The North American Securities Administrators Association adopted a Statement of Policy Regarding Church Guidelines for General Obligation Financing by Religious Denominations in 1994. The Statement of Policy is applied by many state securities administrators when reviewing securities registration statements or exemption notice filings for church extension loan funds. The states are not consistent in how closely they adhere to the NASAA Statement of Policy and the states (including Pennsylvania ) take the position that the Statement of Policy is in addition to, not in replacement of, any state-specific requirements.

The NASAA Statement of Policy was recently amended and renamed as the “Statement of Policy Regarding Church Extension Fund Securities.” Among the more significant changes included in the amended Statement of Policy are the following:

1. For existing loan funds, two key financial standards will increase by January 1. 2007:
• the capital adequacy requirements will be increased from the current 3% of total assets to 5% of total assets; and
• the liquidity requirement (i.e., cash, cash equivalents, readily marketable securities and available lines of credit) will be increased from the current 5% of the principal balance of total outstanding debt securities to 8%, with the line of credit limited to 2% of the outstanding principal balance.
2. Unless justified by loan fund management to the satisfaction of a state securities administrator, at least 90% of outstanding loans must be secured by real or personal property or guaranteed by third parties.
3. Addition of more specific Prospectus disclosure requirements.
4. Required submission of a cross-reference outline demonstrating compliance with the amended Statement of Policy.

As a result of the amendments to the NASAA Statement of Policy, preparation of the next annual offering document for a loan fund will need to include a full compliance review, as well as preparation of the cross-reference outline.

If you would like more information about the regulation of church extension loan funds or the amended Statement of Policy, please contact Paul Wessell at pwessell@rhoads-sinon.com.

June 29, 2004