As filed with the Securities and Exchange Commission on March 19, 1997

                      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, 1996

        or

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

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                    Commission File Number 33-87570


                   AMERICAN CHURCH MORTGAGE COMPANY

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          (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

tate 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:                $217,390

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 March 19, 1997 was:     362,574.
                           -----------

            DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>




                 AMERICAN CHURCH MORTGAGE COMPANY
                          FORM 10-KSB


                                                                        Page
                             INDEX                                       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, 1996 and 1995.................       F-2

                     Statement of Operations
                     Years Ended December 31, 1996 and
                          December 31, 1995.....................       F-4

                     Statements of Stockholders' Equity
                     December 31, 1996 and 1995.................       F-5

                     Statements of Cash Flows
                     Years Ended December 31, 1996 and
                          December 31, 1995.....................       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
seven  churches in the  aggregate  amount of  $2,802,000,  with the average size
being  $400,000.  The Company has also  purchased  in the  secondary  market for
$46,412 (which includes $407 in accrued interest) First Mortgage Church Bonds in
the face amount of $50,000,  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  served  as
dealer-manager  of the Company's public offering of its common stock. Two of the
Advisor's principals serve as directors of the Company.

RECENT PUBLIC OFFERING

             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  ($20,000,000)  under SEC File  33-87570.  The Company's  offering was
underwritten by its affiliate American  Investors Group, Inc.  ("American") on a
"best  efforts"  basis and  terminated  on November 8, 1996 with 335,481  shares
having been sold in the public  offering.  The Company plans to initiate another
public  offering of its shares ($.01 par value common stock) in the near future,
however, the number of shares and underwriter have not yet been identified.

THE COMPANY'S BUSINESS ACTIVITIES

             The Company's  business is managed by Church Loan  Advisors,  Inc.,
Minneapolis,  Minnesota (the "Advisor").  The Advisor's affiliate,  American has
been engaged since January 1987, in the business of underwriting  first mortgage
bonds for churches  throughout the United States.  In  underwriting  such bonds,
American  reviews  financing  proposals,   analyzes  a  prospective   borrower's
financial capability,  and structures,  markets and sells,  mortgage-backed bond
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  $145  million  in first  mortgage  bonds have been sold to public
investors.  The average size of a single church bond financing  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  believes  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
toward  lending 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  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 will apply 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 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

                                     3

<PAGE>



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; and (vi) 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.

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                                     2.00%                                                 3.5%
     5 Year                                     2.50%                                                 3.5%
     7 Year                                     2.75%                                                 3.5%
Construction 1 Year Term                 Fixed @ Prime + 3.75%                                        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.  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.




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  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

                                  4

<PAGE>



Policies.   All  appraisals  and  financial   statements  will  be  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  will be 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  modest  loan  commitment  fee  may be  charged  by the  Company.
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  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

                                     5

<PAGE>



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:

           (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.


                                  6

<PAGE>



           (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  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;

           (v)       Investing in equity securities;

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

                                     7

<PAGE>



           (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  repurchase  or  otherwise  reacquire  Shares  except as may be  necessary to
maintain  qualification  as a real estate  investment  trust under the Code,  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.

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

                                     8

<PAGE>



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
employees  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."





                (Balance of page intentionally left blank)

                                       9

<PAGE>



OPERATIONS

           The  Company's  operations  currently are located in the 8,400 square
foot offices of the Dealer Manager, American Investors Group, Inc., 10237 Yellow
Circle Drive,  Minneapolis,  Minnesota 55343.  These facilities are owned by DRM
Holdings,  Inc.  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,  as 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
obtainable from unaffiliated third parties in arm's-length discussions.


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 March 19, 1997,  342,574 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. At this time,  however,  there is no
organized secondary market for the Company's shares.

           (b)  Holders

           As of  March  19,  1997,  there  were  (281)  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).










              (Balance of page intentionally left blank)






                                    10

<PAGE>
 


           (c)  Dividends

           The Company has paid dividends 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>                  
      July 30, 1996                  June 30, 1996            $.1927                                      9.25%*
    October 30, 1996              September 30, 1996          $.23125                                     9.25%
    January 30, 1997               December 31, 1996          $.240625                                    9.625%
<FN>
 *Represents a 75 day operating quarter (April 15th to June 30th, 1996)
</FN>
</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.  Further, during the start-up phase of its operations,
the capital of the Company,  which was comprised  primarily of the proceeds from
the sale of the Shares in its initial public  offering,  were held in relatively
low-yielding  secure investments pending their application to fund loans made by
the Company.  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." The Company  intends to  distribute  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  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. 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.

           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 seven  churches in the aggregate  amount of  $2,802,000,  with the
average size being  $400,000.  The Company has also  purchased in the  secondary
market for $46,412  (which  includes $407 in accrued  interest)  First  Mortgage
Church Bonds in the face amount of $50,000,  for $72,805 Second  Mortgage Church
Bonds in the face amount of $100,000. Funding of additional first mortgage loans
is expected to continue on an on-going basis as the Company's  investable assets
become  available  through  (i) the sale of  additional  shares in a  subsequent
public  offering;  (ii)  prepayment and repayment at maturity of existing loans;
(iv) borrowed funds; and (v) dividends  reinvested under the Company's  Dividend
Reinvestment Plan.
 The public offering of the Company's shares ended November 8, 1996. The Company
plans to initial  another  public  offering of its shares ($.01 par value common
stock) in the near future, however the number of shares and underwriter have not
yet been identified.

           (B)   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                 RESULTS OF OPERATION

           FINANCIAL CONDITION

           During the year ended  December  31, 1996 total assets of the Company
increased by $3,171,329  due  primarily to sale of the  Company's  common stock.
Total  liabilities  increased  by $85,343 due to deferred  income and  dividends
declared but not yet paid as of December 31, 1996.

           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, 1996, the
Company had funded  seven first  mortgage  loans to  churches  for an  aggregate
amount of $2,685,288 and purchased  $50,000  principal  amount of First Mortgage
Church Bonds for a purchase  price of $46,412  (which  includes  $407 in accrued
interest),  and for $72,805 Second  Mortgage  Church Bonds in the face amount of
$100,000.  The loans made by the Company  range in interest  rate charged to the
borrowers from 9.25% for annually adjustable, 20 year amortized loans, to 11.25%
for 15 year fixed  interest  rate loans.  As of December 31, 1996,  the average,
principal-adjusted interest rate on the Company's portfolio of loans was 10.86%.
The Company's portfolio of bonds has a average current yield of 11.68% .

           Net operating income for the Company's fiscal year ended December 31,
1996  (reflecting  255 days of  operations)  was  $145,386 on total  revenues of
$217,390.  Revenues for the fiscal year  included  $37,477 of "Escrow  Interest"
earned on proceeds of the Company's common stock offering held in escrow pending
achievement of the sale of the Minimum Amount which occurred just prior to April
15,  1996.  This escrow  interest  revenue was  disbursed to  purchasers  of the
Company's common shares

                                   12

<PAGE>



during  the  quarter  ending  June 30,  1996  based on the  duration  that their
investment was held in escrow,  which disbursement is reflected in the Company's
Statement of Operations for the fiscal year ending  December 31, 1996.  Interest
income earned on the Company's  portfolio of loans was $152,258,  reflecting the
fact that its 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, 1996 is $43,630 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 June 30, 1996, September 30, 1996
and  December  31,  1996  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 $.1927 for
each  share  held of record on June 30,  1996,  $.23125  for each  share held of
record  September  30,  1996,  and  $.240625  for each  share  held of record on
December 31, 1996. During the Company's public offering, dividends were 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 75 days of operation for
the quarter ending July 30, 1996 and the subsequent quarters ended September 30,
1996 and December 31, 1996 , the dividends paid  represented a 9.25%,  9.25% and
9.625% annualized yield to Shareholders respectively.

           Total assets of the Company  increased  from  $243,648 as of December
31, 1995 to  $3,414,977  as of December 31,  1996,  primarily as a result of the
sale and issuance of the Company's common stock pursuant to its public offering,
the proceeds of which were deployed into mortgage loans,  church bonds purchased
in the secondary  market,  and cash & cash equivalent money market  obligations.
Shareholders'  Equity rose from  $194,155  to  $3,280,141  for the same  reason.
Company  liabilities at the end of the fiscal year ending  December 31, 1996 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, 1996 but not yet paid.

LIQUIDITY AND CAPITAL RESOURCES

           On March 31, 1996 the Company had no assets  other than the  $200,000
cash paid by its  promoter,  DRM  Holdings,  for the 20,000  shares  owned by it
($10.00  per  share)  and had  incurred  no  material  obligations,  other  than
accumulated and unpaid expenses  pertaining to the public offering.  The initial
$200,000  capital  contribution  by the promoter was partially used to pay legal
and accounting  costs relating to the  organization of the Company,  Independent
Director's  fees and certain  professional  and other fees and costs  associated
with the Company's  initial  public  offering.  On or about April 15, 1996,  the
Company recorded additional paid-in capital of $2,019,205 in connection with the
sale of the  Company's  common  stock in its public  offering  and began  active
business  operations.  As of December 31, 1996, the Company had recorded a total
of $3,306,437 in additional paid in capital, which includes the initial $200,000
investment by the promoter DRM Holdings.

           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.
The Company  currently  plans a second public offering of its shares sometime in
the early second  quarter of 1997.  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                           53    President, Treasurer and Director                        1994
   David G. Reinhart                        44    Vice President, Secretary and Director                   1994
   Kirbyjon H. Caldwell                     44    Independent Director                                     1994
   Robert O. Naegele, Jr.                   57    Independent Director                                     1994
   Dennis J. Doyle                          44    Independent Director                                     1994
   John M. Clarey                           55    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   and  otherwise   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.

           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

                                       14

<PAGE>



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.

           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

                                    15

<PAGE>



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  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.

           Pursuant to the terms of the  Underwriting  Agreement  in  connection
with the Company's  public stock offering,  which expired  November 8, 1996, the
Company  had  agreed  to  issue  warrants  to the  Dealer  Manager  (and/or  the
Soliciting  Dealers) to purchase  shares of the Company's  $.01 par value Common
Stock equal to one Share for every ten Shares sold in the  offering,  at a price
of $10.00 per share.  These warrants have not been issued,  however,  the Dealer
Manager  has a right to the  issuance  of  warrants  for the  purchase of 33,548
shares. The Dealer Manager (American) is an Affiliate of the Advisor and certain
officers and directors of the Company and Advisor.

           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.










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                                    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......................................................          1,013                      .28%
          David G. Reinhart...................................................         10,420  (2)                2.90%
          Kirbyjon H. Caldwell................................................           ----                      ----
          Robert O. Naegele, Jr. .............................................          5,000                     1.39%
          Dennis J. Doyle.....................................................           ----                      ----
          John M. Clarey......................................................           ----                      ----
          All Executive Officers and Directors
               as a Group (five individuals)..................................         16,433                     4.57%
</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 9,680 shares
           which is 2.69% percent of the class outstanding.









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                                      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 initial public offering which concluded  November 8, 1997, the Company
paid the Dealer  Manager  (American),  a sales  commission  equal to 4.3% of the
gross  amount  of sales  of the  Shares  sold,  plus a  non-accountable  expense
reimbursement  of $35,000.  Also,  the  Company  has agreed to issue  Soliciting
Dealer  Warrants to the Dealer Manager  (American) and Soliciting  Dealers.  The
Dealer Manager  (American) is an affiliate of the Advisor.  The following  table
sets forth the name and  positions of certain  officers and all directors of the
American:

     Name                                          Position

 Philip J. Myers                            President, Secretary and Director
 Scott J. Marquis                           Vice President
 David G. Reinhart                          Chairman, Board of Directors


           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  Dealer
Manager.  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.

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

     Name                                        Position

Philip J. Myers                        President, Treasurer and Director
Scott J. Marquis                       Vice President, Secretary
V. James Davis                         Director
David G. Reinhart                      Director

                                   18

<PAGE>




           Philip J. Myers,  age 40, 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
Dealer Manager,  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 39, 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  Controller of the Dealer
Manager,  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 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.

                                   19

<PAGE>



           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 19, 1997
                                            By:______________________
                                            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:        _________________
           David G. Reinhart
           Vice-President, Secretary (principal accounting and financial
           officer) and a Director



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



By:        __________________________         Date:   ___________________
           Dennis J. Doyle, Director



By:        __________________________         Date:   ___________________
           John M. Clarey, Director



By:        __________________________         Date:   ___________________
           Robert O. Naegele, Director



By:        __________________________         Date:   ___________________
           Kirbyjon H. Caldwell, Director

                                  21

<PAGE>












                  AMERICAN CHURCH MORTGAGE COMPANY

                      Minneapolis, Minnesota

                       Financial Statements

                   December 31, 1996 and 1995



































                                  22

<PAGE>






                AMERICAN CHURCH MORTGAGE COMPANY

                         C O N T E N T S





                                                                  Page

REPORT OF INDEPENDENT AUDITORS                                     F-1

FINANCIAL STATEMENTS

    Balance Sheet                                            F-2 - F-3

    Statement of Operations                                        F-4

    Statement of Stockholders' Equity                              F-5

    Statement of Cash Flows                                  F-6 - F-7

    Notes to Financial Statements                           F-8 - F-13

























                                  23

<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,  1996  and  1995  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, 1996 and 1995,  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 12, 1997

                                   F-1

<PAGE>



                     AMERICAN CHURCH MORTGAGE COMPANY

                             Balance Sheet




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

                                                                                      December 31
                       ASSETS                                                   1996                   1995
----------------------------------------------------------------------------------------------------------------------------------


<S>                                                                      <C>                            <C>
CURRENT ASSETS
    Cash and equivalents                                                 $   612,744                    $135,282
    Current maturities of loans receivable                                    55,436
                                                                         -----------                     -------
            Total current assets                                             668,180                     135,282


LOANS RECEIVABLE, net of current  maturities                               2,605,388


BONDS RECEIVABLE                                                             120,640


DEFERRED OFFERING COSTS                                                      107,295

DEFERRED TAX ASSET                                                            20,000

ORGANIZATION EXPENSES, net                                                       769                       1,071
                                                                           ---------                     -------

            TOTAL ASSETS                                                  $3,414,977                    $243,648
                                                                           =========                     =======
</TABLE>
Notes to Financial Statements are an integral part of this Statement.

                                    F-2

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                             Balance Sheet





<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       December 31
 LIABILITIES AND STOCKHOLDERS' EQUITY                                           1996                   1995
----------------------------------------------------------------------------------------------------------------------------------


<S>                                                                      <C>                        <C> 
CURRENT LIABILITIES
    Accounts payable                                                     $     8,482                $  49,493
    Deferred income                                                           10,383
    Dividends payable                                                         80,424
                                                                           ---------                   ------
            Total current liabilities                                         99,289                   49,493

DEFERRED INCOME                                                                                        35,547


STOCKHOLDERS' EQUITY
    Common stock, par value $.01 per share
        Authorized, 30,000,000 shares
        Issued and outstanding, 359,791 at December 31, 1996
            and 20,000 shares at December 31, 1995                             3,598                      200
    Additional paid-in capital                                             3,306,437                  199,800
    Accumulated deficit                                                      (29,894)                  (5,845)
                                                                          ----------                 --------
            Total stockholders' equity                                     3,280,141                  194,155
                                                                         ----------                  --------

            TOTAL LIABILITIES AND EQUITY                                  $3,414,977                 $243,648
                                                                           =========                 ========
</TABLE>

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


                                   F-3

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                         Statement of Operations





<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                    Years Ended December 31
                                                                                1996                      1995
----------------------------------------------------------------------------------------------------------------------------------


<S>                                                                         <C>                        <C>
INTEREST INCOME                                                             $217,390                   $  4,436

OPERATING EXPENSES                                                            72,004                      5,759
                                                                            --------                    -------

OPERATING INCOME (LOSS)                                                      145,386                     (1,323)

BENEFIT FROM INCOME TAXES                                                    (20,000)                       -
                                                                            --------                     ------

NET INCOME (LOSS)                                                           $165,386                  ($  1,323)
                                                                             =======                    =======
INCOME (LOSS)PER COMMON SHARE                                               $    .79                  ($    .07)
                                                                             =======                    =======

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                   209,072                     20,000
                                                                             =======                     ======
</TABLE>

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

                                   F-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, 1994                                           20,000       $  200    $   199,800         ($    4,522)

    Net loss                                                                                                         (1,323)
                                                                     ------        ------       -------             ------- 

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)
                                                                    =======         =====     =========            ========

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




                                    F-5

<PAGE>



                    AMERICAN CHURCH MORTGAGE COMPANY

                         Statement of Cash Flows



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

                                                                                              Years Ended December 31
                                                                                1996                    1995
----------------------------------------------------------------------------------------------------------------------------------


CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                     <C>                           <C>        
    Net income (loss)                                                   $    165,386                  ($   1,323)
    Adjustments to reconcile net income (loss) to
        net cash used for operating activities:
        Deferred income taxes                                                (20,000)
        Amortization                                                             303                         303
        Change in assets and liabilities
            Decrease in accounts payable                                     (41,012)
            Increase in deferred income                                       45,930
                                                                         -----------                     ------- 
            Net cash from (used for) operating activities                    150,607                      (1,020)

CASH FLOWS FROM INVESTING ACTIVITIES
    Organization expenses paid                                                                               (35)
    Investment in mortgage loans                                          (2,685,288)
    Collections on mortgage loans                                             24,464
    Investment in bonds                                                     (120,640)
                                                                         -----------                     ------- 
            Net cash used for investing activities                        (2,781,464)                        (35)

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from stock offering                                           3,217,330
    Dividends paid                                                          (109,011)
    Payment of deferred offering costs                                       (12,686)
                                                                        ------------                    --------
            Net cash from (used for) financing activities                  3,108,319                     (12,686)
                                                                           ---------                    --------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                              477,462                     (13,741)

CASH AND EQUIVALENTS - Beginning of Year                                     135,282                     149,023
                                                                         -----------                     -------

CASH AND EQUIVALENTS - End of Year                                      $    612,744                    $135,282
                                                                         ===========                     =======

                                                               - Continued -
</TABLE>

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

                                   F-6

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                 Statement of Cash Flows - Continued




<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                                       Years Ended December 31
                                                                                1996                       1995
----------------------------------------------------------------------------------------------------------------------------------


<S>                                                                         <C>                           <C>    
SUPPLEMENTAL  SCHEDULE OF NONCASH  FINANCING AND INVESTING
  ACTIVITIES  Deferred
    offering costs financed through accounts
        payable                                                                                           $34,693
                                                                                                           ======
    Deferred offering costs reclassified to additional
        paid-in capital                                                     $107,295
                                                                             =======
    Dividends declared but not paid                                         $ 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.

























                                F-7

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                    Notes to Financial Statements

                      December 31, 1996 and 1995

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

American Church Mortgage Company, a Minnesota  corporation,  was incorporated on
May 27, 1994. The Company, which was a development stage company until 1996, 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.  The Company  concluded its
public stock  offering in November 1996 and  commenced  its  principal  business
activities early in 1996.

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, 1996,  management  believes the loans receivable to be
collectible in all material respects.






                                  F-8

<PAGE>




                  AMERICAN CHURCH MORTGAGE COMPANY

                    Notes to Financial Statements

                     December 31, 1996 and 1995





1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Deferred Offering Costs

Deferred  offering  costs  represent  amounts  incurred in  connection  with the
Company's  public  offering of common  stock.  These  costs were offset  against
proceeds of the offering in 1996.

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.

For fiscal 1996, the Company will elect 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 (Loss) Per Common Share

Income  (loss) per common  share is  computed  based upon the  weighted  average
number of common and dilutive common  equivalent shares  outstanding  during the
period.  Fully  diluted and primary  income (loss) per common share are the same
for the periods presented.






                                   F-9

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                     Notes to Financial Statements

                      December 31, 1995 and 1996


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Newly Issued Accounting Standards

In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" was approved for issuance.  The Company will adopt this  Statement in
fiscal 1997. 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, 1996, the Company had first mortgage loans  receivable  totaling
$2,660,824.  The loans bear interest ranging from 9.25% to 11.25%.  The maturity
schedule for those loans as of December 31, 1996 is as follows:


                           1997                  $     55,436
                           1998                        61,987
                           1999                        69,091
                           2000                        77,009
                           2001                        85,836
                           Thereafter               2,311,465
                                                    ---------

                                Total              $2,660,824

The  Company  also has three  bonds  receivable,  which are carried at cost plus
amortized interest income. The bonds pay quarterly interest ranging from 8.5% to
9.55%.  The  combined  principal  of $150,000 is due at various  maturity  dates
between May 15, 2001 and June 1, 2010.

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,
1996.







                                 F-10

<PAGE>



                    AMERICAN CHURCH MORTGAGE COMPANY

                      Notes to Financial Statements

                       December 31, 1996 and 1995


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  nonrenewal  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.

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  $64,680  during 1996. The Company
paid no advisory or origination fees during 1995.

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>
                                                 1996           1995
                                                 ----           ----

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

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








                                 F-11

<PAGE>



                     AMERICAN CHURCH MORTGAGE COMPANY

                       Notes to Financial Statements

                        December 31, 1996 and 1995



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>
                                                   1996             1995 
                                                   ----             ---- 


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

            Totals                              ($20,000)           $  -  
                                                  ======             ==== 

The components of deferred income taxes are
 as follows:

                                                   1996             1995 
                                                   ----             ---- 

Deferred tax assets:
  Temporary differences (loan origination fees)  $20,000
  Net operating loss carryforward                                  $1,300 
Valuation allowance                                  -             (1,300)
                                                  ------            ----- 

            Net deferred tax asset               $20,000           $   -  
                                                  ======            =====
</TABLE>

During the years ended  December 31, 1996 and 1995.  The Company  decreased  its
valuation  allowance  against  deferred  tax assets by $1,300 in fiscal 1996 and
increased the valuation allowance by $300 in fiscal 1995.

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 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 public
offering of its shares continued through November 8, 1996.

Pursuant  to the  terms of the  Underwriting  Agreement,  the  Company  paid the
affiliated  broker-dealer  referred  to above  commissions  and  nonreimbursable
expenses of approximately $144,000 during 1996.





                                   F-12

<PAGE>



                   AMERICAN CHURCH MORTGAGE COMPANY

                     Notes to Financial Statements

                      December 31, 1996 and 1995





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, 1996 and 1995:

<TABLE>
<CAPTION>
                                                  1996                                 1995
                                   -----------------------------------        ----------------------
                                     Carrying             Fair               Carrying          Fair
                                      Amount              Value               Amount           Value


<S>                               <C>                   <C>                 <C>             <C>     
Cash and equivalents              $   612,744           $   612,744         $135,282        $135,282
Loans receivable                    2,660,824             2,660,824
Bonds receivable                      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.

                                           F-1

<PAGE>