<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1996
Registration No. 33-69724
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No.___ / /
Post-Effective Amendment No. 3 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 4 /X/
MMA PRAXIS MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number: (614) 470-8000
Jeffrey L. Steele, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
(Name and Address of Agent for Service)
Copies to:
Cynthia L. Lindsey
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
/X/ It is proposed that this filing will become effective On May 1, 1996
pursuant to paragraph (b) of Rule 485.
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. The Registrant filed the Notice required by Rule 24f-2 with respect to
its fiscal year ended December 31, 1995 on February 27, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
MMA PRAXIS INTERMEDIATE INCOME FUND
MMA PRAXIS GROWTH FUND
TWO FUNDS OF THE
MMA PRAXIS MUTUAL FUNDS
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover page................................... Cover Page
2. Synopsis..................................... Fee Table
3. Condensed Financial
Information.................................. Financial Highlights
4. General Description of
Registrant................................... Criteria for Socially Responsible
Investing; Investment Objectives, Policies
and Risk Factors; Investment
Restrictions; General Information -
Description of the Company and Its
Shares
5. Management of
the Fund..................................... Management of the Company
5A. Management's Discussions
of Fund Performance.......................... Information is contained in Registrant's
Annual Report to Shareholders
6. Capital Stock and Other
Securities................................... How to Purchase Shares; How to
Redeem Shares; Dividends and Taxes;
General Information - Description of the
Company and Its Shares; General
Information - Miscellaneous
7. Purchase of Securities
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Being Offered................................ Valuation of Shares; How to Purchase
Shares
8. Redemption or
Repurchase................................... How to Redeem Shares
9. Pending Legal
Proceedings.................................. Inapplicable
<CAPTION>
Item Number in Part B Statement of Additional Information
- --------------------- Caption
------------------------------------
<S> <C> <C>
10. Cover Page................................... Cover Page
11. Table of Contents............................ Table of Contents
12. General Information and
History...................................... Management of the Company;
Additional Information
13. Investment Objectives and
Policies..................................... Investment Objectives, Policies and Risk
Factors
14. Management of the Fund....................... Management of the Company
15. Control Persons and Principal
Holders of Securities........................ Additional Information - Description of
Shares
16. Investment Advisory and other
Services..................................... Management of the Company
17. Brokerage Allocation......................... Management of the Company - Portfolio
Transactions
18. Capital Stock and other
Securities................................... Additional Information - Description of
Shares
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
19. Purchase, Redemption and Pricing
of Securities Being Offered.. Additional Purchase and Redemption
Information
20. Tax Status................................... Additional Information - Additional Tax
Information
21. Underwriters................................. Management of the Company -
Distributor
22. Calculations of Performance
Data......................................... Additional Information - Calculation of
Performance Data
23. Financial Statements......................... Financial Statements
</TABLE>
<PAGE> 5
Prospectus
MMA Praxis
Mutual Funds
INTERMEDIATE INCOME FUND
GROWTH FUND
MAY 1, 1996
LOGO
<PAGE> 6
MMA PRAXIS MUTUAL FUNDS
MMA PRAXIS INTERMEDIATE INCOME FUND
MMA PRAXIS GROWTH FUND
3435 Stelzer Road For current yield, purchase,
Columbus, Ohio 43219 and redemption information,
call 1-800-9-PRAXIS.
The MMA Praxis Mutual Funds (the "Company") is an open-end management
investment company that currently consists of two separate investment
portfolios: the MMA Praxis Intermediate Income Fund (the "Income Fund") and the
MMA Praxis Growth Fund (the "Growth Fund"). The Income Fund and the Growth Fund
are hereinafter singularly referred to as a "Fund" and collectively referred to
as the "Funds". Each of the Funds is a diversified investment portfolio of the
Company.
The goal of the MMA Praxis Mutual Funds is to join the Company's beliefs
with deeds, using the tools of socially responsible investing. This is
accomplished by actively seeking ways to promote human well-being, peace and
justice through investment decisions.
The primary investment objective of the Income Fund is current income, with
capital appreciation as a secondary investment objective. The primary investment
objective of the Growth Fund is capital appreciation, with current income as a
secondary investment objective.
MMA Capital Management, Goshen, Indiana (the "Adviser") acts as the
investment adviser to each of the Funds. BISYS Fund Services, Columbus, Ohio
(the "Distributor") acts as the Fund's administrator and distributor.
Additional information about the Funds, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (the "Commission") and is available upon request without charge by
writing to the Funds at their address or by calling the Funds at the telephone
number shown above. The Statement of Additional Information bears the same date
as this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("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.
------------------------
The date of this Prospectus is May 1, 1996.
<PAGE> 7
PROSPECTUS
MAY 1, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................................... 3
FEE TABLE................................................................... 5
FINANCIAL HIGHLIGHTS........................................................ 7
CRITERIA FOR SOCIALLY RESPONSIBLE INVESTING................................. 9
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS............................ 10
INVESTMENT RESTRICTIONS..................................................... 18
VALUATION OF SHARES......................................................... 19
HOW TO PURCHASE SHARES...................................................... 20
HOW TO REDEEM SHARES........................................................ 23
SHAREHOLDER SERVICES........................................................ 25
DIVIDENDS AND TAXES......................................................... 29
MANAGEMENT OF THE COMPANY................................................... 32
GENERAL INFORMATION......................................................... 35
</TABLE>
This Prospectus sets forth information about the MMA Praxis Mutual Funds
that you should know before investing. Please read it and retain it for future
reference.
2
<PAGE> 8
PROSPECTUS SUMMARY
<TABLE>
<S> <C>
The Funds...................... The MMA Praxis Intermediate Income Fund (the "In-
come Fund") and the MMA Praxis Growth Fund (the
"Growth Fund"), each a diversified investment
portfolio (collectively, the "Funds") of the MMA
Praxis Mutual Funds, an open-end, management
investment company organized as a Delaware
business trust. For information about the various
fees paid by the Funds, see the "FEE TABLE" and
"MANAGEMENT OF THE COMPANY."
Shares Offered................. Shares of beneficial interest ("Shares") of the
Funds.
Offering Price................. The public offering price of each Fund's Shares is
equal to the net asset value per Share. Certain
redemptions are subject to a contingent deferred
sales charge that is imposed within 5 years of
purchase. The maximum contingent deferred sales
charge (imposed upon certain redemptions made
within the first two years of purchase) is 4%. See
"HOW TO PURCHASE SHARES--Contingent Deferred Sales
Charges".
Minimum Purchase............... $500 minimum for the initial investment with a $50
minimum for subsequent investments. (See "HOW TO
PURCHASE SHARES"). For a discussion of separate
minimum purchase requirements for the Company's
Auto Invest Plan, see "SHAREHOLDER SERVICES-- Auto
Invest Plan."
Investment Objective........... The Income Fund seeks current income. Capital
appreciation is a secondary objective of the
Income Fund.
The Growth Fund seeks capital appreciation.
Current income is a secondary investment objective
of the Growth Fund.
Investment Policy.............. The MMA Praxis Mutual Funds are governed by a pol-
icy that applies social and financial screens to
all financial decisions, see "CRITERIA FOR
SOCIALLY RESPONSIBLE INVESTING."
</TABLE>
3
<PAGE> 9
<TABLE>
<S> <C>
Under normal market conditions, the Income Fund
will invest substantially all, but in no event
less than 65%, of the value of its total assets in
fixed income securities. For a description of the
fixed income securities that may be purchased, see
"INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS--MMA Praxis Intermediate Income Fund." The
Income Fund will maintain a dollar-weighted
average maturity of three to ten years.
Under normal market conditions, the Growth Fund
will invest substantially all, but in no event
less than 65%, of the value of its total assets in
equity securities. For a description of the equity
securities that may be purchased, see "INVESTMENT
OBJECTIVES, POLICIES AND RISK FACTORS--MMA Praxis
Growth Fund."
Investment Adviser............. MMA Capital Management, Goshen, Indiana
Dividends and Capital Gains.... The Income Fund intends to declare dividends from
net investment income monthly and pay such
dividends monthly. The Growth Fund intends to
declare dividends from net investment income
quarterly and pay such dividends quarterly. Net
realized capital gains of each Fund are
distributed at least annually.
Distributor.................... BISYS Fund Services, Columbus, Ohio.
Risk Factors and Special Investment in the Funds may involve certain risks.
Considerations............... The principal risk factor associated with an
investment in the Income Fund is interest rate
risk. Accordingly, the value of its portfolio
securities and its Shares will generally vary
inversely with changes in prevailing interest
rates.
The principal risk factor associated with an
investment in the Growth Fund is the fluctuation
in the principal value of equity securities. To
the extent that the Growth Fund may invest in
foreign securities, it will be subject to the
special risks that are generally associated with
such investments. See "RISK FACTORS AND SPECIAL
CONSIDERATIONS".
</TABLE>
4
<PAGE> 10
FEE TABLE
<TABLE>
<CAPTION>
INCOME FUND GROWTH FUND
------------ -----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).............. None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).............. None None
Maximum Contingent Deferred Sales Charges Imposed
on Certain Redemptions During the First Five
Years
(as a percentage of the lower of (a) redemption
proceeds or (b) the original purchase price)1.... 4% 4%
Redemption Fees (as a percentage of amount
redeemed, if applicable)2........................ None None
Exchange Fee....................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Investment Management Fees After Fee Waiver3....... .33% .43%
12b-1 Fees After Fee Waiver4....................... .05% .05%
Other Expenses After Fee Waiver5................... .72% 1.27%
------ -----------
Total Fund Operating Expenses After Fee
Waiver6..................................... 1.10% 1.75%
=========== ==========
</TABLE>
The purpose of this table is to assist a potential investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly.
- ------------
1 The maximum 4% contingent deferred sales charge applies to redemptions during
the first two years after purchase. Such charge generally declines by 1%
annually thereafter, reaching zero after 5 years. No contingent deferred sales
charge is imposed on (a) amounts representing increases in net asset value
above the net asset value at the time of purchase or (b) shares acquired
through the reinvestment of dividends and distributions. In addition, no such
charge is imposed on exchanges of one Fund's Shares for Shares of the other
Fund. See "HOW TO PURCHASE SHARES."
2 A wire redemption charge (currently $10) will be deducted from the amount of a
wire redemption payment made at the request of a Shareholder. See "HOW TO
REDEEM SHARES--Redemption by Telephone."
3 Absent the voluntary reduction of advisory fees, Investment Management Fees
for the Intermediate Income Fund and the Growth Fund, as a percentage of
average daily net assets, would have been .50% and .74%, respectively, on an
annual basis. See "MANAGEMENT OF THE COMPANY--Investment Adviser."
4 The Company has adopted a Distribution Services Plan (the "Plan") pursuant to
which a Fund is authorized to pay or reimburse the Distributor a periodic
amount calculated at an annual rate not to exceed 1.00% of the average daily
net assets of such Fund. Amounts paid under the Plan were voluntarily limited
to .05% of the average daily net assets of each
5
<PAGE> 11
Fund. Shareholders will be given at least 30 days' notice prior to an increase
in the amount of fees that will be paid under the Plan. If 12b-1 fees are paid
by the Fund, long-term Shareholders may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the National Association of
Security Dealers, Inc. (the "NASD").
5 Absent the waiver of certain fees and the reimbursement of certain expenses by
the Adviser, "Other Expenses" as a percentage of average daily net assets
would have been 1.14% for the Income Fund and 1.07% for the Growth Fund.
6 Absent the reduction of investment advisory and distribution fees and certain
other expenses "Total Fund Operating Expenses" as a percentage of average
daily net assets would have been 2.64% for the Income Fund and 2.81% for the
Growth Fund.
EXAMPLES
This example illustrates the expenses you would pay over different time
periods on a $1,000 investment, assuming (1) 5% annual return and (2) redemption
at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Fund....................... $ 51 $65 $ 70 $134
Growth Fund....................... $ 58 $85 $ 104 $206
</TABLE>
This example illustrates the expenses you would pay over different time
periods on a $1,000 investment, assuming (1) 5% annual return and (2) no
redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Income Fund....................... $ 11 $35 $61 $134
Growth Fund....................... $ 18 $55 $95 $206
</TABLE>
The expenses shown above are not annual expenses but, rather, are
cumulative expenses that a Shareholder would pay for the entire period. See
"MANAGEMENT OF THE COMPANY" and "GENERAL INFORMATION" for a more complete
discussion of the Shareholder transaction expenses and annual operating expenses
for the Funds. THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
6
<PAGE> 12
MMA PRAXIS MUTUAL FUNDS
GROWTH FUND
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to
the Growth Fund for the period January 4, 1994 (commencement of operations)
through December 31, 1994, and the year ended December 31, 1995. Financial
highlights for each Fund have been derived from financial statements audited by
Coopers & Lybrand L.L.P., independent certified public accountants, whose report
thereon is incorporated by reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
YEAR ENDED 01/04/94
DECEMBER 31, THROUGH
1995 12/31/94(A)
------------ -----------
<S> <C> <C>
Net Asset Value, Beginning of Period.................. $ 9.74 $ 10.00
------------ -----------
Income From Investment Operations
Net Investment Income................................. 0.10 0.09
Net Realized and Unrealized Gain/(Loss) on
Investments......................................... 3.12 (0.07)
------------ -----------
Total From Investment Operations.................... 3.22 0.02
------------ -----------
Less Distributions
Dividends From Net Investment Income.................. (0.10) (0.09)
Dividends From Capital Gains.......................... (0.79) (0.19)
------------ -----------
Total Distributions................................. (0.89) (0.28)
------------ -----------
Net Asset Value, End of Period........................ $ 12.07 $ 9.74
=========== ========
Total Return (Excluding redemption charge)............ 33.32% 0.27%(c)
Ratios/Supplemental Data
Net Assets, End of Period (000)....................... $ 30,906 $18,009
Ratio of Expenses to Average Net Assets............. 1.75% 1.75%(b)
Ratio of Net Investment Income to Average Net
Assets........................................... 0.90% 1.02%(b)
Ratio of Expenses to Average Net Assets*............ 2.81% 3.25%(b)
Ratio of Net Investment (Loss) Income to Average Net
Assets*.......................................... (0.16)% (0.48)%(b)
Portfolio Turnover Rate............................... 48.91% 35.22%
</TABLE>
- ------------
* During the period the investment advisory and distribution fees were
voluntarily reduced by the investment adviser and distributor and certain
expenses were reimbursed by the investment adviser. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
7
<PAGE> 13
MMA PRAXIS MUTUAL FUNDS
INTERMEDIATE INCOME FUND
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to
the Intermediate Income Fund for the period January 4, 1994 (commencement of
operations) through December 31, 1994 and the year ended December 31, 1995.
Financial highlights for each Fund have been derived from financial statements
audited by Coopers & Lybrand L.L.P., independent certified public accountants,
whose report thereon is incorporated by reference in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED 01/04/94
DECEMBER 31, THROUGH
1995 12/31/94(A)
------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period................. $ 9.14 $ 10.00
------------- -----------
Income From Investment Operations
Net Investment Income................................ 0.53 0.45
Net Realized and Unrealized Gain/(Loss) on
Investments........................................ 1.03 (0.86)
------------- -----------
Total From Investment Operations................... 1.56 (0.41)
------------- -----------
Less Distributions
Dividends From Net Investment Income................. (0.53) (0.45)
Dividends From Capital Gains......................... 0.00 0.00
------------- -----------
Total Distributions................................ (0.53) (0.45)
------------- -----------
Net Asset Value, End of Period....................... $ 10.17 $ 9.14
============ ========
Total Return (Excluding redemption charge)........... 17.47% (4.09)%(c)
Ratios/Supplemental Data
Net Assets, End of Period (000)...................... $23,470 $17,849
Ratio of Expenses to Average Net Assets............ 1.10% 1.10%(b)
Ratio of Net Investment Income to Average Net
Assets.......................................... 5.49% 4.96%(b)
Ratio of Expenses to Average Net Assets*........... 2.64% 2.83%(b)
Ratio of Net Investment Income to Average Net
Assets*......................................... 3.95% 3.23%(b)
Portfolio Turnover Rate.............................. 31.57% 4.95%
<FN>
- ------------
* During the period the investment advisory and distribution fees were
voluntarily reduced by the investment adviser and distributor and certain
expenses were reimbursed by the investment adviser. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
</TABLE>
8
<PAGE> 14
CRITERIA FOR SOCIALLY RESPONSIBLE INVESTING
Although Praxis is a word more commonly used in theological circles than in
the context of mutual funds and finance, the Adviser believes that it captures
the essence of the Company's investment philosophy. Praxis refers to a way of
joining belief and action. It holds that faith detached from works is merely
escapism.
The goal of the MMA Praxis Mutual Funds is to join beliefs with deeds,
using the tools of socially responsible investing. The MMA Praxis Mutual Funds
are therefore governed by a policy that applies social and financial screens to
all investment decisions. It is the Company's philosophy that being faithful
stewards means using assets God has entrusted to us to promote economic results
that are in harmony with ethical beliefs. Accordingly, the Adviser will actively
seek ways to promote human well-being, peace, and justice through its investment
decisions.
When considering an investment, the Adviser analyzes the performance of the
issuing company not only for its financial strengths and outlook, but also for
the company's performance on social issues. That is based on the tenet that
social investing is good business. By utilizing social investing screens, the
Company can encourage corporations to be good stewards of their resources, to
care for the environment, and to create work environments that benefit both the
employees and the shareholders.
Among the Company's principles are the following:
1. Peace. Peace is a major concern. The manufacture and support of
military armaments are not consistent with the Company's values. Thus, the
Adviser restricts investments in major military contractors and in arms
production by avoiding investments in:
a) companies on the most recent list of the Department of Defense's
50 largest contractors;
b) companies with 5 percent or more of their gross sales in defense
contracts; and
c United States Treasury Bills, Notes and Bonds since a portion of
the proceeds from such securities are used to finance military
expenditures.
2. Justice. In all Fund investments, the Adviser seeks appropriate
means to advocate justice and/or focus on investments which support and
enhance the quality of human life. In this connection the Adviser will seek
to invest in those companies whose products provide for basic human needs
such as food, clothing and housing. In addition to considering the product
produced, the Adviser will seek to advocate justice by investing in
companies that provide for equal employment opportunities, that have
positive community relationships, and that strive to create wholesome work
environments for their employees.
3. Stewardship and Health. Some businesses are involved with products
that are not consistent with stewardship and health. The Adviser will avoid
investments in companies that manufacture alcoholic beverages or tobacco,
and companies involved in the manufacture or direct operation of gambling
equipment or facilities. The Adviser favors
9
<PAGE> 15
companies that provide products or services that promote a better quality
of life such as health care, housing, food, and education.
4. Responsible Management. The conduct of business is the
responsibility of a company's management. The Adviser favors companies with
positive job training programs, effective equal employment opportunities,
and positive environmental records.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Each Fund has its own investment objective and policies, which are
described below. The investment objective of each Fund is a fundamental policy
and, as such, may not be changed without the approval of the holders of a
majority of the outstanding Shares of a Fund (as described under "GENERAL
INFORMATION--Miscellaneous"). There can be no assurance that a Fund will achieve
its investment objective. The other policies of a Fund may be changed without
the approval of the holders of a majority of Shares unless (1) the policy is
expressly deemed to be a fundamental policy of the Fund or (2) the policy is
expressly deemed to be changeable only by a majority vote.
MMA PRAXIS INTERMEDIATE INCOME FUND
The primary investment objective of the Income Fund is to seek current
income with capital appreciation as a secondary objective. Under normal market
conditions, the Income Fund will invest substantially all, but in no event less
than 65%, of the value of its total assets in fixed income securities of all
types, consistent with the Fund's social criteria. Fixed income securities shall
include bonds, fixed income preferred stocks, debentures, notes, zero-coupon
securities, mortgage-related and other asset-backed securities, state, municipal
or industrial revenue bonds, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government, debt securities convertible into, or
exchangeable for, common stocks, foreign debt securities, guaranteed investment
contracts, income participation loans (whereby the Fund acquires an interest in
privately negotiated loans to borrowers), first mortgage loans and participation
certificates in pools of mortgages issued or guaranteed by agencies or
instrumentalities of the U.S. Government. The Fund will invest in fixed income
securities which the Adviser believes, as a result of inefficiencies in the bond
market, are inefficiently priced and therefore offer opportunities for superior
performance. The Income Fund will invest in state and municipal securities when,
in the opinion of the Adviser, their yields are competitive with comparable
taxable debt obligations. In addition, the Income Fund may invest up to 35% of
the value of its total assets in (1) variable income preferred stocks, (2)
short-term obligations consisting of high quality (i.e., rated A-2 or better or
Prime-2 or better) money market instruments (commercial paper, certificates of
deposit and bankers' acceptances), variable amount master demand notes, and
variable and floating rate notes, and (3) repurchase agreements. The Income Fund
may also engage in certain options and futures transactions, loans of portfolio
securities and reverse repurchase agreements. As permitted by the Investment
Company Act of 1940 (the "1940 Act"), the Income Fund may also invest up to 10%
of its total assets in securities of other investment companies. The Fund will
generally invest in other investment companies that also have current income as
their investment objective, and the Fund may invest in money market mutual
funds. As a result of the Income Fund investing in such other investment
companies, shareholders of the
10
<PAGE> 16
Fund will indirectly bear a proportionate share of the expenses of these
underlying funds during the period while the Fund is invested in these funds.
Some of the securities in which the Income Fund invests may have warrants or
options attached. The Income Fund will maintain a dollar-weighted average
maturity of three to ten years under ordinary market conditions.
U.S. CORPORATE DEBT SECURITIES. The Income Fund may invest in bonds, notes
and debentures of a wide range of U.S. corporate issuers. Such obligations, in
the case of debentures, will represent unsecured promises to pay. In the case of
notes and bonds, they may be secured by mortgages on real property or security
interests in personal property. The Income Fund will invest in such corporate
debt securities only if they are rated within the four highest rating categories
at the time of purchase by one or more appropriate nationally recognized
statistical rating organizations (individually, an "NRSRO"; collectively,
"NRSROs") (e.g., Moody's Investors Service, Inc. and Standard & Poor's
Corporation) or, if unrated, which the Adviser deems to present attractive
opportunities and are of comparable quality. Securities rated in the fourth
highest rating category have speculative characteristics, even though they are
of investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. In the
event that a particular security is downgraded to a rating of less than
investment grade, the Adviser will retain the security and will then conduct a
review of the creditworthiness and other relevant attributes of the issuer to
determine whether to continue holding the security. For a description of the
rating symbols of the NRSROs, see the Appendix to the Statement of Additional
Information.
FOREIGN DEBT SECURITIES. Debt securities of foreign issuers shall include
Eurobonds and securities issued by Canadian corporations. The Fund may also
invest in U.S. dollar-denominated international certificates of deposit,
bankers' acceptances and foreign fixed income issues for which the primary
trading market is in the United States ("Yankee Obligations"). Any investments
by the Fund in these debt securities will be in accordance with its investment
policies and restrictions. For a discussion of the special risks associated with
investments in foreign securities, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS--Special Considerations and Risk Factors."
COMMERCIAL PAPER. The Income Fund will purchase commercial paper rated at
the time of purchase within the top two rating categories of appropriate NRSROs
or, if not rated, found by the Adviser to be of comparable quality. See the
Appendix to the Statement of Additional Information for a description of these
ratings.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Income Fund
may invest all or any portion of its assets in the money market instruments and
repurchase agreements referred to above when, in the opinion of the Adviser, it
is in the best interests of the Fund to do so based upon current market
conditions.
GOVERNMENT RELATED SECURITIES. As indicated above, the Income Fund may
invest in obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government ("Government Related Securities"). The Fund will not
purchase U.S. Treasury Bills, Notes
11
<PAGE> 17
and Bonds. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S. Government
sponsored agencies or instrumentalities if it is not obligated to do so by law.
The Income Fund will invest in the obligations of such agencies or
instrumentalities only when the Adviser believes that the credit risk with
respect thereto is minimal. The U.S. Government does not guarantee the market
value of any security; therefore, the market value of the Government Related
Securities in the Income Fund's portfolio and of the Shares of the Fund can be
expected to fluctuate as interest rates change.
MORTGAGE-RELATED AND ASSET-BACKED SECURITIES. Mortgage-related securities
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies (such as the Government National Mortgage Association) and
government-related organizations (such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation), as well as by
private issuers (such as commercial banks, savings and loan institutions,
mortgage bankers and private mortgage insurance companies). Collateralized
mortgage obligations ("CMOs"), which are debt securities that are secured by
mortgage loans or agency certificates, will be purchased only if they meet the
rating requirements set forth above with respect to the Income Fund's
investments in debt securities of U.S. corporations. For additional information
regarding the Income Fund's investments in mortgage-related securities, see the
Statement of Additional Information.
Although certain mortgage-related securities may be guaranteed by a third
party or otherwise similarly secured, the market value of the security, which
may fluctuate, is not so secured. Thus, for example, if the Income Fund
purchases a mortgage-related security at a premium, that portion may be lost if
there is a decline in the market value of the security whether due to changes in
interest rates or prepayments of the underlying mortgage collateral. As with
other interest-bearing securities, the prices of mortgage-related securities are
inversely affected by changes in interest rates. However, although the value of
a mortgage-related security may decline when interest rates rise, the converse
is not necessarily true since, in periods of declining interest rates, the
mortgages underlying the securities are prone to prepayment. For this and other
reasons, the stated maturity of a mortgage-related security may be shortened by
unscheduled prepayments on the underlying mortgages and, accordingly, it is not
possible to predict accurately the security's return to the Income Fund since
the Fund would generally be investing the proceeds in a market with lower
interest rates. In addition, regular payments received in respect to
mortgage-related securities include both interest and principal. No assurance
can be given as to the return that the Income Fund will receive when these
amounts are reinvested.
Asset-backed securities (unrelated to first mortgage loans) represent
fractional interests in pools or leases, retail installment loans or revolving
credit receivables, both secured (such as Certificates for Automobile
Receivables or "CARSSM") and unsecured (such as Credit
12
<PAGE> 18
Card Receivable Securities or "CARDSSM"). These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
monthly or quarterly to certificate holders and may be guaranteed up to certain
amounts by letters of credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust. Asset-backed
securities will be purchased only if they meet the rating requirements set forth
above with respect to the Income Fund's investments in debt securities of U.S.
corporations.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which may
reduce the overall return to certificate holders. Nevertheless, principal
repayment rates tend not to vary much with interest rates and the short-term
nature of the underlying car loans or other receivables tend to dampen the
impact of any change in the prepayment level. Certificate holders may also
experience delays in payment on the certificates if the full amounts due on
underlying sales contracts or receivables are not realized by the trust because
of unanticipated legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually automobiles)
securing certain contracts, or other factors. If consistent with its investment
objective and policies, the Income Fund may invest in other asset backed
securities that may be developed in the future, provided that adequate
disclosure has first been made in the Prospectus or any supplement thereto.
Issuers of mortgage-backed and asset-backed securities often issue one or
more classes, one of which (the "Residual") is in the nature of equity. The
Income Fund will not invest in any Residual.
MMA PRAXIS GROWTH FUND
The primary investment objective of the Growth Fund is to seek capital
appreciation with current income as a secondary objective. Through
value-oriented investing, the Growth Fund invests primarily in undervalued
securities of medium to large capitalization companies (i.e., those companies
having greater than $200 million in assets) which, in the Adviser's view,
provide products and services that are consistent with the Company's social
responsibility criteria. Consistent with the foregoing, the Adviser will seek to
identify companies with the following characteristics when selecting equity
securities for investment on behalf of the Growth Fund:
(1) steady earnings and cash flow growth historically and/or
prospectively;
(2) dominant market position or strong niche products and services;
(3) favorable balance sheets;
(4) excess cash flow from operations; and
(5) sustainable dividend growth.
In addition, the Adviser will employ the following traditional valuation
methods for purposes of identifying undervalued securities:
(1) low absolute and comparative price-earning ratios;
(2) low price to book valuations; and
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<PAGE> 19
(3) low price relative to the industry value.
Under normal market conditions, the Growth Fund will invest substantially
all, but in no event less than 65%, of the value of its total assets in equity
securities, which are defined as common stocks, preferred stocks, securities
convertible into common stocks, warrants and any rights to purchase common
stocks. The remainder of the Growth Fund's assets may be invested in any
combination of non-convertible fixed income securities and repurchase
agreements. The Growth Fund may also engage in the options and futures
transactions described below and may invest in the securities of other
investment companies.
SHORT SALES. The Growth Fund may also sell securities short
"against-the-box." A short sale "against-the-box" is a short sale (i.e., a sale
made in anticipation of the drop in value of a particular stock) in which the
Fund owns an equal amount of the securities sold short or securities convertible
into or exchangeable without payment of further consideration for securities of
the same issue as, and equal in amount to, the securities sold short. In the
event that the Fund were to sell securities short "against the box" and the
price of such securities were to then increase rather than decrease, the Fund
would forego the potential realization of the increased value of the shares sold
short.
FIXED INCOME SECURITIES. Because the market value of fixed income
securities can be expected to vary inversely to changes in prevailing interest
rates, investing in such fixed income securities can provide an opportunity for
capital appreciation when interest rates are expected to decline. The
non-convertible fixed income securities referred to above will consist of (1)
corporate notes, bonds and debentures that are rated investment grade at the
time of purchase (i.e. within the four highest rating categories of one or more
appropriate NRSROs) or, if unrated, are deemed by the Adviser to be of
comparable quality to those securities that are rated investment grade and (2)
Government Related Securities. For a description of securities rated within the
fourth highest rating category of NRSROs, see "INVESTMENT OBJECTIVES, POLICIES
AND RISK FACTORS--Praxis Intermediate Income Fund." For a complete description
of the ratings assigned to corporate debt securities by NRSROs, see the Appendix
to the Statement of Additional Information.
TEMPORARY INVESTMENTS. The Growth Fund may, for daily cash management
purposes, also invest in high quality money market securities (commercial paper,
certificates of deposit and bankers' acceptances), as well as the repurchase
agreements referred to above. The Growth Fund may invest, without limit, in any
combination of the Government Related Securities, money market instruments and
repurchase agreements referred to above when, in the opinion of the Adviser, it
is determined that a temporary defensive position is in the best interests of
the Fund based upon current market conditions.
FOREIGN SECURITIES. The Growth Fund may invest in the securities of
foreign issuers. In addition, the Growth Fund may indirectly invest in foreign
securities through the purchase of sponsored American Depositary Receipts
("ADRs") and European Depositary Receipts ("EDRs") and may also invest in
securities issued by foreign branches of U.S. banks and foreign banks, in
Canadian commercial paper, and in Europaper (U.S. dollar-denominated commercial
paper of a foreign issuer). For a discussion of the risks associated with
investments in foreign securities, see "INVESTMENT OBJECTIVES, POLICIES AND RISK
FACTORS--Special Considerations and Risk Factors."
14
<PAGE> 20
CONVERTIBLE SECURITIES. The Growth Fund may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. A convertible security entitles
the holder to receive interest generally paid or accrued on debt or the dividend
paid on preferred stock until the convertible security matures or is redeemed,
converted or exchanged. Convertible securities have several unique investment
characteristics such as (1) higher yields than common stock, but lower yields
than comparable nonconvertible securities, (2) a lesser degree of fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (3) the potential for capital appreciation if the market price of the
underlying common stock increases. A convertible security might be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by the Fund is
called for redemption, the Fund may be required to permit the issuer to redeem
the security, convert it into the underlying common stock or sell it to a third
party.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The principal risk factor associated with an investment in the Income Fund
is interest rate risk. Accordingly, the value of its portfolio securities and
its Shares will generally vary inversely with changes in prevailing interest
rates.
The principal risk factor associated with an investment in the Growth Fund
is the fluctuation in the principal value of equity securities. To the extent
that the Growth Fund may invest in foreign securities, it will be subject to the
special risks that are generally associated with such investments.
Investment in securities of foreign issuers is subject to special risks,
such as future adverse political and economic developments, possible seizure,
currency blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore less liquidity and greater price volatility than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Securities of
foreign issuers may be subject to certain withholding and other taxes of the
relevant jurisdiction, which may reduce the yield on the securities to the Funds
and which might not be recoverable by the Funds or shareholders. To the extent
that the Funds may invest in securities of foreign issuers which are not traded
on any exchange, there is a further risk that these securities may not be
readily marketable. The Funds will not hold foreign currency as a result of such
investments. For additional information regarding these risks, see "INVESTMENT
OBJECTIVES, POLICIES AND RISK FACTORS--Additional Information on Portfolio
Instruments--Foreign Investments" in the Statement of Additional Information.
15
<PAGE> 21
OTHER INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Securities held by a Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and from registered broker-dealers which the Adviser deems
creditworthy under guidelines approved by the Company's Board of Trustees. The
seller agrees to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by a Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. Securities subject
to repurchase agreements must be of the same type and quality as those in which
a Fund may invest directly. The seller under a repurchase agreement will be
required to maintain at all times the value of collateral held pursuant to the
agreement at an amount equal to 102% of the repurchase price (including accrued
interest). This requirement will be continually monitored by the Adviser. In
addition, securities subject to a repurchase agreement will be held in a
segregated account. If the seller were to default on its repurchase obligation
or become insolvent, a Fund would suffer a loss if the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or the disposition of such securities by a Fund were delayed
pending court action. Repurchase agreements are considered to be loans
collateralized by the underlying security under the 1940 Act. For further
information about repurchase agreements, see "INVESTMENT OBJECTIVES, POLICIES
AND RISK FACTORS--Additional Information on Portfolio Instruments--Repurchase
Agreements" in the Statement of Additional Information.
OPTIONS. The Funds may each purchase put and call options listed on a
national securities exchange and issued by the Options Clearing Corporation in
an amount not exceeding 5% of their respective net assets. Such options may
relate to particular securities or to various stock or bond indices. Purchasing
options is a specialized investment technique which entails a substantial risk
of a complete loss of the amounts paid as premiums to the option writer. Such
transactions will be entered into only as a hedge against fluctuations in the
value of securities which the Funds hold or intend to purchase.
The Funds may also write covered call options. A covered call option is an
option to acquire a security that a Fund owns or has the right to acquire during
the option period. Such options will be listed on a national securities exchange
and issued by the Options Clearing Corporation. The aggregate value of the
securities subject to covered call options written by a Fund will not exceed 25%
of the value of its net assets. In order to close out an option position, a Fund
may enter into a "closing purchase transaction"--the purchase of a covered call
option on the same security with the same exercise price and expiration date as
the option which the Fund previously wrote. By writing a covered call option, a
Fund forgoes the opportunity to profit from an increase in the market price of
the underlying security above the exercise price but retains the risk of loss
should the price of the security decline. The use of covered call options will
not be a primary investment technique of a Fund. For additional information
relating to option trading practices, including particular risks, see the
Statement of Additional Information.
FUTURES CONTRACTS AND RELATED OPTIONS. The Funds may invest in futures
contracts and options on futures contracts to the extent permitted by the
Commodity Futures Trading
16
<PAGE> 22
Commission ("CFTC") and the Commission and thus will engage in such transactions
solely for bona fide hedging purposes to manage risks associated with various
portfolio securities and not for speculative purposes. Such transactions,
including stock or bond index futures contracts, or options thereon, act as a
hedge to protect a Fund from fluctuations in the value of its securities caused
by anticipated changes in interest rate or market conditions without necessarily
buying or selling the securities. Hedging is a specialized investment technique
that entails skills different from other investment management. The Adviser may
consider such transactions to be economically appropriate for the reduction of
risk inherent in the ongoing management of a Fund. A stock or bond index futures
contract is an agreement in which one party agrees to take or make delivery of
an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stock or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the agreement is originally made. No physical
delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Fund to purchase or sell interest
rate futures contracts, or options thereon, which provide for the future
delivery of specified securities.
The purchase and sale of futures contracts or related options will not be a
primary investment technique of the Funds. Neither of the Funds will purchase or
sell futures contracts (or related options thereon) if, immediately after
purchase, the aggregate initial margin deposits and premiums paid by a Fund on
its open futures and options positions, exceeds 5% of the liquidation value of
the Fund after taking into account any unrealized profits and unrealized losses
on any such futures or related options contracts into which it has entered. For
a more detailed description of futures contracts and related options, see the
Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements in accordance with the
investment restrictions described below. Pursuant to such agreements, a Fund
would sell certain of its securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed upon date and
price. At the time a Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account liquid high grade debt securities, such
as U.S. Government securities, consistent with its investment restrictions,
having a value equal to the repurchase price (including accrued interest), and
will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of securities sold by a Fund may decline below the price
at which it is obligated to repurchase the securities. A reverse repurchase
agreement is considered to be a borrowing by an investment company under the
1940 Act. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS--Additional Information on
Portfolio Instruments--Reverse Repurchase Agreements" in the Statement of
Additional Information.
LENDING OF PORTFOLIO SECURITIES. From time to time in order to generate
additional income, a Fund may lend its portfolio securities, provided such
action is consistent with its investment objective, policies, and restrictions.
During the time portfolio securities are on
17
<PAGE> 23
loan, the borrower will pay a Fund any dividends or interest paid on the
securities. In addition, loans will be subject to termination by a Fund or the
borrower at any time.
A Fund will enter into loan arrangements only with broker-dealers, banks or
other institutions that are not affiliated directly or indirectly with the
Company and which the Adviser has determined are creditworthy under guidelines
established by the Company's Board of Trustees. While the lending of securities
may subject a Fund to certain risks, such as delays or an inability to regain
the securities in the event the borrower defaults on its lending agreement or
enters into bankruptcy, a Fund will receive 100% of the collateral on loaned
securities in the form of cash or Government Related Securities. This collateral
will be valued daily by the Adviser and, should the market value of the loaned
securities increase, the borrower will be required to furnish additional
collateral to the Fund.
Although each of the Funds does not expect to do so on a regular basis, it
may lend portfolio securities in amounts representing up to one third of the
value of the Fund's total assets.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. A Fund may purchase
securities on a when-issued or delayed-delivery basis. A Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective and policies, not
for investment leverage. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. A Fund will
generally not pay for such securities or start earning interest on them until
they are received. When a Fund agrees to purchase such securities, however, the
Fund's custodian will set aside cash or liquid securities equal to the amount of
the commitment in a separate account. Securities purchased on a when-issued
basis are recorded as an asset and are subject to changes in the value based
upon changes in the general level of interest rates. In when-issued and delayed-
delivery transactions, a Fund relies on the seller to complete the transaction;
the seller's failure to do so may cause a Fund to miss a price or yield
considered to be advantageous.
A Fund's commitment to purchase when-issued securities will not exceed 25%
of the value of its total assets absent unusual market conditions. Neither of
the Funds intends to purchase when-issued securities for speculative purposes
but only in furtherance of its investment objective.
OTHER INVESTMENT COMPANIES. Each Fund may also invest up to 10% of the
value of its total assets in the securities of other investment companies. A
Fund will incur additional expenses due to the duplication of expenses as a
result of investing in other investment companies. Additional restrictions on a
Fund's investments in the securities of other investment companies are contained
in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund is subject to the following fundamental investment restrictions
that may be changed only by the affirmative vote of a majority of the
outstanding Shares of such Fund (as defined below under "GENERAL
INFORMATION--Miscellaneous"). Other investment
18
<PAGE> 24
restrictions, both fundamental and non-fundamental, are set forth under
"INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS--Investment Restrictions" in
the Statement of Additional Information.
Each Fund will not:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by U.S. Government agencies or instrumentalities, if,
immediately after such purchase, with respect to 75% of its portfolio, more
than 5% of the value of the total assets of the Fund would be invested in
such issuer, or the Fund would hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding voting
securities of the issuer.
2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to obligations issued or guaranteed by U.S. Government
agencies or instrumentalities and repurchase agreements secured by
obligations of U.S. Government agencies or instrumentalities; (b) wholly
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time
of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
total assets at the time of its borrowing. The Fund will not purchase
securities while borrowings (including reverse repurchase agreements) in
excess of 5% of its total assets are outstanding.
4. Make loans, except that the Fund may purchase or hold debt
securities and lend portfolio securities in accordance with its investment
objective and policies, and may enter into repurchase agreements.
VALUATION OF SHARES
The net asset value of each of the Funds is determined and its Shares are
priced as of the close of regular trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern Time) on each Business Day ("Valuation Time"). A
"Business Day" is a day on which the New York Stock Exchange is open for trading
and any other day (other than a day on which no Shares of that Fund are tendered
for redemption and no order to purchase any Shares is received) during which
there is sufficient trading in money market instruments or in its portfolio
securities that a Fund's net asset value per share might be materially affected.
The New York Stock Exchange will not open in observance of the following
holidays: New Year's
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<PAGE> 25
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
For each Fund, the net asset value per Share will fluctuate as the value of
the Fund's investment portfolio changes.
The securities in the Funds will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees believes accurately reflects fair value. For further
information about valuation of investments, see "NET ASSET VALUE" in the
Statement of Additional Information.
HOW TO PURCHASE SHARES
Shares of the Funds are sold on a continuous basis by the Company's
Distributor, BISYS Fund Services. The principal office of the Distributor is
3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact
the Funds at 1-800-9-PRAXIS.
Shares of the Funds are continuously offered and may be purchased directly
either by mail or by telephone. Shares may also be purchased through a
broker-dealer who has established a dealer agreement with the Distributor.
Investors may be charged a fee if they effect transactions in fund shares
through a broker or agent. Except as otherwise provided in this Prospectus, the
minimum investment is $500 for the initial purchase of Shares and $50 for
subsequent purchases. For purchases that are made in connection with 401(k)
plans, 403(b) plans and other similar plans or payroll deduction plans, the
minimum investment amount for initial and subsequent purchases may be waived.
(See "SHAREHOLDER SERVICES--Auto Invest Plan" below for separate minimum
investment requirements).
Purchases of Shares of the Funds will be executed at the next calculated
net asset value per Share following the receipt of an order to purchase Shares
in good form ("public offering price"). In the case of orders for the purchase
of Shares placed through a broker-dealer, the applicable public offering price
will be the net asset value as so determined, but only if the broker-dealer
receives the order prior to the Valuation Time for that day and transmits it to
the Funds by 4:00 p.m. Eastern Time. The broker-dealer is responsible for
transmitting such orders promptly. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next business day.
Investors should be aware of the applicability of a contingent deferred
sales charge to certain redemptions (see "HOW TO PURCHASE SHARES--Contingent
Deferred Sales Charges").
PURCHASES BY MAIL. Shares of a Fund may be purchased by completing an
account application and mailing it along with a check (or other negotiable bank
draft or money order) made payable to the appropriate Fund for at least the
minimum initial purchase amount, to:
MMA PRAXIS MUTUAL FUNDS
Dept. L 1318
Columbus, Ohio 43260-1318
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<PAGE> 26
An account application accompanies this Prospectus. Subsequent purchases of
Shares of a Fund may be made at any time by mailing a check payable to the
appropriate Fund with your investment stub (which is attached to all
confirmations and periodic statements), to the above address.
PURCHASES BY TELEPHONE. Shares of a Fund may be purchased by calling the
Funds at 1-800-9-PRAXIS, if your account application has been previously
received by the Distributor. For Shares ordered by telephone, payment is made by
wiring funds to the Funds' custodian. Prior to wiring funds and in order to
ensure that wire orders are invested promptly, investors must call the
Distributor at the number above to obtain instructions regarding the bank
account number to which the funds should be wired and other pertinent
information.
OTHER INFORMATION REGARDING PURCHASES. Purchases of Shares will be
effected only on a Business Day (as defined in "VALUATION OF SHARES") based upon
the public offering price. The Company reserves the right to reject any order
for the purchase of a Fund's Shares in whole or in part, including purchases
made with foreign and third party drafts or checks.
Every Shareholder of record will receive a confirmation of each transaction
in his or her account, which will also show the total number of Shares of that
Fund owned by the Shareholder. Shareholders may rely on these statements in lieu
of certificates. Certificates representing Shares of the Funds will not be
issued.
CONTINGENT DEFERRED SALES CHARGES. There is no sales charge imposed on the
purchase of Shares of the Funds at the time of purchase. Therefore, the full
amount of the purchase payment is invested. However, when Shares are redeemed
within five years after their purchase, a contingent deferred sales charge will
be imposed at rates declining from 4% to zero in accordance with the table
below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR IN WHICH SHARES CHARGE AS A PERCENTAGE
REDEEMED FOLLOWING PURCHASE OF DOLLAR AMOUNT
- ----------------------------------------------------------- --------------------------
<S> <C>
First...................................................... 4.0%
Second..................................................... 4.0%
Third...................................................... 3.0%
Fourth..................................................... 2.0%
Fifth...................................................... 1.0%
Sixth and beyond........................................... None
</TABLE>
The amount of the contingent deferred sales charge, if any, will vary
depending on the number of years from the time of payment for the purchase of
Shares until the time of redemption of such Shares.
The charge will be assessed on an amount equal to the lesser of the cost of
the Shares being redeemed or their net asset value at the time of redemption.
Accordingly, no sales charge will be imposed on increases in net asset value
above the initial purchase price. In addition, no charge will be assessed on
Shares derived from the reinvestment of dividends or capital gains
distributions.
21
<PAGE> 27
In determining whether a contingent deferred sales charge is applicable to
a redemption, the calculation will be determined in the manner that results in
the lowest rate being charged. Therefore, it will be assumed that the redemption
applies first to Shares held for over 5 years or Shares acquired pursuant to the
reinvestment of dividends or capital gain distributions and second to Shares
held longest during the 5-year period. As indicated above, the charge will not
be applied to dollar amounts representing an increase in the net asset value
since the time of purchase. In calculating the contingent deferred sales charge
upon the redemption of a Fund's Shares acquired in an exchange for Shares of the
other Fund (see "Exchange Privilege" below), the purchase of Shares acquired in
the exchange is deemed to have occurred at the time of the original purchase of
exchanged Shares.
For Federal income tax purposes, the amount of the contingent deferred
sales charge will reduce the gain or increase the loss, as the case may be, on
the amount recognized on redemption of your Shares.
Proceeds from contingent deferred sales charges are paid to the Distributor
and are used by the Distributor to defray the expenses it incurs related to the
provision of distribution-related services to the Funds in connection with the
sale of Shares, such as the payment of compensation to selected dealers and
agents for selling such Shares. Shares sold subject to the waiver of the
Contingent Deferred Sales Charge are not eligible for the payment of such
compensation. The combination of the contingent deferred sales charge and the
Rule 12b-1 fees facilitates the ability of the Fund to sell Shares without a
sales charge being deducted at the time of purchase. Such Shares are sold
without an initial sales charge so that the Funds will receive the full amount
of the investor's purchase payment.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE. The contingent deferred
sales charge is waived on redemptions of Shares:
(1) following the death or disability (as defined in the Statement of
Additional Information) of a Shareholder;
(2) to the extent that the redemption represents a minimum required
distribution from an Individual Retirement Account or other retirement plan
to a Shareholder who has attained the age of 70 1/2;
(3) owned by Trustees of the Company, officers, directors, employees
and retired employees of (a) the Adviser and its affiliates and (b) The
BISYS Group, Inc. and its affiliates, and spouses and children under the
age of 21 of each of the foregoing;
(4) owned by employees (and their spouses and children under the age
of 21) of any broker-dealer with whom the Distributor enters into a dealer
agreement to sell Shares of the Funds;
(5) to the extent that the redemption is involuntary;
(6) and owned by all MMA Capital Management and Mennonite Foundation
investment advisory accounts;
(7) for investment advisors or financial planners who place trades for
their own accounts or the accounts of their clients, and who charge a
management, consulting or other fee for their services; and clients of such
investments advisors or financial plan-
22
<PAGE> 28
ners who place trades for their own accounts if the accounts are linked to
the master account of such investment advisor or financial planner on the
books and records of the broker or agent: such accounts include retirement
and deferred compensation plans and trusts used to fund those plans,
including, but not limited to, those defined in section 401(a), 403(b) or
457 of the Internal Revenue Code and "rabbi trusts."
For Items 1 and 2, above, shareholders must notify the Distributor either
directly or through their broker-dealers, at the time of redemption, that they
are entitled to a waiver of the contingent deferred sales charge. For Items 3,
4, 6 and 7 above, shareholders must notify the Distributor directly, AT THE TIME
OF PURCHASE, that they are entitled to a waiver of the contingent deferred sales
charge in case of a redemption. The waiver will be granted subject to
confirmation of the investor's entitlement.
The Distributor and the Adviser, at their expense, may provide compensation
to dealers in connection with sales of Shares of a Fund. Shares sold subject to
the waiver of the Contingent Deferred Sales Charge are not eligible for the
payment of such compensation. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding one or more
of the Funds, and other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of Shares. Compensation
may also include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and members of
their families to locations within or outside of the United States for meetings
or seminars of a business nature. Dealers may not use sales of Shares to qualify
for this compensation to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the NASD. None of the
aforementioned compensation is paid for by the Funds or their Shareholders.
HOW TO REDEEM SHARES
Shareholders may redeem their Shares on any day that net asset value is
calculated (see "VALUATION OF SHARES"). Redemptions will be effected at the net
asset value per Share next determined after receipt of a redemption request,
subject to the contingent deferred sales charges described above. A redemption
may be a taxable transaction on which a Shareholder may realize gain or loss.
Redemptions may ordinarily be requested by mail or by telephone.
REDEMPTION BY MAIL. A written request for redemption must be received by
the Funds in order to honor the request. The request should identify the Fund
and should indicate the dollar amount or the number of shares to be redeemed,
identify the owner(s) and the account number and be signed exactly as the Shares
are registered. In the case of joint accounts, the request should contain the
signature of each owner. The Fund's address is: c/o BISYS Fund Services Ohio,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219. The Transfer Agent may require a
signature guarantee by an eligible guarantor institution. For purposes of this
policy, the term "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. The Transfer
23
<PAGE> 29
Agent reserves the right to reject any signature guarantee if (1) it has reason
to believe that the signature is not genuine, (2) it has reason to believe that
the transaction would otherwise be improper, or (3) the guarantor institution is
a broker or dealer that is neither a member of a clearing corporation nor
maintains net capital of at least $100,000. The signature guarantee requirement
will be waived if both of the following conditions apply: (1) the redemption
check is payable to the Shareholder(s) of record and (2) the redemption check is
mailed to the Shareholder(s) at the address of record or the proceeds are either
mailed or wired to a commercial bank account previously designated on the
account application. There is no charge for having redemption requests mailed to
a designated bank account.
REDEMPTION BY TELEPHONE. Shares may be redeemed by telephone if the
Shareholder selected that option on the Account Application. The Shareholder may
have the proceeds mailed to his or her address or mailed, wired or
electronically transferred to a commercial bank account previously designated on
the account application. Under most circumstances, wire payments will be
transmitted on the next Business Day and electronic transfer will be on the
Second Business Day. Wire redemption requests may be made by the Shareholder by
telephone to the Funds at 1-800-9-PRAXIS. The then-current wire redemption
charge, presently $10.00, will be deducted from the proceeds of a wire
redemption. An additional fee may be charged by the Shareholder's bank for each
wire redemption. For electronic transfer requests, the appropriate section of
the application must have been previously completed and at least fifteen days
must be allowed prior to implementation. It is not necessary for Shareholders to
confirm telephone redemption requests in writing. During periods of significant
economic or market change, telephone redemptions may be difficult to complete.
If a Shareholder is unable to contact the Distributor by telephone, a
Shareholder may also mail the redemption request to the Distributor at the
address listed above under "HOW TO REDEEM SHARES--Redemption by Mail."
Neither the Distributor, the Transfer Agent, the Company nor the Adviser
will be liable for any losses, damages, expense or cost arising out of any
telephone transaction (including exchanges and redemptions) effected in
accordance with the Company's telephone transaction procedures, upon
instructions believed to be genuine. The Company will employ procedures designed
to provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Company or its service contractors may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures include recording all phone conversations, sending confirmations to
Shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number, and sending
redemption proceeds only to the address of record or to a previously authorized
bank account. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, Shareholders may also mail the redemption request
to the Funds at the address listed above under "HOW TO REDEEM SHARES--Redemption
by Mail."
PAYMENTS TO SHAREHOLDERS. Payments to Shareholders for Shares redeemed
will be made within seven days after receipt by the Distributor of the request
for redemption. However, to the greatest extent possible, a Fund will attempt to
honor requests from Shareholders for next day payments upon redemption of Shares
if the request for redemption is received by the Distributor before 4:00 p.m.,
Eastern Time on a Business Day unless it would
24
<PAGE> 30
be disadvantageous to a Fund or the Shareholders of a Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
At various times, a Fund may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, a Fund may delay the
forwarding of proceeds until payment has been collected for the purchase of such
Shares, which delay may be for up to 15 days or more. A Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, a Fund may make payment wholly or partly in liquid portfolio
securities at their then-current market value equal to the redemption price. In
such cases, an investor may incur brokerage costs in converting such securities
to cash.
INVOLUNTARY REDEMPTION. Due to the relatively high cost of handling small
investments, the Company reserves the right to redeem, at net asset value, the
Shares of any Shareholder if, because of redemptions of Shares by or on behalf
of the Shareholder (but not as a result of a decrease in the market price of
such Shares), the account of such Shareholder has a value of less than $500.
Before the Company exercises its right to redeem such Shares and to send the
proceeds to the Shareholder, the Shareholder will be given notice that the value
of the Shares in his or her account is less than the minimum amount and will be
allowed 60 days to make an additional investment in an amount which will
increase the value of the account to at least $500. Each Fund may refuse to open
an account or may involuntarily redeem the shares held by any investor who has
failed to provide a Fund with a certified taxpayer identification number or such
other tax-related certifications as may be required. In addition, each Fund may
close an account by redeeming its Shares in full at net asset value upon the
failure of a Shareholder who has completed an "awaiting TIN" certification to
provide a Fund with a certified social security or taxpayer identification
number within 60 days after opening the account. Shareholders will receive 30
days' notice of a Fund's intention to close their account unless the proper
information is provided. The contingent deferred sales charge will not be
imposed upon such a redemption.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION--Matters Affecting
Redemption" in the Statement of Additional Information for examples of when the
Company may suspend the right of redemption if it appears appropriate to do so
in light of the Company's responsibilities under the 1940 Act.
SHAREHOLDER SERVICES
MMA PRAXIS INDIVIDUAL
RETIREMENT ACCOUNT ("IRA")
An MMA Praxis IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement programs.
MMA Praxis IRA contributions may be tax-deductible and earnings are
tax-deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
25
<PAGE> 31
An MMA Praxis Salary Reduction Simplified Employee Pension Plan
("SAR-SEP/IRA") offers employers with 25 or fewer eligible employees the ability
to establish a SEP/IRA that permits salary reduction contributions. A SEP/IRA
may be established on a group basis by an employer who wishes to sponsor a
tax-sheltered retirement program by making contributions into IRA's on behalf of
all eligible employees.
All MMA Praxis IRA distribution requests must be made in writing to The
Winsbury Company. Any additional deposits to an MMA Praxis IRA must distinguish
the type and year of the contribution.
For more information on an MMA Praxis IRA or, to request an MMA Praxis IRA
application, call the Funds at 1-800-9-PRAXIS. Shareholders are advised to
consult a tax adviser regarding IRA contribution and withdrawal requirements and
restrictions.
403(B)(7) DEFINED CONTRIBUTION PLAN
An MMA Praxis 403(b)(7) Defined Contribution Plan offers employers that are
tax-exempt organizations the ability to establish tax-deferred accounts for
their employees that also permit salary reduction contributions.
AUTO INVEST PLAN
The Auto Invest Plan enables Shareholders of the Funds to make regular
monthly or quarterly purchases of Shares through automatic deductions from their
bank accounts (which must be with a domestic member of the Automatic Clearing
House). With Shareholder authorization, the Transfer Agent will deduct the
amount specified from the Shareholder's bank account which will automatically be
invested in Shares at the public offering price on the dates of the deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $50; the minimum amount for subsequent investments in a Fund is
$50. To participate in the Auto Invest Plan, Shareholders should complete the
appropriate section of the account application accompanying this Prospectus. For
a Shareholder to change the Auto Invest instructions or to discontinue the
feature, the request must be made in writing to the Distributor. For requests to
utilize this feature or to change your instructions, please allow at least
fifteen days prior to implementation.
EXCHANGE PRIVILEGE
The Company offers an exchange program whereby Shareholders of one Fund are
entitled to exchange their Shares for Shares of the other Fund. Such exchanges
will be executed on the basis of the relative net asset values of the Shares
exchanged. Exchanges will not be subject to a contingent deferred sales charge.
The Shares exchanged must have a current value that equals or exceeds the
minimum investment that is required (either the minimum amount required for
initial investments or the minimum amount required for subsequent investments,
as the case may be) for the Fund whose Shares are being acquired. Share
exchanges will only be permitted where the Shares to be acquired may legally be
sold in the investor's state of residence. An exchange is considered to be a
sale of Shares for federal income tax purposes on which a Shareholder may
realize a capital gain or loss. A Shareholder may make an exchange request by
calling
26
<PAGE> 32
the Funds at 1-800-9-PRAXIS or by providing written instructions. If making a
request by telephone, telephone privileges must have been previously elected on
the account application. An investor should consult the Distributor for further
information regarding exchanges. During periods of significant economic or
market change, telephone exchanges may be difficult to complete. If a
Shareholder is unable to contact the Distributor by telephone, a Shareholder may
also mail the exchange request to the Funds at the address listed under "HOW TO
REDEEM SHARES--Redemption By Mail." The Company reserves the right to modify or
terminate the exchange privilege described above at any time and to reject any
exchange request. If an exchange request in good order is received by the
Distributor by 4:00 p.m., Eastern Time, on any Business Day, the exchange
usually will occur on that day. Any Shareholder who wishes to make an exchange
should obtain and review the current prospectus of the Fund in which he or she
wishes to invest before making the exchange. Shareholders wishing to make use of
the Company's exchange program must so indicate on the account application.
The Company's exchange privilege is not intended to afford shareholders a
way to speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Company and increase transaction costs, the Company has
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund to make regular
monthly or quarterly redemptions of Shares. With Shareholder authorization, the
Transfer Agent will automatically redeem Shares at the net asset value (subject
to the imposition of a contingent deferred sales charge, if applicable) on the
dates of the withdrawal and have the proceeds transferred according to the
written instructions of the Shareholder. The required minimum withdrawal is $50.
To participate in the Auto Withdrawal Plan, Shareholders should call
1-800-9-PRAXIS for more information. Purchases of additional Shares concurrent
with withdrawals may be disadvantageous to certain Shareholders because of tax
liabilities. For a Shareholder to change the Auto Withdrawal instructions, or to
discontinue the feature, the request must be made in writing to the Distributor.
For requests to utilize this feature or to change your instructions, please
allow at least fifteen days prior to implementation. In order to qualify for the
Auto Withdrawal Plan, the Shareholder's account must have a current market value
of at least $10,000.
DIRECTED DIVIDENDS
A Shareholder, with an account having a current market value of at least
$5,000, may elect to have all income dividends and capital gains distributions
reinvested in the Company's other Fund (provided the other Fund is maintained at
its minimum required balance). The entire directed dividend (100%) must be
reinvested into the other Fund of the Company if this option is chosen. This
option is available only to the same Shareholder involving Funds with the same
Shareholder registration.
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<PAGE> 33
The Directed Dividend Option may be modified or terminated by the Company
at any time after notice to the participating Shareholders. Participation in the
Directed Dividend Option may be terminated or changed by the Shareholder at any
time by writing the Distributor.
AUTOMATIC VOLUNTARY CHARITABLE CONTRIBUTIONS TO THE MENNONITE FOUNDATION
The Mennonite Foundation, Inc. was organized as a not-for-profit, public
foundation in 1952 and received 501(c)(3) tax status in 1953. The Foundation's
primary purposes are to facilitate the missions of church institutions through a
wide range of planned giving and asset management services, and to provide
stewardship education seminars in church and other settings.
In keeping with the socially responsible objectives of MMA Praxis Mutual
Funds, Fund Shareholders may elect to make automatic, voluntary contributions of
all or a percentage of their income dividends and/or capital gains to The
Mennonite Foundation, Inc. In order to make such an election, Shareholders must
elect to receive income dividends and/or capital gain distributions in cash.
Shareholders may indicate their desire to contribute by completing the
appropriate section of the account application regarding dividend elections. In
order to qualify for the automatic charitable contributions plan, Shareholders
are required to maintain a minimum balance of $10,000 in the account from which
voluntary contributions are made.
The Foundation will manage contributions received from Shareholders in the
Foundation's "Charitable Gift Fund," under current operating procedures. A
Shareholder may advise the Foundation, with respect to their contributions, as
to the identity of desired charitable distributees, and the possible timing and
amounts of distributions. The Charitable Gift Fund has a minimum distribution
amount of $100. The Foundation retains legal and equitable control of the
Charitable Gift Fund, and follows a published list of guidelines when
determining whether to make a distribution. Shareholders with an account balance
under $10,000 may also participate in The Mennonite Foundation Charitable Gift
Fund by making contributions directly to the Foundation.
In 1995, the Foundation disbursed $11,784,000 to church and charitable
organizations, approximately 70% of which have direct connections with Mennonite
denominations.
Contributions to the Foundation are charitable contributions and, subject
to tax law limitations, are tax deductible on the itemized tax return of the
contributor. Shareholders who contribute to the Foundation will receive an
annual report of Foundation activities during the year.
The directors of the Foundation serve in a voluntary capacity and are not
paid directly or indirectly for their service to the Foundation, except for
expenses associated with directors' meetings. The Foundation and the Adviser
share a common board of directors and also have certain officers in common.
You may obtain additional information, including the operating procedures
of the Charitable Gift Fund, by writing to The Mennonite Foundation, 1110 N.
Main Street, P.O. Box 483, Goshen, Indiana, 46526.
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<PAGE> 34
CHARITABLE GIFT OPTION
The Charitable Gift Option allows certain Shareholders of the Funds to
designate all or any portion of their accounts to automatically be transferred
to a church or charitable organization at the death of the Shareholder. To
participate in the Charitable Gift Option, Shareholders should call
1-800-9-PRAXIS for more information and to receive the necessary enrollment
forms. For a Shareholder to change the Charitable Gift Option instructions or to
discontinue the feature, a written request of the Shareholder must be sent to
the Distributor. It shall be the responsibility of the Shareholder to ascertain
the tax-exempt qualification of a receiving organization. Neither the Company,
the Adviser, nor the Distributor will verify the qualifications of any receiving
organizations, or issue any charitable receipts. An Investor should consult with
his or her own tax counsel and estate planner as to the availability and tax and
probate consequences of this feature of the Funds under applicable state or
federal law.
24 HOUR FUND INFORMATION
Shareholders of the Funds may obtain current price, yield and other
performance information through an automated voice response system, 24 hours a
day by calling 1-800-9-PRAXIS from any touch-tone phone. Shareholders may also
speak directly with a Company representative, employed by the Distributor,
during regular business hours.
DIVIDENDS AND TAXES
DIVIDENDS
The Income Fund intends to declare its net investment income monthly as a
dividend to Shareholders at the close of business on the day of declaration. The
Income Fund will generally pay such dividends monthly. The Growth Fund intends
to declare its net investment income quarterly as a dividend to Shareholders at
the close of business on the day of declaration, and generally will pay such
dividends quarterly. Distributable net realized capital gains of each Fund are
distributed at least annually. A Shareholder will automatically receive all
income dividends and capital gains distributions in additional full and
fractional Shares of a Fund at net asset value as of the date of payment, unless
the Shareholder elects to have dividends or distributions paid in cash. Such
election must be made on the Account Application; any change in such election
must be made in writing to the Funds at 3435 Stelzer Road, Columbus, Ohio 43219,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent. Dividends are paid in cash
not later than seven business days after a Shareholder's complete redemption of
his or her Shares. Dividends will generally be taxable to a Shareholder as
ordinary income to the extent of the Shareholder's ratable share of a Fund's
earnings and profits as determined for tax purposes.
FEDERAL TAXES
The following discussion is intended for general information only. An
investor should consult with his or her own tax adviser as to the tax
consequences of an investment in the
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<PAGE> 35
Funds, including the status of distributions from the Funds under applicable
state or local law.
Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify, each Fund must meet certain income, distribution and
diversification requirements. In any year in which a Fund qualifies as a
regulated investment company and timely distributes all of its income, the Fund
generally will not pay any U.S. federal income or excise tax.
Dividends paid out of a Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to a U.S.
Shareholder as ordinary income. A portion of the Growth Fund's income may
consist of dividends paid by U.S. corporations. Therefore, a portion of the
dividends paid by the Growth Fund may be eligible for the corporate
dividends-received deduction. It is also possible that a portion of the Income
Fund's income may be eligible for such deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of the length of time the Shareholder has held a
Fund's Shares. Dividends are taxable to Shareholders in the same manner whether
received in cash or reinvested in additional Fund Shares.
A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by a Fund in October, November or December with
a record date in such a month and paid by a Fund during January of the following
calendar year. Such distributions will be treated as received by Shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.
Each year the Funds will notify Shareholders of the tax status of dividends
and distributions.
Any gain or loss realized by a Shareholder upon the sale or other
disposition of Shares of a Fund, or upon receipt of a distribution in complete
liquidation of a Fund, generally will be a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent that the Shares disposed of are replaced (including
replacement through the reinvesting of dividends and capital gain distributions
in a Fund) within a period of 61 days beginning 30 days before and ending 30
days after the disposition of the Shares. In such a case, the basis of Shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
Shareholder on the sale of Fund Shares held by the Shareholder for six months or
less will be treated for federal income tax purposes as a long-term capital loss
to the extent of any capital gain dividends received by the Shareholder with
respect to such Shares.
The Funds may be required to withhold U.S. federal income tax at a rate of
31% of all distributions payable to Shareholders who fail to provide the Fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against the Shareholder's U.S. federal income tax
liability.
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<PAGE> 36
Further information relating to tax consequences is contained in the
Statement of Additional Information.
STATE AND LOCAL TAXES
The Company is organized as a Delaware business trust and, under current
law, neither the Company nor any Fund is liable for any income or franchise tax
in the state of Delaware as long as each Fund qualifies as a regulated
investment company under the Code.
Fund distributions may be subject to state and local taxes. Distributions
that are derived from interest on obligations of U.S. Government agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their own tax advisers regarding the possible
exclusion for state and local income tax purposes of the portion of dividends
paid by a Fund that is attributable to interest from such obligations, and the
particular tax consequences to them of an investment in a Fund, including the
application of state and local tax laws.
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<PAGE> 37
MANAGEMENT OF THE COMPANY
TRUSTEES OF THE COMPANY
Overall responsibility for management of the Company rests with its Board
of Trustees, who are elected by the shareholders of the Company's Funds. There
is currently one Trustee, who is an "interested person" of the Company within
the meaning of that term under the 1940 Act. The Company is managed by the
Trustees in accordance with the laws of Delaware governing business trusts. The
Trustees, in turn, elect the officers of the Company to supervise actively its
day-to-day operations.
The Trustees receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. The officers
of the Company (see the Statement of Additional Information) receive no
compensation directly from the Company for performing the duties of their
offices. BISYS Fund Services receives fees from the Funds for acting as
administrator and distributor. BISYS Fund Services Ohio, Inc. receives fees from
the Funds for acting as Transfer Agent and for providing certain fund accounting
services.
<TABLE>
<CAPTION>
TRUSTEES
<S> <C>
Howard L. Brenneman, Chairman From December 1991 to present, President and
Goshen, IN* CEO of Mennonite Mutual Aid; from 1986 to
1991, Business and Financial Consultant and
Director of Strategic Planning and
Development, Prairie View, Inc.
Karen Klassen Harder, PhD, Trustee From January 1990 to present, Professor,
North Newton, KS Bethel College, North Newton, Kansas.
Richard Reimer, Ph.D., Trustee Since 1962, Professor of Economics, The
Wooster, OH* College of Wooster, Wooster, Ohio.
Donald E. Showalter, Esq., Trustee Since 1965, Attorney with the law firm of
Harrisonburg, VA Wharton, Aldhizer & Weaver, Harrisonburg,
Virginia.
Allen Yoder, Jr., Trustee From May 1985 until retirement in September,
Middlebury, IN 1993, President, Jayco, Inc. Since 1985,
President, Deutsch Kase Haus.
</TABLE>
- ---------------
*Indicates an "interested person" of the Company as defined in the Investment
Company Act of 1940.
INVESTMENT ADVISER
Menno Insurance Service, Inc., doing business as MMA Capital Management,
1110 North Main Street, Goshen, Indiana 46526, is the investment adviser for the
Funds. The Adviser, which is a separate corporate entity controlled by the board
of directors of Mennonite Mutual Aid, Inc., is a registered investment adviser
with the Securities and Exchange Commission. The Adviser has over $145 million
in assets under management, primarily through management of large accounts for
individuals. The Adviser's professional portfolio managers, however, are
responsible for the management of over $465 million of the investment assets of
Mennonite Mutual Aid, Inc.
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<PAGE> 38
The following individuals serve as portfolio managers for the Funds and are
primarily responsible for the day-to-day management of the Funds' portfolios:
<TABLE>
<CAPTION>
INCOME FUND
<S> <C>
Delmar King Delmar King has 24 years of investment experience with
Mennonite Mutual Aid. He received a BA in Economics from
Goshen College and received a Masters Degree in Business
Administration from Indiana University in 1971. Delmar serves
on the Investment Committee of the Elkhart County Community
Foundation.
GROWTH FUND
Keith Yoder Keith Yoder has 12 years of investment experience. Keith was
a trust investment officer for a regional bank from 1987
until 1992 when he joined Mennonite Mutual Aid to manage MMA
Capital Management along with the stock portfolios for the
various Mennonite Mutual Aid entities. Keith is a Chartered
Financial Analyst, a Certified Public Accountant and a member
of the Association for Investment Management and Research.
</TABLE>
Subject to the general supervision of the Company's Board of Trustees and
in accordance with a Fund's investment objective and restrictions, the Adviser
manages the investments of a Fund, makes decisions with respect to and places
orders for all purchases and sales of a Fund's portfolio securities, and
maintains a Fund's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Company, the Adviser receives a fee computed daily
and paid monthly, at the annual rate of fifty one-hundredths of one percent
(.50%) of the Income Fund's average daily net assets and at the annual rate of
seventy-four one-hundredths of one percent (.74%) of the Growth Fund's average
daily net assets. The Adviser may periodically waive all or a portion of its
advisory fee to increase the net income of a Fund available for distribution as
dividends. The Adviser may not seek reimbursement of such waived fees at a later
date. The waiver of such fee will cause the yield of a Fund to be higher than it
would otherwise be in the absence of such a waiver.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for the Funds and also acts as the
Funds' principal underwriter and distributor (the "Administrator" or the
"Distributor," as the context indicates).
The Administrator generally assists in all aspects of the Funds'
administration and operation. For expenses assumed and services provided as
manager and administrator pursuant to its management and administration
agreement with the Company, the Administrator receives a fee, computed daily and
paid periodically, calculated at an annual rate of fifteen one-hundredths of one
percent (.15%) of a Fund's average daily net assets, with an annual minimum of
$50,000 until a Fund's net assets reach $50 million. Upon reaching $50 million,
the fee will be calculated at an annual rate of ten one-hundredths of one
percent (.10%) of the Fund's daily net assets. The Administrator may
periodically waive all or a
33
<PAGE> 39
portion of its administrative fee to increase the net income of a Fund available
for distribution as dividends. The Administrator may not seek reimbursement of
such waived fees at a later date. The waiver of such fee will cause the yield of
a Fund to be higher than it would otherwise be in the absence of such a waiver.
The Distributor acts as agent for the Funds in the distribution of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities.
EXPENSES
The Adviser and the Administrator each bear all expenses in connection with
the performance of their services as investment adviser and general manager and
administrator, respectively, other than the cost of securities (including
brokerage commissions, if any) purchased for the Funds.
DISTRIBUTION SERVICES PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Company has adopted a
Distribution Services Plan (the "Plan"), under which each Fund will pay a
periodic amount calculated at an annual rate not to exceed one percent (1.0%) of
the average daily net assets of the Fund for activities primarily intended to
result in the sale of Shares. These amounts would include the payment of a
service fee of up to twenty-five one-hundredths of one percent (0.25%) of the
average daily net assets of a Fund for activities or expenses related to account
maintenance or personal service to existing shareholders. Distribution and
service related activities may include (1) the compensation of dealers and other
sales personnel for distribution assistance, (2) direct advertising and
marketing expenses, (3) expenses incurred in connection with preparing,
printing, mailing, distributing or publishing advertisements and sales
literature, (4) expenses incurred for printing and mailing Prospectuses and
Statements of Additional Information (except those used for regulatory purposes
or for distribution to existing Shareholders), and (5) other costs associated
with implementing and operating the Plan. Payments may be made directly to the
parties providing distribution assistance or to the Funds' Distributor. For
example, it is anticipated that the Funds will make payments under the Plan to
Menno Insurance Service, Inc.
CUSTODIAN
Fifth Third Bank, Cincinnati, Ohio (the "Custodian") serves as custodian
for the Funds. Pursuant to the Custodian Agreement with the Company, the
Custodian receives compensation from each Fund for such services in an amount
equal to a designated annual fee plus fixed fees charged for certain portfolio
transactions and out-of-pocket expenses.
TRANSFER AGENCY, SHAREHOLDER SERVICING AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc. (the "Transfer Agent"), 3435 Stelzer Road,
Columbus, Ohio 43219, serves as the Funds' transfer agent pursuant to a Transfer
Agency Agreement for the Funds and receives a fee for such services. Pursuant to
a Shareholder Servicing Agreement, BISYS Fund Services provides administrative
service to shareholders such as
34
<PAGE> 40
changing dividend options and account addresses, answering questions regarding
accounts and other similar services for which it receives a fee. BISYS Fund
Services Ohio, Inc. also provides certain accounting services for the Funds
pursuant to a Fund Accounting Agreement and receives a fee for such services.
See "MANAGEMENT OF THE COMPANY-- Transfer Agency, Shareholder Servicing and Fund
Accounting Services" in the Statement of Additional Information for further
information.
While BISYS Fund Services Ohio, Inc., is a distinct legal entity from BISYS
Fund Services (the Funds' Administrator and Distributor), BISYS Fund Services
Ohio, Inc. is considered to be an affiliated person of BISYS Fund Services under
the 1940 Act due to, among other things, the fact that BISYS Fund Services Ohio,
Inc., is owned by substantially the same persons that directly or indirectly own
BISYS Fund Services.
GENERAL INFORMATION
DESCRIPTION OF THE COMPANY AND ITS SHARES
The Company was organized as a Delaware business trust on September 27,
1993. The Company currently consists of two funds. Each share represents an
equal proportionate interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that fund as are declared at the discretion of the Trustees
(see "GENERAL INFORMATION--Miscellaneous" below).
Shareholders will each be liable for all obligations of a Fund in which
they hold shares. However, the risk of a Shareholder incurring financial loss on
account of liability is limited to circumstances in which both inadequate
insurance exists and a Fund itself is unable to meet its obligations. In the
event that a Shareholder becomes liable for the obligations of a Fund, the
Company will indemnify each Shareholder to the extent that such claim or
liability imposes on the Shareholder an obligation or liability greater than its
proportionate interest in such Fund.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for any fractional shares held, and will vote in
the aggregate and not by series except as otherwise expressly required by law.
For example, shareholders of each fund will vote in the aggregate with other
shareholders of the Company with respect to the election of Trustees and
ratification of the selection of independent accountants. However, shareholders
of a particular fund will vote as a fund, and not in the aggregate with other
shareholders of the Company, for purposes of approval of the Plan and that
fund's investment advisory agreement.
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Company. See "MANAGEMENT OF THE COMPANY--Trustees of
the Company." Individual Trustees are elected by the shareholders of the Company
and may be removed by the Board of Trustees or shareholders in accordance with
the provisions of the Declaration of Trust and By-Laws of the Company and
Delaware law. See "ADDITIONAL INFORMATION--Miscellaneous" in the Statement of
Additional Information for further information.
35
<PAGE> 41
An annual meeting of shareholders is not generally required by the
Declaration of Trust, the 1940 Act or other applicable authority. To the extent
that such a meeting is not required, the Company may elect not to have an annual
or special meeting.
The Company has undertaken that the Trustees will call a special meeting of
shareholders for purposes of considering the removal of one or more Trustees
upon written request therefor from shareholders holding not less than 10% of the
outstanding votes of the Company. The Company will, to the extent required under
the 1940 Act, assist shareholders in calling such a meeting. At such a meeting,
a quorum of shareholders (constituting a majority of votes attributable to all
outstanding shares of the Company), by majority vote, has the power to remove
one or more Trustees.
PERFORMANCE INFORMATION
From time to time, each Fund may advertise its average annual total return,
aggregate total return, yield and distribution rate in advertisements, sales
literature and shareholder reports. SUCH PERFORMANCE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average
annual total return will be calculated for the period since the establishment of
the Fund and will reflect the imposition of the applicable contingent deferred
sales charge. Average annual total return is measured by comparing the value of
an investment in the Fund at the beginning of the relevant period to the
redemption value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the difference. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield for each of the Funds will be computed by
dividing the Fund's net investment income per share earned during a recent
thirty day period by the Fund's per share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and annualizing the result. Each Fund may also present its
performance information excluding the effect of the contingent deferred sales
charge.
Distribution rates will be computed by dividing the distribution per share
made by the Fund over a twelve-month period by the maximum offering price per
share. The distribution rate includes both income and capital gain dividends and
does not reflect unrealized gains or losses. The distribution rate differs from
the yield, because it includes capital items which are often non-recurring in
nature, whereas yield does not include such items.
Investors may also judge the performance of each Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and to
data prepared by various services which may be published by such services or by
other services or publications. In addition to performance information, general
information about a Fund that appears in such publications may be included in
advertisements, sales literature and in reports to Shareholders.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. A discussion of the Funds' performance is
included in each Fund's Annual Report to Shareholders.
36
<PAGE> 42
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent auditors.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by the Fund upon
the issuance or sale of shares in that Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Company not readily identified as belonging to a particular fund
that are allocated to the Fund by the Company's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Company as to the
timing of the allocation of general liabilities and expenses and as to the
timing and allocable portion of any general assets with respect to the Fund are
conclusive.
As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of a Fund present at a meeting at which the holders
of more than 50% of the votes attributable to Shareholders of record of the Fund
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of Shareholders of a Fund.
Inquiries regarding the Funds may be directed in writing to the Funds at
3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free 1-800-9-PRAXIS.
37
<PAGE> 43
INVESTMENT ADVISER
MMA Capital Management
Post Office Box 483
Goshen, Indiana 46527
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, NW
Washington, DC 20005
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, Ohio 43215
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
950120
(RECYCLE LOGO)
(PRINTED WITH SOY INK LOGO)
Prospectus
MMA
Praxis
Mutual
Funds
INTERMEDIATE INCOME FUND
GROWTH FUND
MAY 1, 1996
[MMA LOGO]
<PAGE> 44
MMA Praxis Intermediate Income Fund
MMA Praxis Growth Fund
Each an Investment Portfolio of the
MMA Praxis Mutual Funds
Statement of Additional Information
May 1, 1996
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectus for the MMA Praxis Intermediate Income Fund
and the MMA Praxis Growth Fund, dated the same date as the date hereof (the
"Prospectus"). The MMA Praxis Intermediate Income Fund and the MMA Praxis Growth
Fund are hereinafter referred to individually as the "Income Fund" and the
"Growth Fund", respectively, and are hereinafter referred to collectively as the
"Funds". The Funds are separate investment portfolios of the MMA Praxis Mutual
Funds (the "Company"), an open-end management investment company that currently
consists of two separate investment portfolios. This Statement of Additional
Information is incorporated in its entirety into the Prospectus. Copies of the
Prospectus may be obtained by writing the Company at 3435 Stelzer Road,
Columbus, Ohio 43219 or by telephoning toll free (800) 9-PRAXIS.
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
MMA PRAXIS MUTUAL FUNDS
The MMA Praxis Mutual Funds (the "Company") is an open-end management
investment company which currently offers two separate investment portfolios
("Fund"). Each Fund is a diversified portfolio of the Company. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Prospectus of the Funds. Capitalized terms not defined
herein are defined in the Prospectus. No investment in Shares of a Fund should
be made without first reading the Prospectus.
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives, policies
and risk factors of the Funds as set forth in the Prospectus. Each of these
policies will be applied subject to the social responsibility criteria set forth
in the Prospectus.
Bank Obligations. The Funds may invest in bank obligations such as
bankers' acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital, surplus,
and undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic and foreign banks and savings and
loan associations, if (a) at the time of investment the depository institution
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
<PAGE> 46
The Funds may purchase commercial paper consisting of issues rated at
the time of purchase "A-2" or better by S&P, "Prime-2" or better by Moody's or
such issues with comparable ratings by other NRSROs. The Funds may also invest
in commercial paper that is not rated but is determined by the Adviser under
guidelines established by the Company's Board of Trustees, to be of comparable
quality.
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Funds may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there may be no secondary market in the notes, a
Fund may demand payment of principal and accrued interest at any time. The
investment adviser will consider the earning power, cash flow, and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand. In determining
average weighted portfolio maturity, a variable amount master demand note will
be deemed to have a maturity equal to the longer of the period of time remaining
until the next interest rate adjustment or the period of time remaining until
the principal amount can be recovered from the issuer through demand.
Variable and Floating Rate Notes. The Funds may acquire variable and
floating rate notes, subject to each Fund's investment objective, policies and
restrictions. A variable rate note is one whose terms provide for the adjustment
of its interest rate on set dates and which, upon such adjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the adjustment of its interest
rate whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Such notes are frequently not rated by credit rating agencies; however, unrated
variable and floating rate notes purchased by a Fund will be determined by the
Adviser under guidelines approved by the Company's Board of Trustees to be of
comparable quality at the time of purchase to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
the Adviser will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate note purchased by a Fund, the
Fund may resell the note at any time to a third party. The absence of an active
secondary market, however, could make it difficult for the Fund to dispose of a
variable or floating rate note in the event the issuer of the note were to
default on its payment obligations, and the Fund could, as a result or for other
reasons, suffer a loss to the extent of the default. Variable or floating rate
notes may be secured by bank letters of credit.
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<PAGE> 47
Government Related Securities. The Funds may invest in obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government
("Government Related Securities"). Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
Foreign Investments. Each of the Funds may, subject to its investment
objectives and policies, invest in certain obligations or securities of foreign
issuers. Permissible investments include, but are not limited to, Eurobonds,
which are U.S. dollar denominated debt securities issued by corporations located
in Europe, Eurodollar Certificates of Deposit, which are U.S. dollar denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States (primarily Europe), Yankee Certificates of Deposit
which are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in the United States, Eurodollar Time
Deposits, which are U.S. dollar denominated deposits in a foreign branch of a
U.S. bank or a foreign bank, and Canadian Time Deposits, which are U.S. dollar
denominated certificates of deposit issued by Canadian offices of major Canadian
Banks. Investments in securities issued by foreign branches of U.S. banks,
foreign banks, or other foreign issuers, including American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") and securities purchased on
foreign securities exchanges, may subject the Funds to investment risks that
differ in some respects from those related to investment in obligations of U.S.
domestic issuers or in U.S. securities markets. Such risks include future
adverse political and economic developments, possible seizure, currency
blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, and the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore many securities traded in these markets may be less liquid and
their prices more volatile than U.S. securities, and the risk that custodian and
brokerage costs may be higher. Foreign issuers of securities or obligations are
often subject to accounting treatment and engage in business practices different
from those respecting domestic issuers of similar securities or obligations.
Foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements than those applicable to domestic branches of
U.S. banks. A Fund will acquire such securities only when its respective
investment adviser believes the risks associated with such investments are
minimal.
B-3
<PAGE> 48
Options Trading. As described in the Prospectus, each Fund may purchase
put and call options listed on a national securities exchange and issued by the
Options Clearing Corporation in an amount not exceeding 5% of its total net
assets. Options trading is a specialized activity that entails greater than
ordinary investment risks. Regardless of how much the market price of the
underlying security or index increases or decreases, the option buyer's risk is
limited to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. In contrast to an option on a
particular security, an option on a stock or bond index provides the holder with
the right to make or receive a cash settlement upon the exercise of the option.
The amount of this settlement will be equal to the difference between the
closing price of the index at the time of exercise and the exercise price of the
option expressed in dollars, times a specified multiple.
A Fund's obligation to sell a security subject to a covered call option
written by it may be terminated prior to the expiration date of the option by
the execution of a closing purchase transaction, which is effected by purchasing
on an exchange an option of the same series (i.e., same underlying security,
exercise price and expiration date) as the option previously written. Such a
purchase does not result in the ownership of an option. A closing purchase
transaction will ordinarily be effected to realize a profit on an outstanding
option, to prevent an underlying security from being called, to permit the sale
of the underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, would not be able to sell the underlying security until
the option expires or the underlying security is delivered upon exercise with
the result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. A Fund will write
an option on a particular security only if the Adviser believes that a liquid
secondary market will exist on an
B-4
<PAGE> 49
exchange for options of the same series which will permit the Fund to make a
closing purchase transaction in order to close out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit is subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. Premiums from expired options written by a Fund and net gains from
closing purchase transactions are treated as short-term capital gains for
federal income tax purposes, and losses on closing purchase transactions are
short-term capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, even when traded on a national securities
exchange ("Exchange"), may be absent for reasons which include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an Exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; the facilities of an Exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading volume; or one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that class
or series of options) would cease to exist, although outstanding options that
had been issued by the Options Clearing Corporation as a result of trades on
that Exchange would continue to be exercisable in accordance with their terms.
B-5
<PAGE> 50
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Futures Contracts. As discussed in the Prospectus, the Funds may invest
in futures contracts and options thereon (stock or bond index futures contracts
or interest rate futures or options) to hedge or manage risks associated with a
Fund's securities investments. To enter into a futures contract, an amount of
cash and cash equivalents, equal to the market value of the futures contracts,
is deposited in a segregated account with the Company's Custodian and/or in a
margin account with a broker to collateralize the position and thereby ensure
that the use of such futures is unleveraged. Positions in futures contracts may
be closed out only on an exchange that provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund had insufficient
cash, it might have to sell portfolio securities to meet daily margin
requirements at a time when it would be disadvantageous to do so. In addition, a
Fund might be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to hedge or manage risks
effectively.
Successful use of futures by a Fund is also subject to the Adviser's
ability to predict movements correctly in the direction of the market. There is
an imperfect correlation between movements in the price of the future and
movements in the price of the securities that are the subject of the hedge. In
addition, the price of futures may not correlate perfectly with movement in the
cash market due to certain market distortions. Due to the possibility of price
distortion in the futures market and because of the imperfect correlation
between the movements in the cash market and movements in the price of futures,
a correct forecast of general market trends or interest rate movements by the
Adviser may still not result in a successful hedging transaction over a short
time frame.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond the limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved
B-6
<PAGE> 51
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
When-Issued Securities. As discussed in the Prospectus, each of the
Funds may purchase securities on a when-issued basis (i.e., for delivery beyond
the normal settlement date at a stated price and yield). When a Fund agrees to
purchase securities on a when-issued basis, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the Custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, the Fund's liquidity and the ability of the Adviser
to manage it might be affected in the event its commitments to purchase
when-issued securities ever exceeded 25% of the value of its assets.
When a Fund engages in when issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. The Funds will engage in when-issued delivery transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies, not for investment leverage.
Mortgage-Related Securities. The Income Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Such
Fund may, in addition, invest in mortgage-related securities issued by
nongovernmental entities; provided, however, that to the extent that the Fund
purchases mortgage-related securities from such issuers which may, solely for
purposes of Section 12 of the 1940 Act, be deemed to be investment companies,
the Fund's investment in such securities will be subject to the limitations on
investments in investment company securities set forth below under "Investment
Restrictions". Mortgage-related securities, for purposes of the
B-7
<PAGE> 52
Prospectus and this Statement of Additional Information, represent pools of
mortgage loans assembled for sale to investors by various governmental agencies
such as the Government National Mortgage Association and government-related
organizations such as the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation, as well as by nongovernmental issuers such as
commercial banks, savings and loan institutions, mortgage bankers and private
mortgage insurance companies. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass- Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also known
as "Fannie Maes") which are solely the obligations of the FNMA and are not
backed by or entitled to the full faith and credit of the United States. The
FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to the timely payment of principal
and interest by FNMA. Mortgage-related securities issued by the Federal Home
Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage Participation
Certificates (also known as "Freddie Macs" or "Pcs"). The FHLMC is a corporate
instrumentality of the United States, created pursuant to an Act of Congress,
which is owned entirely by Federal Home Loan Banks. Freddie Macs are not
guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
the FHLMC does not guarantee timely payment of principal, FHLMC may remit the
amount due on account of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
The Income Fund may invest in mortgage-related securities that are
collateralized mortgage obligations ("CMOs") structured on pools of mortgage
pass-through certificates or mortgage loans. The CMOs in which the Income Fund
may invest represent securities issued by a private corporation or a U.S.
Government instrumentality that are backed by
B-8
<PAGE> 53
a portfolio of mortgages or mortgage-backed securities held under an indenture.
The issuer's obligations to make interest and principal payments is secured by
the underlying portfolio of mortgages or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different maturities and
which may represent interests in some or all of the interest or principal on the
underlying collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the mortgage
pool are repaid. In the event of sufficient early prepayments on such mortgages,
the class or series of a CMO first to mature generally will be retired prior to
its maturity. Thus, the early retirement of a particular class or series of a
CMO held by the Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Zero Coupon Obligations. The Income Fund may invest in zero coupon
obligations, provided that immediately after any purchase, not more than 5% of
the value of the net assets of the Fund is invested in such obligations. Unlike
securities with coupons attached, which generate periodic interest payments to
the holder, zero-coupon obligations pay no cash income until the date of
maturity. They are purchased at a substantial discount from their value at their
maturity date. This discount is amortized over the life of the security. When
held to maturity, their entire return comes from the difference between their
purchase price and their maturity value. Since this difference is known at the
time of purchase, the return on zero-coupon obligations held to maturity is
predictable. Since there are no periodic interest payments made to the holder of
a zero- coupon obligation, when interest rates rise, the value of such an
obligation will fall more dramatically than that of a bond paying out interest
on a current basis. When interest rates fall, however, zero-coupon obligations
rise more rapidly in value because the obligations have locked in a specific
rate of return that becomes more attractive the further interest rates fall.
Guaranteed Investment Contracts. The Income Fund may invest in
guaranteed investment contracts ("GICs") issued by insurance companies. Pursuant
to such contracts, the Fund makes cash contributions to a deposit fund of the
insurance company's general account. The insurance company then credits to the
deposit fund on a monthly basis guaranteed interest which is based on an index.
The GICs provide that this guaranteed interest will not be less than a certain
minimum rate. The insurance company may assess periodic charges against a GIC
for expense and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. The Income Fund will only purchase a GIC
when the Adviser has determined, under guidelines established by the Company's
Board of Trustees, that the GIC presents minimal credit risks to the Fund and is
of comparable quality to instruments that are rated high quality by an NRSRO
having the characteristics described above. Because the Fund may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less, the GIC is considered an illiquid investment, and, together with other
instruments in the
B-9
<PAGE> 54
Fund that are not readily marketable, will not exceed 15% of the Fund's total
assets. The term of a GIC will be one year or less. In determining average
weighted portfolio maturity, a GIC will be deemed to have a maturity equal to
the period of time remaining until the next readjustment of the guaranteed
interest rate.
Income Participation Loans. The Income Fund may acquire participation
interests in privately negotiated loans to borrowers. Frequently, such loans
have variable interest rates and may be backed by a bank letter of credit; in
other cases they may be unsecured. Such transactions may provide an opportunity
to achieve higher yields than those that may be available from other securities
offered and sold to the general public.
Privately arranged loans, however, will generally not be rated by a
credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
the Income Fund may have a demand provision permitting the Fund to require
repayment within seven days. Participation in such loans, however, may not have
such a demand provision and may not be otherwise marketable. To the extent these
securities are not readily marketable, they will be subject to the Fund's 15%
limitation on investments in illiquid securities. Recovery of an investment in
any such loan that is illiquid and payable on demand will depend on the ability
of the borrower to meet an obligation for full repayment of principal and
payment of accrued interest within the demand period, normally seven days or
less (unless the Adviser determines that a particular loan issue, unlike most
such loans, has a readily available market). As it deems appropriate, the Board
of Trustees will establish procedures to monitor the credit standing of each
such borrower, including its ability to honor contractual payment obligations.
The Income Fund will purchase income participation loans only if such
instruments are, in the opinion of the Adviser, of comparable quality to
securities rated within the four highest rating groups assigned by NRSROs.
Rights and Warrants. As stated in the Prospectus, the Growth Fund may
participate in rights offerings and purchase warrants, which are privileges
issued by corporations enabling the owners to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. Subscription rights normally have a short life span to
expiration. The purchase of rights or warrants involves the risk that the Growth
Fund could lose the purchase value of a right or warrant if the right to
subscribe to additional shares is not exercised prior to the rights' or
warrants' expiration. Also, the purchase of rights or warrants involves the risk
that the effective price paid for the right or warrant added to the subscription
price of the related security may exceed the value of the subscribed security's
market price such as when there is no movement in the level of the underlying
security. The Growth Fund will not invest more than 5% of its total assets,
taken at market value, in warrants, or
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<PAGE> 55
more than 2% of its total assets, taken at market value, in warrants not listed
on the New York, American or Canadian Stock Exchanges. Warrants acquired by the
Growth Fund in units or attached to other securities are not subject to this
restriction.
Medium-Grade Debt Securities. As stated in the Prospectus for the
Funds, each Fund may invest in debt securities within the fourth highest rating
group assigned by a NRSRO or, if unrated, securities determined by the Adviser
to be of comparable quality ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of the issuer to make payments of principal and interest.
Medium-Grade Securities are considered to have speculative characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers are more vulnerable to
economic downturns, higher interest rates or adverse issuer-specific
developments. In addition, the prices of Medium-Grade Securities are generally
subject to greater market risk and therefore react more sharply to changes in
interest rates. The value and liquidity of Medium-Grade Securities may be
diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of the Funds to sell such securities at their fair value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium- Grade Securities in which the Funds may invest may be
subject to redemption or call provisions that may limit increases in market
value that might otherwise result from lower interest rates while increasing the
risk that the Funds may be required to reinvest redemption or call proceeds
during a period of relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
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<PAGE> 56
Restricted Securities. Rule 144A under the Securities Act of 1933
allows for a broader institutional trading market for securities otherwise
subject to restriction on resale to the general public. Rule 144A provides a
"safe harbor" from the registration requirements of the Securities Act of 1933
for resales of certain securities to qualified institutional buyers. The Adviser
believes that the market for certain restricted securities such as institutional
commercial paper may expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
The Adviser monitors the liquidity of restricted securities in the
Funds' portfolios under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser may consider the following factors, although
such factors may not necessarily be determinative: (1) the unregistered nature
of a security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (4) the trading markets for the security; (5) dealer
undertakings to make a market in the security; and (6) the nature of the
security and the nature of the marketplace trades (including the time needed to
dispose of the security, methods of soliciting offers, and mechanics of
transfer).
Securities of Other Investment Companies. To the extent permitted by
the 1940 Act and the Commission, each Fund may invest in securities issued by
other funds, including those advised by the Adviser. Each Fund currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by either of the Funds.
As a shareholder of another investment company, a Fund would generally bear,
along with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. Investment companies in which a Fund may invest may also impose
distribution or other charges in connection with the purchase or redemption of
their shares and other types of charges. Such charges will be payable by the
Funds and, therefore, will be borne directly by Shareholders.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund would
acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which the Adviser deems creditworthy
under guidelines approved by the Company's Board of Trustees, subject to the
seller's agreement to
B-12
<PAGE> 57
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement would be required to maintain continually the value of
collateral held pursuant to the agreement at an amount equal to 102% of the
repurchase price (including accrued interest). The securities held subject to
repurchase agreements may bear maturities exceeding the maximum maturity
specified for a Fund, provided each repurchase agreement matures in one year or
less. If the seller were to default on its repurchase obligation or become
insolvent, the Fund holding such obligation would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending legal action.
Additionally, there is no controlling legal precedent confirming that a Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Trustees of the Company believes that, under the regular procedures normally in
effect for custody of a Fund's securities subject to repurchase agreements and
under federal laws, a court of competent jurisdiction would rule in favor of the
Company if presented with the question. Securities subject to repurchase
agreements will be held by the Custodian or another qualified custodian.
Repurchase agreements are considered to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements. As discussed in the Prospectus, each
Fund may borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with that Fund's investment restrictions. Pursuant to
such agreements, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. Each Fund intends to enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time the Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as Government Related Securities or other liquid,
high grade debt securities consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Fund may decline below the
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by the Fund under the 1940
Act.
Securities Lending. In order to generate additional income, each Fund
may, from time to time, subject to its investment objective and policies, lend
its portfolio securities to broker-dealers, banks, or institutional borrowers of
securities pursuant to agreements
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<PAGE> 58
requiring that the loans be secured by collateral equal in value to 102% of the
value of the securities loaned. Collateral for loans of portfolio securities
must consist of cash or Government Related Securities. This collateral will be
valued daily by the Adviser. Should the market value of the loaned securities
increase, the borrower is required to furnish additional collateral to that
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While the Fund does not
have the right to vote securities on loan, each Fund intends to terminate the
loan and regain the right to vote if that is considered important with respect
to the investment. While the lending of securities may subject a Fund to certain
risks, such as delays or an inability to regain the securities in the event the
borrower were to default or enter into bankruptcy, each Fund will have the
contract right to retain the collateral described above. A Fund will enter into
loan agreements only with broker-dealers, banks, or other institutions that the
Adviser has determined are creditworthy under guidelines established by the
Company's Board of Trustees.
Investment Restrictions
The following are fundamental investment restrictions and are in
addition to the fundamental investment restrictions set forth in the Prospectus.
Under these restrictions, each Fund may not:
1. Underwrite the securities issued by other persons, except to the
extent that a Fund may be deemed to be an underwriter under certain securities
laws in the disposition of restricted securities;
2. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Funds; or
3. Purchase or sell real estate (although investments by the Funds in
marketable securities of companies engaged in such activities are not prohibited
by this restriction).
The following additional investment restrictions are not fundamental
and may be changed with respect to a particular Fund without the vote of a
majority of the outstanding Shares of that Fund. Each Fund may not:
1. Enter into repurchase agreements with maturities in excess of seven
days if such investments, together with other instruments in that Fund that are
not readily marketable or are otherwise illiquid, exceed 15% of that Fund's
total assets;
B-14
<PAGE> 59
2. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but it
may make margin deposits in connection with transactions in options, futures,
and options on futures;
3. Engage in short sale, provided, however, that the Growth Fund may
engage in short sales "against the box";
4. Purchase participation or direct interests in oil, gas or other
mineral exploration or development programs including oil, gas, or mineral
leases (although investments by the Funds in marketable securities of companies
engaged in such activities are not prohibited in this restriction);
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, reorganization, or to the
extent permitted by the 1940 Act and the Commission;
6. Invest more than 5% of total assets in puts, calls, straddles,
spreads or any combination thereof; or
7. Invest more than 5% of total assets in securities of issuers which,
together with any predecessors, have a record of less than three years of
continuous operation.
8. Purchase or retain the securities of any issuer if the officers or
Trustees of the Company or the officers or Directors of the Adviser who
individually own beneficially more than 1/2 of 1% of the securities of the
issuer, together own beneficially more than 5% of the securities of that issuer.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities for
the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
For the fiscal year ended December 31, 1995, the annual portfolio
turnover rate for the Income Fund and the Growth Fund were 32% and 49%,
respectively. Portfolio turnover for either of the Funds may vary greatly from
year to year as well as within a
B-15
<PAGE> 60
particular year. High turnover rates will generally result in higher transaction
costs to a Fund. Portfolio turnover will not be a limiting factor in making
investment decisions.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Times
applicable to such Fund on each Business Day of the Company. A "Business Day",
which is defined in the Prospectus, is generally a day on which the New York
Stock Exchange and the Federal Reserve Bank are open for business (other than a
day on which no Shares of a Fund are tendered for redemption and no order to
purchase any Shares is received). The New York Stock Exchange or the Federal
Reserve Bank will not open in observance of the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving, and
Christmas Day.
Valuation of the Funds
Among the factors that will be considered, if they apply, in valuing
portfolio securities held by the Funds are the existence of restrictions upon
the sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time during
which the security will not be freely marketable, the expenses of registering or
otherwise qualifying the security for public sale, underwriting commissions if
underwriting would be required to effect a sale, the current yields on
comparable securities for debt obligations traded independently of any equity
equivalent, changes in the financial condition and prospects of the issuer, and
any other factors affecting fair value. In making valuations, opinions of
counsel may be relied upon as to whether or not securities are restricted
securities and as to the legal requirements for public sale.
The Adviser may use a pricing service to value certain portfolio
securities when the prices provided are believed to reflect the fair market
value of such securities. A pricing service would normally consider such factors
as yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing service
and the valuations so established will be reviewed by the Adviser under the
general supervision of the Company's Board of Trustees. Several pricing services
are available, one or more of which may be used by the Adviser from time to
time.
B-16
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Matters Affecting Redemption
Shares in each of the Company's Funds are sold on a continuous basis by
BISYS Fund Services, Limited Partnership ("BISYS Fund Services" or the
"Distributor"), and the Distributor has agreed to use appropriate efforts to
solicit all purchase orders. In addition to purchasing Shares directly from the
Distributor, Shares may be purchased through procedures established by the
Distributor in connection with the requirements of accounts at the Adviser or
the Adviser's affiliated entities (collectively, "Entities"). Customers
purchasing Shares of the Funds may include officers, directors, or employees of
the Adviser or the Entities.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the Commission by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the Commission may permit.
(A Fund may also suspend or postpone the recordation of the transfer of its
Shares upon the occurrence of any of the foregoing conditions.) Each Fund is
obligated to redeem shares solely in cash up to $250,000 or 1% of such Fund's
net asset value, whichever is less, for any one Shareholder within a 90-day
period. Any redemption beyond this amount will also be in cash unless the Board
of Trustees determines that conditions exist which make payment of redemption
proceeds wholly in cash unwise or undesirable. In such a case, a Fund may make
payment wholly or partly in securities or other property, valued in the same way
as that Fund determines net asset value. Redemption in kind is not as liquid as
a cash redemption. Shareholders who receive a redemption in kind may incur
transaction costs, if they sell such securities or property, and may receive
less than the redemption value of such securities or property upon sale,
particularly where such securities are sold prior to maturity.
Waiver of Contingent Deferred Sales Charge
The otherwise applicable contingent deferred sales charge will be
waived for redemptions in connection with the disability of a shareholder. A
shareholder will be treated as disabled if he or she is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or to be of
long-continued and indefinite duration. The shareholder must furnish proof of
disability to the Administrator.
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MANAGEMENT OF THE COMPANY
Trustees and Officers
Overall responsibility for management of the Company rests with its
Board of Trustees, which is elected by the Shareholders of the Company's Funds.
The Trustees elect the officers of the Company to supervise actively its
day-to-day operations. As of the date of this Statement of Additional
Information, the Company's officers and Trustees, as a group, own less than 1%
of the Shares of each Fund.
The names of the Trustees and officers of the Company, their mailing
addresses, ages and their principal occupations during the past five years are
as follows:
<TABLE>
<CAPTION>
Position(s) Principal
Held with Occupation
Name, Address and Age The Company During Past 5 Years
- --------------------- ----------- -------------------
<S> <C> <C>
Howard L. Brenneman* Chairman and From December 1991 to
P.O. Box 483 Trustee present, President and CEO of
Goshen, IN 46527 Mennonite Mutual Aid; from
Age: 56 1986-1991, business and
financial consultant, and
Director of Strategic Planning
and Development, Prairie
View, Inc.
Karen Klassen Harder, Ph.D. Trustee From January 1990 to present,
Bethel College College Professor, Bethel
North Newton, KS 67117 College, North Newton, KS;
Age: 40 prior to January 1990, student,
graduate student and research
assistant.
Richard Reimer* Trustee Since 1962, Professor of
The College of Wooster Economics, The College of
Wooster, Ohio 44691 Wooster, Wooster, Ohio.
Age: 65
Donald E. Showalter, Esq. Trustee From June 1965 to present,
100 South Mason Street attorney with the law firm of
Harrisonburg, VA 22801 Wharton, Aldhizer & Weaver,
Age: 55 Harrisonburg, VA.
</TABLE>
B-18
<PAGE> 63
<TABLE>
<CAPTION>
Position(s) Principal
Held with Occupation
Name, Address and Age The Company During Past 5 Years
- --------------------- ----------- -------------------
<S> <C> <C>
Allen Yoder, Jr. Trustee From May 1985 until
P.O. Box 460 retirement in September 1993,
Middlebury, IN 46540 President, Jayco, Inc.,
Age: 68 manufacturer of recreational
vehicles. From 1985 to
present, President, Deutsch
Kase Haus, cheese
manufacturer.
Wilfred E. Nolen Trustee From 1983 to present,
1505 Dundee Avenue President of Church of the
Elgin, IL 60120 Brethren Benefit Trust and
Age: 55 Church of the Brethren
Benefit Trust, Inc.; from 1990
to present, President of
Brethren Foundation, Inc.
J.B. Miller President From September 1990 to
P.O. Box 483 present, Vice President of
Goshen, IN 46527 Financial Services, Mennonite
Age: 48 Mutual Aid, Inc. From July
1986 through August 1990,
Senior Vice President, Citizens
& Southern National Bank of
Florida.
Marlo J. Kauffman Vice President From January 1981 to present,
P.O. Box 483 employee of Mennonite
Goshen, IN 46527 Mutual Aid, Inc., with current
Age: 39 position as Pension Director.
</TABLE>
B-19
<PAGE> 64
<TABLE>
<CAPTION>
Position(s) Principal
Held with Occupation
Name, Address and Age The Company During Past 5 Years
- --------------------- ----------- -------------------
<S> <C> <C>
Walter B. Grimm Vice President From June 1992 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services; from 1987 to June
Age: 50 1992, President of Leigh
Investments (investment firm);
from May 1989 to November
1990, President of Security
Bank.
George R. Landreth Vice President From December 1992 to
3435 Stelzer Road and Treasurer present, employee of BISYS
Columbus, OH 43219 Fund Services; from July 1991
Age: 53 to December 1992, employee
of PNC Financial Corp.; from
October 1984 to July 1991,
employee of The Central Trust
Co., N.A.
Cynthia L. Lindsey Secretary From June 1987 to present,
3435 Stelzer Road employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 37
Robert L. Tuch
3435 Stelzer Road
Columbus, OH 43219
Age: 44
Assistant From June 1991 to present,
Secretary employee of BISYS Fund
Services; from July 1990 to
June 1991, Vice President and
Associate General Counsel,
National Securities and
Research Corp.; from August
1987 to June 1990, Attorney
Advisor, United States
Securities and Exchange
Commission.
</TABLE>
* Indicates an "interested person" of the Company as defined in the 1940 Act.
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<PAGE> 65
Trustees of the Company not affiliated with the Distributor receive
from the Company a fee of $500 for each Board of Trustees meeting and are
reimbursed for all out-of-pocket expenses relating to attendance at such
meetings. Trustees who are affiliated with the Distributor do not receive
compensation from the Company.
For the fiscal year ended December 31, 1995, the Trustees received the
following compensation from the Company and from certain other investment
companies (if applicable) that have the same investment adviser as the Funds or
an investment adviser that is an affiliated person of the Company's investment
adviser:
<TABLE>
<CAPTION>
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Est. Annual From Registrant
Name of Compensation As Part of Fund Benefits Upon and Fund Complex
Trustee from the Company Expenses Retirement Paid to Trustees
- ------- ---------------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
Howard L. Brenneman $2,000 $-0- $-0- $2,000
Karen Klassen Harder $2,000 $-0- $-0- $2,000
Richard Reimer $2,000 $-0- $-0- $2,000
Donald E. Showalter $2,000 $-0- $-0- $2,000
Allen Yoder, Jr. $2,000 $-0- $-0- $2,000
Wilfred E. Nolen* $1,000 $-0- $-0- $1,000
</TABLE>
- ---------------
* Mr. Nolen became a Trustee as of May 16th, 1995.
The officers of the Company receive no compensation directly from the
Company for performing the duties of their offices. The Distributor receives
fees from the Company for acting as Administrator. BISYS Fund Services Ohio,
Inc. receives fees from the Company for acting as transfer agent and for
providing fund accounting services. Messrs. Grimm, Landreth and Tuch are
employees of the Distributors, as is Ms. Lindsey. Messrs. Miller and Kauffman
are employees of the Adviser.
Investment Adviser
Investment advisory services are provided to the Funds by Menno
Insurance Service, Inc., d\b\a MMA Capital Management (the Adviser), pursuant to
an Investment Advisory Agreement dated as of January 1, 1994 (the "Investment
Advisory Agreement"). Under the Investment Advisory Agreement, the Adviser has
agreed to provide investment advisory services as described in the Prospectus of
the Funds. For the services provided and expenses assumed pursuant to the
Investment Advisory Agreement, each of the Funds pays the Adviser a fee computed
daily and paid monthly, at an annual rate, calculated as a percentage of the
average daily net assets of that Fund, of fifty one-hundredths of one percent
(.50%) for the Income Fund and of seventy-four one-
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hundredths of one percent (.74%) for the Growth Fund. The Adviser may
periodically waive all or a portion of its advisory fee with respect to any Fund
to increase the net income of the Fund available for distribution as dividends.
For the fiscal year ended December 31, 1994, the investment advisory fees paid
by the Income Fund and the Growth Fund were $77,885 and $107,061, respectively,
and for the fiscal year ended December 31, 1995, the investment advisory fees
paid by the Income Fund and the Growth Fund were $107,864 and $183,660,
respectively.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each Fund from year to year if such continuance is
approved at least annually by the Company's Board of Trustees or by vote of a
majority of the outstanding Shares of the relevant Fund (as defined under
"GENERAL INFORMATION - Miscellaneous" in the Prospectus), and a majority of the
Trustees who are not parties to the Investment Advisory Agreement or interested
persons (as defined in the 1940 Act) of any party to the Investment Advisory
Agreement by votes cast in person at a meeting called for such purpose. The
Investment Advisory Agreement is terminable as to a Fund at any time on 60-days'
written notice without penalty by the Trustees, by vote of a majority of the
outstanding Shares of that Fund, or by the Adviser. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, pursuant
to the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not
be liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or gross negligence on the part of the Adviser in the
performance of its duties, or from reckless disregard by the Adviser of its
duties and obligations thereunder.
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, the Adviser determines,
subject to the general supervision of the Board of Trustees of the Company and
in accordance with each Fund's investment objective and restrictions, which
securities are to be purchased and sold by a Fund, and which brokers are to be
eligible to execute such Fund's portfolio transactions. Purchases and sales of
portfolio securities with respect to the Funds usually are principal
transactions in which portfolio securities are normally purchased directly from
the issuer or from an underwriter or market maker for the securities. Purchases
from underwriters of portfolio securities generally include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers may include the spread between the bid and asked price.
Transactions on stock exchanges involve the payment of negotiated brokerage
commissions. Transactions in the over-the-counter market are generally principal
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transactions with dealers. With respect to the over-the-counter market, the
Adviser, where possible, will deal directly with dealers who make a market in
the securities involved except in those circumstances where better price and
execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by the Adviser in its best judgment and in a
manner deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, brokers and dealers who provide supplemental
investment research to the Adviser may receive orders for transactions on behalf
of the Funds. Information so received is in addition to and not in lieu of
services required to be performed by the Adviser and does not reduce the
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Company and other clients and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful to the Adviser in carrying out its obligations to
the Funds.
While the Adviser generally seeks competitive commissions, the Company
may not necessarily pay the lowest commission available on each brokerage
transaction, for the reasons discussed above.
Except as permitted by applicable laws, rules and regulations, the
Adviser will not, on behalf of the Funds, execute portfolio transactions
through, acquire portfolio securities issued by, or enter into repurchase or
reverse repurchase agreements with the Adviser, the Distributor, or their
affiliates, and will not give preference to the Adviser's affiliates with
respect to such transactions, securities, repurchase agreements, and reverse
repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Fund or any other investment company or account managed by the
Adviser. Any such other fund, investment company or account may also invest in
the same securities as either of the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and either
the other Fund of the Company or another investment company or account, the
transaction will be averaged as to price, and available investments will be
allocated as to amount in a manner which the Adviser believes to be equitable to
the Fund(s) and such other fund, investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Fund or
for other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement, in making investment
recommendations for the Funds, the Adviser
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<PAGE> 68
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Funds is a customer of the Adviser, its
parent or its subsidiaries or affiliates and, in dealing with its customers, the
Adviser, its parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Funds.
For the fiscal years ended December 31, 1994 and 1995, only the Growth
Fund paid any brokerage commissions, which commissions amounted to $39,352 and
$45,282, respectively. No commissions were paid to any affiliate of the Funds or
the Adviser.
Administrator
BISYS Fund Services serves as administrator (the "Administrator") to
the Funds pursuant to a Management and Administration Agreement dated January 1,
1994 (the "Administration Agreement"). The Administrator assists in supervising
all operations of each Fund (other than those performed by the Adviser under the
Investment Advisory Agreement, by the Custodian under the Custodian Agreement
and by BISYS Fund Services Ohio, Inc. under the Transfer Agency Agreement and
Fund Accounting Agreement). The Administrator is a broker-dealer registered with
the Commission, and is a member of the National Association of Securities
Dealers, Inc.
Under the Administration Agreement, the Administrator has agreed to
maintain office facilities; furnish statistical and research data, clerical
support, certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Commission on Form N-SAR or any replacement
forms therefor; compile data for, prepare for execution by the Funds and file
all of the Funds' federal and state tax returns and required tax filings other
than those required to be made by the Funds' Custodian and Transfer Agent;
prepare compliance filings pursuant to state securities laws with the advice of
the Company's counsel; assist to the extent requested by the Company with the
Company's preparation of its Annual and Semi-Annual Reports to Shareholders and
its Registration Statement (on Form N-1A or any replacement therefor); compile
data for, prepare and file timely Notices to the Commission required pursuant to
Rule 24f-2 under the 1940 Act; keep and maintain the financial accounts and
records of each Fund, including calculation of daily expense accruals; and
generally assist in all aspects of the Funds' operations other than those
performed by the Adviser under the Investment Advisory Agreement, the Custodian
under the Custodian Agreement and BISYS Fund Services Ohio, Inc. under the
Transfer Agency Agreement and the Fund Accounting Agreement. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
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<PAGE> 69
The Administrator receives a fee from each Fund for its services as
Administrator and expenses assumed pursuant to the Administration Agreement
calculated daily and paid periodically, at an annual rate equal to fifteen
one-hundredths of one percent (.15%) of a Fund's average daily net assets, with
an annual minimum of $50,000 until the Fund's net assets reach $50 million. Upon
reaching $50 million, the fee will be calculated at an annual rate of ten
one-hundredths of one percent (.10%) of the Fund's average daily net assets. The
Administrator may periodically waive all or a portion of its fee with respect to
either Fund in order to increase the net income of a Fund available for
distribution as dividends.
For the fiscal year ended December 31, 1994, the total administrative
fees paid to the Administrator by the Income Fund and the Growth Fund were
$48,493 and $48,493, respectively, and for the fiscal year ended December 31,
1995, the total administrative fees paid to the Administrator by the Income Fund
and the Growth Fund were $50,000 and $50,000, respectively.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until January 1, 1999. The Administration
Agreement thereafter shall be renewed automatically for successive five-year
terms, unless written notice not to renew is given by the non-renewing party to
the other party at least 60 days prior to the expiration of the then-current
term. The Administration Agreement is terminable with respect to a particular
Fund through a failure to renew the agreement, upon mutual agreement of the
parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60 days'
notice by the Company's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any error of judgment or mistake of law or any loss suffered by
either of the Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or gross negligence in the performance of its duties, or from the reckless
disregard by the Administrator of its obligations and duties thereunder.
Expenses
If total expenses borne by either of the Funds in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
the Adviser and the Administrator will reimburse that Fund by the amount of such
excess in proportion to their respective fees. As of the date of this Statement
of Additional Information, the most restrictive expense limitation applicable to
each of the Funds limits a Fund's aggregate annual expenses, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2 1/2% of the first
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<PAGE> 70
$30 million of that Fund's average net assets, 2% of the next $70 million of
that Fund's average net assets, and 1/2% of that Fund's remaining average net
assets. Any expense reimbursements will be estimated daily and reconciled and
paid on a monthly basis.
Distributor
BISYS Fund Services serves as distributor for the Funds pursuant to the
Distribution Agreement dated January 1, 1994, with respect to the Funds (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement will continue in effect as to each Fund for successive one-year
periods if approved at least annually (i) by the Company's Board of Trustees or
by the vote of a majority of the outstanding Shares of the Company, and (ii) by
the vote of a majority of the Trustees of the Company who are not parties to the
Distribution Agreement or interested persons (as defined in the 1940 Act) of any
party to the Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement terminates
automatically in the event of any assignment pursuant to the 1940 Act.
For the fiscal year ended December 31, 1994, BISYS Fund Services
received $321.83 in deferred sales charges in connection with the Income Fund,
of which it retained $0, and for the fiscal year ended December 31, 1995, BISYS
Fund Services received $1,122.37 in deferred sales charges in connection with
the Income Fund, of which it retained $0. For the fiscal year ended December 31,
1994, BISYS Fund Services received $601.19 in deferred sales charges in
connection with the Growth Fund, of which it retained $0, and for the fiscal
year ended December 31, 1995, BISYS Fund Services received $9,392.34 in deferred
sales charges in connection with the Growth Fund, of which it retained $0.
As described in the Prospectus, the Company has adopted a Distribution
Services Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act under which
each Fund may pay a periodic amount calculated at an annual rate not to exceed
1% of the average daily net assets of a Fund for activities primarily intended
to result in the sale of a Fund's shares. These amounts may include the payment
of a service fee of up to 0.25% of the average daily net assets of a Fund for
activities or expenses related to account maintenance or personal service to
existing shareholders. For the fiscal year ended December 31, 1995, the Funds
paid or reimbursed the Distributor pursuant to the Plan in the following amounts
and for the following purposes; for the Income Fund; $10,778 was paid to sales
personnel in connection with shareholder services; for the Growth Fund, $12,392
was paid to sales personnel in connection with shareholder services.
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<PAGE> 71
Custodian
Fifth Third Bank, Cincinnati, Ohio, serves as custodian (the
"Custodian") to the Funds pursuant to the Custodian Agreement dated as of
January 1, 1994 between the Company and the Custodian (the "Custodian
Agreement"). The Custodian's responsibilities include safeguarding and
controlling each Fund's cash and securities, handling the receipt and delivery
of securities, and collecting income on each Fund's investments. In
consideration of such services, each of the Funds pays the Custodian an annual
fee plus fixed fees charged for certain portfolio transactions and out-of-pocket
expenses.
Unless sooner terminated, the Custodian Agreement will continue in
effect until terminated by either party upon 60-days advance written notice to
the other party.
Transfer Agency, Shareholder Servicing and Fund Accounting Services
BISYS Fund Services Ohio, Inc. ("BISYS Fund Services Ohio, Inc." or the
"Transfer Agent") serves as transfer agent and dividend disbursing agent for the
Funds pursuant to the Transfer Agency Agreement dated January 1, 1994. Pursuant
to such Agreement, the Transfer Agent, among other things, performs the
following services in connection with each Fund's Shareholders of record:
maintenance of shareholder records; processing Shareholder purchase, exchange
and redemption orders; processing transfers and exchanges of Shares of the
Company on the shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of shareholder reports and proxy
solicitation materials. For such services, the Transfer Agent receives a fee
based on the number of Shareholders of record and is reimbursed for
out-of-pocket expenses.
In addition, BISYS Fund Services Ohio, Inc. provides certain fund
accounting services to the Funds pursuant to a Fund Accounting Agreement dated
January 1, 1994. BISYS Fund Services Ohio, Inc. receives a fee from each Fund
for such services based upon the total assets in that Fund. Under such
Agreement, BISYS Fund Services Ohio, Inc. maintains the accounting books and
records for each Fund, including journals containing an itemized daily record of
all purchases and sales of portfolio securities, all receipts and disbursements
of cash and all other debits and credits, general and auxiliary ledgers
reflecting all asset, liability, reserve, capital, income and expense accounts,
including interest accrued and interest received, and other required separate
ledger accounts; maintains a monthly trial balance of all ledger accounts;
performs certain accounting services for the Fund, including calculation of the
net asset value per share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with the
Custodian, affirmation to the Custodian of all portfolio trades and cash
settlements, verification and reconciliation with the Custodian
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<PAGE> 72
of all daily trade activity; provides certain reports; obtains dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and prepares an interim
balance sheet, statement of income and expense, and statement of changes in net
assets for each Fund.
Pursuant to a Shareholder Servicing Agreement, BISYS Fund Services
provides administrative services to shareholders. Such services include changing
dividend options, account designations, and addresses; administering shareholder
records; transmitting and receiving funds in connection with shareholder orders;
and providing other account administration services. The maximum aggregate fee
for such services shall not exceed on an annual basis 0.25% of a Fund's average
daily net assets.
Auditors
Coopers & Lybrand L.L.P., 100 East Broad Street, Columbus, Ohio 43215,
has been selected as the independent accountants for each of the Funds.
Legal Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, is
counsel to the Company.
ADDITIONAL INFORMATION
Description of Shares
The Company was organized on September 30, 1993 as a Delaware business
trust. The Company's Agreement and Declaration of Trust authorizes the Board of
Trustees to issue an unlimited number of Shares, which are shares of beneficial
interest, with a par value of $.01 per share. The Company presently has two
separate investment portfolios (or series) of Shares, one of which represents
interests in the Income Fund, and one of which represents interests in the
Growth Fund. The Company's Agreement and Declaration of Trust authorizes the
Board of Trustees to divide or redivide any unissued Shares of the Company into
one or more additional investment portfolios (or series) by setting or changing
in any one or more respects their respective preferences, conversion or other
rights, voting power, restrictions, limitations as to dividends, qualifications,
and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution
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<PAGE> 73
of the Company, Shareholders of a Fund are entitled to receive the assets
available for distribution belonging to that Fund, and a proportionate
distribution, based upon the relative asset values of the respective Funds, of
any general assets not belonging to any particular Fund that are available for
distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Company shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding Shares of
each Fund affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding Shares of a Fund will be required in
connection with a matter, a Fund will be deemed to be affected by a matter
unless it is clear that the interests of each Fund in the matter are identical,
or that the matter does not affect any interest of the Fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a Fund only if approved
by a majority of the outstanding Shares of such Fund. However, Rule 18f-2 also
provides that the ratification of independent public accountants, the approval
of principal underwriting contracts, and the election of Trustees may be
effectively acted upon by Shareholders of the Company voting without regard to
Fund.
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund means the affirmative
vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more
of the votes of Shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to Shareholders of record of
that Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of Shareholders of that Fund.
Additional Tax Information
Taxation of the Funds. Each Fund intends to qualify annually and to
elect to be treated as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code").
To qualify as a regulated investment company, each Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of certain assets (namely, in the
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case of a Fund, (i) stock or securities, (ii) options, futures, and forward
contracts (other than those on foreign currencies), and (iii) foreign currencies
(including options, futures, and forward contracts on such currencies) not
directly related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stocks or securities)) held
less than 3 months (the "30% Limitation"); (c) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash and cash items (including
receivables), U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies); and (d) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income each taxable year.
As a regulated investment company, each Fund will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, that it distributes to Shareholders. Each Fund intends to
distribute to its Shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts, other than
tax-exempt interest, not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, each Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses, as prescribed by the Code) for the
one-year period ending on October 31 of the calendar year, and (3) any ordinary
income and capital gains for previous years that were not distributed during
those years. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December with a record date in such a month and paid by the Fund during January
of the following calendar year. Such distributions will be taxable to
Shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. To
prevent application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Distributions. Dividends paid out of a Fund's investment company
taxable income will be taxable to a U.S. Shareholder as ordinary income. A
portion of the Growth Fund's income may consist of dividends paid by U.S.
corporations and, accordingly, a
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portion of the dividends paid by that Fund may be eligible for the corporate
dividends-received deduction. It is also possible that a portion of the income
earned by the Income Fund may be in the form of dividends from fixed income
preferred stock investments. Therefore, a portion of that Fund's income may also
be eligible for the corporate dividends-received deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable as
long-term capital gains, regardless of how long the Shareholder has held a
Fund's Shares, and are not eligible for the dividends-received deduction. For
federal tax purposes, distributions received from a Fund will be treated as
described above whether received in cash or in additional shares. Shareholders
receiving distributions in the form of additional Shares, rather than cash,
generally will have a cost basis in each such Share equal to the net asset value
of a Share of a Fund on the reinvestment date. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and Shareholders
receiving distributions in the form of additional Shares will receive a report
as to the net asset value of those Shares.
Original Issue Discount Securities. Investments by a Fund in securities
that are issued at a discount will result in income to the Fund equal to a
portion of the excess of the face value of the securities over their issue price
(the "original issue discount") each year that the securities are held, even
though the Fund receives no cash interest payments. This income is included in
determining the amount of income which the Fund must distribute to maintain its
status as a regulated investment company and to avoid the payment of federal
income tax and the 4% excise tax.
Options and Hedging Transactions. The taxation of equity options and
over-the-counter options on debt securities is governed by Code section 1234.
Pursuant to Code section 1234, the premium received by a Fund for selling a put
or call option is not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If the Fund enters
into a closing transaction, the difference between the amount paid to close out
its position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to sell
the underlying security, the premium will increase the amount realized upon the
sale of such security and any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term depending upon the holding period of
the security. With respect to a put or call option that is purchased by a Fund,
if the option is sold, any resulting gain or loss will be a capital gain or
loss, and will be long-term or short-term, depending upon the holding period of
the option. If the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a put option,
reduces the amount realized on the underlying security in determining gain or
loss.
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Certain options in which a Fund may invest are "section 1256
contracts". Gains or losses on section 1256 contracts generally are considered
60% long-term and 40% short-term capital gains or losses ("60/40"). Also,
section 1256 contracts held by a Fund at the end of each taxable year (and,
generally, for purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" (that is, treated as sold at fair market value), resulting in
unrealized gains or losses being treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Funds of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Funds which is taxed as
ordinary income when distributed to Shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle positions, the amount which may be distributed to
Shareholders, and which will be taxed to them as ordinary income or long-term
capital gain, may be increased or decreased as compared to a fund that did not
engage in such hedging transactions.
The 30% Limitation and the diversification requirements applicable to
each Fund's assets may limit the extent to which each Fund will be able to
engage in transactions in options.
Short Sales "Against the Box". If a Fund sells short "against the box,"
it may realize a capital gain or loss upon the closing of the sale. Such gain or
loss generally will be long- or short-term depending upon the length of time the
Fund held the security against which it sold short. In some circumstances, short
sales may have the effect of reducing an otherwise applicable holding period of
a security in the portfolio. Were that to occur, the affected security would
again have to be held for the requisite period before
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its disposition to avoid treating that security as having been sold within the
first three months of its holding period.
Municipal Obligations. If a Fund invests in tax-exempt municipal
obligations from which it earns tax-exempt interest income, such income will not
be tax-exempt in the hands of Shareholders. In order to avoid the payment of
federal income and excise tax, the Fund may be required to distribute such
income to Shareholders, to whom it will be taxable.
Other Investment Companies. It is possible that by investing in other
investment companies, the Fund may not be able to meet the calendar year
distribution requirement and may be subject to federal income and excise tax.
The diversification and distribution requirements applicable to each Fund may
limit the extent to which each Fund will be able to invest in other investment
companies.
Foreign Currency Gains or Losses. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time that Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
and certain other instruments denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
Passive Foreign Investment Companies. If the Growth Fund invests in
stock of certain foreign investment companies through ADRs, the Fund may be
subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its Shareholders.
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The Growth Fund may be able to make an election, in lieu of being
taxable in the manner described above, to include annually in income its pro
rata share of the ordinary earnings and net capital gain of the foreign
investment company, regardless of whether it actually received any distributions
from the foreign company. These amounts would be included in the Fund's
investment company taxable income and net capital gain which, to the extent
distributed by the Fund as ordinary or capital gain dividends, as the case may
be, would not be taxable to the Fund. In order to make this election, the Fund
would be required to obtain certain annual information from the foreign
investment companies in which it invests, which in many cases may be difficult
to obtain. The Growth Fund may make an election with respect to those foreign
investment companies which provide the Fund with the required information. In
addition, the Growth Fund may make other tax- related elections as those become
available.
Sale of Shares. Upon the sale or other disposition of Shares of a Fund,
or upon receipt of a distribution in complete liquidation of a Fund, a
Shareholder generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Shareholder's holding
period for the Shares. Any loss realized on a sale or exchange will be
disallowed to the extent the Shares disposed of are replaced (including Shares
acquired pursuant to a dividend reinvestment plan) within a period of 61 days
beginning 30 days before and ending 30 days after disposition of the Shares. In
such a case, the basis of the Shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a Shareholder on a disposition of Fund
Shares held by the Shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of net capital gains
received by the Shareholder with respect to such Shares. Furthermore, a loss
realized by a Shareholder on the redemption, sale or exchange of Shares of a
Fund with respect to which exempt-interest dividends have been paid will, to the
extent of such exempt-interest dividends, be disallowed if such Shares have been
held by the Shareholder for less than six months.
Foreign Withholding Taxes. Income received by a Fund from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries.
Backup Withholding. Each Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
Shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Corporate
Shareholders and certain other Shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the Shareholder's U.S.
federal income tax liability.
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Foreign Shareholders. The tax consequences to a foreign Shareholder of
an investment in a Fund may be different from those described herein. Foreign
Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
Other Taxation. The Company is organized as a Delaware business trust
and, under current law, neither the Company nor any Fund is liable for any
income or franchise tax in the State of Delaware, provided that each Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code.
Fund Shareholders may be subject to state and local taxes on their Fund
distributions. In certain states, Fund distributions that are derived from
interest on obligations of that state or any municipality or political
subdivision thereof may be exempt from taxation. Also, in many states, Fund
distributions which are derived from interest on certain U.S. Government
obligations may be exempt from taxation.
Calculation of Performance Data
Yield Calculations. As summarized in the Prospectus of the Funds under
the heading "PERFORMANCE INFORMATION", yields of each of the Funds will be
computed by dividing the net investment income per share (as described below)
earned by the Fund during a 30-day (or one month) period by the maximum offering
price per share on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. A Fund's
net investment income per share earned during the period is based on the average
daily number of Shares outstanding during the period entitled to receive
dividends and includes dividends and interest earned during the period minus
expenses accrued for the period, net of reimbursements. This calculation can be
expressed as follows:
a-b
Yield = 2 [(-------- + 1)(6) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Shares outstanding during the
period that were entitled to receive dividends.
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<PAGE> 80
d = maximum offering price per share on the last day of the
period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Fund. Interest earned on any debt
obligations held by a Fund is calculated by computing the yield to maturity of
each obligation held by the Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
Business Day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest) in order to determine the interest income on
the obligation for each day of the subsequent month that the obligation is held
by that Fund. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
For the 30-day period ended December 31, 1995, the yield for the Growth
Fund was 0.51% and the yield for the Income Fund was 5.01%.
During any given 30-day period, the Adviser or the Administrator may
voluntarily waive all or a portion of their fees with respect to a Fund. Such
waiver would cause the yield of that Fund to be higher than it would otherwise
be in the absence of such a waiver.
Total Return Calculations. As summarized in the Prospectus of the Funds
under the heading "PERFORMANCE INFORMATION," average annual total return is a
measure of the change in value of an investment in a Fund over the period
covered, which assumes any dividends or capital gains distributions are
reinvested in the Fund immediately rather than paid to the investor in cash. The
Funds compute their average annual total returns by determining the average
annual compounded rates of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a
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<PAGE> 81
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
Average Annual ERV
Total Return = [(--------)(1/n) - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Funds compute their aggregate total returns by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(-----) - 1]
P
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
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<PAGE> 82
The average annual total return for the Growth Fund for the one year
period ended December 31, 1995, was 29.32% assuming the deduction of the maximum
contingent deferred sales charge of 4% at the end of the period, and was 33.32%
assuming that the maximum contingent deferred sales charge had not been
deducted. The average annual total return for the Income Fund for the one year
period ended December 31, 1995, was 13.47% assuming the deduction of the maximum
contingent deferred sales charge of 4% at the end of the period, and was 17.47%
assuming that the maximum contingent deferred sales charge had not been
deducted.
Based upon the period beginning with each Fund's commencement of
operations (January 4, 1994) through December 31, 1995, the average annual total
return for the Growth Fund was 13.93% and for the Income Fund was 4.26%,
assuming that the applicable contingent deferred sales charge had been deducted
upon redemption at the end of the period indicated. Assuming that the applicable
contingent deferred sales charge had not been deducted upon redemption at the
end of the period indicated, the average annual total return for the Growth Fund
for this period was 15.69% and for the Income Fund was 6.17%.
Based upon the period beginning with each Fund's commencement of
operations (January 4, 1994) through December 31, 1995, the aggregate total
return for the Growth Fund was 29.67% and for the Income Fund was 8.67%,
assuming that the applicable contingent deferred sales charge had been deducted
upon redemption at the end of the period indicated. Assuming tht the applicable
contingent deferred sales charge had not been deducted upon redemption at the
end of the period indicated, the aggregate total return for the Growth Fund was
33.67% and for the Income Fund was 12.67%.
Since performance will fluctuate, performance data for the Funds should
not be used to compare an investment in the Funds' Shares with bank deposits,
savings accounts and similar investment alternatives which often provide an
agreed or guaranteed fixed yield for a stated period of time. Shareholders
should remember that performance is generally a function of the kind and quality
of the instruments held in a portfolio, portfolio maturity, operating expenses
and market conditions.
Distribution Rates. Each of the Funds may from time to time advertise
current distribution rates in supplemental sales literature. Such rates are
calculated in accordance with the method disclosed in the Prospectus.
Performance Comparisons
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies. Such comparisons may be made by referring to
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<PAGE> 83
market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's Corporation. Such comparisons may also be made by referring to data
prepared by Lipper Analytical Services, Inc., (a widely recognized independent
service which monitors the performance of mutual funds). Comparisons may be made
to the Domini Social Index, an index representing 400 companies that meet
standards for corporate social responsibility as determined by Kinder,
Lyndenberg, Domini & Company Inc., a firm specializing in providing research on
corporations' social responsibility profiles. Comparisons may also be made to
indices or data published in the following national financial publications:
IBC/Donoghue's Money Fund Report, Ibottson Associates of Chicago, Morningstar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Institutional Investor,
U.S.A. Today and local newspapers. In addition to performance information,
general information about the Funds that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
Shareholders.
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices or
the features or performance of alternative investments, in advertisements, sales
literature and reports to shareholders. The Funds may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the performance
of any Fund. The Funds may also include in advertisements and reports to
Shareholders information comparing the performance of the Adviser or its
predecessors to other investment advisers; such comparisons may be published by
or included in Nelsons Directory of Investment Managers, Roger's, Casey/PIPER
Manager Database or CDA/Cadence.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the investment adviser including, but not limited to,
(i) descriptions of the adviser's operations, (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
adviser's operations.
From time to time, the Funds may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Trust; (5) descriptions of investment strategies for one or
more of such Funds; (6) descriptions or comparisons of various savings and
investment products (including but not
B-39
<PAGE> 84
limited to insured bank products, annuities, qualified retirement plans and
individual stocks and bonds) which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant market or
industry indices or other appropriate benchmarks; and (8) discussions of fund
rankings or ratings by recognized rating organizations.
Current yields or total returns will fluctuate from time to time and
are not necessarily representative of future results. Accordingly, a Fund's
yield or total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. A Fund's
performance is a function of its quality, composition and maturity, as well as
expenses allocated to the Fund.
Principal Shareholders
As of April 12, 1996, no persons or entities owned beneficially or of
record 5% or more of either Funds' outstanding shares, except: Mennonite Mutual
Aid Association, P.O. Box 483, Goshen, Indiana 46527, which owned of record
15.6% of the Growth Fund and 22.2% of the Income Fund, and The Mennonite
Foundation, Inc., P.O. Box 483, Goshen, Indiana 46526, which owned of record
8.6% of the Growth Fund and 41.6% of the Income Fund.
Miscellaneous
The Funds may include information in their Annual Reports and
Semi-Annual Reports to Shareholders that (1) describes general economic trends,
(2) describes general trends within the financial services industry or the
mutual fund industry, (3) describes past or anticipated portfolio holdings for a
Fund within the Company or (4) describes investment management strategies for
such Funds. Such information is provided to inform Shareholders of the
activities of the Funds for the most recent fiscal year or half-year and to
provide the views of the Adviser and/or Company officers regarding expected
trends and strategies.
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. The
Trustees will call a special meeting for the purpose of considering the removal
of one or more Trustees upon written request from shareholders owning not less
than 10% of the outstanding votes of the Company entitled to vote. At such a
meeting, a vote of two-thirds of the outstanding shares of the Company has the
power to remove one or more Trustees.
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<PAGE> 85
The Company is registered with the Commission as a management
investment company. Such registration does not involve supervision by the
Commission of the management or policies of the Company.
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement filed with the
Commission. Copies of such information may be obtained from the Commission upon
payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
Financial Statements for the Funds, including notes thereto, and the
report of Coopers & Lybrand L.L.P. thereon, dated December 31, 1995, are
included in the Funds' Annual Report to Shareholders and incorporated by
reference into this Statement of Additional Information. Copies of the Annual
Report may be obtained upon request and without charge from the Funds at the
address and telephone provided on the cover of this Statement of Additional
Information.
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<PAGE> 86
APPENDIX
Commercial Paper Ratings
A Standard & Poor's Corportion ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by S&P for commercial paper.
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to posses extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's Investors Service, Inc. ("Moody's") commercial paper ratings
are opinions of the ability of issuers to repay punctually promissory
obligations not having an original maturity in excess of 9 months. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Principal repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization
APP-1
<PAGE> 87
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps Credit Rating Co. ("Duff &
Phelps") for investment grade commercial paper are "Duff 1," "Duff 2" and "Duff
3." Duff & Phelps employs three designations, "Duff 1+," "Duff 1" and "Duff 1-,"
within the highest rating category. The following summarizes the rating
categories used by Duff & Phelps for commercial paper.
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"Duff 3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"Duff 4" - Debt possesses speculative investment characteristics.
"Duff 5" - Issuer has failed to meet scheduled principal and/or
interest payments.
APP-2
<PAGE> 88
Fitch Investors Service, Inc. ("Fitch") short-term ratings apply to
debt obligations that are payable on demand or have original maturities of up to
three years. The following summarizes the rating categories used by Fitch for
short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality.
Issuers assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues carrying this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and
non-banks; non United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
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<PAGE> 89
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1+" - Obligations are supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by a strong capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
"A3" - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
"B" - Obligations capacity for timely repayment is susceptible changes
in business, economic, or financial conditions.
"C" - Obligations have an inadequate capacity to ensure timely
repayment.
"D" - Obligations have a high risk of default or are currently in
default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the ratings used by S&P for corporate and
municipal debt:
"AAA" - This designation represents the highest rating assigned by S&P
to a debt obligation and indicates an extremely strong capacity to pay interest
and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
APP-4
<PAGE> 90
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt that possesses one of these
ratings is regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in default, and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
APP-5
<PAGE> 91
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing, "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (--) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some conditions are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks at the lower end of its generic rating category.
The following summarizes the ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
APP-6
<PAGE> 92
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
divided arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
APP-7
<PAGE> 93
"BB," "B," "CCC," "C," "DDD," "DD," and "D" - Bonds that possess one of
these ratings are considered by Fitch to be speculative investments. The ratings
"BB" to "C" represent Fitch's assessment of the likelihood of timely payment of
principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
APP-8
<PAGE> 94
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; nonUnited States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC" - These obligations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
APP-9
<PAGE> 95
PART C
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
(a) Financial Statements
Included in Part A:
Financial Highlights
Incorporated by Reference in Part B:
Statements of Assets and Liabilities as of December 31, 1995
Statements of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for the period from
commencement of operations (January 4, 1994) through December
31, 1994 and for the year ended December 31, 1995
Schedules of Portfolio Investments as of December 31, 1995
Report of Independent Accountants
</TABLE>
- --------------------
* Filed in Registrant's initial Registration Statement on September 30,
1993, and incorporated by reference herein.
** Filed in Pre-Effective Amendment No. 1 to the Registration Statement on
December 13, 1993, and incorporated by reference herein.
*** Filed in Pre-Effective Amendment No. 2 to the Registration Statement on
December 28, 1993, and incorporated by reference herein.
**** Filed on February 27, 1996 with Registrant's Rule 24f-2 Notice, and
incorporated by reference herein.
***** Filed in Post-Effective Amendment No. 1 to the Registration Statement
on June 30, 1994.
C-1
<PAGE> 96
<TABLE>
<CAPTION>
(b) Exhibits
--------
<S> <C>
(1) (a) Amended and Restated Agreement and Declaration of
Trust**
(b) Certificate of Trust*
(2) By-Laws**
(3) Not Applicable
(4) Certificates for Shares are not issued. Articles III and V of
the Registrant's Declaration of Trust define rights of holders
of Shares.
(5) Investment Advisory Agreement***
(6) Distribution Agreement between Registrant and BISYS Fund
Services***
(7) Not Applicable
(8) Custody Agreement between Registrant and Fifth Third
Bank***
(9) (a) Management and Administration Agreement between
the Registrant and BISYS Fund Services***
(b) Fund Accounting Agreement between the Registrant
and BISYS Fund Services Ohio, Inc.***
(c) Transfer Agency Agreement between the Registrant
and BISYS Fund Services Ohio, Inc.***
(10) Opinion and Consent of Counsel****
(11) Consent of Independent Accountants
(12) Not Applicable
(13) Letters concerning Initial Capital***
</TABLE>
C-2
<PAGE> 97
<TABLE>
<S> <C>
(14) Not Applicable
(15) Distribution Services Plan***
(16) Schedules Showing Computation of Performance
Calculations*****
(27) Financial Data Schedules
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant
Not applicable.
Item 26. Number of Record Holders
As of March 31, 1996, the number of record holders of each
series of the Registrant was as follows:
MMA Praxis Intermediate Income Fund - 978
MMA Praxis Growth Fund - 3,635
Item 27. Indemnification
Reference is made to Article VII of the Registrant's
Declaration of Trust (Exhibit 1(a) and Article VI of the
Registrant's By-Laws (Exhibit 2(a)), which are incorporated by
reference herein.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant by the Registrant
pursuant to the Fund's Declaration of Trust, its By-Laws or
otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and, therefore,
is 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
trustees, officers or controlling persons of the Registrant in
connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares 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
C-3
<PAGE> 98
policy as expressed in the Act and will be governed by the
final adjudication of such issues.
Item 28. Business and Other Connections of Investment Adviser and its
Officers and Directors
The business of the Adviser is summarized under "MANAGEMENT OF
THE COMPANY - Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement, which
summary is incorporated herein by reference. The business or
other connections of each director and officer of the Advisor
is currently listed in the Adviser's investment adviser
registration on Form ADV (File No. 801-36323) and is hereby
incorporated herein by reference thereto.
Item 29. Principal Underwriter
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund
Services") acts as distributor and administrator for
Registrant. BISYS Fund Services also distributes the
securities of The Coventry Group, The Victory Funds, The
Riverfront Funds, Inc., The HighMark Group, The Parkstone
Group of Funds, the BB&T Mutual Funds Group, the Summit
Investment Trust, the Qualivest Funds, The ARCH Fund, Inc.,
the American Performance Funds, The Sessions Group, the
Pacific Capital Funds, the AmSouth Mutual Funds, the
MarketWatch Funds and M.S.D.&T. Funds, each of which is an
open-end management investment company.
(b) Partners of BISYS Fund Services, as of April 1, 1996, were as
follows:
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address BISYS Fund Services Registrant
- ------------------ ------------------- -------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
C-4
<PAGE> 99
<TABLE>
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not Applicable.
Item 30. Location of Accounts and Records
The accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and rules promulgated
thereunder are in the possession of MMA Capital Management,
1110 North Main Street, Goshen, Indiana 46527 (records
relating to its function as adviser for MMA Praxis
Intermediate Income Fund and MMA Praxis Growth Fund), BISYS
Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as general manager,
administrator and distributor), and BISYS Fund Services Ohio,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as transfer agent).
Item 31. Management Services
Not Applicable.
Item 32. Undertakings.
(a) Not Applicable.
(b) Registrant undertakes to furnish each person to whom
a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders, upon request
and without charge, in the event that the information
called for by Item 5A of Form N-1A has been presented
in the Registrant's latest annual report to
shareholders.
(c) Registrant undertakes to call a meeting of
Shareholders for the purpose of voting upon the
question of removal of a Trustee or Trustees when
requested to do so by the holders of at least 10% of
the Registrant's outstanding shares of beneficial
interest and in connection with such meeting to
comply with the shareholders communications
provisions of Section 16(c) of the Investment Company
Act of 1940.
C-5
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has caused this Post-Effective
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington and the
District of Columbia, on the 29th day of April, 1996.
MMA PRAXIS MUTUAL FUNDS
----------------------------------------
J. B. Miller, President*
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 3 to the Registration Statement
has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
- --------------------------- President April 29, 1996
J. B. Miller*
- --------------------------- Vice President and April 29, 1996
George R. Landreth* Treasurer (Principal
Financial and Accounting
Officer)
- --------------------------- Chairman and Trustee April 29, 1996
Howard L. Brenneman*
- --------------------------- Trustee April 29, 1996
Richard Reimer*
- --------------------------- Trustee April 29, 1996
Karen Klassen Harder*
- --------------------------- Trustee April 29, 1996
Donald E. Showalter*
- --------------------------- Trustee April 29, 1996
Allen Yoder, Jr.*
</TABLE>
<PAGE> 101
<TABLE>
<S> <C> <C>
- --------------------------- Trustee April 29, 1996
Wilfred E. Nolen**
</TABLE>
*By: _________________________
Jeffrey L. Steele
Attorney-in-fact
* Pursuant to Powers of Attorney filed with Pre-Effective Amendment
No. 1 filed on December 13, 1993.
** Pursuant to Power of Attorney filed herewith.
<PAGE> 102
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Patrick W.D. Turley, Robert L. Tuch, Cynthia Lee
Lindsey and Michael J. Philipps, and each of them, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for him in his name, place, and stead, to sign any and all registration
statements applicable to the MMA Praxis Mutual Funds and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
or the securities administrator of any jurisdiction, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
April 18, 1996 /s/ Wilfred E. Nolen
--------------------
Wilfred E. Nolen
<PAGE> 103
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
FILED
WITH
POST-EFFECTIVE AMENDMENT NO. 3
TO THE
REGISTRATION STATEMENT
ON
FORM N-1A
OF
THE MMA PRAXIS MUTUAL FUNDS
<PAGE> 104
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit Number Name of Exhibit
- -------------- ---------------
<S> <C>
11 Consent of Independent
Accountants
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post- Effective
Amendment No. 3 to the Registration Statement on Form N-1A (File No. 33-69724)
of the MMA Praxis Mutual Funds, of our report dated February 14, 1996 on our
audits of the financial statements and financial highlights of the Intermediate
Income Fund and the Growth Fund constituting the MMA Praxis Mutual Funds which
report is included in the Annual Report to Shareholders for the year ended
December 31, 1995 which is incorporated by reference in the Registration
Statement. We also consent to the reference to our Firm under the caption
"Independent Accountants" in the Prospectus, and "Auditors" and "Financial
Statements" in the Statement of Additional Information relating to the MMA
Praxis Mutual Funds, in this Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (File No. 33-69724).
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 29, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912900
<NAME> MMA PRAXIS MUTUAL FUNDS
<SERIES>
<NUMBER> 1
<NAME> MMA PRAXIS INTERMEDIATE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 21,892,641
<INVESTMENTS-AT-VALUE> 23,111,487
<RECEIVABLES> 388,432
<ASSETS-OTHER> 30,403
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,530,322
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,674
<TOTAL-LIABILITIES> 60,674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,648,128
<SHARES-COMMON-STOCK> 2,308,217
<SHARES-COMMON-PRIOR> 2,218,375
<ACCUMULATED-NII-CURRENT> 482
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 307,808
<ACCUM-APPREC-OR-DEPREC> 1,128,846
<NET-ASSETS> 23,469,648
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,420,773
<OTHER-INCOME> 0
<EXPENSES-NET> 237,131
<NET-INVESTMENT-INCOME> 1,183,642
<REALIZED-GAINS-CURRENT> (292,038)
<APPREC-INCREASE-CURRENT> 2,531,766
<NET-CHANGE-FROM-OPS> 3,423,370
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,183,769
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 532,400
<NUMBER-OF-SHARES-REDEEMED> 195,215
<SHARES-REINVESTED> 17,645
<NET-CHANGE-IN-ASSETS> 5,620,586
<ACCUMULATED-NII-PRIOR> 16,907
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 308,324
<GROSS-ADVISORY-FEES> 107,864
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 569,949
<AVERAGE-NET-ASSETS> 21,572,702
<PER-SHARE-NAV-BEGIN> 9.14
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> 1.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.53)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.17
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912900
<NAME> MMA PRAXIS MUTUAL FUNDS
<SERIES>
<NUMBER> 2
<NAME> MMA PRAXIS GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 27,900,298
<INVESTMENTS-AT-VALUE> 32,002,152
<RECEIVABLES> 53,729
<ASSETS-OTHER> 37,265
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,093,146
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,187,624
<TOTAL-LIABILITIES> 1,187,624
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,608,388
<SHARES-COMMON-STOCK> 2,559,507
<SHARES-COMMON-PRIOR> 2,113,969
<ACCUMULATED-NII-CURRENT> 77
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 195,203
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,101,854
<NET-ASSETS> 30,905,522
<DIVIDEND-INCOME> 536,126
<INTEREST-INCOME> 120,696
<OTHER-INCOME> 0
<EXPENSES-NET> 433,712
<NET-INVESTMENT-INCOME> 223,110
<REALIZED-GAINS-CURRENT> 1,898,742
<APPREC-INCREASE-CURRENT> 4,789,928
<NET-CHANGE-FROM-OPS> 6,911,780
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 223,521
<DISTRIBUTIONS-OF-GAINS> 1,984,112
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 869,389
<NUMBER-OF-SHARES-REDEEMED> 199,082
<SHARES-REINVESTED> 39,815
<NET-CHANGE-IN-ASSETS> 12,896,624
<ACCUMULATED-NII-PRIOR> 869
<ACCUMULATED-GAINS-PRIOR> 610,665
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 183,660
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 696,094
<AVERAGE-NET-ASSETS> 24,818,916
<PER-SHARE-NAV-BEGIN> 9.74
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 3.12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.89)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.07
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
