PROSPECTUS DATED MAY 21, 1999
PAX WORLD GROWTH FUND, INC.
A LOW-LOAD GROWTH FUND
222 STATE STREET, PORTSMOUTH, NH 03801-3853
FOR SHAREHOLDER ACCOUNT INFORMATION: 800-372-7827
PORTSMOUTH, NH OFFICE: 800-767-1729 / 603-431-8022
WEBSITE: HTTP://WWW.PAXFUND.COM
Pax World Growth Fund, Inc. (the "Fund") is a mutual fund that seeks to
make a contribution to world peace by investing in companies that produce goods
and services that improve the quality of life and that are not, to any degree,
engaged in manufacturing defense or weapons-related products. Thus, the Fund has
adopted the name Pax World to denote this endeavor. In addition, the Fund seeks
to provide its shareholders with a diversified holding of securities of
companies which offer primarily long-term growth of capital. Current income, if
any, is incidental.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Investors are
advised to read this Prospectus and retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Page
RISK / RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE.................... 3
What is the Fund's Investment Objective / Goal?......................... 3
What are the Principal Investment Strategies of the Fund?............... 3
What are the Principal Risks of Investing in the Fund?.................. 4
Risk / Return Bar Chart and Table....................................... 5
RISK / RETURN SUMMARY: FEE TABLE............................................. 6
FINANCIAL HIGHLIGHTS......................................................... 7
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS............................................................ 9
Investment Objectives................................................... 9
Principal Investment Strategies......................................... 9
Hedging and Return Enhancement Strategies...............................10
Option Transactions.................................................10
Related Risks...........................................................11
Borrowing for Leverage..............................................11
Convertible Securities..............................................11
Corporate and Other Debt Securities.................................12
Foreign Securities..................................................12
Portfolio Turnover..................................................13
Repurchase Agreements...............................................13
When-Issued and Delayed Delivery Securities.........................13
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
OF THE FUND..................................................................14
Incorporation...........................................................14
Description of Common Stock.............................................14
Officers and Directors..................................................14
Adviser; Sub-Adviser....................................................14
Distribution............................................................16
Custodian and Transfer and Dividend Disbursing Agent....................17
Shareholder Meetings....................................................17
HOW THE FUND VALUES ITS SHARES...............................................17
SHAREHOLDER GUIDE............................................................18
How to Purchase Shares..................................................18
In General..........................................................18
Investing by Mail...................................................19
Investing by Telephone..............................................19
Investing by Wire Transfer..........................................19
Waiver of Sales Charge..............................................20
How to Sell Your Shares.................................................20
In General..........................................................20
Redemptions by Written Request......................................21
Redemptions by Telephone............................................21
Involuntary Redemptions.............................................22
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How to Exchange Your Shares.............................................22
In General..........................................................22
Exchanges by Mail...................................................22
Exchanges by Telephone..............................................22
TAXES, DIVIDENDS AND DISTRIBUTIONS...........................................23
Taxation of the Fund....................................................23
Taxation of Shareholders................................................23
Withholding Taxes.......................................................23
Dividends and Distributions.............................................24
SHAREHOLDER SERVICES.........................................................24
Automatic Reinvestment of Dividends and/or Distributions
Without a Sales Charge .............................................24
Automatic Investment Plan...............................................24
Tax-Deferred Retirement Plans...........................................24
Systematic Withdrawal Plan..............................................25
Reports to Shareholders.................................................25
Shareholder Inquiries...................................................25
THE PAX WORLD FUND FAMILY....................................................25
ADDITIONAL INFORMATION.......................................................25
RISK / RETURN SUMMARY: INVESTMENTS,
RISKS AND PERFORMANCE
WHAT IS THE FUND'S INVESTMENT OBJECTIVE / GOAL?
The Fund's investment objective is to provide its shareholders with a
diversified holding of securities of companies which offer primarily long-term
growth of capital. Current income, if any, is incidental.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE FUND?
The Fund seeks to achieve this objective by investing primarily in
equity securities (common stock, preferred stock and securities convertible into
common stock). Under normal market conditions, the Fund anticipates that at
least seventy-five percent (75%) of its total assets will consist of equity
securities of companies that exceed $200,000,000 in market capitalization. The
Fund may also invest in (i) other equity-related securities, including
convertible securities, (ii) equity securities of foreign issuers, and (iii)
corporate and other debt securities, including investment grade fixed-income
securities of generally short- average maturity and high-average credit quality.
In addition, the Fund may borrow up to twenty percent (20%) of the value of its
total assets (calculated when the loan is made) for temporary, extraordinary or
emergency purposes. The Fund will not invest in obligations issued or guaranteed
by foreign governments or the U.S. Treasury, however, because the proceeds
thereof may be used to manufacture defense or weapons-related products or for a
purpose which does not otherwise comply with the Fund's socially conscious
objectives and policies. In addition, the policy of the Fund is to exclude from
its portfolio securities of (i) companies engaged in military activities, (ii)
companies appearing on
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the United States Department of Defense list of 100 largest contractors (a copy
of which may be obtained from the Office of the Secretary, Department of
Defense, Washington, D.C. 20301) if five percent (5%) or more of the gross sales
of such companies are derived from contracts with the United States Department
of Defense, (iii) other companies contracting with the United States Department
of Defense if five percent (5%) or more of the gross sales of such companies are
derived from contracts with the United States Department of Defense, and (iv)
companies which derive revenue from the manufacture of liquor, tobacco and/or
gambling products.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
The principal risks of investing in the Fund are (i) price volatility,
(ii) credit risk, (iii) interest rate risk, (iv) risks associated with foreign
security investments, (v) leverage risk, (vi) risks associated with socially
responsible investing and (vii) management risk.
- Price volatility refers to the fact that securities values
tend to fluctuate in response to activities specific to the
company as well as general market, economic and political
conditions. These values can fluctuate widely.
- Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and/or repay
the principal on its debt.
- Interest rate risk refers to fluctuations in the value of a
fixed-income security, including corporate and other debt
instruments, resulting from changes in interest rates. In
general, if interest rates rise, fixed-income security prices
fall; and if interest rates fall, fixed-income security prices
rise. Interest rate risk is generally greater for fixed-income
securities with longer durations.
- The Fund's investments in foreign securities may subject the
Fund to the risks of political or economic instability in the
country of the issuer, the possibility of imposition of
exchange controls and the risk of currency fluctuations. In
addition, securities denominated in a foreign currency will be
affected by changes in currency exchange rates and in exchange
control regulations, and costs may be incurred by the Fund in
connection with conversions between currencies.
- Leverage risk refers to the risk that the Fund may have to
sell a portion of its investments at a time when it would
otherwise not want to sell such investments in order to comply
with the capital coverage requirements of the Investment
Company Act of 1940, as amended (the "Investment Company
Act"), which require the value of the Fund's assets, less its
liabilities other than borrowings, to be equal to at least
three hundred percent (300%) of all borrowings including the
proposed borrowing. In addition, because interest on money the
Fund borrows is an expense of the Fund, the Fund's expenses
may increase more than the expenses of mutual funds that do
not borrow and the net asset value or "NAV" per share of the
Fund may fluctuate more than the NAV of mutual funds that do
not borrow.
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- The Fund's socially conscious objectives may limit the
availability of investment opportunities more than is
customary with other mutual funds. Pax World Management Corp.
(the "Adviser") believes, however, that there are sufficient
investment opportunities among companies that meet the Fund's
socially conscious objective to permit full investment in
securities, if the Adviser believes it is desirable.
- The Adviser strives to anticipate market movements and the
risks described above and actively manages the Fund based upon
its judgment. Management risk, which exists in varying amounts
in most mutual funds, refers to the possibility that the
Adviser may fail to anticipate these movements or risks, or to
execute the Fund's strategy effectively.
Investors should understand that all investments involve risk and there
can be no guarantee against loss resulting from an investment in the Fund, nor
can there be any assurance that the Fund's investment objective will be
attained.
The information set forth in the bar chart and table below provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from period to period and by showing how the Fund's average
annual returns for 1 year and life-of-fund compare with the Russell Midcap
Index, a broad measure of market performance. Past performance is not
necessarily an indication of how the Fund will perform in the future.
[The following is represented as a Bar Chart in the original typeset piece.]
[RISK / RETURN BAR CHART]*
11.30% 15.22%
6-9-97 to 12-31-97 1998
(cumulative)
HIGHEST & LOWEST RETURN QUARTER - SINCE INCEPTION*
4th quarter 1998: 25.76%
3rd quarter 1998: -14.82%
*THE FUND'S FRONT-END SALES LOAD IS NOT REFLECTED IN THE BAR CHART AND
RETURN QUARTER TABLE ABOVE. IF THIS AMOUNT WERE REFLECTED, RETURNS WOULD BE LESS
THAN THOSE SHOWN.
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RISK/RETURN TABLE, AS OF 12/31/98**
PAX WORLD GROWTH FUND** RUSSELL MIDCAP INDEX
1 year 12.31% 10.09%
6-9-97 to 12-31-98 (average) 5.38% 13.44%
**THE 2.5% FRONT-END SALES LOAD IS DEDUCTED FROM THE FUND'S RETURN
FIGURES IN THE RISK/RETURN TABLE ABOVE.
RISK / RETURN SUMMARY: FEE TABLE
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)(1):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)..............2.5%
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, as applicable)................0%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and Other Distributions
(as a percentage of offering price)................0%
Redemption Fees (as a percentage of amount redeemed,
if applicable).....................................0%
Exchange Fees (as a percentage of average net assets).......0%
ANNUAL FUND NET OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) AS OF DECEMBER 31, 1998 (expenses that are deducted from Fund
assets)(2):
Management Fee..............................................0%
Distribution and/or Service (12b-1) Fees.................0.25%
Other Expenses...........................................1.37%
Total Annual Fund Net Operating Expenses(2).......................1.62%
(1) Pursuant to the rules of the National Association of Securities
Dealers, Inc., the aggregate initial sales charges, deferred sales charges and
asset-based sales charges on shares of the Fund may not exceed 6.25% of total
gross sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Fund rather than on a per shareholder basis.
(2) Total expenses, net of expenses assumed by the Adviser.
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EXAMPLE
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$162.00 $502.21
As noted in the table, the Fund does not charge any redemption fee. You
would, therefore, pay the same expenses if you did not redeem your shares.
In addition, the Fund does not charge sales fees (loads) on reinvested
dividends and other distributions and, therefore, the Example does not reflect
sales charges (loads) on reinvested dividends and other distributions.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear, whether
directly or indirectly. "Other Expenses" include operating expenses of the Fund,
such as directors' and professional fees, registration fees, reports to
shareholders, transfer agency and custodian fees, and is based on amounts
incurred for the year ended December 31, 1998.
FINANCIAL HIGHLIGHTS
The following Financial Highlights Table is intended to help you
understand the Fund's financial performance for the past year and the period
June 9, 1997 (the date operations commenced) to December 31, 1997. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned (or lost)
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Pannell Kerr Forster PC,
whose report, along with the Fund's financial statements, are included in the
Statement of Additional Information, a copy of which is available without charge
upon request by writing to the Fund at 222 State Street, Portsmouth, NH
03801-3853 or by telephoning 800-767-1729 (toll-free).
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The following per share data, ratios and supplemental data have been
derived from information provided in the financial statements and the Fund's
underlying financial records.
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE PERIOD IN NET
ASSET VALUE (BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Period June 9, 1997
(the date operations
Year Ended commenced) to
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period....................... $ 9.66 $10.00
------ ------
Gain (loss) from investment operations
Investment (loss), net........................... (.04) (.01)
Realized and unrealized gain (loss) on
investments, net........................... 1.51 (.33)
---- ----
Gain (loss) from investment operations................ 1.47 (.34)
---- ----
Net asset value, end of period............................. $11.13 $9.66
------ -----
2. TOTAL RETURN........................................... 15.22% (3.40)%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net
assets (A)(B)..................................... 1.62% 1.49%
Ratio of investment (loss), net, to average net
assets (A)........................................ (.61)% (.56)%
Portfolio turnover rate............................... 96.72% 50.79%
Net assets, end of period ('000s)..................... $12,372 $4,605
Number of capital shares outstanding, end
of period ('000s)................................. 1,112 477
</TABLE>
(A) These ratios for the period ended December 31, 1997 have been annualized.
(B) Total expenses, net of expenses assumed by the Adviser.
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVES
The Fund's investment objective is to provide its shareholders a
diversified holding of securities of companies which offer primarily long-term
growth of capital. Current income, if any, is incidental.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its objective by investing primarily in
equity securities (common stock, preferred stock and securities convertible into
common stock) of established companies with above-average growth prospects. The
Fund may also invest in (i) other equity-related securities, including
convertible securities, (ii) equity securities of foreign issuers and (iii)
corporate and other debt securities, including investment grade fixed-income
securities of generally short-average maturity and high-average credit quality.
The Fund will not invest in obligations issued or guaranteed by foreign
government treasuries or the U.S. Treasury, however, because the proceeds
thereof may be used to manufacture defense or weapons-related products or for a
purpose which does not otherwise comply with the Fund's socially conscious
objectives and policies.
Under normal market conditions, the Fund intends to invest at least
seventy-five percent (75%) of its total assets in equity securities of companies
that exceed $200,000,000 in market capitalization. Stocks will be selected on a
company-by-company basis primarily through the use of fundamental analysis. The
Fund's Adviser looks for companies that have demonstrated growth in earnings and
sales, high returns on equity and assets, or other strong financial
characteristics, and which are, in the judgment of the Adviser, attractively
valued. These companies tend to have a unique market niche, a strong new product
profile or superior management.
The Fund may also invest in equity securities of other companies that
are undergoing changes in management or product and marketing dynamics that have
not yet been reflected in reported earnings but that are expected to impact
earnings in the intermediate-term - these securities often lack investor
recognition and are often favorably valued.
In addition, the Fund reserves the right to hold temporarily other
types of securities, including commercial paper, bankers' acceptances,
non-convertible debt securities (corporate) or government securities and high
quality money market securities or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of the Adviser, prevailing
market, economic or political conditions warrant. The Fund may also temporarily
hold cash and invest in high quality foreign or domestic money market
instruments pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs.
Consistent with its social criteria, the Fund will seek investments in
companies that produce goods and services that improve the quality of life and
are not to any degree engaged in manufacturing defense or weapons-related
products. By way of illustration, the Fund will invest in such industries as
building supplies, computer software, education, food, health care, household
appliances, housing, leisure time, pollution control, publishing, retail,
technology and telecommunications, among others. The Fund will endeavor (but is
not required) to invest in companies which have adopted and administer fair
employment and pollution control policies to the extent information reflecting
such policies and administrative practices is available to the Fund.
The policy of the Fund is to exclude from its portfolio securities of
(i) companies engaged in military activities, (ii) companies appearing on the
United States Department of Defense list of 100 largest contractors if five
percent (5%) or more of the gross sales of such companies are derived from
contracts with the United States Department of Defense, (iii) other companies
contracting with the
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United States Department of Defense if five percent (5%) or more of the gross
sales of such companies are derived from contracts with the United States
Department of Defense, and (iv) companies which derive revenue from the
manufacture of liquor, tobacco and/or gambling products.
In order to properly supervise a securities portfolio containing the
limitations described above, care must be exercised to continuously monitor
developments of the companies whose securities are included in the portfolio.
Developments and trends in the economy and financial markets are also
considered, and the screening of many securities is required to implement the
investment philosophy of the Fund.
If it is determined after the initial purchase by the Fund that the
company's activities fall within the exclusion described above (either by
acquisition, merger or otherwise), the securities of such company will be
eliminated from the portfolio as soon thereafter as possible taking into
consideration (i) any gain or loss which may be realized from such elimination,
(ii) the tax implications of such elimination, (iii) market timing, and the
like. In no event, however, will such security be retained longer than six (6)
months from the time the Fund learns of the investment disqualification. This
requirement may cause the Fund to dispose of the security at a time when it may
be disadvantageous to do so.
In addition, the Fund is subject to certain investment restrictions
which, like its investment objective, constitute fundamental policies.
Fundamental policies cannot be changed without the approval of a majority of the
Fund's outstanding voting securities (which is defined as the vote at a special
or annual meeting of the shareholders of the Fund, duly called, (i) of
sixty-seven percent (67%) of the voting securities present at such meeting if
the holders of more than fifty percent (50%) of the outstanding voting
securities are present or represented by proxy, or (ii) of more than fifty
percent (50%) of the outstanding voting securities, whichever is less).
Investment policies that are not fundamental may be modified by the Board of
Directors of the Fund.
HEDGING AND RETURN ENHANCEMENT STRATEGIES
The Fund may also engage in various portfolio strategies to reduce
certain risks of its investments and to attempt to enhance return. These
strategies currently include the use of options, futures contracts and options
thereon. The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed. New financial products and
risk management techniques continue to be developed and the Fund may use these
new products and techniques to the extent consistent with its investment
objective and policies.
OPTION TRANSACTIONS
The Fund may purchase and write (i.e., sell) put and call options on
securities, stock indices and currencies that are traded on U.S. or foreign
securities exchanges or in the over-the-counter market to enhance return or to
hedge the Fund's portfolio. These options may be on equity securities, stock
indices (e.g., S&P 500) and foreign currencies. The Fund may write covered put
and call options to generate additional income through the receipt of premiums,
purchase put options in an effort to protect the value of securities (or
currencies) that it owns against a decline in market value and purchase call
options in an effort to protect against an increase in the price of securities
(or currencies) it intends to purchase. The Fund may also purchase put and call
options to offset previously written put and call options of the same series.
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A call option gives the purchaser, in exchange for a premium paid, the
right, for a specified period of time, to purchase the securities or currency
subject to the option at a specified price (the exercise price or strike price).
The writer of a call option, in return for the premium, has the obligation, upon
exercise of the option, to deliver, depending upon the terms of the option
contract, the underlying securities or a specified amount of cash to the
purchaser upon receipt of the exercise price. When the Fund writes a call
option, the Fund gives up the potential for gain on the underlying securities or
currency in excess of the exercise price of the option during the period that
the option is open.
A put option gives the purchaser, in return for a premium, the right,
for a specified period of time, to sell the securities or currency subject to
the option to the writer of the put at the specified exercise price. The writer
of the put option, in return for the premium, has the obligation, upon exercise
of the option, to acquire the securities or currency underlying the option at
the exercise price. The Fund might, therefore, be obligated to purchase the
underlying securities or currency for more than their current market price.
The Fund will write only "covered" options. An option is covered if the
Fund owns, while obligated under the option, an offsetting position in the
underlying security or currency or maintains cash, U.S. Government securities or
other liquid high-grade debt obligations with a value sufficient at all times to
cover its obligations in a segregated account.
RELATED RISKS
BORROWING FOR LEVERAGE
From time to time, the Fund may borrow up to twenty percent (20%) of
the value of its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes or for the clearance of transactions. The
Fund may pledge up to twenty percent (20%) of the value of its total assets to
secure such borrowings. Such borrowings may subject the Fund to greater risks
and costs than mutual funds that do not borrow. For example, the Fund may have
to sell a portion of its investments at a time when it would otherwise not want
to sell such investments in order to comply with the capital coverage
requirements of the Investment Company Act, which require the value of the
Fund's assets, less its liabilities other than borrowings, to be equal to at
least three hundred percent (300%) of all borrowings including the proposed
borrowing. In addition, because interest on money the Fund borrows is an expense
of the Fund, the Fund's expenses may increase more than the expenses of mutual
funds that do not borrow and the NAV per share of the Fund may fluctuate more
than the NAV per share of mutual funds that do not borrow.
CONVERTIBLE SECURITIES
A convertible security can be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance in
the convertible security's underlying common stock.
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In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
common stock). The price of a convertible security is influenced, in part, by
the market value of the security's underlying stock. The price of a convertible
security tends to increase as the market value of the underlying stock rises,
and it tends to decrease as the market value of the underlying stock declines.
While no securities investment is without some risk, investments in convertible
securities generally entail less risk than investments in the common stock of
the same issuer.
CORPORATE AND OTHER DEBT SECURITIES
The Fund may invest in investment grade corporate and other debt
obligations of domestic and foreign issuers. Bonds and other debt securities are
used by issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and must repay the amount borrowed at
maturity. Investment grade debt securities are rated within the four highest
quality grades as determined by Moody's Investors Service (currently Aaa, Aa, A
and Baa for bonds), or Standard & Poor's Ratings Group (currently AAA, AA, A and
BBB for bonds), or by another nationally recognized statistical rating
organization or, in unrated securities which are, in the opinion of the Adviser,
of equivalent quality.
The Fund's investments in corporate and other debt securities subject
the Fund to two types of risks: credit risk and interest rate risk. Credit risk
refers to the possibility that the issuer of a security will be unable to make
interest payments and/or repay the principal on its debt. Interest rate risk
refers to fluctuations in the value of a fixed-income security resulting from
changes in the general level of interest rates. When the general level of
interest rates goes up, the prices of most fixed-income securities go down. When
the general level of interest rates goes down, the prices of most fixed-income
securities go up.
FOREIGN SECURITIES
While the Fund intends to invest primarily in domestic securities, it
may invest up to ten percent (10%) of its net assets in foreign securities.
Investors in the Fund should be aware that foreign securities involve certain
risks, including political or economic instability in the country of the issuer,
the difficulty of predicting international trade patterns, the possibility of
imposition of exchange controls and the risk of currency fluctuations. Such
securities may be subject to greater fluctuations in price than securities
issued by domestic companies or issued or guaranteed by U.S. or foreign
government instrumentalities or agencies. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies.
Additional costs could be incurred in connection with any international
investment activities engaged in by the Fund. Foreign brokerage commissions are
generally higher than U.S. brokerage commissions. Increased custodian costs as
well as administrative difficulties may also be involved.
If a security is denominated in a foreign currency, it will be affected
by changes in currency exchange rates and in exchange control regulations, and
costs may be incurred in connection with conversions between currencies. Such
changes also will affect the Fund's income and distributions to shareholders. In
addition, although the Fund may receive income in such currencies, the Fund will
be required to compute and distribute its income in U.S. dollars. Therefore, if
the exchange rate for any such currency declines after the Fund's income has
been accrued and translated into U.S. dollars, the Fund could be required to
liquidate portfolio securities to make such distributions, particularly in
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instances in which the amount of income the Fund is required to distribute is
not immediately reduced by the decline in such currency.
PORTFOLIO TURNOVER
While as a matter of policy, the Fund will try to limit the turnover of
its portfolio, it is possible that, as a result of the Fund's investment
policies and social criteria, its portfolio turnover rate may exceed
seventy-five percent (75%), although the rate is not expected to exceed one
hundred percent (100%). High portfolio turnover (over one hundred percent
(100%)) may involve correspondingly greater brokerage commissions and other
transaction costs, which will be borne directly by the Fund. In addition, high
portfolio turnover may result in increased short-term capital gains, which, when
distributed to shareholders, are treated as ordinary income.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements whereby the seller of the
security agrees to repurchase that security from the Fund at a mutually
agreed-upon time and price. The repurchase date is usually within a day or two
of the original purchase, although it may extend over a number of months. The
Fund's repurchase agreements will be fully collateralized at all times by
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities (other than the U.S. Treasury) in an amount at least equal to
the purchase price of the underlying securities (including accrued interest
earned thereon). In the event of a default or bankruptcy by a seller, the Fund
will promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to repurchase
are less than the repurchase price, the Fund will suffer a loss.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities are purchased or sold by the Fund with payment and delivery taking
place a month or more in the future in order to secure what is considered to be
an advantageous price and yield to the Fund at the time of entering into the
transaction. While the Fund will only purchase securities on a when-issued or
delayed delivery basis with the intention of acquiring the securities, the Fund
may sell the securities before the settlement date, if it is deemed advisable.
At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. State Street Bank and Trust
Company, 225 Franklin Street, Boston, MA 02110 (the "Custodian"), the Fund's
custodian, will maintain, in a segregated account of the Fund, cash or other
liquid high-grade debt obligations having a value equal to or greater than the
Fund's purchase commitments; the Custodian will likewise segregate securities
sold on a delayed delivery basis.
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MANAGEMENT, ORGANIZATION AND CAPITAL
STRUCTURE OF THE FUND
INCORPORATION
The Fund was incorporated under the laws of the State of Delaware on
March 12, 1997. The Fund is registered under the Investment Company Act as an
open-end management investment company commonly known as a mutual fund.
DESCRIPTION OF COMMON STOCK
The Fund is currently authorized to issue 25,000,000 shares of Common
Stock, $1.00 par value per share; however, the Board of Directors of the Fund
may increase or decrease the number of authorized shares. In accordance with the
Fund's Articles of Incorporation, the Board of Directors may also authorize the
creation of additional series of common stock and classes within such series,
with such preferences, privileges, limitations and voting and dividend rights as
the Board may determine.
Shares of the Fund, when issued, are fully paid, non-assessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide -- How to Sell Your Shares" below.
Each share of common stock is equal as to earnings, assets and voting
privileges. There are no conversion, preemptive or other subscription rights. In
the event of liquidation, each share of common stock of the Fund is entitled to
its portion of all of the Fund's assets after all debts and expenses of the Fund
have been paid. The Fund's shares do not have cumulative voting rights for the
election of Directors.
OFFICERS AND DIRECTORS
The Fund's officers conduct and supervise the daily business operations
of the Fund. The Fund's Board of Directors, in addition to overseeing the
Adviser and Sub-Adviser, decides upon matters of general policy. The Fund's
Adviser and Sub-Adviser furnish daily investment advisory services. Members of
the Board of Directors of the Fund are reimbursed for their travel expenses for
attending meetings of the Board of Directors plus $300.00 to affiliated
directors and $1,000.00 to unaffiliated directors.
ADVISER; SUB-ADVISER
Pax World Management Corp., 222 State Street, Portsmouth, NH 03801-3853
(the "Adviser"), is the adviser to the Fund. It was incorporated in 1970 under
the laws of the State of Delaware. Pursuant to the terms of an Advisory
Agreement entered into between the Fund and the Adviser (the "Advisory
Agreement"), the Adviser, subject to the supervision of the Board of Directors
of the Fund, is responsible for managing the assets of the Fund in accordance
with the Fund's investment objective, investment program and policies. As of
December 31, 1998, the Adviser had over $863,000,000 in assets under management
by virtue of serving as the adviser to the Fund, the Pax World Fund,
Incorporated and the
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Pax World Money Market Fund, Inc., a socially responsible money market fund
which is being advised by the Adviser for the specific purpose of assuring that
the social responsibility screens used by such fund are the same as those
applied to the Fund. The Adviser has no clients other than the Fund, the Pax
World Fund and the Pax World Money Market Fund, although the Adviser may
undertake to advise other clients in the future.
Pursuant to the terms of the Advisory Agreement, the Adviser will be
compensated as follows: in the event that the average daily net assets of the
Fund are less than $5,000,000, the Adviser will be compensated by the Fund for
its services at an annual rate of $25,000; in the event that the average daily
net assets of the Fund are equal to or in excess of $5,000,000, the Adviser will
be compensated by the Fund for its services at an annual rate of one percent
(1%) of average daily net assets up to and including $25,000,000 and
three-quarters of one percent (.75%) of average daily net assets in excess of
$25,000,000. The aggregate fees incurred by the Fund and payable to the Adviser
for the most recent fiscal year was $69,558, although all of such fees were
assumed by the Adviser.
The Adviser has, however, agreed to supply and pay for such services as
are deemed by the Board of Directors of the Fund to be necessary or desirable
and proper for the continuous operations of the Fund (excluding all taxes and
charges of governmental agencies and brokerage commissions incurred in
connection with portfolio transactions) which are in excess of one and one-half
percent (1.5%) of the average daily net assets of the Fund per annum. Such
expenses include (i) management, distribution and sub-advisory fees; (ii) the
fees of affiliated and unaffiliated Directors; (iii) the fees of the Fund's
custodian and transfer agent; (iv) the fees of the Fund's legal counsel and
independent accountants; (v) the reimbursement of organization expenses; and
(vi) expenses related to shareholder communications including all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders. The Adviser
was required to supply and assume a total of $286,966 for such services for the
most recent fiscal year.
H. G. Wellington Capital Management (the "Sub-Adviser"), a division of
H. G. Wellington & Co., Inc., 14 Wall Street, New York, NY 10005 (the
"Distributor"), is the sub-adviser to the Fund. H. G. Wellington & Co., Inc. was
incorporated in 1984 under the laws of the State of Delaware and is also a
registered broker-dealer.
Pursuant to the terms of a Sub-Advisory Agreement between the Adviser
and the Sub-Adviser, the Sub-Adviser furnishes investment advisory services in
connection with the management of the Fund, determines what securities and other
instruments are purchased and sold for the Fund and is responsible for obtaining
and evaluating financial data relevant to the Fund. In the event that the
average daily net assets of the Fund are less than $5,000,000, the Sub-Adviser
will be compensated by the Adviser for its services at an annual rate of
$25,000; in the event that average daily net assets of the Fund are equal to or
in excess of $5,000,000, the Sub-Adviser will be compensated by the Adviser for
its services at an annual rate of one-third of one percent (.33%) of average
daily net assets up to and including $25,000,000 and one-quarter of one percent
(.25%) of average daily net assets in excess of $25,000,000, but in no event to
exceed the annual sum of $250,000 net of expenses. Although the Fund did not pay
any fees to the Sub-Adviser for the most recent fiscal year, the aggregate
amount of accrued but unpaid fees to the Sub-Adviser for the most recent fiscal
year was $27,591.
Mr. Thomas W. Grant, the President of the Adviser, is also the
President of the Sub-Adviser (which is a division of the Distributor) and has
been associated with that firm since 1991. Mr. Grant served previously with the
firm of Fahnestock & Co. for twenty-six years as a partner, managing director
and senior officer. His duties encompassed branch office management, corporate
finance, syndications and municipal and corporate bonds. Mr. Grant serves as a
member of the Board of Directors of the Fund.
Mr. Laurence A. Shadek, the Chairman of the Board of Directors of the
Adviser, is also an Executive Vice-President of the Sub-Adviser (which is a
division of the Distributor), and, together with
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members of his family, owns a twenty-six and sixty-seven one hundredths percent
(26.67%) interest in the Sub-Adviser. Mr. Shadek has been associated with that
firm since March 1986. He was previously associated with Stillman, Maynard &
Co., where he was a general partner. Mr. Shadek's investment experience includes
twelve years as a limited partner and Account Executive with the firm Moore &
Schley. Mr. Shadek serves as a member of the Board of Directors of the Fund.
Mr. Robert P. Colin is the Portfolio Manager of the Fund and the
Portfolio Co-Manager of the Pax World Fund. He is the person responsible for the
day-to-day management of the Fund's portfolio. Mr. Colin received his bachelor
of arts degree from Rutgers University and his masters in business
administration-finance from New York University. Mr. Colin joined the
Sub-Adviser in 1991 as a Senior Vice President and Senior Portfolio Manager. Mr.
Colin was one of the original founders of Faulkner, Dawkins & Sullivan in 1959,
serving as Director of Research and Investment Strategy. After Faulkner, Dawkins
& Sullivan merged with Shearson Lehman, and later, American Express, Mr. Colin
worked briefly for Merrill Lynch Asset Management before joining Bessemer Trust
Company in 1978 as a Senior Portfolio Manager and Director of Research. In 1983,
Mr. Colin joined General Electric Investment Corporation as a Senior Vice
President of Equity Portfolios with responsibilities for various funds under
General Electric's control, including its own pension fund. Mr. Colin, who is a
Chartered Financial Analyst, has contributed numerous articles on investment
research to professional journals and has served as a consultant to a number of
publicly-owned corporations.
The Adviser and Sub-Adviser are responsible for decisions to buy and
sell securities and options on securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of brokerage
commissions, if any. In placing orders for portfolio securities of the Fund, the
Fund is required to give primary consideration to obtaining the most favorable
price and efficient execution. Within the framework of this policy, the Fund
will consider the research and investment services provided by brokers and
dealers who effect or are parties to portfolio transactions of the Fund. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, the Sub-Adviser and its affiliates.
DISTRIBUTION
The Fund maintains a distribution expense plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act that allows the Fund to pay
distribution and other fees for the sale and distribution of the Fund's shares
and for services provided to the Fund's shareholders. Because these fees are
paid out of the Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
The Plan provides that the Fund may incur distribution expenses of up
to twenty-five one hundredths of one percent (.25%) per annum of its average
daily net assets to finance activity which is primarily intended to result in
the sale of Fund shares. Such expenses include (but are not limited to) travel
and telephone expenses, preparation and distribution of sales literature and
advertising, compensation to be paid to and expenses to be incurred by officers,
directors and/or employees of the Fund, or other third parties for their
distributional service if sales of Fund shares are made by such third parties
during a fiscal year. So long as the Fund is operating within such limitation,
however, the Fund may pay to one or more of its 12b-1 distributors (i) up to
twenty-five hundredths of one percent (.25%) per annum of its average daily net
assets for personal service and/or the maintenance of shareholder accounts as
defined by Rule 2830 of the National Association of Securities Dealers Rules of
Conduct, and (ii) total distribution fees (including the service fee of .25 of
1%) up to thirty-five hundredths of one percent (.35%) per annum of its average
daily net assets. Amounts incurred by the Fund under the plan
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for clerical, advertising, printing, postage and sales expenses (travel,
telephone, and sales literature) for the most recent fiscal year totaled
approximately $129,787, of which $109,561 was assumed by the Adviser leaving a
net of $20,226 which was paid by the Fund.
The Plan may be terminated at any time, without penalty, by (a) the
vote of a majority of the members of the Board of Directors of the Fund who are
not interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan or
(b) the vote of the holders of a majority of the outstanding shares of the Fund.
If the Plan is terminated, the payment of fees to third parties under the Plan
would be discontinued.
Pursuant to the Plan, the Fund has entered into a distribution
agreement (the "Distribution Agreement") with the Distributor. Under the
Distribution Agreement, the Distributor serves as distributor of the Fund's
shares and, for nominal consideration and as agent for the Fund, solicits orders
for the purchase of Fund shares, provided, however, that orders are not binding
on the Fund until accepted by the Fund as principal.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 (the "Custodian"), serves as the custodian for the Fund's portfolio
securities and cash and, in that capacity, maintains certain financial and
accounting books and records pursuant to an agreement with the Fund.
PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809 (the "Transfer
Agent"), serves as the transfer agent and dividend disbursing agent for the Fund
and in those capacities maintains certain books and records for the Fund.
Shareholder inquiries relating to a shareholder account should be directed to
the Transfer Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE
19899-8930.
SHAREHOLDER MEETINGS
The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of directors is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of ten percent
(10%) or more of the Fund's outstanding shares for the purpose of voting on the
removal of one or more directors or to transact any other business.
HOW THE FUND VALUES ITS SHARES
The Fund's net asset value per share or "NAV" is determined by
subtracting its liabilities from the value of its assets and dividing the
remainder by the number of outstanding shares. For valuation purposes,
quotations of foreign securities in a foreign currency are converted to U.S.
dollar equivalents. The Board of Directors of the Fund has fixed the specific
time of day for the computation of the Fund's NAV to be as of 4:00 P.M., New
York time.
Portfolio securities are valued on the basis of market quotations or,
if not readily available, fair value as determined in good faith under
procedures established by the Fund's Board of Directors.
The Fund will compute its NAV once daily on days that the New York
Stock Exchange is open for trading except on days on which no orders to
purchase, sell or redeem shares have been received by
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the Fund or days on which changes in the value of the Fund's portfolio
securities do not materially affect the NAV. The New York Stock Exchange is
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
SHAREHOLDER GUIDE
HOW TO PURCHASE SHARES
IN GENERAL
The minimum initial investment is $250.00; the minimum subsequent
investment is $50.00. There is no minimum investment, however, for SIMPLE IRAs
and "tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code.
Shares of the Fund are offered for sale by the Fund on a continuous
basis at the NAV, plus an initial sales charge. In some cases, however,
purchases are not subject to an initial sales charge, and the offering price is
the NAV. The Fund will compute its NAV once daily as of 4:00 P.M., New York
time, on days that the New York Stock Exchange is open for trading except on
days on which no orders to purchase, sell or redeem shares have been received by
the Fund or days on which changes in the value of the Fund's portfolio
securities do not materially affect the NAV. NAV is computed by dividing the
value of the Fund's net assets (i.e., the value of its assets less liabilities)
by the total number of shares of the Fund outstanding. The Fund's investments
are valued on the basis of market value or, where market quotations are not
readily available, fair value as determined in good faith under procedures
established by the Fund's Board of Directors.
If an order is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 P.M., New
York time) on a business day, Fund shares will be purchased at the NAV
determined as of the close of trading on the floor of the New York Stock
Exchange on that day; otherwise, Fund shares will be purchased at the NAV
determined as of the close of trading on the floor of the New York Stock
Exchange on the next business day, except where shares are purchased through
certain financial institutions that have entered into agreements with the Fund
as provided below.
Orders for the purchase of Fund shares received, by certain financial
institutions that have entered into agreements with the Fund, by the close of
trading on the floor of the New York Stock Exchange on any business day and
transmitted to the Transfer Agent or other entity authorized to receive orders
on behalf of the Fund by 8:00 P.M., New York time (or, due to unforeseen
circumstances, by 9:30 A.M., New York time, on the following business day) will
be based on the NAV, determined as of the close of trading on the floor of the
New York Stock Exchange on the day that such order was received by such
financial institution. Otherwise, the orders will be based on the next
determined NAV. It is the financial institution's responsibility to transmit
orders so that they will be received by the Transfer Agent or such other entity
on a timely basis.
If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares.
Some prospective purchasers of Fund shares may be effecting
transactions through a securities broker-dealer which may result in transaction
and other fees and charges, including postage and handling
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charges, by such broker-dealer in addition to the sales charge imposed by the
Fund. Such transaction and other fees and charges (other than the sales charge
imposed by the Fund) would not be incurred if such purchase transaction was made
directly with the Fund.
INVESTING BY MAIL
Prospective shareholders may purchase shares of the Fund by completing
and signing the "New Account Application" enclosed with this Prospectus and
sending the application, together with a check to the Transfer Agent at Pax
World Fund Family, P.O. Box 8930, Wilmington, DE 19899-8930 or by overnight
delivery c/o PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809. Purchases
without full payment will not be processed until payment is received. A
confirmation of the purchase will be issued showing the account number and
number of shares owned and the ownership of shares shall be recorded on the
books of the Transfer Agent in an account under the shareholder's name.
Prospective shareholders who wish to register their account in the name of a
beneficiary for the purposes of transferring their account upon their death may
do so subject to the following understanding: the laws of the state listed as
the shareholder's address at the time of registration shall govern such transfer
if such state has adopted the Uniform Transfer on Death Securities Registration
Act; otherwise the Uniform Transfer on Death Securities Registration Act, as
adopted by the State of Delaware, shall apply.
INVESTING BY TELEPHONE
In order to purchase shares by telephone, you must authorize telephone
purchases on your initial application form or by written notice to the Transfer
Agent. Thereafter, you may call the Fund at 800-372-7827 (toll-free) to execute
a telephone purchase of shares, on weekdays, except holidays, between the hours
of 8:00 A.M. and 6:00 P.M., New York time. For your protection and to prevent
fraudulent purchases, your telephone call may be recorded and you will be asked
to provide your personal identification number. A written confirmation of the
purchase transaction will be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL
BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON
INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES.
All purchases will be made on the basis of the NAV of the Fund next determined
after the funds are received.
In periods of severe market or economic conditions, the telephone
purchase of shares may be difficult to implement and you should make purchases
by mail by writing to the Transfer Agent at the address noted above.
The Fund may accept telephone orders from broker-dealers which have
been previously approved by the Fund by telephoning 800-635-1404 (toll-free). It
is the responsibility of such broker-dealers to promptly forward purchase orders
and payments for such orders to the Fund. The Fund reserves the right to cancel
any purchase order for which payment has not been received by the third (3rd)
business day following the investment.
INVESTING BY WIRE TRANSFER
Shareholders may purchase shares of the Fund (other than initial
purchases) by wire transfer. To do so, you must (i) telephone the Transfer Agent
at 800-372-7827 (toll-free) (individual shareholders) or 800-635-1404
(toll-free) (broker/dealers) to advise the Transfer Agent that you would like to
purchase shares of the Fund by wire transfer and then (ii) give instructions to
your bank to transfer funds by wire to the following account:
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Bank Name: PNC Bank, Philadelphia, PA
ABA Number: 031-0000-53
Account Name: Pax World Growth Fund, Inc.
Account No.: 85-5100-7715
Further Credit: Name of Shareholder and Account Number
If you arrange for receipt by the Custodian of federal funds prior to
4:00 P.M., New York time, on a business day, you may purchase shares of the Fund
as of that day.
WAIVER OF SALES CHARGES
No initial sales charges are imposed on shares of the Fund purchased
upon the exchange of shares of the Pax World Fund or the Pax World Money Market
Fund or the reinvestment of dividends and distributions. It is also contemplated
that no initial sales charges will be imposed on shares of the Fund purchased
upon the exchange of shares of each new Pax World mutual fund. In addition,
shares of the Fund may be purchased at NAV, without payment of an initial sales
charge, by (i) any investor provided that the amount invested by such investor
in the Fund or other Pax World Mutual Funds totals at least $1,000,000; (ii) any
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code, IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs,
Simplified Employee Pension -- IRA plans and retirement and deferred
compensation and annuity plans and trusts used to fund those plans, including,
but not limited to, those defined in Sections 401(a), 403(b) or 457 of the
Internal Revenue Code and "rabbi trusts"; (iii) trustees, officers, directors,
employees (including retirees) and sales representatives of the Fund, the
Adviser, the Sub-Adviser or certain affiliated companies, for themselves, their
spouses and their dependent children; (iv) registered representatives and
employees of broker-dealers having selling group agreements with the Fund, for
themselves, their spouses and their dependent children; (v) investment advisers
or financial planners who place trades for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services and clients of such investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisor or financial planner on the books and records of the
broker or agent, or (vi) at the discretion of the Board of Directors of the
Fund. Finally, if you redeem your shares and have not previously exercised the
repurchase privilege, you may reinvest, within ninety (90) days after the date
of redemption, any portion or all of the proceeds of such redemption in shares
of the Fund at the NAV next determined after the order is received without
payment of an initial sales charge.
You must notify the Transfer Agent that you are entitled to the
reduction or waiver of the sales charge. The reduction or waiver will be granted
subject to confirmation of your entitlement.
HOW TO SELL YOUR SHARES
IN GENERAL
You can redeem shares of the Fund at any time for cash at the NAV per
share next determined after the redemption request is received in proper form by
the Transfer Agent.
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REDEMPTIONS BY WRITTEN REQUEST
If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates signed in the names(s) shown on the face
of the certificates, must be received by the Transfer Agent in order for the
redemption request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be directed to the
Transfer Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE
19899-8930 or by overnight delivery c/o PFPC, Inc., 400 Bellevue Parkway,
Wilmington, DE 19809.
If the proceeds of the redemption (i) exceed $10,000.00 (unless the
record owner has provided to the Transfer Agent a Shareholder Redemption Option
form authorizing the Transfer Agent to redeem shares of the Fund upon written
instructions without a signature guarantee), (ii) are to be paid to a person
other than the record owner, (iii) are to be sent to an address other than the
address on the Transfer Agent's records or within thirty (30) days after the
Transfer Agent has been notified of an address change, or (iv) are to be paid to
a corporation, partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Agents Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees which are
not a part of these programs will not be accepted. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution.
Payment for shares presented for redemption will be made by check
within seven (7) days after receipt by the Transfer Agent of the certificate
and/or written request except as indicated below. Such payment may be postponed
or the right of redemption suspended at times (i) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (ii) when
trading on such Exchange is restricted, (iii) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (iv) during any other period when the Securities
and Exchange Commission (the "SEC"), by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (ii), (iii) or (iv) exist.
Payment for redemption of recently purchased shares will be delayed
until the Fund or the Transfer Agent has been advised that the purchase check
has been honored, up to fifteen (15) days from the time of receipt of the
purchase check by the Transfer Agent. Such delay may be avoided by purchasing
shares by wire or by certified or official bank check.
REDEMPTIONS BY TELEPHONE
Redemptions by telephone must be in amounts of at least $1,000.00 and
may not be for more than $10,000.00 in the aggregate in any thirty (30) day
period. In addition, the proceeds from a telephone redemption may be paid only
to the owner(s) of record and may be sent only to the address of record or a
pre-authorized bank account, and cannot be made within thirty (30) days after
the Transfer Agent has been notified of an address change. If there are multiple
owners of record, the Transfer Agent may rely upon the instructions of only one
owner of record.
In order to redeem shares by telephone, you must authorize telephone
redemptions on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Fund at 800-372-7827 (toll-free) to execute a telephone redemption of
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shares, on weekdays, except holidays, between the hours of 8:00 A.M. and 6:00
P.M., New York time. For your protection and to prevent fraudulent redemptions,
your telephone call may be recorded and you will be asked to provide your
personal identification number. A written confirmation of the redemption
transaction will be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE
FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS
REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES.
INVOLUNTARY REDEMPTIONS
In order to reduce expenses of the Fund, the Board of Directors may
redeem all of the shares of any shareholder, other than a shareholder which is
an IRA or other tax-deferred retirement plan, whose account has a balance of
less than $250.00 due to a redemption. The Fund will give any such shareholder
sixty (60) days' prior written notice in which to purchase sufficient additional
shares to avoid such redemption.
HOW TO EXCHANGE YOUR SHARES
IN GENERAL
As a shareholder of the Fund, you have an exchange privilege with the
Pax World Fund and the Pax World Money Market Fund, subject to the minimum
investment requirement of such funds. No sales charge will be imposed at the
time of exchange. An exchange will be treated as a redemption and purchase for
tax purposes and any gain on such transaction may be subject to federal income
tax. All exchanges will be made on the basis of the relative NAV of the two
funds next determined after the request is received in good order. The exchange
privilege is available only in states where the exchange may legally be made. It
is contemplated that this exchange privilege will be applicable to each new Pax
World mutual fund.
EXCHANGES BY MAIL
You may exchange shares by mail by writing to the Transfer Agent at Pax
World Fund Family, P.O. Box 8930, Wilmington, DE 19899-8930 or by overnight
delivery c/o PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
If you hold certificates, the certificates, signed in the name(s) shown
on the face of the certificates, must be returned to the Transfer Agent in order
for the shares to be exchanged.
EXCHANGES BY TELEPHONE
In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at 800-372-7827 (toll-free) on weekdays, except holidays, between the hours of
8:00 A.M. and 6:00 P.M., New York time, to exchange shares between accounts that
are registered in the same names. For your protection and to prevent fraudulent
exchanges, your telephone call may be recorded and you will be asked to provide
your personal identification number. A written confirmation of the exchange
transaction will be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE
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LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON
INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES.
In periods of severe market or economic conditions the telephone
exchange of shares may be difficult to implement and you should make exchanges
by mail by writing to the Transfer Agent at the address noted above.
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
The Fund is qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Accordingly, the Fund will not be subject
to federal income taxes on its net investment income and capital gains, if any,
that it distributes to its shareholders.
TAXATION OF SHAREHOLDERS
All dividends out of net investment income, together with distributions
of net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net long-term capital gains
distributed to shareholders will be taxable as such to the shareholder, whether
or not reinvested and regardless of the length of time a shareholder has owned
his or her shares. The maximum federal long-term capital gains rate for
individual shareholders is currently twenty percent (20%), and the maximum
federal tax rate for ordinary income is currently thirty-nine and six-tenths
percent (39.6%). Any gain or loss realized upon a sale or redemption of shares
by a shareholder who is not a dealer in securities will be treated as (i)
long-term capital gain or loss if the shares have been held more than twelve
(12) months and (ii) otherwise as short-term capital gain or loss. Any such
loss, however, on shares that are held for six (6) months or less, will be
treated as a long-term capital loss to the extent of any capital gain
distributions received by the shareholder.
WITHHOLDING TAXES
Under U.S. Treasury Regulations, the Fund is required by federal law to
withhold and remit to the U.S. Treasury thirty-one percent (31%) of dividend,
capital gain income and redemption proceeds, payable on the accounts of those
shareholders who fail to furnish their tax identification numbers on IRS Form
W-9 (or IRS Form W-8 in the case of certain foreign shareholders) with the
required certifications regarding the shareholder's status under the federal
income tax law. In connection with this withholding requirement, therefore, a
purchaser of the Fund's shares will be asked to certify on the Fund's
application that the Social Security or tax identification number provided is
correct and that such purchaser is not subject to thirty-one percent (31%)
back-up withholding for previously underreporting to the Internal Revenue
Service.
Shareholders are urged to consult their own tax advisers regarding
specific questions as to federal, state or local taxes.
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DIVIDENDS AND DISTRIBUTIONS
The Fund expects to pay dividends on net investment income, if any,
semi-annually and to make distributions of any capital gains in excess of net
capital losses at least annually. Dividends and distributions will be paid in
additional Fund shares, based on the NAV at the close of business on the ex-
dividend date or such other date as the Board of Directors may determine, unless
the shareholder elects in writing not less than five (5) days prior to the
ex-dividend date to receive (i) such dividends in cash and distributions in
additional shares or (ii) such dividends and distributions in cash. Such
election should be submitted to the Transfer Agent at Pax World Fund Family,
P.O. Box 8930, Wilmington, DE 19899-8930. The Fund will notify each shareholder
after the close of the Fund's taxable year of both the dollar amount and the
taxable status of that year's dividends and distributions on a per share basis.
When the Fund goes "ex-dividend", its NAV is reduced by the amount of
the dividend or distribution. If you buy shares just prior to the ex-dividend
date, the price you pay will include the dividend or distribution and a portion
of your investment will be returned to you as a taxable distribution. You
should, therefore, consider the timing of dividends when making your purchases.
SHAREHOLDER SERVICES
The Fund offers investors the following special programs:
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS
WITHOUT A SALES CHARGE. For your convenience, all dividends and
distributions, if any, will be automatically reinvested in additional
full and fractional shares of the Fund at the NAV prevailing at the
close of business on the ex-dividend date unless and until you notify
the Transfer Agent in writing at least five (5) days prior to such
ex-dividend date that you elect to receive (i) such dividends in cash
and distributions in additional shares or (ii) such dividends and
distributions in cash. Stock certificates will not be physically issued
on reinvestment of such dividends and distributions, but a record of
the shares purchased will be added to your account and a confirmation
of such reinvestment will be sent to you by the Transfer Agent.
AUTOMATIC INVESTMENT PLAN. Under the Fund's Automatic
Investment Plan, you may make regular monthly or quarterly purchases of
the Fund's shares via an automatic debit to a bank account. For
additional information about this service, you may contact the Transfer
Agent directly at 800-372-7827 (toll-free) between the hours of 8:00
A.M. and 6:00 P.M., New York time.
TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred retirement
plans and accounts, including IRAs, Education IRAs, Roth IRAs, SIMPLE
IRAs, Simplified Employee Pension IRA plans and "tax-sheltered
accounts" under Section 403(b)(7) of the Internal Revenue Code, are
available through the Fund. Information regarding the establishment of
these plans, the administration, custodial fees and other details is
available from the Fund or the Transfer Agent. If you are considering
adopting such a plan, you should consult with your own legal or tax
adviser with respect to the establishment and maintenance of such a
plan.
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SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is
available to shareholders, which provides for monthly, bi-monthly,
quarterly or semi-annual checks.
REPORTS TO SHAREHOLDERS. The Fund will send you annual and
semi-annual reports. The financial statements appearing in annual
reports are audited by independent accountants. In order to reduce
duplicate mailing and printing expenses, the Fund will provide one
annual and semi-annual shareholder report and one annual prospectus per
household.
You may request additional copies of such reports by writing
to the Fund at 222 State Street, Portsmouth, NH 03801-3853, telephoning
the Fund at 800-767-1729 (toll-free), visiting the Fund's web site at
http://www.paxfund.com or visiting the SEC's web site at
http://www.sec.gov for such purpose. In addition, monthly unaudited
financial data are available upon request from the Fund.
SHAREHOLDER INQUIRIES. Inquiries should be directed to the
Transfer Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE
19899-8930, or by telephone at 800-372-7827 (toll-free) or, from
outside the United States, at 302-791-2844 (collect).
THE PAX WORLD FUND FAMILY
Pax World Management Corp. currently offers three mutual funds designed
to meet your individual needs -- Pax World Fund, Pax World Growth Fund and Pax
World Money Market Fund. We welcome you to review the investment options
available through our family of funds. For more information on the Pax World
Fund Family, including charges and expenses, contact your financial adviser or
telephone the Fund at 800-767-1729 (toll-free) for a free prospectus. Read the
prospectus carefully before you invest or send money.
ADDITIONAL INFORMATION
YEAR 2000. As the year 2000 approaches, an issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. Failure to adequately address this issue could have potentially
serious repercussions. The Adviser is in the process of working with the Fund's
service providers to prepare for the year 2000. Based on information currently
available, the Adviser does not expect that the Fund will incur significant
operating expenses or be required to incur material costs to be year 2000
compliant. Although the Adviser does not anticipate that the year 2000 issue
will have a material impact on the Fund's ability to provide service at current
levels, there can be no assurance that steps taken in preparation for the year
2000 will be sufficient to avoid any adverse impact on the Fund.
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PAX WORLD GROWTH FUND
PROSPECTUS & APPLICATION
[PAX WORLD GROWTH FUND LOGO]
PROSPECTUS & APPLICATION
MAY 21, 1999
<TABLE>
<CAPTION>
<S> <C>
Pax World Growth Fund (PXWGX) [PAX WORLD GROWTH FUND LOGO]
A Low-Load Diversified Growth Fund 222 State Street
Portsmouth, NH 03801-3853
Investment Adviser- www.paxfund.com
Pax World Management Corp.
222 State Street For General Fund Information, please call:
Portsmouth, NH 03801-3853 1-800-767-1729
Transfer and Dividend Disbursing Agent- For Shareholder Information, please call:
PFPC, Inc. 1-800-372-7827
P.O. Box 8950
Wilmington, DE 19899-8950 For Broker Services, please call:
1-800-635-1404
General Counsel-
Bresler Goodman & Unterman, LLP All Account Inquiries should be addressed to:
521 Fifth Avenue Pax World Fund Family
New York, NY 10175 P.O. Box 8930
Wilmington, DE 19899-8930
Independent Auditors-
Pannell Kerr Forster PC
125 Summer Street
Boston, MA 02110-2326
</TABLE>
Additional information about the Fund has been filed with the
Securities and Exchange Commission (the "SEC") in a Statement of Additional
Information dated the date hereof, and in the Fund's annual and semi-annual
reports to shareholders, which information is incorporated herein by reference
(is legally considered a part of this Prospectus) and is available without
charge upon request to the Fund at the address or telephone number noted above,
or by visiting the Fund's web site at www.paxfund.com. In addition, you will
find in the Fund's annual report a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. The SEC maintains a web site (http://www.sec.gov) that
contains the Statement of Additional Information, the Fund's annual and
semi-annual reports to shareholders, and other reports and information regarding
the Fund which have been filed electronically with the SEC. In addition,
information about the Fund may be obtained at a reasonable charge from the
Public Reference Section of the SEC or may be examined, without charge, at the
Public Reference Room at the office of the SEC in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 800-SEC-0330 (toll-free).
Investment Company Act file no.: 811-08097
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<PAGE>
PAX WORLD GROWTH FUND, INC.
222 State Street, Portsmouth, NH 03801-3853
For shareholder account information: 800-372-7827
Portsmouth, NH office: 800-767-1729
603-431-8022
Website: http://www.paxfund.com
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 21, 1999
This Statement of Additional Information is not a Prospectus
and should be read in conjunction with the Fund's Prospectus
dated the date hereof to which it relates,
a copy of which may be obtained by writing to the Fund at 222 State
Street, Portsmouth, NH 03801-3853, telephoning the Fund at
800-767-1729 (toll-free), visiting the Fund's web site at
http://www.paxfund.com or visiting the Securities and Exchange Commission's
web site at
http://www.sec.gov for such purpose.
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TABLE OF CONTENTS
Page
FUND HISTORY................................................................. 3
INVESTMENT OBJECTIVE, STRATEGIES AND PHILOSOPHY.............................. 3
Investment Objective................................................ 3
Investment Strategies............................................... 3
Investment Philosophy............................................... 4
INVESTMENTS AND SPECIAL CONSIDERATIONS; RISK FACTORS......................... 4
Borrowing Money..................................................... 4
Foreign Securities.................................................. 5
Forward Foreign Currency Exchange Contracts......................... 5
Illiquid and Restricted Securities.................................. 6
Options on Securities............................................... 7
Options on Securities Indices....................................... 8
Portfolio Turnover.................................................. 9
Position Limits..................................................... 9
Repurchase Agreements............................................... 9
Short Sales Against-the-Box......................................... 9
Short-term Investments............................................. 10
U.S. Government Agency and/or Instrumentality Securities........... 10
When-Issued and Delayed Delivery Securities........................ 11
INVESTMENT RESTRICTIONS..................................................... 11
MANAGEMENT OF THE FUND...................................................... 13
INVESTMENT ADVISORY AND OTHER SERVICES...................................... 15
Adviser; Sub-Adviser............................................... 15
Distribution....................................................... 17
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants............................... 19
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 19
NET ASSET VALUE............................................................. 20
CALCULATION OF PERFORMANCE DATA............................................. 21
Average Annual Total Return........................................ 21
PURCHASE, REDEMPTION AND EXCHANGE OF FUND SHARES............................ 22
Purchase of Shares................................................. 22
In General................................................ 22
Waiver of Sales Charges................................... 23
Sale of Shares..................................................... 23
In General................................................ 23
Involuntary Redemption.................................... 23
Exchange of Shares................................................. 24
TAXES .......................................................... 24
SHAREHOLDER SERVICES........................................................ 25
Automatic Reinvestment of Dividends and/or
Distributions without a Sales Charge...................... 25
Automatic Investment Plan.......................................... 26
Tax-Deferred Retirement Plans and Accounts......................... 26
Systematic Withdrawal Plans........................................ 26
Reports to Shareholders............................................ 26
Shareholder Inquiries.............................................. 27
FINANCIAL STATEMENTS........................................................ 28
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FUND HISTORY
Pax World Growth Fund, Inc. (the "Fund") is an open-end, diversified
management investment company which was incorporated under the laws of the State
of Delaware on March 12, 1997.
INVESTMENT OBJECTIVE, STRATEGIES AND PHILOSOPHY
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide its shareholders with a
diversified holding of securities of companies which offer primarily long-term
growth of capital. Current income, if any, is incidental.
INVESTMENT STRATEGIES
The Fund seeks to achieve this objective by investing primarily in
equity securities (common stock, preferred stock and securities convertible into
common stock) of established companies with above-average growth prospects. The
Fund may also invest in (i) other equity-related securities, including
convertible securities, (ii) equity securities of foreign issuers and (iii)
corporate and other debt securities, including investment grade fixed-income
securities of generally short-average maturity and high-average credit quality.
The Fund will not invest in obligations issued or guaranteed by foreign
government treasuries or the U.S. Treasury, however, because the proceeds
thereof may be used to manufacture defense or weapons-related products or for a
purpose which does not otherwise comply with the Fund's socially conscious
objectives and policies.
Under normal market conditions, the Fund anticipates that at least
seventy-five percent (75%) of its total assets will consist of equity securities
of companies that exceed $200,000,000 in market capitalization. Stocks will be
selected on a company-by-company basis primarily through the use of fundamental
analysis. The Fund's adviser, Pax World Management Corp. (the "Adviser"), looks
for companies that have demonstrated growth in earnings and sales, high returns
on equity and assets, or other strong financial characteristics, and which are,
in the judgment of the Adviser, attractively valued. These companies tend to
have a unique market niche, a strong new product profile or superior management.
The Fund may also invest in equity securities of other companies that
are undergoing changes in management or product and marketing dynamics that have
not yet been reflected in reported earnings but that are expected to impact
earnings in the intermediate-term -- these securities often lack investor
recognition and are often favorably valued.
The Fund reserves the right to hold temporarily other types of
securities without limit, including commercial paper, bankers' acceptances,
non-convertible debt securities (corporate) or government securities and high
quality money market securities or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of the Adviser, prevailing
market, economic or political conditions warrant. The Fund may also temporarily
hold cash and invest in high quality foreign or domestic money market
instruments pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs.
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In addition, the Fund may purchase and sell put and call options on
equity securities and stock indices and foreign currency exchange contracts to
hedge its portfolio and to attempt to enhance return.
INVESTMENT PHILOSOPHY
Consistent with its social criteria, the Fund seeks investments in
companies that produce goods and services that improve the quality of life and
that are not, to any degree, engaged in manufacturing defense or weapons-related
products. By way of illustration, the Fund will invest in such industries as
building supplies, computer software, education, food, health care, household
appliances, housing, leisure time, pollution control, technology and
telecommunications, among others. The Fund's portfolio will consist primarily of
companies located in the United States.
The policy of the Fund is to exclude from its portfolio securities of
(i) companies engaged in military activities, (ii) companies appearing on the
United States Department of Defense list of 100 largest contractors (a copy of
which may be obtained from the Office of the Secretary, Department of Defense,
Washington, D.C. 20301) if five percent (5%) or more of the gross sales of such
companies are derived from contracts with the United States Department of
Defense, (iii) other companies contracting with the United States Department of
Defense if five percent (5%) or more of the gross sales of such companies are
derived from contracts with the United States Department of Defense, and (iv)
companies which derive revenue from the manufacture of liquor, tobacco and/or
gambling products.
In order to properly supervise a securities portfolio containing the
limitations described above, care must be exercised to continuously monitor
developments of the companies whose securities are included in the portfolio.
Developments and trends in the economy and financial markets are also
considered, and the screening of many securities is required to implement the
investment philosophy of the Fund.
If it is determined after the initial purchase by the Fund that the
company's activities fall within the exclusion described above (either by
acquisition, merger or otherwise), the securities of such company will be
eliminated from the portfolio as soon thereafter as possible taking into
consideration (i) any gain or loss which may be realized from such elimination,
(ii) the tax implications of such elimination, (iii) market timing, and the
like. In no event, however, will such security be retained longer than six (6)
months from the time the Fund learns of the investment disqualification. This
requirement may cause the Fund to dispose of the security at a time when it may
be disadvantageous to do so.
There can be no assurance that the Fund's investment objective will be
achieved.
INVESTMENTS AND SPECIAL CONSIDERATIONS;
RISK FACTORS
BORROWING MONEY
From time to time, the Fund may increase its ownership of securities by
borrowing and investing the borrowed funds, subject to the restrictions stated
in the Prospectus. Pursuant to the requirements of the Investment Company Act of
1940, as amended (the "Investment Company Act"), any such borrowing will be made
only to the extent that the value of the Fund's assets, less its liabilities
other than borrowings, is equal to at least three hundred percent (300%) of all
borrowings including the proposed borrowing. If the value of the Fund's assets,
when computed in that manner, falls below such three hundred percent (300%)
asset coverage requirement, the Fund is required, within three (3) days, to
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reduce its bank debt to the extent necessary to meet that coverage requirement.
To do so, the Fund may have to sell a portion of its investments at a time when
it would otherwise not want to sell such investments. In addition, because
interest on money the Fund borrows is an expense of the Fund, the Fund's
expenses may increase more than the expenses of mutual funds that do not borrow
and the net asset value or "NAV" per share of the Fund may fluctuate more than
the NAV per share of mutual funds that do not borrow.
FOREIGN SECURITIES
The Fund is permitted to invest in foreign corporate, as well as
government, securities, provided the proceeds of such government securities are
earmarked for a specific purpose that complies with the investment objectives
and policies of the Fund. "Foreign government securities" include debt
securities issued or guaranteed, as to payment of principal and interest, by
quasi-governmental entities, governmental agencies, supranational entities and
other governmental entities (collectively, "Government Entities") of foreign
countries denominated in the currencies of such countries or in U.S. dollars
(including debt securities of a Government Entity in any such country
denominated in the currency of another such country).
Debt securities of "quasi-governmental entities" are issued by entities
owned by a national, state, or equivalent government or are obligations of a
political unit that are not backed by the national government's "full faith and
credit" and general taxing powers. A "supranational entity" is an entity
constituted by the national governments of several countries to promote economic
development. Examples of such supranational entities include, among others, the
Asian Development Bank, the European Investment Bank and the World Bank
(International Bank for Reconstruction and Development).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward foreign currency exchange contracts in
limited circumstances. When the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Fund may desire to "lock-in" the U.S. dollar
price of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund may be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the foreign currency during the period between the
date on which the security is purchased or sold, or on which the dividend or
interest payment is declared, and the date on which such payments are made or
received.
Additionally, when the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such foreign currency.
The projection of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 (the "Custodian"), the Fund's custodian, will place cash or liquid
securities into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts. If the value of the securities placed in the
segregated
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account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. The Fund generally will not
enter into a forward contract with a term of greater than one year. At the
maturity of a forward contract, the Fund may either sell the portfolio security
and make delivery of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader obligating it
to purchase, on the same maturity date, the same amount of the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent that the price of the currency it has agreed to sell exceeds the price of
the currency it has agreed to purchase.
Should forward contract prices increase, the Fund will suffer a loss to
the extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
ILLIQUID AND RESTRICTED SECURITIES
The Fund may not invest more than ten percent (10%) of its net assets
in repurchase agreements which have a maturity of longer than seven (7) days or
in other illiquid securities, including securities that are illiquid by virtue
of the absence of a readily available market (either within or outside of the
United States) or legal or contractual restrictions on resale. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having a maturity of
longer than seven (7) days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven (7) days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid for the purposes of this limitation.
The Adviser will monitor the liquidity of such restricted securities subject to
the supervision of the Board of Directors. In reaching liquidity decisions, the
Adviser will consider, inter alia, the following factors: (i) the frequency of
trades and quotes for the security; (ii) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers;
(iii) dealer undertakings to make a market in the security, and (iv) the nature
of the security and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
the transfer). In addition, in order for commercial paper that is issued in
reliance on Section 4(2) of the Securities Act to be considered liquid, (i) it
must be rated in one of the at least two nationally recognized statistical
rating organizations ("NRSRO"), or if only one NRSRO rates the securities, by
that NRSRO, or, if unrated, be of comparable quality in the view of the Adviser;
and (ii) it
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must not be "traded flat" (i.e., without accrued interest) or in default as to
principal or interest. Repurchase agreements subject to demand are deemed to
have a maturity equal to the notice period.
OPTIONS ON SECURITIES
The Fund may purchase and write (i.e., sell) put and call options on
securities that are traded on U.S. or foreign securities exchanges or that are
traded in the over-the-counter markets.
A call option is a short-term contract pursuant to which the purchaser,
in return for a premium paid, has the right to buy the security underlying the
option at a specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium, has the obligation,
upon exercise of the option, to deliver the underlying security against payment
of the exercise price.
A put option is a similar contract which gives the purchaser, in return
for a premium, the right to sell the underlying security at a specified price
during the term of the option. The writer of the put option who receives the
premium, has the obligation to buy the underlying security upon exercise at the
exercise price.
A call option written by the Fund is "covered" if (i) the Fund owns the
security underlying the option or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by the Custodian) or (ii) the Fund
holds on a share-for-share basis a call on the same security as the call written
where the exercise price of the call held is equal to or less than the exercise
price of the call written or greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, U.S. Government securities
or other liquid high-grade debt obligations in a segregated account with the
Custodian.
A put option written by the Fund is "covered" if the Fund maintains
cash, U.S. Government securities or other liquid high-grade debt obligations
with a value equal to the exercise price in a segregated account with the
Custodian, or else holds on a share-for-share basis a put on the same security
as the put written where the exercise price of the put held is equal to or
greater than the exercise price of the put written.
The Fund may also purchase a "protective put," i.e., a put option
acquired for the purpose of protecting a portfolio security from a decline in
market value. In exchange for the premium paid for the put option, the Fund
acquires the right to sell the underlying security at the exercise price of the
put regardless of the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and transaction costs
in connection with, the put plus the initial excess, if any, of the market price
of the underlying security over the exercise price. However, if the market price
of the security underlying the put rises, the profit the Fund realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount (net of transaction costs) for which the put may be sold. Similar
principles apply to the purchase of puts on stock indices, as described below.
The Fund may write put and call options on stocks only if they are
covered, and such options must remain covered so long as the Fund is obligated
as a writer. The Fund does not intend to purchase options on equity securities
if the aggregate premiums paid for such outstanding options would exceed ten
percent (10%) of the Fund's total assets.
-7-
<PAGE>
OPTIONS ON SECURITIES INDICES
In addition to options on securities, the Fund may also purchase and
sell put and call options on securities indices traded on U.S. or foreign
securities exchanges or traded in the over-the-counter markets. Options on
securities indices are similar to options on securities except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars times a specified multiple (the
multiplier). The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. All settlements on options on indices
are in cash, and gain or loss depends on price movements in the securities
market generally (or in a particular industry or segment of the market) rather
than price movements in individual securities.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of One Hundred (100)
means that a one-point difference will yield One Hundred Dollars ($100.00).
Options on different indices may have different multipliers. Because exercises
of index options are settled in cash, a call writer cannot determine the amount
of its settlement obligations in advance and, unlike call writing on specific
stocks, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. In addition,
unless the Fund has other liquid assets which are sufficient to satisfy the
exercise of a call, the Fund would be required to liquidate portfolio securities
or borrow in order to satisfy the exercise.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular security, whether the
Fund will realize a gain or loss on the purchase or sale of an option on an
index depends upon movements in the level of security prices in the market
generally or in an industry or market segment rather than movements in the price
of a particular security. Accordingly, successful use by the Fund of options on
indices would be subject to the investment adviser's ability to predict
correctly movements in the direction of the securities market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
The distinctive characteristics of options on indices create certain
risks that are not present with stock options.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in the index options also may be interrupted
in certain circumstances, such as if trading were halted in a substantial number
of stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in losses to the Fund. It is the Fund's policy to purchase or write
options only on indices which include a number of stocks sufficient to minimize
the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the Adviser's opinion, the market for such options has developed sufficiently
that the risk in connection with such transactions is not substantially greater
than the risk in connection with options on securities in the index.
The Fund will write put options on stock indices and foreign currencies
only if they are covered by segregating with the Fund's Custodian an amount of
cash, U.S. Government securities, or liquid assets
-8-
<PAGE>
equal to the aggregate exercise price of the puts. The Fund does not intend to
purchase options on securities indices if the aggregate premiums paid for such
outstanding options would exceed ten percent (10%) of the Fund's total assets.
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may
engage in a substantial number of portfolio transactions and its portfolio
turnover rate may exceed seventy-five percent (75%), although the Fund's
portfolio turnover rate is not expected to exceed one hundred percent (100%).
The portfolio turnover rate is generally the percentage computed by dividing the
lesser of portfolio purchases or sales (excluding all securities, including
options, whose maturities or expiration date at acquisition were one year or
less) by the monthly average value of the portfolio. High portfolio turnover
(over one hundred percent (100%)) involves correspondingly greater brokerage
commissions and other transaction costs, which are borne directly by the Fund.
In addition, high portfolio turnover may also mean that a proportionately
greater amount of distributions to shareholders will be taxed as ordinary income
rather than long-term capital gains compared to investment companies with lower
portfolio turnover. See "Portfolio Transactions and Brokerage" and "Taxes"
below.
POSITION LIMITS
Transactions by the Fund in futures contracts and options will be
subject to limitations, if any, established by each of the exchanges, boards of
trade or other trading facilities (including NASDAQ) governing the maximum
number of options in each class which may be written or purchased by a single
investor or group of investors acting in concert, regardless of whether the
options are written on the same or different exchanges, boards of trade or other
trading facilities or are held or written in one or more accounts or through one
or more brokers. An exchange, board of trade or other trading facility may order
the liquidation of positions in excess of these limits, and it may impose
certain other sanctions.
REPURCHASE AGREEMENTS
The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Board of Directors.
The Adviser will monitor the creditworthiness of such parties, under the general
supervision of the Board of Directors. In the event of a default or bankruptcy
by a seller, the Fund will promptly seek to liquidate the collateral. To the
extent that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales against-the-box for the purpose of
deferring realization of gain or loss for federal income tax purposes. A short
sale "against-the-box" is a short sale in which the Fund owns an equal amount of
the securities sold short or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the same issue as,
and equal in amount to, the securities sold short.
-9-
<PAGE>
SHORT-TERM INVESTMENTS
When conditions dictate a defensive strategy, the Fund may temporarily
invest in money market instruments, including commercial paper of corporations,
certificates of deposit, bankers' acceptances and other obligations of domestic
and foreign banks and repurchase agreements (described more fully above). Such
investments may be subject to certain risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, the seizure or nationalization of foreign deposits and foreign exchange
controls or other restrictions.
U.S. GOVERNMENT AGENCY AND/OR INSTRUMENTALITY SECURITIES
The Fund may invest in securities issued by U.S. Government agencies or
instrumentalities, the proceeds of which are earmarked for a specific purpose
which complies with the investment objectives and policies of the Fund, such as
the Federal Farm Credit Bank, the Federal Home Loan Bank and the Federal
National Mortgage Association, other than the U.S. Treasury. These obligations
may or may not be backed by the full faith and credit of the United States. In
the case of securities not backed by the full faith and credit of the United
States, the Fund must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment and may not be able to assert a claim against
the United States if the agency or instrumentality issuing or guaranteeing the
obligation does not meet its commitments. Obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Small Business
Administration are backed by the full faith and credit of the United States.
Securities in which the Fund may invest which are not backed by the full faith
and credit of the United States include obligations such as those issued by the
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association, the Student Loan Marketing
Association and Resolution Funding Corporation, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.
In connection with its commitment to assist in the development of
housing, the Fund may invest in mortgage-backed securities, including those
which represent undivided ownership interests in pools of mortgages, e.g.,
Government National Mortgage Association and Federal Home Loan Mortgage
Corporation certificates. The U.S. Government or the issuing agency or
instrumentality guarantees the payment of interest on and principal of these
securities. However, the guarantees do not extend to the yield or value of the
securities nor do the guarantees extend to the yield or value of the Fund's
shares. These securities are in most cases "pass-through" instruments, through
which the holders receive a share of all interest and principal payments from
the mortgages underlying the securities, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life of a particular issue of pass-through
certificates. Mortgage-backed securities are often subject to more rapid
repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage obligations.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. The Fund's ability to
invest in high-yielding mortgage-backed securities will be adversely affected to
the extent that prepayments of mortgages must be reinvested in securities which
have lower yields than the prepaid mortgages. Moreover, prepayments of mortgages
which underlie securities purchased at a premium could result in capital losses.
The Fund may invest in both Adjustable Rate Mortgage Securities, which
are pass-through mortgage securities collateralized by adjustable rate
mortgages, and Fixed-Rate Mortgage Securities, which are collateralized by
fixed-rate mortgages.
-10-
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase or sell securities on a when-issued or delayed delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The Fund will limit such purchases to those in which the date for
delivery and payment falls within one hundred twenty (120) days of the date of
the commitment. The Fund will make commitments for such when-issued transactions
only with the intention of actually acquiring the securities. The Fund's
Custodian will maintain, in a separate account of the Fund, cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than such commitments. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio security, incur a gain or loss due
to market fluctuations.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental
policies are those which cannot be changed without the approval of the holders
of a majority of the Fund's outstanding voting securities. A "majority of the
Fund's outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) sixty-seven percent (67%) of the shares
represented at a meeting at which more than fifty percent (50%) of the
outstanding voting shares are present in person or represented by proxy or (ii)
more than fifty percent (50%) of the outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); provided that the deposit or payment by the
Fund of initial or maintenance margin in connection with
futures or options is not considered the purchase of a
security on margin.
2. Make short sales of securities or maintain a short position
if, when added together, more than twenty-five percent (25%)
of the value of the Fund's net assets would be (i) deposited
as collateral for the obligation to replace securities
borrowed to effect short sales and (ii) allocated to
segregated accounts in connection with short sales. Short
sales "against-the-box" are not subject to this limitation.
3. Issue senior securities, borrow money or pledge its assets,
except that the Fund may borrow from banks up to twenty
percent (20%) of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or
emergency purposes or for the clearance of transactions. The
Fund may pledge up to twenty percent (20%) of the value of its
total assets to secure such borrowings. For purposes of this
restriction, the purchase or sale of securities on a
when-issued or delayed delivery basis, forward foreign
currency exchange contracts and collateral arrangements
relating thereto, and collateral arrangements with respect to
futures contracts and options thereon and with respect to the
writing of options and obligations of the Fund to Directors
pursuant to deferred compensation arrangements are not deemed
to be a pledge of assets or the issuance of a senior security.
-11-
<PAGE>
4. Purchase any security if as a result: (i) with respect to
seventy-five percent (75%) of the Fund's total assets, more
than five percent (5%) of the Fund's total assets (determined
at the time of investment) would then be invested in
securities of a single issuer, other than the Pax World Money
Market Fund, Inc. (the "Pax World Money Market Fund"), (ii)
more than twenty-five percent (25%) of the Fund's total assets
(determined at the time of the investment) would be invested
in a single industry, or (iii) the Fund would own more than
ten percent (10%) of the outstanding voting securities of a
single issuer, other than the Pax World Money Market Fund.
5. Purchase any security if, as a result, the Fund would then
have more than five percent (5%) of its total assets
(determined at the time of investment) invested in securities
of companies (including predecessors) less than three (3)
years old, except that the Fund may invest in securities
issued by the Pax World Money Market Fund, the securities of
any U.S. Government agency or instrumentality (other than the
U.S. Treasury), and in any security guaranteed by such an
agency or instrumentality, the proceeds of which are earmarked
for a specific purpose which complies with the investment
objectives and policies of the Fund, such as the Federal Farm
Credit Bank, the Federal Home Loan Bank and the Federal
National Mortgage Association.
6. Buy or sell real estate or interests in real estate, except
that the Fund may purchase and sell securities which are
secured by real estate, securities of companies which invest
or deal in real estate and publicly traded securities of real
estate investment trusts. The Fund may not purchase interests
in real estate limited partnerships which are not readily
marketable.
7. Buy or sell commodities or commodity contracts. (For the
purposes of this restriction, futures contracts on currencies
and on securities indices and forward foreign currency
exchange contracts are not deemed to be commodities or
commodity contracts.)
8. Act as underwriter except to the extent that, (i) in
connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under certain federal
securities laws, and (ii) the Fund may invest up to five
percent (5%) of the value of its assets (at time of
investment) in portfolio securities which the Fund might not
be free to sell to the public without registration of such
securities under the Securities Act. The Fund's position in
such restricted securities may adversely affect the liquidity
and marketability of such restricted securities and the Fund
may not be able to dispose of its holdings in these securities
at reasonable price levels. The Fund has not adopted a
fundamental investment policy with respect to investments in
restricted securities. See "Investments and Special
Considerations; Risk Factors -- Illiquid and Restricted
Securities" above.
9. Make investments for the purpose of exercising control or
management.
10. Invest in interests in oil, gas or other mineral exploration
or development programs, except that the Fund may invest in
the securities of companies which invest in or sponsor such
programs.
-12-
<PAGE>
11. Make loans, except that the Fund may enter into repurchase
transactions with parties meeting creditworthiness standards
approved by the Fund's Board of Directors. See "Investments
and Special Considerations; Risk Factors - Repurchase
Agreements" above.
12. Invest more than ten percent (10%) of the value of its assets
in securities of foreign issuers.
In order to comply with certain "blue sky" restrictions, the Fund will not as a
matter of operating policy:
1. Invest in oil, gas and mineral leases.
2. Invest in securities of any issuer if, to the knowledge of the
Fund, any Officer or Director of the Fund, the Adviser or the
Sub-Adviser owns more than one-half of one percent (.5%) of
the outstanding securities of such issuer, and such Officers
and Directors who own more than one-half of one percent (.5%)
own in the aggregate more than five percent (5%) of the
outstanding securities of such issuer.
3. Purchase warrants if, as a result, the Fund would then have
more than five percent (5%) of its assets (determined at the
time of investment) invested in warrants. Warrants will be
valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange
or American Stock Exchange or a major foreign exchange will be
limited to two percent (2%) of the Fund's net assets
(determined at the time of investment). For purposes of this
limitation, warrants acquired in units or attached to
securities are deemed to be without value.
Whenever any fundamental investment policy or investment restriction
states a maximum percentage of the Fund's assets, it is intended that if the
percentage limitation is met at the time the investment is made, a later change
in percentage resulting from changing total or net asset value will not be
considered a violation of such policy.
MANAGEMENT OF THE FUND
The officers of the Fund are responsible for the day-to-day operations
of the Fund and the Board of Directors of the Fund, in addition to overseeing
the Adviser and Sub-Adviser, is responsible for the general policy of the Fund.
The Board of Directors meets four (4) times per year, reviews portfolio
selections and bonding requirements, declares dividends, if any, and reviews the
activities of the executive officers of the Fund. Such activities are consistent
with their fiduciary obligations as directors under the General Corporation Law
of the State of Delaware. The Fund's Adviser and Sub-Adviser furnish daily
investment advisory services.
The following table reflects the name and address, position held with
the Fund and principal occupation during the past five (5) years for those
persons who are the officers and directors of the Fund.
-13-
<PAGE>
<TABLE>
<CAPTION>
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POSITION(S) HELD
NAME, ADDRESS AND AGE WITH THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carl H. Doerge, Jr. Director (since Director, Pax World Fund, Incorporated (1998-present);
867 Remsen Lane 1997) Private investor (1995-present); Executive Vice President
Oyster Bay, NY 11771***; (60) and Managing Director, Smith Barney (1971-1995)
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas W. Grant President; Director President, Pax World Money Market Fund, Inc. (1998-
14 Wall Street (since 1997) present); Vice Chairman of the Board, Pax World Fund,
New York, NY 10005*/**; (57) Incorporated (1996-present); President, Pax World
Management Corp. (1996-present); President, H.G.
Wellington & Co., Inc. (1991-present)
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Anita D. Green Assistant Manager-Shareholder Services for the Pax World Fund
c/o Pax World Management Corp. Treasurer (since Family, Pax World Management Corp. (1990-present); Co-
222 State Street 1997) Treasurer, Pax World Fund, Incorporated (1998-present)
Portsmouth, NH 03801-3853; (34)
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John L. Kidde Director (since President, KDM Development Corporation (1988-present)
c/o KDM Development Corporation 1997)
209 Cooper Avenue, Suite 5-D
Upper Montclair, NJ 07043; (64)
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Joy L. Liechty Director (since Director, Pax World Fund, Incorporated (1991-present);
1403 Ashton Court 1997) Client and Sales Advocate, Mennonite Mutual Aid
Goshen, IN 46526; (45) Association, Goshen, IN 46526 (1989-present)
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James M. Shadek Treasurer (since Account Executive, H.G. Wellington & Co., Inc. (1986-
14 Wall Street 1997) present); Senior Vice President for Social Research, Pax
New York, NY 10005*; (46) World Management Corp. (1996-present)
- -----------------------------------------------------------------------------------------------------------------------------------
Laurence A. Shadek Chairman of the Executive Vice President, Pax World Money Market Fund,
14 Wall Street Board; Director Inc. (1998-present); Chairman of the Board, Pax World
New York, NY 10005*/**; (49) (since 1997) Fund, Incorporated (1996-present); Chairman of the Board,
Pax World Management Corp. (1996-present); Executive
Vice President, H.G. Wellington & Co., Inc. (1986-present)
- -----------------------------------------------------------------------------------------------------------------------------------
Janet Lawton Spates Assistant Operations Manager for the Pax World Fund Family, Pax
c/o Pax World Management Corp. Treasurer (since World Management Corp. (1992-present); Co-Treasurer,
222 State Street 1997) Pax World Fund, Incorporated (1998-present)
Portsmouth, NH 03801-3853, (29)
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Nancy S. Taylor Director (since Director, Pax World Fund, Incorporated (1997-present);
5298 N. Riffle Way 1997) Senior minister, First Congregational Church, Boise, ID
Boise, ID 83703***; (43) (1992-present); Associate minister, Immanuel
Congregational Church, Hartford, CT (1987-1992)
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Lee D. Unterman Secretary (since Secretary, Pax World Fund, Incorporated (1997-present);
c/o Bresler, Goodman & Unterman, LLP 1997) Partner, Bresler Goodman & Unterman, LLP, New York,
521 Fifth Avenue NY (1997-present); Partner, Broudy & Jacobson, New
New York, NY 10175; (48) York, NY (1988-1997)
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</TABLE>
* Designates an "Interested" officer or director, as defined in the
Investment Company Act, by reason of his or her affiliation with the
Adviser.
** Designates a member of the Investment Committee. The Investment
Committee has the responsibility of overseeing the investments of the
Fund.
*** Designates a member of the Audit Committee. The Audit Committee has the
responsibility of overseeing the establishment and maintenance of an
effective financial control environment, for overseeing the procedures
for evaluating the system of internal accounting control and for
evaluating audit performance.
-14-
<PAGE>
No person on such date owned of record or beneficially five percent
(5%) or more of the outstanding Common Stock of the Fund and all officers and
directors as a group own less than one percent (1%) of the outstanding Common
Stock of the Fund.
Certain directors and officers of the Fund are also directors and
officers of Pax World Fund, Incorporated, another investment company managed by
the Adviser, and the Pax World Money Market Fund, a socially responsible money
market fund which is being advised by the Adviser for the specific purpose of
assuring that the social responsibility screens used by such fund are the same
as those applied to the Fund. None of the officers or directors are related to
one another by blood, marriage or adoption, except that Laurence A. Shadek and
James M. Shadek are brothers.
Members of the Board of Directors of the Fund are reimbursed for their
travel expenses for attending meetings of the Board of Directors plus $300.00
for affiliated directors and $1,000.00 for unaffiliated directors.
In addition, the Fund pays $500.00 to each member of the Audit
Committee for attendance at each meeting of the Audit Committee, plus
reimbursement for travel expenses incurred in connection with attending such
meetings. Director's fees paid by the Fund in 1998 and travel expenses
reimbursed by the Fund to members of the Board of Directors (including members
of the Audit Committee) in 1998 aggregated approximately $16,400.00 and
$2,574.00, respectively.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISER; SUB-ADVISER
Pax World Management Corp., 222 State Street, Portsmouth, NH 03801-3853
(the "Adviser") is the adviser to the Fund. It was incorporated in 1970 under
the laws of the State of Delaware. Pursuant to the terms of an Advisory
Agreement entered into between the Fund and the Adviser (the "Advisory
Agreement"), the Adviser, subject to the supervision of the Board of Directors
of the Fund, is responsible for managing the assets of the Fund in accordance
with the Fund's investment objective, investment program and policies. The
Adviser determines what securities and other instruments are purchased and sold
for the Fund and is responsible for obtaining and evaluating financial data
relevant to the Fund. As of December 31, 1998, the Adviser had over $863,000,000
in assets under management by virtue of serving as the adviser to the Fund, the
Pax World Fund and the Pax World Money Market Fund. The Adviser has no clients
other than the Fund, the Pax World Fund, and the Pax World Money Market Fund,
although the Adviser may undertake to advise other clients in the future.
Pursuant to the terms of the Advisory Agreement, the Adviser will be
compensated as follows: in the event that the average daily net assets of the
Fund are less than $5,000,000, the Adviser will be compensated by the Fund for
its services at an annual rate of $25,000; in the event that the average daily
net assets of the Fund are equal to or in excess of $5,000,000, the Adviser will
be compensated by the Fund for its services at an annual rate of one percent
(1%) of average daily net assets up to and including $25,000,000 and
three-quarters of one percent (.75%) of average daily net assets in excess of
$25,000,000.
The Adviser has, however, agreed to supply and pay for such services as
are deemed by the Board of Directors of the Fund to be necessary or desirable
and proper for the continuous operations of
-15-
<PAGE>
the Fund (excluding all taxes and charges of governmental agencies and brokerage
commissions incurred in connection with portfolio transactions) which are in
excess of one and one-half percent (1.5%) of the average daily net assets of the
Fund per annum. Such expenses include (i) management and distribution fees; (ii)
the fees of affiliated and unaffiliated Directors; (iii) the fees of the Fund's
custodian and transfer agent; (iv) the fees of the Fund's legal counsel and
independent accountants; (v) the reimbursement of organization expenses; and
(vi) expenses related to shareholder communications including all expenses of
shareholders' and Board of Directors' meetings and of preparing, printing and
mailing reports, proxy statements and prospectuses to shareholders. In 1998, the
Adviser was required to supply and assume a total of $286,966 for such services.
The Advisory Agreement provides that (i) it may be terminated by the
Fund or the Adviser at any time upon not more than sixty (60) days, nor less
than thirty (30) days, written notice, and (ii) will terminate automatically in
the event of its assignment (as defined in the Investment Company Act). In
addition, the Advisory Agreement provides that it may continue in effect for a
period of more than two (2) years from its execution only so long as such
continuance is specifically approved at least annually in accordance with the
requirements of the Investment Company Act. The Advisory Agreement was approved
by the Board of Directors, including a majority of the Directors who are not
parties to the contract or interested persons of any such party, as defined in
the Investment Company Act, on June 11, 1998.
H. G. Wellington Capital Management, a division of H. G. Wellington &
Co., Inc., 14 Wall Street, New York, NY 10005 (the "Sub-Adviser") is the
sub-adviser to the Fund. H. G. Wellington & Co., Inc. was incorporated in 1984
under the laws of the State of Delaware and is also a registered broker-dealer.
Pursuant to the terms of a Sub-Advisory Agreement between the Adviser
and the Sub-Adviser, the Sub-Adviser furnishes investment advisory services in
connection with the management of the Fund, determines what securities and other
instruments are purchased and sold for the Fund and is responsible for obtaining
and evaluating financial data relevant to the Fund. In the event that the
average daily net assets of the Fund are less than $5,000,000, the Sub-Adviser
will be compensated by the Adviser for its services at an annual rate of
$25,000; in the event that average daily net assets of the Fund are equal to or
in excess of $5,000,000, the Sub-Adviser will be compensated by the Adviser for
its services at an annual rate of one-third of one percent (.33%) of average
daily net assets up to and including $25,000,000 and one-quarter of one percent
(.25%) of average daily net assets in excess of $25,000,000, but in no event to
exceed the annual sum of $250,000 net of expenses.
Mr. Thomas W. Grant, the President of the Adviser, is also the
President of the Sub-Adviser (which is a division of H.G. Wellington & Co.,
Inc., the Fund's distributor) and has been associated with that firm since 1991.
Mr. Grant served previously with the firm of Fahnestock & Co. for twenty-six
years as a partner, managing director and senior officer. His duties encompassed
branch office management, corporate finance, syndications and municipal and
corporate bonds. Mr. Grant serves as a member of the Board of Directors of the
Fund.
Mr. Laurence A. Shadek, the Chairman of the Board of Directors of the
Adviser, is also an Executive Vice-President of the Sub-Adviser (which is a
division of H.G. Wellington & Co., Inc., the Fund's distributor) and, together
with members of his family, owns a twenty-six and sixty-seven one hundredths
percent (26.67%) interest in the Sub-Adviser. Mr. Shadek has been associated
with that firm since March 1986. He was previously associated with Stillman,
Maynard & Co., where he was a general partner. Mr. Shadek's investment
experience includes twelve years as a limited partner and Account Executive with
the firm Moore & Schley. Mr. Shadek serves as a member of the Board of Directors
of the Fund.
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<PAGE>
Mr. Robert P. Colin, an employee of the Adviser and Sub-Adviser, is the
Portfolio Manager of the Fund and the Portfolio Co-Manager of the Pax World
Fund. He is the person responsible for the day-to- day management of the Fund's
portfolio. Mr. Colin received his bachelor of arts degree from Rutgers
University and his masters in business administration - finance from New York
University. Mr. Colin joined H. G. Wellington Capital Management, a division of
the Sub-Adviser, in 1991 as a Senior Vice President and Senior Portfolio
Manager. Mr. Colin was one of the original founders of Faulkner, Dawkins &
Sullivan in 1959, serving as Director of Research and Investment Strategy. After
Faulkner, Dawkins & Sullivan merged with Shearson Lehman, and later, American
Express, Mr. Colin worked briefly for Merrill Lynch Asset Management before
joining Bessemer Trust Company in 1978 as a Senior Portfolio Manager. In 1983,
Mr. Colin joined General Electric Investment Corporation as a Senior Vice
President of Equity Portfolios with responsibilities for various funds under
General Electric's control, including its own pension fund. Mr. Colin, who is a
Chartered Financial Analyst, has contributed numerous articles on investment
research to professional journals and has served as a consultant to a number of
publicly-owned corporations.
The following table shows the approximate amount of the advisory and
sub-advisory fees of the Fund for the period commencing on June 9, 1997 (the
date operation commenced) and ending on December 31, 1997 and for the year ended
December 31, 1998.
Approximate Approximate
Amount of Amount of
Advisory Fees Sub-advisory Fees
Period commencing June 9, 1997
(the date operation commenced) to
December 31, 1997 ................ $12,500.00 $14,583.00
Year ended December 31, 1998 .......... $69,558.00 $27,591.00
In connection with this offering, the Fund, the Adviser and the
Sub-Adviser have been represented by single counsel. Therefore, to the extent
that the Fund and this offering would benefit by further independent review,
such benefit will not be available in this offering.
DISTRIBUTION
The Fund maintains a distribution expense plan (the "Plan") pursuant to
Rule 12b-1 under the Investment Company Act pursuant to which the Fund incurs
the expenses of distributing the Fund's shares. These expenses include (but are
not limited to) advertising expenses, the cost of printing and mailing
prospectuses to potential investors, commissions and account servicing fees paid
to, or on account of, broker-dealers or certain financial institutions which
have entered into agreements with the Fund, compensation to and expenses
incurred by officers, directors and/or employees of the Fund for their
distributional services and indirect and overhead costs associated with the sale
of Fund shares (including, but not limited to, travel and telephone expenses).
The Plan provides that the Fund may incur distribution expenses of up
to twenty-five one hundredths of one percent (.25%) per annum of its average
daily net assets to finance activity which is primarily intended to result in
the sale of Fund shares. Such expenses include (but are not limited to) travel
and telephone expenses, preparation and distribution of sales literature and
advertising, compensation to be paid to and expenses to be incurred by officers,
directors and/or employees of the
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Fund, or other third parties for their distributional service if sales of Fund
shares are made by such third parties during a fiscal year. So long as the Fund
is operating within such limitation, however, the Fund may pay to one or more of
its 12b-1 distributors (i) up to twenty-five hundredths of one percent (.25%)
per annum of its average daily net assets for personal service and/or the
maintenance of shareholder accounts as defined by Rule 2830 of the National
Association of Securities Dealers Rules of Conduct, and (ii) total distribution
fees (including the service fee of twenty-five hundredths of one percent (.25%))
up to thirty-five hundredths of one percent (.35%) per annum of its average
daily net assets. During the most recent fiscal year, amounts incurred by the
Fund under the Plan for clerical, advertising, printing, postage and sales
expenses (travel, telephone, and sales literature) totaled $129,787:
advertising, $20,624; printing and postage, $73,137; and sales related expenses,
$36,026. Of such total, the Adviser assumed $109,561, leaving a net of $20,226
paid by the Fund.
The Plan will continue in effect from year to year, provided that each
such continuance is approved at least annually by a vote of the Board of
Directors, including a majority vote of the directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement related to the Plan (the "Rule 12b-1
Directors"), cast in person at a meeting called for the purpose of voting on
such continuance. The Plan may be terminated at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Directors or by the vote of the holders
of a majority of the outstanding shares of the Fund on not more than sixty (60)
days, nor less than thirty (30) days, written notice to any other party to the
Plan. The Plan may not be amended to increase materially the amounts to be spent
for the services described therein without approval by the shareholders of the
Fund, and all material amendments are required to be approved by the Board of
Directors in the manner described above. The Plan will automatically terminate
in the event of its assignment. The Fund will not be obligated to pay expenses
incurred under the Plan if it is terminated or not continued.
Pursuant to the Plan, the Board of Directors will review at least
quarterly a written report of the distribution expenses incurred on behalf of
the Fund. The report will include an itemization of the distribution expenses
and the purposes of such expenditures.
The Plan was adopted on June 6, 1997 and approved on June 11, 1998 by
the Board of Directors of the Fund, including a majority of the 12b-1 Directors,
at a meeting called for the purpose of voting on such Plan.
Pursuant to the Plan, the Fund has entered into a Distribution
Agreement (the "Distribution Agreement") with H.G. Wellington & Co., Inc., 14
Wall Street, New York, NY 10005 (the "Distributor"), of which the Sub-Adviser is
a division. Under the Distribution Agreement, the Distributor serves as
distributor of the Fund's shares and, for nominal consideration and as agent for
the Fund, solicits orders for the purchase of Fund shares, provided, however,
that orders are not binding on the Fund until accepted by the Fund as principal.
The Distribution Agreement will continue in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Directors, including a majority of the Rule 12b-1 Directors, cast in person
at a meeting called for the purpose of voting on such continuance. The
Distribution Agreement may be terminated at any time, without penalty, by a vote
of a majority of the Rule 12b-1 Directors or by a vote of the holders of a
majority of the outstanding shares of the Fund on sixty (60) days written notice
to the Distributor or by the Distributor on sixty (60) days written notice to
the Fund.
The Distribution Agreement was adopted on June 11, 1998 by the Board of
Directors of the Fund, including a majority of the Rule 12b-1 Directors, cast in
person at a meeting called for the purpose of voting on such agreement.
In connection with this offering, the Fund and the Distributor have
been represented by single counsel. Therefore, to the extent that the Fund and
this offering would benefit by further independent review, such benefit will not
be available in this offering.
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CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 (the "Custodian"), serves as custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Fund.
PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809 (the "Transfer
Agent"), serves as the transfer and dividend disbursing agent for the Fund. The
Transfer Agent provides customary transfer agency services to the Fund,
including the handling of shareholder communications, the processing of
shareholder transactions, the maintenance of shareholder account records,
payment of dividends and distributions and related functions. For these
services, the Transfer Agent receives an annual fee per shareholder account of
Ten Dollars ($10.00), a new account set-up fee for each manually established
account of Five Dollars ($5.00) and a monthly inactive zero balance account fee
per shareholder account of Thirty Cents ($0.30). The Transfer Agent is also
reimbursed for its out-of-pocket expenses, including but not limited to postage,
stationery, printing, allocable communication expenses and other costs.
Shareholder inquiries relating to a shareholder account should be directed to
the Transfer Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE
19899-8930.
Pannell Kerr Forster PC, 125 Summer Street, Boston, MA 02110 serves as
the Fund's independent accountants, and in that capacity audits the Fund's
annual reports.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser and Sub-Adviser are responsible for decisions to buy and
sell securities and options on securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of brokerage
commissions, if any. Broker-dealers may receive negotiated brokerage commissions
on Fund portfolio transactions, including options and the purchase and sale of
underlying securities upon the exercise of options. Orders may be directed to
any broker including, to the extent and in the manner permitted by applicable
law, the Sub-Adviser and its affiliates.
Equity securities traded in the over-the-counter market and bonds,
including convertible bonds, are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation payable to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, certain money market
instruments and U.S. Government agency securities may be purchased directly from
the issuer, in which case no commissions or discounts are paid.
In placing orders for portfolio securities of the Fund, the Fund is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Fund will consider
the research and investment services provided by brokers and dealers who effect
or are parties to portfolio transactions of the Fund. Such research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and
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economic data and research reports on particular companies and industries. Such
services are used by the Fund in its investment activities. Commission rates are
established pursuant to negotiations with the broker or dealer based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The Fund's policy is to pay higher commissions to
brokers, other than the Sub-Adviser, for particular transactions than might be
charged if a different broker had been selected, on occasions when, in the
Fund's opinion, this policy furthers the objective of obtaining best price and
execution. In addition, the Fund is authorized to pay higher commissions on
brokerage transactions for the Fund to brokers other than the Sub-Adviser (or
any affiliate) in order to secure research and investment services described
above, subject to review by the Fund's Board of Directors from time to time as
to the extent and continuation of this practice. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Board of Directors.
Subject to the above considerations, the Sub-Adviser (or any affiliate)
may act as a securities broker for the fund. In order for the Sub-Adviser (or
any affiliate) to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the Sub-Adviser (or any
affiliate) must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
during a comparable period of time. This standard would allow the Sub-Adviser
(or any affiliate) to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Board of Directors of the Fund, including a
majority of the Directors who are not "interested" persons, has adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to the Sub-Adviser (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, the Sub-Adviser may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. The Sub-Adviser must
furnish to the Fund at least annually a statement setting forth the total amount
of all compensation retained by the Sub-Adviser from transactions effected for
the Fund during the applicable period. Brokerage with the Sub-Adviser is also
subject to such fiduciary standards as may be imposed by applicable law.
For the period commencing on June 9, 1997 (the date operations
commenced) and ending on December 31, 1997 and for the year ended December 31,
1998, brokerage commissions amounted to approximately $24,903 and $66,919,
respectively.
All of the issued and outstanding shares of capital stock of the
Adviser are currently owned by Mr. Laurence A. Shadek and his three siblings,
Messrs. Thomas F. Shadek and James M. Shadek and Ms. Katherine Shadek Boyle. In
addition, the Shadek family has a twenty-six and sixty-seven one hundredths
percent (26.67%) ownership interest in the Distributor, of which the Sub-Adviser
is a division, and which is a brokerage firm which the Fund may utilize to
execute security transactions. Brokerage commissions paid by the Fund to the
Distributor for the period commencing on June 9, 1997 (the date operations
commenced) and ending on December 31, 1997 and for the year ended December 31,
1998 totaled $7,700 and $20,799 respectively (31% and 31%, respectively, of the
total commissions for such period and year, respectively).
NET ASSET VALUE
Under the Investment Company Act, the Board of Directors is responsible
for determining in good faith the fair value of securities of the Fund. In
accordance with procedures adopted by the Board of Directors, the value of
investments listed on a securities exchange and NASDAQ National Market
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System securities (other than options on stock and stock indices) are valued at
the last sales price on the day of valuation, or, if there was no sale on such
day, the mean between the last bid and asked prices on such day, as provided by
a pricing service. Corporate bonds (other than convertible debt securities) and
U.S. Government securities that are actively traded in the over-the-counter
market, including listed securities for which the primary market is believed to
be over-the-counter, are valued on the basis of valuations provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, agency ratings, market transactions in comparable securities
and various relationships between securities in determining value. Convertible
debt securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the last reported bid and asked
prices provided by principal market makers or independent pricing agents.
Options traded on an exchange are valued at the mean between the most recently
quoted bid and asked prices on the respective exchange. Should an extraordinary
event, which is likely to affect the value of the security, occur after the
close of an exchange on which a portfolio security is traded, such security will
be valued at fair value considering factors determined in good faith by the
Adviser under procedures established by and under the general supervision of the
Fund's Board of Directors.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Board of Directors. Short-term debt securities are valued at cost, with interest
accrued or discount amortized to the date of maturity, if their original
maturity was sixty (60) days or less, unless this is determined by the Board of
Directors not to represent fair value. Short-term securities with remaining
maturities of sixty (60) days or more, for which market quotations are readily
available, are valued at their current market quotations as supplied by an
independent pricing agent or principal market maker. The Fund will compute its
net asset value as of 4:00 P.M., New York time, on each day the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem Fund shares have been received or days on which changes in the value
of the Fund's portfolio securities do not affect net asset value. In the event
the New York Stock Exchange closes early on any business day, the net asset
value of the Fund's shares shall be determined at a time between such closing
and 4:00 P.M., New York time.
CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
The Fund may from time to time advertise its average annual total
return. Average annual total return is computed according to the following
formula:
P (1+T) (n) = ERV
Where: P = a hypothetical initial payment of $1,000.00
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a
hypothetical $1,000.00 payment made
at the beginning of the one, five or
ten year periods (or fractional
portion thereof).
Average annual total return takes into account any applicable initial
or deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
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PURCHASE, REDEMPTION AND EXCHANGE
OF FUND SHARES
PURCHASE OF SHARES
IN GENERAL
The minimum initial investment is $250.00; the minimum subsequent
investment is $50.00. There is no minimum investment, however, for SIMPLE IRAs
and "tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code, as amended (the "Internal Revenue Code"). See "Shareholder Services -
Tax-Deferred Retirement Plans and Accounts" below.
Shares of the Fund are offered for sale by the Fund on a continuous
basis at the NAV, plus an initial sales charge. In some cases, however,
purchases are not subject to an initial sales charge, and the offering price is
the NAV. See "Waiver of Sales Charges" below. The Fund will compute its NAV once
daily as of 4:00 P.M., New York time, on days that the New York Stock Exchange
is open for trading except on days on which no orders to purchase, sell or
redeem shares have been received by the Fund or days on which changes in the
value of the Fund's portfolio securities do not materially affect the NAV. NAV
is computed by dividing the value of the Fund's net assets (i.e., the value of
its assets less liabilities) by the total number of shares of the Fund
outstanding. The Fund's investments are valued on the basis of market value or,
where market quotations are not readily available, fair value as determined in
good faith under procedures established by the Fund's Board of Directors. For
further information regarding the methods employed in valuing the Fund's
investments, see "Net Asset Value" above.
If an order is received in proper form by the Transfer Agent or other
entity authorized to receive orders on behalf of the Fund by the close of
trading on the floor of the New York Stock Exchange (currently 4:00 P.M., New
York time) on a business day, Fund shares will be purchased at the public
offering price determined as of the close of trading on the floor of the New
York Stock Exchange on that day; otherwise, Fund shares will be purchased at the
public offering price determined as of the close of trading on the floor of the
New York Stock Exchange on the next business day, except where shares are
purchased through certain financial institutions that have entered into
agreements with the Fund as provided below.
Orders for the purchase of Fund shares received, by certain financial
institutions that have entered into agreements with the Fund, by the close of
trading on the floor of the New York Stock Exchange on any business day and
transmitted to the Transfer Agent or other entity authorized to receive orders
on behalf of the Fund by 8:00 P.M., New York time (or, due to unforeseen
circumstances, by 9:30 A.M., New York time, on the following business day) will
be based on the NAV, plus applicable sales charges, determined as of the close
of trading on the floor of the New York Stock Exchange on the day that such
order was received by such financial institution. Otherwise, the orders will be
based on the next determined NAV, plus applicable sales charges. It is the
financial institution's responsibility to transmit orders so that they will be
received by the Transfer Agent or such other entity on a timely basis.
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<PAGE>
If a stock certificate is desired, it must be requested in writing for
each transaction. Certificates are issued only for full shares. There is no
charge to the investor for issuance of a certificate.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares.
WAIVER OF SALES CHARGES
No initial sales charges are imposed on shares of the Fund purchased
upon the exchange of shares of the Pax World Fund or the Pax World Money Market
Fund or the reinvestment of dividends and distributions. It is also contemplated
that no initial sales charges will be imposed on shares of the Fund purchased
upon the exchange of shares of each new Pax World mutual fund. In addition,
shares of the Fund may be purchased at NAV, without payment of an initial sales
charge, by (i) any investor provided that the amount invested by such investor
in the Fund or other Pax World Mutual Funds totals at least $1,000,000; (ii) any
pension, profit-sharing or other employee benefit plans qualified under Section
401 of the Internal Revenue Code, IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs,
Simplified Employee Pension - IRA plans and retirement and deferred compensation
and annuity plans and trusts used to fund those plans, including, but not
limited to, those defined in Sections 401 (a), 403(b) or 457 of the Internal
Revenue Code and "rabbi trusts"; (iii) trustees, officers, directors, employees
(including retirees) and sales representatives of the Fund, the Adviser, the
Sub-Adviser or certain affiliated companies, for themselves, their spouses and
their dependent children; (iv) registered representatives and employees of
broker-dealers having selling group agreements with the Fund, for themselves,
their spouses and their dependent children; (v) investment advisers or financial
planners who place trades for their own accounts or the accounts of their
clients and who charge a management, consulting or other fee for their services
and clients of such investment advisors or financial planners who place trades
for their own accounts if the accounts are linked to the master account of such
investment advisor or financial planner on the books and records of the broker
or agent, or (vi) at the discretion of the Board of Directors the Fund. Finally,
if you redeem your shares and have not previously exercised the repurchase
privilege, you may reinvest, within ninety (90) days after the date of
redemption, any portion or all of the proceeds of such redemption in shares of
the Fund at the NAV next determined after the order is received without payment
of an initial sales charge.
You must notify the Transfer Agent that you are entitled to the
reduction or waiver of the sales charge. The reduction or waiver will be granted
subject to confirmation of your entitlement.
SALE OF SHARES
IN GENERAL
Shares of the Fund can be redeemed at any time for cash at the NAV per
share. See "How the Fund Values its Shares" in the Prospectus; and "Net Asset
Value" above.
INVOLUNTARY REDEMPTION
In order to reduce expenses of the Fund, the Board of Directors may
redeem all of the shares of any shareholder, other than a shareholder which is
an IRA or other tax-deferred retirement plan, whose account has a balance of
less than $250.00 due to a redemption. The Fund will give any such shareholder
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<PAGE>
sixty (60) days prior written notice in which to purchase sufficient additional
shares to avoid such redemption.
EXCHANGE OF SHARES
The Fund makes available to its shareholders the privilege of
exchanging their shares of the Fund for shares of the Pax World Fund and Pax
World Money Market Fund, subject to the minimum investment requirement of such
funds. All exchanges are made on the basis of relative net asset value next
determined after receipt of an order in proper form. An exchange will be treated
as a redemption and purchase for tax purposes. Shares of the Fund may be
exchanged for shares of the Pax World Fund and Pax World Money Market Fund only
if legally permissible under applicable state laws. It is contemplated that this
Exchange Privilege will be applicable to any new Pax World Mutual Funds.
Additional details about the Exchange Privilege and prospectuses for
each of the Pax World Mutual Funds are available from the Fund or the Fund's
Transfer Agent. The Exchange Privilege may be modified, terminated or suspended
on sixty (60) days notice.
TAXES
The Fund is qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. This relieves the Fund (but not its shareholders) from paying federal
income tax on income which is distributed to shareholders and permits net
long-term capital gains of the Fund (i.e., the excess of net long-term capital
gains over net short-term capital losses) to be treated as long-term capital
gains of the shareholders, regardless of how long shareholders have held their
shares in the Fund.
Qualification as a regulated investment company requires, among other
things, that (a) at least ninety percent (90%) of the Fund's annual gross income
(without reduction for losses from the sale or other disposition of securities)
be derived from interest, dividends, and gains from the sale or other
disposition of securities or options thereon or foreign currencies, or other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such securities
or currencies; (b) the Fund diversify its holdings so that, at the end of each
quarter of the taxable year (i) at least fifty percent (50%) of the market value
of the Fund's assets is represented by cash, U.S. Government securities and
other securities limited in respect of any one issuer to an amount not greater
than five percent (5%) of the market value of the Fund's assets and ten percent
(10%) of the outstanding voting securities of such issuer, and (ii) not more
than twenty-five percent (25%) of the value of its assets is invested in the
securities of any one industry (other than U.S. Government securities); and (c)
the Fund distribute to its shareholders at least ninety percent (90%) of its net
investment income (including short-term capital gains) other than long-term
capital gains in each year.
Gains or losses on sales of securities by the Fund will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one (1) year except in certain cases where the Fund acquires a put or
writes a call thereon or makes a short sale against-the-box. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will generally be treated as gains and losses from the sale of
securities (assuming they do not qualify as Section 1256 contracts). If an
option written by the Fund on securities lapses or is terminated through a
closing transaction, such as a repurchase by the Fund of the option from its
holder, the Fund will generally realize short-term capital gain or loss. If
securities are
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sold by the Fund pursuant to the exercise of a call option written by it, the
Fund will include the premium received in the sale proceeds of the securities
delivered in determining the amount of gain or loss on the sale. Certain of the
Fund's transactions may be subject to wash sale, short sale, conversion
transaction and straddle provisions of the Internal Revenue Code. In addition,
debt securities acquired by the Fund may be subject to original issue discount
and market discount rules.
Gain or loss on the sale, lapse or other termination of options on
stock will be capital gain or loss and will be long-term or short-term depending
upon the holding period of the option. In addition, positions which are part of
a straddle will be subject to certain wash sale and short sale provisions of the
Internal Revenue Code. In the case of a straddle, the Fund may be required to
defer the recognition of losses on positions it holds to the extent of any
unrecognized gain on offsetting positions held by the Fund. The conversion
transaction rules may apply to certain transactions to treat all or a portion of
the gain thereon as ordinary income rather than as capital gain.
The Fund is required to distribute ninety-eight percent (98%) of its
ordinary income in the same calendar year in which it is earned. The Fund is
also required to distribute during the calendar year ninety-eight percent (98%)
of the capital gain net income it earned during the twelve (12) months ending on
October 31 of such calendar year, as well as all undistributed ordinary income
and undistributed capital gain net income from the prior year or the twelve (12)
month period ending on October 31 of such prior year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a nondeductible four percent (4%) excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have the
effect of reducing the per share net asset value of the investor's shares by the
per share amount of the dividends. Furthermore, such dividends, although in
effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
SHAREHOLDER SERVICES
The Fund makes available to its shareholders the following privileges
and plans:
AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR
DISTRIBUTIONS WITHOUT A SALES CHARGE
For the convenience of investors, all dividends and distributions, if
any, will be automatically reinvested in additional full and fractional shares
of the Fund. An investor may direct the Transfer Agent in writing not less than
five (5) days prior to the ex-dividend date to receive (i) such dividends in
cash and distributions in additional shares or (ii) such dividends and
distributions in cash. Any shareholder who receives a cash payment representing
a dividend or distribution may reinvest such dividend or distribution at net
asset value by returning the check or the proceeds to the Transfer Agent within
thirty (30) days after the payment date. Such investment will be made at the net
asset value per share next determined after receipt of the check or proceeds by
the Transfer Agent.
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AUTOMATIC INVESTMENT PLAN
Under the Fund's Automatic Investment Plan, an investor may arrange to
have a fixed amount automatically invested in shares of the Fund monthly or
quarterly by authorizing his or her bank account to be debited to invest
specified dollar amounts in shares of the Fund. The investor's bank must be a
member of the Automatic Clearing House System. Stock certificates are not issued
to Automatic Investment Plan participants.
Further information about this plan and an application form can be
obtained from the Fund or the Transfer Agent.
TAX-DEFERRED RETIREMENT PLANS AND ACCOUNTS
Various tax-deferred retirement plans and accounts, including IRAs,
Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee Pension-IRA plans
and "tax-sheltered accounts" under Section 403(b)(7) of the Internal Revenue
Code are available through the Fund. Information regarding the establishment of
these plans, and the administration, custodial fees and other details are
available from the Fund or the Transfer Agent.
Investors who are considering the adoption of such a plan should
consult with their own legal counsel or tax adviser with respect to the
establishment and maintenance of any such plan.
SYSTEMATIC WITHDRAWAL PLANS
A systematic withdrawal plan is available to shareholders through the
Transfer Agent. Such withdrawal plan provides for monthly, bimonthly, quarterly
or semi-annual checks in any amount, except as provided below, up to the value
of the shares in the shareholder's account.
In the case of shares held through the Transfer Agent (i) a $10,000.00
minimum account value applies, (ii) withdrawals may not be for less than $100.00
and (iii) the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan.
The Transfer Agent acts as agent for the shareholder in redeeming
sufficient full and fractional shares to provide the amount of the periodic
withdrawal payment. The systematic withdrawal plan may be terminated at any
time, and the Fund reserves the right to initiate a fee of up to Five Dollars
($5.00) per withdrawal, upon thirty (30) days written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income. If
periodic withdrawals continuously exceed reinvested dividends and distributions,
the shareholder's original investment will be correspondingly reduced and
ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be recognized for federal income tax purposes.
Each shareholder should consult his or her own tax adviser with regard to the
tax consequences of the plan, particularly if used in connection with a
retirement plan.
REPORTS TO SHAREHOLDERS
The Fund will send annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
In order to reduce duplicate mailing and printing
-26-
<PAGE>
expenses, the Fund will provide one annual and semi-annual shareholder report
and one annual prospectus per household. You may request additional copies of
such reports by writing to the Fund at 222 State Street, Portsmouth, NH
03801-3853, telephoning the Fund at 800-767-1729 (toll-free), visiting the
Fund's web site at http://www.paxfund.com or visiting the SEC's web site at
http://www.sec.gov for such purpose. In addition, monthly unaudited financial
data are available upon request from the Fund.
SHAREHOLDER INQUIRIES
Inquiries should be directed to the Transfer Agent at Pax World Fund
Family, P.O. Box 8930, Wilmington, DE 19899-8930, or by telephone at
800-372-7827 (toll-free) or, from outside the United States, at 302-791-2844
(collect).
-27-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Pax World Growth Fund, Inc.
We have audited the statement of assets and liabilities of Pax World Growth
Fund, Inc., including the schedule of investments, at December 31, 1998, and the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights, both for the year then ended
and the period March 12, 1997 (the date of incorporation) to December 31, 1997.
These financial statements and financial highlights are the responsibility of
the Fund's 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 audits 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. 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 Pax
World Growth Fund, Inc. at December 31, 1998, the results of its operations for
the year then ended, and the changes in its net assets and the financial
highlights, both for the year then ended and the period March 12, 1997 (the date
of incorporation) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ PANNELL KERR FORSTER PC
Boston, MA
January 19, 1999
-28-
<PAGE>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
Investments, at value - note A
<S> <C>
Common stocks (cost - $8,898,780) ........................................ $10,160,526
Pax World Money Market Fund (cost - $1,779,277) .......................... 1,779,277
-----------
11,939,803
Cash........................................................................... 429,815
Receivables
Dividends and interest.................................................... 22,930
Organization costs - note A.................................................... 3,500
Deferred offering costs - note A............................................... 29,503
Deferred registration fees - note A ........................................... 15,058
-----------
Total assets......................................................... 12,440,609
-----------
LIABILITIES
Payables
Capital stock reacquired.................................................. 19,005
Organization costs, deferred offering costs and deferred registration fees
payable to Adviser - note A........................................... 48,061
Accrued expenses............................................................... 1,452
-----------
Total liabilities..................................................... 68,518
-----------
Net assets (equivalent to $11.13 per share based on
1,111,771 shares of capital stock outstanding) - note E...... $12,372,091
-----------
Net asset value and redemption price per share
($12,372,091 / 1,111,771 shares outstanding)................. $11.13
------
Offering price per share......................................... $11.42
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-29-
<PAGE>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Investment (loss)
Income - note A
Dividends
<S> <C> <C>
Pax World Money Market Fund $ 4,007
Other investments 55,304 $ 59,311
---------
Interest.............................................. 12,359
----------
Total income..................................... 71,670
Expenses
Investment advisory fee - note B...................... 69,558
Distribution expenses - note D ....................... 129,787
Legal fees and related expenses - note B.............. 56,264
Custodian fees - note F............................... 39,320
Transfer agent fee.................................... 38,334
Printing and mailing.................................. 36,438
Registration fees - note A............................ 28,649
Audit fees............................................ 24,167
Directors' fees and expenses - note B................. 18,992
Amortization of organization costs, deferred offering
costs and deferred registration fees - note A.... 13,732
Other................................................. 3,049
State taxes........................................... 720
--------
Total expenses................................... 459,010
Less: Fees paid indirectly - note F.............. (9,834)
Expenses assumed by Adviser - notes B and G...... (328,347)
--------
Net expenses................................ 120,829
----------
Investment (loss), net........................... (49,159)
----------
Realized and unrealized gain on investments - note C
Net realized gain on investments.......................... 192
Unrealized appreciation of investments
for the year ......................................... 1,481,290
----------
Net gain on investments.......................... 1,481,482
----------
Net increase in net assets resulting from operations $1,432,323
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-30-
<PAGE>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Period
March 12, 1997
(the date of
incorporation)
Year Ended to
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -------------
Increase in net assets
Operations
Investment (loss), net................... $ (49,159) $ (6,313)
Net realized gain on investments......... 192 45
Change in unrealized appreciation
(depreciation) of investments
for the period..................... 1,481,290 (219,544)
----------- ----------
Net increase (decrease) in net
assets resulting from operations 1,432,323 (225,812)
Capital share transactions - note E.......... 6,334,540 4,831,040
----------- ----------
Net increase in net assets.......... 7,766,863 4,605,228
Net assets
Beginning of period.......................... 4,605,228 --
----------- ----------
End of period (net of accumulated investment
loss, net: $55,472 and $6,313,
respectively) ........................... $12,372,091 $4,605,228
----------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
-31-
<PAGE>
PAX WORLD GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS
BIO-TECHNOLOGY
<S> <C> <C>
Amgen, Inc........................................ 5,000 $ 522,812
BioChem Pharmaceuticals, Inc. .................... 5,000 143,125
Centocor, Inc. ................................... 10,000 451,250
Chiron Corp. ..................................... 10,000 261,875
Genentech, Inc. .................................. 7,000 557,813
----------
1,936,875 15.6%
CONSUMER PRODUCTS AND SERVICES
Crestline Capital Corp. .......................... 2,000 29,250
General Nutrition Co., Inc. ...................... 10,000 162,500
Host Marriott Corp. .............................. 20,000 276,250
MediaOne Group, Inc............................... 10,000 470,000
PETsMART, Inc..................................... 15,000 165,000
Sony Corp. ADR.................................... 5,000 358,750
Sylvan Learning Systems, Inc. .................... 10,000 305,000
----------
1,766,750 14.3
DATA/NETWORK PRODUCTS AND SERVICES
AVT Corp. ........................................ 10,000 290,000
Netscape Communications Corp. ................... 10,000 607,500
Network Associates Inc. .......................... 6,000 397,500
Tellabs, Inc...................................... 3,000 205,688
----------
1,500,688 12.1
ELECTRONIC SYSTEMS AND SERVICES
Electro Scientific Industries, Inc. .............. 5,000 226,562
Robotic Vision Systems, Inc. .................... 20,000 56,250
Sanmina Corp. ................................... 5,000 312,500
Symbol Technologies, Inc.......................... 5,000 319,688
----------
915,000 7.4
ENERGY
Baker Hughes, Inc. ............................... 7,770 137,432
EEX Corp. ....................................... 10,000 70,000
Enron Corp. .................................... 5,000 285,313
R&B Falcon Corp................................... 5,000 38,125
----------
530,870 4.3
</TABLE>
-32-
<PAGE>
PAX WORLD GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS
FINANCIAL
<S> <C> <C> <C>
MONY Group, Inc. ................................. 4,000 $ 125,250
Unum Corp......................................... 10,000 583,750
----------
709,000 5.7%
HEALTH CARE SERVICES
HBO & Co. ........................................ 10,000 286,875
Sunrise Assisted Living, Inc...................... 10,000 518,750
----------
805,625 6.5
INDUSTRIAL - COMMERCIAL
Airborne Freight.................................. 12,000 432,750 3.5
----------
MEDICAL DEVICES
Steris Corp....................................... 10,000 284,375 2.3
----------
PHARMACEUTICALS
INCYTE Pharmaceuticals, Inc....................... 7,500 280,312 2.3
----------
SATELLITE SYSTEMS
GM Hughes Electronics............................. 10,000 396,875 3.2
----------
TELECOMMUNICATIONS
Nextel Communications, Inc........................ 10,000 236,250
Telefonos de Mexico "L" ADS....................... 7,500 365,156
----------
601,406 4.9
---------- -----
TOTAL COMMON STOCKS .......................... 10,160,526 82.1
----------- -----
MONEY MARKET SHARES
Pax World Money Market Fund ......................... 1,779,277 1,779,277 14.4
----------- -----
TOTAL INVESTMENTS ............................ 11,939,803 96.5
Cash, receivables and deferred costs less
liabilities ...................................... 432,288 3.5
----------- -----
NET ASSETS ................................... $12,372,091 100.0%
----------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-33-
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pax World Growth Fund, Inc. ("Fund"), incorporated in Delaware on March 12,
1997, is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Fund commenced operations on
June 9, 1997 with the issuance of 10,000 shares of capital stock to Pax World
Management Corp., the Fund's Adviser ("Adviser"). Investment operations
commenced July 9, 1997.
The Fund's policy is to invest in securities of companies producing goods
and services that improve the quality of life and that are not, to any degree,
engaged in manufacturing defense or weapons-related products. Its investment
objective is long-term growth of capital. It seeks to achieve this objective by
investing primarily in equity securities (common stock, securities convertible
into common stock and preferred stock) of established companies with
above-average growth prospects. Current income, if any, is incidental.
VALUATION OF INVESTMENTS
Securities listed on any national, regional or local exchange are valued at
the closing prices on such exchanges. Securities listed on the NASDAQ national
market system are valued using quotations obtained from the market maker where
the security is traded most extensively. Shares in money market funds are valued
at $1 per share.
INVESTMENT TRANSACTIONS
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses are determined on the identified cost
basis, which is also used for Federal income tax purposes.
INVESTMENT INCOME
Dividend income is recognized on the ex-dividend date. Interest income is
recognized on the accrual basis.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Fund ($5,000)
were paid by the Adviser. These costs were capitalized and are being amortized
on a straight-line basis over 60 months from July 9, 1997, the date investment
operations commenced; a corresponding payable to the Adviser was recorded by the
Fund. The costs will be repaid to the Adviser in accordance with the
amortization schedule. Amortization expense of $1,000 for the year ended
December 31, 1998 is included on the statement of operations. Reference is made
to note G.
DEFERRED OFFERING COSTS
Costs incurred in connection with the initial offering of the Fund's shares
($42,148) were paid by the Adviser. These costs were capitalized by the Fund and
are being amortized on a straight-line basis over 60 months from July 9, 1997,
the date investment operations commenced; a corresponding payable to the Adviser
was recorded by the Fund. These costs will be repaid to the Adviser in
accordance with the amortization schedule. Amortization expense of $8,430 for
the year ended December 31, 1998 is included on the statement of operations.
Reference is made to note G.
-34-
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DEFERRED REGISTRATION FEES
Initial state registration fees were paid by the Adviser. The portion of
the fees incurred for the initial registration of the Fund with the 50 states
and the Commonwealth of Puerto Rico ($21,511), as distinguished from the portion
which represents the recurring, annual fee, was capitalized by the Fund and is
being amortized on a straight-line basis over 60 months from July 9, 1997, the
date investment operations commenced; a corresponding payable to the Adviser was
recorded by the Fund. These costs will be repaid to the Adviser in accordance
with the amortization schedule. Amortization expense of $4,302 for the year
ended December 31, 1998 is included on the statement of operations. Reference is
made to note G.
All recurring, annual fees are included on the statement of operations.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. The repurchase date is
usually within a day or two of the original purchase, although it may extend
over a number of months. The Fund's repurchase agreements will be fully
collateralized at all times by obligations issued or guaranteed by U.S.
Government agencies and instrumentalities (other than the U.S. Treasury) in an
amount at least equal to the purchase price of the underlying securities
(including accrued interest earned thereon). In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund has not experienced any such losses. There were no
repurchase agreements outstanding at December 31, 1998.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders, if any, are recorded by the Fund on the
ex-dividend dates. There were no distributions made in either 1998 or 1997
because (1) there was a net investment loss for both 1998 and the period July 9,
1997 to December 31, 1997 and (2) capital gains for the same periods were $192
and $45, respectively.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
-35-
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE B - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Advisory Agreement ("Agreement") between the Fund and the
Adviser, the Adviser furnishes investment advisory services in connection with
the management of the Fund. Under the Agreement, the Adviser, subject to the
supervision of the Board of Directors of the Fund, is responsible for managing
the assets of the Fund in accordance with its investment objectives, investment
program and policies. The Adviser determines what securities and other
instruments are purchased and sold for the Fund and is responsible for obtaining
and evaluating financial data relevant to the Fund. In the event that the
average net assets of the Fund are less than $5,000,000, the Adviser will be
compensated by the Fund for its services at an annual rate of $25,000; in the
event that average net assets of the Fund are equal to or in excess of
$5,000,000, the annual investment advisory fee will be 1% of its average daily
net assets on the first $25,000,000 and 3/4% of its average daily net assets in
excess of that amount. Two officers, who are also directors of the Fund, are
also officers and directors of the Adviser and H.G. Wellington Capital
Management, a division of H.G. Wellington & Co., Inc. ("Sub-Adviser"). Another
officer of the Fund, who is not a director of the Fund, is also an officer and
director of the Adviser. Two other officers of the Fund, who are not directors
of the Fund, are also officers of the Adviser.
The Adviser has agreed to supply and pay for such services as are deemed by
the Board of Directors of the Fund to be necessary or desirable and proper for
the continuous operations of the Fund (excluding all taxes and charges of
governmental agencies and brokerage commissions incurred in connection with
portfolio transactions) which are in excess of 1.5% of the average daily net
asset value of the Fund per annum. Such expenses include (i) management,
distribution and sub-advisory fees; (ii) the fees of affiliated and unaffiliated
Directors; (iii) the fees of the Fund's Custodian and Transfer Agent; (iv) the
fees of the Fund's legal counsel and independent accountants; (v) the
reimbursement of organization expenses; and (vi) expenses related to shareholder
communications including all expenses of shareholders' and Board of Directors'
meetings and of preparing, printing and mailing reports, proxy statements and
prospectuses to shareholders. The Adviser was required to supply and assume a
total of $286,966 and $159,152, respectively, for such services for 1998 and the
period March 12, 1997 (the date of incorporation) to December 31, 1997.
Additionally, the Adviser assumed, on a voluntary basis, expenses of $41,381 and
$17,121, respectively, for 1998 and the period March 12, 1997 (the date of
incorporation) to December 31, 1997. Reference is made to note G.
Pursuant to the terms of a Sub-Advisory Agreement between the Adviser and
the Sub-Adviser, the Sub-Adviser furnishes investment advisory services in
connection with the management of the Fund, determines what securities and other
instruments are purchased and sold for the Fund and is responsible for obtaining
and evaluating financial data relevant to the Fund. The Sub-Adviser is
compensated by the Adviser without reimbursement from the Fund.
All Directors are paid by the Fund for attendance at directors' meetings.
During 1998, the Fund incurred legal fees and related expenses of $56,264
with Bresler Goodman & Unterman, LLP, general counsel for the Fund. Mr. Lee
Unterman, a partner with that firm, is Secretary of the Fund.
All of the Adviser's capital stock is currently owned by four siblings
whose family has an ownership interest in the Sub-Adviser, which is a division
of the brokerage firm which the Fund utilizes to execute security transactions.
Brokerage commissions paid to this firm during 1998 and the period July 9, 1997
(the date investment operations commenced) to December 31, 1997 totaled $20,799
and $7,700, respectively (31.1% and 30.9% of total commissions for the
respective periods).
At the June 11, 1998 Annual Meeting, the shareholders approved changes to
the Fund's investment policies to permit the Fund to invest in the Pax World
Money Market Fund, which is also managed by the Adviser.
-36-
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE C - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investments, excluding short-term
investments, aggregated $11,659,977 and $6,965,615, respectively, for 1998.
There were no U.S. Government agency bonds purchased or sold during the period.
Net realized gain or loss on sales of investments is determined on the
basis of identified cost. If determined on an average cost basis, the net
realized gain for 1998 would have been approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at December 31, 1998 was $10,678,057. Gross unrealized appreciation and
depreciation of investments aggregated $1,941,891 and $680,145, respectively, at
December 31, 1998, resulting in net unrealized appreciation of $1,261,746.
NOTE D - DISTRIBUTION EXPENSES
The Fund maintains a distribution expense plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended, pursuant to which the Fund
incurs the expenses of distributing the Fund's shares. These expenses include
(but are not limited to) advertising expenses, the cost of printing and mailing
prospectuses to potential investors, commissions and account servicing fees paid
to, or on account of, broker-dealers or certain financial institutions which
have entered into agreements with the Fund, compensation to and expenses
incurred by officers, directors and/or employees of the Fund for their
distributional services and indirect and overhead costs associated with the sale
of Fund shares (including, but not limited to, travel and telephone expenses).
The Plan provides that (i) up to twenty-five one hundredths of one percent
(.25%) of the average daily net assets of the Fund per annum may be used to pay
for personal service and/or the maintenance of shareholder accounts (service
fee) and (ii) total distribution fees (including the service fee of .25%) may
not exceed thirty-five one hundredths of one percent (.35%) of the average daily
net assets of the Fund per annum. The Plan may be terminated at any time,
without penalty, by (a) the vote of a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan or
(b) the vote of the holders of a majority of the outstanding shares of the Fund.
If the Plan is terminated, the payment of fees to third parties would be
discontinued at that time.
NOTE E - CAPITAL AND RELATED TRANSACTIONS
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Period June 9, 1997
(the date operations
Year Ended commenced) to
December 31, 1998 December 31, 1997
------------------------ -------------------------
Shares Dollars Shares Dollars
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold.................... 772,823 $ 7,699,550 482,291 $4,885,876
Shares redeemed................ (137,836) (1,365,010) (5,507) (54,836)
-------- ----------- ------- ----------
Net increase .................. 634,987 $ 6,334,540 476,784 $4,831,040
-------- ----------- -------- ----------
</TABLE>
-37-
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
The components of net assets at December 31, 1998, are as follows:
Paid-in capital (25,000,000 shares of $1 par value authorized) $11,165,580
Accumulated net investment (loss)............................. (55,472)
Undistributed capital gains................................... 237
Net unrealized appreciation of investments.................... 1,261,746
-----------
Net assets............................................... $12,372,091
-----------
NOTE F - CUSTODIAN BANK AND CUSTODIAN FEES
State Street Bank and Trust Company is the custodian bank for the Fund's
assets. The custodian fees charged by the bank are reduced, pursuant to an
expense offset arrangement, by an earnings credit which is based upon the
average cash balances maintained at the bank. If the Fund did not have such an
offset arrangement, it could have invested the amount of the offset in an
income-producing asset.
NOTE G - EXPENSES ASSUMED BY ADVISER
The Adviser has assumed certain expenses incurred by the Fund, some in
accordance with the Advisory Agreement (note B) and others on a voluntary basis,
as follows:
<TABLE>
<CAPTION>
<S> <C>
Expenses assumed by the Adviser in accordance with the Advisory Agreement,
including amortization of the organization costs for the period ($1,000)... $286,966
Expenses assumed by the Adviser on a voluntary basis
Recurring registration fees................................................ 28,649
Amortization of deferred offering costs.................................... 8,430
Amortization of deferred registration fees................................. 4,302
--------
Total expenses assumed by Adviser....................................... $328,347
--------
</TABLE>
The expenses assumed on a voluntary basis had the effect of reducing the
ratio of net expenses (after subtracting the expenses assumed by the Adviser in
accordance with the Advisory Agreement) to average net assets from 2.00% to
1.49% for 1998. (The ratio of total expenses to average net assets which is
required disclosure in the financial highlights is based upon total expenses for
the year after subtracting the expenses assumed by the Adviser but before the
reduction of custodian fees for the income earned pursuant to an expense offset
arrangement. This ratio is 1.62% for 1998.)
Reference is made to notes A and B.
NOTE H - YEAR 2000 (Unaudited)
State Street Bank and Trust Company (the custodian), PFPC, Inc. (the
transfer agent) and the Adviser all currently use a wide variety of computer
programs and devices which represent the calendar year portion of dates by their
last two digits. These programs and devices are critical to the Fund's
operations. Calculations performed with these truncated date fields may not work
properly with dates from 2000 and beyond.
-38-
<PAGE>
These entities are in the process of executing detailed plans to modify or
replace significant applications as necessary to ensure Year 2000 compliance.
All necessary systems modifications and testing are expected to be completed by
mid-1999. The Fund does not expect to incur any costs relating to the year 2000
conversion.
-39-
<PAGE>
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data have been
derived from information provided in the financial statements and the Fund's
underlying financial records.
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE PERIOD IN NET ASSET
VALUE (BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING).
<TABLE>
<CAPTION>
Period June 9, 1997
(the date operations
Year Ended commenced) to
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period.............. $ 9.66 $ 10.00
------- -------
Gain (loss) from investment operations
Investment (loss), net...................... (.04) (.01)
Realized and unrealized gain (loss) on
investments, net......................... 1.51 (.33)
---- ----
Gain (loss) from investment operations 1.47 (.34)
---- ----
Net asset value, end of period.................... $ 11.13 $ 9.66
------- -------
2. TOTAL RETURN ..................................... 15.22% (3.40)%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net
assets (A)(B).................................. 1.62% 1.49%
Ratio of investment (loss), net, to average net
assets (A)..................................... (.61)% (.56)%
Portfolio turnover rate........................... 96.72% 50.79%
Net assets, end of period ('000s)................. $12,372 $ 4,605
Number of capital shares outstanding, end
of period ('000s).............................. 1,112 477
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(A) These ratios for the period ended December 31, 1997 have been annualized.
(B) Total expenses, net of expenses assumed by the Adviser.
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