Dear Pax World Growth Fund Shareholder:
In 1998, equity markets continued to charge ahead, albeit with considerable
volatility. After a good first half, the popular averages had a sudden decline
of over 20%. Many stocks lost 50% of their market value, and it appeared to some
observers that a real bear market had begun. We saw it as simply a correction in
an ongoing bull market, and the resulting sharp recovery confirmed our view and
provided excellent returns. During the last three months of the year, the Fund
gained 22.58%, ending the year as a whole up 15.22% (12.31% after deducting the
2.5% front-end load).
In the year ahead, we expect the following developments to affect economies
and investors alike: the launching of the Euro along with a strengthened
European Monetary Union; continuing currency turmoil, as evidenced by the recent
Brazilian devaluation and its impact on the rest of Latin America; the apparent
economic slowdown in Europe; and the probable moderation of the rate of growth
in the United States. We will keep an eye on all of these things, as well as the
level of interest rates, but we remain cautiously optimistic for the year ahead.
Underlying our recent success and our hope for even better results in the
future is our adherence to the discipline of social responsibility that has been
the cornerstone of the Pax World Fund Family since its inception. Our
shareholders can be proud of the fact that investment performance and social
responsibility can go hand in hand.
We encourage as many shareholders as possible to attend the annual meeting
at the State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, on Thursday, June 10, 1999.
Sincerely,
Laurence A. Shadek Thomas W. Grant
Chairman President
February 12, 1999
2
<PAGE>
QUESTIONS AND ANSWERS - ROBERT P. COLIN, PORTFOLIO MANAGER
Q. WHAT FACTORS AFFECTED PAX WORLD GROWTH FUND'S PERFORMANCE DURING 1998?
A. The past year was a volatile one in the financial markets, notably during
the late summer and early fall when the popular averages dropped 22% from
their earlier highs. However, the Federal Reserve succeeded in restoring
investor confidence with a "surprise" reduction in interest rates in
mid-October and again in November. Share prices rebounded 20% - 25% during
the fourth quarter and Pax World Growth Fund saw its net asset value rise
25.8% in that quarter. Our positions in technology issues, including
Netscape Communications (which is in the process of being acquired by
America Online), contributed to this strong performance at the end of the
year.
Q. DESCRIBE YOUR INVESTMENT STRATEGY FOR THE YEAR UNDER REVIEW.
A. We had a two-fold strategy during 1998:
1. To eliminate problem issues remaining from our start-up period (the
second half of 1997) and balance those losses with some of the
investment successes being achieved.
2. With the help of positive cash flow through new subscriptions, build a
core of growth stocks that will carry Fund performance into the new
millennium which is now less than a year away.
Based on the strong performance of the Fund during the final quarter of the
year, it is our belief we are well on the way to creating that core of
stocks. These companies generally occupy leading positions in industries
that are growing at rates noticeably in excess of overall GDP growth.
Q. PLEASE GIVE US SOME EXAMPLES OF STOCKS OWNED BY THE GROWTH FUND THAT FIT
THAT DEFINITION.
A. We have a significant position in the assisted living field with Sunrise
Assisted Living, the largest company in this rapidly growing market. Other
participations in consumer-related markets include cable TV (MediaOne),
satellite television (Hughes Electronics which owns DirecTV) and the
Internet (Netscape Communications/AOL). Moreover, the Fund has positions in
many of the leading biotechnology companies whose major products have
advanced therapies in such diverse medical fields as myocardial infarctions
(heart attacks), gastrointestinal problems and chemotherapy-related
applications.
Pax World Growth Fund, as the name implies, seeks to invest in companies
that have a global presence. Most, but not all, companies in the portfolio
are active on a worldwide basis and a few companies -- such as Sony and
Telefonos de Mexico -- are domiciled outside the U.S. Within socially
responsible parameters, of course, we believe that shareholders will
achieve greater returns from companies whose managements think and act on
an international scale.
3
<PAGE>
(PIE CHART)
ASSET ALLOCATION, 12/31/98
U.S. Common Stocks 75%
International Common Stocks 7%
Cash and Equivalents 18%
(PIE CHART)
SECURITY DIVERSIFICATION, 12/31/98
Medical and Health Care 27%
Technology 23%
Money Markets 14%
Consumer 14%
Financial 6%
Telecommunications 5%
Energy 4%
Industrial/Commercial 4%
PORTFOLIO HIGHLIGHTS, 12/31/98
KEY STATISTICS
Change in N.A.V. ($9.66
to $11.13).............................$1.47
12 Month Total Return*................15.22%
Net Increase in Net Assets
Resulting from
Operations......................$1.4 million
Total Net
Assets.........................$12.4 million
*Figures for the Pax World Growth Fund include the effects of the maximum 2.5%
sales charge.
TEN LARGEST STOCK HOLDINGS
PERCENT OF
COMPANY NET ASSETS
Netscape Communications Corp............4.9%
Unum Corp. .............................4.7%
Genentech Inc...........................4.5%
Amgen Inc...............................4.2%
Sunrise Assisted Living Inc. ...........4.2%
MediaOne Group Inc......................3.8%
Centocor Inc. ..........................3.6%
Airborne Freight........................3.5%
Network Associates Inc..................3.2%
GM Hughes Electronics.................. 3.2%
-----
TOTAL..................................39.8%
-----
4
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
An Annual Meeting of the Shareholders of the Fund was held at 9:45 a.m. on
Thursday, June 11, 1998 at the State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110. The matters voted upon and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes as to each matter, are as follows:
(A) to elect a Board of six Directors, each to hold office until the next
Annual Meeting of the Shareholders of the Fund or until a successor shall have
been chosen and shall have qualified:
Carl H. Doerge, Jr.
For: 443,645.937
Against: 5,474.610
Abstain: 0.000
Broker Non-Votes: 0.000
Thomas W. Grant
For: 439,599.313
Against: 9,521.234
Abstain: 0.000
Broker Non-Votes: 0.000
John L. Kidde
For: 446,707.308
Against: 2,413.239
Abstain: 0.000
Broker Non-Votes: 0.000
Joy L. Liechty
For: 440,399.526
Against: 8,721.021
Abstain: 0.000
Broker Non-Votes: 0.000
Laurence A. Shadek
For: 441,749.858
Against: 7,370.689
Abstain: 0.000
Broker Non-Votes: 0.000
Nancy S. Taylor
For: 446,430.613
Against: 2,689.934
Abstain: 0.000
Broker Non-Votes: 0.000
(constituting all of the members of the Board of Directors of the Fund);
5
<PAGE>
(B) to ratify the selection by the Board of Directors of Pannell Kerr
Forster PC as the independent public accountants of the Fund for the year
ending December 31, 1998:
For: 431,266.765
Against: 758.756
Abstain 17,095.026
Broker Non-Votes: 0.000
(C) to approve certain changes to the Fund's fundamental investment
policies so as to permit the Fund to invest in the Pax World Money Market Fund,
Inc.:
For: 404,830.583
Against: 5,465.524
Abstain: 28,945.440
Broker Non-Votes: 9,879.000
(D) to transact such other business as may properly come before such annual
meeting or any adjournment thereof:
For: 422,281.651
Against: 6,342.485
Abstain: 20,496.411
Broker Non-Votes 0.000
6
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1998
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>
7
<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, CONTINUED
FINANCIAL
<S> <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.
8
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
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.
9
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
Investment (loss)
<S> <C> <C>
Income - note A
Dividends
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.
10
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Period
March 12, 1997
(the date of
Year Ended incorporation) to
December 31, December 31,
1998 1997
------------ ------------
Increase in net assets
Operations
<S> <C> <C>
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
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<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.
12
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
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.
13
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
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.
14
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
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.
15
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE E - CAPITAL AND RELATED TRANSACTIONS
Transactions in capital stock were as follows:
Period June 9, 1997
(the date operations
Year Ended commenced) to
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Shares Dollars Shares Dollars
----------- ----------- ----------- -----------
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
----------- ----------- ----------- -----------
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:
16
<PAGE>
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<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.
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.
17
<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.
<TABLE>
<CAPTION>
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE PERIOD IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING).
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.
18
<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 P.C.
January 19, 1999
19
