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Annual Report
FOR THE YEAR ENDED DECEMBER 31, 1997
MMA Praxis
Mutual Funds
INTERMEDIATE INCOME FUND
GROWTH FUND
INTERNATIONAL FUND
[LOGO OF MMA PRAXIS APPEARS HERE]
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Message
From
The
President
Dear Shareholders:
When it comes to investing, there's not much we like more than raging bull
markets. Conversely, there is not much we like less than the volatility that
inevitably follows them.
In light of the fact that we've enjoyed several years worth of virtually
uninterrupted returns, it's a pretty good bet that the markets are due for
some volatility. A lot of it, perhaps, since the financial markets are driven
by human emotions and often go to incredible extremes. It's also safe to
assume that when the markets do exhibit wide price swings, the "flight reflex"
will seem nearly irresistible for many folks, even for some who consider
themselves to be long-term investors.
In fact, no one knows what mutual fund investors in particular will do in the
face of a serious, prolonged market decline. Here's a rather remarkable
statistic: 90 percent of all mutual fund assets have been invested since the
bottom of the last bear market in 1990. Thus, nobody knows how these
shareholders will react, although one can safely presume that many will flee
the markets.
If investors take flight, it truly will be unfortunate, because volatility is
a basic component of the great investment dynamic. The occasional sell-off,
unpleasant as it might be, is simply part of the market's natural cycle. Down
markets are painful, for sure, but as investors we must stick to our
objectives. We must not let our short-term anxieties deter us from our long-
term investment plans.
HIGHLIGHTS OF THE PREVIOUS 12 MONTHS
Fund performance. For the calendar year 1997, MMA Praxis Growth Fund returned
29.15 percent.* MMA Praxis Intermediate Income Fund generated a total return
of 7.60 percent.* Since inception (April 1, 1997), the MMA Praxis
International Fund outperformed its benchmark by more than 300 basis points.
Please read carefully the comments of the three portfolio managers for further
insights about fund performance and investment strategy.
Keith Yoder recognized as one of the top 100 mutual fund managers. Keith
Yoder, portfolio manager of MMA Praxis Growth Fund, was named one of the top
100 mutual fund managers by Barron's magazine.** Barron's sought "men and
women with the demonstrated record of outperforming their peers, year after
year, without taking undue risk." We're proud of this recognition and salute
Keith and his research analyst John Mark Nussbaum for their outstanding
performance.
Morningstar 4-Star Rating for MMA Praxis Growth Fund.*** The growth fund has
preserved its 4-star rating. The fund was rated among 2,332 domestic equity
funds for the three-year period ended December 31, 1997.
Socially Responsible Investing (SRI). For the first time ever, more than $1
trillion in assets are under management in the U.S. in socially and
environmentally responsible portfolios, according to a study recently released
by the non-profit Social Investment Forum. The total volume of all responsibly
invested assets climbed in the 1995-1997 period from $639 billion to
$1.185 trillion--an increase of 85 percent!
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*This does not reflect the contingent deferred sales charge. Had the maximum
4.00 percent CDSC charge been applicable, the return would have been 25.15
percent for the MMA Praxis Growth Fund and 3.60 percent for the MMA Praxis
Intermediate Income Fund.
**From "Simply the Best," Barron's, July 21, 1997, pp. 31-40. Based on
performance as of 6/30/97. Sector, index, country and bond funds, managed
funds and managers with less than 3 years at current fund not included.
Positive numbers cite better-than-average managers, as compared to those at
similar funds. Points added for stability, subtracted for volatility, given
zero for average performance. The fund manager rated 2.9 and ranked 91. 9/97
***Morningstar is an independent provider of financial information.
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Message
From
The
President--
continued
What has fueled this rapid growth in assets managed according to social
guidelines? Industry experts point to two catalysts stimulating growth: the
impact of the anti-tobacco backlash, and a steadily growing investor appetite
for socially responsible investment choices. With responsible investments
currently accounting for about $1 out of every $10 under professional
management in America it's clear that mainstream Americans want responsible
investing options.****
When Nelson Mandela called for an end to economic sanctions against South
Africa in late 1993, the main impetus behind the growth of socially
responsible investing--opposition to apartheid--disappeared. Skeptics
predicted that this event would be the demise of SRI. However, far from fading
away, the movement has flourished. For those of us who see the connection
between faith, ethics and investing, this is indeed gratifying.
Please be sure to read the update in this report from MMA's SRI research and
advocacy coordinator, highlighting shareholder advocacy issues initiated by
MMA Praxis Fund management.
THE IMPORTANCE OF LOW PORTFOLIO TURNOVER
Recent changes in Federal tax law have heightened the need to be a tax-
conscious investor. For example, the lowering of the tax rate on long-term
capital gains makes it more important than ever to understand the tax
efficiency of your mutual funds. Stock funds with a "buy-and-hold" approach
now have an even greater tax advantage over funds that tend to turn their
holdings over within 12 months.
The MMA Praxis Growth Fund is more tax-efficient than the industry average.
The growth fund recently reported an annualized portfolio turnover rate of
approximately 53 percent compared to the industry average for all stock funds
of 79 percent, as of 12/31/97.***** (A 100 percent turnover rate would mean
that a fund replaced its entire investment portfolio each year.) All other
factors being equal, funds with low turnover rates realize (and thus
distribute) fewer taxable capital gains to shareholders than funds with high
turnover rates. It is important to remember that all capital gains distributed
by mutual funds are taxable to shareholders, unless the shareholders hold the
funds in tax-deferred accounts.
This is one more reason to consider MMA Praxis Growth Fund as a core holding
in your taxable mutual fund portfolio.
CONCLUSION
Going forward, we urge you to be reasonable in your investment performance
expectations. Now, more than at any time over the last several years, it is
important to take a long-term view. So, we ask that you carefully consider the
shorter-term risks associated with your investments and make sure they truly
fit your comfort level.
On behalf of MMA Praxis management and the entire support staff, thank you for
your continued trust and confidence in MMA Praxis Mutual Funds.
Sincerely,
/s/ John L. Liechty
John L. Liechty, ChFC
President, MMA Praxis Mutual Funds
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****From "1997 Report on Responsible Investing Trends in the United States,"
Social Investment Forum, pp. 1-3.
*****Source: Lipper Analytical Services, Inc.
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MMA Praxis Mutual Funds
MMA PRAXIS INTERMEDIATE INCOME FUND
Interest rates were in a steady downward trend in the last six months of 1997.
The yield on the 10-year Treasury fell from 6.49 percent to 5.74 percent
between June 30 and December 31, which caused bond prices to rise.
The total return for the fund was 7.6 percent* for 1997. In comparison, the
Lehman Corporate Intermediate Index was 8.36 percent. The Lipper Intermediate
Investment Grade Average was up 8.47 percent.
The bulk of the underperformance of the fund against the Lehman Index occurred
in the first eight months when the fund was underweighted in lower investment
grade securities. The fund also was lagging the Lipper Intermediate Investment
Grade average. This sparked a review of other funds in the same investment
category. The major finding was that we were underperforming in a rally
because our duration was too short. As a result, we repositioned our fund in
August and September which gave us much better relative performance for the
remainder of the year.
Intermediate Income Fund
Value of a $10,000 Investment
Average Annual Total Return
--------------------------------------------------
Since Inception
Date 1 Year (1/4/94)
--------------------------------------------------
12/31/97 7.60% 5.52%
12/31/97** 3.60% 5.09%
Lehman
Corporation Lehman
Intermediate Aggregate
CDSC NO CDSC Index Index
------ ------- ------------ ---------
1/4/94 10,000 10,000 10,000 10,000
12/31/94 9,590 9,590 9,591 9,708
6/30/95 10,680 10,680 10,682 10,819
12/31/95 11,260 11,260 11,267 11,502
6/30/96 11,030 11,030 11,032 11,361
12/31/96 11,510 11,510 11,517 11,918
6/30/97 11,760 11,760 12,411 12,288
12/31/97 12,190 12,390 13,057 13,072
**Reflects Applicable Contingent Deferred Sales Charge
Past performance is not indicative of future results. The
investment return and principal value will fluctuate so that
investors' shares, when redeemed, may be worth more or less
than the original cost. CDSC reflects a 4.00 percent
contingent deferred sales charge, for the one year ended
12/31/97. The Lehman Corporate Intermediate Index is an
unmanaged index, generally representative of the
intermediate corporate bond market. This index is for
illustrative purposes only and does not reflect the
deduction of expenses associated with a mutual fund, such as
investment management and fund accounting fees. The fund's
performance reflects the deduction of these value-added
services. The total return set forth reflects a waiver of a
portion of the fund's advisory or administrative fees. In
such instances, and without waiver of fees, total return
would have been lower.
It is our intention to formally change benchmarks from the Lehman Corporate
Intermediate Index to the Lehman Aggregate Index as of January 1, 1998. We
believe this index is a better benchmark for three reasons. First, the
composition of the index includes security types that we use such as
government agencies and mortgage-backed securities. The Lehman Corporate
Intermediate Index includes only corporate bonds. Second, the duration better
reflects the nature of an intermediate fund. Finally, the quality distribution
of the Lehman Aggregate Index is more representative of our investment style.
We believe this change should allow a better comparison in the future relative
to other intermediate bond funds.
We have restructured the portfolio to more closely reflect the characteristics
of the Lehman Aggregate Index. We still have some adjustments to make that
will take some time, but the portfolio is tracking much better now.
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MMA Praxis Mutual Funds
MMA PRAXIS INTERMEDIATE INCOME FUND (CONTINUED)
The portfolio volatility (duration) is 4.7 percent versus 4.6 percent for the
Lehman Aggregate. This means a one percent rise or fall in interest rates will
cause the fund to rise or fall 4.7 percent.
The average bond quality remains a very strong Aa3.
In the social investment area, we added Michigan Consolidated Gas,
Weyerhaeuser, Dean Foods, and IBM, all of which have good social profiles from
a social ethics point of view.
Our outlook for 1998 is very clouded. Events in Asia have led to a "flight to
quality" with Treasury bonds leading the way. We anticipate that the
uncertainties surrounding Asia will continue for several more months. On the
other hand, the market has already built in a one-quarter percent cut in the
Fed funds rate, which we doubt will occur until the economy shows some clearer
signs of slowing. If the Fed does not cut rates in the next few months, rates
may back up moderately. As a result, we are keeping a neutral posture relative
to our benchmark. We also are adding more government agency bonds to enhance
our liquidity, allowing us to adjust to a market move in either direction more
easily and to limit any risk of widening in yield spreads between corporate
bonds and treasuries. We already have a very low exposure to refinancing risk
since we are underweighted in mortgages that can be refinanced.
Delmar King, Investment Manager
MMA Praxis Intermediate Income Fund
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* This does not reflect the contingent deferred sales charge. Had the maximum
4.00 percent CDSC charge been applicable the return would have been 3.60
percent.
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MMA Praxis Mutual Funds
MMA PRAXIS GROWTH FUND
For the June 30, 1997, semiannual MMA Praxis Growth Fund report, we attempted
to answer the question of whether the stock market could go higher. We wrote
"yes, or at least until something happens." As it turns out, the stock market
was able to reach new highs in the second half of 1997 and yes, something
happened to change investors' perception of the stock market.
Major declines in the currencies and stock markets of southeast Asia sent
shock waves to investors across the world. From August to the end of the year,
the stock markets of Hong Kong, Singapore, Korea and Japan had losses of 19
percent,14 percent, 45 percent, and 15 percent respectively. The uncertainty
of earnings for the U.S. companies stemming from the Asian problem is greater
than any other event or trend we have seen in the past three years. Investors
are cautious and nervous going into the new year. As Asian currencies
deteriorate and social unrest becomes a bigger issue, the implications of the
Asian crisis will become an even bigger concern for American companies. A
number of big companies such as Oracle, Minnesota Mining & Manufacturing,
Boeing, JP Morgan and 3-Com have already warned investors of weaker earnings
in part because of Asia's turmoil. While potential damage to earnings is not
easy to gauge, we can say there will be a negative impact.
Growth Fund
Value of a $10,000 Investment
Average Annual Total Return
--------------------------------------------------
Since Inception
Date 1 Year (1/4/94)
--------------------------------------------------
12/31/97 29.15% 18.97%
12/31/97** 25.15% 18.67%
CDSC NO CDSC S&P 500 Domini 400
------ ------- ------------ ----------
1/4/94 10,000 10,000 10,000 10,000
12/31/94 10,026 10,026 10,131 10,018
6/30/95 11,968 11,968 12,177 12,141
12/31/95 13,367 13,367 13,938 13,845
6/30/96 14,025 14,025 15,345 15,220
12/31/96 15,488 15,488 17,140 17,125
6/30/97 17,992 17,992 20,664 20,868
12/31/97 20,003 19,803 22,852 23,674
**Reflects Applicable Contingent Deferred Sales Charge
Past performance is not indicative of future results. The
investment return and principal value will fluctuate so that
investors' shares, when redeemed, may be worth more or less
than the original cost. CDSC reflects a 4.00 percent
contingent deferred sales charge, for the one year ended
12/31/97. The S&P 500 Index and the Domini 400 Social Index
are unmanaged indexes, generally representative of the stock
market and the socially responsible investment market,
respectively. These indexes are for illustrative purposes
only and do not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund
accounting fees. The fund's performance reflects the
deduction of these value-added services. The total return
set forth reflects a waiver of a portion of the fund's
advisory or administrative fees. In such instances and
without waiver of fees, the total return would have been
lower.
MARKET VOLATILITY AND PERFORMANCE
The events of the last few months have generated greater volatility than has
been experienced for a number of years. On October 27, the Dow Jones
Industrial Average declined 554 points or 7.2 percent for the day and earned
the label "Bloody Monday." The large cap stock markets then recovered much of
the declines in the following months.
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MMA Praxis Mutual Funds
MMA PRAXIS GROWTH FUND (CONTINUED)
MMA Praxis Growth Fund performance was very good for the fourth quarter.
According to Lipper Analytical Services, MMA Praxis Growth Fund was ranked
36th out of 700 growth and income funds for performance in the fourth quarter
and 212th out of 624 for the year. The fund had a return of 4.9 percent* for
the quarter--while the S&P 500 had a return of 2.9 percent--and a return of
29.15 percent* for the year. This return was better than the average growth
and income fund return by 3.2 percent for the year, according to Lipper. Our
stock strategy of identifying smaller companies with the consistent earnings
growth that are undervalued worked extremely well in the fourth quarter.
STRATEGY FOR 1998
The most significant element of our current equity strategy is the absence of
technology stocks. We currently have very little exposure to this sector of
the stock market. During the last quarter, we sold most of the Hewlett Packard
and Cisco Systems positions, which were our largest remaining technology
holdings. By liquidating these positions, we have limited our exposure to
Asia, as the technology sector of the market is most closely tied to the
Pacific Rim economies. BankAmerica also was sold from the portfolio. There is
currently concern for the quality of the loans in the southeast Asian region.
Given our concerns, we are concentrating on investing in companies that
benefit from growth in the U.S. Several examples of steady growth companies
that operate primarily in the U.S. include Williams and MCN in the natural gas
pipeline sector, SBC in the telephone industry, and Duke Realty and AMB in the
real estate investment trust sector. We also have emphasized medical device
companies such as St. Jude Medical, Boston Scientific and Biomet, and
pharmaceutical companies including Merck, Alza and Amgen. We have recently
added Schlumberger and Petroleum Geo Services to the portfolio also.
Schlumberger is a large oil service company that contracts with oil companies
to provide drilling services. Petroleum Geo Services is an oil services
company that provides seismic data for well drilling. We believe the oil
drilling and services sector will do well for the next several years because
worldwide demand for oil is increasing, as is the demand for drilling and
related oil industry services.
1998 will be an exciting year and may be one of many surprises. We plan to
remain flexible with an eye toward the upcoming corporate earnings reports. We
have some concern regarding the earnings outlook for 1998. Not only will there
be an earnings reduction from southeast Asia, but we believe profit margins
will be pressured as the economy slows and productivity declines. The cost
cutting by companies in recent years means that companies have increased their
operating leverage, making them more vulnerable to slower sales and slower
economic growth.
We do not expect stock returns in 1998 to match the fantastic returns we have
seen in the past three years. However, I am looking forward to investing in
the upcoming year with more excitement and anticipation than I have had for a
long while. For all of us at the MMA Praxis Mutual Funds, we wish you a Happy
New Year as we face these exciting markets together. Thank you for your
support of MMA Praxis Mutual Funds.
Keith Yoder, CFA, Investment Manager
MMA Praxis Growth Fund
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* This does not reflect the contingent deferred sales charge. Had the maximum
4.00 percent CDSC charge been applicable, the return would have been 1.05
percent for the quarter and 25.20 percent for the year.
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MMA Praxis Mutual Funds
MMA PRAXIS INTERNATIONAL FUND
The MMA Praxis International Fund outperformed its benchmark, the Morgan
Stanley Capital International (MSCI) EAFE index by more than 300 basis points
for the period April 1, 1997, to December 31, 1997. Your portfolio was up 6.40
percent,* whereas the EAFE benchmark was up 3.4 percent (with net dividends
reinvested). The outperformance for this period was primarily due to the
portfolio's significant overweight exposure to Continental European markets
and its overall underweight exposure to Asian markets. In Europe, our
overweight positions and stock selection in France, Italy and Spain added
value. In Asia, an average underweight position for the period in Japan, as
well as minimal exposure in Singapore and Malaysia helped relative
performance. Our underweight exposure in the U.K. as well as poor stock
selection in Hong Kong detracted from performance. In terms of emerging
markets, the portfolio had modest positions in Mexico and Brazil, which added
value to the portfolio's performance.
International Fund
Value of a $10,000 Investment
Average Annual Total Return
--------------------------------------------------
Since Inception
Date (4/1/97)
--------------------------------------------------
12/31/97 6.40%
12/31/97** 2.40%
CDSC NO CDSC MSCI EAFE
------ ------- ------------
1/4/94 10,000 10,000 10,000
6/30/97 11,501 11,501 11,300
12/31/97 10,240 10,640 10,340
**Reflects Applicable Contingent Deferred Sales Charge
Past performance is not indicative of future results. The
investment return and principal value will fluctuate so that
investors' shares, when redeemed, may be worth more or less
than the original cost. CDSC reflects a 4.00 percent
contingent deferred sales charge. The MSCI EAFE Index is an
unmanaged index, generally representative of international
stocks. This index is for illustrative purposes only and
does not reflect the deduction of expenses associated with a
mutual fund, such as investment management and fund
accounting fees. The fund's performance reflects the
deduction of these value-added services. The total return
set forth reflects a waiver of a portion of the Fund's
advisory or administrative fees. In such instances, and
without waiver of fees, the total return would have been
lower.
International investing involves increased risk and
volatility.
For the full year 1997, the MSCI EAFE index advanced 1.78 percent. This
performance masks the divergence in performance of European and Asian stock
markets. The MSCI Europe index advanced 23.8 percent while Japan declined 12.7
percent and MSCI Pacific ex-Japan declined 31.0 percent. European markets had
a very strong 1997 because the earnings outlook was improving, interest rates
continued their downward trend as EMU became more likely, inflation was modest
and the flow of funds into equities from money market or bond funds continued
to push these markets higher. Europe was also perceived by the markets as the
"safe haven" with the least exposure to Asia. The strongest major markets in
Europe were Italy 35.5 percent, Spain 25.4 percent, Switzerland 44.2 percent
and Germany 24.6 percent (in U.S. dollar terms). Japan, on the other hand,
suffered as it is viewed as the most exposed to the Asian contagion. Before
Asia collapsed, its economy was already having a hard time growing due to
tight fiscal
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MMA Praxis Mutual Funds
MMA PRAXIS INTERNATIONAL FUND (CONTINUED)
policy initiated in late 1996. Japan will be forced to take the necessary
steps to get its economy growing. The fact that we are hearing about
bankruptcies in Japan is significant because they were never "allowed" in the
past. The Japanese authorities have to embark on a massive fiscal stimulus
program to restore positive economic growth and to ease the credit crunch
currently underway. The crisis in Asia might force the Japanese to take the
necessary and difficult steps to turning the economy around. The Asian markets
started to unravel in July when the Thai baht was devalued. This resulted in a
series of competitive devaluations around the region, causing shock waves in
the respective stock markets. For the year, Hong Kong was down 23.3 percent,
Singapore down 30.0 percent and Malaysia down 68.3 percent. The emerging
markets in the Asia region were down even more. The MSCI emerging Asia index
was down 49 percent, with Indonesia down 74.4 percent, Korea down 67.3 percent
and Thailand down 74.3 percent.
OUTLOOK
The markets are consumed by the Asian crisis, so far only figuratively and not
literally. However, we have reexamined our assumptions for earnings and growth
for all markets, given the far-reaching implications of dramatic slowdown in
Asian growth and near-term liquidity squeeze. We believe that the developed
markets, including the U.S., are too sanguine and have yet to fully discount
the repercussions. As discussed in previous comments, most companies have
assessed the immediate impact of currency devaluations on near-term earnings
and will do their best to reflect the impact in 1997 results. However, the
second order impact of slower growth, continued bankruptcies and
reorganizations, and further depreciation in currencies (as witnessed in the
first days of January 1998) has yet to be fully appreciated. Given that the
situation has not stabilized in several countries, we expect the fallout to
become more apparent in the first and second quarters of 1998.
Market volatility presents new investment opportunities and risks, and we have
used the volatility to reposition your portfolio to take advantage of these
opportunities and to reduce risk. In the near term, the outlook for Europe in
general is more favorable than that for Japan and the Pacific Rim. Interest
rates are expected to converge toward a level sustainable for monetary union,
which will mean lower rates for Italy, Spain, Sweden and the U.K. We foresee
little impetus for higher rates as inflation is not expected to accelerate and
real rates are already high in an historical context. This benign interest
rate environment will underpin valuations in Europe. At the same time,
corporate profits are expected to expand, albeit modestly, in several European
countries including France, the U.K., Italy and Spain. We also expect European
pension funds to increase allocations to equities, again providing underlying
support for the markets.
Throughout the world, stock selection remains critical. We are searching for
earnings growth derived from several sources: deregulation, restructuring,
consolidation, and in time, Asia. Deregulation of industries is challenging
companies to address keen competition in formerly cozy markets. We are
investing in those companies that can thrive, not just survive, through
proactive strategies and aggressive asset and financial management. For
example, KPN in The Netherlands is confronting deregulation of the
telecommunications industry with cost-cutting and strategic alliances, putting
the company in position to compete aggressively in the European arena. Nomura
Securities has a sound strategy for tackling the challenges of deregulation of
the financial services industry in Japan.
Companies and industries continue to restructure and this process may
accelerate in an uncertain environment. Companies in Europe have been
delivering earnings growth through rationalizing operations and divesting
unprofitable or ancillary businesses. For example, management at Suez
Lyonnaise and Imperial Chemical Industries are transforming the companies to
focus on the most promising and profitable businesses. Entire industries are
consolidating around strong global players and, in many cases, the strong get
stronger as lesser competitors drop out of the race. We expect acceleration in
the consolidation process in the auto parts industry, with Valeo in a key
position to benefit as a global leader.
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MMA Praxis Mutual Funds
MMA PRAXIS INTERNATIONAL FUND (CONTINUED)
Real growth in excess of inflation may look modest relative to past periods,
as inflation is expected to remain low. Companies that can create growth as a
result of efficient investment and market share gains will be more highly
valued by investors. Some examples include VNU, which is poised to capitalize
on investment in marketing information systems in Europe, and Vodafone, which
is beginning to see the returns from investment in cellular systems outside
the U.K.
Finally, earnings growth may be a rare find in Asia for the next year, but it
is not too early to be looking for investment opportunities. Although not
easily foreseen at this time, the Asian markets will begin to discount
improvement well before reported results confirm the turnaround. Clearly,
there will be companies that will not only survive the Asian crisis but will
emerge stronger than before. We are looking ahead, beyond near-term results,
to ascertain the winners and losers in a more stable environment. We also are
prepared to invest in companies doing business in Asia when the markets
oversell these stocks. As an example, we believe Coca Cola Amatil is a
compelling investment when investors panic out of the stock at unreasonably
low prices, ones that represent good value for long-term investors.
In conclusion, we will avoid offering fearless (or foolish) predictions for
1998. While the markets demand dynamic decision-making, our philosophy and
process remain constant. We continue to exploit inefficiencies in the markets
and believe that 1998 will offer no less than 1997. A consistent analysis of
top-down and bottom-up factors will not only uncover opportunities but also
define risk, which should be key to realizing attractive returns and avoiding
debacles in 1998.
Martina Oechsle
Oechsle International Advisors
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* This does not reflect the contingent deferred sales charge. Had the maximum
4.00 percent CDSC charge been applicable, the return would have been 2.40
percent.
International investing involves increased risk and volatility.
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MMA Praxis Mutual Funds
MMA PRAXIS SOCIALLY RESPONSIBLE INVESTING UPDATE
INCREASING SOCIAL RETURN
Elsewhere in this annual report you have read about the work being done to
increase the financial return on your MMA Praxis investments in 1997. This
past year also marked the start of a significant new effort to increase the
social return on those same investments. Our belief is that, in addition to
providing financial gain for our shareholders, we are called to use our
resources to actively pursue social gain that benefits our world as a whole.
It's a commitment that is illustrated by our choice of names for our mutual
funds: Praxis, meaning the joining of belief and action.
While having adhered to our own ethical investment guidelines since the
company's beginnings, MMA launched this increased effort toward social
responsibility and activism with the creation of a new staff position for SRI
research and advocacy. It is our hope that this position will not only
contribute to the quality of investment decisions our fund managers make, but
also will expand our ability to help build a better world through advocacy
activities in the corporate sector.
BUILDING OUR THREE-LEGGED STOOL
Many people in the socially responsible investing (SRI) industry look to the
"three-legged stool" of SRI to help gauge a fund's depth and leadership
potential. They look for 1) significant thought and activity around the topics
of screened investments, 2) shareholder activism and 3) community development
investing. Our new staff position in SRI research and advocacy builds on the
work already being done in these areas, while providing for significant
growth.
SCREENED INVESTMENTS. From their inception, MMA Praxis Mutual Funds have
excluded certain companies whose business or mode of operation were considered
objectionable. These "negative screens" have included issues of tobacco,
gambling, alcohol, military contracting and others. MMA Praxis also has
utilized "positive screens" that help seek out companies involved in life-
enriching industries and with good records in areas such as employee
relations, corporate giving, environmental performance and community
involvement.
In the coming year we will work to deepen and broaden our screening
techniques. We are increasing the amount of corporate research information we
are receiving and will implement more sophisticated SRI investment policies
and decision-making processes. We also intend to revisit the connection
between our Anabaptist/Mennonite values and the investment/advocacy policies
we hold. In support of these efforts, we are expanding our relationships with
prominent SRI research providers such as Kinder, Lydenberg, Domini, & Co.;
Council on Economic Priorities; Investor Responsibility Research Center and
others.
SHAREHOLDER ACTIVISM. Since no company is completely "pure" in terms of
corporate activity, it is through shareholder activism that we put our values
most visibly into action. Our objective is to use our position as "owners" to
help make companies better, thereby enhancing their long-term performance
while benefitting the world, its people and environment. This activism can
take place through the filing of shareholder resolutions that appear for vote
on the company's annual proxy statement, or through formal or informal direct
dialogue with the company. In the 1997-98 proxy season, MMA has co-sponsored
resolutions with Hewlett Packard, Atlantic Richfield, May Department Stores
and Deere & Company on issues ranging from environmental reporting to human
rights standards to sweatshop monitoring. In addition, we have participated in
formal dialogue with Chubb Corporation regarding community development
investing, as well as an on-site visit and discussion with Johnson & Johnson
representatives concerning wage policies for maquiladora laborers in Ciudad
Juarez, Mexico.
MMA's efforts in shareholder activism are supported and expanded through our
increased involvement with organizations such as the Interfaith Center for
Corporate Responsibility, Social Investment Forum, the Coalition for
Environmentally Responsible Economies and Business Leaders for Sensible
Priorities.
-10-
<PAGE>
MMA Praxis Mutual Funds
MMA PRAXIS SOCIALLY RESPONSIBLE INVESTING UPDATE (CONTINUED)
1997 also saw the proposal of significant rule changes at the Securities and
Exchange Commission (SEC) that would have severely limited the rights of
concerned shareholders to place resolutions on corporate proxy ballots,
dramatically weakening one of our most effective tools for encouraging
positive corporate change. We are happy to report, however, that due to the
work of a broad-based coalition of investors (ranging from unions to religious
institutions to municipal governments), the proposed rule changes have been
almost completely reversed. MMA was an active participant in this coalition's
defense of shareholder rights.
COMMUNITY DEVELOPMENT INVESTING. This area is the newest leg in our SRI "three
legged stool." We have just begun to explore ways MMA Praxis Mutual Funds
might use targeted investments to encourage economic growth and development in
underserved parts of our country and world. And while community development
investing is not completely new to MMA, for years we have informally supported
this work through investments in the Community Reinvestment Fund and
occasional private placements--and our goal is to make this activity a
regular, structured part of our investing activities.
Screened investments, shareholder activism, community development investing--
these three activities form the backbone of our plan to increase the social
return on MMA Praxis Mutual Funds. In the months and years ahead you will hear
more about our work, on your behalf, to merge belief and action--to put feet
on your funds as a sign of commitment to the concepts of stewardship we share.
Mark A. Regier
SRI Research and Advocacy Coordinator
MMA Praxis Mutual Funds
-11-
<PAGE>
TABLE OF CONTENTS
Report of Independent Accountants
Page 13
Statements of Assets and Liabilities
Page 14
Statements of Operations
Page 15
Statements of Changes in Net Assets
Page 16
Schedules of Portfolio Investments
Page 17
Notes to Financial Statements
Page 25
Financial Highlights
Page 32
-12-
<PAGE>
To the Shareholders and Trustees
of the MMA Praxis Mutual Funds
We have audited the accompanying statements of assets and liabilities of the
MMA Praxis Mutual Funds including the schedules of investments as of December
31, 1997, and the related statements of operations, statements of changes in
net assets, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the MMA Praxis Mutual Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997 by correspondence with the custodian and
brokers, or other auditing procedures where confirmations from brokers were
not received. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds comprising the MMA Praxis Mutual Funds as of December
31, 1997, and the results of their operations and the changes in their net
assets and the financial highlights for the periods referred to above in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 16, 1998
-13-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
INCOME GROWTH INTERNATIONAL
FUND FUND FUND
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost
$32,110,081, 86,052,746 and
16,459,144 respectively).............. $33,006,284 $104,303,199 $16,288,727
Cash................................... -- -- 1,080,633
Foreign currency, at value (Cost $0, 0
and 68,890 respectively)............... -- -- 68,104
Interest and dividends receivable...... 459,103 110,836 21,358
Receivable for capital shares issued... -- 4,500 --
Receivable from brokers for investments
sold................................... 315 -- 33,540
Receivable for foreign currency
contracts.............................. -- -- 69,287
Receivable from custodian.............. -- -- 41,732
Tax reclaim receivable................. -- -- 5,295
Unamortized organization costs......... 6,490 6,568 17,489
Prepaid expenses and other assets...... 4,565 14,695 767
----------- ------------ -----------
Total Assets....................... 33,476,757 104,439,798 17,626,932
----------- ------------ -----------
LIABILITIES:
Payable to brokers for investments
purchased.............................. -- -- 305,547
Payable for foreign currency contracts. -- -- 1,300
Cash overdraft......................... 101,922 7,201 --
Payable to affiliated parties.......... -- -- 23,290
Accrued expenses and other payables:
Investment advisory fees............. 380 56,696 7,148
Administration fees.................. 685 1,384 685
Distribution fees.................... 1,965 5,794 1,001
Trustee fees......................... 1,433 4,415 638
Fund accounting and transfer agent
fees................................ 6,164 12,310 --
Custodian fees....................... 2,275 1,700 28,184
Legal and audit fees................. 8,129 18,556 12,121
Other................................ 14,428 22,245 1,584
----------- ------------ -----------
Total Liabilities.................. 137,381 130,301 381,498
----------- ------------ -----------
NET ASSETS:
Capital................................ 32,727,696 84,023,185 17,607,968
Undistributed (distributions in excess
of) net investment income.............. (568) 5,536 (63,556)
Accumulated undistributed net realized
gains (losses)
from investments and foreign currency
transactions.......................... (283,955) 2,030,323 (196,211)
Net unrealized appreciation
(depreciation) from investments
and foreign currency transactions..... 896,203 18,250,453 (102,767)
----------- ------------ -----------
Net Assets......................... $33,339,376 $104,309,497 $17,245,434
=========== ============ ===========
Outstanding Units of Beneficial
Interest (Shares)...................... 3,330,133 6,637,356 1,623,792
=========== ============ ===========
Net Asset Value--offering price per
share*................................. $ 10.01 $ 15.72 $ 10.62
=========== ============ ===========
</TABLE>
- -------
* Redemption price per share varies based on length of time shares are held.
See notes to financial statements.
-14-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERMEDIATE
INCOME GROWTH INTERNATIONAL
FUND FUND FUND (A)
------------ ----------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income........................ $2,041,134 $ 364,777 $ --
Dividend income........................ -- 1,244,449 107,746
Foreign tax witholding................. -- -- (10,464)
---------- ----------- ---------
Total Income......................... 2,041,134 1,609,226 97,282
---------- ----------- ---------
EXPENSES:
Investment advisory fees............... 151,224 610,039 81,639
Administration fees.................... 50,000 83,371 37,672
Distribution fees...................... 302,449 825,950 90,710
Shareholder service fees............... 75,612 206,487 22,678
Custodian fees......................... 4,219 5,385 36,791
Accounting fees........................ 40,081 32,485 40,122
Legal fees............................. 22,475 46,607 2,908
Audit fees............................. 4,991 18,473 12,020
Trustees' fees and expenses............ 7,992 21,346 2,374
Transfer agent fees.................... 78,833 247,882 28,172
Registration and filing fees........... 23,028 40,514 21,839
Printing costs......................... 21,037 43,796 7,022
Amortization of organization costs..... 7,121 6,570 3,102
Other expenses......................... 2,160 8,801 1,730
---------- ----------- ---------
Total expenses before voluntary fee
reductions.......................... 791,222 2,197,706 388,779
Expenses voluntarily reduced......... (454,532) (768,509) (143,232)
Expenses paid by third parties....... (4,219) (5,385) --
Expenses reimbursed.................. -- -- (64,012)
---------- ----------- ---------
Net Expenses......................... 332,471 1,423,812 181,535
---------- ----------- ---------
Net Investment Income.................. 1,708,663 185,414 (84,253)
---------- ----------- ---------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS:
Net realized gains (losses) from
investment transactions................ 9,746 11,233,412 (165,439)
Net realized gains from foreign
currency transactions.................. -- -- 13,493
Net change in unrealized appreciation
(depreciation)
from investments...................... 543,936 9,436,871 (170,417)
Net change in unrealized appreciation
from foreign currency transactions.... -- -- 67,649
---------- ----------- ---------
Net realized/unrealized gains (losses)
from investments....................... 553,682 20,670,283 (254,714)
---------- ----------- ---------
Change in net assets resulting from
operations............................. $2,262,345 $20,855,697 $(338,967)
========== =========== =========
</TABLE>
- -------
(a) For the period from April 1, 1997 (commencement of operations) to December
31, 1997.
See notes to financial statements.
-15-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERMEDIATE INCOME GROWTH INTERNATIONAL
FUND FUND FUND
-------------------------- -------------------------- -------------
YEAR YEAR YEAR YEAR APRIL 1, 1997
ENDED ENDED ENDED ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 (A)
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income
(loss).................. $ 1,708,663 $ 1,400,778 $ 185,414 $ 274,780 $ (84,253)
Net realized gains
(losses) from invest-
ment
transactions........... 9,746 21,386 11,233,412 2,178,561 (165,439)
Net realized gains
(losses) from foreign
currency transactions.. -- -- -- -- 13,493
Net change in unrealized
appreciation
(depreciation) from in-
vestments.............. 543,936 (776,579) 9,436,871 4,711,729 (170,417)
Net change in unrealized
appreciation
(depreciation) from
foreign currency
transactions........... -- -- -- -- 67,649
----------- ----------- ------------ ----------- -----------
Change in net assets
resulting from
operations............... 2,262,345 645,585 20,855,697 7,165,070 (338,967)
----------- ----------- ------------ ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income.................. (1,708,376) (1,400,778) (195,657) (264,757) --
In excess of net
investment income....... (6,900) (5,243) -- -- (691)
From net realized gains
(losses) from
investment transactions. -- -- (10,157,638) (1,413,536) --
In excess of net
realized gains from
investment
transactions........... -- -- -- -- (30,081)
Tax return of capital... -- (2,071) -- -- --
----------- ----------- ------------ ----------- -----------
Change in net assets from
shareholder
distributions........... (1,715,276) (1,408,092) (10,353,295) (1,678,293) (30,772)
----------- ----------- ------------ ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued.................. 7,168,209 6,287,831 31,880,957 25,680,520 17,740,485
Dividends reinvested.... 713,683 399,174 9,613,901 2,481,464 24,278
Cost of shares redeemed. (2,657,593) (1,826,138) (6,594,492) (5,647,554) (149,590)
----------- ----------- ------------ ----------- -----------
Change in net assets from
capital transactions..... 5,224,299 4,860,867 34,900,366 22,514,430 17,615,173
----------- ----------- ------------ ----------- -----------
Change in net assets..... 5,771,368 4,098,360 45,402,768 28,001,207 17,245,434
NET ASSETS:
Beginning of period..... 27,568,008 23,469,648 58,906,729 30,905,522 --
----------- ----------- ------------ ----------- -----------
End of period........... $33,339,376 $27,568,008 $104,309,497 $58,906,729 $17,245,434
=========== =========== ============ =========== ===========
SHARE TRANSACTIONS:
Issued.................. 727,038 638,171 2,086,508 2,024,654 1,635,650
Reinvested.............. 72,532 40,632 626,203 194,454 2,351
Redeemed................ (270,306) (186,152) (415,821) (438,149) (14,210)
----------- ----------- ------------ ----------- -----------
Change in shares......... 529,264 492,651 2,296,890 1,780,959 1,623,791
=========== =========== ============ =========== ===========
</TABLE>
- -------
(a) Period from commencement of operations.
See notes to financial statements.
-16-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERMEDIATE INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
ASSET BACKED SECURITIES (2.2%)
250,000 American Express Master Trust, Series 1994-3, Class A,
7.85%, 8/15/05....................................... $ 271,272
250,000 Circuit City Credit Card Master Trust, Series 1994-2,
Class A, 8.00%, 11/15/03............................. 258,498
187,500 Export Funding Trust, Series 1994-A, Class A, 7.89%,
2/15/05.............................................. 198,861
-----------
Total Asset Backed Securities (Cost $686,820) 728,631
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (6.7%)
250,000 Federal Home Loan Mortgage Corp., Series 32, Class D,
7.50%, 10/25/04...................................... 255,930
550,000 Federal National Mortgage Assoc., Series 1997-M4,
Class C, 7.30%, 8/17/18, ACES........................ 586,437
351,000 Federal National Mortgage Assoc., Series 1996-M6,
Class G, 7.75%, 9/17/23, ACES........................ 369,976
495,702 Small Business Investment Companies, Series 1995-P10C,
Class 1, 7.35%, 8/10/05.............................. 514,911
500,000 Vendee Mortgage Trust, Series 1993-2, Class I, 6.75%,
3/15/06.............................................. 503,005
-----------
Total Collateralized Mortgage Obligations (Cost $2,121,806) 2,230,259
-----------
CORPORATE BONDS (57.8%)
Banks (4.2%)
500,000 Banc One Corp., 7.25%, 8/1/02......................... 516,875
350,000 NationsBank Corp., 7.00%, 9/15/01..................... 358,313
500,000 Swiss Bank Corp.-New York, 7.38%, 6/15/17............. 536,874
-----------
1,412,062
-----------
Brokerage Services (1.6%)
500,000 Morgan Stanley, Dean, Witter, Discover & Co., 9.38%,
6/15/01.............................................. 547,500
-----------
Chemicals--General (1.5%)
500,000 Witco Corp., 6.60%, 4/1/03............................ 506,875
-----------
Commercial Services (0.8%)
250,000 ServiceMaster Co., 6.95%, 8/15/07..................... 255,355
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Computers & Peripherals (1.5%)
500,000 International Business Machines Corp., 7.00%,
10/30/25............................................. $ 516,250
-----------
Financial Services (2.1%)
250,000 Golden West Financial Corp., 10.25%, 12/1/00.......... 276,875
400,000 Protective Life Corp., 7.95%, 7/1/04.................. 424,500
-----------
701,375
-----------
Food Distributors & Wholesalers (1.7%)
250,000 Secured Finance, Inc.--Kroger, 9.05%, 12/15/04........ 288,438
260,000 SUPERVALU, Inc., 7.80%, 11/15/02...................... 274,625
-----------
563,063
-----------
Food Products (3.1%)
500,000 Dean Foods Co., 6.90%, 10/15/17....................... 508,750
500,000 H.J. Heinz Co., 7.50%, 4/26/00........................ 513,750
-----------
1,022,500
-----------
Forest Products--Lumber & Paper (3.8%)
250,000 Westvaco Corp., 10.25%, 7/1/18, Callable 7/1/98 @
105.13............................................... 264,063
1,000,000 Weyerhaeuser Co., 6.95%, 8/1/17....................... 1,018,750
-----------
1,282,813
-----------
Governments (Foreign) (1.6%)
500,000 Province of Quebec, Series NJ, 7.50%, 7/15/23......... 538,125
-----------
Heavy Machinery (0.8%)
250,000 John Deere Capital Corp., 8.63%, 8/1/19, Callable
8/1/04 @ 100......................................... 273,750
-----------
Insurance (3.3%)
250,000 Allstate Corp., 6.75%, 6/15/03........................ 251,875
110,000 Chubb Corp., 8.75%, 11/15/99.......................... 115,225
250,000 Harleysville Group, Inc., 6.75%, 11/15/03............. 251,875
500,000 W.R. Berkley Corp., 6.25%, 1/15/06.................... 488,125
-----------
1,107,100
-----------
Metals--Fabrication (1.6%)
500,000 Worthington Industries, Inc., 7.13%, 5/15/06.......... 525,000
-----------
</TABLE>
Continued
-17-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERMEDIATE INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Office Equipment & Service (2.8%)
500,000 Pitney Bowes Credit Corp., 9.25%, 6/15/08, Putable
6/15/98 @ 100........................................ $ 609,375
300,000 Xerox Credit Corp., 10.00%, 4/1/99.................... 313,500
-----------
922,875
-----------
Oil & Gas Exploration, Production & Services (1.6%)
250,000 Burlington Resources, Inc., 9.63%, 6/15/00............ 269,688
250,000 Louisiana Land & Exploration Co., 8.25%, 6/15/02...... 262,500
-----------
532,188
-----------
Oil & Gas Transmission (5.0%)
250,000 El Paso Natural Gas Co., 9.45%, 9/1/99................ 262,500
250,000 Equitable Resources, Inc., 7.50%, 7/1/99.............. 255,000
100,000 Questar Pipeline Co., 9.88%, 6/1/20, Callable 6/1/00 @
104.67............................................... 110,750
500,000 Sonat, Inc., 6.88%, 6/1/05............................ 513,750
500,000 Tennessee Gas Pipeline Co., 7.50%, 4/1/17............. 535,624
-----------
1,677,624
-----------
Pharmaceuticals (0.9%)
250,000 Eli Lilly & Co., 8.38%, 12/1/06....................... 285,625
-----------
Railroads (1.5%)
250,000 Conrail, Inc., 9.75%, 6/1/00.......................... 269,375
250,000 Union Pacific Co., 6.00%, 9/1/03, Callable 9/1/00 @
100.................................................. 242,500
-----------
511,875
-----------
Retail (1.0%)
300,000 Dayton Hudson Co., 8.50%, 12/1/22, Callable 12/1/02 @
103.75............................................... 325,125
-----------
Retail--Department Stores (2.3%)
500,000 J. C. Penney & Co., 7.25%, 4/1/02..................... 516,875
250,000 Kohl's Corp., 6.70%, 2/1/06........................... 250,625
-----------
767,500
-----------
Textile Manufacturing (0.8%)
250,000 VF Corp., 7.60%, 4/1/04, Callable 4/1/01 @ 100........ 260,625
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Transportation Services (1.8%)
250,000 GATX Corp., 8.63%, 12/1/04............................ $ 278,125
300,000 Union Tank Car Co., 7.13%, 2/1/07..................... 313,500
-----------
591,625
-----------
Utilities--Electric (5.4%)
250,000 Alabama Power Co., 7.00%, 1/1/03, Callable 1/1/98 @
101.64............................................... 254,063
450,000 Allegheny Generating Co., 5.63%, 9/1/03............... 435,937
250,000 Florida Power & Light Co., 6.88%, 4/1/04, Callable
4/1/98 @ 102.37...................................... 255,938
300,000 Iowa Electric Light & Power Co., 8.63%, 5/15/01....... 322,124
250,000 Potomac Electric Power Co., 5.00%, 9/1/02, Callable
9/1/98 @ 94.371, Convertible to Common Shares........ 241,563
250,000 PP&L Resources, Inc., 7.75%, 5/1/02................... 263,124
-----------
1,772,749
-----------
Utilities--Electric & Gas (1.5%)
250,000 Baltimore Gas & Electric Co., 8.38%, 8/15/01.......... 267,188
246,000 Public Service Electric & Gas Co., 6.00%, 7/1/98...... 246,000
-----------
513,188
-----------
Utilities--Natural Gas (1.7%)
500,000 Michigan Consolidated Gas Co., 8.25%, 5/1/14.......... 580,625
-----------
Utilities--Telecommunications (3.9%)
500,000 Ameritech Capital Funding Corp., 6.13%, 10/15/01...... 500,000
250,000 Northwestern Bell Telephone Co., 9.50%, 5/1/00........ 267,500
500,000 U.S. West Communications, Inc., 9.50%, 5/1/00......... 535,625
-----------
1,303,125
-----------
Total Corporate Bonds (Cost $18,670,864) 19,296,517
-----------
</TABLE>
Continued
-18-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERMEDIATE INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
MEDIUM TERM NOTES (6.3%)
Financial Services (0.8%)
250,000 Capital Holding Corp., Series B, 9.27%, 5/7/01........ $ 272,500
-----------
Food Products (0.8%)
250,000 International Multifoods Corp., Series A, 6.71%,
10/5/00.............................................. 250,938
-----------
Pharmaceuticals (0.8%)
250,000 SmithKline Beecham Corp., Series A, 7.50%, 5/1/02,
Callable 5/1/98
@ 100, Guaranteed by SmithKline Beecham PLC.......... 251,250
-----------
Retail (1.5%)
500,000 ShopKo Stores, Inc., 8.50%, 3/15/02................... 531,249
-----------
Utilities--Electric (0.8%)
250,000 Kentucky Power Co., 6.65%, 5/1/03, Callable 5/1/98 @
101.9................................................ 251,875
-----------
Utilities--Natural Gas (0.8%)
250,000 UGI Utilities, Inc., Series B, 7.17%, 6/15/07......... 262,813
-----------
Utilities--Telecommunications (0.8%)
250,000 Southern New England Telephone Co., 7.13%, 8/1/07..... 264,375
-----------
Total Medium Term Notes (Cost $2,018,803) 2,085,000
-----------
U.S. GOVERNMENT AGENCIES (26.0%)
Federal Home Loan Mortgage Corp. (11.3%)
1,193,000 6.00%, 1/30/98, Discount Note......................... 1,187,596
169,198 6.50%, 12/1/99, Gold Pool #M80145..................... 169,696
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES, CONTINUED:
Federal Home Loan Mortgage Corp., continued:
500,000 6.83%, 3/20/04, Callable 3/20/99 @ 100................. $ 502,810
459,633 7.00%, 11/1/07, Gold Pool #E48054...................... 466,334
505,451 7.00%, 7/1/15, Gold Pool #D91111....................... 509,975
473,563 6.50%, 11/1/15, Gold Pool #D91169...................... 468,278
477,358 7.00%, 4/1/16, Gold Pool #D91297....................... 481,625
-----------
3,786,314
-----------
Federal National Mortgage Assoc. (7.6%)
40,000 5.96%, 1/14/98, Discount Note.......................... 39,922
1,000,000 6.58%, 10/2/01......................................... 1,020,759
495,217 6.47%, 12/1/01, Pool #73821............................ 495,831
450,000 7.38%, 9/1/06, Pool #73682............................. 462,375
495,469 7.45%, 10/1/11, Pool #73725............................ 504,903
-----------
2,523,790
-----------
Government National Mortgage Assoc. (6.6%)
379,824 6.50%, 11/15/10, Pool #417766.......................... 385,313
299,960 7.50%, 2/15/23, Pool #328498........................... 305,839
490,832 7.00%, 3/15/26, Pool #398518........................... 494,803
1,000,000 6.00%, 12/20/27, Pool #80143........................... 1,008,438
-----------
2,194,393
-----------
Small Business Administration (0.5%)
160,991 6.25%, 9/25/18, Pool #502410........................... 161,380
-----------
Total U.S. Government Agencies
(Cost $8,611,788) 8,665,877
-----------
Total Investments
(Cost $32,110,081)(a)--99.0% 33,006,284
-----------
Other assets in excess of liabilities 1.0% 333,092
-----------
Total Net Assets--100.0% $33,339,376
===========
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation. $910,497
Unrealized depreciation. (14,294)
--------
Net unrealized
appreciation............ $896,203
========
</TABLE>
ACES--Automatic Common Exchange Securities
See notes to financial statements.
-19-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
GROWTH FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION MARKET VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (93.2%)
Automotive Parts (2.4%)
87,000 Wabash National Corp.................................. $ 2,474,063
------------
Banks (8.9%)
22,500 AmSouth Bancorporation................................ 1,222,031
34,000 First Chicago NBD Corp................................ 2,838,999
28,000 KeyCorp............................................... 1,982,750
24,000 Norwest Corp.......................................... 927,000
7,000 Wells Fargo & Co...................................... 2,376,063
------------
9,346,843
------------
Building Materials (1.7%)
35,000 Masco Corp............................................ 1,780,625
------------
Chemicals--General (5.1%)
33,000 Air Products & Chemicals, Inc......................... 2,714,250
66,000 Sigma-Aldrich Corp.................................... 2,623,500
------------
5,337,750
------------
Computers & Peripherals (1.5%)
15,000 Cisco Systems, Inc. (b)............................... 836,250
1,000 Hewlett-Packard Co.................................... 62,500
40,000 Read-Rite Corp. (b)................................... 630,000
------------
1,528,750
------------
Containers--Metal, Glass, Paper, Plastic (2.1%)
62,000 Sonoco Products Co.................................... 2,150,625
------------
Electronic & Electrical--General (5.1%)
39,000 Emerson Electric Co................................... 2,201,063
65,000 Thomas & Betts Corp................................... 3,071,250
------------
5,272,313
------------
Environmental Control (2.5%)
67,000 Ionics, Inc. (b)...................................... 2,621,375
------------
Financial Services (2.5%)
45,000 Federal National Mortgage Assoc....................... 2,567,813
------------
Food Distributors & Wholesalers (5.8%)
70,000 Albertsons, Inc....................................... 3,316,249
61,000 Sysco Corp............................................ 2,779,313
------------
6,095,562
------------
Forest Products--Lumber & Paper (1.7%)
56,000 Willamette Industries, Inc............................ 1,802,500
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION MARKET VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Heavy Machinery (2.9%)
52,000 Deere & Co............................................ $ 3,032,250
------------
Insurance (2.4%)
33,000 Chubb Corp............................................ 2,495,625
------------
Leisure--Recreation (1.0%)
35,000 Callaway Golf Co...................................... 999,688
------------
Medical Supplies (5.8%)
36,000 Biomet, Inc........................................... 922,500
59,000 Boston Scientific Corp. (b)........................... 2,706,625
79,000 St. Jude Medical, Inc. (b)............................ 2,409,500
------------
6,038,625
------------
Newspapers (1.6%)
27,000 Gannett Co., Inc...................................... 1,668,938
------------
Oil & Gas Exploration, Production & Services (8.4%)
32,000 Amoco Corp............................................ 2,724,000
43,000 Anadarko Petroleum Corp............................... 2,609,563
120,000 Williams Cos., Inc.................................... 3,404,999
------------
8,738,562
------------
Oilfield Services & Equipment (4.5%)
36,000 Petroleum Geo-Services, Sponsored ADR (b)............. 2,331,000
30,000 Schlumberger, Ltd..................................... 2,415,000
------------
4,746,000
------------
Pharmaceuticals (10.4%)
90,000 ALZA Corp. (b)........................................ 2,863,125
48,000 Amgen, Inc. (b)....................................... 2,598,000
3,750 Crescendo Pharmaceuticals Corp. (b)................... 43,359
44,000 Johnson & Johnson, Inc................................ 2,898,499
24,000 Merck & Co., Inc...................................... 2,550,000
------------
10,952,983
------------
Precision Instruments & Related (1.2%)
25,000 Dionex Corp. (b)...................................... 1,256,250
------------
Retail (3.6%)
45,000 Lowe's Cos., Inc...................................... 2,145,938
30,000 May Department Stores Co.............................. 1,580,625
------------
3,726,563
------------
</TABLE>
Continued
-20-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
GROWTH FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION MARKET VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Retail--Specialty Stores (1.9%)
85,000 Pep Boys--Manny, Moe & Jack........................... $ 2,029,375
------------
Software & Computer Services (2.8%)
100,000 First Data Corp....................................... 2,925,000
------------
Utilities--Natural Gas (4.1%)
18,100 El Paso Natural Gas................................... 1,203,650
75,000 MCN Energy Group, Inc................................. 3,028,125
------------
4,231,775
------------
Utilities--Telecommunications (3.3%)
47,000 SBC Communications, Inc............................... 3,442,750
------------
Total Common Stocks (Cost $79,393,522) 97,262,603
------------
REAL ESTATE INVESTMENT TRUSTS (2.2%)
40,000 AMB Property Corp..................................... 1,005,000
52,200 Duke Realty Investments, Inc.......................... 1,265,850
------------
Total Real Estate Investment Trusts (Cost $1,889,823) 2,270,850
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION MARKET VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (4.6%)
Federal Home Loan Mortgage Corp. (4.1%)
4,230,000 6.00%, 1/30/98, Discount Note......................... $ 4,210,838
------------
Federal National Mortgage Assoc. (0.5%)
560,000 5.96%, 1/14/98, Discount Note......................... 558,908
------------
Total U.S. Government Agencies (Cost $4,769,401) 4,769,746
------------
Total Investments
(Cost $86,052,746)(a)--100.0% 104,303,199
------------
Other assets in excess of liabilities 0.0% 6,298
------------
Total Net Assets--100.0% $104,309,497
============
</TABLE>
- -------
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......... $21,313,895
Unrealized depreciation......... (3,063,442)
-----------
Net unrealized appreciation..... $18,250,453
===========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
-21-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERNATIONAL FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
Continued
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------ ---------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (94.5%):
AUSTRALIA (2.5%)
Banks (1.7%)
43,332 Australia & New Zealand Banking Group..................... $ 286,290
-----------
Beverages (0.1%)
2,773 Coca-Cola Amatil Ltd...................................... 20,717
-----------
Metals & Mining (0.7%)
33,540 WMC Ltd................................................... 116,916
-----------
423,923
-----------
CANADA (0.1%)
Metals & Mining (0.1%)
3,900 Echo Bay Mines Ltd. (b)................................... 9,506
-----------
FRANCE (15.3%)
Automotive (3.2%)
19,598 Renault SA (b)............................................ 551,532
-----------
Automotive Parts (2.0%)
5,174 Valeo SA.................................................. 351,076
-----------
Chemicals--General (1.2%)
4,793 Rhone-Poulenc, Class A.................................... 214,798
-----------
Electronic & Electrical--General (3.3%)
10,313 Schneider SA.............................................. 560,233
-----------
Machinery & Engineering (0.5%)
1,291 Sidel SA.................................................. 85,625
-----------
Oil--Integrated Companies (1.9%)
3,055 Total SA, Class B......................................... 332,625
-----------
Utilities--Water (3.2%)
4,966 Suez Lyonnaise des Eaux................................... 549,773
-----------
2,645,662
-----------
GERMANY (5.5%)
Automotive (1.0%)
300 Volkswagen AG, 50......................................... 167,682
-----------
Chemicals--General (2.3%)
11,915 Hoechst AG................................................ 412,840
-----------
Machinery & Engineering (2.2%)
746 Mannesmann AG............................................. 374,651
-----------
955,173
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
HONG KONG (1.5%)
Real Estate (1.5%)
22,000 Hutchison Whampoa Ltd.................................... $ 137,992
33,000 New World Development Co. Ltd............................ 114,142
-----------
252,134
-----------
ITALY (7.8%)
Automotive (0.0%)
1 Fiat SpA................................................. 3
-----------
Banks (2.0%)
111,127 Credito Italiano SpA (b)................................. 342,873
-----------
Radio & Television (1.7%)
59,018 Mediaset SpA............................................. 290,083
-----------
Rubber & Rubber Products (1.3%)
82,656 Pirelli SpA.............................................. 221,133
-----------
Telecommunications (2.8%)
77,509 Telecom Italia SpA....................................... 495,393
-----------
1,349,485
-----------
JAPAN (21.5%)
Automotive (0.5%)
33,000 Mazda Motor Corp. (b).................................... 78,680
-----------
Automotive Parts (1.3%)
12,000 Denso Corp............................................... 216,888
-----------
Banks (2.6%)
11,000 Mitsubishi Trust & Banking Corp.......................... 110,828
22,000 Sumitomo Bank Ltd........................................ 252,113
18,000 Sumitomo Trust & Banking Corp............................ 93,862
-----------
456,803
-----------
Brokerage Services (1.0%)
13,000 Nomura Securities Co. Ltd................................ 173,972
-----------
Chemicals--General (0.2%)
2,000 Shin-Etsu Chemical Co. Ltd............................... 38,301
-----------
Construction (0.1%)
4,000 Daiwa House Industry Co. Ltd............................. 21,227
-----------
Electronic & Electrical--General (6.8%)
3,000 Murata Manufacturing Co. Ltd............................. 75,680
16,000 Pioneer Electronic Corp.................................. 247,345
2,000 Rohm Co. Ltd............................................. 204,582
</TABLE>
-22-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERNATIONAL FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1997
Continued
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- -------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
JAPAN, CONTINUED:
Electronic & Electrical--General, continued:
7,000 Sony Corp................................... $ 624,515
-----------
1,152,122
-----------
Food Distributors, Supermarkets & Wholesalers
(0.9%)
3,000 Ito-Yokado Co. Ltd.......................... 153,437
-----------
Office Equipment (1.6%)
12,000 Canon, Inc.................................. 280,570
-----------
Real Estate (2.0%)
16,000 Mitsui Fudosan Co. Ltd...................... 155,052
34,000 Sumitomo Realty &
Development Co. Ltd........................ 196,122
-----------
351,174
-----------
Software & Computer Services (2.5%)
8 NTT Data Corp............................... 432,545
-----------
Utilities--Telecommunications (2.0%)
40 Nippon Telegraph &
Telephone Corp............................. 344,559
-----------
3,700,278
-----------
MALAYSIA (0.4%)
Diversified (0.4%)
158,000 Renong Berhad (b)........................... 73,066
-----------
MEXICO (1.3%)
Utilities--Telecommunications (1.3%)
4,130 Telefonos de Mexico SA,
Sponsored ADR, Class L..................... 231,538
-----------
NETHERLANDS (9.9%)
Banks (1.4%)
5,730 ING Groep N.V............................... 241,385
-----------
Electronic & Electrical--General (1.0%)
2,880 Philips Electronics
N.V........................................ 172,752
-----------
Newspapers (3.1%)
18,898 Verenigde Nederlandse
Uitgeversbedrijven
Vererigd Bezit............................. 533,224
-----------
Oil--Integrated Companies (1.9%)
5,976 Royal Dutch Petroleum
Co......................................... 328,098
-----------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
------- --------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
NETHERLANDS, CONTINUED:
Utilities--Telecommunications (2.5%)
10,211 Koninklijke PTT Nederland NV............................. $ 426,124
-----------
1,701,583
-----------
SPAIN (3.6%)
Banks (1.6%)
8,040 Banco Santander SA....................................... 268,500
-----------
Utilities--Telecommunications (2.0%)
12,320 Telefonica de Espana SA.................................. 351,618
-----------
620,118
-----------
SWEDEN (0.3%)
Retail--Specialty Stores (0.3%)
1,200 Hennes & Mauritz AB, Class B............................. 52,934
-----------
SWITZERLAND (9.4%)
Chemical--Specialty (1.1%)
1,568 Ciba Specialty Chemicals AG, REG ........................ 187,057
-----------
Food Processing & Packaging (2.7%)
305 Nestle SA, Registered.................................... 457,745
-----------
Pharmaceuticals (5.6%)
273 Novartis AG, REG......................................... 443,598
54 Roche Holding AG-Genussshein............................. 537,019
-----------
980,617
-----------
1,625,419
-----------
UNITED KINGDOM (15.4%)
Chemicals--General (4.7%)
24,805 BOC Group PLC............................................ 410,795
24,442 Imperial Chemical Industries PLC......................... 382,463
-----------
793,258
-----------
Oil--Integrated Companies (2.0%)
26,672 British Petroleum Co. PLC................................ 351,089
-----------
Pharmaceuticals (2.9%)
20,940 Glaxo Wellcome PLC....................................... 495,459
-----------
Retail (2.6%)
154,239 ASDA Group PLC........................................... 453,641
-----------
</TABLE>
-23-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
INTERNATIONAL FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS, CONTINUED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
UNITED KINGDOM, CONTINUED:
Utilities--Telecommunications (3.2%)
75,981 Vodafone Group PLC..................................... $ 554,461
-----------
2,647,908
-----------
Total Common Stocks (Cost $16,459,144) 16,288,727
-----------
Total Investments (Cost $16,459,144)(a)--94.5% 16,288,727
Other assets in excess of liabilities 5.5% 956,707
-----------
Total Net Assets--100.0% $17,245,434
===========
</TABLE>
- -------
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposed in excess of federal income tax reporting
of approximately $91,294. Cost for federal income tax purposes differs
from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized
appreciation........ $ 1,125,901
Unrealized
depreciation........ (1,387,612)
-----------
Net unrealized
depreciation........ $ (261,711)
===========
</TABLE>
(b) Represents non-income producing securities.
ADR American Depository Receipt
PLC Public Liability Co.
FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
CURRENT
VALUE
CONTRACT IN U.S. APPRECIATION/
PRICE DOLLARS DEPRECIATION DELIVERY DATE
--------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Currency Sold:
British Pound............ $ 0.6029 $ 39,573 $ (317) January 7, 1998
British Pound............ 0.6066 24,545 (46) January 8, 1998
Netherlands Guilder...... 1.9992 2,646 (36) January 2, 1998
Netherlands Guilder...... 2.0135 4,966 (34) January 5, 1998
Netherlands Guilder...... 2.0150 4,472 (27) January 6, 1998
Swiss Franc.............. 1.4525 202,422 (840) January 6, 1998
--------
Net payable for foreign
currency contracts sold... $ (1,300)
========
Currency Purchased:
German Mark.............. 1.7620 834,279 13,613 March 18, 1998
Japanese Yen............. 125.6000 796,178 25,179 February 25, 1998
Japanese
Yen.... 125.8140 1,017,375 30,495 February 25, 1998
--------
Net receivable for
foreign currency
contracts purchased... $69,287
========
</TABLE>
See notes to financial statements.
-24-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION:
The MMA Praxis Mutual Funds (the "Company") is an open-end management
investment company established as a Delaware business trust under a
Declaration of Trust dated September 27, 1993, as amended and restated
December 1, 1993, and is registered under the Investment Company Act of
1940, as amended (the "1940 Act"). The Company currently consists of the
Intermediate Income Fund, the Growth Fund, and the International Fund
(individually a "Fund", collectively "the Funds"). The Intermediate Income
Fund and the Growth Fund commenced operations January 4, 1994 and the
International Fund commenced operations April 1, 1997. Between the date of
organization and the date of commencement of operations the Funds had no
operations other than those relating to organizational matters, including
the issuance on December 28, 1993 of 5,000 shares of the Intermediate Income
Fund and 5,000 shares of the Growth Fund at $10.00 per share, also the
issuance on April 1, 1997 of 5,000 shares of the International Fund at
$10.00 per share to the Mennonite Mutual Aid Association.
The investment objective of the Intermediate Income Fund is to seek current
income. Under normal market conditions, the Fund will invest substantially
all, but in no event less than 65% of its total assets in fixed income
securities. The investment objective of the Growth Fund is to seek capital
appreciation. The Fund invests primarily in undervalued securities of medium
to large capitalization companies. The investment objective of the
International Fund is capital appreciation. Current income is a secondary
objective. This Fund will invest at least 65% of the value of its total
assets in equity securities of foreign companies.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Company in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION:
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal bonds, U.S. Government securities and securities of U.S.
Government agencies of the Funds are valued at their market values
determined on the basis of the latest available bid prices in the
principal market (closing sales prices if the principal market is an
exchange) in which such securities are normally traded. Investments in
investment companies are valued at their respective net asset values as
reported by such companies. The differences between the cost and market
values of investments are reflected as either unrealized appreciation or
depreciation. The Funds use various independent pricing services to value
most of their investments. If market quotations are not available, the
securities will be valued by a method which the Board of Trustees believes
accurately reflects fair value.
Continued
-25-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
SECURITIES TRANSACTIONS AND RELATED INCOME:
Security transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the pro rata amortization of
premium or accretion of discount. Dividend income is recorded on the ex-
dividend date. Gains or losses realized on sales of securities are
determined by comparing the identified cost of the security lot sold with
the net sales proceeds.
FOREIGN CURRENCY TRANSLATION:
The market value of investment securities, other assets and liabilities of
the International Fund denominated in foreign currencies are translated
into U.S. dollars at the current exchange rate at the close of each
business day. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars based at the exchange
rate on the date of the transaction.
The International Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
and maturities of short-term securities, sales of foreign currencies,
currency gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the
International Fund's books, and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities including
investments in securities at fiscal year end, resulting from changes in
the exchange rate.
FORWARD FOREIGN CURRENCY CONTRACTS:
The International Fund may enter into forward foreign currency exchange
contracts for the purchase or sale of specific foreign currencies at a
fixed price on a future date. Risks may arise upon entering these
contracts for the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The International Fund will
enter into forward contracts as a hedge against specific transactions or
portfolio positions to protect against adverse currency movements. The
forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date, at which time the International Fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
Continued
-26-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from member banks of the
Federal Deposit Insurance Corporation and from registered broker-dealers
which the adviser deems creditworthy under guidelines approved by the
Board of Trustees, subject to the seller's agreement to repurchase such
securities at a mutually agreed-upon date and price. The repurchase price
generally equals 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. The seller, under a repurchase
agreement, is required to maintain the value of collateral held pursuant
to the agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Company's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system.
OPTIONS TRANSACTIONS:
When a Fund writes a covered call or put option, an amount equal to the
premium received is included in the Fund's statement of assets and
liabilities as a liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option. If an
option expires on its stipulated expiration date or if the Fund enters
into a closing purchase transaction, a gain or loss is realized. If a
written call option is exercised, a gain or loss is realized for the sale
of the underlying security and the proceeds from the sale are increased by
the premium originally received. If a written put option is exercised, the
cost of the security acquired is decreased by the premium originally
received.
When a Fund purchases a call or put option, an amount equal to the premium
paid is included in the Fund's statement of assets and liabilities as an
investment, and is subsequently marked-to-market to reflect the current
market value of the option. If an option expires on the stipulated
expiration date or if the Fund enters into a closing sale transaction, a
gain or loss is realized. If the Fund exercises a call option, the cost of
the security acquired is increased by the premium paid for the call. If
the Fund exercises a put option, a gain or loss is realized from the sale
of the underlying security, and the proceeds from such sale are decreased
by the premium originally paid. Written and purchased options are non-
income producing securities. The options techniques utilized are to hedge
against fluctuations in the value of securities which the Funds hold or
intend to purchase. As of December 31, 1997, the Funds had no options
outstanding.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid monthly for the
Intermediate Income Fund and declared and paid quarterly for the Growth
Fund. Dividends from net investment income are declared and paid twice a
year for the International Fund. Distributable net realized capital gains,
if any, are declared and distributed at least annually.
Dividends from net investment income and from net realized capital gains
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments of mortgage-backed securities,
expiring capital loss carry-forwards and deferrals of certain losses.
Continued
-27-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
FEDERAL INCOME TAXES:
It is the policy of each Fund to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or substantially
all, Federal income taxes.
ORGANIZATION COSTS:
Costs incurred by the Company in connection with its organization and
registration of shares have been deferred and are amortized using the
straight-line method over a period of five years from the commencement of
the public offering of shares of the Funds. In the event that any of the
initial shares of the Funds are redeemed during the amortization period by
any holder thereof, the redemption proceeds will be reduced by any
unamortized organizational expenses of the Company in the same proportion
as the number of said shares of the Fund being redeemed bears to the
number of initial shares of that Fund that are outstanding at time of
redemption.
OTHER:
Each Fund maintains a cash balance with its custodian and receives a
reduction of their custody fees and expenses for the amounts of interest
earned on such uninvested cash balance. For financial reporting purposes
for the year ended December 31, 1997, custodian fees and expenses paid by
third parties were increased by $4,219 and $5,385 for the Intermediate
Income Fund and the Growth Fund, respectively. There was no effect on net
investment income. The Funds could have invested such cash amounts in an
income producing asset if they had not agreed to a reduction of fees or
expenses under the expense offset arrangement with their custodian.
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Company are
prorated to the Funds on the basis of relative net assets.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Intermediate Income Fund.............................. $20,476,662 $17,313,785
Growth Fund........................................... $69,245,486 $41,084,830
International Fund (a)................................ $22,105,960 $5,481,365
</TABLE>
-------
(a) For the period from April 1, 1997 (commencement of operations) through
December 31, 1997.
Continued
-28-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
4. RELATED PARTY TRANSACTIONS:
Menno Insurance Service, Inc. doing business as MMA Capital Management, (the
"Adviser") (a separate corporate entity controlled by Mennonite Mutual Aid,
Inc.), provides investment advisory services to the Company. Under the terms
of the investment advisory agreement, the Adviser is entitled to receive
fees based on a percentage of the average daily net assets of each of the
Funds. Oechsle International Advisors, L.P., Boston, Massachusetts serves as
the sub-adviser to the International Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio limited partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") are subsidiaries of the BISYS Group, Inc.
BISYS serves the Company as administrator. Under the terms of the
administration agreement, BISYS receives fees that are computed daily at an
annual rate of fifteen one-hundredths of one percent (.15%) of a Fund's
average 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 funds daily net assets.
BISYS also serves as Fund distributor. BISYS receives fees for providing
distribution services under the Distribution Service Plan (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act. Under the Plan, each Fund pays BISYS
a fee not to exceed, on an annual basis, 1.00% of the average daily net
asset value of each Fund for payments made to banks, broker/dealers and
other institutions, including affiliates of the Adviser, and for expenses
BISYS and any of its affiliates or subsidiaries incur for providing
distribution or shareholder service assistance. Under the Plan, BISYS pays
95% of these fees to the Adviser. For the year ended December 31, 1997, the
Distributor received approximately $937,958 from commissions earned on sales
of shares of the Funds, a portion of which the Distributor reallowed to
dealers of the Funds' shares.
Pursuant to a Shareholder Servicing Agreement, BISYS provides administrative
services to shareholders for which it receives a fee based on a percentage
of the average daily net assets of each Fund.
BISYS Ohio serves each Fund as transfer agent and fund accountant. For
transfer agent services, BISYS Ohio is entitled to receive fees based upon
the number of shareholders with specified minimum per fund. For fund
accounting services, BISYS Ohio is entitled to receive fees based on a
percentage of the average daily net assets of each Fund. In addition, BISYS
Ohio is reimbursed for certain out-of-pocket expenses incurred in providing
such transfer agency and fund accounting services.
Certain officers of the Company are affiliated with BISYS and/or MMA Capital
Management, Inc. Such officers are not paid any fees directly by the Funds
for serving as officers of the Company.
Continued
-29-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
Certain redemptions of shares made within 5 years of purchase are subject to
contingent deferred sales charges ("CDSCs"). The applicable CDSC is equal to
a percentage of the lesser of the net asset value per share ("NAV") at the
date of the original purchase or at the date of redemption. The sales charge
will not be imposed on increases above the NAV at the time of purchase or
shares purchased through the reinvestment of dividends from net investment
income or capital gains. For the year ended December 31, 1997, neither the
Adviser nor BISYS have received any money from commissions earned on sales
of shares of the Funds.
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CDSC
------------------ -----
<S> <C>
First 4.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth and up 0.00%
</TABLE>
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios.
Information regarding these transactions are as follows for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
INTERMEDIATE
INCOME GROWTH INTERNATIONAL
FUND FUND FUND
------------ -------- -------------
<S> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions
(percentage of average net assets)...... 0.50% 0.74% 0.90%
Voluntary fee reductions................. $ 97,536 -- $36,203*
ADMINISTRATION FEES:
Annual fee (percentage of average net 0.15% or 0.10% 0.15% or
assets)................................. $50,000 $50,000
Minimum Minimum
Voluntary fee reduction.................. -- -- --
12B-1 FEES:
Annual fee before voluntary fee
reductions
(percentage of average net assets)...... 1.00% 1.00% 1.00%
Voluntary fee reductions................. $287,430 $578,532 $86,168*
SHAREHOLDER SERVICE FEES:
Annual fee before voluntary fee
reductions
(percentage of average net assets)...... 0.25% 0.25% 0.25%
Voluntary fee reductions................. $ 69,566 $189,977 $20,861*
EXPENSES REIMBURSED BY INVESTMENT
ADVISER:................................ -- -- $64,012*
FUND ACCOUNTING AND TRANSFER AGENT FEES:. $118,914 $280,367 $68,294*
</TABLE>
-------
* For the period from April 1, 1997 (commencement of operations) through
December 31, 1997.
Continued
-30-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
For the taxable year ended December 31, 1997, the following percentage on
income dividends paid by the following fund qualifies for the dividends
received deduction available to corporations:
<TABLE>
<CAPTION>
QUALIFIED
DIVIDEND
INCOME
-------------
<S> <C>
Growth Fund..................................................... 28.17%
During the year ended December 31, 1997, the following Fund paid mid-term
and long-term capital gain distributions in the following amounts:
<CAPTION>
MID-TERM LONG-TERM TOTAL
28% 20% DISTRIBUTIONS
---------- ---------- -------------
<S> <C> <C> <C>
Growth Fund............................... $3,198,134 $3,828,271 $7,026,405
</TABLE>
As of December 31, 1997, for Federal income tax purposes, the following fund
has a capital loss carryforward available to offset future capital gains, if
any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
-------- -------
<S> <C> <C>
Intermediate Income Fund..................................... $283,954 2003
</TABLE>
Capital losses incurred after October 31 within the Fund's fiscal year may
be deferred and treated as occurring on the first day of the following
fiscal year. The following deferred losses will be treated as arising on the
first day of the fiscal year ending December 31, 1998:
<TABLE>
<S> <C>
International Fund................................................... $191,576
</TABLE>
-31-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE INCOME FUND
-----------------------------------------------------
YEAR YEAR YEAR JANUARY 4,
ENDED ENDED ENDED 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 (A)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...... $ 9.84 $ 10.17 $ 9.14 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income... 0.55 0.54 0.53 0.45
Net realized and
unrealized gains
(losses) from
investments............ 0.17 (0.33) 1.03 (0.86)
------- ------- ------- -------
Total from Investment
Activities............... 0.72 0.21 1.56 (0.41)
------- ------- ------- -------
Distributions
Net investment income... (0.55) (0.54) (0.53) (0.45)
Net realized gains...... -- -- -- --
------- ------- ------- -------
Total Distributions...... (0.55) (0.54) (0.53) (0.45)
------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................... $ 10.01 $ 9.84 $ 10.17 $ 9.14
======= ======= ======= =======
Total Return (excludes
redemption charge)....... 7.60% 2.22% 17.47% (4.09)%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)............ $33,339 $27,568 $23,470 $17,849
Ratio of expenses to
average net assets...... 1.10% 1.10% 1.10% 1.10%(c)
Ratio of net investment
income to average net
assets.................. 5.65% 5.50% 5.49% 4.96%(c)
Ratio of expenses to
average net assets*..... 2.62%** 2.52%** 2.64% 2.83%(c)
Ratio of net investment
income (loss)
to average net assets*. 4.15% 4.15% 3.95% 3.23%(c)
Portfolio Turnover...... 60.05% 30.25% 31.57% 4.95%
</TABLE>
- -------
* During the period certain expenses were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** During the years ended December 31, 1996 and 1997, the Fund received
credits from its custodian for interest earned on uninvested cash balances
which were used to offset custodian fees. If such credits had not occurred,
the expense ratio would have been as indicated.
(a)Period from commencement of operations.
(b)Not annualized.
(c)Annualized.
See notes to financial statements.
-32-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH FUND
-----------------------------------------------------
YEAR YEAR YEAR JANUARY 4,
ENDED ENDED ENDED 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 (A)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 13.57 $ 12.07 $ 9.74 $ 10.00
-------- ------- ------- -------
Investment Activities
Net investment income.. 0.04 0.07 0.10 0.09
Net realized and
unrealized gains
(losses) from
investments........... 3.86 1.85 3.12 (0.07)
-------- ------- ------- -------
Total from Investment
Activities.............. 3.90 1.92 3.22 0.02
-------- ------- ------- -------
Distributions
Net investment income.. (0.04) (0.07) (0.10) (0.09)
Net realized gains..... (1.71) (0.35) (0.79) (0.19)
-------- ------- ------- -------
Total Distributions..... (1.75) (0.42) (0.89) (0.28)
-------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD.................. $ 15.72 $ 13.57 $ 12.07 $ 9.74
======== ======= ======= =======
Total Return (excludes
redemption charge)...... 29.15% 15.87% 33.32% 0.27%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net Assets at end of
period (000)........... $104,309 $58,907 $30,906 $18,009
Ratio of expenses to
average net assets..... 1.72% 1.74% 1.75% 1.75%(c)
Ratio of net investment
income to average net
assets................. 0.22% 0.61% 0.90% 1.02%(c)
Ratio of expenses to
average net assets*.... 2.66%** 2.55%** 2.81% 3.25%(c)
Ratio of net investment
income (loss)
to average net
assets*............... (0.71%) (0.17%) (0.16)% (0.48)%(c)
Portfolio Turnover..... 53.26% 33.98% 48.91% 35.22%
Average commission rate
paid (d)............... $0.1009 0.1038
</TABLE>
- -------
* During the period certain expenses were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** During the years ended December 31, 1996 and 1997, the Fund received
credits from its custodian for interest earned on uninvested cash balances
which were used to offset custodian fees. If such credits had not occurred,
the expense ratio would have been as indicated.
(a)Period from commencement of operations.
(b)Not annualized.
(c)Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged. Not required for prior periods.
See notes to financial statements.
-33-
<PAGE>
MMA PRAXIS MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERNATIONAL FUND
------------------
APRIL 1, 1997
THROUGH
DECEMBER 31,
1997 (A)
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
-------
Investment Activities
Net investment income (loss)............................... (0.05)
Net realized and unrealized gains (losses) from
investments................................................ 0.69
-------
Total from Investment Activities............................ 0.64
-------
Distributions
In excess of net realized gains............................ (0.02)
-------
Total Distributions......................................... (0.02)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.62
=======
Total Return (excludes redemption charge)................... 6.40%(b)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000).......................... $17,245
Ratio of expenses to average net assets.................... 2.00%(c)
Ratio of net investment income (loss) to average net
assets..................................................... (0.93%)(c)
Ratio of expenses to average net assets*................... 4.29%(c)
Ratio of net investment income (loss) to average net
assets*.................................................... (3.21%)(c)
Portfolio Turnover......................................... 51.46%
Average commission rate paid (d)........................... $0.0280
</TABLE>
- -------
* During the period certain expenses were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
See notes to financial statements.
-34-
<PAGE>
Annual Report
INVESTMENT ADVISER FOR THE YEAR ENDED DECEMBER 31, 1997
MMA Capital
Management
Post Office Box 483
Goshen, Indiana
46527
MMA Praxis Mutual Funds
INTERMEDIATE INCOME FUND
INVESTMENT SUB- GROWTH FUND
ADVISER INTERNATIONAL FUND
(INTERNATIONAL FUND LOGO
ONLY) FOR MMA PRAXIS APPEARS HERE
Oechsle International
Advisers, L.P.
This report is for the
One International information of shareholders
Place of MMA Praxis Mutual Funds,
Boston, but it may also be used as
Massachusetts 02110 sales literature when
preceded or accompanied by
the current prospectus,
which gives details about
charges, expenses,
investment objectives, and
operating policies of the
Funds. Read the prospectus
carefully before investing
or sending money.
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
LOGO
FOR RECYCLED PAPER APPEARS HERE
LOGO
FOR SOY INK APPEARS HERE
