As filed with the Securities and Exchange Commission on July 1, 1998.
Registration No. 333-27601
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMERICAN CHURCH MORTGAGE COMPANY
(Exact name of registrant as specified in governing instruments)
10237 Yellow Circle Drive
Minnetonka, Minnesota 55343
(Address of principal executive offices of registrant)
David G. Reinhart, Vice-President & Secretary
American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, Minnesota 55343
(Name and address of agent for service)
Copies to:
Philip T. Colton, Esq.
Maun & Simon, PLC
2000 Midwest Plaza Building West
801 Nicollet Mall
Minneapolis, MN 55402
(Counsel for Company)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Post-Effective Amendement to the Registration Statement
becomes effective.
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
PART 1
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
Required by Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Number and Caption in Form S-11 Heading in Prospectus
<S> <C>
1. Forepart of Registration Statement and Cover Page of Registration Statement; Outside Cover
Outside Front Cover Page of Prospectus. Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information, Risk Factors and Front Cover Page; Prospectus Summary;
Ratio of Earnings to Fixed Charges Risk Factors
4. Determination of Offering Price Front Cover Page (Notes to table)
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution Front and Inside Front Cover Page;
Plan of Distribution
8. Use of Proceeds Use of Proceeds; Business of the Company Financing
Business
9. Selected Financial Data Summary--Summary Financial Information;
Capitalization; Selected Financial Data.
10. Management's Discussion and Analysis of Management's Discussion and Analysis of Financial
Financial Condition and Results of Condition and Results of Operations
Operations
11. General Information as to Registrant Business of the Company; Management; Security
Ownership of Management and Others; Certain
Relationships and Transactions with Management;
Description of Capital Stock
12. Policy with Respect to Certain Activities Business of the Company--The
Proposed Business Activities; --Financing Business; --Mortgage Loan
Processing and Underwriting; --Loan Funding and Bank Borrowing;
--Financing Policies;--Prohibited Investments and Activities;--Policy
Changes; Prospectus Summary--Business Objectives and Policies
13. Investment Policies of Registrant Business of the Company--Financing Policies;
Prospectus Summary--Business Objectives and
Policies
14. Description of Real Estate Not Applicable
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Item Number and Caption in Form S-11 Heading in Prospectus
<S> <C>
15. Operating Data Not Applicable
16. Tax Treatment of Registrant and Its Security Summary--Tax Status of Company; Risk Factors--
Holders Risks Related to Federal Income Taxation; Federal
Income Tax Consequences
17. Market Price of and Dividends on Inside Front Cover; Summary--Dividends and
Registrant's Common Equity and Related Distributions; Distributions
Shareholder Matters
18. Description of Registrant's Securities Description of Capital Stock
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Beneficial Security Ownership of Management and Others
Owners and Management
21. Directors and Executive Officers Management; The Advisor and the Advisory
Agreement
22. Executive Compensation Management
23. Certain Relationships and Related Risk Factors--Risks Relating to Management; Management; Security
Transactions Ownership of Management and Others; Business of the Company; Certain
Relationships and Transactions with Management; The Advisor and the
Advisory Agreement; Compensation to Advisor and Affiliates; Conflicts of
Interest; Reports to Shareholders, Rights of Examination and Additional
Information
24. Selection, Management and Custody of Risk Factors; Use of Proceeds; Conflicts of Interest;
Registrant's Investments Compensation to Advisor and Affiliates; Business of
the Company; Management; The Advisor and the
Advisory Agreement
25. Policies with Respect to Certain Transactions Risk Factors; Use of Proceeds; Conflicts of Interest;
Compensation to Advisor and Affiliates; Business of
the Company; Management; The Advisor and the
Advisory Agreement; Plan of Distribution
26. Limitations of Liability Risk Factors; The Advisor and the Advisory
Agreement; Plan of Distribution; Management--
Fiduciary Responsibility of Board of Directors
27. Financial Statements and Information Financial Statements
28. Interests of Named Experts and Counsel Legal Matters; Experts
29. Disclosure of Commission Position on Management--Fiduciary Responsibility of Board of
Indemnification of Securities Act Liabilities Directors
</TABLE>
3
<PAGE>
PROSPECTUS
[GRAPHIC OMITTED]
1,500,000 Shares
American Church Mortgage Company
Common Stock
The shares of Common Stock offered hereby (the "Shares") are being sold on
a "best efforts" basis by American Church Mortgage Company (the "Company").
There is no requirement and no assurance can be given that all of the Shares
will be sold. Prior to this Offering, there has been no public market for the
common stock of the Company. The Offering price was determined by negotiations
between the Company and the Managing Underwriter. American Investors Group,
Inc., an affiliate of the Company, is the Managing Underwriter of this Offering.
See "Conflicts of Interest." The Company is a Minnesota corporation operating as
an infinite life real estate investment trust ("REIT") and is organized for the
purpose of making mortgage loans to churches and other non-profit religious
organizations located throughout the United States. The Company's investment
objectives are to provide investors preservation of capital through
diversification, greater security through investment in only mortgage- backed
loans and securities, and a higher level of distributable income than attainable
through an investment in guaranteed or government-backed fixed-income
securities. See "Distributions."
INVESTMENT IN THE SHARES INVOLVES SIGNIFICANT RISKS AND CONFLICTS OF
INTEREST. SEE "RISK FACTORS" BEGINNING AT PAGE 9 AND "CONFLICTS OF INTEREST."
Among such risks are the following:
o Since the Offering is made on a "best efforts" basis, there is no
assurance that all or a material amount of the Shares will be sold.
o Taxation of the Company as a corporation if it were to lose its status as
a REIT would, among other things, adversely affect the ability of the Company to
pay dividends.
o Potential conflicts of interest and mutual benefits to affiliates of the
Company, the Managing Underwriter and the Advisor in connection with the
formation of the Company, offering of the Shares, and on-going business
operations of the Company.
o There is no public market for the Common Stock of the Company and the
Shares are not listed on any stock exchange or qualified for quotation on
NASDAQ. There is no assurance that a market for the Shares will develop after
the Offering, which may adversely affect a Shareholder's ability to dispose of
Shares.
o Risks associated with the current lack of a public market and lack of
liquidity of the Shares. o Potential anti-takeover effects of limiting ownership
to 9.8% of the outstanding Shares of the Company.
o Interest rate fluctuations or payment default on mortgage loans made by
the Company, which could adversely affect the Company's ability to make
distributions or to qualify as a REIT. o The mortgages and bonds owned by the
Company are secured by single purpose properties and the borrowers rely
primarily on voluntary contributions to service the obligation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public (1) Selling Commission (1) Proceeds to Company (2)
<S> <C> <C> <C>
Per Share................................. $10.00 $.595 $9.405
Total .................................... $15,000,000 $892,500 $14,107,500
=========================================== ============================= ========================= =========================
</TABLE>
(footnotes on following page)
LASALLE ST. SECURITIES, INC. AMERICAN INVESTORS GROUP, INC.
Chicago, Illinois Minneapolis, Minnesota
The date of this Prospectus is June 1, 1998.
4
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
(1) The Shares are being offered on a "best efforts" basis. The Company
will pay the Underwriters selling commissions equal to 5.95% of the gross
proceeds from the sale of the Shares, all or any part of which commissions may
be re-allowed to Soliciting Dealers. The Company has also agreed to pay the
non-accountable expenses of the Managing Underwriter in the amount of $35,000 on
the first 100,000 Shares sold and $7,000 on each increment of 100,000 Shares
sold thereafter . In addition, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended. The public offering price of the Shares was
determined by negotiations between the Company and the Managing Underwriter
based on the price paid ($10.00 per share) by the Company's initial shareholder
and shareholders who purchased shares in the Company's initial public offering
completed November 8, 1996. The Underwriters will forward subscription
agreements and checks by noon of the next business day following receipt thereof
in compliance with SEC Rule 15c2-4. See "Plan of Distribution." The Managing
Underwriter is an affiliate of the Company and of the Advisor. See "Transactions
With Management" and "Conflicts of Interest."
(2) Before deducting other expenses of issuance and distribution, estimated
at up to $203,000, payable by the Company, including the Underwriter's non-
accountable expenses of up to $133,000. See "Plan of Distribution."
The Company has registered 1,650,000 Shares of common stock, $.01 par value
per share, of which 150,000 Shares are available only to shareholders (investors
who purchase the Shares offered hereby) who participate in the Company's
dividend reinvestment plan. The Shares offered hereby (the "Offering") will be
sold by securities broker-dealers (the "Soliciting Dealers") who are members of
the National Association of Securities Dealers, Inc. ("NASD"). American
Investors Group, Inc., an affiliate of the Advisor, serves as Managing
Underwriter of the Offering and LaSalle St. Securities, Inc., Chicago, Illinois
serves as Co-Underwriter of the Offering. The Company began active business
operations April 15, 1996 and as of June 1, 1998 had Average Invested Assets of
$5,186,919, having sold 335,481 Shares in its initial public offering and
394,560 Shares in this Offering which began September 26, 1997. This Offering
will terminate no later than September 26, 1998, subject to extension by mutual
agreement of the Company and Managing Underwriter for an additional 120 days, or
until completion of the sale of the Shares, whichever first occurs. The Company
reserves the right to terminate this Offering at any time. The Company intends
to continue to deploy net proceeds from the sale of Shares in this Offering as
they are sold and on a regular basis pursuant to its investment and operating
strategy. See "Plan of Distribution."
Suitability: Investors must have (i) a minimum annual gross income of at
least $45,000 and a net worth (exclusive of home, home furnishings and
automobiles) of $45,000 or (ii) a net worth of $150,000 without reference to
such exclusions. Suitability standards may be higher in some states. See "Who
May Invest."
THERE IS CURRENTLY NO MARKET FOR THE SHARES, AND THERE CAN BE NO ASSURANCE
THAT A MARKET WILL DEVELOP OR, IF DEVELOPED, WILL BE SUSTAINED. FURTHER, THERE
ARE CURRENTLY NO MARKET- MAKERS FOR THE SHARES; HOWEVER, THE UNDERWRITERS INTEND
TO APPLY THEIR EFFORTS TO IDENTIFY AND SECURE BROKER-DEALERS CAPABLE OF MAKING A
MARKET IN THE SHARES. THERE CAN BE NO ASSURANCE THAT THE SHARES CAN BE RESOLD AT
OR ABOVE THE PUBLIC OFFERING PRICE.
THE USE OF FORECASTS IN THE OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY CASH BENEFIT OR TAX CONSEQUENCES WHICH MAY FLOW FROM AN INVESTMENT IN THE
COMPANY IS PROHIBITED.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
UNDERWRITERS OR ANY SOLICITING DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE EFFECTED PURSUANT HERETO SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THE SECURITIES DESCRIBED HEREIN ARE OFFERED BY THE UNDERWRITERS AND
SOLICITING DEALERS ON BEHALF OF THE COMPANY SUBJECT TO PRIOR SALE, WITHDRAWAL,
CANCELLATION OR MODIFICATION OF THE OFFERING BY THE COMPANY AND THE UNDERWRITERS
WITHOUT NOTICE. THE OFFERING CAN ONLY BE MODIFIED BY MEANS OF AN AMENDMENT OR
SUPPLEMENT TO THE PROSPECTUS. OFFERS TO PURCHASE AND CONFIRMATIONS OF SALES
ISSUED BY THE UNDERWRITERS AND SOLICITING DEALERS ARE SUBJECT TO (1) ACCEPTANCE
BY THE COMPANY, (2) RELEASE AND DELIVERY OF THE PROCEEDS OF THE OFFERING TO THE
COMPANY, (3) DELIVERY OF THE SECURITIES AND (4) THE RIGHT OF THE COMPANY TO
REJECT ANY AND ALL OFFERS TO PURCHASE AND TO CANCEL ANY AND ALL CONFIRMATIONS OF
SALE OF THE SECURITIES OFFERED HEREBY, AT ANY TIME PRIOR TO RECEIPT OF FUNDS
FROM THE PURCHASERS, IF THE OFFERING IS NOT REGISTERED, EXEMPT FROM REGISTRATION
OR OTHERWISE QUALIFIED IN THE JURISDICTION OF SALE OR IF ANY REGULATION OF THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES ADMINISTRATOR OR THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. PROHIBITS THE SALE.
Subscriptions may be rejected for any reason. If a subscription is
rejected, the Company will promptly refund to the investor the consideration
paid for the Shares without deduction or interest.
The Company intends to furnish Shareholders with annual reports containing
financial statements audited by the Company's independent accountants, quarterly
reports for the first three quarters of each year containing summary financial
and other information, and such other reports as the Company deems appropriate
or as required by law.
2
<PAGE>
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<TABLE>
<CAPTION>
--- TABLE OF CONTENTS ---
<S> <C> <C>
PROSPECTUS SUMMARY......................................... 4 Current First Mortgage Loan Terms...................... 26
The Company ............................................ 4 Property (Portfolio) of the Company.................... 28
Capital Stock.......................................... 4 Mortgage Loan Processing and Underwriting............... 29
The Offering............................................ 4 Loan Commitments........................................ 30
Risk Factors............................................ 5 Loan Portfolio Management.............................. 30
Conflicts of Interest................................... 5 Loan Funding and Bank Borrowing......................... 30
Business Objectives and Policies........................ 5 Financing Policies...................................... 30
Dividends and Distributions............................. 7 Prohibited Investments and Activities................... 31
Tax Status of the Company............................... 7 Policy Changes.......................................... 33
Who May Invest.......................................... 7 Competition............................................. 33
Summary Financial Information........................... 8 Employees............................................... 33
RISK FACTORS............................................... 9 Operations............................................. 33
Risks Related to the Offering........................... 9 MANAGEMENT................................................ 34
Best Efforts Offering................................ 9 General................................................. 34
Risks Related to Company................................ 9 Executive Compensation.................................. 35
Qualification as a Real Estate Investment Trust...... 9 Fiduciary Responsibility of Board of Directors;
Terms of Certain of the Formation Transactions Not Indemnification....................................... 36
Determined by Arm's-Length Negotiation............. 9 Warrants and Options................................... 36
Expenses of Offering ............................... 10 SECURITY OWNERSHIP OF MANAGEMENT
Price of Shares Arbitrarily Determined.............. 10 AND OTHERS ............................................. 37
Lack of Liquidity and Absence of Market Price....... 10 CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH
Risks Related to Management............................ 10 MANAGEMENT............................................. 37
Limited Operating History........................... 10 THE ADVISOR AND THE ADVISORY AGREEMENT .................... 39
Dependence Upon Advisor............................. 10 Church Loan Advisors, Inc............................... 39
Conflicts of Interest............................... 10 The Advisory Agreement.................................. 39
Risks Related to Loan Valuation and Advisor Expense. 11 Prior Performance of Advisor and Affiliates..............41
Potential Adverse Effect of Borrowing on Cash Flow.. 11 FEDERAL INCOME TAX CONSEQUENCES............................ 41
Dividends Dependent Upon Business Operations........ 11 Qualification as a Real Estate Investment Trust......... 41
Reliance on Management.............................. 11 Failure of the Company to Qualify as a Real
Certain Restrictions on Transfer of Shares.......... 11 Estate Investment Trust.......................... 45
Risks Related to Mortgage Lending Generally............ 12 Taxation of the Company's Shareholders.................. 45
In General.......................................... 12 Taxation of Tax-Exempt Shareholders..................... 45
Risk of Second Mortgage Loans....................... 12 Tax Consequences of Foreign Investors................... 46
Risk of Fixed-Rate Debt............................. 12 Backup Withholding...................................... 46
Competition......................................... 12 State and Local Taxes................................... 46
Interest Rate Fluctuations.......................... 12 Other Tax Consequences.................................. 46
Government Regulation............................... 12 ERISA CONSEQUENCES......................................... 47
Risks Related to Mortgage Lending to Churches.......... 13 Fiduciary Consequences.................................. 47
Source of Church Revenues........................... 13 Plan Assets Issue....................................... 47
Dependence Upon Pastor.............................. 13 DESCRIPTION OF CAPITAL STOCK............................... 48
Value of Mortgage Collateral - Limited/Restricted/ General................................................. 48
Single-Use........................................ 13 Repurchase of Shares and Restrictions on Transfer....... 48
Potential Liability Under Federal and State Dividend Reinvestment Program........................... 49
Environmental Laws................................... 13 Transfer Agent and Registrar .......................... 50
Risks Related to Federal Income Taxation................ 13 SUMMARY OF THE ORGANIZATIONAL DOCUMENTS.................... 50
Effect of Future Changes in Tax Laws................... 14 Certain Article and Bylaw Provisions.................... 50
WHO MAY INVEST............................................ 14 Board of Directors...................................... 50
USE OF PROCEEDS........................................... 15 Limitations on Director Actions......................... 50
COMPENSATION TO ADVISOR AND AFFILIATES.................... 15 Minnesota Anti-Takeover Law............................. 50
CONFLICTS OF INTEREST.......................................17 Restrictions on Roll-Ups................................ 51
Transactions with Affiliates and Related Parties........ 18 Limitation on Total Operating Expenses.................. 51
Compensation to the Advisor and Conflicts Transactions with Affiliates............................ 52
of Interest.......................................... 18 Restrictions on Investments............................. 52
Competition by the Company with Affiliates.............. 18 Advisory Arrangements................................... 53
Non-Arm's-Length Agreements............................. 19 PLAN OF DISTRIBUTION....................................... 53
Lack of Separate Representation......................... 19 General................................................. 53
Shared Operations Facilities............................ 19 Compensation............................................ 54
DISTRIBUTIONS.............................................. 19 Subscription Process.................................... 54
CAPITALIZATION............................................ 21 Determination of Investor Suitability................... 55
SELECTED FINANCIAL DATA................................... 22 Suitability of the Investment........................... 55
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL COMMISSION POSITION ON INDEMNIFICATION FOR
CONDITION AND RESULTS OF OPERATIONS.................... 23 SECURITIES ACT LIABILITIES.............................. 56
Plan of Operation...................................... 23 LEGAL MATTERS.............................................. 56
Results of Operations.................................. 23 EXPERTS.................................................... 56
Liquidity and Capital Resources........................ 25 REPORTS TO SHAREHOLDERS, RIGHTS OF EXAMINATION
BUSINESS OF THE COMPANY................................... 25 AND ADDITIONAL INFORMATION.............................. 56
General................................................ 25 GLOSSARY................................................... 58
The Company's Business Activities....................... 25 FINANCIAL STATEMENTS...................................... F-1
Financing Business...................................... 26 APPENDIX I................................................ A-1
</TABLE>
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3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus.
Certain terms used in this Prospectus are defined in the Glossary beginning at
page 56.
THE COMPANY
The Company is a Real Estate Investment Trust ("REIT") engaged in the
business of making mortgage loans from $100,000 to $1,000,000 to churches and
other non-profit religious organizations throughout the United States. The
Company's business is limited to making (or participating through the purchase
of bonds) mortgage-backed loans to churches and other non-profit religious
organizations for the purchase, construction or refinancing of real estate and
improvements. Incorporated on May 27, 1994, the Company commenced active
business operations on or about April 15, 1996 and concluded its initial public
offering on November 8, 1996. As of June 1, 1998 the Company had funded eighteen
mortgage loans in the aggregate principal amount of $6,286,000, and had
purchased for $130,646 church bonds having a face value of $165,300. The Company
intends to deploy net proceeds from the sale of the Shares through lending funds
pursuant to its business plan as funds from the sale of the Shares become
available for such purpose. See "Business of the Company."
Subject to the supervision of the Company's Board of Directors, consisting
of six directors, a majority of whom are not otherwise associated with the
Company ("Independent Directors", See "Glossary"), the business of the Company
is managed by Church Loan Advisors, Inc. (the "Advisor"), which is owned by V.
James Davis, David G. Reinhart and Philip J. Myers. Mssrs. Davis, Reinhart and
Myers have 13, 15 and 9 years of experience, respectively in the area of
mortgage-backed lending to churches through their current and former
associations with the Managing Underwriter (American Investors Group, Inc.), of
which Mr. Myers is also President and Director, and Mr. Reinhart is Chairman of
the Board of Directors. Mssrs. Davis and Reinhart are officers and directors of
the Company and Directors of the Advisor. The Company has entered into an
agreement with the Advisor (the "Advisory Agreement") which details the terms
for the provision of services to the Company by the Advisor. Pursuant to the
Advisory Agreement, the Company must pay the Advisor certain advisory fees and
expenses, as defined in the Advisory Agreement, and one-half of any origination
fees collected by the Company with respect to mortgage loans made by the
Company. See "The Advisor and the Advisory Agreement," "Compensation to the
Advisor and Affiliates" and "Distributions." The Advisor is neither a registered
investment advisor under the Investment Advisors Act of 1940, nor a registered
investment company under the Investment Company Act of 1940.
The executive offices of the Company and the Advisor are located at 10237
Yellow Circle Drive, Minnetonka (Minneapolis), Minnesota 55343 and their
telephone number is (612) 945-9455.
CAPITAL STOCK
The capital stock of the Company consists of 50,000,000 undesignated shares,
of which the Board of Directors has established 30,000,000 shares of Common
Stock, par value $.01 per share. In order to avoid inadvertent loss of REIT
status, the Company's Articles of Incorporation impose limits on the number or
percentage of the Company's outstanding shares that can be owned by an
individual or group. See "Description of Capital Stock."
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered (1)......................... 1,500,000 Shares
Common Stock Outstanding After Offering (2)...... 1,859,791 Shares
Percentage Owned by Non-Affiliates After Offering 99%
Net Proceeds of Offering (3)..................... $14,107,500
Use of Proceeds.................................. Principally, to Make Mortgage-Backed Loans
to Churches. See "Use of Proceeds."
</TABLE>
------------------------------------------------------
(1) All of the Shares of Common Stock are being offered by the Company on a
"best efforts" basis through the Underwriters.
(2) Assumes sale of all Shares being offered hereby. Excludes (i) 9,000
Shares which each Director and the President of the Advisor (7 individuals) have
an option to purchase at a price of $10.00 per share, pursuant to the Stock
Option Plan for Directors and the Advisor, which vest and are thus exercisable
over various periods and expire on various dates from November 15, 1999 to
November 15, 2001 (See "Management -- Warrants and Options"); and (ii) Shares
which may continue to be issued during this Offering to shareholders
participating in the Company's Dividend Reinvestment Plan.
(3) Before deducting other expenses of issuance and distribution payable by
the Company, estimated at $203,000. See "Use of Proceeds."
'
4
<PAGE>
RISK FACTORS
An investment in the Shares involves a high degree of risk. See "Risk
Factors" for a more complete discussion of factors that investors should
consider before purchasing any of the Shares. Some of the significant risks
include:
o This is a "best efforts" offering which means that there is no
assurance that all or a material amount of the Shares offered will be
sold, and consequently no assurance that additional capital will be
available to the Company.
o If the Company fails to maintain status as a REIT, it will be taxed as
a corporation which, among other things, would reduce funds available
for distribution to Shareholders.
o Potential conflicts of interest and mutual benefits to Affiliates of
the Company, the Managing Underwriter and the Advisor in connection
with the formation of the Company, offering of the Shares, and
on-going business operations of the Company could affect decisions
made by the Advisor on behalf of the Company.
o There is no market for the Shares and no assurance that any market
will develop after the Offering. Trading in the Shares is currently
limited and lack of a market for the Shares may adversely effect the
ability of a Shareholder to dispose of the Shares.
o No single Shareholder may own in excess of 9.8% of the outstanding
shares of the Company, which limitation could inhibit liquidity or the
ability to sell the Company, and inhibit market activity and the
resulting opportunity for Shareholders to receive a premium for their
Shares.
o Fluctuations in interest rates or default in payment by borrowers
could adversely affect the Company's distributions to its
Shareholders.
CONFLICTS OF INTEREST
A number of potential conflicts exist between the Company and the Advisor
and its principals. These conflicts include, but are not limited to: (i)
ownership by common individuals of both the Advisor and the Managing
Underwriter; (ii) common business interests of the Company and the Managing
Underwriter; (iii) non arm's length negotiations between the Advisor and the
Company in connection with the organization and structure of the Company's
operations and compensation arrangements between them; and (iv) shared
operations facilities of the Company, Advisor and Managing Underwriter. The
Advisor and its Affiliates may engage in businesses of the type conducted by the
Company. The Advisor and its Affiliates also receive compensation from the
Company for services rendered and an Advisory Fee equal to a percentage of
Average Invested Assets.
See "Conflicts of Interest--Financing Policies."
BUSINESS OBJECTIVES AND POLICIES
The objective of the Company is to provide cash distributions or current
income to its Shareholders through the implementation of its investment and
operating strategy, which is limited primarily to the business of making
mortgage loans from $100,000 to $1,000,000 to churches and other non-profit
religious organizations throughout the United States. The Company will seek to
enhance returns 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 higherinterest rate second mortgage loans to
qualified borrowers; and (iv) purchasing a limited amount of mortgage-secured
debt securities 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 will be secured by a first mortgage (or deed of trust) lien in favor
of the Company. Although the Company will attempt to make mortgage loans for
terms of short or medium duration, or those having variable interest rates, in
order to reduce the risk to the Company of rising interest rates, it may
determine to make longer-term fixedinterest rate loans under certain
circumstances. The Company may borrow up to 50% of its Average Invested Assets.
See "Business of the Company--Financing Policies."
5
<PAGE>
The Company's objective is to provide its Shareholders with current income
and an attractive yield through quarterly distributions, while protecting their
principal investment by following specified lending guidelines and applying
identified criteria in making determinations as to the credit worthiness of
potential borrowers. These criteria include:
o All loans made by the Company will be secured by mortgages with
loan-to-value ratios not to exceed 75% of valuation of the real
property and improvements serving as collateral.
o The maximum amount of a loan or loans by the Company to a single
borrower will be limited to $1,000,000.
o Real property valuation will be determined based on a written
appraisal acceptable to the Advisor. On loans over $500,000, the
Company will require a written appraisal issued by a member of the
Appraisal Institute ("MAI"), or a state-certified appraiser.
o An ALTA (American Land Title Association) or equivalent Mortgagee
Title Policy must be furnished to the Company by the borrower, which
policy insures the mortgage interest of the Company.
o The borrower's total long-term debt (including the proposed loan) as
of the date of the mortgage loan may not exceed the multiple of four
(4) times the borrower's gross income for its most recent twelve (12)
months.
o The borrower must furnish to the Company financial statements (balance
sheet and income and expense statement) for the last two (2) complete
fiscal years and financial statements for the period within ninety
(90) days of the loan closing date. On loans of $500,000 or less, the
financial statements for the prior fiscal year must be reviewed by an
independent accounting firm. On loans in excess of $500,000, the last
complete fiscal year statements must be audited by an independent
auditor.
o In its discretion, the Advisor may require the borrower to grant to
the Company a security interest in all personal property (excluding
leased personal property) located and to be located upon the mortgaged
premises.
o In its discretion, the Advisor may require that the borrower arrange
for automatic electronic or drafting of monthly payments to the
Company.
o In its discretion, the Advisor may require (i) key-man life insurance
on the life of the senior pastor of a borrowing church; (ii) personal
guarantees of church members and/or Affiliates; and (iii) such other
security enhancements for the benefit of the Company as it deems
appropriate.
o 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.
See "Business of the Company -- Financing Policies."
6
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Company intends to make regular quarterly distributions to its
Shareholders. In order to qualify for the beneficial tax treatment afforded
REITs by the Internal Revenue Code, the Company is required to pay dividends to
Shareholders in annual amounts equal to at least 95% of the Company's REIT
taxable income. HOWEVER, THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO
PAY DIVIDENDS AT THIS OR ANY LEVEL. Dividends will be determined by the
Company's Board of Directors and will be dependent upon a number of factors,
including but not limited to, earnings and financial condition of the Company,
maintenance of REIT tax status, funds available for distribution, results of
operations, economic conditions and other facts and circumstances which the
Board of Directors deems relevant. Further, the proceeds from the sale of the
Shares will be held in relatively low-yield secure investments pending
application to fund loans to be made by the Company. The relative yield
generated by such capital, and, thus, dividends (if any) to Shareholders could
be less than could be expected once the Company has fully invested its capital
in accordance with its business plan.
As of June 1, 1998, the Company had deployed approximately $5,996,000 in net
proceeds from the sale of approximately 774,661 Shares, pre-existing capital and
reinvested dividends in accordance with its investment and operating strategy.
Dividends paid by the Company to its Shareholders to date are as follows:
<TABLE>
<CAPTION>
For Quarter Ended: Distribution Date: Dollar Amount Distributed Annualized Yield Per
Per Share (2): Share Represented (2):
<S> <C> <C> <C>
June 30, 1996 July 30, 1996 $.1927(1) 9.250%
September 30, 1996 October 30, 1996 $.23125 9.250%
December 31, 1996 January 30, 1997 $.240625 9.625%
March 31, 1997 April 30, 1997 $.225 9.000%
June 30, 1997 July 30, 1997 $.22875 9.150%
September 30, 1997 October 30, 1997 $.2375 9.500%
December 31, 1997 January 30, 1998 $.25625 10.250%
March 31, 1998 April 30, 1998 $.23125 9.500%
</TABLE>
(1) Represents a 75 day operating quarter (April 15 to June 30, 1996)
(2) To the extent that distributions exceed current and accumulated
earnings and profits, the excess is treated as a return of capital for federal
income tax purposes. TAX STATUS OF THE COMPANY
The Company has elected be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), for its taxable
year ended December 31, 1996 and subsequent taxable years. In the opinion of
counsel to the Company, Maun & Simon, PLC, the Company was formed in conformity
with the requirements for qualification as a REIT and the Company's method of
operations permit it to meet the requirements for qualification and taxation as
a REIT. If and as long as the Company qualifies for taxation as a REIT, the
Company generally will not be subject to federal income tax to the extent it
distributes at least 95% of its REIT taxable income to its Shareholders. REITs
are subject to a number of organizational and operational requirements. If the
Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. See "Federal Income Tax
Consequences" for a more detailed discussion of the consequences of a failure of
the Company to qualify as a REIT. Even if the Company qualifies for taxation as
a REIT, the Company may be subject to certain state and local taxes on its
income and property.
WHO MAY INVEST
The section of this Prospectus entitled "Who May Invest" describes minimum
net worth and income requirements, as well as a detailed explanation of other
suitability requirements which investors must meet prior to subscription. In
particular, investors must have either: (i) a minimum annual gross income of
$45,000 and a net worth (exclusive of home, home furnishings and automobiles) of
$45,000; or (ii) a net worth (determined with the foregoing exclusions) of
$150,000. Suitability standards may be higher in certain states. See "Who May
Invest."
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected financial data presented below under the caption "Statement
of Operations Data" have been derived from the Company's audited financial
statements as of and for the years ended December 31, 1994, 1995, 1996 and 1997
and from the Company's interim unaudited financial statements for the three
month periods ended March 31, 1997 and 1998. The selected financial data under
the caption "Balance Sheet Data" have been derived from the Company's audited
financial statements at December 31, 1994, 1995, 1996 and 1997 and from the
Company's interim unaudited financial statements at March 31, 1997 and 1998. The
financial statements are included elsewhere in this Prospectus. Reference is
made to the financial statements, and notes thereto, for a more detailed
presentation of financial information.
<TABLE>
<CAPTION>
Period From Three Months Three Months
May 27, 1994 Year Ended Year Ended Year Ended Ended Ended
to December 31, December 31, December 31, December 31, March 31, March 31,
1994 1995 1996 1997 1997 1998
(unaudited) (unaudited)
Statement of Operations Data:
Revenues
<S> <C> <C> <C> <C> <C> <C>
Interest Income Loans ......... $- 0 - $- 0 - $ 152,259 $ 343,695 $61,244 $131,755
Interest Income Other ......... 731 4,436 20,729 24,519 7,170 8,281
Capital Gains Realized ........ - 0 - - 0 - - 0 - 4,298 1,007 1,194
Origination Income ............ - 0 - - 0 - 6,925 11,482 3,033 4,410
Income Other Sources .......... - 0 - - 0 - - 0 - 124 - 0 - - 0 -
Escrow Interest Income ........ - 0 - - 0 - 37,477 - 0 - - 0 - - 0 -
----- ----- -------- -------- ------- --------
Total Revenues .................. 731 4,436 217,390 384,118 72,454 145,640
Operating Expenses
Professional Fees ............. 1,404 - 0 - 8,411 8,065 1,230 14,968
Director Fees ................. 2,000 - 0 - 1,600 2,400 800 800
Amortization .................. 177 303 303 303 76 76
Escrow Interest Expense ....... - 0 - - 0 - 37,274 - 0 - - 0 - - 0 -
Advisory Fees ................. - 0 - - 0 - 11,825 17,545 - 0 - - 0 -
Other ......................... 1,672 5,456 12,591 7,991 1,752 2,318
----- ----- -------- -------- ------- --------
Total Expenses .................. 5,253 5,759 72,004 36,304 3,858 18,162
Provision for(Benefit From)
Income Taxes ................... (20,000) (13,000) 5,000
Net Income (loss) .............. $ (4,522) $(1,323) $165,386 $360,814 $63,596 $127,478
====== ====== ======= ======= ====== =======
Income(loss)per Common Share..... $ (.23) $ (.07) $ .79 $ .91 $ .18 $ .22
Weighted Average Common
Shares Outstanding (1) ........ 20,000 20,000 209,072 398,160 361,677 591,640
Dividends Declared $ ........... $ - 0 - $ - 0 - $ 80,424 $127,899 $81,377 $ 142,743
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, March 31, March 31,
1994 1995 1996 1997 1997 1998
Balance Sheet Data:
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents............. $ 149,023 $ 135,282 $ 612,744 $ 291,815 $ 511,894 $1,080,850
Current Maturities of Loans Receivable - 0 - - 0 - 55,436 103,505 56,982 114,819
Loans Receivable, net of current maturities - 0 - - 0 - 2,605,388 4,808,803 2,709,948 5,367,610
Bonds Receivable........... - 0 - - 0 - 120,640 125,809 121,647 131,722
Prepaid Expense............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Deferred Offering Costs.... 59,916 107,295 - 0 - - 0 - - 0 - - 0 -
Deferred Tax Asset......... - 0 - - 0 - 20,000 33,000 15,000 33,000
Organizational Expenses (net) 1,339 1,071 769 464 692 389
-------- ------- --------- --------- --------- --------
Total Assets: $ 210,278 $ 243,648 $3,414,977 $5,363,396 $3,416,163 $6,728,390
======== ======= ========= ========= ========= =========
Liabilities and Shareholder's Equity:
Accounts Payable........... $ 14,800 $ 49,493 $ 8,482 $ 15,490 $ 1,699 $ 248,425
Deferred Income............ - 0 - - 0 - 45,930 78,428 42,897 85,946
Dividends Payable.......... - 0 - - 0 - 80,424 127,899 81,377 142,743
Shareholder's Equity (net of deficit
accumulated during development stage) 195,478 194,155 3,280,141 5,141,579 3,290,190 6,251,276
------- ------- --------- --------- --------- ---------
$ 210,278 $ 243,648 $3,414,977 $5,363,396 $3,416,163 $6,728,390
======= ======= ========= ========= ========= =========
</TABLE>
(1) Excludes (i) 9,000 Shares which each Director and the President of the
Advisor (7 individuals) have an option to purchase, at a price of $10.00 per
share, pursuant to the Stock Option Plan for Directors and the Advisor, which
vest and are thus exercisable over various periods beginning November 15, 1995
to 1998 and expire November 15, 1999 to 2001 (See "Management -- Warrants and
Options" and "Security Ownership of Management and Others").
8
<PAGE>
RISK FACTORS
An investment in the Shares involves various risks. In addition to the other
information set forth in the Prospectus, investors should consider the following
factors before making a decision to purchase the Shares.
This Prospectus contains forward-looking information. Such forward-looking
information may be indicated by words such as "will," "may be," "expects" or
"anticipates." Actual results could differ significantly from those described in
the forwardlooking statements as a result, in part, of the risk factors set
forth below. In connection with the forward-looking and other statements
included in the Prospectus, prospective investors should be aware of the
following risk factors and should carefully review the information and financial
statements including notes thereto, contained elsewhere in this Prospectus.
Risks Related To Offering
Best Efforts Offering. The Shares are being sold by the Underwriters on a
"best efforts" basis whereby the Underwriters are required to use their best
efforts to locate purchasers of the Shares on behalf of the Company, but are
under no obligation to purchase any Shares. Therefore, no assurance is given as
to the amount of proceeds that will be available for investment by the Company.
In the event materially less than all the Shares are sold during the Offering
Period the Company would have fewer cash assets to apply toward its business
plan of extending mortgage loans to churches and other religious organizations.
As a general rule, the fixed operating expenses of the Company, as a percentage
of gross income, would be higher with fewer assets in the Company's Portfolio
and lower with more assets in the Company's Portfolio, and thus effect the
taxable income distributable to Shareholders. Further, in such event, the
Company's assets invested would be less diversified and increase the risk that
an investor may not recoup his or her investment upon liquidation of the
Company.
Risks Related to Company
Qualification as a Real Estate Investment Trust. The Company intends to
operate so as to qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"). Although the Company believes
that it is organized and operates in such a manner, no assurance can be given
that the Company qualifies or will remain qualified as a REIT. Qualification as
a REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations,
including a requirement that the Company must retain at least 100 Shareholders.
The determination of various factual matters and circumstances not entirely
within the Company's control may affect its ability to qualify as a REIT. In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. If in any taxable year the Company failed to
qualify as a REIT, or failed to retain at least 100 Shareholders, the Company
would not be allowed a deduction for distributions to Shareholders in computing
its taxable income and would be subject to federal income tax on its taxable
income at regular corporate rates. Unless entitled to relief under certain
statutory provisions, the Company also would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
was lost. As a result, the funds available for distribution to the Company's
Shareholders would be reduced for each of the years involved. Although the
Company currently intends to operate in a manner designed to qualify as a REIT,
it is possible that future economic, market, legal, tax or other consequences
may cause the Company's Board of Directors to revoke the REIT election. See
"Federal Income Tax Consequences."
Terms of Certain of the Formation Transactions Not Determined By Arm's-Length
Negotiation. The terms of certain of the transactions involving the formation of
the Company and the Advisor, and the contractual relationship between them, were
determined by inside (non-independent) Directors and Officers of the Company who
have mutual ownership interests in the Company, the Advisor and the Managing
Underwriter. Therefore, the terms of such transactions were not the result of
arm's length negotiation which may have resulted in terms more favorable to the
Company. While serving in dual capacities as both Directors or Officers of the
Company and as partners and/or shareholders of the Advisor (and the Managing
Underwriter) these persons may have conflicts of interest in enforcing
agreements between and among such companies and the Company. Various fees will
be paid to these companies pursuant to the terms of such agreements, including
direct and indirect fees to the Advisor in connection with its administration of
the Company's business affairs and in connection with the Company's making of
mortgage loans. Future business arrangements and agreements between the Company
and the Advisor and its affiliates must be approved by the Board of Directors,
including a majority of the Independent Directors. See "Management," "The
Advisor and the Advisory Agreement," and "Conflicts of Interest."
9
<PAGE>
Expenses of Offering. The Company will incur expenses in connection with this
Offering, which expenses reduce the assets of the Company that will be available
for investment in income-producing assets. Upon a liquidation of the Company,
the value of the Company's assets would have to appreciate significantly in
order to offset these expenses and enable investors to recover their original
investment.
Price of Shares Arbitrarily Determined. The initial price of the Shares has
been determined by negotiations between the Managing Underwriter and the Company
and is the same price paid by purchasers of the shares in the Company's initial
public offering and by DRM Holdings, Inc., an affiliate of the Advisor, which
purchased 20,000 Shares prior to the Company's initial public offering. The
public offering price set forth on the cover page of this Prospectus should not,
however, be considered an indication of the actual value of the Shares and there
can be no assurance that the market value of the Shares at any given time would
be the same or higher than the public offering price of the Shares offered
hereby. See "Plan of Distribution."
Lack of Liquidity and Absence of Market Price. There currently is no market
for the Shares and there can be no assurance that a market will develop. It is
not expected that a material market for the Shares will develop during the
Offering Period. In addition, the market for REIT securities historically has
been less liquid than non-real estate types of publicly-traded equity
securities. Further, because of such illiquidity and the fact that the Shares
are valued by market-makers (if a market develops) based on market forces which
consider various factors beyond the Company's control, there can be no assurance
that the market value of the Shares at any given time would be the same or
higher than the public offering price. In addition, the market price could
decline if the yields from other competitive investments exceed the actual
dividends on the Shares. The common stock of the Company will not be listed on
any exchange and will not be qualified for quotation on the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ").
Risks Related to Management
Limited Operating History. Although they have extensive experience in the
business in which the Company is engaged, neither the Company nor the Advisor
have extensive experience operating or managing a REIT. The Officers,
Shareholders and Directors of the Advisor have a combined experience of 37 years
in the business of lending to churches and have managed the Company since its
inception in 1994. Shareholders must rely upon the judgment of the Company's
Directors and the Advisor for investment decisions of the Company. The ability
of the Company to accomplish its stated investment objectives will depend, in
part, on the success of the Advisor in locating and negotiating the Company's
loans to qualified churches and other religious organizations throughout the
United States. The Company is a recently established business enterprise and has
a limited history of operating revenues. As a result, the business of the
Company carries with it those risks normally attendant to a new enterprise,
including there being no assurance that the Company will be successful, and
those identified elsewhere herein. See "The Advisor and the Advisory Agreement"
and "Business of the Company."
Dependence Upon Advisor. The Company is dependent upon the Advisor for most
aspects of its business operations, including but not limited to, mortgage loan
underwriting and servicing, marketing and advertising, generation and follow-up
of business leads, maintaining business relationships with other persons in the
business in which the Company is engaged, maintaining any "goodwill" developed
by the Company or the Advisor, and corporate management (including bookkeeping,
filing reports with state, federal and tax and other regulatory authorities,
reports to Shareholders, etc.). Because the Advisor has experience in the
specialized business segment in which the Company operates, the loss of the
services of the Advisor, for any reason, would likely have a material adverse
effect upon its business operations.
Conflicts of Interest. Various affiliations exist among certain members of
the Board of Directors and Officers of the Company and Officers and Directors of
the Advisor and the Managing Underwriter. The Advisor and the Managing
Underwriter are affiliated by virtue of their common direct and indirect
ownership by one of the Directors of the Company and the Officers, Directors and
Shareholders of the Advisor. An Executive Officer and Director of the Company
and certain Officers and Directors of the Advisor are involved actively in the
church financing business through their affiliation with the Managing
Underwriter, and management and operations of these other companies may compete
with the Advisor and the Company for their time and attention and conflict with
the Company through competition for specific financing projects and lending
opportunities. Future business dealings between the Company and the Advisor and
its affiliates must be approved by a majority of the Board of Directors,
including a majority of the Company's Independent Directors. The principal
business of the Managing Underwriter since its inception in 1987, has been the
underwriting of first mortgage bonds for churches. To the extent the Company
diversifies its portfolio through the purchase of first mortgage bonds issued by
churches, it is most likely that such bonds would be purchased through the
Managing Underwriter in its capacity as underwriter for the issuing
10
<PAGE>
church, or as broker or dealer on the secondary market. In such event, the
Managing Underwriter would receive commissions (paid by the issuing church) on
original issue bonds, or "mark-ups" in connection with any such secondary
transactions. In addition, in the event the Company sells from time to time
church bonds in its portfolio, it is likely (and as a practical matter,
necessary) that such bonds would be sold through the Managing Underwriter, in
which case the Managing Underwriter would realize income in the form of a
"mark-down." All such commissions, mark-downs or mark-ups are limited by
standards set forth in the Company's Bylaws and can be no more than those
charged by the Managing Underwriter to its other customers and would not exceed
industry standards or in any event (in the case of mark-ups and mark-downs on
secondary bond sales and purchases) exceed five percent of the principal amount
of bonds purchased or sold. Principals of the Company and the Advisor may
receive a benefit in connection with such transactions due to their affiliation
with the Managing Underwriter. The Company's policies limit the amount of
mortgage-secured debt securities (such as church bonds) to 30% of its Average
Invested Assets on the date of their purchase. There can be no assurance that
actions recommended by or with related persons or entities will be in the best
interests of the Shareholders. See "Conflicts of Interest."
Risks Related to Loan Valuation and Advisor Expenses. Appreciation of the
value of mortgage loans to be made or first mortgage bonds acquired by the
Company is beyond the control of the Company and the Advisor. A direct
investment in mortgage loans or first mortgage bonds may avoid costs incurred by
the Company. In addition, until a market develops for the Company's securities
it may be impossible for an investor to recoup his/her investment, even if the
Company's performance permits such a valuation. See "Use of Proceeds" and "Plan
of Distribution."
Potential Adverse Effect of Borrowing on Cash Flow. The Company may borrow
funds to assure its capacity to make loans on a continual basis. Lending through
use of borrowed funds is subject to greater risks than in unleveraged lending,
although it offers the potential of greater returns on investment. The Company's
cash flow, including its ability to pay dividends, will be impacted by the
financing costs associated with the use of borrowed funds. Financing costs are
obligations of the Company that must be paid regardless of whether the Company
has sufficient revenue from operations and the Company's assets (primarily its
mortgage loan portfolio) would be assigned to a bank as collateral for any such
loan. The Company's Bylaws (the "Bylaws") limit the ability of the Company to
borrow no more than 50% of the value of its Average Invested Assets before
deduction for non-cash reserves. See "Business of the Company - Financing
Policies."
Dividends Dependent upon Business Operations. Payment of dividends will be
affected by cash available for distribution, results of operations, economic
conditions, applicable state law, the need for payment of advisory fees, and
other facts and circumstances deemed relevant by the Board of Directors from
time to time. The Company has commenced business operations and intends to
deploy proceeds from Share sales during the Offering Period as rapidly yet
prudently as possible in order to generate the best possible yields to
Shareholders. Nevertheless, prior to deployment, the proceeds from the sale of
the Shares may be held in relatively low-yield secure investments pending
application to fund loans made by the Company. The relative yield generated by
such capital, and, thus, dividends (if any) to Shareholders could be less than
could be expected once the Company has fully invested its capital in accordance
with its business plan. The Company intends to ameliorate to some extent the
possibility of low yields during the period the Company's capital is invested in
making loans by (i) its practice of collecting from borrowers an origination fee
at the time a loan is made, and (ii) timing its lending activities to coincide
as much as possible with sales of the Shares. The Advisor is entitled to
one-half of any origination fees collected from borrowers at the origination of
any loan made by the Company. There can be no assurance that either or both of
these operational methods will have the desired effect of bolstering
significantly current yields to Shareholders. See "Distributions."
Reliance on Management. Most decisions with respect to the management of the
Company, including the selection of investments, are made by the Advisor,
subject to the general supervision of the Board of Directors and substantial
compliance with the Company's lending policies outlined herein. The success of
the Company will depend, in large part, upon the quality of the management
provided by the Advisor, particularly as it relates to underwriting (review,
analysis and borrower qualification) of mortgage loans on behalf of the Company
and selecting mortgage-backed securities for the Company's portfolio.
Shareholders rights or power to take part in the management of the Company are
generally limited to the right to elect Directors. Thus, no person should
purchase any of the Shares offered hereby unless the person is willing to
entrust the management of the Company to the Advisor and the Board of Directors.
See "The Advisor and the Advisory Agreement," "Conflicts of Interest" and
"Management."
Certain Restrictions on Transfer of Shares. Provisions of the Articles of
Incorporation and Bylaws of the Company, primarily intended to enable the
Company to maintain its status as a real estate investment trust, authorize the
Company (i) to refuse to effect a transfer of shares of Common Stock to any
person who, as a result, would beneficially own shares in excess of 9.8% of the
outstanding capital stock ("Excess Shares") and (ii) to redeem Excess Shares.
Such provisions may
11
<PAGE>
inhibit market activity and the resulting opportunity for Shareholders to
receive a premium for their shares that might otherwise exist if an investor
were attempting to assemble a block of shares in excess of 9.8% of the
outstanding capital stock. See "Description of Capital Stock."
Risks Related to Mortgage Lending Generally
In General. Mortgage lending and demand for the Company's services involves
various business risks, many of which are unpredictable and beyond the control
and foresight of management of the Company and the Advisor. Such risks include
national and local economic conditions, demographic and population patterns,
zoning regulations, taxes, interest rate fluctuations, general availability of
financing and general competitive conditions. It is not possible to identify all
potential risks associated with mortgage lending; however, some of the more
common risks encountered can be summarized as follows: low demand for mortgage
loans by potential borrowers; changes in the level of consumer confidence;
availability of creditworthy borrowers; bankruptcy or insolvency of a borrower
resulting in delay in exercising remedies against the borrower and/or reduction
of the Company's claim against a specific borrower; general and local economic
conditions and factors affecting specific borrowers; interest rate fluctuations
as they affect the ability of a borrower to afford debt service obligations; the
valuation, marketability and single-use nature of the real estate and
improvements securing or collateralizing church loans; and state and federal
laws and regulations currently existing and which may be promulgated in the
future, which govern the process of foreclosure of mortgages by lenders
following a loan default. In the event of a default, foreclosure of its
mortgage, and sale of the mortgaged property by the Company, the proceeds
yielded from the exercise of such remedies could be more or less than the
Company's investment in such loan. There can be no assurance that the demand for
the Company's services will allow the Company to meet its business objectives.
Risk of Second Mortgage Loans. The Company's Financing Policies allow it to
fund second mortgage loans. However, the principal amount of such loans may not
exceed 20% of the Company's Average Invested Assets. Such second mortgage loans
may be considered to entail more risk than first mortgage loans due to the fact
foreclosure of senior indebtedness or liens could extinguish the Company's
investment, which could reduce the Company's profitability.
Risk of Fixed-Rate Debt. There are certain risks inherent in fixed-rate debt
obligations, including the risk that a general rise in interest rates could make
the yield to the Company on a particular mortgage loan lower than prevailing
rates at a given time, which, in turn, could negatively affect the value of the
Company and consequently the Shares. Neither the Company nor the Advisor can
predict the direction, and extent or duration of interest rate changes; however,
it will attempt to reduce this risk by maintaining a balanced portfolio of
short, medium and longer-term mortgage loans and through offering variable or
otherwise adjustable rate loans to borrowers.
Competition. The mortgage banking 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, and thus may be a more attractive lender to potential
borrowers. The Company intends to compete 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.
Interest Rate Fluctuations. Prevailing market interest rates have an impact
on borrower decisions to obtain new loans or to refinance existing loans,
possibly having a negative effect upon the Company's ability to originate
mortgage loans. Future fluctuations in interest rates may cause the value of the
Shares to fluctuate unpredictably. Finally, if interest rates decrease and the
economic advantages of refinancing mortgage loans increase, prepayments of
higher interest mortgage loans in the Company's portfolio would likely reduce
the portfolio's overall rate of return (yield).
Government Regulation. Although the Company believes it is not subject to any
specific government regulations affecting its proposed business, there can be no
assurance that this is the case, and the Company may be required, or in its
discretion determine, to register, become licensed, or otherwise qualify to do
business in various states. This could increase the Company's cost of doing
business and, thus reduce its overall profitability. The Company believes it has
the ability to make such determinations on a jurisdictional basis as its
business expands geographically, and that any regulations as might exist will
not materially impact its ability to execute its plan of business operations.
12
<PAGE>
Risks Related to Mortgage Lending to Churches
Source of Church Revenues. Voluntary contributions made by members constitute
a church's primary source of income. Such income provides the primary source of
funds for repayment of its loan obligations and other expenses. There can be no
assurance that the membership of a church or the per capita contributions of its
members will increase or remain constant after a loan is funded. A decrease in a
church's income could result in its inability to pay its obligation to the
Company, in which case an event of default could occur and the Company could be
required to exercise its remedies - including, among others, foreclosure of its
mortgage.
Dependence Upon Pastor. A church's senior pastor most often plays an
important role in the management, spiritual leadership and continued viability
of that church. While significant administrative and ministerial duties are
often delegated to a church's assistant pastors (if any), board of trustees,
board of deacons and church members, a senior pastor's absence, resignation or
death could have a negative impact on a church's operations and, thus its
continued ability to generate revenues sufficient to service its loan obligation
to the Company. The Company's lending policies provide that the Advisor, in its
discretion, may require a borrower to maintain Key-Man life insurance policies
on its senior pastor and successors for the term of the loan. See "Business of
the Company -- Financing Policies."
Value of Mortgage Collateral -- Limited/Restricted/Single-Use. Loans made by
the Company to churches and other religious and non-profit organizations will be
secured by principally first mortgages upon the real estate and improvements
owned or to be owned by such organizations. Although the Company will require an
appraisal of the value of the premises as a precondition to making a loan, the
appraised value of the premises is an estimate only and can seldom if ever be
relied upon as being the actual amount which might be obtained on behalf of the
Company if it became necessary to sell the premises in the event of a default by
the borrower on the loan. The actual liquidation value of church, school or
other institutional premises could be adversely affected by, among other
factors: (i) its single-use or limited use nature; (ii) the availability on the
market of similar properties; (iii) the availability and cost of financing to
prospective buyers; and (iv) the length of time the seller is willing to hold
the property on the market. Finally, in the event the Company forecloses its
mortgage upon a religious organization's property and takes legal title thereto,
real estate taxes could be levied and assessed against the property. This
expense would be the financial responsibility of the Company, and could be
substantial in relation to the Company's prior loan if the Company cannot
readily dispose of the property. Such expenses could prevent the Company from
recovering the value of its loan in the event of foreclosure. Further, until
such time as the property is sold, such taxes would be a direct expense to the
Company, which may reduce the amount of funds available for distribution to the
Company's Shareholders as a dividend.
Potential Liability Under Federal and State Environmental Laws
Under various federal, state and local laws and regulations, an owner of real
property or a secured lender (such as the Company) may be liable in certain
circumstances for the costs of removal or remediation of certain hazardous or
toxic substances at, under or disposed of in connection with such property, as
well as certain other potential costs relating to hazardous and toxic substances
(including government fines and injuries to persons and adjacent property). Such
laws often impose such liability without regard to whether the owner or lender
knew of, or was responsible for the presence of such hazardous or toxic
substances. The costs of remediation or removal of such substances, or of fines
or personal or property damages, may be substantial and material to the
Company's business operations and the presence of such substances, or the
failure to promptly remediate such substances may adversely affect the Company's
ability to resell such real estate after foreclosure or could cause the Company
to forego foreclosure and, thus avoid taking title to real estate as a remedy in
the event of default on a mortgage loan. This is a changing area of the law, as
the courts have found both in favor and against lender liability in this area
under various factual scenarios. Although Congress could enact legislation
designed to limit or preclude mortgagee liability in this area, there can be no
assurance that such legislation will become law or, if it does become law, that
it will fully protect lenders from such liabilities.
Risks Related to Federal Income Taxation
The Company intends to conduct its operations to enable it to qualify as a
real estate investment trust under the Internal Revenue Code of 1986, as amended
(the "Code"). However, the Company has not sought, nor does it intend to seek, a
ruling from the Internal Revenue Service with respect to its qualification as a
real estate investment trust, and no assurance can be given that the Company
will continue to so qualify. As a real estate investment trust, the Company
would generally be allowed a deduction for dividends paid to its Shareholders in
computing its taxable income. This treatment substantially eliminates the
"double taxation" of earnings.
13
<PAGE>
To qualify as a real estate investment trust, the Company must meet certain
share ownership, income, asset and distribution tests. No assurance can be given
that the Company will at all times satisfy these tests. In order to maintain its
status as a real estate investment trust, the Company must satisfy certain
requirements on a continuing basis, which requirements may substantially affect
day-to-day decision-making by the Advisor. In some cases, the Company may be
forced to take action it would not otherwise take or refrain from action which
might otherwise be desirable in order to maintain its tax status. If, in any
taxable year, the Company should not qualify as a real estate investment trust,
any previous election by the Company to be taxed as a real estate investment
trust would generally terminate and, under certain conditions, the Company would
be unable to elect to be taxed as a real estate investment trust until the fifth
year after the disqualification. Failure of the Company to meet the
qualification tests will cause the Company to be taxed as a regular corporation,
and distributions to its Shareholders would not be deductible by the Company in
computing its taxable income. The payment of any tax by the Company resulting
from its disqualification as a real estate investment trust would reduce the
funds available for distribution to Shareholders or for investment, or if
shareholder distributions had been made in anticipation of the Company's
qualifying for taxation as a real estate investment trust, could force the
Company to borrow funds or to liquidate certain of its loans or investments in
order to pay the applicable tax. If the Company has significant charges to its
cash flow which are not deductible in determining its real estate investment
trust taxable income, such as principal payments on loans, it may be required to
distribute amounts in excess of its available cash in order to maintain its
qualification as a real estate investment trust. See "Federal Income Tax
Consequences."
Effect of Future Changes in Tax Laws
The discussion in this Prospectus of the tax treatment of the Company as a
real estate investment trust and the tax effect on Shareholders is based on
existing provisions of the Code, existing and proposed regulations, existing
administrative interpretations and existing court decisions. No assurance can be
given that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws such that the treatment of
a real estate investment trust or the consequences of an investment in the
Company would vary substantially from the treatment described elsewhere in this
Prospectus. Any such change might apply to transactions taking place before the
change occurs.
WHO MAY INVEST
An investment in the Shares involves certain risks and is suitable only as a
long-term investment for persons of adequate financial means who have no
immediate need for liquidity in their investment. Shares will be sold only to
persons who purchase a minimum of 250 Shares ($2,500) or IRAs and qualified
plans which purchase a minimum of 200 Shares ($2,000). In addition, the Company
has established financial suitability standards for investors who purchase
Shares. These standards require investors to have either: (i) a minimum annual
gross income of $45,000 and a net worth (exclusive of home, home furnishings and
automobiles) of $45,000; or (ii) a net worth (determined with the foregoing
exclusions) of $150,000.
Suitability standards may be higher in some states.
The Soliciting Dealer Agreements between the Underwriters and each of the
Soliciting Dealers require such securities dealers to make diligent inquires as
required by law of all prospective purchasers in order to ascertain whether a
purchase of Shares is suitable for such person and to transmit promptly to the
Company, the fully completed subscription documentation and any other supporting
documentation reasonably required by the Company. By executing the subscription
agreement relating to the Shares (the "Subscription Agreement"), by tendering
payment for Shares and by acceptance of the purchase or delivery of the Shares,
an investor represents that it satisfies any applicable suitability standards.
In addition, each Soliciting Dealer will, by completing the Subscription
Agreement, acknowledge its determination that the Shares are a suitable
investment for the investor, and will be required to represent and warrant his
or her compliance with applicable laws requiring the determination of the
suitability of the Shares as an investment for the subscriber. The Company will,
in addition to the foregoing, coordinate the processes and procedures utilized
by the Underwriters and Soliciting Dealers and, where necessary, implement such
additional reviews and procedures deemed necessary to assure the adherence by
registered representatives to the suitability standards set forth herein.
MASSACHUSETTS INVESTORS ONLY: The Company may not complete a sale of the
Shares until five days after the investor has received a Prospectus, and an
investor may receive a refund of his or her investment within five days after
subscribing if the investor received a Prospectus only at the time of
subscription.
14
<PAGE>
USE OF PROCEEDS
The following represents the Company's current estimate of the use of the
gross offering proceeds from the sale of the Shares, assuming the sale of all
the Shares offered hereby.
<TABLE>
<CAPTION>
Dollar
Amount Percent
<S> <C> <C>
Gross Offering Proceeds (1): $ 15,000,000 100.00%
Less Expenses:
Selling Commissions (2) 892,500 5.950
Managing Underwriter's Expense Allowance (3) 133,000 .886
Offering Expenses (4) 70,000 .466
Total Public Offering-Related Expenses 1,095,500 7.302
Amount Available for Investment (5) $ 13,904,500 92.698%
- -------------------------------------------------------
</TABLE>
(1) All of the Shares of Common Stock are being offered by the Company on a
"best efforts" basis through the Underwriters. There can be no assurance
that all or any amount of the Shares offered will be sold. As of June 1,
1998, the Company has sold 394,560 Shares in this Offering. See "Plan of
Distribution."
(2) The Company will pay the Underwriters selling commissions equal to 5.95% of
the gross offering proceeds, all or any portion of which may be re-allowed
to Soliciting Dealers. See "Compensation to Advisor and Affiliates" and
"Plan of Distribution."
(3) The Company will pay the Managing Underwriter a non-accountable expense
allowance of up to $133,000 (assuming all the Shares are sold) to defray
the Managing Underwriter's costs associated with the marketing and sales of
the Shares in this Offering, and to cover offering-related expenses and
communication costs. Of this, $35,000 is payable upon sale of 100,000
Shares and the balance of $98,000 will be paid ratably in the sum of $7,000
per 100,000 Shares sold in the Offering. The Managing Underwriter may
re-allow to the Co-Underwriter any portion of the Managing Underwriter's
Expense Allowance as it determines in its discretion. See "Compensation to
Advisor and Affiliates" and "Plan of Distribution."
(4) These figures are the Company's best estimates of the legal, accounting,
printing, filing fees and other expenses attendant to this Offering, all of
which fees, expenses and costs have been or will be paid to independent
professional and service providers not affiliated with the Company, the
Advisor or the Managing Underwriter. See "Plan of Distribution."
(5) The Company's Bylaws limit the total of all Acquisition Fees and
Acquisition Expenses to a reasonable amount and in no event in excess of
six percent (6%) of the funds advanced. Such fees and expenses are payable
by prospective borrowers and not by the Company. Thus, the estimated use of
offering proceeds will not be reduced or otherwise effected by such fees
and expenses. The Amount Available for Investment, in addition to other
current cash resources of the Company, if any, will be available for use in
the Company's business of mortgage lending. Aside from fees of the Advisor,
substantially all of the net proceeds from the sale of the Shares will be
used to fund the Company's business of making mortgage loans to churches
and other non-profit religious organizations and purchasing first mortgage
bonds issued by churches. The Company may also use its existing current
cash resources to establish a Working Capital Reserve. See "Business of the
Company."
The Company expects that over 90% of the net proceeds from the sale of the
Shares will be loaned to borrowers in accordance with the business plan of the
Company, with the balance of the funds being invested in church bonds. Pending
application of the proceeds as outlined above, the net proceeds of this Offering
will be invested in Permitted Temporary Investments.
COMPENSATION TO ADVISOR AND AFFILIATES
This table discloses all the compensation the Advisor and its Affiliates
can receive either directly or indirectly. In accordance with applicable state
law, the total of all Acquisition Fees and Expenses paid by the Company in
connection with its business shall in no event exceed an amount equal to 6% of
the amount loaned, unless a majority of the Directors (including a majority of
the Independent Directors) not otherwise interested in the transaction approve
the transaction as being commercially competitive, fair and reasonable to the
Company. The Total Operating Expenses of the Company shall not (in the absence
of a satisfactory showing to the contrary) in any fiscal year exceed the greater
of: (a) 2% of the Average Invested Assets; or (b) 25% of its Net Income for such
year. The Independent Directors may, upon a finding of unusual and nonrecurring
factors which they deem sufficient, determine that a higher level of expenses is
justified in any given year. The Company's Annual Report will provide
Shareholders with an explanation of the factors considered in approving any such
additional expenses. See "Reports to Shareholders." There are certain additional
restrictions on expenses that will be borne by the Company.
15
<PAGE>
ADVISOR COMPENSATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
Offering and
Organizational Stage:
Warrants/Options (1) Advisor Options to purchase 9,000 Shares at an exercise price of $10.00 per share;
annual options to President of Advisor to purchase 3,000 Shares at a purchase
price equal to the fair market value on the date of grant.
Operating Stage:
Advisory Fee (2) Advisor 1 1/4% annually, paid monthly, of the Average Invested Assets of the Company.
The Advisor received Advisory Fees in the amount of $11,825 for the year ended
December 31, 1996, $17,545 for the year ended December 31, 1997 and $14,130
through June 1, 1998. The Advisor received no Advisor Fees prior to the year
ended December 31, 1996. The Company cannot estimate the total amount of
Advisory Fees to be payable to the Advisor, but assuming all of the Shares are
sold and the Company's Average Invested Assets were $17,000,000, the Advisory
Fee would be $212,500 per year.
Acquisition Fees/ Advisor In connection with mortgage loans made by the Company, borrowers may be required
Expenses to pay expenses to the Advisor for various closing and other loan-related
expenses, such as accounting fees and appraisal fees paid by the Advisor to
independent service providers, and other costs. Payments made by the borrower in
excess of costs may be retained by the Advisor, but the Company's Bylaws limit
the total of all Acquisition Fees and Acquisition Expenses to a reasonable
amount and in no event in excess of six percent (6%) of the funds advanced to
the borrower.
Advisor Loan Origination Advisor One-half of the origination fees collected from the borrower at closing in
Fee (3) connection with each mortgage loan made by the Company, payable when and only if
an origination fee is charged and collected. The Advisor received Origination
Fees in the amount of $52,855 for the year ended December 31, 1996, $43,980 for
the year ended December 31, 1997 and $24,725 through June 1, 1998. The Advisor
received no Origination Fees prior to the year ended December 31, 1996. The
Company cannot estimate the total amount of Advisor Loan Origination Fees that
may be realized by the Advisor, but assuming all of the Shares are sold and the
Company invested in a one year period net proceeds of $14,000,000 in mortgage
loans with an average origination fee of 3%, the Loan Origination Fees payable
to the Advisor in such year would be $210,000. As loans made by the Company
mature or are otherwise repaid, the Company will make new loans to borrowers in
which case Loan Origination Fees would be payable to the Advisor in connection
therewith.
Advisor Termination Advisor 2% of the value of the Average Invested Assets of the Company, payable if the
Fee (2) Advisor's services are terminated by the Company; not to exceed 15% of the
balance of assets remaining presuming payment to the Company's Shareholders, in
the aggregate, of an amount equal to 100% of the original issue price of the
Company's Shares, plus an amount equal to 6% of the original issue price of the
Company's Shares per annum cumulative. For purposes of the termination fee, the
original issue price of the Company's Shares may be reduced by prior cash
distributions to Shareholders. Although the Advisor's Termination Fee cannot be
estimated with certainty, assuming that all the Shares were sold as of December
31, 1997, total assets of the Company were $17,350,000, and total liabilities
were $145,000 at such date, there would be no Termination Fee payable. The
Termination Fee is limited to an amount equal to 15% of the balance of the
Company's assets remaining after a presumed payment to Shareholders, in the
aggregate, of 100% of the original issue price of the Shares, plus an amount
equal to 6% of the original issue price per annum cumulative, reduced by prior
cash distributions. The Advisor's Termination Fee expires January 11, 2000, and
it is unlikely that any Termination Fee would be payable if the Advisor were
terminated unless (i) distributions to Shareholders were significantly higher
than in the past (which is not likely); or (ii) the Company's assets increased
significantly without a corresponding increase in liabilities or additional
Shareholder's Equity (which is also not likely).
16
<PAGE>
<CAPTION>
AFFILIATE COMPENSATION
<S> <C> <C>
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
Offering and
Organizational Stage:
Commissions on the Managing 5.95% of the gross proceeds from the sales of the Shares. The
Sale of Shares Underwriter Managing Underwriter may re-allow all or a portion of this amount
in this Offering to other participating broker-dealers who are members of the
National Association of Securities Dealers, Inc. See "Plan of
Distribution."
Non-Accountable Expense Managing The sum of $35,000 paid upon the sale of the first 100,000 Shares in this
Allowance Relating to the Underwriterand Offering, with an additional $98,000 payable ratably based on the number of
sale of Shares Co-Underwriter Shares sold thereafter, to cover the Managing Underwriter's costs and expenses
in this Offering (1) relating to the sale of the Shares in this Offering. See "Plan of Distribution."
Warrants/Options (2) Directors/ Options to purchase 63,000 Shares at an exercise price of $10.00 per share;
Advisor annual options to Directors to purchase 3,000 Shares at a purchase price equal
to the fair market value on the date of grant.
Operating Stage:
Commissions and Managing Customary mark-ups and mark-downs on first mortgage church
Expenses on Underwriter bonds purchased and sold by the Company through the Managing
First Mortgage Bonds Underwriter on the secondary market.
Purchased (5)
</TABLE>
- ------------------------------------------------
(1) The Company issued options to six directors of the Company and the
President of the Advisor to purchase up to 9,000 Shares each at an exercise
price of $10.00 per share. These options may be exercised in limited
amounts and expire ratably over three years beginning on November 15, 1999.
See "Management -- Warrants and Options."
(2) The Advisory Fee is intended to compensate the Advisor for its services to
the Company in that capacity and for associated expenses it incurs. It does
not include the excess, if any, of funds retained by the Advisor received
from borrowers for prepayment of loan application and closing fees. A
majority of the Independent Directors may determine not to defer such
advisory fees or may determine to accelerate any deferred advisory fees if
it is determined that such payment will not jeopardize the Company's
ability to pay cash dividends, create cash flow problems or violate
applicable state law. The Company may terminate the Advisory Agreement for
any reason upon 60 days written notice. See "Conflicts of Interest -
Compensation" for a discussion of the conflicts associated with different
fees payable to the Advisor for different types of transactions and
"Distributions" for a discussion of the Company's dividend policy.
(3) Organization and Offering Expenses paid in connection with the Company's
formation or the distribution of its Shares must be reasonable and may in
no event exceed an amount equal to 15% of the proceeds raised in an
offering. See "Plan of Distribution." The Managing Underwriter is
affiliated with the Advisor and a director and officer of the Company by
virtue of the common ownership of the Managing Underwriter by DRM,
Holdings, Inc., which is owned by Mssrs. Reinhart and Myers, who together
with Mr. Davis, are also shareholders of the Advisor. See "Management" and
"Conflicts of Interest."
(4) It is anticipated that from time to time, the Company may purchase
mortgage-secured bonds from the Managing Underwriter in order to (i)
enhance yields on the Company's assets; and (ii) diversify the Company's
holdings. The underwriting commission in respect of any bonds purchased by
the Company in an initial distribution of such bonds will be paid by the
issuer of the bonds and not by the Company. In certain cases the Company
may purchase first mortgage bonds from the Managing Underwriter on the
secondary market, in which event the Company will pay to the Managing
Underwriter customary mark-ups on a basis no more or less favorable than
charged by the Managing Underwriter to its general customers in arms-length
transactions. Likewise, first mortgage bonds owned by the Company may be
sold by the Managing Underwriter on the Company's behalf from time to time
in which event the Managing Underwriter will charge a customary mark-down
on the same basis as it deals with its other customers in arm's length
transactions and would not exceed industry standards or in any event (in
the case of mark-ups and mark-downs on secondary bond sales and purchases)
exceed five percent of the principal amount of bonds purchased or sold.
Principals of the Company and the Advisor may receive a benefit in
connection with such transactions due to their affiliation with the
Managing Underwriter. The Managing Underwriter is primarily engaged in the
business of underwriting, marketing and selling of first mortgage bonds for
churches. See "The Advisor and the Advisory Agreement -- Prior Performance
of Advisor and Affiliates."
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising from
its relationship with the Advisor, its affiliates (V. James Davis, Philip J.
Myers and David G. Reinhart) and the Managing Underwriter. The Advisor, its
affiliates and the Directors of the Company and the Advisor are not restricted
from engaging for their own accounts in business activities of the type
conducted by the Company, and occasions may arise when the interests of the
Company would be in conflict with
17
<PAGE>
those of one or more of the Directors, the Advisor or their Affiliates. These
individuals have been engaged in the business of church financing for
approximately 37 years collectively. With respect to the conflicts of interest
described herein, the Directors of the Company, of which a majority are
independent, will endeavor to exercise their fiduciary duties to the Company in
a manner that will preserve and protect the rights of the Company and the
interests of the Shareholders in the event of any conflicts of interest between
the Company and the Advisor or its Affiliates. Any transactions between the
Company and any director, the Advisor or any of their affiliates, other than the
purchase or sale, in the ordinary course of the Company's business, of church
bonds from or through the Managing Underwriter, will require the approval of a
majority of the Directors who are not interested in the transaction.
Transactions with Affiliates and Related Parties
The Advisor and its Affiliates may receive compensation from the Company
for providing various services. The Company's Board of Directors (a majority of
whom are independent of the Advisor and its affiliates) will have oversight
responsibility with respect to such services to ensure that such services are
provided on terms no less favorable to the Company than the Company could obtain
from unrelated persons or entities and are consistent with the Company's
investment objectives and policies. In addition, transactions by the Company in
church bonds may result in the realization by the Managing Underwriter of
commissions and other income even though not paid by the Company. See
"Compensation to Advisor and Affiliates" and "The Advisor and the Advisory
Agreement."
Compensation to the Advisor and Conflicts of Interest
The Advisor is entitled to receive an annual advisory fee equal to a 1.25%
of the Average Invested Assets of the Company. See "Compensation to Advisor and
Affiliates." Such fee is payable whether or not any mortgage loan is made or
held on a basis that is advantageous to the Company. The Advisor also will
receive fees in connection with the Company's mortgage lending business based
upon a percentage of the amount paid by a mortgage borrower as "points" or
origination fees at the outset or renewal of each mortgage loan made by the
Company. Accordingly, a conflict of interest could arise since, depending upon
the circumstances, the retention, acquisition or disposition of a particular
loan could be advantageous to the Advisor, but detrimental to the Company, or
vice-versa. Because the origination fees are payable upon the closing of the
loan or its renewal, and the amount is dependent upon the size of the mortgage
loan, the Advisor may have a conflict of interest in negotiating the terms of
the loan and in determining the appropriate amount of indebtedness to be
incurred by the borrower. See "Business of the Company -Lending Policies." The
decision whether to liquidate the Company or the decision to acquire, retain or
dispose of certain properties and the terms and conditions thereof, may also
create conflicts of interest in that the Advisor is entitled to a substantial
termination fee if its agreement with the Company is not renewed by the Company.
In resolving conflicts of interest, the Board of Directors has a fiduciary
duty to act in the best interests of the Company as a whole. The Company and the
Advisor believe that it would not be possible, as a practical matter, to
eliminate these potential conflicts of interest. However, the Advisory Agreement
must be renewed annually by the affirmative vote of a majority of the
Independent Directors. Any conflict will be resolved by a majority of the
Independent Directors, who may determine not to renew the Advisory Agreement if
they determine that the Advisor is not satisfactorily performing its duties. In
connection with the performance of their fiduciary responsibilities, the
existence of such possible conflicts will be only one of the factors for the
Directors to consider in determining the appropriate action to be taken by the
Company. See "Management," "Compensation to Advisor and Affiliates" and "The
Advisor and the Advisory Agreement."
Competition by the Company with Affiliates
Any Director or Officer may have personal business interests and may engage
in personal business activities, which may include the acquisition, syndication,
holding, management, development, operation or investment in, for his own
account or for the account of others, interests in entities engaged in the
church lending business and any other business. Any Director or officer may be
interested as trustee, officer, director, shareholder, partner, member, advisor
or employee, or otherwise have a direct or indirect interest in any entity which
may be engaged to render advice or services to the Company, and may receive
compensation from such entity as well as compensation as director, officer or
otherwise hereunder.
The Managing Underwriter is engaged in the same market segment as the
Company, i.e., providing financing to churches and other not-for-profit
religious organizations. Therefore, a conflict could arise if the Managing
Underwriter were to usurp a lending opportunity otherwise available to the
Company. However, the average size of first mortgage bond financings undertaken
by the Managing Underwriter is approximately $1.45 Million, with $1,000,000
being its stated (but not required) minimum financing. The Company, on the other
hand, will focus on financings ranging from $100,000 to $1,000,000 in size.
18
<PAGE>
Thus, although the Managing Underwriter and the Advisor will share employees,
facilities and some marketing efforts, it is believed (but not assured) that
conflicts of interest between them will be reduced by virtue of the targeted
size of loans pursued by each. The Advisor and the Company have agreed that
financing prospects of less than $1 Million will be first directed to the
Company for consideration. If the Company determines that the loan is not
suitable or has insufficient funds to make the loan, the Managing Underwriter or
its Affiliates shall have the opportunity to otherwise provide financing to that
prospective borrower.
Neither the Advisor nor its Affiliates are prohibited from providing the
same services to others, including competitors. These relationships may produce
conflicts in the Advisor's and its Affiliates' allocation of time and resources
among various projects. The Advisor and its Affiliates believe they have
sufficient personnel to discharge their responsibilities to the Company. See
"Management."
Non Arm's-Length Agreements
Many agreements and arrangements between the Company and the Advisor or any
of their Affiliates, including those relating to compensation, were not the
result of arm's-length negotiations. However, such conflicts or potential
conflicts will be resolved by the following factors: (i) the Company intends to
be in substantial compliance with the Statement of Policy Regarding Real Estate
Investment Trusts adopted by the North American Securities Administrators
Association, Inc. ("NASAA") which has a specific limitation on certain fees and
on the amount of the Company's operating expenses, including compensation to the
Advisor during the operating stage of the Company; (ii) the Advisor is aware of
other programs being offered in the marketplace and intends to structure its
business relationships so as to be competitive with such other programs; and
(iii) such agreements and arrangements are subject to approval by a majority of
the Company's Independent Directors.
Lack of Separate Representation
The Company, the Advisor and the principals of the Company and Advisor are
not represented by separate counsel. The Company is represented by the law firm
of Maun & Simon, PLC, Minneapolis, Minnesota, which has also acted and will
continue to act as counsel to the Company and various affiliates of the Advisor
with respect to other matters.
Shared Operations Facilities
The Company's operations are located in the leased offices of the Managing
Underwriter, American Investors Group, Inc., in Minnetonka (Minneapolis),
Minnesota. Although the growth of the Company may require it to relocate to
larger premises in the future, it is expected that the Company's operations will
continue to be housed in these or similar leased premises along with the
Managing Underwriter'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 the Managing Underwriter's parent corporation,
DRM Holdings, Inc.
DISTRIBUTIONS
The Company intends to make quarterly distributions to Shareholders in an
amount equal to at least 95% of the Company's "real estate investment trust
taxable income." Such amount will be estimated for the first three quarters of
each fiscal year and adjusted annually based upon the Company's audited year-end
financial report. Cash available for distribution to Shareholders will be
derived primarily from the interest portion of monthly mortgage payments
received from churches borrowing money from the Company, from origination and
other fees paid to the Company by borrowers in connection with such loans,
interest income from mortgage-backed securities issued by churches and other
non-profit religious organizations purchased and held by the Company for
investment purposes, and earnings on any Permitted Temporary Investments made by
the Company. All dividends will be paid by the Company at the discretion of the
Board of Directors and will depend upon the earnings and financial condition of
the Company, maintenance of real estate investment trust status, funds available
for distribution, results of operations, economic conditions, and such other
factors as the Board of Directors deems relevant. During the distribution of
Shares in this Offering, dividends paid to each investor in any quarter (and
year) will be pro-rated based on the number of days in such quarter (or year)
the Shares were issued and outstanding. Further, the capital of the Company
represented by the proceeds from the sale of the Shares will be held in money
market funds, U.S. government treasury obligations and similar Permitted
Temporary Investments pending application of such proceeds by the Company. The
relative yield generated by such capital during this period, and, thus,
dividends (if any) to Shareholders could be less than they are expected to be
once the Company has fully invested its capital in accordance with its business
plan.
19
<PAGE>
As of June 1, 1998, the Company had deployed approximately $6,286,000 in
net proceeds from the sale of Shares in its initial public offering and this
Offering, pre-existing capital and reinvested dividends in accordance with its
investment and operating strategy. The Company began making regular quarterly
distributions to its Shareholders for the period of operations ended June 30,
1996. Distributions to date and the annualized effective yield represented by
such distributions are as follows:
<TABLE>
<CAPTION>
For Quarter Ended: Distribution Date: Dollar Amount Distributed Annualized Yield Per
Per Share (2): Share Represented (2):
<S> <C> <C> <C>
June 30, 1996 July 30, 1996 $.1927(1) 9.25%
September 30, 1996 October 30, 1996 $.23125 9.25%
December 31, 1996 January 30, 1997 $.240625 9.625%
March 31, 1997 April 30, 1997 $.225 9.00%
June 30, 1997 July 30, 1997 $.22875 9.15%
September 30, 1997 October 30, 1997 $.2375 9.50%
December 31, 1997 January 30, 1998 $.25625 10.25%
March 31, 1998 April 30, 1998 $.23125 9.50%
</TABLE>
(1) Represents a 75 day operating quarter (April 15th to June 30th, 1996)
The Company intends to ameliorate to some extent the possibility of low
yields during the deployment of new capital 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. See "Business of the
Company." In order to qualify for the beneficial tax treatment afforded real
estate investment trusts by the 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. See "Federal Income Tax
Consequences - Taxation of the Company's Shareholders."
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. See "Business
of the Company - Investment Objectives for Mortgage Loans, Investment and
Certain Other Policies."
The Company has a dividend reinvestment plan (the "Plan") which allows
Shareholders to reinvest their dividends in Shares of Common Stock of the
Company. Under the Plan, the dividends due participating Shareholders are
deposited directly with Gemisys Corporation, Englewood, Colorado ("Gemisys"),
which combines the purchases of all participating Shareholders. There are no
brokerage fees or service charges incurred by Shareholders although any
brokerage fees paid on amounts reinvested by the Company are treated as dividend
income to the participating Shareholder. Shares held on behalf of a Shareholder
by Gemisys will be voted in the same way as the Shareholder votes by regular
proxy sent by the Company or by separate proxy sent by Gemisys. Shareholders can
also invest additional amounts, subject to certain minimums and maximums, on a
regular basis or from time to time and can terminate participation in the Plan
at any time. See "Description of Capital Stock -- Dividend Reinvestment
Program."
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998. See "Use of Proceeds" and "Financial Statements."
<TABLE>
<CAPTION>
March 31, 1998
(unaudited)
<S> <C>
Long Term Debt.................................................... $ - 0 -
--------
Shareholder's Equity (1)
Common Stock, $.01 par value per share; 30,000,000
shares authorized; issued and outstanding 692,092 shares...... 6,921
Additional Paid-In Capital ....................................... 6,308,639
Accumulated Deficit............................................... (64,284)
---------
Total Shareholder's Equity........................................ $ 6,251,276
---------
Total Capitalization.............................................. $ 6,251,276
=========
</TABLE>
- -------------------------------------
(1) Excludes 9,000 Shares which each Director and the President of the Advisor
(7 individuals) have an option to purchase, at a price of $10.00 per share,
pursuant to the Stock Option Plan for Directors and the Advisor, which vest
and are thus exercisable on or after November 15, 1995-1997 and expire
November 15, 1999-2001 (See "Management -- Warrants and Options" and
"Security Ownership of Management and Others"). See "Plan of Distribution."
Balance of page intentionally left blank
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the caption "Statement of
Operations Data" have been derived from the Company's audited financial
statements as of and for the years ended December 31, 1994, 1995, 1996 and 1997
and from the Company's interim unaudited financial statements for the three
month periods ended March 31, 1997 and 1998. The selected financial data under
the caption "Balance Sheet Data" have been derived from the Company's audited
financial statements at December 31, 1994, 1995, 1996 and 1997 and from the
Company's interim unaudited financial statements for the three month periods at
March 31, 1997 and 1998. The financial statements are included elsewhere in this
Prospectus. Reference is made to the financial statements, and notes thereto,
for a more detailed presentation of financial information.
<TABLE>
<CAPTION>
Period From Three Months Three Months
May 27, 1994 Year Ended Year Ended Year Ended Ended Ended
to December 31, December 31, December 31, December 31, March 31, March 31,
1994 1995 1996 1997 1997 1998
(unaudited) (unaudited)
Statement of Operations Data:
Revenues
<S> <C> <C> <C> <C> <C> <C>
Interest Income Loans ......... $- 0 - $- 0 - $ 152,259 $ 343,695 $61,244 $131,755
Interest Income Other ......... 731 4,436 20,729 24,519 7,170 8,281
Capital Gains Realized ........ - 0 - - 0 - - 0 - 4,298 1,007 1,194
Origination Income ............ - 0 - - 0 - 6,925 11,482 3,033 4,410
Income Other Sources .......... - 0 - - 0 - - 0 - 124 - 0 - - 0 -
Escrow Interest Income ........ - 0 - - 0 - 37,477 - 0 - - 0 - - 0 -
----- ----- -------- -------- ------- --------
Total Revenues .................. 731 4,436 217,390 384,118 72,454 145,640
Operating Expenses
Professional Fees ............. 1,404 - 0 - 8,411 8,065 1,230 14,968
Director Fees ................. 2,000 - 0 - 1,600 2,400 800 800
Amortization .................. 177 303 303 303 76 76
Escrow Interest Expense ....... - 0 - - 0 - 37,274 - 0 - - 0 - - 0 -
Advisory Fees ................. - 0 - - 0 - 11,825 17,545 - 0 - - 0 -
Other ......................... 1,672 5,456 12,591 7,991 1,752 2,318
----- ----- -------- -------- ------- --------
Total Expenses .................. 5,253 5,759 72,004 36,304 3,858 18,162
Provision for(Benefit From)
Income Taxes ................... (20,000) (13,000) 5,000
Net Income (loss) .............. $ (4,522) $(1,323) $165,386 $360,814 $63,596 $127,478
====== ====== ======= ======= ====== =======
Income(loss)per Common Share..... $ (.23) $ (.07) $ .79 $ .91 $ .18 $ .22
Weighted Average Common
Shares Outstanding (1) ........ 20,000 20,000 209,072 398,160 361,677 591,640
Dividends Declared $ ........... $ - 0 - $ - 0 - $ 80,424 $127,899 $81,377 $ 142,743
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, March 31, March 31,
1994 1995 1996 1997 1997 1998
Balance Sheet Data:
Assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents............. $ 149,023 $ 135,282 $ 612,744 $ 291,815 $ 511,894 $1,080,850
Current Maturities of Loans Receivable - 0 - - 0 - 55,436 103,505 56,982 114,819
Loans Receivable, net of current maturities - 0 - - 0 - 2,605,388 4,808,803 2,709,948 5,367,610
Bonds Receivable........... - 0 - - 0 - 120,640 125,809 121,647 131,722
Prepaid Expense............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Deferred Offering Costs.... 59,916 107,295 - 0 - - 0 - - 0 - - 0 -
Deferred Tax Asset......... - 0 - - 0 - 20,000 33,000 15,000 33,000
Organizational Expenses (net) 1,339 1,071 769 464 692 389
-------- ------- --------- --------- --------- --------
Total Assets: $ 210,278 $ 243,648 $3,414,977 $5,363,396 $3,416,163 $6,728,390
======== ======= ========= ========= ========= =========
Liabilities and Shareholder's Equity:
Accounts Payable........... $ 14,800 $ 49,493 $ 8,482 $ 15,490 $ 1,699 $ 248,425
Deferred Income............ - 0 - - 0 - 45,930 78,428 42,897 85,946
Dividends Payable.......... - 0 - - 0 - 80,424 127,899 81,377 142,743
Shareholder's Equity (net of deficit
accumulated during development stage) 195,478 194,155 3,280,141 5,141,579 3,290,190 6,251,276
------- ------- --------- --------- --------- ---------
$ 210,278 $ 243,648 $3,414,977 $5,363,396 $3,416,163 $6,728,390
======= ======= ========= ========= ========= =========
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plan of Operation
The Company was founded in May 1994, began a "best efforts" offering of
its common stock on July 11, 1995, and commenced active business operations on
April 15, 1996 after completion of the "Minimum Amount" in its initial public
offering (described below). Consequently, for the years ended December 31, 1994
and 1995, the Company had no operating revenues, and expenses were limited to
organizational and offering-related costs.
On July 11, 1995, the Securities and Exchange Commission declared
effective the Company's offering of 2,000,000 common shares at a price of $10.00
per share. The Company achieved the Minimum Offering of at least 200,000 shares
($2,000,000) sold to not less than 100 individuals (the "Minimum Offering") on
April 15, 1996. Until the Minimum Offering was achieved, the Company could not
commence its active business of making mortgage loans to churches. Consequently,
business operations from inception (May 27, 1994) to completion of the Minimum
Offering (April 15, 1996) were limited to daily business organizational efforts,
activities relating to the offering, reviewing potential candidates for church
mortgage loans to be made by the Company once the Minimum Offering was achieved,
and conducting informational meetings with brokers and broker-dealers identified
to the Company by the Dealer/Manager--American Investors Group, Inc.
("American"), an affiliate of the Company. The Company concluded its initial
public offering on November 8, 1996. As of such date the Company had sold
335,481 shares to approximately 281 individuals, not including 20,000 shares
($200,000) previously purchased by the Company's initial shareholder -- DRM
Holdings, Inc., an affiliate of the Company.
On September 26, 1997, the Securities and Exchange Commission declared
effective the Company's second public offering of 1,500,000 common shares at a
price of $10.00 per share ($15,000,000) under SEC File 33-87570. The Offering is
currently being co-underwritten by American Investors Group, Inc. and LaSalle
St. Securities, Inc., ("LaSalle"). American is the Managing Underwriter and is
an affiliate of the Company. This Offering is being conducted on a"best-efforts"
basis pursuant to applicable rules of the Securities and Exchange Commission and
will terminate no later than September 26, 1998, subject to extension by mutual
agreement of the Company and the Managing Underwriter for an additional 120
days, or until completion of the sale of all Shares, whichever first occurs. As
of June 1, 1998 the Company has sold a total of 774,661 shares of its common
stock.
Between the date upon which the Company began active business
operations (April 15, 1996), and June 1, 1998, the Company has made loans to
eighteen churches in the aggregate amount of $6,286,000, with the average size
being $349,000. The Company has also purchased in the secondary market for
$58,253 (which includes $407 in accrued interest) First Mortgage Church Bonds in
the face amount of $65,300 and purchased for $72,800 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 this offering;
(ii) prepayment and repayment at maturity of existing loans; (iv) borrowed
funds; and (v) dividends reinvested under the Company's Dividend Reinvestment
Plan.
Results of Operation
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. Between the date upon which the Company
began active business operations and December 31, 1996, the Company made loans
to seven churches in the aggregate amount of $2,802,000, with an average loan
size being $400,000. The Company 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 purchased for $72,800 Second Mortgage Church
Bonds in the face amount of $100,000. As of December 31, 1997, the Company
completed its first full fiscal year of operations. During the fiscal year
ending December 31,1997 the Company funded an additional five first mortgage
loans and three second mortgage loans to churches for an aggregate amount of
$2,665,712 and purchased $2,000 principal amount of First Mortgage Church Bonds
for a purchase price of $871. All loans made by the Company range in interest
rate charged to the borrowers from 9.75% for annually adjustable 20-year
amortized loans, to 11.25% for fixed interest rate 15-year amortized loans, to
12.00% for a two-year interim loan. As of December 31, 1997, the average,
principal-adjusted interest rate on the Company's portfolio of loans was 11.15%.
The Company's portfolio of bonds has an average current yield of 11.20% . During
the three months ended March 31, 1998, the Company continued to deploy invested
assets, making four loans in the aggregate amount of $1,285,000.
23
<PAGE>
Net operating income for the Company's fiscal year ended December 31,
1997 was $360,814 on total revenues of $384,118 compared to $165,386 for the
year ended December 31, 1996. For the three months ended March 31, 1998 net
operating income was $127,478 on total revenues $145,640 compared to net
operating income of $63,596 on total revenues of $72,454 for the three months
ended March 31, 1997. Interest income earned on the Company's portfolio of loans
was $343,695 for the year ended December 31, 1997 compared to $152,259 for the
previous year, reflecting the fact that the eight new loans were originated
during 1997. Excluded from revenue for the year ended December 31, 1997 is
$42,480 of origination income, or "points," received by the Company, recognition
of which under generally accepted accounting principles ("GAAP") must be
deferred over the expected life of each loan. However, under tax principles,
origination income is recognized in the period received. Accordingly, because
the status of the Company as a real estate investment trust requires, among
other things, the distribution to shareholders of at least 95% of "Taxable
Income," the dividends declared and paid to Shareholders for the quarters ended
March 30, 1997, June 30, 1997, September 30, 1997 and December 31, 1997 included
origination income even though it was not recognized in its entirety for the
period under GAAP.
The Company's Board of Directors declared quarterly dividends of $.2250
for each share held of record on March 31, 1997, $.22875 for each share held of
record June 30, 1997, $.2375 for each share held of record September 30, 1997,
$.25625 for each share held of record on December 31, 1997 and $.23125 for each
share held of record on March 31, 1998. During the Company's public offering,
dividends are computed and paid to each Shareholder based on the number of days
during a quarter that the Shareholder owns his or her shares. Based on the five
quarters of operations for the quarters ended March 31, 1997, June 30, 1997,
September 30, 1997, December 31, 1997 and March 31, 1998, the dividends paid
represented a 9.00%, 9.15%, 9.50%, 10.25% and 9.50% annualized yield to
Shareholders respectively. Total dividends paid in 1997 represented a 9.48%
annual rate of return on each share of common stock owned and purchased for $10
per share.
Total assets of the Company increased from $3,414,977 as of December
31, 1996 to $5,363,396 as of December 31, 1997 to $6,728,390 as of March 31,
1998, primarily as a result of the sale and issuance of the Company's common
stock pursuant to its second public offering, the proceeds of which are deployed
into new mortgage loans, church bonds purchased in the secondary and/or primary
market, and cash and cash equivalent money market obligations as cash became
available through sale of Shares or otherwise. Shareholders' Equity rose from
$3,280,141 at December 31, 1996 to $5,141,579 at December 31, 1997 and to
$6,251,276 at March 31, 1998 for the same reasons. Company liabilities for all
periods after December 31, 1995 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. Another material liability for all periods after December 31,
1995 includes dividends declared as of the end of the period reported on but not
yet paid.
During the three-month period ended March 31, 1998 total assets of the
Company increased by $1,364,994 due primarily to the continued public sale of
the Company's common stock. Total liabilities increased by $255,297 due to
deferred income and dividends declared but not yet paid as of March 31, 1998.
During the three-month period ending March 31, 1998 the Company funded one
additional first mortgage loan and one second mortgage loan to churches of
$245,000 and $350,000 respectively. In addition, the Company purchased $5,000
principal amount of First Mortgage Church Bonds for a purchase price of $4,750.
All loans made by the Company range in interest rate charged to the borrowers
from 9.75% for annually adjustable, 20 year amortized loans, to 11.25% for fixed
15 year amortized loans, to 12.00% for a two-year interim loan. As of March 31,
1998, the average, principal-adjusted interest rate on the Company's portfolio
of loans was 11.18%. The Company's portfolio of bonds has an average current
yield of 12.26% .
Net operating income for the Company's three-month period ended March
31, 1998 was $127,478 on total revenues of $145,640. Interest income earned on
the Company's portfolio of loans was $131,755. Excluded from revenue for the
three-month period ended March 31, 1998 is $11,715 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 paid to
Shareholders for the quarter ended March 31, 1998 included origination income
even though it is not recognized in its entirety for the period under GAAP.
Total assets of the Company at March 31, 1997 increased $312,227 to
$6,728,390 at March 31, 1998 primarily as a result of the continued public sale
and issuance of the Company's common stock pursuant to its current public
offering, the proceeds of which were deployed into new mortgage loans, church
bonds purchased in the secondary market, and cash and cash equivalent money
market obligations. Shareholders' Equity rose from $3,290,190 at March 31, 1997
to $6,251,276 at March 31, 1998 for the same reason. Company liabilities at the
end of the three-month periods ended March 31, 1997 and
24
<PAGE>
1998 are primarily comprised of (i) "Deferred Income," 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
(ii) dividends declared as of March 31, 1998 but not yet paid.
Liquidity and Capital Resources
The Company's revenue is derived principally from interest income, and
secondarily, origination fees and renewal fees generated by mortgage loans that
it makes. 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
are Advisory Fees, legal and accounting fees, communications costs with its
Shareholders, and the expenses of its stock transfer agent, registrar and
dividend reinvestment agent.
The Company's future capital needs are expected to be met by (i)
additional sale of its shares to the public (ii) prepayment, repayment at
maturity and renewal of mortgage loans made by the Company, and (iii) borrowed
funds. The Company believes that the "rolling" effect of mortgage loans
maturing, together with dividends reinvested under the Company's Dividend
Reinvestment Plan, will provide a supplemental source of capital to fund its
business operations in future years. Nevertheless, the Company believes that it
may be desirable, if not necessary, to sell additional shares of common stock in
order to enhance its capacity to make mortgage loans on a continuous basis.
There can be no assurance that the Company will be able to raise additional
capital on terms acceptable for such purposes. Although the Company may borrow
funds in an amount not to exceed 50% of its Average Invested Assets in order to
increase its lending capacity, it has no present intention of doing so, nor has
it secured a source for such borrowing. The Company does not believe that
inflation at the national level as experienced over the past three years has
made a material impact upon its operations, nor does it believe that currently
anticipated levels of inflation in 1998 would have a material impact on its
business. Nevertheless, if the rate of inflation increased materially, the
Company could reasonably expect interest rates generally to increase, thus
possibly making the yield to investors in the Shares less attractive as compared
to alternative fixed-income investments. Conversely, if the rate of inflation
decreases materially, it could reasonably be expected that interest rates
generally would decline or remain at current levels. A decline in interest rates
generally would require the Company to offer lower rates to borrowers which, in
turn, would eventually result in lower yields to investors in the Shares.
BUSINESS OF THE COMPANY
General
The Company was incorporated as a Minnesota corporation on May 27, 1994
to become a REIT for the purpose of engaging in the business of making mortgage
loans to churches and other non-profit religious organizations. As of June 1,
1998, the Company had made loans to eighteen churches in the aggregate amount of
$6,286,000, with the average size being $349,000 and had purchased in the
secondary market for $72,805 a second mortgage church bond in the principal face
amount of $100,000 and for $57,846 five first mortgage bonds in the principal
face amount of $65,300. See "Properties of the Company." The Company makes loans
throughout the United States in principal amounts limited in range from $100,000
to $1,000,000. The Company may invest up to 30% of its Average Invested Assets
in mortgage-secured debt securities (bonds) issued by churches and other
non-profit religious organizations. The Company has been actively engaged in the
business of making such loans or investing since April 15, 1996, but intends to
continue lending funds and acquiring mortgage secured investments pursuant to
its business plan as additional funds for such purposes become available from
the sale of Shares in this Offering, and thereafter as funds from loan
repayments, bond maturities, Dividend Reinvestment Plan funds and other
resources become available for such purpose.
The Company's Business Activities
The Advisor's affiliate, American Investors Group, Inc. (the "Managing
Underwriter" or "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,
25
<PAGE>
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 34 years in this business. Since its inception through June 1,
1998, American had underwritten approximately 130 church bond financings, in
which approximately $186 million in first mortgage bonds have been sold to
public investors. The average size of church bond financings underwritten by
American since its inception is approximately $1.43 Million. See "Appendix I,
Table III."
In the course of its business, American 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 bond 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. The Company provides 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 making first mortgage loans in
amounts ranging from $100,000 to $1,000,000, to churches and other non-profit
religious organizations, 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 and bonds to 20% of the Company's
Average Invested Assets on the date any second mortgage loan is closed (or bond
is purchased) 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 attempts to make mortgage loans for terms of short (0-5 years) or
medium (5-15 years) duration, and/or with variable interest rate provisions, it
may make longer-term fixed-rate loans in its discretion in order to reduce the
risk to the Company of downward interest rate fluctuations.
The Company's lending and investing operations, including determination
of a prospective borrower's or church bond issuer's financial credit worthiness,
are made on behalf of the Company by the Advisor. The Company has no employees.
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 and one-half of any origination fee charged to borrowers on
mortgage loans made by the Company. See "The Advisory Agreement" and
"Compensation to Advisor and Affiliates."
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:
26
<PAGE>
<TABLE>
<CAPTION>
Loan Type Interest Rate (1) Origination Fee (2)
<S> <C> <C>
15 Year Term (3) Fixed @ Prime + 2.75% 4.0%
20 Year Term (3) Variable Annually @ Prime + 1.25% 3.0%
Renewable Term (4) Fixed @ Prime plus:
3 Year 1.75% 3.5%
5 Year 2.00% 3.5%
7 Year 2.25% 3.5%
Construction 1 Year Term Fixed @ Prime + 3.50% 2.0%
================================= ================================= ===================
</TABLE>
(1) "Prime" means the prime rate of interest charged to preferred customers, as
published by a federally chartered bank chosen 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 "Compensation to
Advisor and Affiliates."
(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 a specified
percentage "spread," i.e., two percent (2%).
The above table describes certain of the 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.
Balance of page intentionally left blank
27
<PAGE>
Property (Portfolio) of the Company
As of June 1, 1998, the Company has funded fifteen first mortgage loans
aggregating $5,626,000 in principal amount, three second mortgage loans
aggregating $660,000 in principal amount, and purchased $100,000 principal
amount of second mortgage bonds and $65,300 principal amount first mortgage
bonds issued by churches. The table below identifies the borrowing institutions,
and certain key terms of the loans currently comprising the Company's loan
portfolio.
<TABLE>
<CAPTION>
Borrowing Church Loan Loan Interest Collateral Funding Date
Amount Term Rate Appraised Value
<S> <C> <C> <C> <C> <C>
Middlebury Chapel $262,000 20 years 9.25% Variable $410,000 4/24/96
Landmark Apostolic $290,000 5 years 10.75% Fixed $650,000 4/25/96
Church
Hope Chapel $460,000 5 years 10.50% Fixed $660,000 4/30/96
Fountain of Life Church $375,000 15 years 11.25% Fixed $500,000 5/15/96
River of Life Church $425,000 7 years 11.25% Fixed $600,000 5/06/96
Oak Hill Baptist Church (1) $600,000 15 years 11.25% Fixed $800,000 7/02/96
Chesapeake Christian Ctr. $490,000 5 years 11.00% Fixed $850,000 10/30/96
Star of Bethlehem $100,000 2 years (2) 15.00% Fixed $2,775,000 05/09/97
(Second Mortgage Loan)
Christ Community $310,000 15 years 11.25% Fixed $440,000 06/27/97
Evangelistic Church
Evangel Temple $312,000 15 years 11.25% Fixed $560,000 11/13/97
Zion Dominion C.O.G.I.C. $390,000 15 years 11.25% Fixed $774,000 10/15/97
Faith Outreach Int'l $270,000 5 years 11.50% Fixed $4,100,000 10/15/97
(Second Mortgage Loan)
St. Luke's Pentecostal $207,000 5 years 10.75% Fixed $277,000 12/04/97
Bethlehem Temple, Rialto $290,000 5 years (3) 12.00% Fixed $2,375,000 12/24/97
(Second Mortgage Loan)
United Baptist Church $350,000 5 years (3) 12.00% Fixed $2,500,000 03/09/98
(Second Mortgage Loan)
Praise Tabernacle Baptist $245,000 5 years 10.75% Fixed $375,000 03/30/98
Agape Ministries $300,000 5 years 10.50% Fixed $400,000 05/07/98
Freewill Christian Center $390,000 3 years 10.25% Fixed $797,000 05/19/98
</TABLE>
(1) Includes an initial loan in the amount of $500,000 and an additional
supplemental loan of $100,000 funded in August 1997. (2) Denotes a two year
interest-only loan. Interest rate adjusts to 12% per annum when mortgage is
recorded in the State of New York. (3) Denotes a five year balloon loan. All
principal is due and payable at the end of the five year period.
28
<PAGE>
The following mortgage-secured bonds have been purchased by the Company:
<TABLE>
<CAPTION>
Issuer Principal Company Face Yield to Current Maturity Original
Amount Purchase Yield of Maturity Yield Date Issue
Price Bonds Date
<S> <C> <C> <C> <C> <C> <C> <C>
Resurrection Life $100,000 $ 72,800 8.50% 16.79% 11.68% 05/15/01 05/15/94
Ministries
First Baptist $ 25,000 $ 23,000 9.45% 10.625% 10.27% 04/01/09 04/01/94
Church of Hampton
Church of Jesus $ 25,000 $ 23,000 9.55% 10.683% 10.38% 06/01/10 06/01/94
Christ
Palm Beach Cathedral $ 2,000 $ 871 7.75% 19.63% 17.80% 01/25/12 01/25/97
Sweetwater Church $ 5,000 $ 4,750 10.70% 15.355% 11.26% 06/01/99 12/01/86
of the Valley
First Presbyterian $ 8,300 $ 6,225 7.00% 10.472% 9.33% 01/25/12 07/25/89
Church
</TABLE>
The Resurrection Life Ministries bonds, which are secured by a second
mortgage, were purchased at a discount from one of the Company's Independent
Directors. Resurrection Life Ministries, Eden Prairie, Minnesota, issuer of
these bonds, has also issued and sold through the Managing Underwriter $525,000
principal amount of its First Mortgage bonds. The Issuer's First Mortgage Bonds
and its $100,000 principal amount of Second Mortgage bonds, which are now owned
by the Company, are secured by the Issuer's worship facilities, appraised at
$725,000 in 1994. The Second Mortgage Bonds are due May 15, 2001. However, the
Issuer can extend their maturity until 2014, whereupon the interest rate as such
will change from 8.50% to the then prevailing prime rate of interest plus 3.25%.
The Issuer is current on it obligations with respect to the bonds purchased by
the Company. See "Certain Relationships and Transactions with Management."
The First Baptist Church of Hampton and Church of Jesus Christ bonds, which
are secured by a first mortgage, were purchased from the Managing Underwriter in
the secondary market. There can be no assurance that a secondary market for
resale of the Bonds will be available in the future, and therefore, the Company
purchased the bonds to retain them until maturity or redemption by the Church.
The First Baptist Church of Hampton, issued $2,600,000 First Mortgage
Bonds in 1993 and $740,000 additional First Mortgage Bonds in 1994. The bonds
are secured by a first mortgage on the Church's real property appraised at
$5,995,000. The Church of Jesus Christ, Inc., issued $1,735,000 first mortgage
bonds in 1994. The bonds are secured by a first mortgage on the Church's worship
facility appraised at $2,165,000 and a residence owned by the Church appraised
at $152,000.
The Company's policies limit the aggregate amount of second mortgage loans
and second mortgage bonds to 20% of the Company's Average Invested Assets on the
date any second mortgage bond is purchased and limit the amount of
mortgage-secured debt securities to 30% of Average Invested Assets on the date
of their purchase. As of June 1, 1998 the percentage of Average Invested Assets
in second mortgage loans and bonds and the percentage invested in
mortgage-secured debt securities was 16.08% and 2.08% respectively.
Mortgage Loan Processing and Underwriting
Mortgage loan applications are processed 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 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
29
<PAGE>
applications, together with a written summary are then presented to the
Company's Underwriting Committee comprised of the Advisor's President, the
Advisor's Vice-President, the Company's Vice President, and the Director of
Underwriting of the Managing Underwriter. 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. See "Proposed First Mortgage Loan Terms," "Compensation to Advisor and
Affiliates" and "Conflicts of Interest."
Loan Commitments
Subsequent to approval by the Company's Underwriting Committee, and prior
to funding a loan, the Company issues a loan commitment to qualified applicants.
A 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 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
recording of mortgage documents; collecting principal and interest payments
regularly and upon the maturity of a loan; enforcing loan terms and other
borrower'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 on-going 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) are 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. In obtaining
such a line of credit, the Company may assign one or more of its mortgages
and/or mortgage-secured bonds to a lender as collateral. 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 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.
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 prospective investors in the Shares not only the general business
in which the Company is involved, but the parameters of the Company's lending
business. These policies
30
<PAGE>
apply to all mortgage loans made by the Company and 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 are limited to churches and other
non-profit religious organizations, and will be secured by
mortgages. The total principal amount of all second mortgage loans
and bonds funded by the Company is limited to 20% of Average
Invested Assets. All other loans will be first mortgage loans.
(ii) The loan amount cannot exceed 75% of the value of the real estate
and improvements securing each loan, such value being determined
based on a written appraisal prepared by an appraiser acceptable
to the Advisor. On loans over $500,000, the Company will require a
written appraisal certified by a member of the Appraisal Institute
("MAI"), or a state-certified appraiser.
(iii) An ALTA (American Land Title Association) or equivalent Mortgagee
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 of $500,000 or less, 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).
In addition, the Company requires that a borrower maintain at all times
during the loan a general perils and liability coverage insurance policy naming
the Company as a co-insured in connection with damage or destruction to the
property of the borrower, which typically includes damage caused by fire, flood,
vandalism and theft. In its discretion, the Advisor may require the borrower to
provide earthquake and/or other special coverage.
These Financing Policies are in addition to the prohibited investments and
activities identified hereinafter and which are set forth in the Company's
Bylaws.
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;
31
<PAGE>
(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;
(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 Prospectus, 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
32
<PAGE>
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. See "Conflicts of Interest."
Policy Changes
The Bylaw relating to policies, prohibitions and restrictions referred to
under "Business of the Company - Prohibited Investments and Activities" above
may not be changed (except in certain immaterial respects by a majority approval
of the Board of Directors) without the approval of a majority of the Independent
Directors and the approval of the holders of a majority of the Company's Shares,
at a duly held meeting for that purpose.
Competition
The real estate financing industry generally is highly competitive. The
Company competes 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 is managed by the Advisor using
employees of the Advisor and/or its Affiliates. All business functions are
provided to the Company by the Advisor. At present, certain officers and
directors of American and the Advisor are providing services to the Company at
no charge to the Company and which will not be reimbursed by the Company. These
services include, among others, legal and analytic services relating to the
implementation of the Company's business plan, preparation of this Prospectus
(and Registration Statement of which this Prospectus is a part) 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 which is owned by V. James Davis, David G. Reinhart and Philip
J. Myers, officers and directors of the Company and directors of the Advisor.
See "Conflicts of Interest" and "The Advisor and the Advisory Agreement." Philip
J. Myers is President of the Advisor. The Advisor is not a registered advisor
under the Investment Advisors Act of 1940, nor is the Company a registered
investment company under the Investment Company Act of 1940. As of the date of
this Prospectus, the Advisor employs two 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.
Operations
The Company's operations are located in the 8,400 square foot offices of
the Managing Underwriter, American Investors Group, Inc., 10237 Yellow Circle
Drive, Minnetonka, Minnesota 55343. These facilities are owned by DRM Holdings,
Inc. (an affiliate of the Managing Underwriter) and 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. Payments to the Advisor under the Advisory Agreement are intended, at
least in part, to cover the general costs of such facilities, equipment and
services used on a ratable basis by and on behalf of the Company. The Company
will not reimburse the Advisor for these expenses. 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. See "The
Advisor and the Advisory Agreement" and "Conflicts of Interest."
33
<PAGE>
MANAGEMENT
General
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. Annual Shareholder Meetings are typically held
in May. 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 45 Vice President, Secretary and Director 1994
Kirbyjon H. Caldwell 45 Independent Director 1994
Robert O. Naegele, Jr. 57 Independent Director 1994
Dennis J. Doyle 46 Independent Director 1994
John M. Clarey 56 Independent Director 1994
</TABLE>
V. James Davis, has been the President and a Director of the Company since
its inception. From November 1986 to October 1996 he served as President and a
Director of the Managing Underwriter, American Investors Group, Inc. 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 Directors
of the Managing Underwriter, American Investors Group, Inc., a Director and
Officer of the Advisor, and President, director and shareholder of DRM Holdings,
Inc. ("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 currently acts as
counsel for the Managing Underwriter. 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 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. Mr. Naegele served as CEO of Naegele Outdoor
Advertising in Minneapolis, St. Paul, Minnesota until 1982. From 1986 to 1995,
Mr. Naegele served as Chairman of Rollerblade, Inc., Minnetonka, Minnesota. He
currently serves on the Board of Ragan Advertising Company in Moline, Illinois
and Davenport, Iowa. 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.
34
<PAGE>
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. See "The Advisor and 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 the Advisor and affiliates of the Company. See "Compensation to Advisor and
Affiliates." 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. 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 Managing Underwriter.
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.
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. See "Conflicts of
Interest." The Directors and officers are nevertheless not relieved of their
duties of loyalty to the Company and its Shareholders. The Directors may be
removed by a majority vote of all Shares outstanding and entitled to vote at any
annual meeting or special meeting called for such purpose.
Executive Compensation
The Company has officers and directors, but no employees as the operations
and business of the Company are conducted by the Advisor. Officers of the
Company are not compensated other than through their interest in the Advisor and
affiliates of the Company. For the year ended December 31, 1997 the Company paid
the Advisor Advisory Fees of $17,545 and Advisor Loan Origination Fees of
$43,980, for total compensation of $61,525. The Advisor voluntarily waived
$23,119 in Advisory Fees in 1997. For the three month period ended March 31,
1998 the Company paid the Advisor Advisory Fees of $14,130 and Advisor Loan
Origination Fees of $11,900 for total compensation of $26,030. See "Compensation
to Advisor and Affiliates" and "Certain Relationships and Transactions with
Management."
35
<PAGE>
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. In 1997, the
Independent Directors (four in number) were paid a total of $2,400 in director's
fees. 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. See "Management
- -- Warrants and Options."
Fiduciary Responsibility of Board of Directors; Indemnification
The Board of Directors and the Advisor are accountable to the Company and
its Shareholders as fiduciaries and consequently must exercise good faith and
integrity in handling the Company's affairs. Similarly, the Advisor has
contractual obligations to the Company which it must discharge with the utmost
good faith and integrity. This is a rapidly developing and changing area of the
law, and Shareholders who have questions concerning the duties of the directors
should consult with their own counsel. The Company's Articles require the
Company to indemnify and pay or reimburse reasonable expenses to any individual
who is a present or former Director, officer, employee or agent of the Company,
provided that: (i) the Director, Advisor or other party seeking indemnification
has determined, in good faith, that the course of conduct which caused the loss
or liability was in the best interest of the Company; (ii) the Director, the
Advisor or other person seeking indemnification was acting on behalf of or
performing services on the part of the Company; (iii) such liability or loss was
not the result of negligence or misconduct on the part of the indemnified party,
except that in the event the indemnified party is or was an Independent
Director, such liability or loss shall not have been the result of gross
negligence or wilful misconduct; and (iv) such indemnification or agreement to
be held harmless is recoverable only out of the assets of the Company and not
from the Shareholders. The Company may advance amounts to persons entitled to
indemnification for legal and other expenses and costs incurred as a result of
legal action instituted against or involving such person if: (i) the legal
action relates to the performance of duties or services by the indemnified party
for or on behalf of the Company; and (ii) the indemnified party receiving such
advances undertakes, in writing, to repay the advanced funds to the Company,
with interest at the rate determined by the Company, in cases in which such
party would not be entitled to indemnification; provided, however, that the
Board of Directors may deny the payment of advances to a non-Independent
Director if a majority of the Independent Directors shall determine, in the
exercise of their reasonable discretion, that the non-Independent Director
seeking advances would not be entitled to indemnification. Subject to the
limitations described above, the Company shall have the power to purchase and
maintain insurance on behalf of an indemnified party. The Company may procure
insurance covering its liability for indemnification. The indemnification
permitted by the Articles of the Company is more restrictive than would be
allowed under the Minnesota Business Corporation Act.
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, 1995 and 1996 the Company issued
options under the Option Plan to each of the six Directors and the President of
the Advisor, to purchase 3,000 shares each (an aggregate of 63,000 shares) at a
price of $10 per share. These options vest and are thus exercisable beginning
November 15, 1995 through 1997 and expire November 15, 1999 through 2001.
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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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth as of the date of this Prospectus, certain
information regarding beneficial ownership of the Company's Shares, as adjusted
to give effect to the issuance of the Shares offered hereby, by (i) each person
known by the Company to be the beneficial owner of 5% or more of the outstanding
Shares; (ii) each Director and Executive Officer of the Company; and (iii) all
Directors and Officers of the Company as a group. The percentage of Shares
outstanding before and after the Offering is calculated separately for each
person and excludes, for purposes of the calculation, any Shares issuable upon
exercise of options issued under the Company's Stock Option Plan for Directors
and the Advisors. Unless otherwise noted, each of the following persons has sole
voting and investment power with respect to the Shares set forth opposite their
respective names.
<TABLE>
<CAPTION>
Percent of
Shares Outstanding
Number of Shares As of After
Name of Beneficial Owner (1) Beneficially Owned (2) June 1, 1998 Offering (5)
<S> <C> <C> <C>
Iron Workers Local #498.................... 72,129 (3) 9.31% 3.92%
David G. Reinhart ......................... 10,420 (4) 1.35% .56%
Robert O. Naegele, Jr...................... 5,000 .64% .27%
V. James Davis............................. 1,137 .15% .06%
Kirbyjon H. Caldwell....................... ---- ---- ----
Dennis J. Doyle............................ ---- ---- ----
John M. Clarey............................. ---- ---- ----
All Executive Officers and Directors
as a Group (five individuals)......... 16,557 2.14% .89%
--------------------------------------------------
</TABLE>
(1) The address for the Directors is 10237 Yellow Circle Drive, Minnetonka,
Minnesota 55343.
(2) Excludes 9,000 Shares which each Director and the President of the
Advisor have an option to purchase pursuant to the Stock Option Plan
for Directors and the Advisor, which options vest beginning November
15, 1995 and expire beginning November 15, 1999. See "Management --
Warrants and Options."
(3) As of the date of this Prospectus, the Iron Workers Local 498 Pension
Plan and Iron Workers Local 498 Health and Welfare Fund, 4749 W.
Lincoln Drive, Suite 202, Matteson Illinois 60443, owns collectively
72,129 Shares. It is anticipated, but not assured, that this investor
will continue to purchase shares in this Offering. In such event, its
percentage of Shares outstanding after the Offering would be greater
than that indicated in the table above. This beneficial owner may not
own more than 9.8% of the Shares outstanding at any time during or
after the Offering. See "Repurchase of Shares and Restrictions on
Transfer."
(4) 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 ($10.00 per share). These
shares are "restricted securities" and may not be sold, transferred or
assigned without compliance with state and federal rules and
regulations governing the transfer of securities considered
"restricted," and may be further subject to additional restrictions
imposed by states in which the Shares in this Offering are being
offered. 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. Mssrs. Reinhart and Myers are also directors of
the Advisor and of the Managing Underwriter. 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 9,580 shares (2.67% before Offering
and .52% after Offering). See "Management" and "Conflicts of Interest."
(5) Assumes sale of all 1,500,000 Shares offered hereby.
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
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 by V.
James Davis, David G. Reinhart and Philip J. Myers. Mssrs. Davis and Reinhart
are officers and Directors of the Company. Mssrs. Reinhart and Myers are also
shareholders, officers and directors of DRM Holdings, Inc, which owns American
Investors Group, Inc. (the "Managing Underwriter"). Mssrs. Reinhart and Myers
together own all of the total outstanding common stock of DRM Holdings, Inc. As
of the date of this Prospectus, the Advisor employed, directly or otherwise, two
persons on a part-time basis, including Philip J. Myers, President and Scott J.
Marquis, Vice President.
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<PAGE>
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. As of March 31, 1998, the Company
paid in 1998 to the Advisor total Advisory Fees in the amount of $14,130 and the
Advisor received Advisor Loan Origination fee income of $11,900. In 1997, the
Company paid to the Advisor total Advisory Fees in the amount of $17,545, and
the Advisor received Advisor Loan Origination Fee income of $43,980. The Advisor
voluntarily waived $23,119 in Advisory fees in 1997. Those Advisory Fees were
waived by recommendation by the Advisor to the Board of Directors because of
offering and related expenses incurred by the Company in its incipient period of
operations and the Advisor's desire to lessen the impact of such expenses on the
Company's operations, and because a material portion of the Company's assets had
not yet been invested in mortgage loans and/or church bonds--thus reducing the
Advisor's day-to-day operational activities. The waiver of fees by the Advisor
was entirely voluntary and may not again occur. The Company believes that the
terms of the Advisory Agreement are no less favorable to the Company than if it
had been entered into between the Company and an independent third party as
advisor. See "The Advisory Agreement" below.
Pursuant to the Underwriting Agreement, the Company will pay the
Underwriters a sales commission equal to 5.95% of the gross amount of sales of
the Shares in this Offering, plus a non-accountable expense reimbursement of up
to $133,000, assuming all the Shares are sold. See "Plan of Distribution." The
Managing Underwriter is an affiliate of the Advisor. The Company believes that
the terms of the Underwriting Agreement are no less favorable to the Company
than if it had been entered into between the Company and an independent third
party as underwriter. The following table sets forth the name and positions of
certain officers and all directors of the Managing Underwriter:
<TABLE>
<CAPTION>
Name Position
<S> <C> <C>
Philip J. Myers President, Secretary and Director
Scott J. Marquis Vice President
David G. Reinhart Chairman of the Board of Directors
</TABLE>
In the course of its business, it is expected that the Company will
purchase church bonds being underwritten and sold by American. Although the
Company would not pay any commissions, American may benefit from such purchase
as a result of commissions paid to it by the issuer of such bonds. American also
may benefit from mark-ups on bonds bought from it and mark-downs on bonds sold
through it by the Company on the secondary market. Any church bonds purchased by
the Company will be purchased for investment purposes only at the public
offering price. Church bonds purchased in the secondary market, if any, will be
purchased at the best price available, subject to customary markups (or in the
case of sales --markdowns), on terms no less favorable than those applied to
other customers of American, and would not exceed industry standards or in any
event (in the case of mark-ups and mark-downs on secondary bond sales and
purchases) exceed five percent of the principal amount of bonds purchased or
sold. Principals of the Company and the Advisor may receive a benefit in
connection with such transactions due to their affiliation with the Managing
Underwriter. It is the policy of the Company not to invest in excess of 30% of
its Average Invested Assets in church bonds. All future transactions between the
Company and its officers, directors and affiliates will be approved, in advance,
by a majority of the independent and disinterested Directors.
In May 1996, the Company purchased, at a discount, from Mr. Dennis Doyle,
an Independent Director of the Company, $100,000 principal amount of Second
Mortgage Bonds -- Series 1994 (the "Bonds") issued to Mr. Doyle by Resurrection
Life Church, Eden Prairie, Minnesota. The bonds had been issued to Mr. Doyle in
May 1994 in connection with the sale to the Church by Mr. Doyle and his
affiliates of a parcel of land and building. The Managing Underwriter
concurrently underwrote a $525,000 First Mortgage Bond issue for this Church in
May 1994 in connection with its purchase of the facility. The Church's worship
facility was appraised at $725,000 in 1994. The Bonds purchased by the Company
have a face value of $100,000 and bear interest at 8.5% per annum. The Company
purchased the Bonds for $72,805 and, thus generate a yield of 11.68% on a
current basis, maturing in May 2001. This transaction was unanimously approved
by the Board of Directors, including all the Independent Directors, and was
determined to be no less favorable to the Company than if it had been with an
independent third party.
38
<PAGE>
THE ADVISOR AND THE ADVISORY AGREEMENT
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 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, Minnetonka (Minneapolis), Minnesota 55343.
The following table sets forth the names and positions of the officers and
directors of the Advisor:
<TABLE>
<CAPTION>
Name Position
<S> <C> <C>
Philip J. Myers President, Treasurer and Director
Scott J. Marquis Vice President, Secretary
V. James Davis Director
David G. Reinhart Director
</TABLE>
Philip J. Myers, age 42, is President, Treasurer and a Director of the
Advisor, having served in such capacities since its inception. He is also
currently employed full-time as President, Secretary and a Director of the
Managing Underwriter, American Investors Group, Inc. Mr. Myers earned his
Bachelor of Arts degree in Political Science in 1977 from the State University
of New York at Binghamton and his Juris Doctor Degree from the State University
of New York at Buffalo School of Law in 1980. From 1980 until 1982, Mr. Myers
served as an attorney with the Division of Market Regulation of the U. S.
Securities and Exchange Commission in Washington, D. C. and, from 1982 to 1984,
as an attorney with the Division of Enforcement of the Securities and Exchange
Commission in San Francisco. From August 1984 to January 1986, he was employed
as an attorney with the San Francisco law firm of Wilson, Ryan and Compilongo
where he specialized in corporate finance, securities and broker-dealer matters.
From January 1986 to January 1989 when he became affiliated with American
Investors Group, Inc., Mr. Myers was engaged as Senior Vice-President and
General Counsel of Financial Planners Equity Corporation, a 400 broker
securities dealer formerly located in Marin County, California. He is a member
of the New York, California (inactive status) and Minnesota Bar Associations,
and a registered General Securities Principal.
Scott J. Marquis, age 40, is Vice-President and Secretary of the Advisor,
having served in such capacities since December 13, 1994. He is also currently
employed full-time as Vice-President of the Managing Underwriter, American
Investors Group, Inc., where he has been employed since February 1987. Prior to
his employment with American Investors Group, Inc., Mr. Marquis was employed for
approximately seven years with the Minneapolis-based broker dealer, Piper,
Jaffray Companies 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 "Management" 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 provides advice and recommendations
concerning the affairs of the Company, provides administrative services to the
Company and manages 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 reports to the
Company of its performance of the foregoing services and furnishes advice and
recommendations with respect to other aspects of the business of the Company. In
performing its
39
<PAGE>
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 term of the Advisory Agreement expires annually and is expected to be
renewed annually by the Company, 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. See "Compensation to Advisor and Affiliates." 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.
The Advisor's compensation under the Advisory Agreement is set forth under
"Compensation to Advisor and Affiliates." 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 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
Shareholders, fees and expenses of appraisers, directors, auditors, outside
legal counsel and transfer agents, and costs directly incurred relating to
closing of loan transactions and to enforcing loan agreements.
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. The Company's Independent Directors approved the
Amended and Restated Advisory Agreement and the Amended and Restated Bylaws on
May 19, 1995 and approved on July 2, 1997 the renewal of the Restated Advisory
Agreement for another year. 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.
The foregoing is a summary of the material provisions of the Advisory
Agreement. Reference is made to the Advisory Agreement, filed as an Exhibit to
the Registration Statement of which this Prospectus is a part, for a complete
statement of its provisions. See "Additional Information."
40
<PAGE>
Prior Performance of Advisor and Affiliates
The principals of the Advisor, and the officers of the Company, have,
through the Managing Underwriter, been engaged in the underwriting of first
mortgage bonds issued by churches since 1987. Mssrs. Myers and Reinhart,
together with American's Director of Underwriting comprise American's
"Underwriting Committee," which has been responsible for the review and approval
of church mortgage bond financings. These individuals, serving on behalf of the
Advisor and the Company, constitute the Company's Underwriting Committee which
selects and approves mortgage loans to churches to be made by the Company and
mortgage-backed securities and investments acquired by the Company.
Since its inception in January 1987 through June 1, 1998, American has
underwritten approximately 130 church bond financings involving the sale of
approximately $186 million in aggregate principal amount of first mortgage bonds
issued by churches. Of these, approximately 120 involved construction projects,
and the balance represented purchase or loan refinancing projects. The average
size of the financings is approximately $1.43 Million, and ranged in size from
approximately $100,000 to $15.5 Million. The number of bondholders (investors)
in an average size bond financing is approximately 380. The locations of these
financings include 25 states and all regions of the United States. See "Appendix
I, Table III."
Of the bond financings underwritten by American, approximately 20 have been
retired early. Three of the bond issues underwritten by American since its
inception have experienced an event of default, as described in Appendix I
attached hereto. Otherwise, all bond issues currently are in good standing with
respect to their payment obligations. Additional information with respect to the
bond financings conducted by the Advisor's affiliate and Managing Underwriter,
American Investors Group, Inc. ("American") are set forth in the Appendices. See
"Appendix I."
FEDERAL INCOME TAX CONSEQUENCES
THE DISCUSSION OF FEDERAL INCOME TAX TREATMENT OF REAL ESTATE INVESTMENT
TRUSTS AND THEIR SHAREHOLDERS SET FORTH BELOW IS INTENDED AS A SUMMARY ONLY. IT
IS NOT MEANT TO ADDRESS ALL POTENTIAL CONSEQUENCES IN DETERMINING WHETHER THE
COMPANY QUALIFIES AS A REIT NOR IS IT MEANT TO ADDRESS THE SPECIFIC CONSEQUENCES
TO EACH PURCHASER OF AN INVESTMENT IN THE SHARES. EACH PURCHASER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC CONSEQUENCES TO SUCH PURCHASER OF
THE PURCHASE OF SHARES, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL
INCOME AND OTHER TAX LAWS AND OF ANY POSSIBLE CHANGES IN THE TAX LAWS.
Qualification as a Real Estate Investment Trust
General. The Board of Directors intends to cause the Company to operate in
such a manner as to qualify as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code (the "Code"). The ability of the
Company to qualify as a real estate investment trust will depend, in part, on
the timing and nature of the Company's investments. There can be no assurance as
to whether or when the Company will qualify to be taxed as a real estate
investment trust and qualification as a real estate investment trust is
dependent, in part, on future events.
In the opinion of Maun & Simon, PLC, whose opinion has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Company has been organized in conformity with the requirements for qualification
as a REIT and the Company's method of operation permits it to meet the
requirements for qualification and taxation as a REIT. It must be emphasized
that this opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters. In addition,
this opinion is based upon the factual representations made by the Company
concerning its business as set forth in this Prospectus. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Maun & Simon, PLC.
Accordingly, no assurance can be given that the Company's business or that the
actual results of the Company's operation for any particular taxable year will
satisfy such requirements. Further, the anticipated income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time.
41
<PAGE>
The following is a general summary of the provisions that govern the
federal income tax treatment of a real estate investment trust and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative and
judicial interpretations thereof.
The Code provides special tax treatment for organizations that qualify as
REITs. If certain conditions are met as a REIT, an entity that so qualifies
generally will not be subject to federal corporate income taxes on its net
income that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (at the corporate and shareholder
levels) that generally results from investment in a corporation. However, even
if the Company qualifies as a REIT, the Company will be subject to federal
income tax as follows. First, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains; provided, however, that if the Company has a net capital gain, it
will be taxed at regular corporate rates on its undistributed REIT taxable
income, computed without regard to net capital gain and the deduction for
capital gains dividends, plus a 35% tax on undistributed net capital gain, if
its tax as thus computed is less than the tax computed in the regular manner.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax at the highest regular corporate rate on such income. Fourth, if
the Company has net income from "prohibited transactions" (which are, in
general, certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business by the Company, (i.e., when the Company is acting as a dealer)), such
income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), and has nonetheless qualified as a real estate investment trust because
certain other requirements have been met, it will be subject to a 100% penalty
tax on the gross income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company should fail to distribute by
the end of each year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company will be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset (a "Built-In
Gain Asset") from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the Company recognizes
gain on the disposition of such asset during the 10-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
the Company, then, to the extent of the built-in gain (i.e., the excess of the
fair market value of such asset on the date such asset was acquired by the
Company over the Company's adjusted basis in such asset on such date), such gain
will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations that have not yet been promulgated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable, but for Sections 856 through 859 of the Code, as a domestic
corporation; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial ownership
of which is held by 100 or more persons; (vi) during the last half of each
taxable year not more than 50% of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (which term includes
certain entities); and (vii) which meets certain other tests, described below.
The Code provides that conditions (i) to (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months.
To qualify as a REIT for a taxable year under the Code, the Company must
elect or previously have elected to be so treated and must meet other
requirements, certain of which are summarized below, including percentage tests
relating to the sources of its gross income, the nature and diversification of
the Company's assets and the distribution of its income to Shareholders.
Asset Tests. At the close of each quarter of its taxable year, the Company
must satisfy three tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, not more than 25% of the Company's total assets may be represented by
certain securities other than those includable in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities.
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Income Tests. There are three income requirements necessary for maintenance of
REIT status.
First, at least 75% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) for each taxable year
must be derived directly or indirectly from: (i) rents from real property; (ii)
interest on obligations secured by mortgages on real property or interests in
real property; (iii) gain from the sale or other disposition of real property
(including interests in real property and interests in mortgages on real
property) not held primarily for sale to customers in the ordinary course of
business; (iv) dividends or other distributions on, and gain (other than gain
from prohibited transactions) from the sale or other disposition of,
transferable shares in other real estate investment trusts; (v) abatements and
refunds of taxes on real property; (vi) income and gain derived from foreclosure
property (as defined in the Code); (vii) amounts (other than amounts the
determination of which depend in whole or in part on the income or profits of
any person) received or accrued as consideration for entering into agreements to
make loans secured by mortgages on real property or interests in real property,
or to purchase or lease real property (including interests in real property and
interests in mortgages on real property); (viii) gain from the sale or other
disposition of a real estate asset which is not a prohibited transaction; and
(ix) qualified temporary investment income.
Second, at least 95% of the Company's gross income (excluding gross income
from certain sales of property held primarily for sale) for each taxable year
must be derived from the sources described above with respect to the 75% test,
or from dividends, interest, or gain from the sale, exchange or other
disposition of stock or securities. Dividends and interest on any obligations
not secured by an interest in real property are included for purposes of the 95%
test, but not for purposes of the 75% test.
Third, short-term gain from the sale or other disposition of stock or
securities, gain from certain sales of property held primarily for sale, and
gain from certain sales of real property held for less than four years (apart
from involuntary conversions and foreclosure property) must represent less than
30% of the Company's gross income for each taxable year.
Interest that may be received by the Company generally will not qualify as
"interest" in satisfying the gross income requirements if the amount of interest
received is based in whole or in part on the income or profits of any person.
However, interest based on a fixed percentage or percentages of gross receipts
or sales may qualify as "interest." Generally, if a loan is secured by both
personal property and real property, interest must be allocated between the
personal property and the real property, with only the interest allocable to the
real property qualifying as mortgage interest under the 75% gross income test.
Treasury Regulations provide that if a loan is secured by both personal and real
property and the fair market value of the real property as of the commitment
date equals or exceeds the amount of the loan, the entire interest amount will
qualify under the 75% gross income test. If the amount of the loan exceeds the
fair market value of the real property, the interest income is allocated between
real property and personal property based on the relative fair market value of
each. Under certain circumstances, income from shared appreciation mortgages may
qualify under the REIT gross income requirements.
The Company believes that interest received under the Company's mortgage
loans should qualify as "interest" for purposes of the REIT gross income
requirements and, except for certain interest receipts, should qualify as
mortgage interest for purposes of the REIT 75% gross income requirement.
In the case of a real estate investment trust which is a partner in a
partnership, Treasury Regulations provide that the character of gross income of
the partnership shall retain the same character in the hands of the partners for
purposes of Section 856 of the Code, including satisfying the 75% and 95% gross
income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions may be available if the Company can establish that its failure to
meet such tests was due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of sources of its income to its return, and any
incorrect information was not due to fraud with intent to evade tax. It is not
possible, however, to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. If these relief provisions
apply, a special 100% tax is imposed (see "General").
The Company does not intend to hold any property "primarily for sale to
customers in the ordinary course of its trade or business" and intends to do
whatever is reasonably prudent to avoid so holding any property, consistent with
the investment objectives of the Company. However, whether property is held as
"dealer property" depends on the facts and circumstances in effect from time to
time, including those relating to a particular property. As a result, complete
assurance cannot be given
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that the Company can avoid "dealer" status. If the Service were to successfully
characterize the Company as a dealer, sales of Company property could be subject
to a 100% excise tax, capital gain treatment on sales of Company property could
be unavailable and the Company could fail to satisfy the 95%, 75% or 30% income
tests.
Ownership Requirements. The Company's capital stock must be held by 100 or
more persons for at least 335 days of each full taxable year (or proportionate
part of any shorter taxable year). In addition, no more than 50% in value of the
Company's outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals at any time during the last half of the Company's
taxable year. To attempt to assure compliance with this 50% diversity of
ownership requirement, the Company's Articles of Incorporation prohibit any
Shareholder from acquiring, directly or indirectly, more than 9.8% of the
outstanding capital stock of the Company. For purposes of the 50% ownership
test, pension funds and certain other tax-exempt entities are treated as
individuals. In addition, for purposes of this 50% ownership test, certain
attribution rules of the Code are applied to determine whether such test is
satisfied. These attribution rules provide, among other things, that capital
stock owned by a member of a partnership is not attributed to its partners.
Treasury Regulations require a real estate investment trust to maintain records
which demonstrate compliance with these stock ownership requirements. In
accordance with these Treasury regulations, the Company must demand from record
Shareholders written statements which disclose information concerning the actual
ownership of the capital stock. Any record Shareholder who does not provide the
Company with the required information concerning actual ownership of the Shares
is required to include certain specified information relating thereto on the
Shareholder's income tax return.
The Company will use the calendar year as its annual accounting period for
federal income tax purposes. The Company will also use the accrual method of
accounting for federal income tax and accounting purposes.
Treasury Regulations require that the Directors have continuing exclusive
authority over the management of the Company, the conduct of its affairs and,
with certain limitations, the management and disposition of the Company's
assets. It is the intention of the Company to do all things that may be
necessary for the Company to meet these requirements. Absent a ruling from the
Service, however, there can be no guarantee that certain Shareholder or Advisor
rights would not be considered to violate the "exclusive authority" requirement.
Distribution Requirements. The Company, in order to qualify as a real
estate investment trust, is required to distribute to its Shareholders, on a
non-preferential basis, an amount at least equal to the sum of 95% of the
Company's "real estate investment trust taxable income" (which is computed
without regard to net capital gains) and 95% of the net income from foreclosure
property. Such distributions must be made in the taxable year to which they
relate or, if declared before the timely filing (including extensions) of the
Company's tax return for such year and paid not later than the first dividend
payment made after such declaration, such distribution may be made in the
following taxable year and still be considered in determining whether the
Company satisfied its minimum distribution requirements for the preceding year.
To the extent that the Company does not distribute all of its net long-term
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
corporate tax rates. Furthermore, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income for prior periods, the Company
would be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. The Company intends to make timely
distributions sufficient to qualify for tax status as a REIT.
The distribution requirement is based on taxable income rather than
available cash. Therefore, while the Company expects to meet this distribution
requirement, the Company's ability to make the required distributions may be
impaired if the Company has insufficient cash flow or otherwise has excessive
noncash income or nondeductible expenditures. The Company's ability to make the
required distributions depends on many factors which are beyond the Company's
control. The Company may find it necessary to arrange for short-term, or
possibly long-term borrowings in order to meet the 95% requirement. Any
distributions, however, which are reinvested pursuant to the Dividend
Reinvestment Plan will be treated as distributions for purposes of determining
compliance with the 95% distribution requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to Shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. The Company may be able to
avoid being taxed on amounts distributed as deficiency dividends; however, the
Company will be required to pay interest and a penalty based upon the amount of
any deduction taken for deficiency dividends.
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Failure of the Company to Qualify as a Real Estate Investment Trust
Although the Company intends to operate so as to qualify as a real estate
investment trust, if the Company should fail to so qualify in any taxable year
and the relief provisions described above do not apply, the Company will be
subject to a tax (including any applicable minimum tax) on its taxable income
computed in the usual manner for corporate taxpayers without any deduction for
dividends paid. In such event, to the extent of current and accumulated earnings
and profits, all distributions to Shareholders will be taxable as ordinary
income, and, subject to certain limitations in the Code, corporate distributees
may be eligible for the dividends received deduction. Unless entitled to relief
under specific statutory provisions, the Company will also be prohibited from
electing to be taxed as a real estate investment trust for the four taxable
years following the year during which qualification is lost. In order to renew
its REIT qualifications at the end of such a four-year period, the Company would
be required to distribute all of its current and accumulated earnings and
profits before the end of the period. Any distributions would be taxable as
ordinary income to Shareholders. In addition, if the Company fails to qualify as
a real estate investment trust in any year, the Company could incur significant
income tax liabilities which could reduce the amount of cash available for
distribution to its Shareholders and cause the Company to incur substantial
indebtedness or liquidate investments in order to pay the resulting taxes.
Taxation of the Company's Shareholders
For any year for which the Company is treated as a REIT distributions made
to the Company's Shareholders out of current or accumulated earnings and profits
will be taken into account by them as ordinary income (which will not be
eligible for the dividends received deduction for corporations). Distributions
that are designated as capital gain dividends will be taxed as long-term capital
gains to the extent they do not exceed the Company's actual net capital gain
dividend for the taxable year, although corporate Shareholders may be required
to treat up to 20% of any such capital gain dividend as ordinary income.
Distributions in excess of current or accumulated earnings and profits will not
be taxable to a Shareholder to the extent that they do not exceed the adjusted
basis of the Shareholder's shares of stock, but rather a return of capital that
will reduce the adjusted basis of such shares of stock. To the extent that such
distributions exceed the adjusted basis of Shareholder's shares of stock they
will be included in income as long-term or short-term capital gain assuming the
shares are held as a capital asset in the hands of the Shareholder. The Company
will notify Shareholders at the end of each year as to the portions of the
distributions which constitute ordinary income, net capital gain or return of
capital.
In addition, any dividend declared by the Company in October, November or
December of any year payable to a Shareholder of record on a specified date in
any such month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, any gain or loss upon a sale or exchange of shares by a
Shareholder who has held such Shares as a capital asset will be long-term or
short-term depending on whether the stock was held for more than one year;
provided, however, any loss on the sale or exchange of Shares that have been
held by such Shareholder for six months or less will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such Shareholders as long-term capital gain.
Taxation of Tax-Exempt Shareholders
For taxable years beginning in 1994 the Code treats a portion of the
dividends paid by a "pension held REIT" as Unrelated Taxable Business Income
("UBTI") as to any trust which (i) is described in Section 401(a) of the Code,
(ii) is tax-exempt under Section 501(a) of the Code, and (iii) holds more than
10% (by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts."
A real estate investment trust is a "pension held REIT" if (i) it would not
have qualified as a real estate investment trust but for the fact that Section
856(h)(3) of the Code provides that stock owned by qualified trusts shall be
treated, for purposes of the "not closely held" requirement, as owned by the
beneficiaries of the trust (rather than by the trust itself), and (ii) either
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(a) at least one such qualified trust holds more than 25% (by value) of the
interests in the REIT, or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT.
Tax Consequences for Foreign Investors
The preceding discussion does not address the federal income tax
Consequences to foreign investors of an investment in the Company. Foreign
investors in the Shares should consult their own tax advisors concerning those
provisions of the Code which deal with the taxation of foreign taxpayers. In
particular, foreign investors should consider, among other things, the impact of
the Foreign Investors Real Property Tax Act of 1980. In addition, various income
tax treaties between the United States and other countries could affect the tax
treatment of an investment in the Shares. Furthermore, the backup withholding
and information reporting rules are under review by the United States Treasury,
and their application to the Common Stock could be changed prospectively or
retroactively by future Treasury Regulations.
Backup Withholding
The Company will report to its domestic Shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a Shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and when
required, demonstrates this fact, or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A Shareholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
Shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any Shareholders who fail to
certify their non-foreign status to the Company.
State and Local Taxes
The Company or its Shareholders may be subject to state or local taxation
in the state or local jurisdiction in which the Company's investments or loans
are located or in which the Shareholders reside. Prospective Shareholders should
consult their tax advisors for an explanation of how state and local tax laws
could affect their investment in the Shares.
Other Tax Consequences
In the event the Company enters into any joint venture transactions,
special tax risks might arise. Such risks include possible challenge by the IRS
of (i) allocations of income and expense items, which could affect the
computation of taxable income of the Company and (ii) the status of the joint
venture as a partnership (as opposed to a corporation). If a joint venture were
treated as a corporation, the joint venture would be treated as a taxable entity
and if the Company's ownership interest in the joint venture exceeds 10%, the
Company would cease to qualify as a REIT. Furthermore, in such a situation even
if the Company ownership does not exceed 10%, distributions from the joint
venture to the Company would be treated as dividends, which are not taken into
account in satisfying the 75% gross income test described above and which could
therefore make it more difficult for the Company to qualify as a REIT for the
taxable year in which such distribution was received. In addition, the interest
in the joint venture held by the Company would not qualify as a "real estate
asset" which could make it more difficult for the Company to meet the 75% asset
test described above. Finally, in such a situation the Company would not be able
to deduct its share of losses generated by the joint venture in computing its
taxable income. See "Failure of the Company to Qualify as a Real Estate
Investment Trust" above for a discussion of the effect of the Company's failure
to meet such tests for a taxable year. The Company will not enter into any joint
venture, however, unless it has received from its counsel an opinion to the
effect that the joint venture will be treated for tax purposes as a partnership.
Such opinion will not be binding on the IRS and no assurance can be given that
the IRS might not successfully challenge the status of any such joint venture as
a partnership.
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ERISA CONSEQUENCES
The following is a summary only of material Consequences arising under
ERISA and the prohibited transaction provisions of Code Section 4975 that may be
relevant to a prospective purchaser. This discussion does not deal with all
aspects of ERISA or Code Section 4975 or, to the extent not preempted, state law
that may be relevant to particular employee benefit plan Shareholders (including
plans subject to Title I of ERISA, other employee benefit plans and IRAs subject
to the prohibited transaction provisions of Code Section 4975, and governmental
plans and church plans that are exempt from ERISA and Code Section 4975 but that
may be subject to state law requirements) in light of their particular
circumstances. EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA AND THE CODE ("Plans")
CONSIDERING PURCHASING THE SHARES SHOULD CONSULT WITH THEIR OWN TAX OR OTHER
APPROPRIATE COUNSEL REGARDING THE APPLICATION OF ERISA AND THE CODE TO THEIR
PURCHASE OF THE SHARES.
Fiduciary Consequences
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans"), are subject to
various provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Code. Before investing in the Shares, a Plan fiduciary
should ensure that such investment is in accordance with ERISA's general
fiduciary standards. In making such a determination, a Plan fiduciary should
ensure that the investment is in accordance with the governing instruments and
the overall policy of the Plan and that the investment will comply with the
diversification and composition requirements of ERISA. In addition, provisions
of ERISA and the Code prohibit certain transactions in Plan assets that involve
persons who have specified relationships with a Plan. The consequences of such
prohibited transactions include excise taxes, disqualifications of IRAs and
other liabilities. A Plan fiduciary should ensure that any investment in the
Shares will not constitute such a prohibited transaction.
Plan Assets Issue
A prohibited transaction may occur if the assets of the Company are deemed
to be Plan assets. In certain circumstances where a Plan holds an interest in an
entity, the assets of the entity are deemed to be Plan assets (the "look-through
rule"). Under such circumstances, any person that exercises authority or control
with respect to the management or disposition of such assets is a Plan
fiduciary. Plan assets are not defined in ERISA or the Code, but the United
States Department of Labor has issued Regulations, effective March 13, 1987 (the
"Regulations"), that outline the circumstances under which a Plan's interest in
an entity will be subject to the look-through rule.
The Regulations apply only to the purchase of a Plan of an "equity
interest" in an entity, such as common stock of a REIT. The term "equity
interest" means any interest in an entity other than an investment that is
treated as indebtedness under applicable local law and which has no substantial
equity features. However, the Regulations provide an exception to the
look-through rule for equity interests that are "publicly-offered securities"
and for equity interests in an "operating company."
Under the Regulations a "publicly-offered security" is a security that is
(1) freely transferable, (2) part of a class of securities that is widely-held,
and (3) part of a class of securities that is registered under Section 12(b) or
12(g) of the Exchange Act or sold to a Plan as part of an offering of securities
to the public pursuant to an effective registration statement under the
Securities Act and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such later time as may be
allowed by the Securities and Exchange Commission) after the end of the fiscal
year of the issuer during which the offering of such securities to the public
occurred. Whether a security is considered "freely-transferable" depends on the
facts and circumstances of each case. Generally, if the security is part of an
offering in which the minimum investment is $10,000 or less and any restriction
on or prohibition against any transfer or assignment of such security is for the
purposes of preventing a termination or reclassification of the entity for
federal or state tax purposes, the security will not be prevented from being
considered freely transferable. A class of securities is considered
"widely-held" if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another.
Although no assurance can be provided, the Company believes that the Shares
offered hereby will meet the criteria of the publicly-offered securities
exception to the look-through rule. First, the Company anticipates that the
Shares will be considered to be freely transferable, as the only restriction
upon its transfer are those required under federal tax laws to maintain the
Company's status as a REIT. Second, the Company believes that the Shares will be
held by 100 or more investors and that at least 100 or more of these investors
will be independent of the Company and of one another. Third, the Shares will be
part of an offering of securities to the public pursuant to an effective
registration statement under the Exchange Act and
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will be registered under the Exchange Act within 120 days (or such later time as
may be allowed by the Securities and Exchange Commission) after the end of the
fiscal year of the Company during which the offering of such securities to the
public occurs. Moreover, the Company believes that equity participation in the
Company by Plans will not be significant as defined by the Regulations.
Accordingly, the Company believes that if a Plan purchases the Shares, the
Company's assets should not be deemed to be Plan assets and, therefore, that any
person who exercises authority or control with respect to the Company's assets
should not be a Plan fiduciary.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 50,000,000
undesignated shares, of which the Company's Board of Directors has established
that 30,000,000 shares are Common Stock, par value of $0.01 per share (the
"Authorized Shares"). Pursuant to the Company's Articles of Incorporation, the
Company's Board of Directors has the authority to divide the balance of the
authorized capital stock into classes and series with relative rights and
preferences and at such par value as the Board of Directors may establish from
time to time. Each Authorized Share is entitled to participate equally in
dividends when and as declared by the directors and in the distribution of
assets of the Company upon liquidation. Each Authorized Share is entitled to one
vote and will be fully paid and nonassessable by the Company upon issuance and
payment therefor. Each Authorized Share has no preference, conversion, exchange,
preemptive or cumulative voting rights. There are no cumulative voting rights in
electing directors.
Repurchase of Shares and Restrictions on Transfer
Two of the requirements for qualification for the tax benefits accorded by
the real estate investment trust provisions of the Code are that (i) during the
last half of each taxable year not more than 50% of the outstanding capital
stock may be owned directly or indirectly by five or fewer individuals and (ii)
there must be at least 100 shareholders for at least 335 out of 365 days of each
taxable year or the proportionate amount for any partial taxable year. See
"Federal Income Tax Consequences."
The Company's Articles of Incorporation prohibit any person or group of
persons from holding, directly or indirectly, ownership of a number of Shares in
excess of 9.8% of the outstanding capital stock. Shares owned by a person or
group of persons in excess of such amounts are referred to in the Articles of
Incorporation and herein as "Excess Shares." For this purpose, Shares shall be
deemed to be owned by a person if they are constructively owned by such person
under the provisions of Section 544 of the Code (as modified by Section 856(h)
of the Code) or are beneficially owned by such person under the provisions of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the term "group" has the same meaning as that term has
for purposes of Section 13(d)(3) of the Exchange Act. Accordingly, Shares owned
or deemed to be owned by a person who individually owns less than 9.8% of the
outstanding capital stock may nevertheless be Excess Shares if such person is a
member of a group which owns more than 9.8% of the outstanding capital stock.
The Company's Articles of Incorporation also provide that in the event any
person acquires Excess Shares, such Excess Shares may be redeemed by the
Company, at the discretion of the Board of Directors. Except as set forth below,
the redemption price for such Excess Shares shall be the closing price as
reported on the NASDAQ System on the last business day prior to the redemption
date or, if the shares are listed on an exchange, the closing price on the last
business day prior to the redemption date or, if neither listed on an exchange
nor quoted on the NASDAQ System, the net asset value of the Excess Shares as
determined in good faith by the Board of Directors. In no event, however, may
the purchase price of the Shares redeemed be greater than their net asset value
as determined by the Board of Directors in good faith. To redeem Excess Shares,
the Board of Directors must give a notice of redemption to the holder of such
Excess Shares not less than 30 days prior to the date fixed by the Board of
Directors for redemption. The redemption price for such Excess Shares shall be
paid on the redemption date fixed by the Board of Directors and included in such
notice. From and after the date fixed for redemption of the Excess Shares, such
shares shall cease to be entitled to any distribution and other benefits, except
only the right to payment of the redemption price for such Shares.
Under the Company's Articles of Incorporation, any transfer of Shares that
would result in the disqualification of the Company as a real estate investment
trust under the Code is void to the fullest extent permitted by law, and the
Board of Directors is authorized to refuse to transfer the Shares to a person
if, as a result of the transfer, that person would own Excess
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Shares. Prior to any transfer or transaction which, if consummated, would cause
a shareholder to own Excess Shares, and in any event upon demand by the Board of
Directors, a Shareholder is required to file with the Company an affidavit
setting forth, as to that Shareholder, the information required to be reported
in returns filed by Shareholders under the Treasury Regulation Section 1.857-9
and in reports filed under Sections 13(d) and 16(b) of the Exchange Act.
Additionally, each proposed transferee of Shares, upon demand of the Board of
Directors, also may be required to file a statement or affidavit with the
Company setting forth the number of Shares already owned by the transferee and
any related persons. The transfer or sale of Shares also are subject to
compliance with applicable state "Blue Sky" laws.
Dividend Reinvestment Program
The Dividend Reinvestment Program (the "DRP") allows Shareholders to
automatically reinvest Dividends by purchasing additional Shares from the
Company. Shareholders who elect to take part in the DRP will authorize the
Company to use Dividends payable to them to purchase additional Shares. However,
a Shareholder will not be able to acquire Shares under the DRP to the extent
such purchase would cause it to own, directly of indirectly, more than 9.8% of
the outstanding common stock of the Company. Only Shareholders are eligible to
participate in the DRP.
Purchases under the DRP are not subject to selling commissions or other
distribution-type fees and costs. Participants in the DRP may also purchase
fractional Shares so that 100% of Dividends will be used to acquire Shares.
Shares will be purchased under the DRP on the record date for the Dividend used
to purchase Shares. The record date for dividends for such Shares acquired under
the DRP will be on the first day of the month subsequent to the month of
purchase. Each Shareholder electing to participate in the DRP agrees that if, at
any time prior to listing of the Shares on a national securities exchange or
market, he fails to meet the suitability requirements for making an investment
in the Company or cannot make the other representations or warranties set forth
in the Subscription Agreement, he will promptly so notify the Company in
writing.
The Dividend Reinvestment Agent will vote all shares held in the
participant's account in the same way in which each participant votes shares of
the Company standing of record in the participant's name by the regular proxy
returned by participant to the Company, or, if the Dividend Reinvestment Agent
sent to the participant a separate proxy covering the shares credited to
participant's dividend reinvestment account, then such shares will be voted as
designated in such separate proxy. In the event participant does not direct the
voting of shares by either such regular or separate proxy, the shares credited
to participant's dividend reinvestment account will not be voted. Stock
dividends or stock splits distributed by the Company on shares held by the
Dividend Reinvestment Agent for the participant will be credited to the
participant's account. In the event that the Company makes available to its
Shareholders rights to purchase additional shares or other securities of the
Company, the Dividend Reinvestment Agent will sell such rights accruing to
shares held by the Dividend Reinvestment Agent for the participant and will
combine the resultant funds with the next regular dividend for reinvestment at
that time. If a participant desires to exercise such rights, the participant
must request that certificates be issued for full shares, as described below.
The reinvestment of dividends does not relieve the participant of any
income tax which may be payable on such dividends. The Dividend Reinvestment
Agent will report to all participants the amount of dividends credited to their
accounts. Participants in the DRP may not sell, pledge, hypothecate or otherwise
assign or transfer their account, any interest therein or any cash or shares
credited to the participant's account. No attempt at any such sale, pledge,
hypothecation or other assignment or transfer shall be effective.
During the Offering Period and until such time as a market develops for the
Shares (of which there can be no assurance) DRP participants will acquire Shares
from the Company at a fixed price of $10.00 per Share. It is possible that a
secondary market will develop for the Shares, and that Shares may be bought and
sold on the secondary market at prices lower or higher than the $10.00 per Share
price which will be paid under the DRP. The Company will receive no fee for
selling Shares under the DRP. The Company does not warrant or guarantee that DRP
participants will be acquiring Shares at the lowest possible price. A
participant may terminate participation in the DRP at any time without penalty,
by delivering written notice to the Company a minimum of ten business days prior
to the record date for the next Dividend. Upon termination, Dividends will be
distributed to the Shareholder instead of being used to purchase Shares under
the DRP. Within 90 days after the end of the Company's fiscal year, the Company
will provide each shareholder with an individualized report on his or her
investment, including the purchase date(s), purchase price and number of Shares
owned, as well as the dates of distribution and amounts of dividends received
during the prior fiscal year. Participants will also receive during the year
quarterly statements showing activity since the last statement and current
shares in their DRP account. The individualized statement to Shareholders will
include receipts and purchases relating to each participant's participation in
the DRP. The Dividend Reinvestment Agent will hold the shares in the shares
purchased for the participant until termination of participant's participation
in the DRP. At the
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participant's request, certificates for full shares held by the Dividend
Reinvestment Agent may be issued at any time or on a continuous basis as they
are credited to the participants DRP account. The servicing agent for the
Company's DRP program is Gemisys Corporation, 7103 South Revere Parkway,
Englewood, Colorado, 80112, telephone: (303) 705-6000.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's capital stock is Gemisys
Corporation, 7103 South Revere Parkway, Englewood, Colorado 80112, Telephone:
(303) 705-6000.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
Each Shareholder shall be bound by and deemed to have agreed to the terms
of the organizational documents by his, her or its election to become a
Shareholder. The organizational documents, consisting of Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws, were reviewed and
ratified by the Directors (including the Independent Directors) on May 19, 1995.
The following is a summary of certain provisions of these documents and this
summary is qualified in its entirety by specific reference to the organizational
documents filed as Exhibits to the Registration Statement of which this
Prospectus is a part. 0 Certain Article and Bylaw Provisions
Shareholders' rights and related matters are governed by the Minnesota
Business Corporation Act, the Amended and Restated Articles (the "Articles") and
Amended and Restated Bylaws (the "Bylaws"). Certain provisions of the Articles
and Bylaws, which are summarized below, may make it more difficult to change the
composition of the Board and may discourage or make more difficult any attempt
by a person or group to obtain control of the Company.
The Bylaws provide for annual meetings of Shareholders. Special meetings of
Shareholders may be called by (i) the Chief Executive Officer of the Company,
(ii) a majority of the members of the Board of Directors or a majority of the
Independent Directors or (iii) Shareholders holding at least 10% of the
outstanding Shares of common stock entitled to vote at the meeting.
Board of Directors
The Bylaws provide that the number of directors of the Company may be
established by the Board but may not be fewer than three (3) nor more than nine
(9), a majority of which must be Independent Directors. Any vacancy will be
filled by a majority of the remaining Directors, except that a vacancy of an
Independent Director position must follow a nomination by the remaining
Independent Directors. The Directors may leave the vacancy unfilled until the
next regular meeting of the Shareholders.
Limitations on Director Actions
Without concurrence of a majority of the outstanding Shares, the Directors
may not: (i) amend the Articles or Bylaws, except for amendments which do not
adversely affect the rights, preferences and privileges of Shareholders
including amendments to provisions relating to, Director qualifications,
fiduciary duty, liability and indemnification, conflicts of interest, investment
policies or investment restrictions; (ii) sell all or substantially all of the
Company's assets other than in the ordinary course of the Company business or in
connection with liquidation and dissolution; (iii) cause the merger or other
reorganization of the Company; or (iv) dissolve or liquidate the Company.
A majority of the then outstanding Shares may, without the necessity for
concurrence by the Directors, vote to: (i) amend the Bylaws; (ii) terminate the
corporation; or (iii) remove the Directors.
Minnesota Anti-Takeover Law
The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved in a prescribed manner. A
"control share acquisition" is an acquisition, directly or indirectly, of
beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of 20% or more in the election of directors. In general, Section
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302A.673 prohibits a public Minnesota corporation from engaging in a "business
combination" with an "interested shareholder" for a period of four years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's stock.
Restrictions on Roll-Ups
In connection with a proposed Roll-Up, an appraisal of all of the
Company's assets shall be obtained from a competent Independent Expert which
shall be based upon an evaluation of all relevant information, shall indicate
the value of the assets as of a date immediately prior to the announcement of
the Roll-Up and shall assume an orderly liquidation of the assets over a
12-month period. Notwithstanding the foregoing, the Company may not participate
in any proposed Roll-Up which would:
(i) result in the Shareholders having rights to meeting less frequently or
which are more restrictive to Shareholders than those provided in the
Bylaws;
(ii) result in the Shareholders having voting rights that are less than those
provided in the Bylaws;
(iii)result in the Shareholders having greater liability than as provided in
the Bylaws;
(iv) result in the Shareholders having rights to receive reports that are less
than those provided in the Bylaws;
(v) result in the Shareholders having access to records that are more limited
than those provided in the Bylaws;
(vi) include provisions which would operate to materially impede or frustrate
the accumulation of Shares by any purchaser of the securities of the
Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity);
(vii)limit the ability of an investor to exercise the voting rights of its
securities in the Roll-Up Entity on the basis of the number of the Shares
held by that investor;
(viii) result in investors in the Roll-Up Entity having rights of access to the
records of the Roll-Up Entity that are less than those provided in the
Bylaws; or
(ix) place any of the costs of the transaction on the Company if the Roll-Up is
not approved by the Shareholders;
provided, however, that nothing shall be construed to prevent participation in
any proposed Roll-Up which would result in Shareholders having rights and
restrictions comparable to those contained in the Bylaws, with the prior
approval of a majority of the Shareholders.
The Bylaws also require that an appraisal of all the Company's assets
shall be obtained from a competent expert in connection with a proposed Roll-Up.
Also, in connection with any proposed Roll-Up, Shareholders who vote "no" shall
have the choice of (i) accepting the securities of the Roll-Up Entity offered in
the proposed Roll-Up; or (ii) one of either: (a) remaining as Shareholders of
the Company and preserving their interests therein on the same terms and
conditions as previously existed, or (b) receiving cash in an amount equal to
the Shareholders' pro rata share of the appraised value of the net assets of the
Company. The Company has no present intention of participating in a Roll-Up
transaction.
Limitation on Total Operating Expenses
The Bylaws provide that, subject to the conditions described in this
paragraph, the annual Total Operating Expenses of the Company shall not exceed
in any fiscal year the greater of 2% of the Average Invested Assets of the
Company or 25% of the Company's Net Income. The Independent Directors have a
fiduciary responsibility to limit the Company's annual Total Operating Expenses
to amounts that do not exceed the foregoing limitations. The Independent
Directors may, however, determine that a higher level of Total Operating
Expenses is justified for such period because of unusual and non-recurring
expenses. Any such finding by the Independent Directors and the reasons in
support thereof shall be recorded in the minutes
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of the meeting of Directors. Within 60 days after the end of any fiscal quarter
of the Company for which Total Operating Expenses (for the 12 months then ended)
exceed 2% of the Average Invested Assets or 25% of Net Income, whichever is
greater, there shall be sent to the Shareholders a written disclosure of such
fact. In the event the Total Operating Expenses exceed the limitations described
above and if the Directors are unable to conclude that such excess was justified
then within 60 days after the end of the Company's fiscal year, the Advisor
shall reimburse the Company in the amount by which the aggregate annual Total
Operating Expenses paid or incurred by the Company exceed the limitation.
Transactions with Affiliates
The Bylaws impose certain restrictions upon dealings between the Company
and the Advisor, any Director or Affiliates thereof. In particular, in approving
any transaction or series of transactions between the Company and the Advisor,
Sponsor, Director or any Affiliate thereof, a majority of the Directors not
otherwise interested in such transaction, including a majority of the
Independent Directors must determine that:
(a) the transaction as contemplated is fair and reasonable to the Company and
its Shareholders and its terms and conditions are not less favorable to
the Company than those available from unaffiliated third parties;
(b) if the transaction involves compensation to any Advisor or its Affiliates
for services rendered in a capacity other than contemplated by the
advisory arrangements, such compensation, is not greater than the
customary charges for comparable services generally available from other
competent unaffiliated persons and is not in excess of compensation paid
to any Advisor and its Affiliates for any comparable services;
(c) if the transaction involves the making of loans (other than in the
ordinary course of the Company's business) or the borrowing of money, the
transaction is fair, competitive, and commercially reasonable and no less
favorable to the Company than loans between unaffiliated lenders and
borrowers under the same circumstances; and
(d) if the transaction involves the investment in a joint venture, the
transaction is fair and reasonable and no less favorable to the Company
than to other joint venturers.
Notwithstanding anything to the contrary above, if the proposed
transaction involves a loan by the Company to any Advisor, Director or any
Affiliate thereof, or to a wholly-owned subsidiary of the Company, a written
appraisal must be obtained from an Independent Expert concerning the underlying
property and such appraisal must be maintained in the Company's records for at
least five years and be available for inspection and duplication by any
Shareholder. In addition to the appraisal, such loan shall be subject to all
requirements of the Company's Financing Policy.
The Company shall not borrow money from any Advisor, Director or any
Affiliate thereof, unless a majority of the Company's Directors (including a
majority of the Independent Directors) not otherwise interested in such
transaction approve the transaction as being fair, competitive, and commercially
reasonable and no less favorable to the Company than loans between unaffiliated
parties under the same circumstances.
Notwithstanding anything to the contrary, the Company shall not make or
invest in any mortgage loans that are subordinate to any mortgage or equity
interest of the Advisor, Directors, Sponsors or any Affiliate of the Company.
Restrictions on Investments
The investment policies and restrictions set forth in the Bylaws have been
approved by a majority of Independent Directors. In addition to other investment
restrictions imposed by the Directors from time to time consistent with the
Company's objective to qualify as a REIT, the Company will observe the following
guidelines and prohibitions on its investments set forth in its Bylaws,
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 contract, other than
"interest rate futures" intended only for hedging purposes;
(iii)Investing in mortgage loans (including construction loans) on any one
property which in the aggregate with all
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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) Making or investing in any 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;
(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 such 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.
Advisory Arrangements
The Board of Directors shall cause the Company to engage an Advisor on a
year-to-year basis to 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 pursuant to a written contract or contracts, or any
renewal thereof, which have obtained the requisite approvals of the Board of
Directors, including a majority of the Independent Directors.
PLAN OF DISTRIBUTION
General
Pursuant to the terms and conditions of the Underwriting Agreement (a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), the Underwriters are offering hereby, on a "best efforts"
basis, up to 1,500,000 Shares at a price of $10.00 per Share. "Best efforts"
means there is no obligation on the part of the Underwriters to purchase any
Shares and thus no assurance as to the number of Shares sold or proceeds
received. This Offering became effective September 26, 1997 and as of June 1,
1998, 394,560 Shares have been sold in this Offering and there are a total of
774,661 Shares issued and outstanding. This Offering will be conducted on a
continuous basis pursuant to applicable rules
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of the Securities and Exchange Commission and will terminate on not later than
September 26, 1998, subject to extension by mutual agreement of the Company and
the Managing Underwriter for an additional 120 days, or until completion of the
sale of all Shares, whichever first occurs (the "Offering Period"). The Company
reserves the right to terminate this Offering at any time.
Compensation
Pursuant to the Underwriting Agreement, the Company will pay to the
Underwriters (from the proceeds of the sale of the Shares) a commission equal to
5.95% of the proceeds from the sale of the Shares sold (up to $892,500). In
addition, the Company has agreed to pay the Managing Underwriter a
non-accountable expense allowance of up to $133,000 to reimburse the Managing
Underwriter for certain expenses incurred by the Managing Underwriter ("Managing
Underwriter's Expenses") in connection with the offer and sale of the Shares.
Managing Underwriter's Expenses are payable to the Managing Underwriter by the
Company from offering proceeds, $35,000 of which is payable upon the sale of
$1,000,000 in Shares, and the balance ($98,000) is payable ratably based on the
number of Shares sold thereafter. The Managing Underwriter may re-allow to the
Co-Underwriter any portion of the Managing Underwriter's Expenses as it
determines in its discretion.
The Underwriters may award sales incentive items to Soliciting Dealers, and
persons associated with them as licensed registered representatives, in
connection with their sales activities. The value of each item will be less than
$50. In addition, the Underwriters may pay incentive compensation to regional
marketing representatives for their activities as wholesalers in connection with
the distribution of the Shares, subject to the overall restrictions on
commissions described herein.
The Company will not pay or award, directly or indirectly, any commissions
or other compensation to any person engaged by a potential investor for
investment advice as an inducement to such advisor to advise the investor to
purchase Shares; provided, however, that this provision shall not prohibit the
normal sales commission payable to a registered broker-dealer or other properly
licensed person for selling the Shares.
Subscription Process
The Shares will be offered to the public through the Underwriters and
Soliciting Dealers. The Soliciting Dealer Agreement between the Underwriters and
the Soliciting Dealers requires the soliciting broker-dealers to make diligent
inquiries as required by law of all prospective purchasers in order to ascertain
whether a purchase of Shares is suitable for such person and transmit promptly
to the Company the fully completed subscription documentation and any supporting
documentation reasonably required by the Company.
The Shares are being sold when, as and if subscriptions therefor are
received and accepted by the Company, subject to the satisfaction by the Company
of certain other conditions and approval by counsel of certain legal matters.
The Company has the unconditional right to accept or reject any subscription.
Subscriptions will be accepted or rejected within four business days (and
generally within 24 hours). If the subscription is accepted, a confirmation will
be mailed within two weeks of acceptance of the investor as a shareholder. If
for any reason the subscription is rejected, the funds will be returned to the
Soliciting Dealer, without interest. Initial subscriptions will not be accepted
for less than 250 Shares (200 Shares for IRA accounts).
The Underwriters have the right to offer the Shares only through their own
registered representatives and through broker-dealers who are members of the
NASD ("Soliciting Dealers"). In such event, the Underwriters may re-allow to
Soliciting Dealers a portion of their commissions, fees and reimbursable
expenses payable to them under the Underwriting Agreement. In no event will the
compensation re-allowed by the Underwriters to Soliciting Dealers exceed the
total of compensation payable to the Underwriters under the Underwriting
Agreement. The Underwriters may also enter into limited Securities Clearing
Agreements with Soliciting Dealers whose minimum net capital requirements are
$25,000 for the sole purpose of clearing transactions in the Shares. Clients of
such Soliciting Dealers who wish to purchase Shares will receive a confirmation
of their purchase directly from the Underwriters and must remit payment for the
purchase of Shares directly to the Underwriters payable to the appropriate
Underwriter.
A sale will be deemed to have been made on the date reflected in the
written confirmation of the purchase thereof (the "Trade Date") which shall be
sent to each purchaser by the Underwriters on the first business day following
the date upon which the Underwriter is advised in writing by the Company that a
subscription has been accepted. Payment of the purchase price must be received
by the Underwriters by the Settlement Date, which date is set forth in the
confirmation. No sale of the Shares offered hereby may be completed until at
least five (5) business days after the Shareholder receives a final Prospectus.
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Payment of the purchase price of the Shares should be made payable to
"American Investors Group, Inc." or "LaSalle St. Securities, Inc."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act of 1933. Such
indemnification obligations of the Company may be limited by the Company's
Articles and Bylaws. See "Management -- Fiduciary Responsibility of Board of
Directors, Possible Inadequacy of Remedies."
The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
terms and provisions of the Underwriting Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
Prior to this Offering, there has been no market for the Shares and it is
not expected that a market will develop during or immediately after the Offering
Period. The initial price of the Shares has been determined by negotiations
between the Underwriters and the Company and is the same price paid by the
initial shareholder of the Company's Shares and Shareholders who purchased
Shares in the Company's initial public offering. The public offering price set
forth on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Shares.
Determination of Investor Suitability
The Company, the Underwriters and each Soliciting Dealer shall make every
reasonable effort to determine that those persons being offered or sold the
Shares are appropriate in light of the suitability standards set forth herein
and are appropriate to such investor's investment objectives and financial
situation. The Soliciting Dealer shall ascertain that the investor can
reasonably benefit from the Company, and the following shall be relevant to such
determination: (i) the investor has the capability of understanding the
fundamental aspects of the Company, which capacity may be evidenced by the
following: (a) the nature of employment experience; (b) educational level
achieved; (c) access to advice from qualified sources, such as attorneys,
accountants, tax advisors, etc.; and (d) prior experience with investments of a
similar nature; (ii) the investor has apparent understanding of (a) the
fundamental risk and possible financial hazards of this type of investment; (b)
the lack of liquidity of this investment; (c) the investment will be directed
and managed by the Advisor; and (d) the tax consequences of the investment; and
(iii) the investor has the financial capability to invest in the Company.
By executing the subscription agreement, each Soliciting Dealer
acknowledges its determination that the Shares are a suitable investment for the
investor, and will be required to represent and warrant his compliance with the
applicable laws requiring the determination of the suitability of the Shares as
an investment for the subscriber. The Company will, in addition to the
foregoing, coordinate the processes and procedures utilized by the Underwriters
and Soliciting Dealers and, where necessary, implement such additional reviews
and procedures deemed necessary to determine that investors meet the suitability
standards set forth herein. The Underwriters and/or the Soliciting Dealers shall
maintain for at least six (6) years a record of the information obtained to
determine that an investor meets the suitability standards imposed on the offer
and sale of Shares and a representation of the investor that the investor is
investing for the investor's own account or, in lieu of such representation,
information indicating that the investor for whose account the investment was
made met the suitability standards.
Suitability of the Investment
An investment in the Shares involves certain risks. Accordingly, Shares are
suitable only for long-term investment by persons who have adequate financial
means. Shares will be sold only to a person who meets either of the following
standards: (i) he/she has a net worth (excluding home, home furnishings and
automobiles) of at least $45,000 and estimates that he will have gross income
during the current year (without regard to investment in the Company) of at
least $45,000; or (ii) he/she has a net worth (excluding home, home furnishings
and automobiles) of at least $150,000. In the case of gifts to minors, the
suitability standards must be met by the custodian account or by the donor
agreement and by acceptance of the confirmation of purchase or delivery of the
Shares, an investor represents that he satisfied any applicable suitability
standards.
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In purchasing Shares, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties employed by the Employee
Retirement Income Security Act of 1974 ("ERISA") or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Code. In addition, prior to purchasing Shares, the trustee or custodian of
an employee pension benefit plan or an IRA should determine that such an
investment would be permissible under the governing instruments of such plan or
account and applicable law. See "Federal Income Tax Consequences -- Taxation of
Tax-Exempt Stockholders" and "ERISA Consequences."
Suitability standards may be higher in certain states. Investors must meet
all of the applicable requirements set forth in the Subscription Agreement.
Under the laws of certain states, an investor may transfer Shares only to
persons who meet similar standards, and the Company may require certain
assurances that these standards are met.
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to its Bylaws, or otherwise, the Registrant has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Director, officer or
controlling persons of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
LEGAL MATTERS
Certain legal matters, including the legality of the Shares being offered
hereby, and certain federal income tax matters as set forth under sections
entitled "Risk Factors -- Federal Income Tax Consequences" and "Federal Income
Tax Consequences," are being passed upon for the Company by Maun & Simon, PLC,
Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company as of December 31, 1995, 1996 and
1997 included in this Prospectus have been audited by Boulay, Heutmaker, Zibell
and Company, P.L.L.P., independent certified public accountants, as set forth in
the report thereon appearing elsewhere herein, and are included herein in
reliance upon such report given on the authority of said firm as experts in
accounting and auditing.
REPORTS TO SHAREHOLDERS, RIGHTS OF EXAMINATION AND ADDITIONAL INFORMATION
The Advisor will keep, or cause to be kept, full and true books of account
on an accrual basis of accounting, in accordance with generally accepted
accounting principles ("GAAP"). All of such books of account, together with a
copy of the Company's Articles and any amendments thereto, will at all times be
maintained at the principal office of the Company, and will be open to
inspection, examination and duplication at reasonable times by the Shareholders
or their agents. Shareholders may receive, upon request, a list of the names and
addresses of all of the Shareholders from the Company by mail. The Shareholders
will also have the right to inspect the Company's records in the same manner as
Shareholders of any other Minnesota corporation. The Shareholders also have the
specific rights under the Company's Bylaws to inspect Company records that are
in addition to those available under applicable federal and state law.
The Advisor will submit to each Shareholder annual reports of the Company
within 120 days following the close of each fiscal year. The annual reports will
contain the following: (i) audited financial statements; (ii) the ratio of the
costs of raising capital during the period to the capital raised; (iii) the
aggregate amount of advisory fees and the aggregate amount of fees paid to the
Advisor and any Affiliate of the Advisor by the Company and including fees or
charges paid to the Advisor and any Affiliate of the Advisor by third parties
doing business with the Company; (iv) the Total Operating Expenses of the
Company, stated as a percentage of the Average Invested Assets and as a
percentage of its Net Income; (v) a report from the Independent Directors that
the policies being followed by the Company are in the best interests of its
Shareholders and the basis for determination; and (vi) separately stated, full
disclosure of all material terms, factors and circumstances surrounding any and
all transactions involving the Company, Directors, Advisor and any Affiliate
thereof occurring in the year for which the annual report is made. Independent
Directors shall be specifically charged with the duty to examine and comment in
the report on
56
<PAGE>
the fairness of such transactions. In addition, unaudited quarterly reports
containing the information the Directors deem proper will be submitted to each
Shareholder within 60 days after the end of the first three fiscal quarters of
each fiscal year. Within 60 days following the end of any calendar quarter
during the period of the Offering in which the Company has closed a loan, a
report will be submitted to each Shareholder containing: (i) the location and a
description of the general characteristics of each loan made during the quarter
and the property securing the same; (ii) the material terms of the loan; (iii) a
statement that an appraisal and title insurance have been obtained on the
property. In addition, a report will be sent to each Shareholder and submitted
to prospective investors at such time as the Advisor believes a reasonable
probability exists that a loan will be made: (i) on specified terms (i.e., upon
completion of due diligence which includes review of the title insurance
commitment, appraisal and environmental analysis); and (ii) involving the use of
10% or more, on a cumulative basis, of the net proceeds of this Offering.
The Company's federal tax return and any applicable state income tax
returns will be prepared by the accountants regularly retained by the Company.
Appropriate tax information will be submitted to the Shareholders within 90 days
following the end of each fiscal year of the Company. A specific reconciliation
between GAAP and income tax information will not be provided to the
Shareholders; however, such reconciling information will be available in the
office of the Company for inspection and review by any interested Shareholder.
Concurrent with the dissemination of appropriate tax information to
Shareholders, the Company will annually provide each Shareholder with an
individualized report on his or her investment, including the purchase date(s),
purchase price and number of Shares owned, as well as the dates of distribution
and amounts of dividends received during the prior fiscal year. The
individualized statement to Shareholders will include any purchases of Shares
under the Company's Dividend Reinvestment Plan. Shareholders requiring
individualized reports on a more frequent basis may request such reports. The
Company will make every reasonable effort to supply more frequent reports, as
requested, but the Company, at its sole discretion, may require payment of an
administrative charge which will be paid: (i) directly by the Shareholder; or
(ii) through pre-authorized deductions from Dividends payable to the Shareholder
making the request.
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement (as amended) on Form S-11 (of which
this Prospectus is a part) under the Securities Act of 1933, as amended, with
respect to the Shares offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement. Statements contained in the
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information regarding the Company and the Shares offered hereby, reference is
made to the Registration Statement and to the exhibits and schedules thereto.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports and other information with the
Commission. Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth St. N.W., Washington, DC 20549, and at
the Commission's regional offices at Northwestern Atrium Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, DC 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other materials that are
filed through the Commission's Electronic Data Gathering, Analysis and Retrieval
system. This Web site can be accessed at http://www.sec.gov. In addition,
material filed by the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc., at 1735 K Street, N.W., Washington,
D.C. 20006.
57
<PAGE>
GLOSSARY
Definitions of certain terms used in the Prospectus are set forth below:
"Acquisition Expenses" means expenses including but not limited to legal
fees and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on property not acquired, accounting fees and
expenses, title insurance, and miscellaneous expenses related to selection and
acquisition of properties, whether or not acquired.
"Acquisition Fee" means the total of all fees and commissions paid by any
party to any party in connection with making or investing in mortgage loans by
the Company. Included in the computation of such fees or commissions shall be
any commission, selection fee, nonrecurring management fee, reinvestment fees,
loan fee or points or origination fee or any fee of a similar nature, however
designated. Excluded shall be development and construction fees paid to Persons
not affiliated with the Sponsor in connection with the acquisition and funding
of the Company's properties.
"Advisor" means, initially, Church Loan Advisors, Inc., or its successors,
and generally, the Person(s) or entity responsible for directing or performing
the day-to-day business affairs of the Company, including a Person or entity to
which an Advisor subcontracts substantially all such functions.
"Advisory Agreement" means the agreement between the Company and the
Advisor pursuant to which the Advisor will act as the administrator of the
Company.
"Affiliate" an Affiliate of another Person includes any of the following:
(a) any Person directly or indirectly owning, controlling, or holding, with
power to vote ten percent or more of the outstanding voting securities of such
other Person; (b) any Person ten percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held, with power to
vote, by such other Person; (c) any Person directly or indirectly controlling,
controlled by, or under common control with such other Person; (d) any executive
officer, director, trustee or general partner of such other Person; or (e) any
legal entity for which such Person acts as an executive officer, director,
trustee or general partner.
"Articles" means the Company'sAmended and Restated Articles ofIncorporation.
"Average Invested Assets" for any period shall mean the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in loans (or interests in loans) secured by real estate, and first
mortgage bonds, before reserves for depreciation of bad debts or other similar
non-cash reserves computed by taking the average of such values at the end of
each calendar month during such period.
"Best Efforts" means a method of underwriting whereby the Underwriters are
committed to use their best efforts to sell the Shares on behalf of the Company,
but are not required to purchase the Shares or otherwise guarantee their sale.
"Board" means the Board of Directors of the Company.
"Bylaws" means the Amended and Restated Bylaws of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Collateral" means an asset conditionally assigned, sold or pledged as
security for indebtedness.
"Commission" means the Securities and Exchange Commission.
"Company" means American Church Mortgage Company.
"Directors" means the members of the Board of Directors of the Company.
"Dividends" means any cash distributed to Shareholders arising from their
interest in the Company.
"Dividend Reinvestment Plan" means the Company's dividend reinvestment plan
for Shareholders pursuant to which any quarterly dividends otherwise payable in
cash are instead applied toward the purchase of additional Shares for the
participant.
58
<PAGE>
"DRM Holdings, Inc." Means DRM Holdings, Inc., a Minnesota corporation
which is the parent (100% owner) of the Managing Underwriter and an affiliate of
the Advisor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Shares" means shares held by a Shareholder in excess of 9.8% of the
outstanding Shares entitled to vote.
"Fiduciary" means a trustee or a person in a trust relationship with
another to whom a duty is owed.
"Financing Policies" means the policies identified herein which are applied
by the Company in connection with its business of making mortgage loans.
"Independent Director(s)" means the Directors of the Company who are not
associated and have not been associated within the last two years, directly or
indirectly, with the Sponsor or Advisor of the Company. A Director shall be
deemed to be associated with the Sponsor or Advisor if he or she: (i) owns an
interest in the Sponsor, Advisor, or any of their Affiliates; or (ii) is
employed by the Sponsor, Advisor or any of their Affiliates; or (iii) is an
officer or director of the Sponsor, Advisor, or any of their Affiliates; or (iv)
performs services, other than as a Director, for the Company; or (v) is a
Director for more than three real estate investment trusts organized by the
Sponsor or advised the Advisor; or (vi) has any material business or
professional relationship with the Sponsor, Advisor, or any of their Affiliates.
For purposes of determining whether or not the business or professional
relationship is material, the gross revenue derived by the prospective
Independent Director from the Sponsor and Advisor and Affiliates shall be deemed
material per se if it exceeds 5% of the prospective Independent Director's: (i)
annual gross revenue, derived from all sources, during either of the last two
years; or (ii) net worth, on a fair market value basis. An indirect relationship
shall include circumstances in which a Director's spouse, parents, children,
siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or
sisters-in-law is or has been associated with the Sponsor, Advisor, any of their
Affiliates, or the Company.
"Independent Expert" means a Person with no material current or prior
business or personal relationship with the Advisor or Directors who is engaged
to a substantial extent in the business of rendering opinions regarding the
value of assets of the type held by the Company.
"Initial Investment" means that portion of the initial capitalization of
the Company contributed by the Sponsor or its Affiliates pursuant to Section IIA
of NASAA REIT Policy.
"Leverage" the aggregate amount of indebtedness of the Company for money
borrowed (including purchase money mortgage loans) outstanding at any time, both
secured and unsecured.
"Managing Underwriter" means American Investors Group, Inc.
"Mortgagee Title Policy" means an insurance policy issued to mortgage
lenders such as the Company, and which assures the condition of title to and
ownership of specified real estate taken as collateral for a loan.
"NASAA" means North American Securities Administrators Association.
"NASAA REIT Policy" means the Statement of Policy Regarding Real Estate
Investment Trusts, as adopted September 29, 1993, as amended, promulgated by the
North American Securities Administrators Association, Washington. D.C.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System
"Net Assets" means the total assets (other than intangibles) at cost before
deducting depreciation or other non-cash reserves less total liabilities,
calculated at least quarterly on a basis consistently applied.
"Net Income" for any period shall mean total revenues applicable to such
period, less the expenses applicable to such period, other than additions to
reserves for depreciation, bad debts or other similar non-cash reserves
determined in accordance with generally accepted accounting principles.
59
<PAGE>
"Non-U.S. Shareholder" means a Shareholder which is a foreign corporation
or a nonresident alien of the United States.
"Offering" means the offering of Shares of the Company pursuant to this
Prospectus.
"Offering Period" means the period during which the Shares are offered
pursuant to this Prospectus, and which period terminates 365 days from the date
of this Prospectus, subject to an extension by mutual agreement between the
Company and the Managing Underwriter for an additional 120 days, or until
completion of the sale of the Shares or termination by the Company, whichever
occurs first.
"Organization and Offering Expenses" means all expenses incurred by and to
be paid from the assets of the Company in connection with and in preparing the
Company's shares for registration and subsequently offering and distributing
them to the public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the underwriters'
attorneys), warrants to dealers, expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of transfer
agents, registrars, trustees, escrow holders, depositories, experts, expenses of
qualification of the sale of the securities under Federal and State laws,
including taxes and fees, accountants' and attorneys' fees.
"Permitted Temporary Investments" means money market funds, U.S. government
treasury obligations, certificates of deposit, interest bearing bank accounts
and other similar short-term obligations which can be readily liquidated and
which are determined not to impair the Company's ability to qualify as a REIT.
"Person" means any natural persons, partnership, corporation, association,
trust, limited liability company or other legal entity.
"Portfolio" means the mortgage loans made, and church bonds owned by the
Company.
"Prospectus" means the final prospectus of the Company in connection with
the registration of 1,650,000 Shares filed with the Commission on Form S-11, as
amended, in connection with this Offering.
"Registration Statement" means the initial registration of Shares on Form
S-11 and related exhibits, as amended, filed by the Company with the Commission,
in connection with this Offering.
"REIT" means a corporation or trust which qualified as a real estate
investment trust described in the REIT provisions.
"REIT Provisions" means Code Sections 856 through 860.
"Roll-up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Company and
the issuance of securities of a Roll-up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been for at least 12
months listed on a national securities exchange or traded through the National
Association of Securities Dealers Automated Quotation National Market System; or
(ii) a transaction involving the conversion to corporate, trust, or association
form of only the Company if, as consequence of the transaction there will be no
significant adverse change in any of the following: (a) Shareholders' voting
rights; (b) the term of existence of the Company; (c) Sponsor or Advisor
compensation; (d) the Company's investment objectives.
"Roll-up Entity" a partnership, real estate investment trust, corporation,
trust, or other entity that would be created or would survive after the
successful completion of a proposed Roll-up transaction.
"Selling Commission" means an amount equal to 5.95% of the Gross Offering
Proceeds payable to the Underwriters Manager which will be re-allowed to
Soliciting Dealers for each Share sold.
"Service" means the Internal Revenue Service of the United States of
America.
"Shares" means shares of beneficial interest or of common stock of the
Company of the class that has the right to elect the Company's Directors.
60
<PAGE>
"Soliciting Dealers" means the dealer members of the National Association
of Securities Dealers, Inc. designated by the Underwriters and the Advisor.
"Shareholders" means the registered holders of the Company's Shares.
"Sponsor" means any Person directly or indirectly instrumental in
organizing wholly or in part, a real estate investment trust or any Person who
will control, manage or participate in the management of a real estate
investment trust, and any Affiliate of such Person. Not included is any Person
whose only relationship with the real estate investment trust is as that of an
independent property manager of real estate investment trust assets, and whose
only compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by: (i) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company; either alone or in
conjunction with one or more other Persons; (ii) receiving a material
participation in the Company in connection with the founding or organizing of
the business of the Company, in consideration of services or property, or both
services and property; (iii) having a substantial number of relationships and
contacts with the Company; (iv) possessing significant rights to control Company
properties; (v) receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or (vi) providing goods
or services to the Company on a basis which was not negotiated at arms length
with the Company.
"Taxable REIT Income" means the taxable income as computed for a
corporation which is not a REIT: (i) without the deductions allowed by Code
Sections 241 through 247, 249 and 250 (relating generally to the deduction for
dividends received); (ii) excluding amounts equal to (a) the net income from
foreclosure property, and (b) the net income derived from prohibited
transactions; (iii) deducting amounts equal to (a) any net loss derived from
prohibited transactions, and (b) the tax imposed by section 857(b)(5) of the
Code upon a failure to meet the 95% and/or the 75% gross income tests; and (iv)
disregarding the dividends paid, computed without regard to the amount of the
net income from foreclosure property which is excluded from REIT Taxable Income.
"Total Operating Expenses" means aggregate expenses of every character paid
or incurred by the Company as determined under Generally Accepted Accounting
Principles, including Advisors' fees but excluding: (a) the expenses of raising
the capital such as Organization and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration and other fees,
printing and other such expenses, and tax incurred in connection with the
issuance, distribution, transfer, registration, and stock exchange listing of
the Company's Shares; (b) interest payments; (c) taxes; (d) non-cash
expenditures such as depreciation, amortization and bad debt reserves; (e)
incentive fees; (f) Acquisition Fees, Acquisition Expenses, real estate
commissions on resale of property and other expenses connected with the
acquisition, disposition, and ownership of real estate interests, mortgage
loans, or other property, (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair, and improvement of property).
"UBTI" means unrelated business taxable income as described in the Code.
"Underwriters" means the Managing Underwriter (American Investors Group,
Inc.) and LaSalle St. Securities, Inc., Chicago, Illinois.
61
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Minneapolis, Minnesota
Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Church Mortgage Company
Minneapolis, Minnesota
We have audited the accompanying balance sheet of American Church Mortgage
Company as of December 31, 1997, 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, 1997, 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 20, 1998
F-1
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
March 31
ASSETS 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and equivalents $1,080,850 $ 511,894
Current maturities of loans receivable 114,819 56,982
--------- ----------
Total current assets 1,195,669 568,876
Loans Receivable, net of current maturities 5,367,610 2,709,948
Bonds Receivable 131,722 121,647
Deferred Tax Asset 33,000 15,000
Organization Expenses, net 389 692
--------- ---------
Total assets $6,728,390 $3,416,163
========= =========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-2
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
March 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current Liabilities
Accounts payable $ 20,494 $ 1,699
Due to loan escrow account 227,931
Deferred income 16,473 19,016
Dividends payable 142,743 81,377
------- -------
Total current liabilities 407,641 102,092
Deferred Income 69,473 23,881
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 692,092 as of
March 31, 1998, 362,574 as of March 31, 1997 6,921 3,626
Additional paid-in capital 6,308,639 3,334,239
Accumulated deficit (64,284) (47,675)
--------- ---------
Total stockholders' equity 6,251,276 3,290,190
--------- ---------
Total liabilities and equity $6,728,390 $3,416,163
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-3
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31
ASSETS 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Asset
Cash and equivalents $ 291,815 $ 612,744 $135,282
Current maturities of loans receivable 103,505 55,436
------- ------- -------
Total current assets 395,320 668,180 135,282
Loans Receivable, net of current maturities 4,808,803 2,605,388
Bonds Receivable 125,809 120,640
Deferred Offering Costs 107,295
Deferred Tax Asset 33,000 20,000
Organization Expenses, net 464 769 1,071
--------- --------- -------
Total assets $5,363,396 $3,414,977 $243,648
========== ========== ========
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-4
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Liabilities
Accounts payable $ 15,490 $ 8,482 $ 49,493
Deferred income 17,301 10,383
Dividends payable 127,899 80,424
------- --------- -------
Total current liabilities 160,690 99,289 49,493
Deferred Income 61,127 35,547
Stockholders' Equity
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 571,615 at December 31,
1997, 359,791 at December 31, 1996 and 20,000
shares at December 31, 1995 5,716 3,598 200
Additional paid-in capital 5,184,882 3,306,437 199,800
Accumulated deficit (49,019) (29,894) (5,845)
--------- --------- -------
Total stockholders' equity 5,141,579 3,280,141 194,155
Total liabilities and equity $5,363,396 $3,414,977 $243,648
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-5
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest Income $145,640 $ 72,454
Operating Expenses 18,162 3,858
------- ------
Operating Income (Loss) 127,478 68,596
Provision for (Benefit from)
Income Taxes - 5,000
------- -------
Net Income (Loss) $127,478 $ 63,596
======= =======
Basic and Diluted Income (Loss) Per Common Share $ .22 $ .18
======= =======
Weighted Average Common
Shares Outstanding 591,640 361,677
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-6
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$384,118 $217,390 $ 4,436
36,304 72,004 5,759
------- ------- -----
347,814 145,386 (1,323)
(13,000) (20,000) -
------- ------- -------
$360,814 $165,386 ($ 1,323)
======= ======= ========
$ .91 $ .79 ($ .07)
======= ======= ========
398,160 209,072 20,000
======= ======= =======
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-7
<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)
(1,323)
Net loss ------- ------- ---------- ---------
Balance, December 31, 1995 20,000 200 199,800 (5,845)
Issuance of 339,791 shares of
common stock, net of
offering costs 339,791 3,398 3,106,637
Net income 165,386
Dividends declared (189,435)
------- ----- --------- -------
Balance, December 31, 1996 359,791 3,598 3,306,437 (29,894)
Issuance of 211,824 shares of
common stock, net of
offering costs 211,824 2,118 1,878,445
Net income 360,814
Dividends declared (379,939)
------- ----- --------- -------
Balance, December 31, 1997 571,615 5,716 5,184,882 (49,019)
Issuance of 120,477 shares of
common stock, net of
offering costs 120,477 1,205 1,123,757
Net income 127,478
Dividends declared (142,743)
------- ----- --------- -------
Balance, March 31, 1998(unaudited) 692,092 $6,921 $6,308,639 ($ 64,284)
======= ====== ========== =======
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-8
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 127,478 $ 63,596
Adjustments to reconcile net income to
net cash from operating activities:
Deferred income taxes 5,000
Amortization 76 (930)
Change in assets and liabilities
Accounts payable 232,935 (6,783)
Deferred income 7,517 (3,033)
------- ------
Net cash from operating activities 368,006 57,850
Cash Flows from Investing Activities
Investment in mortgage loans (595,000) (116,712)
Collections on mortgage loans 24,879 10,606
Investment in bonds (5,913)
------- -------
Net cash used for investing activities (576,034) (106,106)
Cash Flows from Financing Activities
Proceeds from stock offering 1,124,962 27,830
Dividends paid (127,899) (80,424)
--------- -------
Net cash from (used for) financing activities 997,063 (52,594)
--------- -------
Net Increase (Decrease) in Cash and Equivalents 789,035 (100,850)
Cash and Equivalents - Beginning of Period 291,815 612,744
--------- -------
Cash and Equivalents - End of Period $1,080,850 $511,894
========= =======
</TABLE>
- Continued -
Notes to Financial Statements are an integral part of this Statement.
F-9
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows - Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31
1998 1997
- --------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Supplemental Schedule of Noncash Financing
and Investing Activities
Dividends declared but not paid $142,743 $81,377
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-10
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $360,814 $ 165,386 ($ 1,323)
Adjustments to reconcile net income (loss) to
net cash from (used for)operating activities:
Deferred income taxes (13,000) (20,000)
Amortization 303 303 303
Change in assets and liabilities
Accounts payable 7,009 (41,012)
Deferred income 32,498 45,930
------- --------- -------
Net cash from (used for) operating activities 387,624 150,607 (1,020)
Cash Flows from Investing Activities
Organization expenses paid (35)
Investment in mortgage loans (2,314,712) (2,685,288)
Collections on mortgage loans 64,228 24,464
Investment in bonds (5,169) (120,640)
--------- --------- -------
Net cash used for investing activities (2,256,653) (2,781,464) (35)
Cash Flows from Financing Activities
Proceeds from stock offering 1,880,563 3,217,330
Dividends paid (332,463) (109,011)
Payment of deferred offering costs (12,686)
--------- --------- -------
Net cash from (used for) financing activities 1,548,100 3,108,319 (12,686)
--------- --------- -------
Net Increase (Decrease) in Cash and Equivalents (320,929) 477,462 (13,741)
Cash and Equivalents - Beginning of Year 612,744 135,282 149,023
-------- --------- -------
Cash and Equivalents - End of Year $ 291,815 $ 612,744 $135,282
</TABLE>
- Continued -
Notes to Financial Statements are an integral part of this Statement.
F-11
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows - Continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $118,106 $107,295
======= =======
Dividends declared but not paid $127,899 $ 80,424
======= =======
Supplemental Cash Flow Information
Cash paid during the year for
Interest $ - $ - $ -
Income taxes $ - $ - $ -
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-12
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 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. Loans have been made to
churches located in nine states as of March 31, 1998. The Company concluded a
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.
F-13
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Allowance for Loans Receivable
The Company follows a policy of providing an allowance for loans receivable.
However, management believes the loans receivable to be collectible in all
material respects.
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.
Beginning in 1996, the Company elected to be taxed as a Real Estate Investment
Trust (REIT). Accordingly, the Company will not be subject to Federal income tax
to the extent of distributions to its shareholders if the Company meets all the
requirements under the REIT provisions of the Internal Revenue Code.
F-14
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income (Loss) Per Common Share
No adjustments were made to income for the purpose of calculating earnings per
share. Stock options had no effect on the weighted average number of shares
outstanding.
The adoption of Statement of Financial Accounting Standards Board No. 128,
"Earnings Per Share" had no effect on previously reported earnings per share.
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for interim statements and, therefore, do not include all
information and disclosures necessary for a fair presentation of results of
operations, financial position, and changes in cash flow in conformity with
generally accepted accounting principles. However, in the opinion of management,
such statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the period presented.
The unaudited financial statements of the Company should be read in conjunction
with its December 31, 1997 audited financial statements included in the
Company's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission for the year ended December 31, 1997.
F-15
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
2. MORTGAGES AND BONDS RECEIVABLE
At March 31, 1998 and December 31, 1997 the Company had first mortgage loans
receivable totaling $5,482,429 and $4,912,308, respectively. The loans bear
interest ranging from 9.25% to 12.00%. The maturity schedule for those loans as
of March 31, 1998 and December 31, 1997 is as follows:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
--------- -----------
(Unaudited)
<S> <C> <C>
1998 $ 86,620 $ 103,505
1999 227,915 218,763
2000 142,877 132,621
2001 159,594 148,098
2002 178,269 165,384
Thereafter 4,687,154 4,143,937
--------- ---------
Total $5,482,429 $4,912,308
</TABLE>
The Company also has five bonds receivable, which are carried at cost plus
amortized interest income. The bonds pay quarterly interest ranging from 7.75%
to 10.70%. The combined principal of $157,000 is due at various maturity dates
between June 1, 1999 and January 25, 2012.
3. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan granting each member of the Board of
Directors and the president of the Advisor (Note 4) an option to purchase 3,000
shares of common stock annually upon their re-election. The purchase price of
the stock will be the fair market value at the grant date. On November 15, 1994,
the Company began the annual grant of 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 March 31, 1998.
F-16
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 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 non-renewal or termination of the Advisory Agreement, the Company is
required to pay the Advisor a termination fee equal to two percent of the value
of the average invested assets of the Company as of the date of termination,
subject to limitations set forth in the Advisory Agreement.
The Company pays the Advisor an annual base management fee of 1.25 percent of
average invested assets (generally defined as the average of the aggregate book
value of the assets invested in securities and equity interests in and loans
secured by real estate), which is payable on a monthly basis. The Advisor will
also receive one-half of the origination fees paid by a mortgage loan borrower,
in connection with a mortgage loan made or renewed by the Company. The Company
paid advisory and origination fees totaling $61,525 and $64,680 during 1997 and
1996, respectively. During 1997 and 1996, the Advisor waived fees of $23,119 and
$6,662, respectively. The Company paid no advisory or origination fees during
1995. The Company paid advisory and origination fees of $26,030 and $0 from
January 1 through March 31, 1998 and 1997, respectively.
The Advisor and the Company are related through common ownership and common
management. See Note 6.
F-17
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
5. INCOME TAXES
The income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
March 31 December 31
------------------ ------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $ - $ - $ - $ - $ -
Deferred - 5,000 (13,000) (20,000)
----- ----- ------- ------- -----
Total tax expense (benefit) $ - $5,000 ($13,000) ($20,000) $ -
===== ===== ======= ======= =====
<CAPTION>
The following reconciles the income tax benefit with the expected provision
obtained by applying statutory rates to pretax income:
March 31 December 31
------------------ -----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Expected tax expense (benefit) $35,529 $22,300 $118,257 $45,700 ($300)
Increase (decrease) in valuation
allowance (1,300) 300
Benefit of REIT distributions (35,529) (17,300) (131,257) (64,400)
------ ------ ------- ------ ---
Totals $ - $ 5,000 ($ 13,000) ($20,000) $ -
====== ====== ======== ======= ===
</TABLE>
F-18
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 1996 and 1995
5. INCOME TAXES - Continued
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
March 31 December 31
-------------------- --------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Temporary differences (loan
origination fees) $33,000 $15,000 $33,000 $20,000
Net operating loss carryforward $1,300
Valuation allowance - - - - (1,300)
------ ------ ------ ------ ------
Net deferred tax asset $33,000 $15,000 $33,000 $20,000 $ -
</TABLE>
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 1997. The Company
offered to sell 1,500,000 shares of its common stock at a price of $10 per
share. The offering was underwritten by managing underwriter (an affiliate of
the Advisor) and a co-underwriter on a "best efforts" basis, and no minimum sale
of stock was required. The stock sale commenced on September 26, 1997 and is
expected to continue through January of 1999. The number of shares sold in this
offering was 316,804 at March 31, 1998.
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 non-reimbursable
expenses of approximately $162,600 and $144,000 during 1997 and 1996,
respectively. The Company paid no commissions or non-reimbursable expenses
during 1995.
F-19
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1998 and 1997 (Unaudited)
and December 31, 1997, 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 March 31, 1997 and 1996 and
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
March 31
(Unaudited)
1998 1997
------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and equivalents $1,080,850 $1,080,850 $ 511,894 $ 511,894
Loans receivable 5,482,429 5,482,429 2,766,930 2,766,930
Bonds receivable 131,722 131,722 121,647 121,647
<CAPTION>
December 31
1997 1996 1995
-------------------------- -------------------------- ----------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Cash and
equivalents $ 291,815 $ 291,815 $ 612,744 $ 612,744 $135,282 $135,282
Loans receivable 4,912,308 4,912,308 2,660,824 2,660,824
Bonds receivable 125,809 125,809 120,640 120,640
</TABLE>
The carrying value of cash and equivalents approximates fair value. The fair
value of the loans receivable and the bonds receivable are estimated by
discounting future cash flows using current discount rates that reflect the
risks associated with similar types of loans.
F-20
<PAGE>
Page intentionally left blank
F-21
<PAGE>
APPENDIX I
PRIOR PERFORMANCE TABLES
The prior performance tables, Appendix I of the Prospectus, contain
certain information about specific church bond mortgage financing projects
conducted by the Managing Underwriter, American Investors Group, Inc., an
affiliate of the Advisor. The purpose of the tables is to provide certain
information on the prior performance of these bond financing programs so as to
allow prospective investors a basis upon which to evaluate the experience of the
affiliate of the Company. However, the programs discussed in this section do not
necessarily have investment objectives and policies similar to those of the
Advisor, and the results of those programs cannot be used or relied upon as
being representative of the returns or yields that can be expected by
shareholders of the Company. The following tables are included herein:
Table I--Experience in Raising and Investing Funds
Table II--Compensation to Sponsor (Managing Underwriter and Affiliates)
Table IIB--Location of Prior First Mortgage Bond Financings Underwritten by
the Managing Underwriter
Table III---Mortgage Bond Financings by Managing Underwriter
Balance of page intentionally left blank
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
(since January 1991)
Table I summarizes the funds raised and the use of those funds for the
public offerings completed since January 1991 by American Investors Group, Inc.,
an affiliate of the Company and the Advisor.
<TABLE>
<CAPTION>
Hopewell Missionary New Life Christian Triumph New Testament Mt. Moriah African
Baptist Church Ministry Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Percentage of Funds 100% 100% 100% 100%
Raised
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 259,000 (7%) $ 50,050 (7%) $ 59,500 (7%) $ 90,300 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 46,425 (1.25%) $ 20,000 (2.8%) $ 21,250 (2.5%) $ 24,000 (1.9%)
Percent Available to Issuer 91.75% 90.02% 90.05% 91.01%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 1/15/91 3/1/91 3/15/91 5/15/91
Length of Offering (mos.) 12 2 3 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================ ======================== ======================== ======================== ======================
<CAPTION>
Lake Baptist Church Temple Baptist Church
<C> <C>
$ 1,800,000 $ 1,850,000
$ 1,800,000 $ 1,850,000
100% 100%
$ 108,000 (6%) $ 129,500 (7%)
--- ---
$ 22,500 (1.25%) $ 35,000 (1.9%)
92.75% 91.1%
--- ---
--- ---
8/1/91 8/1/91
3 2
--- ---
======================== ========================
</TABLE>
A-1
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
North Stelton African Shorter African New Life Christian Mt. Vernon Baptist
Methodist Episcopal Methodist Episcopal Ministry, Inc. Church
Church Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 50,750 (7%) $ 130,200 (7%) $ 8,250 (7.5%) $ 94,500 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 17,000 (2.3%) $ 34,800 (1.9%) $ 8,000 (7.2%) $ 27,500 (2.0%)
Percent Available to Issuer 90.7% 91.1% 85.3% 91.0%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/15/91 11/1/91 12/1/91 12/15/91
Length of Offering (mos.) 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Macedonia Missionary First Baptist Church
Baptist Church
<C> <C>
$ 1,195,000 $ 1,040,000
$ 1,195,000 $ 1,040,000
100% 100%
$ 83,650 (7%) $ 72,800 (7%)
--- ---
$ 12,100 (1.0%) $ 22,200 (2.1%)
92.0% 90.90%
--- ---
--- ---
2/15/92 3/1/92
1 1
--- ---
======================== ========================
</TABLE>
A-2
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
World Missions By His Word Christian Metropolitan Baptist Christian Hope Center
Assembly Center Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 50,400 (7%) $ 85,050 (7%) $ 33,250 (7%) $ 35,420 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 15,100 (2.1%) $ 18,500 (1.5%) $ 13,750 (2.9%) $ 11,500 (2.3%)
Percent Available to Issuer 90.9% 91.5% 90.1% 90.7%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 3/15/92 4/1/92 4/1/92 5/1/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =====================
<CAPTION>
Bible Missionary Baptist Central Holiness
Church Church
<C> <C>
$ 1,300,000 $ 250,000
$ 1,300,000 $ 250,000
100% 100%
$ 91,000 (7%) $ 17,500 (7%)
- --- ---
$ 32,250 (2.5%) $ 10,000 (4.0%)
90.5% 89.0%
- --- ---
- --- ---
5/15/92 6/15/92
1 1
- --- ---
======================== ========================
</TABLE>
A-3
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
St. James Episcopal Church of Jesus Christ Temple Baptist Church Mt. Zion African
Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 85,085 (5.95%) $ 89,600 (7%) $ 26,700 (7%) $ 61,250 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 12,215 (.8%) $ 17,000 (1.3%) $ 11,900 (3.1%) $ 16,000 (1.8%)
Percent Available to Issuer 93.2% 91.7% 89.9% 91.2%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 6/24/92 7/1/92 8/1/92 8/15/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Calvary Temple of Bethel Baptist Church
Allentown, PA
<C> <C>
$ 1,820,000 $ 525,000
$ 1,820,000 $ 525,000
100% 100%
$ 127,400 (7%) $ 36,750 (7%)
--- ---
$ 37,500 (2.1%) $ 12,250 (2.3%)
90.9% 90.7%
--- ---
--- ---
9/1/92 9/15/92
1 1
--- ---
= ======================== ========================
</TABLE>
A-4
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Unity Palo Alto Christian Love Baptist Tabernacle Baptist Lee Memorial African
Community Church Church Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 147,150 (6.75%) $ 35,000 (7%) $ 108,500 (7%) $ 85,750 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 20,000 (.92%) $ 13,000 (2.6%) $ 22,000 (1.4%) $ 21,000 (1.7%)
Percent Available to Issuer 92.3% 90.4% 91.6% 91.3%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/1/92 11/15/92 11/15/92 12/15/92
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Nazareth Baptist Church Christian Pentecostal
Church
<C> <C>
$ 390,000 $ 1,600,000
$ 390,000 $ 1,600,000
100% 100%
$ 27,300 (7%) $ 112,000 (7%)
--- ---
$ 9,700 (2.5%) $ 24,000 (1.5%)
90.5% 91.5%
--- ---
--- ---
1/15/93 2/1/93
1 1
--- ---
= ======================== ========================
</TABLE>
A-5
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Mount Zion Christian Lake Baptist Church St. Marks Missionary Friendship Missionary
Baptist Church Baptist Church Baptist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 52,500 (7%) $ 25,550 (7%) $ 105,000 (7%) $ 49,000 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 14,500 (2.75%) $ 8,000 (2.2%) $ 23,000 (1.5%) $ 15,000 (2.1%)
Percent Available to Issuer 90.25% 90.8% 91.5% 90.9%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 1/15/93 2/1/93 2/1/93 4/1/93
Length of Offering (mos.) 1 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Christian Faith Center Raleigh Christian
Community Church
<C> <C>
$ 1,765,000 $ 1,425,000
$ 1,765,000 $ 1,425,000
100% 100%
$ 119,138 (6.75%) $ 90,750 (6.25%)
--- ---
$ 17,000 (1.0%) $ 14,000 (1.0%)
92.25% 92.75%
--- ---
--- ---
5/15/93 6/1/93
1 1
--- ---
= ======================== ========================
</TABLE>
A-6
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Porters Day Care and Outreach Christian Evergreen Missionary Faith Southwest Baptist
Education Center Center Baptist Church Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 350,000 $ 575,000 $ 345,000 $ 700,000
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000 $ 700,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 25,500 (7%) $ 39,963 (6.95%) $ 24,150 (7%) $ 48,650 (6.95%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 14,000 (3.1%) $ 12,000 (1.7%) $ 11,000 (3.2%) $ 14,000 (2.0%)
Percent Available to Issuer 89.9% 91.35% 89.8% 91.05%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 5/15/93 5/15/93 6/1/93 6/15/93
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Cornerstone Church St. Paul African
Methodist Episcopal
Church
<C> <C>
$ 4,355,000 $ 1,000,000
$ 4,355,000 $ 1,000,000
100% 100%
$ 293,963 (6.75%) $ 67,500 (6.75%)
--- ---
$ 37,250 (.85%) $ 19,000 (1.9%)
92.4% 91.35%
--- ---
--- ---
7/15/93 8/15/93
1 1
--- ---
= ======================== ========================
</TABLE>
A-7
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Windsor Village United First Baptist Church Peaceful Zion Central Holiness Church
Methodist Church Missionary Baptist
Church
Miami, FL
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,405,000
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,405,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 193,750 (6.25%) $ 175,500 (6.75%) $ 52,500 (7%) $ 87,813 (6.25%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 32,000 (1.0%) $ 30,500 (1.2%) $ 17,500 (2.3%) $ 12,000 (.85%)
Percent Available to Issuer 92.75% 92.05% 90.7% 92.8%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 9/1/93 10/1/93 10/15/93 11/15/93
Length of Offering (mos.) 2 1 1 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Apostolic Faith Home New Life Christian
Assembly Ministry
<C> <C>
$ 2,600,000 $ 2,000,000
$ 2,600,000 $ 2,000,000
100% 100%
$ 169,000 (6.5%) $ 130,000 (6.5%)
--- ---
$ 36,500 (1.4%) $ 23,000 (1.15%)
92.1% 92.0%
--- ---
--- ---
12/15/93 2/15/94
9 2
--- ---
= ======================== ========================
</TABLE>
A-8
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Calvary Temple of First Baptist Church Woodinville Church of Resurrection Life
Allentown, PA Christ Ministries
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 121,875 (6.25%) $ 46,250 (6.25%) $ 27,500 (6.25%) $ 90,300 (7%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 18,000 (.9%) $ 11,200 (1.5%) $ 12,000 (2.27%) $ 3,000 (.5%)
Percent Available to Issuer 92.85% 92.25% 91.48% 95.0%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 2/15/94 4/1/94 5/15/94 5/15/94
Length of Offering (mos.) 1 2 1 2
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Church of Jesus Christ By His Word Christian
Center
<C> <C>
$ 1,735,000 $ 1,665,000
$ 1,735,000 $ 1,665,000
100% 100%
$ 103,233 (5.95%) $ 71,595 (5.95%)
--- ---
$ 21,000 (1.2%) $ 17,000 (1.0%)
92.85% 93.05%
--- ---
--- ---
6/1/94 8/28/94
3 2
--- ---
= ======================== ========================
</TABLE>
A-9
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Liberty Church Morningstar Baptist Gates of Heaven Church Windsor Village United
Church Methodist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliates$ 53,550 (5.95%) $ 47,600 (5.95%) $ 202,300 (5.95%) $ 45,313 (6.25%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 11,000 (1.2%) $ 10,000 (1.25%) $ 30,000 (1.00%) $ 7,000 (1.00%)
Percent Available to Issuer 93.05% 92.80% 93.05% 92.75%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 7/1/94 9/15/94 11/15/94 1/1/95
Length of Offering (mos.) 5 3 10 2
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================= ======================== ======================== =======================
<CAPTION>
Hopewell Missionary St. Agnes Missionary
Baptist Church Baptist Church
<C> <C>
$ 6,350,000 $3,200,000
$ 6,350,000 $1,600,000
100% 100%
$ 377,825 (5.95%) $ 190,400 (5.95%)
--- ---
$ 45,000 (.71%) $ 27,000 (.84%)
94.05% 94.05%
--- ---
--- ---
1/15/95 3/15/95
10 6
--- --
= ======================== ========================
</TABLE>
A-10
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Church of the Great Zion Evangelistic Temple St. Mark's Missionary Emmanuel Baptist
Commission Baptist Church Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,200,000 $4,375,000 $360,000 $1,655,000
Dollar Amount Raised $2,200,000 $4,375,000 $360,000 $1,655,000
Percentage of Funds 100% 100% 100% 100%
Raised
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliate$ 130,900 (5.95%) $ 260,313 (5.95%) $ 24,300 (6.25%) $ 98,475 (5.95%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 25,500 (1.20%) $ 39,000 (.89%) $ 14,500 (4.02%) $ 20,000 (1.21%)
Percent Available to Issuer 93.00% 93.00% 89.00%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- ---
financing divided by total
acquisition cost)
Date Offering Began 4/1/95 4/15/95 04/01/95 07/15/95
Length of Offering (mos.) 6 6 6 6
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
The Community Abundant Life Church
Protestant Church of Christ
<C> <C>
$1,500,000 $1,425,000
$1,500,000 $1,425,000
100% 100%
$ 89,250 (5.95%) $ 80,888 (5.68%)
--- ---
$ 24,000 (1.6%) $ 30,000 (2.10%)
--- ---
08/15/95 10/15/95
7 3
--- ---
=== ======================== ========================
</TABLE>
A-11
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Greeley Church of Twelfth Avenue General The Holden Chapel House of Praise
Christ Baptist Church, Inc. Ministries, Inc.
<S> <C> <C> <C> <C>
Dollar Amount Offered $500,000 $1,195,000 $500,000 $675,000
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000
Percentage of Funds 100% 100% 100% 100%
Raised
Less Offering Expenses:
Selling Commissions &
Discounts Retained by Affiliat$s 41,500 (8.30%) $ 83,650 (7.00%) $ 29,750 (5.95%) $ 40,163 (5.95%)
Organizational Expenses --- --- --- ---
Other Underwriting Expenses $ 5,000 (1.00%) $ 5,000 (0.41%) $ 5,000 (1.00%) $ 20,837 (3.08%)
Percent Available to Issuer 90.70% 92.58% 93.05% 90.96%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisition cost)
Date Offering Began 10/15/95 10/15/95 11/01/95 10/01/95
Length of Offering (mos.) 2 1 1 10
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Pembroke Park Church Faith Community
of Christ, Inc. Church, Inc.
<C> <C>
$600,000 $950,000
$600,000 $950,000
100% 100%
$ 35,700 (5.95%) $ 64,800 (7.20%)
--- ---
$ 6,000 (1.00%) $ 13,000 (1.37%)
92.85% 91.81%
--- ---
--- ---
11/15/95 12/01/95
9 1
--- ---
=== ======================== ========================
</TABLE>
A-12
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Christ Church of Kirkland Oasis Christian Center Centennial Star St. Agnes Missionary
of Bethlehem Baptist Church
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,785,000 $825,000 $1,195,000 $875,000
Dollar Amount Raised $2,785,000 $825,000 $1,195,000 $875,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $ 192,165 (6.90%) $ 49,088 (5.95%) $ 71,103 (5.95%) $ 52,063 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 8,400 (0.30%) $ 12,000 (1.45%) $ 14,000 (1.17%) $ 15,000 (1.71%)
Percent Available to Issuer 92.78% 92.60% 92.88% 92.33%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 12/29/95 02/15/96 02/01/96 03/15/96
Length of Offering (mos.) 7 10 8 5
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Lake Baptist Cornerstone Church
Church
<C> <C>
$1,840,000 $6,600,000
$1,840,000 $6,600,000
100% 100%
$ 109,480 (5.95%) $ 412,500 (6.25%)
--- ---
$ 12,520 (1.06%) $ 32,000 (0.48%)
89.70% 93.26%
--- ---
--- ---
03/15/96 05/15/96
6 3
--- ---
=== ======================== ========================
</TABLE>
A-13
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Abundant Life Family Vollintine Baptist ChurchAloha Christian Life New Life Baptist
Worship Ctr., Inc. Inc. Center Church of Thurston
County
<S> <C> <C> <C> <C>
Dollar Amount Offered $2,025,000 $425,000 $1,380,000 $1,300,000
Dollar Amount Raised $2,025,000 $425,000 $1,380,000 $1,300,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $ 120,488 (5.95%) $ 25,288 (5.95%) $ 84,850 (6.15%) $ 77,350 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 21,000 (1.03%) $ 8,000 (1.88%) $ 15,000 (1.08%) $ 14,000 (1.08%)
Percent Available to Issuer 93.02% 92.17% 92.76% 92.97%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 08/15/96 08/15/96 09/01/96 10/15/96
Length of Offering (mos.) 5 4 7 5
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Centennial Star of Cornerstone Church
Bethlehem Baptist
Church of Ossining ,
New York
<C> <C>
$450,000 $4,680,000
$450,000 $4,680,000
100% 100%
$ 29,250 (6.50%) $278,460 (5.95%)
--- ---
$ 13,000 (2.89%) $ 36,540 (.78%)
90.61% 93.27%
--- ---
--- ---
11/15/96 12/15/96
4 4
--- ---
=== ======================== ========================
</TABLE>
A-14
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
United Baptist Church Spring Lake Church of New Jerusalem Church Aloha Christian Life
Christ Center
<S> <C> <C> <C> <C>
Dollar Amount Offered $1,525,000 $600,000 $2,300,000 $490,000
Dollar Amount Raised $1,525,000 $600,000 $2,300,000 $490,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $ 90,738 (5.95%) $ 52,800 (8.80%) $136,850 (5.95%) $ 44,100 (9.00%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 19,000 (1.24%) $ 10,000 (1.66%) $ 24,000 (1.04%) $ 7,000 (1.43%)
Percent Available to Issuer 92.81% 89.54% 93.01% 89.57%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 12/15/96 02/15/97 03/15/97 04/01/97
Length of Offering (mos.) 4 2 3 1
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Bethany Baptist Original Holy Ark
Church Missionary Baptist
Church
<C> <C>
$1,750,000 $675,000
$1,750,000 $675,000
100% 100%
$104,125 (5.95%) $ 42,188 (6.25%)
--- ---
$ 22,000 (1.25%) $ 14,000 (2.24%)
92.80% 91.51%
--- ---
--- ---
04/01/97 04/15/97
3 2
--- ---
=== ======================== ========================
</TABLE>
A-15
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Bethlehem Temple Centro de Capacitiacion Teen Mania Ministries, Full Gospel Christian
Community Church of Cristiana Inc. Assembly
Rialto
<S> <C> <C> <C> <C>
Dollar Amount Offered $1,200,000 $ 650,000 $2,300,000 $1,525,000
Dollar Amount Raised $1,200,000 $ 650,000 $2,300,000 $1,525,000
Percentage of Funds Raised 100% 100% 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $ 75,000 (6.25%) $ 45,050 (6.93%) $139,150 (6.05%) $ 95,313 (6.25%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 19,000 (1.58%) $ 15,250 (2.35%) $ 29,000 (1.26%) $ 23,000 (1.51%)
Percent Available to Issuer 92.17% 90.72% 92.69% 92.24%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 05/01/97 05/15/97 07/01/97 07/01/97
Length of Offering (mos.) 7 3 9 8
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Greater Mt. Zion Church of the Great
Missionary Baptist Commission
Church
<C> <C>
$1,185,000 $1,100,000
$1,185,000 $1,100,000
100% 100%
$ 74,063 (6.25%) $ 65,450 (5.95%)
--- ---
$16,500 (1.39%) $ 15,000 (1.36%)
92.36%
--- ---
--- ---
07/15/97 08/01/97
9 9
--- ---
=== ======================== ========================
</TABLE>
A-16
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
City Church Sharon Baptist Church New Hope Missionary The Holy Way Church,
Baptist Church Inc.
<S> <C> <C> <C> <C>
Dollar Amount Offered $1,600,000 $6,200,000 $2,300,000 $1,500,000
Dollar Amount Raised $1,563,000 $5,864,000 $2,300,000 $1,500,000
Percentage of Funds Raised 98% 97% (1) 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $111,360 (6.96%) $368,900 (5.95%) $139,150 (6.05%) $ 89,250 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 10,000 ( .63%) $ 36,000 (0.58%) $ 29,000 (1.26%) $ 21,000 (1.40%)
Percent Available to Issuer 92.42% 93.47% 92.69% 92.65%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 09/01/97 10/15/97 10/15/97 10/15/97
Length of Offering (mos.) 9 Open 9 8
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
<CAPTION>
Swope Parkway Church The Community
of Christ Protestant Church of
CO-OP City
<C> <C>
$1,200,000 $1,000,000
$1,200,000 $ 995,000
100% 99% (1)
$ 96,000 (8.00%) $ 59,500 (5.95%)
- --- ---
$ 6,000 ( .50%) $ 18,000 (1.80%)
91.50% 92.25%
- --- ---
- --- ---
11/01/97 11/15/97
7 Open
- --- ---
=== ======================== ========================
</TABLE>
(1) Offering still in progress. Figures reflect bond sales through May 31, 1998.
A-17
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (continued)
<TABLE>
<CAPTION>
Gospel Tabernacle Church The New York Dong New Life Baptist Church of the Great
Yang First Church Church Commission
<S> <C> <C> <C> <C>
Dollar Amount Offered $3,550,000 $ 735,000 $ 495,000 $1,900,000
Dollar Amount Raised $2,871,000 $ 721,000 $ 495,000 $1,900,000
Percentage of Funds Raised 81% (1) 98% (1) 100% 100%
Less Offering Expenses:
Selling Commissions &
Discounts retained by Affiliates $211,225 (5.95%) $ 43,733 (5.95%) $ 29,453 (5.95%) $113,050 (5.95%)
Organization Expenses --- --- --- ---
Other Underwriting Expenses $ 30,000 ( .85%) $ 10,000 (1.36%) $ 10,000 (2.02%) $ 19,000 (1.00%)
Percent Available to Issuer 93.20% 92.69% 92.03% 93.05%
Total Acquisition Cost --- --- --- ---
Percent Leverage (mortgage --- --- --- ---
financing divided by total
acquisitions costs)
Date Offering Began 02/01/98 03/15/98 03/15/98 04/01/98
Length of Offering (mos.) Open Open 2 2
Months to Invest 90% of
Amount Available for --- --- --- ---
Investment (measured from
beginning of offering)
================================= ======================== ========================== ======================= =====================
</TABLE>
(1) Offering still in progress. Figures reflect bond sales through May 31, 1998.
A-18
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES For Program Offerings
Concluded Since January 1991
<TABLE>
<CAPTION>
Hopewell Missionary New Life Christian Triumph New Testament Mt. Moriah African
Baptist Church Ministry Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 1/15/91 3/1/91 3/15/91 5/15/91
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000 $ 1,290,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 259,000 $ 50,050 $ 59,500 $ 90,300
- real estate fees
- advisory fees --- --- --- ---
- other (type & amount) (2)--- --- --- ---
$ 46,425 $ 20,000 $ 21,250 $ 24,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 24,574 $ 5,000 $ 6,411 $ 9,751
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Lake Baptist Church Temple Baptist Church
<C> <C>
8/1/91 8/1/91
$ 1,800,000 $ 1,850,000
$ 108,000 $ 129,500
---
--- ---
--- ---
$ 22,500 $ 35,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 10,206 $ 7,333
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees payable for the duration for
which each issuer's first mortgage bonds
are outstanding.
B-1
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
North Stelton African Shorter African New Life Christian Mt. Vernon Baptist
Methodist Episcopal Methodist Episcopal Ministry, Inc. Church
Church Church
<S> <C> <C> <C> <C>
Date Offering Commenced 10/15/91 11/1/91 12/1/91 12/15/91
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000 $ 1,350,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 50,750 $ 130,200 $ 8,250 $ 94,500
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 17,000 $ 34,800 $ 8,000 $ 27,500
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 5,196 $ 17,540 $ 358 $ 5,060
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Macedonia Missionary First Baptist Church
Baptist Church
<C> <C>
2/15/92 3/1/92
$ 1,195,000 $ 1,040,000
$ 83,650 $ 72,800
--- ---
--- ---
$ 12,100 $ 22,200
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 12,813 $11,002
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-2
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
World Missions By His Word Christian Metropolitan Baptist Christian Hope Center
Assembly Center Church
<S> <C> <C> <C> <C>
Date Offering Commenced 3/15/92 4/1/92 4/1/92 5/1/92
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000 $ 506,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $50,400 $ 85,050 $ 33,250 $ 35,420
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$15,100 $ 18,500 $ 13,750 $ 11,500
Dollar Amount of Cash Generated
from Operations before Deducting
Payments to Sponsor --- --- --- ---
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 2,554 $ 4,828 $ 5,016 $ 8,208
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Bible Missionary Baptist Central Holiness
Church Church
<C> <C>
5/15/92 6/15/92
$ 1,300,000 $ 250,000
$ 91,000 $ 17,500
--- ---
--- ---
$ 32,250 $ 10,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 13,474 $ 7,596
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-3
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
St. James Episcopal Church of Jesus Christ Temple Baptist Church Mt. Zion African
Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 6/24/92 7/1/92 8/1/92 8/15/92
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000 $ 875,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 85,085 $ 89,600 $ 26,700 $ 61,250
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 12,215 $ 17,000 $ 11,900 $ 16,000
Dollar Amount of Cash Generated
from Operations before Deducting
Payments to Sponsor --- --- --- ---
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 8,692 $ 4,022 $ 765 $ 2,243
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Calvary Temple of Bethel Baptist Church
Allentown, PA
<C> <C>
9/1/92 9/15/92
$ 1,820,000 $ 525,000
$ 127,400 $ 36,750
--- ---
--- ---
$ 37,500 $ 12,250
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 5,356 $ 5,157
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fee remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-4
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Unity Palo Alto Christian Love Baptist Tabernacle Baptist Lee Memorial African
Community Church Church Church Methodist Episcopal
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 10/1/92 11/15/92 11/15/92 12/15/92
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000 $ 1,225,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 147,150 $ 35,000 $ 108,500 $ 85,750
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 20,000 $ 13,000 $ 22,000 $ 21,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 12,943 $ 4,998 $ 11,888 $ 8,502
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Nazareth Baptist Church Christian Pentecostal
Church
<C> <C>
1/15/93 2/1/93
$ 390,000 $ 1,600,000
$ 27,300 $ 112,000
--- ---
--- ---
$ 9,700 $ 24,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 4,460 $ 8,053
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-5
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Mount Zion Christian Lake Baptist Church St. Marks Missionary Friendship Missionary
Baptist Church Baptist Church Baptist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 1/15/93 2/1/93 2/1/93 4/1/93
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000 $ 700,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 52,500 $ 25,550 $ 105,000 $ 49,000
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 14,500 $ 8,000 $ 23,000 $ 15,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 7,151 $ 1,540 $ 9,101 $ 6,573
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Christian Faith Center Raleigh Christian
Community
<C> <C>
5/15/93 6/1/93
$ 1,765,000 $ 1,425,000
$ 119,138 $ 90,750
--- ---
--- ---
$ 17,000 $ 14,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 9,146 $ 9,995
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-6
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Porters Day Care and Outreach Christian Evergreen Baptist Faith Southwest Baptist
Educational Center Center Church Church
<S> <C> <C> <C> <C>
Date Offering Commenced 5/15/93 5/15/93 6/1/93 6/15/93
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000 $ 700,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 25,500 $ 39,963 $ 24,150 $ 48,650
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 14,000 $ 12,000 $ 11,000 $ 14,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 3,230 $ 5,119 $ 966 $ 4,819
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Cornerstone Church St. Paul African
Methodist Episcopal
Church
<C> <C>
7/15/93 8/15/93
$ 4,355,000 $ 1,000,000
$ 293,963 $ 67,500
--- ---
--- ---
$ 37,250 $ 19,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 10,468 $ 7,216
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-7
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Windsor Village United First Baptist Church Peaceful Zion Central Holiness Church
Methodist Church Missionary Baptist
Church
<S> <C> <C> <C> <C>
Date Offering Commenced 9/1/93 10/1/93 10/15/93 11/15/93
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000 $ 1,405,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 193,750 $ 175,500 $ 52,500 $ 87,813
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 32,000 $ 30,500 $ 17,500 $ 12,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 19,333 $ 17,272 $ 6,226 $11,102
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Apostolic Faith Home New Life Christian
Assembly Ministry
<C> <C>
12/15/93 2/15/94
$ 2,600,000 $ 2,000,000
$ 169,000 $ 130,000
--- ---
--- ---
$ 36,500 $ 23,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 15,376 $ 16,115
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-8
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Calvary Temple of First Baptist Church Woodinville Church of Resurrection Life
Allentown, PA Christ Ministries
<S> <C> <C> <C> <C>
Date Offering Commenced 2/15/94 4/1/94 5/15/94 5/15/94
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000 $ 620,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 121,875 $ 46,250 $ 27,500 $ 90,300
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 18,000 $ 11,200 $ 12,000 $ 3,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisory Fee earned --- --- --- ---
to date (3) $ 9,601 $ 12,948 $ 2,574 $ 18,096
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Church of Jesus Christ By His Word Christian
Center
<C> <C>
6/1/94 8/28/94
$ 1,735,000 $ 1,665,000
$ 103,233 $ 71,595
--- ---
--- ---
$ 21,000 $ 17,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 14,091 $ 13,892
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-9
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Liberty Church Morningstar Baptist Gates of Heaven Windsor Village United
Church Methodist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 7/1/94 9/15/94 11/15/94 1/1/95
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000 $ 725,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 53,550 $ 47,600 $ 202,300 $ 45,313
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 11,000 $ 10,000 $ 30,000 $ 7,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations: --- ---
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 7,775 $ 7,966 $ 18,612 $ 3,374
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Hopewell Missionary St. Agnes Missionary
Baptist Church Baptist Church
<C> <C>
1/15/95 3/15/95
$ 6,350,000 $3,200,000
$ 377,825 $ 190,400
--- ---
--- ---
$ 45,000 $ 27,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 24,556 $ 11,866
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-10
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Church of the Great Zion Evangelistic St. Mark's Missionary Emmanuel Baptist
Commission Temple Baptist Church Church
<S> <C> <C> <C> <C>
Date Offering Commenced 4/1/95 4/15/95 04/01/95 07/15/95
Dollar Amount Raised $ 2,200,000 $4,375,000 $360,000 $1,655,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 130,900 $ 260,313 $ 24,300 $ 98,475
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 25,500 $ 39,000 $ 14,500 $ 20,000
Dollar Amount of Cash Generated --- --- ___ ___
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 10,891 $ 17,949 $ 2,858 $ 10,689
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
The Community Abundant Life Church
Protestant Church of Christ
<C> <C>
08/15/95 10/15/95
$1,500,000 $1,425,000
$ 89,250 $ 80,888
--- ---
--- ---
$ 24,000 $ 30,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 9,541 $ 8,169
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-11
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Greeley Church of Twelfth Avenue General The Holden Chapel House of Praise
Christ Baptist Church, Inc. Ministries, Inc.
<S> <C> <C> <C> <C>
Date Offering Commenced 10/15/95 10/15/95 11/01/95 10/01/95
Dollar Amount Raised $500,000 $1,195,000 $500,000 $675,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 41,500 83,650 29,750 $ 40,163
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 5,000 $ 5,000 $5,000 $ 20,837
Dollar Amount of Cash Generated --- --- ___ ___
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) --- --- $ 1,465 $ 3,328
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing: --- ---
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Pembroke Park Church Faith Community
of Christ, Inc. Church, Inc.
<C> <C>
11/15/95 12/01/95
$600,000 $950,000
$ 35,700 $ 84,800
--- ---
--- ---
$ 6,000 $ 13,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 1,766 ---
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-12
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Christ Church of Oasis Christian Center Centennial Star of St. Agnes Missionary
Kirkland Bethlehem Baptist Church
<S> <C> <C> <C> <C>
Date Offering Commenced 12/29/95 02/15/96 02/01/96 03/15/96
Dollar Amount Raised $2,785,000 $825,000 $1,195,000 $875,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 192,165 $ 49,088 $ 71,103 $ 52,063
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 8,400 $ 12,000 $ 14,000 $ 15,000
Dollar Amount of Cash Generated --- --- ___ ___
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 12,032 $ 4,326 $ 5,236 $ 9,639
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Lake Baptist Cornerstone Church
Church
<C> <C>
03/15/96 05/15/96
$1,840,000 $6,600,000
$ 109,480 $ 412,500
--- ---
--- ---
$ 12,520 $ 32,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 10,125 $ 7,079
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-13
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Abundant Life Family Vollintine Baptist Aloha Christian Life New Life Baptist Church
Worship Ctr. Inc. Church, Inc. Center of Thurston County
<S> <C> <C> <C> <C>
Date Offering Commenced 08/15/96 08/15/96 09/01/96 10/15/96
Dollar Amount Raised $2,025,000 $ 425,000 $1,380,000 $1,300,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $120,488 $ 25,288 $ 84,850 $ 77,350
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 21,000 $ 8,000 $ 15,000 $ 14,000
Dollar Amount of Cash Generated --- --- ___ ___
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 8,048 $ 1,526 $ 1,887 $ 3,891
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Centennial Star of Cornerstone Church
Bethlehem Baptist
Church of Ossining, New
York
<C> <C>
11/15/96 12/15/96
$ 450,000 $4,680,000
$ 29,250 $278,460
--- ---
--- ---
$ 13,000 $ 36,540
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 807 $ 10,273
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-14
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
United Baptist Church Spring Lake Church of New Jerusalem Church Aloha Christian Life
Christ Center
<S> <C> <C> <C> <C>
Date Offering Commenced 12/15/96 02/15/97 03/15/97 04/01/97
Dollar Amount Raised $1,525,000 $ 600,000 $2,300,000 $490,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 90,738 $ 52,800 $136,850 $ 44,100
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 19,000 $ 10,000 $ 24,000 $ 7,000
Dollar Amount of Cash Generated --- --- ___ ___
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 2,732 $ 1,652 $ 2,760 $ 3,025
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== ======================
<CAPTION>
Bethany Baptist Church Original Holy Ark
Missionary Baptist
Church
<C> <C>
04/01/97 04/15/97
$1,750,000 $675,000
$104,125 $ 42,188
--- ---
--- ---
$ 22,000 $ 14,000
___ ___
--- ---
--- ---
--- ---
--- ---
--- ---
$ 4,176 $ 1,523
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-15
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Bethlehem Temple of Centro de Capacitiacion Teen Mania Ministries Full Gospel Christian
Rialto Cristiana Assembly
<S> <C> <C> <C> <C>
Date Offering Commenced 05/01/97 05/15/97 07/01/97 07/01/97
Dollar Amount Raised $ 1,200,000 $ 650,000 $2,300,000 $1,525,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 75,000 $ 45,050 $ 139,150 $ 95,313
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 19,000 $ 15,250 $ 29,000 $ 23,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 2,420 $ 1,470 $ 3,883 $ 3,362
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Greater Mt. Zion Church of the Great
Missionary Baptist Commission
Church
<C> <C>
07/15/97 08/01/97
$1,185,000 $1,100,000
$ 74,063 $ 65,450
--- ---
--- ---
$ 16,500 $ 15,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 2,133 $ 2,310
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 09/01/97. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-16
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
City Church Sharon Baptist Church New Hope Missionary The Holy Way Church,
Baptist Church Inc.
<S> <C> <C> <C> <C>
Date Offering Commenced 09/01/97 10/15/97 10/15/97 10/15/97
Dollar Amount Raised $1,563,000 $ 5,864,000 $2,300,000 $1,500,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 108,785 $ 348,908 $139,150 $ 89,250
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 10,000 $ 36,000 $ 29,000 $ 21,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 2,442 $ 7,436 $ 2,236 $ 1,567
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
================================= ======================== ======================== ======================== =======================
<CAPTION>
Swope Parkway Church The Community
of Christ Protestant Church of CO-
OP City
<C> <C>
11/01/97 11/15/97
$1,200,000 $ 995,000
$ 96,000 $ 59,203
--- ---
--- ---
$ 6,000 $ 18,000
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
$ 0 $ 1,404
--- ---
--- ---
--- ---
--- ---
--- ---
--- ---
= ======================== ========================
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-17
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (continued) For Program
Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
Gospel Tabernacle New York Dong Yang New Life Baptist Church of the Great
Church First Church Commission.
<S> <C> <C> <C> <C>
Date Offering Commenced 02/01/98 03/15/98 03/15/98 04/01/98
Dollar Amount Raised $2,871,000 $ 735,000 $ 495,000 $1,900,000
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $170,825 $ 43,733 $ 29,453 $113,050
Acquisition Fees
- real estate fees --- --- --- ---
- advisory fees --- --- --- ---
- other (type & amount) (2)$ 30,000 $ 10,000 $ 10,000 $ 19,000
Dollar Amount of Cash Generated --- --- --- ---
from Operations before Deducting
Payments to Sponsor
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- --- ---
Partnership Management Fees --- --- --- ---
Reimbursements --- --- --- ---
Leasing Commissions --- --- --- ---
Annual Advisor Fee earned --- --- --- ---
to date (3) $ 2,132 $ 0 $ 0 $ 0
Other (identify & quantify) --- --- --- ---
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- --- ---
Notes --- --- --- ---
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- --- ---
Incentive Fees --- --- --- ---
Other (identify & quantify) --- --- --- ---
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group, Inc.,
Underwriter, an affiliate of the Advisor and the Managing Underwriter of the
Company's offering of its shares. (2) Represent direct expense reimbursements
for expenses incurred by American Investors Group, Inc., in connection with the
offer and sale of the respective issuers' first mortgage bonds. (3) Represents
the aggregate quarterly administrative fees paid by the issuers to American
Investors Group, Inc., through 06/01/98. These fees remain payable for the
duration for which each issuer's first mortgage
bonds are outstanding.
B-18
<PAGE>
<TABLE>
<CAPTION>
TABLE II B
LOCATION OF PRIOR MORTGAGE LOANS TO CHURCHES
MADE BY AFFILIATE* OF ADVISOR
1987 to June 1, 1998
Total Original Principal Loans Made in Each
Number of Amount of Loans State as Percentage
Loans** Made Made In Each State of Total Loans Made
<S> <C> <C> <C>
Arizona 2 $ 1,600,000 0.86%
California 9 15,040,000 8.11%
Colorado 3 2,820,000 1.52%
Connecticut 1 1,655,000 0.89%
District of Columbia 4 5,510,000 2.97%
Florida 5 5,575,000 3.01%
Georgia 5 12,770,000 6.89%
Illinois 6 5,925,000 3.20%
Indiana 1 1,195,000 0.64%
Kansas 1 475,000 0.26%
Maryland 6 8,390,000 4.53%
Massachusetts 1 500,000 0.27%
Michigan 2 6,675,000 3.60%
Minnesota 4 5,365,000 2.89%
Missouri 1 1,200,000 0.65%
New Jersey 8 8,190,000 4.42%
New York 16 13,245,000 7.14%
North Carolina 3 3,477,000 1.88%
Ohio 1 1,225,000 0.66%
Oklahoma 2 1,470,000 0.79%
Oregon 6 6,625,000 3.57%
Pennsylvania 4 10,320,000 5.57%
Tennessee 8 7,440,000 4.01%
Texas 19 42,190,000 22.76%
Virginia 4 5,271,000 2.84%
Washington 8 11,240,000 6.06%
130 $ 185,388,000 100.00%
</TABLE>
* Loans were made through first mortgage bond underwritings
conducted by the Managing Underwriter, American Investors Group,
Inc., which is an affiliate of the Advisor.
** Data includes refinancings of prior bond underwriting programs
underwritten by American Investors Group, Inc.
B-19
<PAGE>
TABLE III
MORTGAGE BOND FINANCINGS BY MANAGING UNDERWRITER
The purpose of this summary is to provide information on the prior
performance of the first mortgage church financing programs underwritten by
American Investors Group, Inc., so as to provide a basis to evaluate the
experience of the Advisor's affiliate -- American, which is owned and controlled
by the principals of the Advisor. Notwithstanding the foregoing, although many
of the financing guidelines and principles applicable to the Company's
investment and business plan are applied in American's bond underwriting
procedures, there can be no assurance that the results of financings
underwritten by American, or the yields represented thereby, can or will be
achieved by the Company, and the data herein is presented for information
purposes only.
Material factors common to all of the church bond financing projects listed
below include:
o Secured by first mortgages with loan-to-value ratios of 75% or
less, based on written appraisals issued by a Member of the
Appraisal Institute ("MAI") or a state-certified appraiser.
o Fixed interest rate loans with level or limited graduated
payments.
o ALTA or equivalent mortgagee title insurance policy required.
o Borrower's total long-term debt (including the financing) limited
to a multiple of four (4) times gross income for its most recent
12 months.
o Borrower required to furnish audited financial statements for its
most recent complete fiscal year, and reviewed or compiled
financial statements for the two complete fiscal years prior to
the most recent and, on a comparative basis, for the current
period within 90 days of the financing date.
o A security interest in all personal property of the borrower is
required.
o Key-man life insurance and automatic weekly loan payments are
required.
<TABLE>
<CAPTION>
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Deeper Life Christian 5/87 $1,038,000 51% 11.00%/May 2002 10.63% Current 1.13 15 yrs
Fellowship, Inc.
2. Isrealite Church of God 5/87 460,000 71% 11.25%/May 1998 11.00% Current 2.13 15 yrs
in Christ, Inc.
3. Speak the Word Church and 7/87 3,650,000 70% 10.50%/July 1999 10.25% Current 2.57 12 yrs
World Outreach
4. Raleigh Christian Community 9/87 1,425,000 62% 11.25%/Sept 2000 11.00% Repaid 3.24 13 yrs
5. Palm Beach Cathedral AOG, Inc. 1/88 1,425,000 75% 11.25%/Jan 2001 11.00% Default 3.13 13 yrs
6. Windsor Village United 4/88 1,570,000 75% 12.2%/Apr 2000 12.00% Repaid 1.78 12 yrs
Methodist
7. Deeper Life Christian 6/88 332,000 67% 11.0%/Nov 1996 10.80% Current 1.85 11 yrs
Fellowship, Inc.
8. Macedonia Missionary 9/88 750,000 71% 12.25%/Sept 2003 12.15% Repaid 2.85 15 yrs
Baptist Church
9. St. Agnes Missionary 9/88 900,000 58% 12.25%/Sept 2002 12.15% Repaid 2.45 14 yrs
Baptist Church
10. Way of the Cross Church 11/88 895,000 39% 11.0%/July 2000 10.85% Repaid 1.32 11 yrs
11. Grace Community Fellowship 1/89 750,000 71% 12.25%/July 2002 12.10% Repaid 2.50 13.5 yrs
12. Faith Outreach International 4/89 1,720,000 75% 12.40%/Apr 2004 12.25% Repaid 1.52 15 yrs
d/b/a Christian Faith Centre
13. By His Word Christian Center 5/89 1,040,000 75% 12.50%/May 2004 12.50% Repaid 1.92 15 yrs
14. Minneapolis Church of God 6/89 200,000 36% 12.50%/June 2000 12.15% Current 1.33 15 yrs
15. Austin Church on the Rock 9/89 960,000 75% 12.50%/Sept 2004 12.40% Current 2.80 15 yrs
</TABLE>
- --------------------------------------------------------------------------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan to the
appraised value of the real property serving as collateral for the loan. (2)
Represents the highest interest rate payable on the longest maturing bonds
issued by the borrowing church in the financing. (3) Represents the average
interest payable by the borrowing church assuming the loan remains outstanding
through its full term. (4) Multiple of principal amount of bond loan times the
borrower's total support and revenues in the most recently completed fiscal year
prior to the bond underwriting.
C-1
<PAGE>
<TABLE>
<CAPTION>
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16. Macedonia Missionary Baptist 9/89 390,000 71% 12.50%/Sept 2004 12.25% Repaid 3.45 15 yrs
Church
17. Reid Temple A.M.E. Church 12/89 1,350,000 75% 12.40%/Dec 2004 12.00% Current 4.27 15 yrs
18. Unity Palo Alto Church 2/90 2,000,000 38% 12.25%/Feb 1990 12.00% Repaid 2.40 15 yrs
19. Bishop Pickens Memorial Temple 3/90 340,000 54% 12.40%/Mar 2005 12.20% Repaid 3.00 15 yrs
20. Greater New Zion Baptist Church 5/90 570,000 59% 12.40%/May 2005 12.20% Current 2.93 15 yrs
21. St. Stephen's Missionary 6/90 1,100,000 63% 12.40%/June 2005 12.30% Repaid 3.10 15 yrs
Baptist Church
22. Church of the Living God 6/90 1,145,000 64% 12.40%/June 2004 12.20% Current 2.49 15 yrs
23. Bethlehem Missionary Church 8/90 675,000 55% 12.25%/Aug 2005 12.20% Current 2.44 15 yrs
24. Central Holiness Church 10/90 1,065,000 70% 12.30%/Oct 2005 12.00% Repaid 2.76 15 yrs
25. Hopewell Missionary Baptist 1/91 3,700,000 64% 12.30%/Jan 2006 11.90% Repaid 4.08 15 yrs
Church
26. New Life Christian Ministry 3/91 715,000 65% 12.30%/Mar 2006 11.90% Repaid 2.19 15 yrs
27. Triumph New Testament Church 3/91 850,000 53% 12.20%/Mar 2006 11.90% Repaid 1.55 15 yrs
28. Mount Moriah A.M.E. Church 5/91 1,290,000 69% 12.00%/May 2006 11.80% Repaid 8.05 15 yrs
29. Temple Baptist Church 8/91 1,850,000 58% 12.20%/Aug 2006 12.10% Repaid 2.92 15 yrs
30. Lake Baptist Church 8/91 1,800,000 51% 12.00%/Aug 2006 11.80% Current 2.94 15 yrs
31. North Stelton A.M.E. Church 10/91 725,000 53% 12.00%/Oct 2006 11.80% Current 2.81 15 yrs
32. Shorter Community A.M.E. 11/91 1,860,000 53% 12.00%/Nov 2006 11.80% Current 2.83 15 yrs
Church
33. New Life Christian Ministry 12/91 110,000 72% 12.00%/Mar 2007 11.80% Repaid 2.53 15 yrs
34. Mount Vernon Baptist Church 12/91 1,350,000 65% 11.90%/Dec 2006 11.75% Repaid 1.84 15 yrs
35. Macedonia Missionary Baptist 2/92 1,195,000 75% 11.20%/Feb 2007 11.00% Current 3.37 15 yrs
Church
36. First Baptist Church of Corona 3/92 1,040,000 40% 11.20%/Mar 2007 11.00% Current 2.47 15 yrs
37. World Missions Assembly 3/92 720,000 64% 11.20%/Mar 2007 11.00% Default 2.04 15 yrs
38. By His Word Christian Center 4/92 1,215,000 74% 11.00%/Apr 2007 10.60% Repaid 2.03 15 yrs
39. Metropolitan Baptist Church 4/92 475,000 75% 11.20%/Apr 2007 10.90% Current 1.73 15 yrs
40. Christian Hope Center, Ltd. 5/92 506,000 70% 11.00%/May 2007 10.60% Current 2.89 15 yrs
41. Bible Missionary 5/92 1,300,000 62% 11.00%/May 2007 10.50% Current 2.55 15 yrs
Baptist Church-Miami
42. Central Holiness Church 6/92 250,000 69% 11.20%/June 2007 11.20% Repaid 3.42 15 yrs
43. St. James Episcopal Church 6/92 1,430,000 45% 10.00%/June 2009 9.25% Current 1.86 17 yrs
44. Church of Jesus Christ 7/92 1,280,000 55% 11.00%/July 2007 10.50% Repaid 3.00 15 yrs
45. Temple Baptist Church 8/92 380,000 65% 11.20%/Feb 2008 11.50% Repaid 3.00 15 yrs
of Nashville
46. Mount Zion A.M.E. Church 8/92 875,000 38% 10.00%/Aug 2005 9.50% Repaid 3.30 13 yrs
47. Calvary Temple of Allentown, PA 9/92 1,820,000 38% 11.00%/Sept 2007 10.25% Repaid 2.23 15 yrs
48. Bethel Baptist Church 9/92 525,000 56% 11.00%/Sept 2007 10.75% Current 2.40 15 yrs
49. Palo Alto Community Church 10/92 2,180,000 41% 10.25%/Oct 2007 9.40% Current 1.93 15 yrs
50. Christian Love Baptist Church 11/92 500,000 44% 10.30%/Nov 2007 9.80% Current 1.02 15 yrs
51. Tabernacle Baptist Church 11/92 1,550,000 63% 10.75%/Nov 2007 10.40% Repaid 2.55 15 yrs
52. Lee Memorial A.M.E. Church 12/92 1,225,000 63% 10.30%/Dec 2007 9.90% Repaid 3.94 15 yrs
53. Nazareth Baptist Church 1/93 390,000 24% 10.30%/Jan 2008 10.20% Current 3.14 15 yrs
- --------------------------------------------------------------------------------
</TABLE>
(1) Ratio (expressed as a percentage) of the principal amount of the loan to the
appraised value of the real property serving as collateral for the loan. (2)
Represents the highest interest rate payable on the longest maturing bonds
issued by the borrowing church in the financing. (3) Represents the average
interest payable by the borrowing church assuming the loan remains outstanding
through its full term. (4) Multiple of principal amount of bond loan times the
borrower's total support and revenues in the most recently completed fiscal year
prior to the bond underwriting.
C-2
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
54. Christian Pentecostal 2/93 1,600,000 46% 10.30%/Feb 2008 9.80% Current 3.28 15 yrs
Church of Christ
55. Mt. Zion Christian 1/93 750,000 59% 10.30%/Jan 2008 9.80% Current 3.30 15 yrs
Baptist Church
56. Lake Baptist Church 2/93 365,000 60% 10.00%/Aug 2007 10.00% Current 2.66 14.5 yrs
57. St. Mark's Missionary 2/93 1,500,000 67% 10.30%/Feb 2008 9.90% Current 2.90 15 yrs
Baptist Church
58. Friendship Missionary 4/93 700,000 48% 10.00%/Apr 2008 9.90% Current 1.77 15 yrs
Baptist Church
59. Christian Faith Centre 5/93 1,765,000 66% 10.00%/May 2008 9.50% Repaid 1.86 15 yrs
60. Raleigh Christian Community 6/93 1,452,000 70% 10.00%/June 2008 9.50% Current 1.19 15 yrs
61. Porter's Day Care and 5/93 350,000 51% 10.00%/May 2008 9.80% Current .65 15 yrs
Educational Ctr.
62. Outreach Christian Center 5/93 575,000 46% 10.00%/May 2008 9.60% Current 1.86 15 yrs
63. Evergreen Baptist Church 6/93 345,000 36% 10.00%/June 2008 9.80% Repaid 1.73 15 yrs
64. Faith Southwest Baptist Church 6/93 700,000 66% 10.00%/Jun 2008 9.70% Default 2.07 15 yrs
65. Cornerstone Church 7/93 4,355,000 66% 10.00%/July 2008 9.70% Current 1.92 15 yrs
66. St. Paul A.M.E. Church 8/93 1,000,000 29% 9.80%/Aug 2008 9.50% Current 2.25 15 yrs
67. Windsor Village United 9/93 3,100,000 37% 9.65%/Sept 2008 9.25% Current 1.03 15 yrs
Methodist
68. First Baptist Church 10/93 2,600,000 55% 9.70%/Oct 2008 9.35% Current 2.86 15 yrs
of Hampton
69. Peaceful Zion Missionary 10/93 750,000 59% 9.70%/Oct 2008 9.65% Current 2.72 15 yrs
Baptist
70. Central Holiness Church 11/93 1,405,000 67% 9.65%/Nov 2008 9.25% Current 3.18 15 yrs
71. The Apostolic Faith Home 12/93 2,600,000 45% 9.50%/Dec 2008 9.20% Current 1.75 15 yrs
Assembly
72. New Life Christian Ministry 2/94 2,000,000 70% 9.75%/Feb 20012 9.45% Current 2.60 18 yrs
73. Calvary Temple of Allentown 2/94 1,950,000 41% 10.00%/Dec 20014 9.50% Current 2.34 20 yrs
74. First Baptist Church of Hampton 4/94 740,000 54% 9.55%/Octo 2010 9.50% Current 3.31 16.5 yrs
75. Woodinville Church of Christ 5/94 440,000 58% 9.75%/May 2014 9.38% Current 2.03 20 yrs
76. Resurrection Life Ministries 5/94 620,000 72% 8.50%/May 2001 8.40% Current 2.50 7 yrs
77. Church of Jesus Christ 6/94 1,735,000 75% 9.80%/June 2014 9.38% Current 3.96 20 yrs
78. Liberty Church 7/94 900,000 75% 8.55%/July 2001 8.45% Current 2.14 7 yrs
79. By His Word Christian Center 9/94 1,665,000 75% 9.80%/Aug 2014 9.40% Current 2.39 20 yrs
80. Morningstar Missionary 9/94 800,000 57% 9.80%/Sept 2014 9.60% Current 1.45 20 yrs
Baptist Church
81. Iglesia Puerta Del Cielo 11/94 3,400,000 62% 10.00%/Nov 2014 9.75% Current 1.70 20 yrs
82. Hopewell Missionary Baptist 1/95 6,350,000 68% 10.20%/Jan 2015 9.90% Repaid 4.00 20 yrs
Church
83. Windsor Village United 1/95 725,000 58% 10.00%/Sept 2010 10.00% Current 1.14 15.5 yrs
Methodist
84. St. Agnes Missionary Baptist 3/95 3,200,000 59% 10.20%/Mar 2015 10.00% Current 2.22 20 yrs
Church
85. Church of the Great Commission 4/95 2,200,000 57% 10.20%/Mar 2015 10.00% Current 1.50 20 yrs
86. Zion Evangelistic Temple 4/95 4,375,000 46% 10.20%/Apr 2015 10.00% Current 2.40 20 yrs
87. St. Mark's Missionary 4/95 360,000 72% 10.20%/Feb 2010 10.20% Current 2.04 15 yrs
Baptist Church
88. Emmanuel Baptist Church 7/95 1,655,000 47% 10.20%/July 2015 9.85% Current 1.88 20 yrs
89. The Community Protestant Church 8/95 1,500,000 50% 10.20%/Aug 2015 9.75% Current 2.20 20 yrs
90. Abundant Life Church of Christ 10/95 1,425,000 67% 10.20%/Oct 2015 9.75% Current 2.58 20 yrs
</TABLE>
- --------------------------------------------------------------------------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan to the
appraised value of the real property serving as collateral for the loan. (2)
Represents the highest interest rate payable on the longest maturing bonds
issued by the borrowing church in the financing. (3) Represents the average
interest payable by the borrowing church assuming the loan remains outstanding
through its full term. (4) Multiple of principal amount of bond loan times the
borrower's total support and revenues in the most recently completed fiscal year
prior to the bond underwriting.
C-3
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
91. Greeley Church of Christ 10/95 500,000 33% 10.20%/Oct 2015 9.75% Current 1.98 20 yrs
92. Twelfth Ave. General 10/95 1,195,000 55% 9.90%/Oct 2010 9.50% Current 1.41 15 yrs
Baptist Church
93. Holden Chapel 11/95 500,000 42% 10.20%/Nov 2015 9.80% Current .65 20 yrs
94. House of Praise Ministries 10/95 675,000 38% 10.20%/Oct 2015 9.75% Current 1.42 20 yrs
95. Pembroke Park Church of Christ 11/95 600,000 68% 10.20%/Nov 2015 9.75% Current 3.25 20 yrs
96. Faith Community Church 12/95 950,000 40% 10.00%/Dec 2010 9.60% Current .78 15 yrs
97. Christ Church of Kirkland 12/95 2,785,000 65% 10.20%/Jan 2016 9.75% Current 2.96 20 yrs
98. Oasis Christian Center 02/96 825,000 69% 10.20%/Feb 2016 9.75% Current 1.55 20 yrs
99. Centennial Star of 02/96 1,195,000 52% 10.20%/Feb 2016 9.75% Current 3.28 20 yrs
Bethlehem Church
100. St. Agnes Missionary 03/96 875,000 67% 10.20%/Mar 2016 10.05% Current 2.82 20 yrs
Baptist Church
101. Lake Baptist Church 03/96 1,840,000 63% 10.05%/Sept 2011 9.95% Current 2.83 15 yrs
102. Cornerstone Church 05/96 6,600,000 68% 10.00%/May 2011 9.70% Current 1.59 15 yrs
103. Abundant Life Family 08/96 2,025,000 70% 10.20%/Aug 2016 9.85% Current 2.68 20 yrs
Worship Ctr, Inc.
104. Vollintine Baptist 08/96 425,000 65% 10.35%/Aug 2016 9.85% Current 1.68 20 yrs
Church, Inc.
105. Aloha Christian Life Center 09/96 1,380,000 48% 10.20%/Sept 2016 9.85% Current 3.30 20 yrs
106. New Life Baptist Church 10/96 1,300,000 59% 10.20%/Oct 2016 9.85% Current 3.58 20 yrs
of Thurston Cty
107. Centennial Star of Bethlehem 11/96 450,000 59% 10.30%/Nov 2016 9.85% Current 3.59 20 yrs
Baptist
108. Cornerstone Church 12/96 4,680,000 69% 10.00%/Dec 2011 9.85% Current 1.58 15 yrs
109. United Baptist Church 12/96 1,525,000 61% 10.20%/Dec 2016 9.85% Current 2.55 20 yrs
110. Spring Lake Church of Christ 02/97 600,000 67% 10.20%/Feb 2017 9.85% Current 3.84 20 yrs
111. New Jerusalem Church 03/97 2,300,000 67% 10.20%/Mar 2017 9.85% Current 2.69 20 yrs
112. Aloha Christian Life Center 04/97 490,000 52% 10.20%/Apr 2017 9.90% Current 2.34 20 yrs
113. Bethany Baptist Church 04/97 1,750,000 36% 10.20%/Apr 2017 9.80% Current 2.67 20 yrs
107. Centennial Star of Bethlehem 11/96 450,000 59% 10.30%/Nov 2016 9.85% Current 3.59 20 yrs
Baptist
108. Cornerstone Church 12/96 4,680,000 69% 10.00%/Dec 2011 9.85% Current 1.58 15 yrs
109. United Baptist Church 12/96 1,525,000 61% 10.20%/Dec 2016 9.85% Current 2.55 20 yrs
110. Spring Lake Church of Christ 02/97 600,000 67% 10.20%/Feb 2017 9.85% Current 3.84 20 yrs
111. New Jerusalem Church 03/97 2,300,000 67% 10.20%/Mar 2017 9.85% Current 2.69 20 yrs
112. Aloha Christian Life Center 04/97 490,000 52% 10.20%/Apr 2017 9.90% Current 2.34 20 yrs
113. Bethany Baptist Church 04/97 1,750,000 36% 10.20%/Apr 2017 9.80% Current 2.67 20 yrs
114. Original Holy Ark Missionary 04/97 675,000 52% 10.10%/Apr 2017 9.84% Current 1.26 20 yrs
Baptist Church
115. Bethlehem Temple Community 05/97 1,200,000 51% 10.10%/May 2017 9.84% Current 1.05 20 yrs
Church of Rialto
116. Teen Mania Ministries, Inc. 07/97 2,300,000 65% 10.10%/July 2017 9.81% Current 4.34 20 yrs
117. Full Gospel Christian Assembly 07/97 1,525,000 71% 10.10%/July 2017 9.84% Current 1.48 20 yrs
118. Full Gospel Christian Assembly 07/97 1,525,000 71% 10.10%/July 2017 9.84% Current 1.48 20 yrs
119. Greater Mt. Zion Missionary
Baptist Church 07/97 1,185,000 75% 10.10%/July 2017 9.84% Current 1.75 20 yrs
120. Church of the Great Commission 08/97 1,100,000 55% 10.10%/July 2017 9.94% Current 1.06 20 yrs
121. City Church 09/97 1,600,000 48% 10.10%/Sept 2017 9.81% Current 1.04 20 yrs
122. Sharon Baptist 10/97 6,200,000 61% 10.10%/Oct. 2017 9.81% Current 1.19 20 yrs
123. New Hope Missionary Baptist
Church 10/97 2,300,000 53% 10.10%/Oct. 2017 9.79% Current 1.07 20 yrs
124. The Holy Way Church, Inc. 10/97 1,500,000 68% 10.10%/Oct. 2017 9.80% Current 1.49 20 yrs
125. Swope Parkway Church of Christ 11/97 1,200,000 63% 10.10%/Nov 2017 9.78% Current 1.14 20 yrs
126. The Community Protestant
Church CO-op City 11/97 1,000,000 60% 10.10%/Nov. 2017 9.94% Current 1.03 20 yrs
127. Gospel Tabernacle Church 02/98 3,550,000 59% 10.10%/Feb. 2018 9.78% Current 1.63 20 yrs
128. New York Dong Yang First
Church 03/98 735,000 53% 10.00%/Mar. 2018 9.73% Current 2.02 20 yrs
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Ratio (expressed as a percentage) of the principal amount of the loan to the
appraised value of the real property serving as collateral for the loan. (2)
Represents the highest interest rate payable on the longest maturing bonds
issued by the borrowing church in the financing. (3) Represents the average
interest payable by the borrowing church assuming the loan remains outstanding
through its full term. (4) Multiple of principal amount of bond loan times the
borrower's total support and revenues in the most recently completed fiscal year
prior to the bond underwriting.
C-4
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Mortgage Debt
Date Principal Loan-to- High Bond (2) Average to Annual Term
Financing Amount of Value Yield/Last Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Maturity Date Rate (3) Status Revenue(4) Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
129. New Life Baptist 03/98 495,000 75% 10.10%/Mar. 2018 10.01% Current 1.28 20 yrs
130. Church of the Great Commission 04/98 1,900,000 60% 10.10%/Apr. 2018 9.84% Current 1.09 20 yrs
</TABLE>
- -------------------------------------------------------------------------------
(1) Ratio (expressed as a percentage) of the principal amount of the loan to the
appraised value of the real property serving as collateral for the loan. (2)
Represents the highest interest rate payable on the longest maturing bonds
issued by the borrowing church in the financing. (3) Represents the average
interest payable by the borrowing church assuming the loan remains outstanding
through its full term. (4) Multiple of principal amount of bond loan times the
borrower's total support and revenues in the most recently completed fiscal year
prior to the bond underwriting.
In January 1988, American, including the principals of the Advisor,
underwrote the offering of $1,425,000 principal amount of insured first mortgage
bonds issued by Palm Beach Cathedral Assembly of God, Inc., Lake Park, Florida
("Palm Beach"). In approximately July 1990, Palm Beach defaulted in its
obligation to make weekly sinking fund payments, thus interest payments to
bondholders ceased. Palm Beach filed for reorganization under Chapter 11 of the
United States Bankruptcy Code, and in early 1994, its Plan of Reorganization
(the "Plan") was confirmed by the bankruptcy court. Pursuant to the Plan,
holders of the bonds received a ratable distribution of $550,000 cash,
representing a return of approximately 39% of their principal investment. In
addition, the holders of the bonds retained their first mortgage interest in the
real estate and improvements, and Palm Beach is required to repay the balance of
the principal in its entirety over 18 years, plus interest accrued to the
confirmation date of the Plan, subject to earlier repayment in certain
circumstances. The $550,000 distribution to the holders of the bonds was derived
from a portion of a $700,000 loan made by the bond insurance company to Palm
Beach in consideration of a complete release of further obligations, if any, of
the insurer in connection with the bond default. The balance currently owed to
bondholders is approximately $1.2 million (including accrued interest).
In March 1992, American, including the principals of the Advisor,
underwrote the offering of $720,000 principal amount of first mortgage bonds
issued by World Missions Assembly, Inc., Brooklyn, New York ("World"). In
September 1993, the bond trustee declared World's bonds in default due to
World's failure to make all payments of principal and interest with respect to
the bonds as due. Shortly thereafter, the bond trustee filed an action in New
York State Supreme Court to prosecute the bondholders' rights under the trust
indenture governing the bonds and to foreclose upon World's real property and
improvements securing the bonds. The outstanding principal balance of the bonds
at the time of default was $687,000. Interest accrues on the remaining principal
balance at a rate of approximately 11% per annum. The foreclosure action has
been prosecuted on behalf of the bondholders and the bond trustee listed the
real estate and improvements for sale on behalf and for the benefit of the
bondholders. A sales agreement has been entered into whereby the church property
is to be sold for $500,000 the net proceeds of which is to be distributed to
bondholders.
In June 1993, American, including the principals of the Advisor,
underwrote the offering of $700,000 principal amount of first mortgage bonds
issued by Faith Southwest Baptist Church, Houston, Texas ("Faith"). In June
1997, Faith failed to make its quarterly interest and principal payment to
bondholders. Based on information currently available through counsel and the
bond trustee, Faith ceased making sinking fund payments in the spring of 1997.
As of June 1, 1998 Faith has re-commenced its sinking fund payments and is in
the process of negotiating with the bond trustee and its legal counsel to abate
the trustee's foreclosure action provided that Faith remains current on its
sinking fund payments, and supplements each payment by an amount scheduled to
recover the current interest arrearage of approximately $87,000 over a four-year
period. There can be no assurance that such a definitive agreement between Faith
and the bond trustee will be reached, and, if reached, that Faith will be able
to make all such scheduled payments. In such event, the bond trustee expects to
proceed with its foreclosure action and sell the church property for the benefit
of bondholders.
The Company makes no representations as to the status of first mortgage
bond offerings underwritten by American after the date of this prospectus. The
status of first mortgage bond offerings may change during this Offering and the
Company will not undertake to amend & supplement this Prospectus to reflect any
such changes.
C-5
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[GRAPHIC OMITTED]
EXHIBIT A
American Church Mortgage Company
Subscription Agreement
Amount $ _________________________ Number of Shares__________________
Dividend Reinvestment Option ______ yes ______ no
OWNERSHIP Name(s)_____________________________________________________________________________________________________
REGISTRATION: (investor(s) names)
Address_____________________________________________________________________________________________________
City_____________________________________________________________State _________________Zip__________________
Social Security # _____-_____-______ or Tax I.D.# _____-________ Date(s) of Birth ____/____/___
_____-_____-______ ___/ ___/ ___
Under penalties of perjury, the undersigned certifies (1) that the number shown
as his taxpayer identification number is his correct taxpayer identification
number and (2) that he is not subject to back up withholding either because he
has not been notified that he is subject to backup withholding as a result of a
failure to report all interest and dividends or because the Internal Revenue
Service has notified him that he is no longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
MAILING ADDRESS Name(s)_________________________________________________________________________________________________
FOR CORRES-
PONDENCE AND CASH Address_________________________________________________________________________________________________
DISTRIBUTIONS:
(If different from above) City_______________________________________________________State _____________________Zip_______________
- -----------------------------------------------------------------------------------------------------------------------------------
TITLE TO _______Individual _______Tenants in Common _______IRA _______Partnership
BE HELD: _______Joint Tenants/Rights _______Corporation _______Trust _______Pension Plan
of Survivorship _______Transfer on Death (TOD) _______Custodian _______Profit Sharing
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES: The undersigned hereby represents and warrants that:
(i) he/she is or will be in a financial position appropriate to enable
him/her to realize, to a significant extent, the benefits discussed in the
Prospectus;
(ii) he/she has a fair market net worth sufficient to sustain the risks
inherent in the Shares, including loss of investment and lack of liquidity;
(iii) the Shares are otherwise suitable for the above-named investor based
on the factors set forth in the Prospectus; and (iv) a copy of the
Prospectus, as amended and/or supplemented to date, has been delivered to me,
and I acknowledge that such Prospectus was received.
Executed this ______day of ______________, 199_____ at _____________________________________(city)_______________(state)
Signature (investor's, otherwise Trustee of IRA, Pension Plan, etc.)____________________________________________________
Additional Signature (if joint tenant)___________________________ ______________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
On the basis of the foregoing representations and warranties, the Soliciting
Dealer believes that the Shares are suitable for the above-named investor(s) and
we have informed the investor(s) of the illiquidity of the Shares, and the
investor(s) has a fair market net worth sufficient to sustain the risks inherent
in the Shares.
SOLICITING Firm _________________________________________________________________________________________________________
DEALER
ENDORSEMENT: Registered Representative _____________________________________________ Phone_______________________________
Address_______________________________________________________________________________________________________
Dealer Authorized Signature __________________________________________________________________________________
NOTE: Checks to be made payable to: American Investors Group, Inc., 10237 Yellow Circle Drive, Minnetonka, MN 55343
- ------------------------------------------------------------------------------------------------------------------------------------
Accepted by: AMERICAN CHURCH MORTGAGE CORPORATION
By: Church Loan Advisors, Inc.
________________________________________________________________________ Date___________________
(Advisor) (Officer)
White - Issuer Yellow - Investor Pink - Broker-Dealer Gold - Broker
C-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
[GRAPHIC OMITTED]
EXHIBIT A1
American Church Mortgage Company
Subscription Agreement
Amount $ _________________________ Number of Shares__________________
Dividend Reinvestment Option ______ yes ______ no (not available for shares to be held by National Financial Services)
Hold shares in book-entry at
the transfer agent ______ yes ______ no (not applicable for shares to be held by National Financial Services)
Register and ship securities
to National Financial
Services ______ yes ______no (not available for Dividend Reinvestment Program)
OWNERSHIP Name(s)_____________________________________________________________________________________________________
REGISTRATION: (investor(s) names)
Address_____________________________________________________________________________________________________
City_____________________________________________________________State _________________Zip__________________
Social Security # _____-_____-______ or Tax I.D.# _____-________ Date(s) of Birth ____/____/___
_____-_____-______ ___/ ___/ ___
Under penalties of perjury, the undersigned certifies (1) that the number shown
as his taxpayer identification number is his correct taxpayer identification
number and (2) that he is not subject to back up withholding either because he
has not been notified that he is subject to backup withholding as a result of a
failure to report all interest and dividends or because the Internal Revenue
Service has notified him that he is no longer subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------------------------------
MAILING ADDRESS Name(s)_________________________________________________________________________________________________
FOR CORRES-
PONDENCE AND CASH Address_________________________________________________________________________________________________
DISTRIBUTIONS:
(If different from above) City_______________________________________________________State _____________________Zip_______________
- -----------------------------------------------------------------------------------------------------------------------------------
TITLE TO _______Individual _______Tenants in Common _______IRA _______Partnership
BE HELD: _______Joint Tenants/Rights _______Corporation _______Trust _______Pension Plan
of Survivorship _______Transfer on Death (TOD) _______Custodian _______Profit Sharing
_______ Other
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES: The undersigned hereby represents and warrants that:
(i) he/she is or will be in a financial position appropriate to enable
him/her to realize, to a significant extent, the benefits discussed in the
Prospectus;
(ii) he/she has a fair market net worth sufficient to sustain the risks
inherent in the Shares, including loss of investment and lack of liquidity;
(iii) the Shares are otherwise suitable for the above-named investor based
on the factors set forth in the Prospectus; and (iv) a copy of the
Prospectus, as amended and/or supplemented to date, has been delivered to me,
and I acknowledge that such Prospectus was received.
Executed this ______day of ______________, 199_____ at _____________________________________(city)_______________(state)
Signature (investor's, otherwise Trustee of IRA, Pension Plan, etc.)____________________________________________________
Additional Signature (if joint tenant)___________________________ ______________________________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
On the basis of the foregoing representations and warranties, the Soliciting
Dealer believes that the Shares are suitable for the above-named investor(s) and
we have informed the investor(s) of the illiquidity of the Shares, and the
investor(s) has a fair market net worth sufficient to sustain the risks inherent
in the Shares.
SOLICITING Firm _________________________________________________________________________________________________________
DEALER
ENDORSEMENT: Registered Representative _____________________________________________ Phone_______________________________
Address_______________________________________________________________________________________________________
Dealer Authorized Signature __________________________________________________________________________________
NOTE: Checks to be made payable to: LaSalle St. Securities, Inc. 810 W. Washington, Blvd., Chicago, Illiniois 60607
- ------------------------------------------------------------------------------------------------------------------------------------
Accepted by: AMERICAN CHURCH MORTGAGE CORPORATION
By: Church Loan Advisors, Inc.
________________________________________________________________________ Date___________________
(Advisor) (Officer)
THIS IS A LEGAL SIZE DOCUMENT
White - Issuer Yellow - Investor Pink - Broker-Dealer Gold - Broker
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
EXHIBIT B
1,500,000 Common Shares
American Church Mortgage Company
SUITABILITY CERTIFICATE
(to be returned with Subscription Agreement)
TO: American Church Mortgage Company
10237 Yellow Circle Drive
Minnetonka, Minnesota 55343
I certify that: (please check one)
_____I (either individually or with my spouse) had an annual gross income of at
least $45,000 during the previous calendar year, have a net worth of at
least $45,000 (exclusive of my (our) principal residence and its
furnishings and automobiles), and am purchasing Common Shares for my (our)
own account or for my (our) retirement plan or trust.
_____I (either individually or with my spouse) have a net worth of at least
$150,000 (exclusive of my (our) principal residence and its furnishings and
automobiles) and am purchasing Common Shares for my (our) own account or
for my (our) retirement plan or trust.
In the case of sales to fiduciary accounts, these minimum standards shall
be met by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the Shares if the donor or
grantor is the fiduciary.
Dated:_________________________________________
-----------------------------------------------------
(Signature)
-----------------------------------------------------
(Print or type name)
If the purchaser is an entity: -----------------------------------------------------
(Print or type name of entity)
-----------------------------------------------------
(Print or type title or position of signatory)
Note: The person signing this Certificate warrants, by his signature above,
that he or she is fully authorized and empowered by the entity named above to
make the representations contained herein with respect to such entity.
Note: The Underwriters will forward subscription agreements and checks by noon
the next business day following receipt thereof in compliance with SEC Rule
15c2-4.
White - Issuer Yellow - Investor Pink - Broker-Dealer Gold - Broker
</TABLE>
<PAGE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------- 1,500,000 Shares
No Person has been authorized to give any information or [GRAPHIC OMITTED]
to make any representations other than those contained
in this Prospectus, and, if given or made, such
information or representations must not be relied upon as
having been authorized by the Company or the
Underwriters. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy any
securities other than the securities to which it relates or
an offer to sell or a solicitation of an offer to buy such
securities in any circumstances or in any jurisdiction in American Church
which such offer or solicitation is unlawful. Neither the Mortgage Company
delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication
that there has been no change in the affairs of the
Company since the date hereof or that the information Common Stock
contained herein is correct as of any time subsequent to
its date.
-----------------------
TABLE OF CONTENTS
------------------------
PROSPECTUS SUMMARY.................................... 4
RISK FACTORS.......................................... 9 PROSPECTUS
WHO MAY INVEST........................................ 14 ------------------------
USE OF PROCEEDS....................................... 15
COMPENSATION TO ADVISOR AND AFFILIATES................ 15
CONFLICTS OF INTEREST................................. 17
DISTRIBUTIONS......................................... 19
CAPITALIZATION........................................ 21
SELECTED FINANCIAL DATA............................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION.............................. 23
BUSINESS OF THE COMPANY............................... 25
MANAGEMENT............................................ 34
SECURITY OWNERSHIP OF MANAGEMENT
AND OTHERS.......................................... 37
CERTAIN RELATIONSHIPS AND TRANSACTIONS
WITH MANAGEMENT.................................... 37
THE ADVISOR AND THE ADVISORY AGREEMENT ............... 39
FEDERAL INCOME TAX CONSEQUENCES....................... 41
ERISA CONSEQUENCES.................................... 47
DESCRIPTION OF CAPITAL STOCK.......................... 48 LASALLE ST. SECURITIES, INC.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS............... 50
PLAN OF DISTRIBUTION.................................. 53
COMMISSION POSITION ON INDEMNIFICATION AMERICAN INVESTORS GROUP, INC.
FOR SECURITIES ACT LIABILITIES...................... 56
LEGAL MATTERS......................................... 56 June 1, 1998
EXPERTS............................................... 56
REPORTS TO SHAREHOLDERS, RIGHTS
OF EXAMINATION AND
ADDITIONAL INFORMATION.............................. 56
GLOSSARY.............................................. 58
FINANCIAL STATEMENTS................................. F-1
APPENDIX I............................................ A-1
-----------------------
Until 45 days after completion of this Offering, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- ----------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
Item 31. Other Expenses of Issuance and Distribution.
<S> <C>
SEC Registration Fee.......................................................... $ 5,000
NASD Filing Fee............................................................... 2,150
*Blue Sky Qualification Fees and Expenses..................................... 15,000
*Fees of Transfer Agent....................................................... 4,000
*Printing and Engraving....................................................... 15,000
**Underwriters' Expense Allowance............................................. 133,000
*Legal Fees and Expenses...................................................... 12,850
*Accounting Fees and Expenses................................................. 6,000
*Miscellaneous................................................................ 10,000
------
Total............................................................. $ 203,000
=======
</TABLE>
- ----------------------------------------
* The amount has been estimated.
** Assumes all Shares are sold. The Company has agreed to pay the
non-accountable expense allowance in the amount of $35,000 on the first
100,000 Shares sold and $7,000 on each increment of 100,000 Shares sold
thereafter.
Item 34. Indemnification of Directors and Officers
Article 7 of the Registrant's Amended and Restated Articles of
Incorporation, and Article 5 of the Registrant's Amended and Restated Bylaws,
included as Exhibits 3.1 and 3.2 respectively, provide for indemnification of
the Directors and Officers of the Registrant against liability to the full
extent permitted under Minnesota law, as limited by the NASAA Statement of
Policy Regarding REIT's, adopted September 29, 1993. Subject to any limitations
contained below, the Company shall indemnify and hold harmless the Directors,
Advisors or Affiliates who are performing services on behalf of the Company and
acting within the scope of the Director's authority against any and all losses
or liabilities reasonably incurred by them and connection with or by reason of
any act performed or omitted to be performed by them and that (i) the Directors,
Advisors or Affiliates have determined, in good faith, that the course of
conduct which caused the loss or liability was in the best interests of the
Company, (ii) such liability or loss was not the result of: (a) negligence or
misconduct by the Directors, excluding the Independent Directors, Advisors or
Affiliates, or (b) gross negligence or willful misconduct by the Independent
Trustees, and (iii) such indemnification or agreement to hold harmless is
recoverable only out of the assets of the Company and not from the Shareholders.
The Company shall not indemnify any Person, including any person acting
as a broker-dealer, for any liability imposed by the judgment, and costs
associated therewith, including attorney's fees, arising from or out of a
violation of state or federal securities laws associated with the offer and sale
of Shares. Notwithstanding anything to the contrary in the preceding paragraph,
however, the Company may indemnify a Director, Advisor or Affiliate for any
losses, liabilities, or expenses arising from or out of an alleged violation of
federal or state securities laws provided one or more of the following
conditions are met: (a) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the particular
indemnitee, or (b) such claims have been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the particular indemnitee, or (c) a
court of competent jurisdiction approves a settlement or the claims against a
particular indemnitee and finds that indemnification of the settlement and the
related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which the Company's Shares were offered and sold as to
indemnification for violations of securities laws.
The indemnification provided by the provisions of the Amended and
Restated Articles of Incorporation shall continue for the period of time of
service or for any matter arising out of the term of service as to an
indemnified party and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The Company shall not pay for any insurance covering liability of the
indemnified party for actions or omissions for which indemnification is not
permitted hereunder; provided, however, that nothing contained herein shall
preclude the Company from purchasing and paying for such types of insurance,
including extended coverage liability
4
<PAGE>
and casualty and workers' compensation, as would be customary for any person
owning comparable assets and engaged in a similar business, or from naming an
indemnified party or a party potentially entitled to indemnification hereunder
as an additional insured party thereunder. Nothing contained in the Amended and
Restated Articles of Incorporation shall constitute a waiver by any person
entitled to indemnification of any right which he or she may have against any
party under federal or state securities laws.
The Company may not advance funds to a Director, Advisor or Affiliate
for legal expenses and other costs incurred as a result of a legal action for
which indemnification is being sought unless all of the following conditions are
satisfied: (1) The legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the Company; (2) The legal action
is initiated by a third party who is not a Shareholder or the legal action is
initiated by a Shareholder acting in his or her capacity as such and a court of
competent jurisdiction specifically approves such advancement; and (3) The
Directors, Advisors or Affiliates undertake to repay the advanced funds to the
Company, together with the applicable legal rate of interest thereon, in cases
in which such Directors, Advisors or Affiliates are found not to be entitled to
indemnification.
Section 6 of the form of Underwriting Agreement, included as Exhibit
1.0 hereto provides for the indemnification by the Underwriters of the
Registrant's Directors and Officers who have signed or will sign any
Registration Statement of the Company against certain civil liabilities arising
in connection with the offer and sale of the Shares, including liabilities under
the Securities Act of 1933, as amended. Such indemnification is limited by the
above provisions.
Item 36. Financial Statements and Exhibits.
(a) Financial Statements
Audited Financial Statement:
Report of Independent Auditors
Balance Sheet at March 31, 1997 and 1998 (unaudited) Balance Sheet
at December 31, 1995, 1996 and 1997 Statements of Operations for
the Years Ended
December 31, 1995, 1996 and 1997 and for the Three Months
Ended March 31, 1997 and 1998 (unaudited)
Statement of Stockholders' Equity for the Years Ended December 31,
1995, 1996 and 1997 and for the Three Months Ended March 31,
1998 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1995,
1996 and 1997 and for the Three Months Ended March 31, 1997
and 1998 (unaudited)
Schedules
None
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title Method of Filing
<S> <C>
1 Forms of Underwriting Agreement, Soliciting Dealer
Agreement and Agreement Between Underwriters................................... previously filed
3.1 Amended & Restated Articles of Incorporation
of the Company................................................................. *
3.2 Amended & Restated By-laws of the Company...................................... *
4 Specimen Certificate of Common Stock, $0.1 par value........................... *
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5 Opinion Letter of Maun & Simon, PLC
as to the legality of the securities........................................... previously filed
8 Opinion Letter of Maun & Simon, PLC as to certain tax
matters relating to the securities............................................. previously filed
10.1 Supplement and Amendment to Advisory Agreement Between the
Company and Church Loan Advisors, Inc.......................................... previously filed
10.2 Dividend Reinvestment Plan of the Company...................................... *
10.3 Stock Option Plan for Directors and Advisor (includes form of
Stock Option Agreement Exhibit "A")............................................ *
10.4 Gemisys Corporation Agreement to act as Transfer Agent, Registrar
and Dividend Reinvestment Agent................................................ *
23 Consent of Auditor............................................................. filed herewith
23.2 Consent of Counsel............................................................. previously filed
24 Power of Attorney.............................................................. previously filed
</TABLE>
- --------------------------------------
* Incorporated by reference to the Registrant's filing on Form S-11 under
SEC Registration No. 33-87570
Item 37. Undertakings.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in such Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action
suite or proceeding) is asserted by such director, officer of controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby further undertakes:
(1) To remove from registration by means of a post-effective amendment
any of the securities being registered for sale to the public pursuant to the
Prospectus (part I) which remain unsold at the termination of the offering.
(2) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Securities and Exchange Commission in effect
at the time such post-effective amendments are filed.
(3) To send to each shareholder at least on an annual basis a detailed
statement of all transactions with the Advisor or its affiliates, and of fees,
commissions, compensation and other benefits paid, or accrued to the Advisor or
its affiliates for the fiscal year completed, showing the amount paid or accrued
to each recipient and the services performed.
(4) To file a sticker supplement pursuant to Rule 424(c) under the
Securities Act of 1933, during the distribution period describing each property
involving the use of 10% or more (on a cumulative basis) of the total assets of
the Registrant, and which has not been identified in the Prospectus, and to
consolidate all such stickers into a post-effective
6
<PAGE>
amendment filed at least once every three months, with the information contained
in such amendment provided simultaneously to the shareholders. Each sticker
supplement shall disclose all compensation and fees received by the Advisor
and/or its affiliates in connection with any such acquisition. The
post-effective amendment shall include audited financial statements meeting the
requirements of Rule 3-14 Regulation S-X for such properties acquired during the
distribution period.
(5) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by 10(a)(3) of the Securities Act of 1933; (ii) to reflect
in the prospectus any fact or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bond
fide offering thereof.
(6) The Registrant undertakes to provide to the shareholders the
financial statements required by Form 10-K for the first full fiscal year of the
Registrant's operations.
(7) That, for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of the registration statement as of the time it was declared effective.
(8) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment (i.e., the signing of a binding purchase agreement) made after the
end of the distribution period involving the use of 10% of more (on a cumulative
basis) of the net proceeds of the offering and to provide the information
contained in such report to the shareholders at least once each quarter after
the distribution period of the offering has ended.
Balance of page intentionally left blank
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, State of Minnesota, on the 1st day of
July 1998.
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ David G. Reinhart
David G. Reinhart, Vice-President & Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates set forth below opposite their
respective names:
Signature Capacity Date
/s/ V. James Davis Chief Executive Officer, July 1, 1998
V. James Davis Treasurer (and Principal
Financial and Accounting
Officer) and Director
/s/ David G. Reinhart Vice President, July 1, 1998
David G. Reinhart Secretary and Director
/s/ Kirbyjon H. Caldwell Director July 1, 1998
Kirbyjon H. Caldwell*
/s/ Robert O. Naegele, Jr. Director July 1, 1998
Robert O. Naegele, Jr.*
/s/ Dennis J. Doyle Director July 1, 1998
Dennis J. Doyle*
/s/ John M. Clarey Director July 1, 1998
John M. Clarey*
* By: David G. Reinhart and V. James Davis, Attorneys-in-Fact.
H:\data\acmc\secondar\pro0698(1st).wpd
laserjet 5P
8
<PAGE>
Registration No. 333-27601
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------
EXHIBITS
to
POST EFFECTIVE NO. 1
to
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------
American Church Mortgage Company
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
Location
Exhibit Description Page
24 Consent of Auditor E-4
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
EXHIBIT 24.1
CONSENT OF AUDITOR
<PAGE>
We consent to the incorporation by reference in this Registration Statement of
American Church Mortgage Company on Form S-11 of our report dated February 20,
1998 appearing in (or incorporated by reference in) Post-Effective Amendment No.
1 to the Registration Statement on Form S-11 of American Church Mortgage Company
for the years ended December 31, 1997, 1996 and 1995, and the period May 27,
1994 (date of inception) to December 31, 1994, respectively. We consent to the
reference to our Firm under the caption "Experts" in the Prospectus included
therein.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
June 30, 1998
E-4
<PAGE>
