonds purchased in the secondary market, if any, will be
purchased at the best price available,  subject to customary  markups (or in the
case of sales --  markdowns),  on terms no less  favorable than those applied to
other customers of American,  and would not exceed industry  standards or in any
event (in the case of  mark-ups  and  mark-downs  on  secondary  bond  sales and
purchases)  exceed five percent of the  principal  amount of bonds  purchased or
sold.  Principals  of the  Company  and the  Advisor  may  receive a benefit  in
connection with such  transactions  due to their  affiliation  with the Managing
Underwriter.  It is the policy of the  Company not to invest in excess of 30% of
its Average Invested Assets in Church Bonds.

Church Loan Advisors, Inc.

         Church Loan Advisors,  Inc., a Minnesota  corporation  (the "Advisor"),
was organized on May 27, 1994 to engage in the business of rendering lending and
advisory services solely to the Company,  and to administer the business affairs
and operations of the Company. The Advisor's offices are located at 10237 Yellow
Circle Drive, Minneapolis, Minnesota 55343.






                                       18

<PAGE>



         The following  table sets forth the names and positions of the officers
and directors of the Advisor:

<TABLE>
<CAPTION>
                                 Name                                Position

<S>                   <C>                                         <C>
                      Philip J. Myers                             President, Treasurer and Director
                      Scott J. Marquis                            Vice President, Secretary
                      V. James Davis                              Director
                      David G. Reinhart                           Director
</TABLE>

         Philip J. Myers, age 41, is President,  Treasurer and a Director of the
Advisor,  having  served  in such  capacities  since its  inception.  He is also
currently  employed  full-time  as  President,  Secretary  and a Director of the
Managing  Underwriter,  American  Investors  Group,  Inc.  Mr.  Myers earned his
Bachelor of Arts degree in Political  Science in 1977 from the State  University
of New York at Binghamton and his Juris Doctor Degree from the State  University
of New York at Buffalo  School of Law in 1980.  From 1980 until 1982,  Mr. Myers
served  as an  attorney  with the  Division  of Market  Regulation  of the U. S.
Securities and Exchange Commission in Washington,  D. C. and, from 1982 to 1984,
as an attorney with the Division of  Enforcement  of the Securities and Exchange
Commission in San  Francisco.  From August 1984 to January 1986, he was employed
as an attorney with the San Francisco  law firm of Wilson,  Ryan and  Compilongo
where he specialized in corporate finance, securities and broker-dealer matters.
From  January  1986 to  January  1989 when he became  affiliated  with  American
Investors  Group,  Inc.,  Mr.  Myers was  engaged as Senior  Vice-President  and
General Counsel of Financial Planners Equity Corporation  ("FPEC"), a 400 broker
securities dealer formerly located in Marin County,  California.  He is a member
of the New York,  California  (inactive  status) and Minnesota Bar Associations,
and a registered General Securities Principal.

         Scott J.  Marquis,  age 40,  is  Vice-President  and  Secretary  of the
Advisor,  having served in such  capacities  since December 13, 1994. He is also
currently employed full-time as Vice-President and of the Managing  Underwriter,
American  Investors Group, Inc., where he has been employed since February 1987.
Prior to his employment  with American  Investors  Group,  Inc., Mr. Marquis was
employed for approximately seven years with the Minneapolis-based broker dealer,
Piper,  Jaffray & Hopwood,  in the capacity of supervisor of its trade clearance
department.  Mr.  Marquis  is a  licensed  financial  principal  and  registered
representative of American Investors Group, Inc., and holds his Series 7, 63 and
27 licenses from the National Association of Securities Dealers, Inc.

         See  Item 9 above  for a  description  of the  positions  and  business
experience of V. James Davis and David G.  Reinhart,  both of whom are Directors
of the Advisor.

         The Advisory  Agreement.  The Company has entered into a contract  with
the Advisor  (the  "Advisory  Agreement")  under which the Advisor  will furnish
advice  and  recommendations  concerning  the  affairs of the  Company,  provide
administrative  services  to the  Company  and manage the  Company's  day-to-day
affairs.  In performing its services under the Advisory  Agreement,  the Advisor
may use facilities,  personnel and support services of its Affiliates.  Expenses
such as legal and accounting  fees,  stock transfer agent,  registrar and paying
agent fees,  and  dividend  reinvestment  agent fees are direct  expenses of the
Company and are not provided for by the Advisor as part of its services.

         The  Advisory  Agreement  is  renewable  annually  by the  Company  for
one-year  periods,  subject  to a  determination  by the  Company,  including  a
majority of the Independent  Directors,  that the Advisor's performance has been
satisfactory and that the compensation  paid the Advisor by the Company has been
reasonable.  The Advisory  Agreement may be terminated  with or without cause by
the  Company  on 60  days  written  notice.  Upon  termination  of the  Advisory
Agreement  by either  party,  the  Advisor may require the Company to change its
name to a name that does not contain the word "American,"  "America" or the name
of the  Advisor  or any  approximation  or  abbreviation  thereof,  and  that is
sufficiently  dissimilar to the word  "America" or "American" or the name of the
Advisor as to be unlikely to cause confusion or  identification  with either the
Advisor or any person or entity  using the word  "American"  or "America" in its
name, however, the Company may continue to use the word "church" in its name. In
addition,  upon  non-renewal  or  termination  of the Advisory  Agreement by the
Company,  the  Advisor  may be  entitled to a  termination  fee.  The  Company's
Directors  shall  determine  that  any  successor  Advisor  possess   sufficient
qualifications  to perform the advisory function for the Company and justify the
compensation provided for in its contract with the Company.

         Pursuant to the Advisory Agreement,  the Advisor is required to pay all
of the expenses it incurs in providing services to the Company,  including,  but
not limited to, personnel expenses,  rental and other office expenses,  expenses
of  Directors,  officers  and  employees  of the Advisor  (except  out-of-pocket
expenses of such persons who are  directors or officers of the Company  incurred
in their  capacities as Directors  and officers of the Company),  and all of its
overhead and  miscellaneous  administrative  expenses relating to performance of
its functions under the Advisory Agreement.  The Company will be required to pay
all other expenses of the Company, including the costs and expenses of reporting
to various governmental agencies and the Shareholders

                                       19

<PAGE>



and of  conducting  its  operations as a mortgage  lender,  fees and expenses of
appraisers,  directors, auditors, outside legal counsel and transfer agents, and
costs directly relating to closing of loan transactions.

         In the event that Total Operating Expenses of the Company exceed in any
calendar  year the  greater  of (a) 2% of the  Average  Invested  Assets  of the
Company or (b) 25% of the  Company's  net income,  the Advisor is  obligated  to
reimburse the Company, to the extent of its fees for such calendar year, for the
amount by which the aggregate annual operating  expenses paid or incurred by the
Company exceed the limitation.  The Independent Directors may, upon a finding of
unusual and non-recurring  factors which they deem sufficient,  determine that a
higher level of expenses is justified in any given year.

         The  Company's  Bylaws  provide that the  Independent  Directors are to
determine at least annually the  reasonableness  of the  compensation  which the
Company pays to the Advisor.  Factors to be considered in reviewing the Advisory
Fee  include  the size of the  fees of the  Advisor  in  relation  to the  size,
composition and profitability of the Company's loan portfolio, the rates charged
by other investment advisors performing comparable services,  the success of the
Advisor  in  generating   opportunities  that  meet  the  Company's   investment
objectives,  the amount of additional revenues realized by the Advisor for other
services performed for the Company, the quality and extent of service and advice
furnished by the Advisor,  the quality of the Company's  investments in relation
to  investments  generated by the Advisor for its own  account,  if any, and the
performance of the Company's investments.




Item 13.        Exhibits and Reports on Form 8-K

         (a)    Exhibits

                3.1   Articles of Incorporation*
                3.2  By-Laws*
                4    Specimen Certificate*
                10.1 Advisory Agreement*
                10.2 Dividend Reinvestment Plan of Company*
                10.3 Stock Option Plan for Directors and Advisor(with Exhibits)*
                10.4 Gemisys Corporation Agreement to act as Transfer Agent,
                     Registrar & Dividend Reinvestment Agent*
                10.5 Advisory Agreement between Registrant and Church Loan
                     Advisors, Inc.*


     *  Incorporated  herein  by  reference  to  the  Registrant's  Registration
Statement on Form S-11 (Commission File No. 33-87570).

     (b) Reports on Form 8-K

                No reports on Form 8-K were filed during the last quarter of the
period covered by this report.

-------------------------------------------------------------------------------

















                                       20

<PAGE>



                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                        AMERICAN CHURCH MORTGAGE COMPANY


Dated:  March 31, 1998
                                                        By:   /s/ V. James Davis
                                                       V. James Davis, President


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated.



By:      /s/ David G. Reinhart
         David G. Reinhart
         Vice-President, Secretary (principal accounting and financial officer)
         and a Director



By:      /s/ V. James Davis
         V. James Davis
         President (principal executive officer), Treasurer and a Director



By:       /s/ Dennis J. Doyle                              Date:       03/31/98
         Dennis J. Doyle, Director



By:      /s/  John M. Clarey                                Date:       03/31/98
         John M. Clarey, Director



By:      /s/ Robert O. Naegele, Jr.                          Date:      03/31/98
         Robert O. Naegele, Jr.,  Director



By:      /s/ Kirbyjon H. Caldwell                             Date:     03/31/98
         Kirbyjon H. Caldwell, Director

                                       21

<PAGE>












                        AMERICAN CHURCH MORTGAGE COMPANY

                             Minneapolis, Minnesota

                              Financial Statements

                           December 31, 1997 and 1996




































<PAGE>


















                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
American Church Mortgage Company
Minneapolis, Minnesota

We have  audited the  accompanying  balance  sheet of American  Church  Mortgage
Company  as of  December  31,  1997  and  1996  and the  related  statements  of
operations,  stockholders' 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 American  Church  Mortgage
Company as of December 31, 1997 and 1996,  and the results of its operations and
its cash flows for the years then ended, in conformity  with generally  accepted
accounting principles.



                                        Boulay, Heutmaker, Zibell & Co. P.L.L.P.
                                        Certified Public Accountants

Minneapolis, Minnesota
February 20, 1998

                                        1

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                                  Balance Sheet





--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                        December 31
                       ASSETS                                                                   1997                   1996
--------------------------------------------------------------------------------

<S>                                                                                       <C>                    <C>
Current Assets
    Cash and equivalents                                                                  $   291,815            $   612,744
    Current maturities of loans receivable                                                    103,505                 55,436
                                                                                            ---------                -------
            Total current assets                                                              395,320                668,180


Loans Receivable, net of current  maturities                                                4,808,803              2,605,388


Bonds Receivable                                                                              125,809                120,640


Deferred Tax Asset                                                                             33,000                 20,000

Organization Expenses, net                                                                        464                    769
                                                                                            ---------              ---------

            Total assets                                                                   $5,363,396             $3,414,977
                                                                                            =========              =========

Notes to Financial Statements are an integral part of this Statement.
</TABLE>
                                        2

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                                  Balance Sheet





-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                        December 31
 LIABILITIES AND STOCKHOLDERS' EQUITY                                                            1997                 1996
-------------------------------------------------------------------------------



<S>                                                                                      <C>                        <C>
Current Liabilities
    Accounts payable                                                                     $      15,490              $ 8,482
    Deferred income                                                                             17,301               10,383
    Dividends payable                                                                          127,899               80,424
                                                                                            ----------            ---------
            Total current liabilities                                                          160,690               99,289

Deferred Income                                                                                 61,127               35,547


Stockholders' Equity
    Common stock, par value $.01 per share
        Authorized, 30,000,000 shares
        Issued and outstanding, 571,615 at December 31, 1997
            and 359,791 shares at December 31, 1996                                              5,716                3,598
    Additional paid-in capital                                                               5,184,882            3,306,437
    Accumulated deficit                                                                        (49,019)             (29,894)
                                                                                            ----------            ---------
            Total stockholders' equity                                                       5,141,579            3,280,141
                                                                                             ---------            ---------

            Total liabilities and equity                                                    $5,363,396           $3,414,977
                                                                                             =========            =========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.


                                        3

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                             Statement of Operations





-------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31
                                                                                               1997                    1996
--------------------------------------------------------------------------------



<S>                                                                                          <C>                     <C>
Interest Income                                                                              $384,118                $217,390

Operating Expenses                                                                             36,304                  72,004
                                                                                             --------                 -------

Operating Income                                                                              347,814                 145,386

Benefit from Income Taxes                                                                     (13,000)                (20,000)
                                                                                             --------                 -------

Net Income                                                                                   $360,814                $165,386
                                                                                              =======                 =======

Income Per Common Share                                                                     $     .91                $    .79
                                                                                              =======                 =======

Weighted Average Common Shares Outstanding                                                    398,160                 209,072
                                                                                              =======                 =======
</TABLE>

Notes to Financial Statements are an integral part of this Statement.

                                        4

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                        Statement of Stockholders' Equity





--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                 Additional
                                                                   Common Stock                    Paid-In            Accumulated
                                                              Shares            Amount             Capital             Deficit
--------------------------------------------------------------------------------



<S>                                                         <C>               <C>             <C>                    <C>
Balance, December 31, 1995                                   20,000              200          $    199,800           ($   5,845)

    Issuance of 339,791 shares of
        common stock, net of
        offering costs                                      339,791            3,398             3,106,637

    Net income                                                                                                          165,386

    Dividends declared                                                                                                 (189,435)
                                                            -------            -----             ---------             --------
Balance, December 31, 1996                                  359,791            3,598             3,306,437            (  29,894)


   Issuance of 211,824 shares of
      common stock, net of
      offering costs                                        211,824            2,118             1,878,445

    Net Income                                                                                                          360,184

    Dividends declared                                                                                                 (379,939)
                                                            -------            -----             ---------              -------
Balance, December 31, 1997                                  571,615           $5,716            $5,184,882           ($  49,019)
                                                            =======            =====             =========              =======
</TABLE>

Notes to Financial Statements are an integral part of this Statement.




                                        5

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                             Statement of Cash Flows



-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                Years Ended December 31
                                                                                               1997                   1996
-------------------------------------------------------------------------------


<S>                                                                                      <C>                      <C>
Cash Flows from Operating Activities
    Net income                                                                           $    360,814             $  165,386
    Adjustments to reconcile net income to net cash
        from operating activities:
        Deferred income taxes                                                                 (13,000)               (20,000)
        Amortization                                                                              303                    303
        Change in assets and liabilities
            Decrease in accounts payable                                                        7,009                (41,012)
            Deferred income                                                                    32,498                 45,930
                                                                                          -----------               --------
            Net cash from operating activities                                                387,624                150,607

Cash Flows from Investing Activities
    Investment in mortgage loans                                                           (2,315,712)            (2,685,288)
    Collections on mortgage loans                                                              64,228                 24,464
    Investment in bonds                                                                        (5,169)              (120,640)
                                                                                          -----------            -----------
            Net cash used for investing activities                                         (2,256,653)            (2,781,464)

Cash Flows from Financing Activities
    Proceeds from stock offering, net                                                       1,880,563              3,217,330
    Dividends paid                                                                           (332,463)              (109,011)
                                                                                           ----------             ----------
            Net cash from financing activities                                              1,548,100              3,108,319
                                                                                            ---------              ---------

Net Increase (Decrease) in Cash and Equivalents                                              (320,929)               477,462

Cash and Equivalents - Beginning of Year                                                      612,744                135,282
                                                                                          -----------              ---------

Cash and Equivalents - End of Year                                                       $    291,815             $  612,744
                                                                                          ===========              =========
</TABLE>

                                  - Continued -

Notes to Financial Statements are an integral part of this Statement.

                                        6

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                       Statement of Cash Flows - Continued




--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                             Years Ended December 31
                                                                                           1997                      1996
--------------------------------------------------------------------------------



<S>                                                                                      <C>                     <C>
Supplemental Schedule of Noncash Financing
 and Investing Activities
    Offering costs reclassified to additional
        paid-in-capital                                                                  $118,106                 $107,295
                                                                                          =======                  =======
    Dividends declared but not paid                                                      $127,899                $  80,424
                                                                                          =======                 ========

Supplemental Cash Flow Information
    Cash paid during the year for
        Interest                                                                          $     -                  $     -
        Income taxes                                                                      $     -                  $     -

</TABLE>
Notes to Financial Statements are an integral part of this Statement.


























                                        7

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

American Church Mortgage Company, a Minnesota  corporation,  was incorporated on
May 27,  1994.  The Company was  organized  to engage in the  business of making
mortgage  loans  to  churches  and  other  nonprofit   religious   organizations
throughout  the United  States,  on terms  that it  establishes  for  individual
organizations.

Accounting Estimates

Management   uses  estimates  and   assumptions  in  preparing  these  financial
statements in accordance with generally accepted  accounting  principles.  Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent  assets and liabilities,  and the reported revenues
and expenses. Actual results could differ from those estimates.

Cash

The Company  considers  all highly  liquid  debt  instruments  purchased  with a
maturity of three months or less to be cash equivalents.

The Company  maintains some cash in bank deposit  accounts which, at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts.

Marketable Securities

The  Company  accounts  for  its  debt  securities  under  Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities."

The Company  classifies its  marketable  debt  securities as  "held-to-maturity"
because it has the  intent  and  ability  to hold the  securities  to  maturity.
Securities classified as held-to-maturity are carried at amortized cost.

Allowance for Loans Receivable

The Company  follows a policy of providing an  allowance  for loans  receivable.
However, at December 31, 1997 an 1996,  management believes the loans receivable
to be  collectible  in all material  respects,  and  therefore,  no allowance is
presently provided.






                                        8

<PAGE>




                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996





1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Organization Expenses

Organization   expenses  are  stated  at  cost  and  are  amortized   using  the
straight-line method over five years.

Deferred Income

Deferred income  represents loan  origination fees which are recognized over the
life of the loan as an adjustment to the yield on the loan.

Income Taxes

Income taxes are provided  for the tax effects of  transactions  reported in the
financial  statements  and consist of taxes  currently due plus  deferred  taxes
related  primarily to differences in recognition of income from loan origination
fees for financial and income tax  reporting.  Deferred taxes are recognized for
operating losses that are available to offset future taxable income.

The Company has elected to be taxed as a Real Estate  Investment  Trust  (REIT).
Accordingly, the Company will not be subject to Federal income tax to the extent
of  distributions  to its shareholders if the Company meets all the requirements
under the REIT provisions of the Internal Revenue Code.

Income Per Common Share

No adjustments were made to income in either year for the purpose of calculating
earnings per share.  Stock  options were not included in computing  earnings per
share because their effects were antidilutive.

The adoption of Statement of Financial  Accounting  Standard No. 128,  "Earnings
Per Share", had no effect on the previously reported 1996 earnings per share.









                                        9

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Newly Issued Accounting Standards

In June 1997,  Statement of Financial  Accounting  Standards No. 130, "Reporting
Comprehensive  Income" was  approved for  issuance.  The Company will adopt this
Statement in fiscal 1998. The effect of this Statement has not been  determined,
however,  the  impact  on  the  Company's  financial  position  and  results  of
operations is not expected to be material.

2.  MORTGAGES AND BONDS RECEIVABLE

At December 31, 1997, the Company had first mortgage loans  receivable  totaling
$4,912,308.  The loans bear interest ranging from 9.75% to 15.00%.  The maturity
schedule for those loans as of December 31, 1997 is as follows:


<TABLE>
<CAPTION>
<S>                                                          <C>
1998                                                         $    103,505
1999                                                              218,763
2000                                                              132,621
2001                                                              148,098
2002                                                              165,384
Thereafter                                                      4,143,937
                                                                ---------

            Total                                              $4,912,308
</TABLE>

The  Company  also has four  bonds  receivable,  which are  carried at cost plus
amortized  interest income.  The bonds pay quarterly interest ranging from 7.75%
to 9.55%.  The combined  principal of $152,000 is due at various  maturity dates
between May 15, 2001 and January 25, 2012.

3.  STOCK OPTION PLAN

The Company has adopted a Stock Option Plan granting each member of the Board of
Directors and the president of the Advisor (Note 4) an option to purchase  3,000
shares of common stock  annually upon their  re-election.  The purchase price of
the stock will be the fair market value at the grant date. On November 15, 1994,
the Company  granted options to purchase an aggregate of 21,000 shares of common
stock at $10 per share. These options became  exercisable  November 15, 1995 and
expire  November  15, 1999.  No options  have been  exercised as of December 31,
1997.







                                       10

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996


3.  STOCK OPTION PLAN - Continued

The Company has chosen to account for stock  based  compensation  in  accordance
with APB Opinion 25.  Management  believes that the disclosure  requirements  of
Statement  of  Financial  Accounting  Standards  No. 123 are not material to its
financial statements.

4.  TRANSACTIONS WITH AFFILIATES

The Company has an Advisory Agreement with Church Loan Advisors, Inc. (Advisor).
The Advisor is  responsible  for the  day-to-day  operations  of the Company and
provides administrative services and personnel.

Upon  non-renewal  or  termination  of the  Advisory  Agreement,  the Company is
required to pay the Advisor a termination  fee equal to two percent of the value
of the average  invested  assets of the  Company as of the date of  termination,
subject to limitations set forth in the Advisory Agreement.

Under the term of the Advisory Agreement, the Company pays the Advisor an annual
base  management  fee of 1.25  percent of  average  invested  assets  (generally
defined as the  average of the  aggregate  book value of the assets  invested in
securities and equity  interests in and loans secured by real estate),  which is
payable on a monthly  basis.  The  Advisor  will also  receive  one-half  of the
origination  fees paid by a mortgage loan borrower in connection with a mortgage
loan made or renewed by the Company.  The Company paid advisory and  origination
fees totaling  $61,525 and $64,680  during 1997 and 1996,  respectively.  During
1997 and 1996 the Advisor waived fees of $23,119 and $6,662 respectively.

The Advisor and the Company are  related  through  common  ownership  and common
management. See Note 6.

5.  INCOME TAXES

The income tax benefit consists of the following components:
<TABLE>
<CAPTION>
                                                                                     1997           1996
                                                                                     ----           ----


<S>                                                                                  <C>           <C>
Current                                                                              $   -         $    -
Deferred                                                                           (13,000)       (20,000)
                                                                                    ------         ------

            Total tax benefit                                                     ($13,000)      ($20,000)
                                                                                    ======         ======
</TABLE>





                                       11

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996



5.  INCOME TAXES - Continued

The  following  reconciles  the income tax benefit with the  expected  provision
obtained by applying statutory rates to pretax income:
<TABLE>
<CAPTION>
                                                                                  1997            1996
                                                                                  ----            ----


<S>                                                                              <C>            <C>
Expected tax expense (benefit)                                                   $118,257       $45,700
(Increase) decrease in valuation allowance                                                       (1,300)
Benefit of REIT distributions                                                    (131,257)      (64,400)
                                                                                  -------        ------

            Totals                                                              ($ 13,000)     ($20,000)
                                                                                   ======        ======
</TABLE>

The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                                                    1997             1996
                                                                                    ----             ----



<S>                                                                                <C>           <C>
            Loan origination fees                                                  $33,000       $20,000
                                                                                    ======        ======
</TABLE>


During the years ended  December 31, 1996,  the Company  decreased its valuation
allowance against deferred tax assets by $1,300.

6.  PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK

The Company filed a  Registration  Statement  with the  Securities  and Exchange
Commission  for a public  offering  of its  common  stock in 1997.  The  Company
offered  to sell  1,500,000  shares  of its  common  stock at a price of $10 per
share. The offering was underwritten by a managing  underwriter (an affiliate of
the Advisor) and a  co-underwriter  on a "best efforts"  basis,  with no minimum
sale of stock was required.  The stock sale  commenced on September 26, 1997 and
will continue through January of 1999.

The Company filed a  Registration  Statement  with the  Securities  and Exchange
Commission  for an initial  public  offering  of its common  stock in 1995.  The
Company  offered to sell 2,000,000  shares of its common stock at a price of $10
per share.  The  offering was  underwritten  by an affiliate of the Advisor on a
"best efforts" basis,  but required a minimum sale of at least 200,000 shares of
common  stock.  This  minimum  amount of shares  was sold as of April 15,  1996,
whereupon  the  Company  commenced  its  principal  operating  activities.   The
Company's  initial public offering of its shares  continued  through November 8,
1996. The number of shares sold in this offering was 355,481.




                                       12

<PAGE>



                        AMERICAN CHURCH MORTGAGE COMPANY

                          Notes to Financial Statements

                           December 31, 1997 and 1996





6. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK- Continued

Pursuant  to the terms of the  Underwriting  Agreements,  the  Company  paid the
managing   underwriter   and   participating   broker-dealers   commissions  and
non-reimbursable expenses of approximately $162,600 and $144,000 during 1997 and
1996, respectively.

7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments,  none of which
are held for trading purposes, are as follows at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                 1997                                1996
                                               ----------------------------------          ----------------------------
                                                    Carrying             Fair              Carrying             Fair
                                                     Amount             Value               Amount              Value


<S>                                                <C>               <C>                 <C>                  <C>
Cash and equivalents                               $  291,815        $   291,815         $  612,744           $612,744
Loans receivable                                    4,912,308          4,912,308          2,660,824          2,660,824
Bonds receivable                                      125,809            125,809            120,640            120,640
</TABLE>

The carrying value of cash and  equivalents  approximates  fair value.  The fair
value  of the  loans  receivable  and the  bonds  receivable  are  estimated  by
discounting  future cash flows using  current  discount  rates that  reflect the
risks associated with similar types of loans.

                                       13

<PAGE>