<PAGE>
Dear Pax World Fund Shareholder,
Pax World Fund posted solid gains for the first half of 1998, with a total
return of 11.50% for the year-to-date period ending June 30. The Fund
outperformed the benchmark Lipper Balanced Fund Index, whose 373 funds returned
an average of 9.52% for the period.
Indeed, the Fund's strong results earned it a place on several "Top
Funds" lists. U.S. NEWS AND WORLD REPORT listed Pax as the #4 balanced fund
through June 30, 1998, as measured by its Overall Performance Index, which
ranks funds using short- and long-term returns, volatility, expenses, and
performance in down markets. KIPLINGER'S PERSONAL FINANCE ranked Pax 8th
among balanced funds on their mid-year recommended list, and the WALL STREET
JOURNAL'S Mutual Fund Scorecard for the period ending July 9, 1998, placed
Pax 11th in 12-month return among the funds tracked by Lipper Analytical
Services.
Perhaps most impressive, the Fund achieved its results while moving to a
defensive posture, with an asset allocation of 53% stocks, 26% bonds, and 21%
cash and equivalents. Going forward, the Fund's high cash position gives its
portfolio managers the flexibility to respond to changing market conditions.
In our view, three ongoing economic factors - low interest rates, benign
inflation, and rising corporate profits - remain positive forces for rising
equity prices. Although we are cautiously optimistic about the stock market this
year, we believe that selectivity is becoming more important. Equally important
will be the point of entry in establishing new investment positions.
With this in mind, our portfolio managers are looking at new sectors of the
market to further diversify the Fund's portfolio while maintaining its low
volatility. They've taken some initial steps into the technology sector and are
researching financial services internationally. On the bond side, they remain
focused on government agencies and short-term debt.
As most of you know, Anthony S. Brown stepped down as portfolio manager of
the Fund on April 15, 1998, but remains active as a consultant to the Fund and
its new co-managers, Christopher H. Brown and Robert P. Colin. We are grateful
to have Tony's wisdom and experience available to the Fund and its shareholders
as we begin the second half of 1998.
Sincerely yours,
/s/ Laurence A. Shadek /s/ Thomas W. Grant
Laurence A. Shadek Thomas W. Grant
Chairman President
July 22, 1998
<PAGE>
ASSET ALLOCATION, JUNE 30, 1998
Cash & Equivalents 21%
U.S. Government Agency Bonds 26%
Common Stocks 53%
SECURITY DIVERSIFICATION, JUNE 30, 1998
Certificates of Deposit 12%
Other 5%
U.S. Government Agency Bonds 26%
Telecommunications 14%
Money Market Shares 7%
Consumer 12%
Energy 12%
Health Care 10%
<TABLE>
PORTFOLIO HIGHLIGHTS
SIX MONTHS ENDED 6/30/98
KEY STATISTICS
<S> <C>
Change in N.A.V. ($18.52 to $20.65). . . . . . . . . . . . . . . . . . . .$ 2.13
12 Month Total Return (6/30/97 - 6/30/98). . . . . . . . . . . . . . . . . 23.81%
6 Month Total Return (12/31/97 - 6/30/98). . . . . . . . . . . . . . . . . 11.50%
Net Increase in Net Assets Resulting from Operations . . . . . . . . . . .$ 73.9 million
Total Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$720.0 million
<CAPTION>
TEN LARGEST STOCK HOLDINGS
PERCENT OF
COMPANY NET ASSETS
<S> <C>
AirTouch Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . 5.7%
Gap Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7%
Enron Corp.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8%
Merck & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7%
Southern NE Telecomm. Corp.. . . . . . . . . . . . . . . . . . . . . . . . 3.6%
Peoples Energy Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0%
Bay State Gas Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0%
Amgen Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7%
MarketSpan Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4%
Pitney Bowes Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3%
-----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34.9%
</TABLE>
2
<PAGE>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS (UNAUDITED)
June 30, 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
CONSUMER
Champion Enterprises, Inc.. . . . . . . . . . . . . . . . 550,000 $ 16,156,250
Gap, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 550,000 33,893,750
Liz Claiborne, Inc. . . . . . . . . . . . . . . . . . . . 94,000 4,911,500
Masco Corp. . . . . . . . . . . . . . . . . . . . . . . . 100,000 6,050,000
Oakwood Homes Corp. . . . . . . . . . . . . . . . . . . . 288,700 8,661,000
OfficeMax, Inc. . . . . . . . . . . . . . . . . . . . . . 250,000 4,125,000
Starbucks Corp. . . . . . . . . . . . . . . . . . . . . . 200,000 10,687,500
Wendy's International, Inc. . . . . . . . . . . . . . . . 150,000 3,525,000
------------
88,010,000 12.2%
------------
ENERGY
Bay State Gas Co. . . . . . . . . . . . . . . . . . . . . 553,800 21,217,463
Enron Corp. . . . . . . . . . . . . . . . . . . . . . . . 500,000 27,031,250
MarketSpan Corp.. . . . . . . . . . . . . . . . . . . . . 587,600 17,591,275
Peoples Energy Corp.. . . . . . . . . . . . . . . . . . . 551,900 21,317,137
------------
87,157,125 12.1
------------
FINANCIAL
SLM Holding Corp. . . . . . . . . . . . . . . . . . . . . 149,100 7,305,900 1.0
------------
HEALTH CARE
Amgen, Inc. . . . . . . . . . . . . . . . . . . . . . . . 300,000 19,612,500
Becton Dickinson & Co.. . . . . . . . . . . . . . . . . . 1,400 108,675
Bristol-Myers Squibb Co.. . . . . . . . . . . . . . . . . 100,000 11,493,750
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . 100,000 7,375,000
Medtronic, Inc. . . . . . . . . . . . . . . . . . . . . . 100,000 6,375,000
Merck & Co., Inc. . . . . . . . . . . . . . . . . . . . . 200,000 26,750,000
------------
71,714,925 10.0
------------
INDUSTRIAL
Bemis Co., Inc. . . . . . . . . . . . . . . . . . . . . . 50,000 2,043,750 .3
------------
TECHNOLOGY
Compaq Computer Corp. . . . . . . . . . . . . . . . . . . 250,000 7,093,750
EMC Corp. . . . . . . . . . . . . . . . . . . . . . . . . 50,000 2,240,625
Pitney Bowes, Inc.. . . . . . . . . . . . . . . . . . . . 350,000 16,843,750
------------
$ 26,178,125 3.6%
------------
3
<PAGE>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS (UNAUDITED), CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
TELECOMMUNICATIONS
AirTouch Communications, Inc. . . . . . . . . . . . . . . 700,000 $ 40,906,250
BellSouth Corp. . . . . . . . . . . . . . . . . . . . . . 100,000 6,712,500
Loral Space Communications. . . . . . . . . . . . . . . . 500,000 14,125,000
Southern NE Telecomm. Corp. . . . . . . . . . . . . . . . 400,000 26,200,000
U.S. West, Inc. - Communications Group. . . . . . . . . . 200,000 9,400,000
Worldcom, Inc.. . . . . . . . . . . . . . . . . . . . . . 100,000 4,843,750
------------
102,187,500 14.2%
------------ -------
TOTAL COMMON STOCKS . . . . . . . . . . . . . . . . . . . 384,597,325 53.4
------------ -------
GOVERNMENT AGENCY BONDS PRINCIPAL
AMOUNT
------
Federal Home Loan Bank System
5.660%, due November 9, 1998 . . . . . . . . . . . . . . . $ 7,000,000 7,003,290
5.025%, due February 23, 1999. . . . . . . . . . . . . . . 9,000,000 8,969,040
5.880%, due March 19, 1999 . . . . . . . . . . . . . . . . 13,000,000 13,026,390
5.660%, due January 12, 2000 . . . . . . . . . . . . . . . 5,000,000 4,985,950
5.630%, due January 29, 2001 . . . . . . . . . . . . . . . 10,000,000 9,932,800
5.905%, due December 23, 2002. . . . . . . . . . . . . . . 14,000,000 14,111,580
6.000%, due June 9, 2003 . . . . . . . . . . . . . . . . . 11,900,000 11,864,657
Federal National Mortgage Association
5.620%, due February 10, 1999. . . . . . . . . . . . . . . 10,000,000 9,997,150
5.230%, due February 24, 1999. . . . . . . . . . . . . . . 8,000,000 7,982,480
6.110%, due September 20, 2000 . . . . . . . . . . . . . . 12,000,000 12,097,440
6.080%, due September 25, 2000 . . . . . . . . . . . . . . 5,000,000 5,042,950
5.820%, due December 5, 2000 . . . . . . . . . . . . . . . 15,000,000 15,056,250
5.370%, due February 7, 2001 . . . . . . . . . . . . . . . 20,000,000 19,831,200
5.410%, due February 13, 2001. . . . . . . . . . . . . . . 10,000,000 9,923,400
5.360%, due February 16, 2001. . . . . . . . . . . . . . . 10,000,000 9,921,900
6.000%, due April 30, 2001 . . . . . . . . . . . . . . . . 9,000,000 8,983,080
6.710%, due July 24, 2001. . . . . . . . . . . . . . . . . 7,000,000 7,197,960
7.040%, due September 24, 2001 . . . . . . . . . . . . . . 10,000,000 10,032,800
------------
TOTAL GOVERNMENT AGENCY BONDS . . . . . . . . . . . . . . $185,960,317 25.8%
------------ -------
4
<PAGE>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS (UNAUDITED), CONTINUED
PRINCIPAL PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT
State Street Bank
5.000%, due July 6, 1998 . . . . . . . . . . . . . . . . . . $ 35,000,000 $ 35,000,000
5.000%, due July 7, 1998 . . . . . . . . . . . . . . . . . . 16,000,000 16,000,000
5.000%, due July 13, 1998. . . . . . . . . . . . . . . . . . 18,000,000 18,000,000
5.000%, due July 14, 1998. . . . . . . . . . . . . . . . . . 10,000,000 10,000,000
5.000%, due July 23, 1998. . . . . . . . . . . . . . . . . . 10,000,000 10,000,000
------------
TOTAL CERTIFICATES OF DEPOSIT . . . . . . . . . . . . . . 89,000,000 12.4%
------------ -------
NUMBER
MONEY MARKET SHARES OF SHARES
---------
Pax World Money Market Fund. . . . . . . . . . . . . . . . . 50,000,000 50,000,000 6.9
------------ -------
TOTAL INVESTMENTS . . . . . . . . . . . . . . . . . . 709,557,642 98.5
Cash and receivables, less liabilities . . . . . . . . . . . 10,443,254 1.5
------------ -------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . $720,000,896 100.0%
------------ -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
PAX WORLD FUND, INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 1998
ASSETS
<TABLE>
<S> <C>
Investments, at value - note A
Common stocks (cost - $213,544,343) . . . . . . . . . . . . . . . . . . $384,597,325
Bonds (amortized cost - $185,514,814) . . . . . . . . . . . . . . . . . 185,960,317
Certificates of deposit (cost - $89,000,000). . . . . . . . . . . . . . 89,000,000
Pax World Money Market Fund (cost - $50,000,000). . . . . . . . . . . . 50,000,000
------------
709,557,642
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,682,486
Receivables
Dividends and interest. . . . . . . . . . . . . . . . . . . . . . . . . 3,602,214
------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 722,842,342
------------
LIABILITIES
Payables
Capital stock reacquired. . . . . . . . . . . . . . . . . . . . . . . . 234,668
Investment securities purchased . . . . . . . . . . . . . . . . . . . . 2,024,218
Accrued expenses
Investment advisory fee - note B. . . . . . . . . . . . . . . . . . . . 294,151
Transfer agent fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 130,000
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . 158,409
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 2,841,446
------------
Net assets (equivalent to $20.65 per share based on
34,870,441 shares of capital stock outstanding) - note E . . . $720,000,896
------------
Net asset value, offering price and redemption price per share
($720,000,896 DIVIDED BY 34,870,441 shares outstanding). . . . $20.65
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
PAX WORLD FUND, INCORPORATED
STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 1998
<S> <C> <C>
Investment income
Income - note A
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,207,877
Interest
Pax World Money Market Fund. . . . . . . . . . . . . . . . . . . $ 48,100
Other investments. . . . . . . . . . . . . . . . . . . . . . . . 8,378,292 8,426,392
------------ -----------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . 11,634,269
Expenses
Investment advisory fee - note B. . . . . . . . . . . . . . . . . . 1,738,786
Distribution expenses - note D . . . . . . . . . . . . . . . . . . 799,402
Transfer agent fee. . . . . . . . . . . . . . . . . . . . . . . . . 418,783
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,511
Custodian fees - note F . . . . . . . . . . . . . . . . . . . . . . 90,604
Printing and mailing. . . . . . . . . . . . . . . . . . . . . . . . 76,855
Legal fees and related expenses - note B. . . . . . . . . . . . . . 58,531
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . 35,900
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,247
Directors' fees and expenses - note B . . . . . . . . . . . . . . . 22,327
------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,468,946
Less: Fees paid indirectly - note F. . . . . . . . . . . . . . 88,072
------------
Net expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,380,874
-----------
Investment income - net. . . . . . . . . . . . . . . . . . . . 8,253,395
-----------
Realized and unrealized gain on investments - note C
Net realized gain on investments. . . . . . . . . . . . . . . . . . . . 31,018,442
Change in unrealized appreciation of investments
for the period . . . . . . . . . . . . . . . . . . . . . . . . . . 34,587,623
-----------
Net gain on investments. . . . . . . . . . . . . . . . . . . . 65,606,065
-----------
Net increase in net assets resulting
from operations. . . . . . . . . . . . . . . . . . . . . . . $73,859,460
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
PAX WORLD FUND, INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Increase in net assets
Operations
Investment income - net . . . . . . . . . . . . . . . . . . . . . . $ 8,253,395 $ 15,102,768
Net realized gain on investments. . . . . . . . . . . . . . . . . . 31,018,442 50,894,781
Change in unrealized appreciation
of investments for the period. . . . . . . . . . . . . . . . . . 34,587,623 61,297,526
------------ -----------
Net increase in net assets resulting
from operations. . . . . . . . . . . . . . . . . . . . . . . . 73,859,460 127,295,075
Net equalization credits. . . . . . . . . . . . . . . . . . . . . . . . 12,294 54,638
Distributions to shareholders from
Investment income - net ($-0- and $.503
per share, respectively) - note A. . . . . . . . . . . . . . . . -- (15,480,324)
Net realized gain on investments ($-0- and
$1.650 per share, respectively) - note A . . . . . . . . . . . . -- (50,894,724)
Capital share transactions - note E . . . . . . . . . . . . . . . . . . 17,127,739 54,593,793
------------ -----------
Net increase in net assets . . . . . . . . . . . . . . . . . . . 90,999,493 115,568,458
Net assets
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 629,001,403 513,432,945
------------ -----------
End of period (including undistributed investment
income - net of $8,274,903 and $9,214,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . $720,000,896 $629,001,403
------------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pax World Fund, Incorporated ("Fund") is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's policy is to invest in securities of companies whose
business is essentially directed toward non-military and life-supportive
activities. Its investment objective is primarily to provide its shareholders
with a diversified holding of securities of companies which offer primarily
income and conservation of principal and secondarily possible long-term growth
of capital through investment in common and preferred stocks and debt
securities.
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. Certificates of deposit are valued at
cost; accrued interest to June 30 is included in interest receivable.
Investments in money market funds are valued at $1 per share.
AMORTIZATION OF BOND PREMIUM AND DISCOUNT
Commencing with January 1, 1997, the Fund amortizes purchase price premium
and discount on bonds over the remaining life of the bonds using the effective
interest method of amortization; for callable bonds, the amortization period is
to the first call date. Reference is made to note G. Net discount (premium)
amortization for the six months ended June 30, 1998 and for the year ended
December 31, 1997 was $120,206 and ($765,743), respectively.
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.
EQUALIZATION
The Fund uses the accounting practice known as "equalization" by which a
portion of the proceeds from sales and costs of redemptions of capital shares,
equivalent on a per share basis to the amount of undistributed net investment
income on the date of the transactions, is credited or charged to undistributed
income. As a result, undistributed net investment income per share is unaffected
by sales or redemptions of capital shares.
Equalization is a permanent book/tax difference that causes a difference
between investment income and distributions.
9
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS
All distributions to shareholders are recorded by the Fund on the
ex-dividend dates.
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.
OTHER
The Fund follows industry practice and records security transactions on the
trade date. Dividend income is recognized on the ex-dividend date, and interest
income is recognized on an accrual basis.
NOTE B - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Advisory Agreement ("Agreement") between the Fund and Pax
World Management Corp. ("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.
The Agreement provides for payment by the Fund to the Adviser of an annual
investment advisory fee of 3/4 of 1% of its average daily net assets on the
first $25,000,000 and 1/2 of 1% 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. Two other officers of the Fund, who are not
directors of the Fund, are also officers of the Adviser. The Agreement provides
for an expense reimbursement from the Adviser if the Fund's total expenses,
exclusive of interest, brokerage commissions or fees, and taxes, but including
the investment advisory fee, exceeds 1-1/2% of the average daily net asset value
of the Fund for any full fiscal year. No expense reimbursement was required for
either 1997 or the six months ended June 30, 1998.
All Directors are paid by the Fund for attendance at directors' meetings.
During the six months ended June 30, 1998, the Fund incurred legal fees and
related expenses of $58,531 with Rosner Bresler Goodman & Unterman, LLP (now
known as 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 a brokerage firm which the Fund
utilizes to execute security transactions. Brokerage commissions paid to this
firm during the six months ended June 30, 1998 and the year ended December 31,
1997 totaled $71,888 and $132,372, respectively, (26.7% and 36.3%, respectively
of total commissions for the six months ended June 30, 1998 and the year ended
December 31, 1997).
10
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
At the June 11, 1998 Annual Meeting, shareholders approved a change in 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 - INVESTMENTS
Purchases and proceeds from sales of investments, excluding short-term
investments and U.S. Government agency bonds, aggregated $70,921,998 and
$80,002,122, respectively, for the six months ended June 30, 1998. Purchases and
proceeds from sales and maturities of U.S. Government agency bonds aggregated
$45,059,259 and $18,000,000, respectively, for the six months ended June 30,
1998.
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 the six months ended June 30, 1998 would have been
approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at June 30, 1998 was $538,059,157.
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. The plan provides that the Fund
may incur distribution expenses to finance activity which is primarily intended
to result in the sale of Fund 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.
11
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
NOTE E - CAPITAL AND RELATED TRANSACTIONS
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------- ------------------------
Shares Dollars Shares Dollars
---------- ------------ --------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Shares sold . . . . . . . . . . . . . 4,403,866 $ 85,887,956 2,794,352 $ 50,868,833
Shares issued in reinvestment
of distributions . . . . . . . . . -- -- 3,363,399 61,541,465
---------- ------------ --------- ------------
4,403,866 85,887,956 6,157,751 112,410,298
Shares redeemed . . . . . . . . . . . (3,504,222) (68,760,217) (3,195,360) (57,816,505)
---------- ------------ --------- ------------
Net increase . . . . . . . . . . . . 899,644 $ 17,127,739 2,962,391 $ 54,593,793
---------- ------------ --------- ------------
<CAPTION>
<S> <C>
The components of net assets at June 30, 1998 (unaudited), are as follows:
Paid-in capital (75,000,000 shares of $1 par value authorized) . $517,128,783
Undistributed investment income. . . . . . . . . . . . . . . . . 8,274,903
Undistributed net capital gains. . . . . . . . . . . . . . . . . 31,016,896
Accumulated prior years' net realized losses on investments. . . (7,918,171)
Net unrealized appreciation of investments . . . . . . . . . . . 171,498,485
------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . $720,000,896
------------
</TABLE>
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 - DIVIDEND DECLARATION
The Board of Directors has declared a dividend from net investment income
of $.24 per share, payable July 7, 1998, to shareholders of record on July 1,
1998.
NOTE H - ACCOUNTING CHANGE
Effective January 1, 1997, the Fund adopted the policy of amortizing bond
purchase price discounts and premiums over the remaining lives of the respective
bonds (or to the first call date for callable
12
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
bonds). The effect of the change is to reflect the amortization as an adjustment
to interest income. Previously, discounts and premiums were recognized as part
of the net realized gain or loss when the bonds matured or were sold. This
change has no net effect on net assets or on the net increase in net assets
resulting from operations.
Upon adopting the new policy, the Fund recognized the cumulative
amortization of discounts and premiums on the bonds held at January 1, 1997.
This resulted in a one-time charge for net premium amortization through January
1, 1997 on bonds held on that date. Thus, there was a net reduction of
approximately $1,040,000 in interest income (and investment income, net) for the
year ended December 31, 1997 (approximately $.03 per share). Correspondingly,
there was an identical one-time credit to net gain on investments for the
period.
13
<PAGE>
PAX WORLD FUND, INCORPORATED - 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>
Six Months Year Ended December 31
Ended -------------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period . . . . . . . . . . . . . . . . . . . $18.52 $16.56 $16.33 $13.39 $13.55 $14.27
-------- -------- -------- -------- -------- --------
Income from investment operations
Investment income - net (A) . . . . . . . . . . .237 .493 .550 .80 .49 .51
Realized and unrealized gain (loss)
on investments - net (A) . . . . . . . . . . 1.893 3.620 1.122 3.07 (.15) (.66)
-------- -------- -------- -------- -------- --------
Total from investment operations. . . . . . . . 2.130 4.113 1.672 3.87 .34 (.15)
-------- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment
income. . . . . . . . . . . . . . . . . . . . -- .503 .550 .79 .50 .50
Distributions from realized gains . . . . . . . -- 1.650 .892 .14 -- .07
-------- -------- -------- -------- -------- --------
Total distributions . . . . . . . . . . . . . . -- 2.153 1.442 .93 .50 .57
-------- -------- -------- -------- -------- --------
Net asset value, end of period . . . . . . . . . . $20.65 $18.52 $16.56 $16.33 $13.39 $13.55
-------- -------- -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
2. TOTAL RETURN. . . . . . . . . . . . . . . . . . 11.50% 25.12% 10.36% 29.19% 2.65% (1.05)%
- -----------------------------------------------------------------------------------------------------------------------------
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net
assets (B). . . . . . . . . . . . . . . . . 1.01% (C) .91% .89% .97% .98% .94%
Ratio of investment income - net
to average net assets . . . . . . . . . . . 2.41% (C) 2.67% 3.24% 3.44% 3.66% 3.63%
Portfolio turnover rate . . . . . . . . . . . 18.29% 13.88% 34.55% 28.44% 25.45% 22.15%
Net assets, end of period ('000s) . . . . . . $720,001 $629,001 $513,433 $476,976 $388,249 $462,762
Number of capital shares
outstanding, end of period ('000s). . . . . 34,870 33,971 31,008 29,200 29,000 34,142
-------- -------- -------- -------- -------- --------
</TABLE>
(A) Reference is made to note H for a discussion about the 1997 investment
income, net.
(B) In order to conform to current disclosure requirements, the ratios for the
periods subsequent to 1994 are based upon total expenses, including the
gross amount of custodian fees (before being reduced pursuant to an expense
offset arrangement). The ratios for prior years were based upon net
expenses and are not required to be restated.
(C) Unaudited ratios for the six months ended June 30, 1998 have been
annualized.
14
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