As filed with the Securities and Exchange Commission
on September 16, 1999
Registration No. 333-82133
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(Check appropriate box or boxes)
PAX WORLD HIGH YIELD FUND, INC.
(Exact name of registrant as specified in charter)
222 STATE STREET
PORTSMOUTH, NH 03801
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
800-767-1729
PAX WORLD MANAGEMENT CORP.
222 STATE STREET
PORTSMOUTH, NH 03801
ATTENTION: LAURENCE A. SHADEK
THOMAS W. GRANT
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
Registrant hereby elects, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, to register an indefinite number of shares by this
Registration Statement. In accordance with Rule 24f-2, a registration fee, in
the amount of $500.00, is being paid herewith.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
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N-1A ITEM NO. LOCATION
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PART A
Item 1. Front and Back Cover Pages................................. Front Cover Page; Back Cover Page
Item 2. Risk / Return Summary: Investments,
Risks and Performance...................................... Risk / Return Summary: Investments, Risks and
Performance
Item 3. Risk / Return Summary: Fee Table........................... Risk / Return Summary: Fee Table
Item 4. Investment Objectives, Principal Investment
Strategies and Principal Risks............................. Investment Objectives, Principal Investment
Strategies and Related Risks
Item 5. Management's Discussion of Fund
Performance................................................ Not Applicable
Item 6. Management, Organization and Capital
Structure.................................................. Management, Organization and Capital Structure of
the Fund
Item 7. Shareholder Information.................................... (i) Shareholder Guide; (ii) Shareholder Services; and
(iii) Additional Information
Item 8. Distribution Arrangements.................................. (i) Management, Organization and Capital Structure
of the Fund - Distribution; and (ii) Shareholder
Guide - How to Purchase Shares
Item 9. Financial Highlights Information........................... Not Applicable
PART B
Item 10. Cover Page and Table of Contents.......................... Cover Page; Table of Contents
Item 11. Fund History.............................................. Fund History
Item 12. Description of the Fund and
Its Investments and Risks................................. (i) Investment Objectives, Strategies and Philosophy;
(ii) Investments and Special Considerations; Risk
Factors; (iii) Investment Restrictions
Item 13. Management of the Fun..................................... (i) Management of the Fund; (ii) Investment
Advisory and Other Services - Adviser
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Item 14. Control Persons and Principal Holders of
Securities................................................ (i) Management of the Fund; (ii) Investment
Advisory and Other Services - Adviser
Item 15. Investment Advisory and Other
Services.................................................. (i) Management of the Fund; (ii) Investment
Advisory and Other Services - Adviser; (iii) Portfolio
Transactions and Brokerage
Item 16. Brokerage Allocation and Other
Practices................................................. Portfolio Transactions and Brokerage
Item 17. Capital Stock and Other Securities........................ Purchase, Redemption and Exchange of Fund Shares
Item 18. Purchase, Redemption and Pricing
of Shares................................................. (i) Net Asset Value; (ii) Purchase, Redemption and
Exchange of Fund Shares
Item 19. Taxation of the Fund...................................... Taxes
Item 20. Underwriters.............................................. Investment Advisory and Other Services -
Distribution
Item 21. Calculation of Performance Data........................... Calculation of Performance Data
Item 22. Financial Statements...................................... Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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PART A
PROSPECTUS DATED ___________, 1999
PAX WORLD HIGH YIELD FUND, INC.
A DIVERSIFIED HIGH YIELD 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 High Yield 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. To
denote this endeavor, the Fund adopted the name "Pax World".
The Fund's primary investment objective is to seek high current income.
The Fund will, however, also seek capital appreciation as a secondary objective
to the extent that it is consistent with the Fund's primary objective of seeking
high current income.
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
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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.
The information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to completion, dated __________, 1999
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TABLE OF CONTENTS
Page
RISK / RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE................... 4
What is the Fund's Investment Objective / Goal?........................ 4
What are the Principal Investment Strategies of the Fund?.............. 4
What are the Principal Risks of Investing in the Fund?................. 5
RISK / RETURN SUMMARY: FEE TABLE............................................ 7
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND PRINCIPAL RISKS......................................................... 8
Investment Objectives.................................................. 8
Principal Investment Strategies........................................ 8
Principal Risks........................................................ 10
Convertible Securities............................................. 10
Corporate and Other Debt Securities................................ 10
Foreign Securities................................................. 11
Porfolio Turnover.................................................. 12
Securities of Financially and Operationally Troubled Issuers....... 13
Zero Coupon, Pay-in-Kind or Deferred Payment Securities............ 13
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
OF THE FUND................................................................. 14
Incorporation.......................................................... 14
Description of Common Stock............................................ 14
Officers and Directors................................................. 14
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......................................... 20
How to Sell Your Shares................................................ 20
In General......................................................... 20
Redemptions by Written Request..................................... 21
Redemptions by Telephone........................................... 21
Involuntary Redemptions............................................ 22
Waiver of Sales Charge............................................. 22
How to Exchange Your Shares............................................ 23
In General......................................................... 23
Exchanges by Mail.................................................. 23
Exchanges by Telephone............................................. 23
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TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 24
Taxation of the Fund................................................... 24
Taxation of Shareholders............................................... 24
Withholding Taxes...................................................... 24
Dividends and Distributions............................................ 24
SHAREHOLDER SERVICES........................................................ 25
Automatic Reinvestment of Dividends and/or Distributions............... 25
Automatic Investment Plan.............................................. 25
Tax-Deferred Retirement Plans.......................................... 25
Systematic Withdrawal Plan............................................. 25
Reports to Shareholders................................................ 25
Shareholder Inquiries.................................................. 26
THE PAX WORLD FUND FAMILY................................................... 26
ADDITIONAL INFORMATION...................................................... 26
RISK / RETURN SUMMARY: INVESTMENTS,
RISKS AND PERFORMANCE
WHAT IS THE FUND'S INVESTMENT OBJECTIVE / GOAL?
The Fund's primary investment objective is to seek high current income.
The Fund will, however, also seek capital appreciation as a secondary objective
to the extent that it is consistent with the Fund's primary objective of seeking
high current income.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE FUND?
Under normal market conditions, the Fund intends to invest at least
seventy-five percent (75%) of its total assets in fixed income securities (such
as bonds, notes and debentures), and at least sixty-five percent (65%) of its
total assets in high yield, fixed income securities rated B or lower by Standard
& Poor's Ratings Group or Moody's Investors Service and other fixed income
securities either similarly rated by another major rating service or unrated
securities which are, in the opinion of Pax World Management Corp. (the
"Adviser"), of comparable quality (commonly referred to as "junk bonds"). In
addition, the Fund anticipates that the average weighted maturity of the fixed
income securities in its portfolio will be ten (10) years or less.
The Fund may also invest in (i) common stocks and other equity-related
securities, including equity securities that were attached to or included in a
unit with high yield fixed income securities at the time of purchase,
convertible securities and preferred stock, (ii) zero coupon, pay-in-kind and
deferred payment securities, and (iii) debt and equity securities of foreign
issuers which the Adviser believes may provide higher yields and/or have greater
liquidity than securities of domestic issuers which have similar maturities and
quality. In addition, the Fund may use derivative instruments to try to manage
investment risks or increase income by trying to predict whether the underlying
investment - a security, market index, currency, interest rate, or some other
benchmark - will go up or down.
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In deciding which securities to buy and sell, the Adviser will
consider, among other things, the financial history and condition, earnings
trends, analysts' recommendations, and the prospects and the management of an
issuer. The Adviser generally will employ fundamental analysis in making such
determinations. Fundamental analysis involves review of financial statements and
other data to attempt to predict an issuer's prospects and whether the price of
the issuer's security is undervalued or overvalued.
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. 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 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
investments in junk bonds, (v) risks associates with investments in zero coupon,
pay-in-kind and deferred payment securities, (vi) risks associated with
investments in derivative securities, (vii) risks associated with foreign
security investments, (viii) risks associated with socially responsible
investing, and (ix) 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, or is perceived to be unable, to make
interest payments and/or repay the principal on its debt.
- In general, if interest rates rise, fixed-income security
prices fall. 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. Interest rate risk is generally greater for
fixed-income securities with longer durations.
- The Fund's investments in junk bonds may subject the Fund to
high credit risk and high market risk. Under adverse economic
conditions, there is also a risk that highly leveraged issuers
may be unable to service their debt obligations or to repay
their obligations upon maturity. In addition, such investments
may be
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more illiquid (i.e., harder to value and sell) than
higher-rated securities. As a result, valuation of junk bonds
may be more dependent upon the Adviser's judgment, and
subject the Fund to higher management risk, than is generally
the case with higher- rated securities.
- Zero coupon, pay-in-kind and deferred payment securities
generally are more sensitive to movements in interest rates
and are less liquid than comparably rated securities paying
cash interest at regular intervals. Consequently, such
securities may be subject to greater fluctuation in value. In
addition, the Fund's investment exposure to these securities
and their risks, including credit risk and market risk, will
increase during the time these securities are held in the
Fund's portfolio because these securities do not pay cash
interest. Further, the Fund is required to distribute income
to its shareholders to maintain its qualification for
pass-through treatment under the federal tax laws.
Consequently, the Fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate the
cash or may have to leverage itself by borrowing the cash to
satisfy these distributions, as they relate to the
distribution of "phantom income" and the value of the
paid-in-kind interest.
- The Fund's investments in derivative securities for the
purposes of managing risk and enhancing return may subject the
Fund to investment risks and transaction costs to which the
Fund would not otherwise be subject absent the use of such
strategies. For example, (i) such investments may not achieve
the intended effects and may result in losses or missed
opportunities to the Fund, (ii) such investments may not
offset fully the Fund's underlying positions and could,
therefore, result in losses to the Fund that would not have
occurred otherwise, and (iii) certain of such investments
involve costs to the Fund that could reduce the Fund's return.
- 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.
- The Fund's socially conscious objectives may limit the
availability of investment opportunities more than is
customary with other mutual funds. 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
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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, the loss
of money is a risk of investing in the Fund, and there can be no assurance that
the Fund's investment objective will be attained.
Investors should note that a bar chart and table showing the
performance of the Fund has been presented herein, in accordance with the rules
and regulations promulgated by the SEC, because the Fund has had less than one
full calendar year of operation.
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.
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SHAREHOLDER FEES (fees paid directly from your investment)(1):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price).......................... 0%
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, as applicable).......................... 1.0%
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) (expenses that are deducted from Fund assets):
Management Fee........................................................ 1.00%
Distribution and/or Service (12b-1) Fees.............................. .25%
Other Expenses........................................................ .25%
Total Annual Fund Net Operating Expenses....................................... 1.50%
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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
estimated to be incurred for the year ending December 31, 1999.
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EXAMPLE
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. It
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. It 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
$150.00 $465.59
Shares of the Fund which are redeemed within six (6) months of purchase
are subject to a one percent (1.0%) contingent deferred sales charge which is
not reflected in the above table. The expenses shown in the above table would be
greater if the such contingent deferred sales charges were included.
As noted in the table above, the Fund does not charge sales fees
(loads) on reinvested dividends and other distributions and, therefore, the
foregoing 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.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND PRINCIPAL RISKS
INVESTMENT OBJECTIVES
The Fund's primary investment objective is to seek high current income.
The Fund will, however, also seek capital appreciation as a secondary objective
to the extent that it is consistent with the Fund's primary objective of seeking
high current income.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund intends to invest at least
seventy-five percent (75%) of its total assets in fixed income securities (such
as bonds, notes and debentures), and at least sixty-five percent (65%) of its
total assets in high yield, fixed income securities rated BB or lower by
Standard & Poor's Ratings Group or Ba or lower by Moody's Investors Service and
securities either similarly rated by another major rating service or unrated
securities which are, in the opinion of the Adviser, of comparable quality
(commonly referred to as "junk bonds"). In addition, the Fund anticipates that
the average weighted maturity of the fixed income securities in its portfolio
will be ten (10) years or less.
The Fund may also invest in (i) common stocks and other equity-related
securities, including equity securities that were attached to or included in a
unit with high yield fixed income securities at the
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time of purchase, convertible securities and preferred stock, (ii) zero coupon,
pay-in-kind and deferred payment securities, and (iii) debt and equity
securities of foreign issuers which the Adviser believes may provide higher
yields and/or have greater liquidity than securities of domestic issuers which
have similar maturities and quality. In addition, the Fund may use derivative
instruments to try to manage investment risks or increase income by trying to
predict whether the underlying investment - a security, market index, currency,
interest rate, or some other benchmark - will go up or down.
In deciding which securities to buy and sell, the Adviser will
consider, among other things, the financial history and condition, earnings
trends, analysts' recommendations, and the prospects and the management of an
issuer. The Adviser generally will employ fundamental analysis in making such
determinations. Fundamental analysis involves review of financial statements and
other data to attempt to predict an issuer's prospects and whether the price of
the issuer's security is undervalued or overvalued.
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.
In addition, the Fund reserves the right to hold temporarily other
types of securities, including commercial paper, bankers' acceptances, high
quality money market securities or cash (foreign currencies or United States
dollars), and securities issued by the 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) 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 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
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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.
PRINCIPAL RISKS
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.
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 corporate and other debt obligations of domestic
and foreign issuers. Such securities are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest and
are required to repay the amount borrowed at maturity.
Investment grade debt securities are rated within the four highest
quality grades as determined by Standard & Poor's Ratings Group (S&P) (currently
AAA, AA, A and BBB for bonds), or Moody's Investors Service (Moody's) (currently
Aaa, Aa, A and Baa for bonds), or by another nationally recognized statistical
rating organization. Debt rated BB, B, CCC, CC, C and D by S&P's, and debt rated
Ba, B, Caa, Ca and C by Moody's is regarded by the rating agency, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the
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terms of the obligation. Within this category, BB/Ba indicates the lowest degree
of speculation and D/C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. Similarly,
debt rated Ba or BB and below is regarded by the relevant rating agency as
speculative. Debt rated C by S&P's is the lowest rated debt that is not in
default as to principal or interest and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Such securities are also generally considered to be subject to greater risk than
securities with higher ratings with regard to a deterioration of general
economic conditions. Debt rated D by S&P's is in payment default. Moody's does
not have a D rating. These ratings, however, represent the rating agencies'
opinions regarding credit quality and are not a guarantee of quality. Rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than a rating indicates.
Corporate and other debt securities are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
(credit risk) and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). In addition, lower rated or
unrated (i.e., high yield or high risk) securities (commonly referred to as
"junk bonds") are more likely to react to developments affecting credit and
market risks than are more highly rated securities, which react primarily to
movements in the general level of interest rates.
Lower rated or unrated debt obligations also present risks based on
payment expectations. If an issuer calls the obligation for redemption, the Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.
Under adverse economic conditions, there is also a risk that highly
leveraged issuers may be unable to service their debt obligations or to repay
their obligations upon maturity. During an economic downturn or recession,
securities of highly leveraged issuers are more likely to default than
securities of higher rated issuers. In addition, the secondary market for high
yield securities, which is concentrated in relatively few market makers, may not
be as liquid as the secondary market for more highly rated securities. Under
adverse market or economic conditions, the secondary market for high yield
securities could contract further, independent of any specific adverse changes
in the condition of a particular issuer. As a result, the Adviser could find it
more difficult to sell these securities or may be able to sell the securities
only at prices lower than if such securities were widely traded. Under
circumstances where the Fund owns the majority of an issue, market and credit
risks may be greater.
Investors should carefully consider the relative risks of investing in
high yield securities and understand that such securities are not generally
meant for short term investing.
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,
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"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).
The Fund believes that in many instances such foreign securities may
provide higher yields than securities of domestic issuers which have similar
maturities and quality. Many of these investments currently enjoy increased
liquidity, although under certain market conditions, such securities may be less
liquid than the securities of United States corporations, and are certainly less
liquid than securities issued or guaranteed by the United States Government, its
instrumentalities or agencies.
Foreign investment involves certain risks, which should be considered
carefully by an investor in the Fund. These risks include political or economic
instability in the country of issue, the difficulty of predicting international
trade patterns, the possibility of imposition of exchange controls and the risk
of currency fluctuations. Such securities may also be subject to greater
fluctuations in price than securities issued by United States corporations or
issued or guaranteed by the United States Government, its 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. There is generally less
government regulation of securities exchanges, brokers and listed companies
abroad than in the United States, and, with respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation or
diplomatic developments which could affect investment in those countries. In the
event of a default of any such foreign debt obligations, it may be more
difficult for the Fund to obtain or to enforce a judgment against the issuers of
such securities. Foreign currency denominated securities may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, and costs may be incurred in connection with conversions between
various currencies. It may not be possible to hedge against the risks of
currency fluctuations.
PORTFOLIO TURNOVER
As a result of the investment policies described above, the Fund may
engage in a substantial number of portfolio transactions. 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
Fund's portfolio turnover rate is not expected to exceed one hundred fifteen
percent (115%). 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 fifteen percent (115%))
involves correspondingly greater brokerage commissions and other transaction
costs, which are 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. As a result, a
proportionately greater amount of distributions to shareholders may be taxed as
ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover.
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SECURITIES OF FINANCIALLY AND OPERATIONALLY TROUBLED ISSUERS
The Fund may invest in debt or equity securities of financially
troubled or bankrupt companies (financially troubled issuers) and in debt or
equity securities of companies that in the view of the Adviser are currently
undervalued, out-of-favor or price depressed relative to their long-term
potential for growth and income (operationally troubled issuers). Although the
Fund will invest in select companies which in the view of the Adviser have the
potential over the long term for capital growth, there can be no assurance that
such financially or operationally troubled companies can be successfully
transformed into profitable operating companies.
It is anticipated that many of such portfolio investments may not be
widely traded and that the Fund's position in such securities may be substantial
relative to the market for such securities. As a result, the Fund may experience
delays and incur losses and other costs in connection with the sale of its
portfolio securities. In addition, securities of financially troubled issuers
are more volatile than securities of companies not experiencing financial
difficulties. The market prices of such securities are subject to erratic and
abrupt market movements and the spread between bid and asked prices may be
greater than normally expected. Securities of financially troubled issuers are
also more likely to go into default than securities of other issuers during an
economic downturn or recession. In addition, the securities of financially and
operationally troubled issuers may require the Adviser to participate in
bankruptcy proceedings, reorganizations or financial restructurings on behalf of
the Fund. To the extent the Fund invests in such securities, it may have a more
active participation in the affairs of issuers than is generally assumed by an
investor. This may subject the Fund to litigation risks or prevent the Fund from
disposing of securities. In a bankruptcy or other proceedings, the Fund as a
creditor may be unable to enforce its rights in any collateral or may have its
security interest in any collateral challenged, disallowed or subordinated to
the claims of the creditors.
ZERO COUPON, PAY-IN-KIND OR DEFERRED PAYMENT SECURITIES
The Fund may invest in zero coupon, pay-in-kind or deferred payment
securities. Zero coupon securities are securities that are sold at a discount to
par value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received annually "phantom income." The Fund
accrues income with respect to these securities for federal income tax and
accounting purposes prior to the receipt of cash payments. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. Deferred payment securities are securities that remain
a zero coupon security until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Zero coupon, pay-in-kind and deferred payment securities may be subject to
greater fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparable rated securities paying cash interest at regular
intervals.
There are certain risks related to investing in zero coupon,
pay-in-kind and deferred payment securities. These securities generally are more
sensitive to movements in interest rates and are less liquid than comparably
rated securities paying cash interest at regular intervals. Consequently, such
securities may be subject to greater fluctuation in value. During a period of
severe market conditions, the market for such securities may become even less
liquid. In addition, as these securities do not pay cash interest, the Fund's
investment exposure to these securities and their risks, including credit risk,
will increase during the time these securities are held in the Fund's portfolio.
Further, to maintain its qualification for pass-through treatment under the
federal tax laws, the Fund is required to distribute
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income to its shareholders and, consequently, may have to dispose of its
portfolio securities under disadvantageous circumstances to generate the cash,
or may have to leverage itself by borrowing the cash to satisfy these
distributions, as they relate to the distribution of "phantom income" and the
value of the paid-in-kind interest. The required distributions will result in an
increase in the Fund's exposure to such securities.
MANAGEMENT, ORGANIZATION AND CAPITAL
STRUCTURE OF THE FUND
INCORPORATION
The Fund was incorporated under the laws of the State of Delaware on
June 15, 1999. The Fund is registered under the Investment Company Act of 1940,
as amended (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. 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, decides upon matters of general policy. The Fund's Adviser furnishes
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. 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.
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
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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 Pax World Fund,
Incorporated, the Pax World Growth Fund, Inc. and the Pax World Money Market
Fund. The Adviser has no clients other than the Fund, the Pax World Fund, the
Pax World Growth 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 operation 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 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; and (v) 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 addition, the Adviser has agreed to waive its compensation from the Fund to
the extent necessary to offset the amount of the advisory fees payable by the
Pax World Money Market Fund with respect to any assets of the Fund which are
invested in the Pax World Money Market Fund.
Mr. Thomas W. Grant, the President of the Adviser, is also the
President of H. G. Wellington & Co., Inc., 14 Wall Street, New York, NY 10005
(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 Distributor and, together
with members of his family, owns a twenty-six and sixty-seven one hundredths
percent (26.67%) interest in the Distributor. 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.
Ms. Diane Keefe, an employee of the Adviser, is the Portfolio Manager
of the Fund. She is the person responsible for the day-to-day management of the
Fund's portfolio. Ms. Keefe received her Bachelor of Arts degree in Political
Economy from Wellesley College and a Masters of Business Administration in
Finance from Columbia University Graduate School of Business. From 1984 to 1985,
Ms. Keefe was an Associate in the Municipal Investment Banking Division of
PaineWebber, Inc. In
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1986, Ms. Keefe became a Vice President of Oppenheimer Government Securities,
Inc. and in 1987 became a Vice President of Dillon, Read & Co. where she was
engaged in the institutional sales of mortgage backed securities until 1988 and
specialized in the institutional sale of preferred stock and provided advice
with respect to bond and preferred stock repurchase programs until 1989. Prior
to joining the Adviser in 1999, Ms. Keefe was a Senior Vice President in the
Taxable Fixed Income Department of Dillon, Read & Co., Inc. from 1989 until its
merger with Swiss Bank Corp. in September 1998 at which time Ms. Keefe was
appointed as a Director in the Rates Division of Swiss Bank Corp. where she
continued her specialization in the global high yield securities market. Ms.
Keefe is a Chartered Financial Analyst and a member of the New York Society of
Securities Analysts and the Association of Investment Management and Research.
In addition, Ms. Keefe has served on the Co-op America Board of Directors for
over 10 years and has served as its Chairperson for the last 3 years. Ms. Keefe
is also a Co-Chairperson of the Peace and Service Committee and a member of the
Finance Committee of the Wilton, CT Monthly Meeting, Religious Society of
Friends (Quakers) and a member of the Board of Directors of the Norwalk, CT Land
Trust.
The Adviser is responsible for decisions to buy and sell securities for
the Fund and 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
Distributor 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 ongoing 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 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.
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.
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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, at 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 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.
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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. 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.
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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 charges, by such
broker-dealer. Such transaction and other fees and charges would not be incurred
if such purchase transactions were 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.
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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:
Bank Name: PNC Bank, Philadelphia, PA
ABA Number: 031-0000-53
Account Name: Pax World High Yield 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.
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, minus a contingent deferred sales charge of one percent
(1.0%) for shares redeemed within six (6) months of purchase. In some cases,
however, sales are not subject to a contingent deferred sales charge, and the
sale price is the NAV.
Your redemption request must be in writing and the signature(s) on your
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution" if the proceeds of your
redemption (i) exceed $10,000.00 (unless the record owner(s) 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
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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 . 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 redemption 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 WRITTEN REQUEST
If you hold shares in non-certificate form, you may request a
redemption of up to $10,000 of your shares by a written request for redemption
signed by all of the account owners exactly as their names appear on the
account. 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.
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
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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
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.
WAIVER OF SALES CHARGES
No contingent deferred sales charges are imposed on shares of the Fund
sold in exchange of shares of the Pax World Fund or the Pax World Growth Fund
(but not the Pax World Money Market Fund). It is also contemplated that no
contingent deferred sales charges will be imposed on shares of the Fund sold in
exchange of shares of each new Pax World mutual fund. In addition, shares of the
Fund may be sold at NAV, without payment of a contingent deferred sales charge,
by (i) any investor provided that the amount invested by such investor in the
Fund or other Pax World mutual funds totals, immediately after such sale, 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 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.
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.
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HOW TO EXCHANGE YOUR SHARES
IN GENERAL
As a shareholder of the Fund, you have an exchange privilege with the
Pax World Fund, the Pax World Growth Fund and the Pax World Money Market Fund,
subject to the minimum investment requirement of such funds. 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 any new Pax World mutual funds.
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 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.
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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.
DIVIDENDS AND DISTRIBUTIONS
The Fund expects to pay dividends on net investment income, if any,
monthly 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.
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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. 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.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is
available to shareholders, which provides for monthly, bi-monthly,
quarterly or semi-annual checks. Shares of the Fund which are redeemed
within six (6) months of purchase pursuant to the systematic withdrawal
plan, however, are subject to a one percent (1.0%) contingent deferred
sales charge.
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.
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<PAGE>
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 is 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 four mutual funds designed
to meet your individual needs -- the Pax World Fund, Pax World Growth Fund, Pax
World High Yield Fund and Pax World Money Market Fund. We invite 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. In addition,
investors should be aware that issuers of securities held by the Fund may not be
year 2000 compliant and issuers of foreign securities held by the Fund may be
more vulnerable to year 2000 compliance problems than issuers of domestic
securities and that both of these factors may adversely affect the value of the
Fund's portfolio.
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<TABLE>
<S> <C> <C> <C>
New Account Application - Pax World High Yield Fund, Inc. Broker/Dealer Name & No. ________________
Do not use this application to open an IRA or other retirement account. Branch No. & Address_____________________
Please call 1-800-767-1729 if you need a retirement application. Representative's Name & No._______________
Please mail to: Pax World Fund Family
P.O. Box 8930, Wilmington, DE 19899-8930
1. Type of Account (check one)
Individual _____ Joint Tenants _____Gift/Transfer to a Minor
Complete A only Complete A & B only Complete C only
Trust _____Corporation _____Partnership or Other Entity
Complete D only Complete E only Complete E only
A. ______________________________________________________________________________________________________________
First Name, Middle Name, Last Name Social Security Number Birthdate (mm dd yy)
(Required to open your account)
B. ______________________________________________________________________________________________________________
First Name, Middle Name, Last Name Social Security Number Birthdate (mm dd yy)
(Required to open your account)
Joint Tenants will have rights of survivorship unless otherwise specified.
C. Custodian's Name (only one permitted)_______________________________________________________
as custodian for Minor's Name (only one permitted)__________________________________________
under the __________ Uniform Gift to Minors Act, or __________ Uniform Transfer to Minors Act.
___________________________________________ ________________________________________
Minor's Social Security Number Birthdate (mm dd yy)
(Required to open your account)
D. Name of Trustee_____________________________ Name of Second Trustee (if any)__________________________
Name of Trust_________________________________________________________________________________________________
____________________________________________ ________________________________________________
Date of Trust (mm dd yy) Taxpayer Identification Number
(Required to open your account)
E. ______________________________________________________________________________________________________________
Name of Corporation or other entity. If other entity, please specify type in the space below, e.g.,
partnership, club, etc.
____________________________________________ ________________________________________________
Taxpayer Identification Number Business Type
(Required to open your account)
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2. Your Mailing Address
Street Address and Apartment or Box Number_________________________________________________________
City_________________________ State_________________________ Zip Code___________________________
I am a citizen of ___ U.S. ___ Other ________________________ (___)______________ (___)___________________
Please Specify Country Area Code Day Phone Area Code Evening Phone
3. Your Initial Investment (Minimum $250.)
I have enclosed a check (do not send cash) made payable to Pax World High Yield Fund, Inc.
$ Amount ($250 minimum)____________________
4. Choose How You Wish to Receive Any Dividends and Capital Gains. If not completed, Option A will be assigned.
A. _____ I would like all dividends and capital gains reinvested in my account.
B. _____ I would like all dividends and capital gains paid to me in cash.
C. _____ I would like all dividends paid to me in cash and capital gains reinvested in my account.
5. Account Options
A. Please check the options you wish to add to your account.
_____ Telephone Exchange - Allows you to move funds between identically registered Pax World
accounts.
_____ Telephone Purchase and Redemption - Check this box
and complete Section B below to opt for Telephone
Purchase, and to allow Telephone Redemptions to be
electronically transmitted to your bank account. If
the box is checked and Section B is not completed,
Telephone Purchases will not be accepted and
Telephone Redemptions will be sent to the address of
record on your account.
_____ Check here if you want your Representative
of Record to have authority to give
instructions for Telephone Exchanges,
Purchases, and Redemptions. The name of your
current representative for third party
administration
is:___________________________
_____ Shareholder Redemption Option - Authorizes the Fund
and its transfer agent to waive the signature
guarantee requirement for written redemption requests
over $10,000 in the aggregate (up to $10,000 may be
obtained with just your signature(s)).
_____ Exemptions from Sales Charges - Do you claim that this account is exempt from the contingent
deferred sales charges? _____Yes _____No
If YES, state the basis for the exemption:
_____ This investment is by a qualified pension, profit sharing, employee benefit or
other similar plan;
_____ Other _______________________________________________________________________
_____ Automatic Investment (Section B is required for this
option) - Allows you to invest automatically each
month or quarter by electronically debiting your
checking or savings account. Funds are transferred
via the Automated Clearing House (ACH) system, and
the plan takes approximately 20 days to go into
effect. Please invest $__________ (minimum $50) on
the 20th day of every _____ month _____ quarter,
beginning in the month of __________.
I hereby authorize the Fund and its transfer agent to
honor instructions processed under the above-selected
account options to purchase/exchange/redeem shares,
when directed and as specified, by transmitting the
proceeds, if applicable, to me at my address of record
or debiting/crediting my preauthorized bank account.
I hereby ratify any such instructions and agree to
indemnify the Fund and its transfer agent from any
loss, liability, cost, damage and expense for
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<PAGE>
acting upon such instructions. I understand that if I
submit a change of address, certain privileges will
be suspended for a period of 30 days, and that all
checks will be issued in the name(s) of all
registered owner(s).
B. Please provide your bank account information.
Please attach a voided unsigned check or savings deposit slip
for the bank account to be used in conjunction with electronic
(ACH) transactions.
Bank Name_____________________________________________________________________________
Name on Bank
Account___________________________________________________________________
(Note: One common name must appear on both your Pax World
account registration and bank account registration).
Your Bank Account Number________________________ This is a _____Checking _____ Savings Account
As a convenience to me, you are hereby requested and
authorized to pay and charge to my account debits drawn on my
account by and payable to the order of Pax World High Yield
Fund. This authority is to remain in effect until revoked by
me in writing and, until you actually receive such notice, I
agree you shall be fully protected in honoring any such check.
I further agree that if any such check is dishonored, whether
with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
This option, if exercised, shall become a part of the account
application and the terms, representations and conditions
thereof.
Your Signature______________________ Signature (If Joint Account)_________________________
6. Your Signature
All registered owners or legal representatives must sign this section
before the Fund can open your account.
The undersigned warrant(s) that the undersigned has (have) full
authority and is (are) of legal age to purchase shares of the Fund and
has (have) received and read a current Prospectus of the Fund and
agree(s) to its terms. The Fund and its transfer agent will not be
liable for acting upon instructions or inquiries believed to be
genuine.
Taxpayer Identification Number Certification: As required by Federal
law, I/we certify under penalties of perjury that (1) the Social
Security Number or Taxpayer Identification Number listed above is
correct, and (2) I/WE HAVE NOT been notified by the IRS that I/we are
subject to backup withholding. It is understood that failure to supply
correct numbers above may subject me/us to a penalty of $50 for each
failure. Check this box if you ARE subject to 31% backup withholding. _____
_____ I/we do not have a SSN or TIN, but have applied for one and will provide it within 60 days. I/we understand that
failure to do so will result in a 31% backup withholding.
Signature________________________ Date__________ Signature________________________ Date__________
</TABLE>
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<- Unfold Here for New Account Application
NEW ACCOUNT INSTRUCTIONS
1. Type of Account. An account may be registered as only one of the following:
* Individual Supply the Social Security
* Joint Tenants Number of the registered
* A Custodial Account under the account owner who is to be
Uniform Gifts to Minors Account Taxes
* A Trust Supply the Taxpayer identifi-
* A Corporation, Partnership, cation Number of the legal
Organization, Fiduciary, etc. Entity or organization that will
report income and/or gains.
Please check the box that corresponds to the type of account you are opening
and fill in the required information exactly as you wish it to appear on the
account.
2. Your Mailing Address. Please complete all information requested as it is
required to open your account.
3. Your Initial Investment. An initial investment of at least $250 is required
to open an account. Additional purchases must be at least in the amount of
$50.
4. Receiving Your Dividends and Capital Gains. Check the option you prefer for
receiving your dividend and capital gain distributions. If you do not select
an option, all dividends and capital gains will be reinvested in your
account.
5. Exemptions From Contingent Deferred Sales Charges. If you claim that your
account is exempt from the 1% contingent deferred sales charge levied on
shares sold within six months of purchase, check the "Yes" box, and other
applicable box(es); otherwise, check the "No" box.
6. Account Options. In this section, you can authorize telephone privileges for
yourself and/or your representative of record. With the Fund's Automatic
Investment Plan, you can have $50 or more automatically withdrawn from your
bank account and invested in your Pax World account monthly or quarterly. If
you are electing an option that involves the electronic transfer of funds,
be sure to provide the bank account information in Section B. If possible,
please attach a voided check or deposit slip for the bank account that is to
be debited/credited.
7. Your Signature(s). Please be sure to sign this application. If the account
is registered in the name of:
* an individual - the individual must sign.
* joint tenants - both must sign.
* a custodian for a minor -the custodian must sign.
* a trustee or other fiduciary - the fiduciary(s) must sign
and indicate capacity.
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<PAGE>
* a corporation or other organization - an officer must sign
and indicate capacity.
Any questions? Call a Pax World Fund Family service representative at
1-800-767-1729 (toll free) for assistance.
Please return your completed application in the self-addressed envelope. If
envelope is missing, mail to:
Pax World Fund Family
P.O. Box 8930
Wilmington, DE 19899-8930
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<PAGE>
PAX WORLD HIGH YIELD FUND
PROSPECTUS & APPLICATION
[PAX WORLD HIGH YIELD FUND LOGO]
PROSPECTUS & APPLICATION
____________, 1999
<TABLE>
<S> <C>
Pax World High Yield Fund [PAX WORLD HIGH YIELD FUND
A Diversified High Yield Fund [LOGO]
222 State Street
Investment Adviser- Portsmouth, NH 03801-3853
Pax World Management Corp. HTTP://WWW.PAXFUND.COM
222 State Street
Portsmouth, NH 03801-3853
For General Fund Information, please call:
Transfer and Dividend Disbursing Agent- 1-800-767-1729
PFPC, Inc.
P.O. Box 8950 For Shareholder Account Information,
Wilmington, DE 19899-8950 please call:
1-800-372-7827
General Counsel-
Bresler Goodman & Unterman, LLP For Broker Services, please call:
521 Fifth Avenue 1-800-635-1404
New York, NY 10175
All Account Inquiries should be addressed to:
Independent Auditors- Pax World Fund Family
Pannell Kerr Forster PC P.O. Box 8930
125 Summer Street Wilmington, DE 19899-8930
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 HTTP://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.: ________________
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<PAGE>
PART B
PAX WORLD HIGH YIELD 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 __________, 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.
<PAGE>
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........................ 5
Asset-Backed Securities............................................ 5
Bank Debt.......................................................... 5
Forward Foreign Currency Exchange Contracts........................ 6
Illiquid and Restricted Securities................................. 6
Lending of Securities.............................................. 7
Options on Foreign Currencies...................................... 8
Options on Futures Contracts....................................... 8
Options on Securities.............................................. 9
Options on Securities Indices...................................... 10
Position Limits................................................... 11
Real Estate Investment Trusts..................................... 11
Repurchase Agreements............................................. 11
Segregated Accounts............................................... 11
Short Sales Against-the-Box....................................... 11
Short-term Investments............................................ 12
U.S. Government Agency and/or Instrumentality Securities.......... 12
When-Issued and Delayed Delivery Securities....................... 13
INVESTMENT RESTRICTIONS.................................................... 13
MANAGEMENT OF THE FUND..................................................... 15
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 19
Adviser........................................................... 19
Distribution...................................................... 21
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants.............................. 22
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................... 22
NET ASSET VALUE............................................................ 23
CALCULATION OF PERFORMANCE DATA............................................ 24
Average Annual Total Return....................................... 24
PURCHASE, REDEMPTION AND EXCHANGE OF FUND SHARES........................... 25
Purchase of Shares................................................ 25
In General............................................... 25
Sale of Shares.................................................... 26
In General............................................... 26
Involuntary Redemption................................... 26
Waiver of Sales Charges.................................. 26
Exchange of Shares................................................ 27
TAXES .................................................................. 27
SHAREHOLDER SERVICES....................................................... 28
Automatic Reinvestment of Dividends and/or Distributions.......... 28
Automatic Investment Plan......................................... 29
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Tax-Deferred Retirement Plans and Accounts........................ 29
Systematic Withdrawal Plans....................................... 29
Reports to Shareholders........................................... 30
Shareholder Inquiries............................................. 30
FINANCIAL STATEMENTS....................................................... -
FUND HISTORY
Pax World High Yield Fund, Inc. (the "Fund") is a socially responsible,
open-end, diversified management investment company which was incorporated under
the laws of the State of Delaware on June 15, 1999.
INVESTMENT OBJECTIVE, STRATEGIES
AND PHILOSOPHY
INVESTMENT OBJECTIVE
The Fund's primary investment objective is to seek high current income.
The Fund will, however, also seek capital appreciation as a secondary objective
to the extent that it is consistent with the Fund's primary objective of seeking
high current income.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund intends to invest at least
seventy-five percent (75%) of its total assets in fixed income securities (such
as bonds, notes and debentures), and at least sixty-five percent (65%) of its
total assets in high yield, fixed income securities rated BB or lower by
Standard & Poor's Ratings Group or Ba or lower by Moody's Investors Service and
securities either similarly rated by another major rating service or unrated
securities which are, in the opinion of Pax World Management Corp. (the
"Adviser"), of comparable quality (commonly referred to as "junk bonds"). In
addition, the Fund anticipates that the average weighted maturity of the fixed
income securities in its portfolio will be ten (10) years or less.
The Fund may also invest in (i) common stocks and other equity-related
securities, including equity securities that were attached to or included in a
unit with high yield fixed income securities at the time of purchase,
convertible securities and preferred stock, (ii) zero coupon, pay-in-kind and
deferred payment securities, and (iii) debt and equity securities of foreign
issuers which the Adviser believes may provide higher yields and/or have greater
liquidity than securities of domestic issuers which have similar maturities and
quality. In addition, the Fund may use derivative instruments to try to manage
investment risks or increase income by trying to predict whether the underlying
investment - a security, market index, currency, interest rate, or some other
benchmark - will go up or down.
In deciding which securities to buy and sell, the Adviser will
consider, among other things, the financial history and condition, earnings
trends, analysts' recommendations, and the prospects and the management of an
issuer. The Adviser generally will employ fundamental analysis in making such
determinations. Fundamental analysis involves review of financial statements and
other data to attempt
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to predict an issuer's prospects and whether the price of the issuer's security
is undervalued or overvalued.
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.
The Fund reserves the right to hold temporarily other types of
securities without limit, including commercial paper, bankers' acceptances, high
quality money market securities or cash (foreign currencies or United States
dollars) and securities issued by the 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), 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.
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, publishing, retail,
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.
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INVESTMENTS AND SPECIAL CONSIDERATIONS;
RISK FACTORS
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities ("ABSs"). An ABS
represents an interest in a pool of assets such as receivables from credit card
loans, automobile loans and other trade receivables. Changes in the market's
perception of the asset backing the security, the creditworthiness of the
servicing agent for the loan pool, the originator of the loans, or the financial
institution providing any credit enhancement will all affect the value of the
ABS, as will the exhaustion of any credit enhancement. The risks of investing in
ABSs ultimately will depend upon the payment of the consumer loans by the
individual borrowers. In its capacity as purchaser of the ABS, the Fund will
generally have no recourse to the entity that originated the loans in the event
of default by the borrower. In addition, the loans underlying the ABSs are
subject to prepayments, which may shorten the weighted average life of such
securities and may lower their return.
BANK DEBT
The Fund may invest in bank debt which includes interests in loans to
companies or their affiliates undertaken to finance a capital restructuring or
in connection with recapitalizations, acquisitions, leveraged buyouts,
refinancings or other financially leveraged transactions and may include loans
which are designed to provide temporary or "bridge" financing to a borrower
pending the sale of identified assets, the arrangement of longer-term loans or
the issuance and sale of debt obligations. These loans, which may bear fixed or
floating rates, are generally arranged through private negotiations between a
corporate borrower and one or more financial institutions ("Lenders"), including
banks. The Fund's investment may be in the form of participations in loans
("Participations") or of assignments of all or a portion of loans from third
parties ("Assignments").
Participations differ both from the public and private debt securities
typically held by the Fund and from Assignments. In Participations, the Fund has
a contractual relationship only with the Lender, not with the borrower. As a
result, the Fund has the right to receive payments of principal, interest and
any fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Fund generally will have no right
to enforce compliance by the borrower with the terms of the loan agreement
relating to the loan. Thus, the Fund assumes the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
In Assignments, by contrast, the Fund acquires direct rights against the
borrower, except that under certain circumstances such rights may be more
limited than those held by the assigning Lender.
Investments in Participations and Assignments otherwise bear risks
common to other debt securities, including the risk of nonpayment of principal
and interest by the borrower, the risk that any loan collateral may become
impaired and that the Fund may obtain less than the full value for loan
interests sold because they are illiquid. The Fund may have difficulty disposing
of Assignments and Participations. Because the market for such instruments is
not highly liquid, the Fund anticipates that such instruments could be sold only
to a limited number of institutional investors. The lack of a highly
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liquid secondary market may have an adverse impact on the value of such
instruments and will have an adverse impact on the Fund's ability to dispose of
particular Assignments or Participations in response to a specific economic
event, such as deterioration in the creditworthiness of the borrower.
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 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 fifteen percent (15%) 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
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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 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.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities to brokers, dealers and financial institutions,
provided that outstanding loans do not exceed in the aggregate twenty percent
(20%) of the value of the Fund's total assets and provided that such loans are
callable at any time by the Fund and are at all times secured by cash or
equivalent collateral that is equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive payments in lieu of the interest and dividends of the
loaned securities, while at the same time earning interest either directly from
the borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business days' notice
or by the Fund at any time. If the borrower fails to maintain the requisite
amount of collateral, the loan automatically terminates, and the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Adviser to be creditworthy. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market price
during the loan would inure to the Fund.
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Since voting or consent rights which accompany loaned securities pass
to the borrower, the Fund will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies involve the currencies of two nations and
therefore, developments in either or both countries affect the values of options
on foreign currencies. Risks include those described in under "Investments and
Special Considerations; Risk Factors - Foreign Securities," above, and include
government actions affecting currency valuation and the movements of currencies
from one country to another.
OPTIONS ON FUTURES CONTRACTS
The Fund may enter into options on futures contracts for certain bona
fide hedging, risk management and return enhancement purposes. This includes the
ability to purchase put and call options and write (i.e., sell) "covered" put
and call options on futures contracts that are traded on commodity and futures
exchanges.
If the Fund purchases an option on a futures contract, it has the right
but not the obligation, in return for the premium paid, to assume a position in
a futures contract (a long position if the option is a call or a short position
if the option is a put) at a specified exercise price at any time during the
option exercise period.
Unlike purchasing an option, which is similar to purchasing insurance
to protect against a possible rise or fall of security prices or currency
values, the writer or seller of an option undertakes an obligation upon exercise
of the option to either buy or sell the underlying futures contract at the
exercise price. A writer of a call option has the obligation upon exercise to
assume a short futures position and a writer of a put option has the obligation
to assume a long futures position. Upon exercise of the option, the assumption
of offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract at exercise exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the futures contract. If
there is no balance in the writer's margin account, the option is "out of the
money" and will not be exercised. The Fund, as the writer, has income in the
amount it was paid for the option. If there is a margin balance, the Fund will
have a loss in the amount of the balance less the premium it was paid for
writing the option.
When the Fund writes a put or call option on futures contracts, the
option must either be "covered" or, to the extent not "covered," will be subject
to segregation requirements. The Fund will be considered "covered" with respect
to a call option it writes on a futures contract if the Fund owns the securities
or currency which is deliverable under the futures contract or an option to
purchase that futures contract having a strike price equal to or less than the
strike price of the "covered" option. A Fund will be considered "covered" with
respect to a put option it writes on a futures contract if it owns an option to
sell that futures contract having a strike price equal to or greater than the
strike price of the "covered" option.
To the extent the Fund is not "covered" as described above with respect
to written options, it will segregate and maintain for the term of the option
cash or other liquid assets equal to the fluctuating value
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of the optioned futures. If the Fund writes a put option that is not "covered,"
the segregated amount would have to be at all times equal in value to the
exercise price of the put (less any initial margin deposited by the Fund) with
respect to such option.
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 five
percent (5%) of the Fund's total assets.
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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
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assets 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.
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.
REAL ESTATE INVESTMENT TRUSTS
The Fund may purchase real estate investment trusts ("REITs"). REITs
are investment vehicles that invest primarily in either real estate or real
estate loans. The value of a REIT is affected by changes in the value of the
properties owned by the REIT or security mortgage loans held by the REIT. REITs
are dependent upon cash flow from their investments to repay financing costs and
the management skill of the REIT's manager. REITs are also subject to risks
generally associated with investments in real estate.
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.
SEGREGATED ACCOUNTS
When the Fund is required to segregate assets in connection with
certain hedging transactions, it will maintain cash or liquid assets in a
segregated account. "Liquid assets" mean cash, U.S. Government securities,
equity securities, debt obligations or other liquid, unencumbered assets
marked-to-market daily, including foreign securities, high yield fixed income
securities and distressed securities.
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
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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.
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
-12-
<PAGE>
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.
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
-13-
<PAGE>
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.
4. Purchase any security if as a result: (i) with respect to
seventy-five percent (75%) of the Fund's total assets, more
than fifteen percent (15%) 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 fifteen percent (15%) 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
-14-
<PAGE>
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.
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 forty percent (40%) 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 or the 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, 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.
-15-
<PAGE>
Such activities are consistent with their fiduciary obligations as directors
under the General Corporation Law of the State of Delaware. The Adviser
furnishes 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
POSITION(S) HELD
NAME, ADDRESS AND AGE WITH THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Carl H. Doerge, Jr. Director (since Director, Pax World Fund, Incorporated (1998-present);
867 Remsen Lane 1999) Director, Pax World Growth Fund, Inc. (1997-present);
Oyster Bay, NY 11771***; (61) Private investor (1995-present); Executive Vice President
and Managing Director, Smith Barney (1971-1995)
- --------------------------------------------------------------------------------------------------------------------------------
Thomas W. Grant President; Director President, Pax World Money Market Fund, Inc. (1998-
14 Wall Street (since 1999) present); President, Pax World Growth Fund, Inc. (1997-
New York, NY 10005*/**; (58) present); Vice Chairman of the Board, Pax World Fund,
Incorporated (1996-present); President, Pax World
Management Corp. (1996-present); President, H.G.
Wellington & Co., Inc. (1991-present)
- --------------------------------------------------------------------------------------------------------------------------------
Anita D. Green Assistant Co-Treasurer, Pax World Fund, Incorporated (1998-
c/o Pax World Management Corp. Treasurer (since present); Assistant Treasurer, Pax World Growth Fund,
222 State Street 1999) Inc. (1997-present); Manager-Shareholder Services for the
Portsmouth, NH 03801-3853; (35) Pax World Fund Family, Pax World Management Corp.
(1990-present)
- --------------------------------------------------------------------------------------------------------------------------------
John L. Kidde Director (since Director, Pax World Growth Fund, Inc. (1997-present);
c/o KDM Development Corporation 1999) President, KDM Development Corporation (1988-present)
209 Cooper Avenue, Suite 5-D
Upper Montclair, NJ 07043; (65)
- --------------------------------------------------------------------------------------------------------------------------------
James M. Large, Jr. Director (since Chairman Emeritus, Dime Bancorp, Inc. (1998-present);
c/o Dime Bancorp, Inc. 1999) Chairman, Dime Bancorp, Inc. (1997); Chairman and
589 Fifth Avenue Chief Executive Officer, Dime Bancorp, Inc. (1995-1996);
New York, NY 10017***; (67) Chairman and Chief Executive Officer, Anchor Savings
Bank / Anchor Bancorp (1989-1995)
- --------------------------------------------------------------------------------------------------------------------------------
James M. Shadek Treasurer (since Treasurer, Pax World Growth Fund, Inc. (1997-present);
14 Wall Street 1999) Senior Vice President for Social Research, Pax World
New York, NY 10005*; (46) Management Corp. (1996-present); Account Executive,
H.G. Wellington & Co., Inc. (1986-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
-16-
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
New York, NY 10005*/**; (49) (since 1999) Growth Fund, Inc. (1997-present); Chairman of the Board,
Pax World 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 Co-Treasurer, Pax World Fund, Incorporated (1998-
c/o Pax World Management Corp. Treasurer (since present); Assistant Treasurer, Pax World Growth Fund,
222 State Street 1999) Inc. (1997-present); Operations Manager for the Pax
Portsmouth, NH 03801-3853; (29) World Fund Family, Pax World Management Corp. (1992-
present)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Lee D. Unterman Secretary (since Secretary, Pax World Growth Fund, Inc. (1997-present);
c/o Bresler, Goodman & Unterman, LLP 1999) Secretary, Pax World Fund, Incorporated (1997-present);
521 Fifth Avenue Partner, Bresler Goodman & Unterman, LLP, New York,
New York, NY 10175; (49) NY (1997-present); Partner, Broudy & Jacobson, New
York, NY (1988-1997)
- --------------------------------------------------------------------------------------------------------------------------------
Esther J. Walls Director (since Director, Pax World Fund, Inc. (1981-present); Associate
Apartment 29-J 1999) Director of Libraries, State University of New York, Stony
160 West End Avenue Brook, Long Island, NY (1974-1990)
New York, NY 10023; (73)
- --------------------------------------------------- ------------------- ------------------------------------------------------
</TABLE>
* Designates an "Interested" officer or director, as defined in the
Investment Company Act of 1940, as amended (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.
No person owns of record or beneficially five percent (5%) or more of
the outstanding Common Stock of the Fund (except the Adviser which owns all of
the issued and outstanding shares of the Common Stock of the Fund as of the date
hereof as a result of its initial capital contribution to 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 and Pax World Growth Fund, Inc., two
other investment companies 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
-17-
<PAGE>
to one another by blood, marriage or adoption, except that Laurence A. Shadek
and James M. Shadek are brothers.
<TABLE>
<CAPTION>
Compensation Table
- -------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation from Retirement Benefits Benefits upon from Fund and Fund
Fund (estimated for Accrued As Part of Retirement Complex Paid to
the period from the Fund Expenses Directors (estimated
date hereof through for the period from
12/31/99) the date hereof
through 12/31/99)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Carl H. Doerge, Jr., $1,000.00 ----- ----- $11,000.00
Director
- -------------------------------------------------------------------------------------------------------------------------------
Thomas W. Grant,
President and Director $300.00 ----- ----- $2,300.00
- -------------------------------------------------------------------------------------------------------------------------------
Anita D. Green, ----- ----- ----- -----
Assistant Treasurer
- -------------------------------------------------------------------------------------------------------------------------------
John L. Kidde,
Director $1,000.00 ----- ----- $6,000.00
- -------------------------------------------------------------------------------------------------------------------------------
James M. Large, Jr., $1,000.00 ----- ----- $1,000.00
Director
- -------------------------------------------------------------------------------------------------------------------------------
James M. Shadek, ----- ----- ----- -----
Treasurer
- -------------------------------------------------------------------------------------------------------------------------------
Laurence A. Shadek,
Chairman of the $300.00 ----- ----- $2,300.00
Board and Director
- -------------------------------------------------------------------------------------------------------------------------------
Janet Lawton Spates, ----- ----- ----- -----
Assistant Treasurer
- -------------------------------------------------------------------------------------------------------------------------------
Lee D. Unterman, ----- ----- ----- -----
Secretary
- -------------------------------------------------------------------------------------------------------------------------------
Esther J. Walls, $1,000.00 ----- ----- $1,000.00
Director
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The information set forth in the table, above, represents actual
amounts for the period commencing on January 1, 1999 up to but not including the
date hereof with respect to the Pax World Fund, the Pax World Growth Fund and
the Pax World Money Market Fund and estimated amounts for
-18-
<PAGE>
the period commencing on the date hereof and ending on December 31, 1999 with
respect to the Pax World Fund, the Pax World Growth Fund, the Pax World Money
Market Fund and the Pax World High Yield Fund.
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.
INVESTMENT ADVISORY AND OTHER SERVICES
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 Pax World
Fund, the Pax World Growth Fund and the Pax World Money Market Fund. The Adviser
has no clients other than the Fund, the Pax World Fund, the Pax World Growth
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 operation 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 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 addition, the Adviser has
agreed to waive its compensation from the Fund to the extent necessary to offset
the amount of the advisory fees payable by the Pax World Money Market Fund with
respect to any assets of the Fund which are invested in the Pax World Money
Market Fund.
-19-
<PAGE>
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 adopted
on August 25, 1999 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, at a meeting called for the
purpose of voting on such agreement.
Mr. Thomas W. Grant, the President of the Adviser, is also the
President of H.G. Wellington & Co., Inc. (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 Distributor and, together
with members of his family, owns a twenty-six and sixty-seven one hundredths
percent (26.67%) interest in the Distributor. 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.
Ms. Diane Keefe, an employee of the Adviser, is the Portfolio Manager
of the Fund. She is the person responsible for the day-to-day management of the
Fund's portfolio. Ms. Keefe received her Bachelor of Arts degree in Political
Economy from Wellesley College and a Masters of Business Administration in
Finance from Columbia University Graduate School of Business. From 1984 to 1985,
Ms. Keefe was an Associate in the Municipal Investment Banking Division of
PaineWebber, Inc. In 1986, Ms. Keefe became a Vice President of Oppenheimer
Government Securities, Inc. and in 1987 became a Vice President of Dillon, Read
& Co. where she was engaged in the institutional sales of mortgage backed
securities until 1988 and specialized in the institutional sale of preferred
stock and provided advice with respect to bond and preferred stock repurchase
programs until 1989. Prior to joining the Adviser in 1999, Ms. Keefe was a
Senior Vice President in the Taxable Fixed Income Department of Dillon, Read &
Co., Inc. from 1989 until its merger with Swiss Bank Corp. in September 1998 at
which time Ms. Keefe was appointed as a Director in the Rates Division of Swiss
Bank Corp. where she continued her specialization in the global high yield
securities market. Ms. Keefe is a Chartered Financial Analyst and a member of
the New York Society of Securities Analysts and the Association of Investment
Management and Research. In addition, Ms. Keefe has served on the Co-op America
Board of Directors for over 10 years and has served as its Chairperson for the
last 3 years. Ms. Keefe is also a Co-Chairperson of the Peace and Service
Committee and a member of the Finance Committee of the Wilton, CT Monthly
Meeting, Religious Society of Friends (Quakers) and a member of the Board of
Directors of the Norwalk, CT Land Trust.
In connection with this offering, the Fund and the 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.
-20-
<PAGE>
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 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.
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 August 25, 1999 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"). 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
-21-
<PAGE>
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 August 25, 1999 by the Board
of Directors of the Fund, including a majority of the Rule 12b-1 Directors, 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.
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 is 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
Distributor 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
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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 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
Distributor, 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 Distributor (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 Distributor (or any affiliate)
may act as a securities broker for the fund. In order for the Distributor (or
any affiliate) to effect any portfolio transactions for the Fund, the
commissions, fees or other remuneration received by the Distributor (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 Distributor
(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 Distributor (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, the Distributor 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 Distributor must
furnish to the Fund at least annually a statement setting forth the total amount
of all compensation retained by the Distributor from transactions effected for
the Fund during the applicable period. Brokerage with the Distributor is also
subject to such fiduciary standards as may be imposed by applicable law.
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, which is a brokerage
firm which the Fund may utilize to execute security transactions.
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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<PAGE>
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).
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<PAGE>
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.
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. 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 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
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<PAGE>
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. 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.
SALE OF SHARES
IN GENERAL
Shares of the Fund can be redeemed 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, minus a contingent deferred sales charge of one percent
(1.0%) for shares redeemed within six (6) months of purchase. In some cases,
however, sales are not subject to a contingent deferred sales charge, and the
sale price is the NAV. See "Waiver of Sales Charges" below.
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
sixty (60) days prior written notice in which to purchase sufficient additional
shares to avoid such redemption.
WAIVER OF SALES CHARGES
No contingent deferred sales charges are imposed on shares of the Fund
sold in exchange of shares of the Pax World Fund or the Pax World Growth Fund
(but not the Pax World Money Market Fund). It is also contemplated that no
contingent deferred sales charges will be imposed on shares of the Fund sold in
exchange of shares of each new Pax World mutual fund. In addition, shares of the
Fund may be sold at NAV, without payment of a contingent deferred sales charge,
by (i) any investor provided that the amount invested by such investor in the
Fund or other Pax World mutual funds totals, immediately after such sale, 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 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
-26-
<PAGE>
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.
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.
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, Pax World
Growth 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, Pax World Growth
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
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<PAGE>
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 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
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
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<PAGE>
(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.
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. In addition, shares of the Fund which are
redeemed within six (6) months of purchase pursuant to the systematic withdrawal
plan are subject to a one percent (1.0%) contingent deferred sales charge.
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.
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<PAGE>
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 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).
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<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors of
Pax World High Yield Fund, Inc.
We have audited the statement of assets and liabilities of Pax World High Yield
Fund, Inc. as of August 25, 1999. This financial statement is the responsibility
of the Fund's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities presents fairly, in all
material respects, the financial position of Pax World High Yield Fund, Inc. as
of August 25, 1999, in conformity with generally accepted accounting principles.
/s/ Pannell Kerr Forster, P.C.
-------------------------------
Boston, MA
August 26, 1999
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
Statement of Assets and Liabilities
As of August 25, 1999
Assets
Cash $100,000
--------
Total assets 100,000
--------
Liabilities
Liabilities -
--------
Net assets (note 1)
Applicable to 10,000 shares of common stock $100,000
--------
Calculation of offering price
Net asset value price per share $ 10
--------
See notes to financial statement
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
Notes to Financial Statement
August 25, 1999
Note 1 - Accounting policies
Pax World High Yield Fund, Inc. (the "Fund"), which was
incorporated in Delaware on June 15, 1999, is an open-end,
diversified management investment company. The Fund has had no
significant operations other than the issuance of 10,000
shares of common stock for $100,000 on August 25, 1999, to Pax
World Management Corp. There are 25,000,000 shares of $1.00
par value common stock authorized.
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.
Federal income taxes
The Fund intends 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.
Note 2 - Investment advisory agreement and other transactions with
affiliates
Pursuant to an Advisory Agreement between the Fund and Pax
World Management Corp. (the "Adviser"), the Adviser furnishes
investment advisory services in connection with the management
of the Fund. Under 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 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. Two officers, who are also directors of
the Fund, are also officers and directors of the Adviser.
Another officer of the Fund, who is not a director of the
Fund, is also an officer of the Adviser. In the event that the
average net assets of the Fund are less
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
Notes to Financial Statement
August 25, 1999
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 Adviser will be compensated by the Fund for
its services at an annual rate of one percent (1%) of average
net assets up to and including $25,000,000 and three-quarters
of one percent (.75%) of average 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 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 net asset value
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 and Dividend Disbursing 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.
Note 3 - Distribution expense plan
Pursuant to a plan of distribution (the "Plan") adopted by the
Fund under Rule 12b-1 of the Investment Company Act of 1940,
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 agreement 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. The Plan provides that (i) up to twenty-five one
hundredths of one percent (.25%) of the average daily net
assets of the shares 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
-2-
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
Notes to Financial Statement
August 25, 1999
(.25%) may not exceed thirty-five one hundredths of one percent
(.35%) of the average daily net assets of the shares of the
Fund per annum.
-3-
<PAGE>
PART C
OTHER INFORMATION
Item 23. Financial Statements and Exhibits.
(a) Financial Statements:
(i) Financial Statements included in the Prospectus
constituting Parts A and B of this Registration
Statement:
Part A - Not Applicable.
Part B - Statements of Assets
and Liabilities, Notes to
Financial Statements, all
as of August 25, 1999, and
Independent Auditors'
Report.
(b) Exhibits:
(i) Articles of Incorporation.
(ii) By-Laws.
(iii) Instruments Defining Rights of Security Holders.
(iv) Investment Advisory Contracts. Form of Advisory
Agreement between the Registrant and Pax World
Management Corp.
(v) Underwriting Contracts. Form of Distribution
Agreement between Pax World Management Corp. and
H. G. Wellington & Co., Inc.
(vi) Bonus or Profit Sharing Contracts. Not Applicable.
(vii) Custodian Agreements.
(A) Form of Custodian Contract between the
Registrant and State Street Bank and Trust
Company.
(B) Form of Data Access Services Addendum to
Custodian Contract between the Registrant
and State Street Bank and Trust Company.
(C) Form of Funds Transfer Addendum to Custodian
Contract between the Registrant and State
Street Bank and Trust Company.
(viii) Other Material Contracts.
(A) Form of Transfer Agency Services Agreement
between the Registrant and PFPC, Inc.
(B) Form of Transfer Agency Services Fee
Agreement between the Registrant and PFPC,
Inc.
(C) Form of Transfer Agency Services Fee Waiver
Agreement between the Registrant and PFPC,
Inc.
<PAGE>
(ix) Legal Opinion.
(A) Opinion of Counsel.
(B) Consent of Counsel.
(x) Other Opinions. Consent of Independent Certified
Public Accountants.
(xi) Omitted Financial Statements. Not Applicable.
(xii) Initial Capital Agreements. Form of Purchase
Agreement.
(xiii) Rule 12b-1 Plan. Form of Distribution and Service
Plan.
(xiv) Financial Data Schedule. Not Applicable.
(xv) Rule 18f-3 Plan. Not Applicable.
Item 24. Persons Controlled by or under Common Control with the Fund.
Pax World Fund, Incorporated, Pax World Growth Fund, Inc., Pax World
High Yield Fund, Inc. and Pax World Money Market Fund, Inc. share a common
investment adviser and thus may be deemed to be under common control, although
the Registrant does not concede that they are under common control.
Item 25. Indemnification.
As permitted by Section 17(h) and (i) of the Investment Company Act of
1940 (the "1940 Act") and pursuant to Section 8.04 of the Fund's By-Laws
(Exhibit 2 to the Registration Statement), officers, directors, employees and
agents of the Registrant will not be liable to the Registrant, any shareholder,
officer, director, employee, agent or other person for any action or failure to
act, except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
Section 145 of the General Corporation Law of the State of Delaware permits
indemnification of directors who acted in good faith and reasonably believed
that the conduct was in the best interests of the Registrant.
Section 8 of the Advisory Agreement (Exhibit 5 to the Registration
Statement) and Section 7 of the Sub-Advisory Agreement (Exhibit 5 to the
Registration Statement) limit the liability of the Adviser and the Sub-Adviser,
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their obligations and duties under the Advisory and
Sub-Advisory Agreement.
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws in a manner consistent with Release No. 11330 of the
Securities and Exchange Commission under the 1940 Act so long as the
interpretation of Section 17(h) and 17(i) of such Act remain in effect and are
consistently applied.
Under Section 17(h) of the 1940 Act, it is the position of the staff of
the Securities and Exchange Commission that if there is neither a court
determination on the merits that the defendant is not liable nor a court
determination that the defendant was not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of one's office, no indemnification will be permitted unless an
independent legal counsel (not including a counsel who does work for either the
Registrant, its investment adviser, its principal underwriter or persons
affiliated with these persons) determines, based upon a review of the facts,
that
-2-
<PAGE>
the person in question was not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Under its Articles of Incorporation, the Registrant may advance funds
to provide for indemnification. Pursuant to the Securities and Exchange
Commission staff's position on Section 17(h) advances will be limited in the
following respect:
(i) Any advances must be limited to amounts used, or to be used,
for the preparation and/or presentation of a defense to the
action (including cost connected with preparation of a
settlement);
(ii) Any advances must be accompanied by a written promise by, or
on behalf of, the recipient to repay that amount of the
advance which exceeds the amount to which it is ultimately
determined that he is entitled to receive from the Registrant
by reason of indemnification;
(iii) Such promise must be secured by a surety bond or other
suitable insurance; and
(iv) Such surety bond or other insurance must be paid for by the
recipient of such advance.
Item 26. Business and Other Connections of the Investment Adviser.
See "Management, Organization and Corporate Structure of the Fund -
Adviser" in the Prospectus constituting Part A of this Registration Statement
and "Adviser" in the Statement of Additional Information constituting Part B of
this Registration Statement.
The business and other connections of the Adviser's directors and
executive officers are as set forth below. Except as otherwise indicated, the
address of each person is 222 State Street, Portsmouth, NH 03801.
<TABLE>
<CAPTION>
NAME POSITION(S) HELD WITH THE ADVISER PRINCIPAL OCCUPATION(S)
---- --------------------------------- -----------------------
<S> <C> <C>
Katherine Shadek Boyle Senior Vice President; Director Senior Vice President, Pax World
Management Corp.
Thomas W. Grant President; Director President, Pax World Management
Corp.; Vice Chairman of the Board
and President, Pax World Fund,
Incorporated; President, Pax World
Growth Fund, Inc.; President, Pax
World High Yield Fund, Inc.;
President, Pax World Money
Market Fund, Inc.; President, H.
G. Wellington & Co., Inc.
James M. Shadek Senior Vice President for Social Senior Vice President for Social
Research; Secretary; Director Research and Secretary, Pax World
Management Corp.; Treasurer, Pax
World Growth Fund, Inc.;
Treasurer, Pax World High Yield
Fund, Inc.; Account Executive, H.
G. Wellington & Co., Inc.
-3-
<PAGE>
Laurence A. Shadek Chairman of the Board; Director Chairman of the Board, Pax World
Management Corp.; Chairman of
the Board, Pax World Fund,
Incorporated; Chairman of the
Board, Pax World Growth Fund,
Inc.; Chairman of the Board, Pax
World High Yield Fund, Inc.;
Executive Vice President, Pax
World Money Market Fund, Inc.;
Executive Vice President, H. G.
Wellington & Co., Inc.
Thomas F. Shadek Senior Vice President - Marketing; Senior Vice President - Marketing,
Director Pax World Management Corp.
</TABLE>
Item 27. Principal Underwriters
Not applicable.
Item 28. Location of Accounts and Records
The accounts, books and other documents relating to shareholder
accounts and activity required to be maintained by Section 31(a) of the 1940 Act
and the Rules thereunder are maintained by PFPC, Inc. and are located at 400
Bellevue Parkway, Wilmington, DE 19809-3853. All other accounts, books and other
documents required to be maintained by Section 31(a) of the 1940 Act and the
Rules thereunder are maintained by the Fund at 222 State Street, Portsmouth, NH
03801 and by the State Street Bank and Trust Company at 225 Franklin Street,
Boston MA 02110. The Applicant's corporate minute books are kept at the law
offices of Bresler, Goodman & Unterman, LLP, 521 Fifth Avenue, New York, NY
10175.
Item 29. Management Services
Other than as set forth under the captions "Management, Organization
and Corporate Structure of the Fund - Adviser," "Management, Organization and
Corporate Structure of the Fund - Distribution," and Management, Organization
and Corporate Structure of the Fund - Custodian and Transfer and Dividend
Disbursing Agent" in the Prospectus constituting Part A of this Registration
Statement and the caption "Management of the Fund" in the Statement of
Additional Information constituting Part B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
Item 30. Undertakings
Not Applicable.
-4-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of New York, and State of New York, on the 14th day of September, 1999.
PAX WORLD HIGH YIELD FUND, INC.
By: /s/ Thomas W. Grant
--------------------------------
Thomas W. Grant
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Laurence A. Shadek
------------------------ Chairman of the Board, 9/14/99
Laurence A. Shadek Director
/s/ Thomas W. Grant
------------------------ President, Director 9/14/99
Thomas W. Grant
/s/ James M. Shadek
------------------------ Treasurer 9/14/99
James M. Shadek
/s/ Carl H. Doerge, Jr.
------------------------ Director 9/14/99
Carl H. Doerge, Jr.
/s/ John L. Kidde
------------------------ Director 9/14/99
John L. Kidde
/s/ Esther J. Wall
------------------------ Director 9/14/99
Esther J. Walls
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
Exhibit Index
1. Articles of Incorporation.*
2. By-Laws.*
3. Instruments defining rights of security holders.*
4. Form of Advisory Agreement between the Registrant and Pax World
Management Corp.**
5. Form of Distribution Agreement between the Registrant and H. G.
Wellington & Co., Inc.*
6. Not Applicable.
7(a). Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company.**
7(b). Form of Data Access Services Addendum to Custodian Contract
between the Registrant and State Street Bank and Trust
Company.**
7(c). Form of Funds Transfer Addendum to Custodian Contract between
the Registrant and State Street Bank and Trust Company.**
8(a). Form of Transfer Agency Services Agreement between the
Registrant and PFPC, Inc.*
8(b). Form of Transfer Agency Services Fee Agreement between the
Registrant and PFPC, Inc.*
8(c). Form of Transfer Agency Services Fee Waiver Agreement between
the Registrant and PFPC, Inc.*
9(a). Opinion of Counsel.**
9(b). Consent of Counsel.**
10. Consent of Independent Certified Public Accountants.**
11. Not Applicable.
12. Form of Purchase Agreement.**
13. Form of Distribution and Service Plan.*
14. Not Applicable
15. Not Applicable.
- ------------
* Previously filed.
** Filed herewith.
EXHIBIT 4
PAX WORLD HIGH YIELD FUND, INC.
222 STATE STREET
PORTSMOUTH, NH 03801
__________, 1999
Pax World Management Corp.
222 State Street
Portsmouth, NH 03801
INVESTMENT ADVISORY AGREEMENT
Ladies and Gentlemen:
The undersigned, Pax World High Yield Fund, Inc. (the "Fund"), is an
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Fund is an open-end diversified
management investment company, as defined in the Investment Company Act, and
invests and reinvests its assets in a portfolio of investments. The Fund hereby
engages you, Pax World Management Corp. (the "Adviser"), to act as its
investment adviser and financial agent, subject to the terms and conditions
herein set forth.
SECTION 1. MANAGEMENT SERVICES
The Fund will, from time to time, furnish to you detailed statements of
the investments and resources of the Fund and information as to its investment
needs, and will make available to you such financial reports, proxy statements,
legal and other information relating to its investment as may be in the
possession of the Fund or available to it.
You shall, at your expense, use your experience, staff and other
facilities to conduct and maintain a continuous review of the Fund's
investments, resources and needs, and shall from time to time furnish to the
Directors of the Fund (the "Directors") or such others as the Directors shall
direct, your advice and recommendations with respect to the purchase and sale of
investments by the Fund and the making of commitments thereto. In conducting
such review and furnishing such advice and recommendations, you shall be guided
by the Fund's investment policy and restrictions as delineated and limited by
the statements contained in the various documents and amendments thereto filed
with the Securities and Exchange Commission (the "SEC").
You shall place at the disposal of the Fund such statistical research,
analytical and technical services and information and reports as may be
reasonably required by the Fund, shall furnish the Fund with, and pay the
salaries of, the executive, administrative and clerical personnel of the Fund,
and in general shall supervise the affairs of the Fund, subject to the control
of the Directors. Your advice and recommendations with respect to the purchase
and sale of investments and the making of investment commitments shall be
submitted at the principal offices of the Fund to the Directors of the Fund, to
an investment committee thereof, or to such other person or persons as the
Directors or such investment committee shall designate for that purpose. The
Directors, such investment committee, or such designated person or persons shall
have full authority to act upon such advice and recommendations and to place
orders on behalf of the Fund for the purchase and sale of investments. Reports
of portfolio recommendations shall be made quarterly to the Directors or more
frequently as the Directors may from time to time determine.
<PAGE>
SECTION 2. DUTIES AS FINANCIAL AGENT OF THE FUND
You shall keep the books and financial records of the Fund, and on
behalf of the Fund, shall compare the value of the principal and income of the
Fund and of its shares (in accordance with the instructions of the Directors) at
such times as the Directors may direct, and shall perform such other services as
are reasonably related to the foregoing duties. You shall furnish to the Fund
and the Directors statements with respect to the valuation of the Fund and its
shares, at such times, and in such forms, as the Directors may prescribe.
SECTION 3. BROKERAGE SERVICES
When and if the Directors so request, you shall furnish brokerage
services in connection with the Fund's investments, and may make such charges
for those services as are permitted by law or by the applicable rules of the
National Association of Securities Dealers, Inc., or any stock exchange, but
only if and to the extent that any such charges are permitted by the Articles of
Incorporation and/or By-Laws of the Fund as then in effect.
At any time when you shall have been requested to act in your capacity
as broker in connection with any of the Fund's investments, you shall deposit
with or obtain from the Fund's custodian any and all of such securities and
investments only in accordance with the requirements and provisions of the
custodial agreement entered into between the Fund and the Fund's custodian. It
is the intent hereof that the Fund's custodian shall obtain and maintain the
exclusive possession of, and be responsible for the security and safekeeping of,
the Fund's investments, and that you shall have possession of such investments
only as shall be required to implement transactions normally requiring the
services of a broker, and which have been directed by the Directors or such
other person or persons as the Directors shall designate for that purpose.
SECTION 4. ADDITIONAL SERVICES, EXPENSES, ETC.
You shall furnish to the Fund, and pay for, such office space and
facilities, including, without being limited to, stenographic, telephone,
telegraph, mailing, and other facilities as the Directors shall request in
connection with the operations of the Fund. It is the intent of this contract
that, through your staff, you shall supply and pay for such services as are
deemed by the Directors to be necessary or desirable and proper for the
continuous operation 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 (1-1/2%)
of the average net asset value 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 and dividend
disbursing 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.
SECTION 5. INDEPENDENT CONTRACTOR
You shall, for all purposes, be deemed to be an independent contractor
and shall have no authority to act for or represent the Fund unless otherwise
provided. No agreement, bid, offer, commitment, contract or other engagement
entered into by you, whether on your behalf or purported to have been on behalf
of the Fund, shall be binding upon the Fund, and all acts authorized to be done
by you under this contract shall be done by you as an independent contractor and
not as agent.
SECTION 6. MULTIPLE CAPACITIES, TRANSACTIONS
Nothing contained in this contract shall be deemed to prohibit you from
acting, and being separately compensated for so acting, in one or more
capacities on behalf of the Fund, including but not limited to, the capacities
of investment adviser, broker, and distributor. Whenever you shall be required
to act in multiple
-2-
<PAGE>
capacities, either under this contract or by virtue of this or any other
contract between you and the Fund, you shall maintain appropriate separate
accounts and records for each such capacity.
Except to the extent necessary for the performance of your obligations
hereunder, nothing in this contract shall restrict your right or the right of
any of your directors, officers or employees (whether or not they are directors,
officers or employees of the Fund) to engage in any other business or to devote
time and attention to the management or other aspects of any other business
whether of a similar or dissimilar nature or to render services of any kind to
any other corporation, firm, individual or association or to participate or to
be otherwise interested, as principal, agent or otherwise, in sales, purchases
or other transactions with the Fund or its directors, officers, agents,
attorney, servants, independent contractors, brokers, custodian, underwriters,
distributors and other persons, except as may be prohibited by the Investment
Company Act.
It is understood and agreed that officers, directors, shareholders,
employees and agents of the Fund may be interested in the Adviser as officers,
directors, shareholders, employees and agents and vice versa. Specifically, it
is understood and agreed that the officers, directors, shareholders, employees
and agents of the Adviser may be simultaneously officers and/or directors of the
Fund, but that they are to receive no remuneration solely for acting in those
capacities.
SECTION 7. COMPENSATION FOR SERVICES
Except as provided below, you shall receive such compensation for your
services as is provided in this Section, and such payments shall be the only
compensation to which you shall be entitled under this contract. The
compensation referred to herein shall not be deemed to include, and shall be in
addition to (i) any charges you may make to the Fund in your capacity as broker
for purchases or sales of securities and investments pursuant to Section 3
hereof, and (ii) any payments which you may receive in connection with your
services as distributor of the Fund's shares, if such is provided.
Subject to the foregoing exceptions and limitations, the Fund will pay
to you a fee per annum computed at the following rates: in the event that the
average net assets of the Fund are less than $5,000,000.00, you will be
compensated by the Fund for your services hereunder at an annual rate of
$25,000.00; in the event that the average net assets of the Fund are equal to or
in excess of $5,000,000.00, you will be compensated by the Fund for your
services hereunder at an annual rate of one percent (1%) of average net assets
up to and including $25,000,000.00 and three-quarters of one percent (.75%) of
average net assets in excess of $25,000,000.00. The fee shall be paid to you in
monthly installments on or before the tenth (10th) business day of each month
and the amount of each such payment shall be computed and accrued on the basis
of the net asset value of the Fund at the end of each business day during each
calendar month.
In addition, you agree to waive the compensation payable by the Fund to
you under this Section 7 to the extent necessary to offset the amount of the
advisory fees payable by Pax World Money Market Fund, Inc. (the "Pax World Money
Market Fund") with respect to any assets of the Fund which are invested in the
Pax World Money Market Fund.
SECTION 8. LIABILITY
You shall give the Fund the benefit of your best judgment and efforts
in rendering the services set forth herein, and the Fund agrees as an inducement
to the undertaking of these services by you that you shall not be liable for any
loss suffered by the Fund resulting from any error of judgment or any mistake of
law or fact in connection with any matters as to which this contact relates,
except that nothing herein contained shall be construed to protect you against
any liability by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties or by reckless disregard of your obligations or
duties under this contract.
-3-
<PAGE>
SECTION 9. APPROVAL OF CONTRACT TERMINATION
As promptly as practicable after its execution, this contract will be
submitted to the Fund's shareholders for approval at a meeting thereof duly
convened for such purpose. If approved at such meeting by the vote of the
holders of a majority of the Fund's outstanding voting shares, the contract
shall be effective __________, 1999 for an initial term expiring June 30, 2000.
Thereafter, the contract will continue in effect for successive yearly terms
ending June 30, following the conclusion of each annual meeting of shareholders,
if any, unless earlier terminated by either party as set forth below, provided
that the renewal of this contract and its terms are specifically approved
annually by the vote of the holders of a majority of the Fund's outstanding
shares or annually by the majority vote of the disinterested Directors.
Notwithstanding the foregoing, this contract is terminable by either party on
not more than sixty (60) days and not less than thirty (30) days written notice,
with or without cause and without payment of any penalty, and will terminate
automatically in the event of any assignment, unless an order is issued by the
SEC conditionally or unconditionally exempting such assignment from the
provision of Section 15(a) of the Investment Company Act, in which event this
contract shall continue in full force and effect.
This contract may not be amended, transferred or assigned, or in any
manner hypothecated or pledged, nor may any new contract become effective,
without the affirmative vote or written consent of the holders of a majority of
the outstanding voting shares of the Fund; provided, however, that this
limitation shall not prevent any non-material amendments to the contract or such
amendments as may be required by federal or state regulatory bodies.
SECTION 10. CONCERNING APPLICABLE PROVISIONS OF LAW, ETC.
This contract shall be subject to all applicable provisions of law,
including without being limited to, the applicable provisions of the Investment
Company Act and the Investment Advisers Act of 1940, as amended, and to the
extent that any provisions herein contained conflict with any such applicable
provisions of law, the latter shall control.
This contract is executed and delivered in the State of New Hampshire
and the laws of the State of New Hampshire shall, except to the extent that any
applicable provisions of some other laws shall be controlling, govern the
construction, validity and effect of this contract.
The headings preceding the text of the several Sections herein are
inserted solely for convenience of reference and shall not affect the meaning,
construction or effect of this contract.
-4-
<PAGE>
If the foregoing correctly sets forth our understanding, please sign
the enclosed copy of this letter where indicated and return it to the
undersigned, whereupon this letter shall constitute a binding contract between
the parties hereto.
Very truly yours,
PAX WORLD HIGH YIELD FUND, INC.
By:
----------------------------------
Laurence A. Shadek
Chairman of the Board
Accepted and agreed to as of the date first above written:
PAX WORLD MANAGEMENT CORP.
By:
--------------------------
Thomas W. Grant
President
By
---------------------------
James M. Shadek
Secretary
-5-
EXHIBIT 7(A)
CUSTODIAN CONTRACT
This Contract between PAX WORLD HIGH YIELD FUND, INC., a
corporation organized and existing under the laws of the State of Delaware and
having its principal place of business at 222 State Street, Portsmouth, NH
03801, hereinafter called the "Fund", and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal place of business at 225
Franklin Street, Boston, MA 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT
The Fund hereby employs the Custodian as the custodian of its
assets, including securities it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the Articles
of Incorporation. The Fund agrees to deliver to the Custodian all securities and
cash owned by it, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the Fund
from time to time, and the cash consideration received by it for such new or
treasury shares of capital stock, $ 1.00 par value, ("Shares") of the Fund as
may be issued or sold from time to time. The Custodian shall not be responsible
for any property of the Fund held or received by the Fund and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall from time to time employ one or more
sub-custodians located in the United States, but only in accordance with an
applicable vote by the Board of Directors of the Fund, and provided that the
Custodian shall have no more or less responsibility or liability to the Fund on
account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodians for the Fund's securities and other assets the foreign banking
institutions and foreign securities depositories designated in Schedule "A"
hereto but only in accordance with the provisions of Article 3.
2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY
THE CUSTODIAN IN THE UNITED STATES
2.1 HOLDING SECURITIES. The Custodian shall hold and physically
segregate for the account of the Fund all non-cash property, to
be held by it in the United States, including all domestic
investments owned by the Fund, other than (a) securities which
are maintained pursuant to Section 2.8 in a clearing agency
registered with the Securities and Exchange Commission ("SEC")
under Section 17A of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies (each, a
"U.S. Securities System") and (b) commercial paper of an issuer
for which the Custodian acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.9.
2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or
in a U.S. Securities System account ("U.S. Securities System
Account") of the Custodian or in the Custodian's Direct Paper
book-entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in
the following cases:
<PAGE>
1) Upon sale of such securities for the account of the
Fund and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Fund;
3) In the case of a sale effected through a U.S.
Securities System, in accordance with the provisions
of Section 2.8 hereof;
4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into
the name of the Fund or into the name of any nominee
or nominees of the Custodian or into the name or
nominee name of any agent appointed pursuant to
Section 2.7 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face
amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to
the Custodian;
7) Upon the sale of such securities for the account of
the Fund, to the broker or its clearing agent,
against a receipt, for examination in accordance with
"street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of
such securities prior to receiving payment for such
securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise of
such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities
for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, BUT ONLY against receipt
of adequate collateral as agreed upon from time to
time by the Custodian and the Fund, which may be in
the form of cash or obligations issued by the United
States government, its agencies or instrumentalities,
except that in connection with any loans for which
collateral is to be credited to the Custodian's
account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of
securities owned by the Fund prior to the receipt of
such collateral;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of assets by
the Fund, BUT ONLY against receipt of amounts
borrowed;
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12) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of
any similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission
and/or any contract market, or any similar
organization or organizations, regarding account
deposits in connection with transactions by the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in
connection with distributions in kind, as may be
described from time to time in the Fund's currently
effective prospectus and statement of additional
information ("prospectus"), in satisfaction of
requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, BUT ONLY upon
receipt of Proper Instructions specifying the
securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such
securities shall be made.
2.3 REGISTRATION OF SECURITIES. Domestic securities held by the
Custodian (other than bearer securities) shall be registered
in the name of the Fund or in the name of any nominee of the
Fund or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Fund, UNLESS the Fund has
authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or
nominee name of any agent appointed pursuant to Section 2.7 or
in the name or nominee name of any sub-custodian appointed
pursuant to Article 1. All securities accepted by the
Custodian on behalf of the Fund under the terms of this
Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its
best efforts only to timely collect income due the Fund on
such securities and to notify the Fund on a best efforts basis
only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange
offers.
2.4 BANK ACCOUNTS. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the
name of the Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Contract, and
shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the
account of the Fund, other than cash maintained by the Fund in
a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by
the Custodian for the Fund may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian
or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; PROVIDED, however,
that every such bank or trust company shall be qualified to
act as a custodian under the Investment Company Act of 1940
and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall be
approved by vote of a majority of the Board of Directors of
the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
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2.5 COLLECTION OF INCOME. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income
and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled
either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and
other payments with respect to United States bearer securities
if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit
such income, as collected, to the Fund's custodian account.
Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they
become due and shall collect interest when due on securities
held hereunder. Income due the Fund on United States
securities loaned pursuant to the provisions of Section 2.2
(10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith,
other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the
Fund is properly entitled.
2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out monies of the Fund
in the following cases only:
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts for
the account of the Fund but only (a) against the
delivery of such securities, or evidence of title to
such options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United
States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as
a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name
of the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System,
in accordance with the conditions set forth in
Section 2.8 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.9; (d) in the
case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form
or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing
purchase by the Fund of securities owned by the
Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Fund or (e) for transfer to a
time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender
of securities owned by the Fund as set forth in
Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by
the Fund as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred
by the Fund, including but not limited to the
following payments for the account of the Fund:
interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the
Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
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5) For the payment of any dividends declared pursuant to
the governing documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, BUT ONLY upon receipt
of Proper Instructions specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to
whom such payment is to be made.
2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any
other bank or trust company which is itself qualified under
the Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.8 DEPOSIT OF SECURITIES IN U.S. SECURITIES SYSTEMS. The
Custodian may deposit and/or maintain domestic securities
owned by the Fund in a clearing agency registered with the SEC
under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized
by the U.S. Department of the Treasury and certain federal
agencies, collectively referred to herein as "U.S. Securities
System" in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep domestic securities of the
Fund in a U.S. Securities System provided that such
securities are represented in an account ("Account")
of the Custodian in the U.S. Securities System which
shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to domestic
securities of the Fund which are maintained in a U.S.
Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for domestic securities
purchased for the account of the Fund upon (i)
receipt of advice from the U.S. Securities System
that such securities have been transferred to the
Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian
shall transfer domestic securities sold for the
account of the Fund upon (i) receipt of advice from
the U.S. Securities System that payment for such
securities has been transferred to the Account, and
(ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from
the U.S. Securities System of transfers of domestic
securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian
and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund
confirmation of each transfer to or from the account
of the Fund in the form of a written advice or notice
and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions
in the U.S. Securities System for the account of the
Fund.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting
control and procedures for safeguarding domestic
securities deposited in the U.S. Securities System;
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<PAGE>
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Fund for any loss or damage to the Fund resulting
from use of the U.S. Securities System by reason of
any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or
any such agent to enforce effectively such rights as
it may have against the U.S. Securities System; at
the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities
System or any other person which the Custodian may
have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made
whole for any such loss or damage.
2.9 FUND ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The
Custodian may deposit and/or maintain securities owned by the
Fund in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of Proper
Instructions;
2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
represented in an account ("Account") of the Custodian
in the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained in the
Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for
the account of the Fund upon the making of an entry
on the records of the Custodian to reflect such
payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of
an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account
of the Fund;
5) The Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund, in
the form of a written advice or notice, of Direct
Paper on the next business day following such
transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the
account of the Fund;
6) The Custodian shall provide the Fund with any report
on its system of internal accounting control as the
Fund may reasonably request from time to time;
2.10 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant
to Section 2.8 hereof, (i) in accordance with the provisions
of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member
of the NASD (or any futures commission merchant registered
under the Commodity Exchange Act (the "Commodity Exchange
Act")), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of
segregating cash or government securities in
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connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or
sold by the Fund, (iii) for the purposes of compliance by the
Fund with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of
the SEC relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
corporate purposes, BUT ONLY, in the case of clause (iv), upon
receipt of Proper Instructions setting forth the purpose or
purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
of income or other payments with respect to domestic
securities of the Fund held by it and in connection with
transfers of such securities.
2.12 PROXIES. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities
are registered otherwise than in the name of the Fund or a
nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall
promptly deliver to the Fund such proxies, all proxy
soliciting materials and all notices relating to such
securities.
2.13 COMMUNICATIONS RELATING TO FUND PORTFOLIO SECURITIES. Subject
to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from
issuers of the domestic securities being held for the Fund.
With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received
by the Custodian from issuers of the domestic securities whose
tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund
desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Fund
shall notify the Custodian at least three business days prior
to the date on which the Custodian is to take such action.
2.14 REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The
Custodian shall provide the Fund, at such times as the Fund
may reasonably require, with reports by independent public
accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a U.S. Securities
System, relating to the services provided by the Custodian
under this Contract; such reports shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the
Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if
there are no such inadequacies, the reports shall so state.
3. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES
3.1 APPOINTMENT OF FOREIGN SUB-CUSTODIANS. The Fund hereby
authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets
maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon receipt of
"Proper Instructions", as defined in Section 5 of this
Contract, together with an approval by the Fund signed by an
authorized officer of the Fund, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to
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cease the employment of any one or more such sub-custodians
for maintaining custody of the Fund's assets.
3.2 ASSETS TO BE HELD. The Custodian shall limit the securities
and other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities
transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held
by each foreign sub-custodian.
3.3 FOREIGN SECURITIES SYSTEMS. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Fund shall be maintained in a clearing agency which acts as a
securities depository or in a book-entry system for the
central handling of securities located outside the United
States (each, a "Foreign Securities System") only through
arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof
(Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities System").
Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.5
hereof.
3.4 HOLDING SECURITIES. The Custodian may hold securities and
other non-cash property for all of its customers, including
the Fund, with a foreign sub-custodian in a single account
that is identified as belonging to the Custodian for the
benefit of its customers, PROVIDED HOWEVER, that (i) the
records of the Custodian with respect to securities and other
non-cash property of the Fund which are maintained in such
account shall identify by book-entry those securities and
other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held
separately from any assets of the foreign sub-custodian or of
others.
3.5 AGREEMENTS WITH FOREIGN BANKING INSTITUTIONS. Each agreement
with a foreign banking institution shall provide that: (a) the
Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent, except
a claim of payment for their safe custody or administration;
(b) beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent
permitted under applicable law the independent public
accountants for the Fund, will be given access to the books
and records of the foreign banking institution relating to its
actions under its agreement with the Custodian; and (e) assets
of the Fund held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
3.6 ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND. Upon request of
the Fund, the Custodian will use its best efforts to arrange
for the independent accountants of the Fund to be afforded
access to the books and records of any foreign banking
institution employed as a foreign sub-custodian insofar as
such books and records relate to the performance of such
foreign banking institution under its agreement with the
Custodian.
3.7 REPORTS BY CUSTODIAN. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Fund held by
foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's
securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian
on
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behalf of the Fund indicating, as to securities acquired for
the Fund, the identity of the entity having physical
possession of such securities.
3.8 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. (a) Except as
otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.6 of this Contract shall
apply, MUTATIS MUTANDIS to the foreign securities of the Fund
held outside the United States by foreign sub-custodians. (b)
Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for
the account of the Fund and delivery of securities maintained
for the account of the Fund may be effected in accordance with
the customary established securities trading or securities
processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or
dealer. (c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.
3.9 LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant
to which the Custodian employs a foreign banking institution
as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and
to indemnify, and hold harmless, the Custodian and each Fund
from and against any loss, damage, cost, expense, liability or
claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund
has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.10 LIABILITY OF CUSTODIAN. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally
in this Contract and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as
contemplated by Section 3.13 hereof, the Custodian shall not
be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this Section 3.10,
in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the
Fund for any loss due to such delegation, except such loss as
may result from (a) political risk (including, but not limited
to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or
armed hostilities) or (b) other losses (excluding a bankruptcy
or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other
losses under circumstances where the Custodian and State
Street London Ltd. have exercised reasonable care.
3.11 REIMBURSEMENT FOR ADVANCES. If the Fund requires the Custodian
to advance cash or securities for any purpose including the
purchase or sale of foreign exchange or of contracts for
foreign exchange, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection
with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be
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entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
3.12 MONITORING RESPONSIBILITIES. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope
to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial condition
of a foreign sub-custodian.
3.13 BRANCHES OF U.S. BANKS. (a) Except as otherwise set forth in
this Contract, the provisions hereof shall not apply where the
custody of the Fund assets are maintained in a foreign branch
of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting
the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be
governed by Article 1 of this Contract. (b) Cash held for the
Fund in the United Kingdom shall be maintained in an interest
bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
3.14 TAX LAW. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the
Fund or the Custodian as custodian of the Fund by the tax law
of the United States of America or any state or political
subdivision thereof. It shall be the responsibility of the
Fund to notify the Custodian of the obligations imposed on the
Fund or the Custodian as custodian of the Fund by the tax law
of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law
of jurisdictions for which the Fund has provided such
information.
4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES OF THE FUND
From such funds as may be available for the purpose but
subject to the limitations of the Articles of Incorporation and any applicable
votes of the Board of Directors of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire funds to or through
a commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the
Fund's Shares or from the Transfer Agent of the Fund and deposit into the Fund's
account such payments as are received for Shares of the Fund issued or sold from
time to time by the Fund. The Custodian will provide timely notification to the
Fund and the Transfer Agent of any receipt by it of payments for Shares of the
Fund.
5. PROPER INSTRUCTIONS
Proper Instructions as used herein means a writing signed or
initialled by one or more person or persons as the Board of Directors shall have
from time to time authorized. Each such writing shall set forth the
-10-
<PAGE>
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
instructions are consistent with the security procedures agreed to by the Fund
and the Custodian including, but not limited to, the security procedures
selected by the Fund on the Funds Transfer Addendum to this Contract. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.10.
6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority
from the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, PROVIDED that all such payments
shall be accounted for to the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund except as otherwise directed by the Board of
Directors of the Fund.
7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly executed by or on behalf
of the Fund. The Custodian may receive and accept a certified copy of a vote of
the Board of Directors of the Fund as conclusive evidence (a) of the authority
of any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice to the
contrary.
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET ASSET VALUE AND NET INCOME
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of Directors of the
Fund to keep the books of account of the Fund and/or compute the net asset value
per share of the outstanding shares of the Fund or, if directed in writing to do
so by the Fund, shall itself keep such books of account and/or compute such net
asset value per share. If so directed, the Custodian shall also calculate daily
the net income of the Fund as described in the Fund's currently effective
prospectus and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the net asset
value per share and the daily income of the Fund shall be made at the time or
times described from time to time in the Fund's currently effective prospectus.
-11-
<PAGE>
9. RECORDS
The Custodian shall create and maintain all records relating
to its activities and obligations under this Contract in such manner as will
meet the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. OPINION OF FUND'S INDEPENDENT ACCOUNTANT
The Custodian shall take all reasonable action, as the Fund
may from time to time request, to obtain from year to year favorable opinions
from the Fund's independent accountants with respect to its activities hereunder
in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or
other annual reports to the SEC and with respect to any other requirements of
such Commission.
11. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
12. RESPONSIBILITY OF CUSTODIAN
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title, validity
or genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or
willful misconduct or the negligence or willful misconduct of a sub-custodian or
agent, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by; (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension or
restriction of trading on or the closure of any securities market, power or
other mechanical or technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots, revolutions, work
stoppages, natural disasters or other similar events or acts; (ii) errors by the
Fund or the Investment Advisor in their instructions to the Custodian provided
such instructions have been in accordance with this Contract; (iii) the
insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision
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<PAGE>
of any present or future law or regulation or order of the United States of
America, or any state thereof, or any other country, or political subdivision
thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money or which
action may, in the opinion of the Custodian, result in the Custodian or its
nominee assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities for any purpose (including
but not limited to securities settlements, foreign exchange contracts and
assumed settlement) or in the event that the Custodian or its nominee shall
incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
Fund shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect,
special or consequential damages.
13. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT
This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the parties hereto
and may be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
PROVIDED, however that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Articles of Incorporation, and further provided, that the Fund may at any
time by action of its Board of Directors (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
14. SUCCESSOR CUSTODIAN
If a successor custodian shall be appointed by the Board of
Directors of the Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Directors of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance with such
vote.
-13-
<PAGE>
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Directors shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of the Board of Directors to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and obligations of
the Custodian shall remain in full force and effect.
15. INTERPRETIVE AND ADDITIONAL PROVISIONS
In connection with the operation of this Contract, the
Custodian and the Fund may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract as may in
their joint opinion be consistent with the general tenor of this Contract. Any
such interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, PROVIDED that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Articles of Incorporation of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
16. MASSACHUSETTS LAW TO APPLY
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of the Commonwealth of
Massachusetts.
17. PRIOR CONTRACTS
This Contract supersedes and terminates, as of the date
hereof, all prior contracts between the Fund and the Custodian relating to the
custody of the Fund's assets.
18. REPRODUCTION OF DOCUMENTS
This Contract and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
19. SHAREHOLDER COMMUNICATIONS ELECTION
SEC Rule 14b-2 requires banks which hold securities for the
account of customers to respond to requests by issuers of securities for the
names, addresses and holdings of beneficial owners of securities of that issuer
held by the bank unless the beneficial owner has expressly objected to
disclosure of this information. In order to comply with the rule, the Custodian
needs the Fund to indicate whether it authorizes the Custodian to
-14-
<PAGE>
provide the Fund's name, address, and share position to requesting companies
whose securities the Fund owns. If the Fund tells the Custodian "no", the
Custodian will not provide this information to requesting companies. If the Fund
tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20. DATA ACCESS SERVICES ADDENDUM
The Custodian and the Fund agree to be bound by the terms of
the Data Access Services Addendum attached hereto.
[Remainder of page is intentionally left blank]
-15-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the _____ day of
_______________, 1999.
Attest: PAX WORLD HIGH YIELD FUND, INC.
- ------------------------------- By:
-------------------------------
Attest: STATE STREET BANK AND TRUST COMPANY
- ------------------------------- By:
-------------------------------
-16-
<PAGE>
SCHEDULE A
17F-5 APPROVAL
The Board of Directors of Pax World High Yield Fund, Inc. has approved
certain foreign banking institutions and foreign securities depositories within
State Street's Global Custody Network for use as subcustodians for the Fund's
securities, cash and cash equivalents held outside of the United States. Board
approval is as indicated by the Fund's Authorized Officer:
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ STATE STREET'S ENTIRE GLOBAL CUSTODY NETWORK LISTED BELOW
______ Argentina Citibank, N.A. Caja de Valores S.A.
______ Australia Westpac Banking Corporation Austraclear Limited
Reserve Bank Information and
Transfer System
______ Austria Erste Bank der Oesterreichischen Oesterreichische Kontrollbank AG
Sparkassen AG (Wertpapiersammelbank Division)
______ Bahrain British Bank of the Middle East None
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
______ Bangladesh Standard Chartered Bank None
______ Belgium Generale de Banque Caisse Interprofessionnelle de
Depot et de Virement de Titres
S.A.
Banque Nationale de Belgique
______ Bermuda The Bank of Bermuda Limited None
______ Bolivia Banco Boliviano Americano S.A. None
______ Botswana Barclays Bank of Botswana Limited None
______ Brazil Citibank, N.A. Companhia Brasileira de
Liquidacao e Custodia
_______ Bulgaria ING Bank N.V. Central Depository AD
Bulgarian National Bank
______ Canada State Street Trust Company Canada The Canadian Depository for
Securities Limited
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ Chile Citibank, N.A. Deposito Central de Valores S.A.
______ People's The Hongkong and Shanghai Shanghai Securities Central
Republic of Banking Corporation Limited Clearing and Registration
China Shanghai and Shenzhen branches Corporation
Shenzhen Securities Central
Clearing Co., Ltd.
______ Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
______ Costa Rica Banco BCT S.A. Central de Valores S.A. (CEVAL)
______ Croatia Privredna Banka Zagreb d.d. Ministry of Finance
National Bank of Croatia
______ Cyprus The Cyprus Popular Bank Ltd. None
______ Czech Republic Ceskoslovenska Obchodni Stredisko cennych papiru
Banka, A.S. Czech National Bank
______ Denmark Den Danske Bank Vaerdipapircentralen (the Danish
Securities Center)
______ Ecuador Citibank, N.A. None
______ Egypt National Bank of Egypt Misr Company for Clearing,
Settlement, and Central Depository
______ Estonia Hansabank Eesti Vaartpaberite
Keskdepositoorium
______ Finland Merita Bank Limited The Finnish Central Securities
Depository
______ France Banque Paribas Societe Interprofessionnelle pour la
Compensation des Valeurs
Mobilieres (SICOVAM)
______ Germany Dresdner Bank AG Deutsche Borse Clearing AG
______ Ghana Barclays Bank of Ghana Limited None
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ Greece National Bank of Greece S.A. The Central Securities Depository
(Apothetirion Titlon AE)
The Bank of Greece, System for
Monitoring Transactions in
Securities in Book-Entry Form
______ Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System
Central Money Markets Unit
______ Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest) Ltd.
(KELER)
______ Iceland Icebank Ltd. None
______ India Deutsche Bank AG The National Securities Depository
Limited
______ The Hongkong and Shanghai The National Securities Depository
Banking Corporation Limited Limited
______ Indonesia Standard Chartered Bank Bank Indonesia
______ Ireland Bank of Ireland Central Bank of Ireland Securities
Settlement Office
______ Israel Bank Hapoalim B.M. The Tel Aviv Stock Exchange
Clearing House Ltd.
Bank of Israel
______ Italy Banque Paribas Monte Titoli S.p.A.
Banca d'Italia
______ Ivory Coast Societe Generale de Banques Depositaire Central -
en Cote d'Ivoire Banque de Reglement
______ Jamaica Scotiabank Jamaica Trust The Jamaican Central Securities
and Merchant Bank Ltd. Depository
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ Japan The Fuji Bank, Limited Japan Securities Depository Center
(JASDEC)
Bank of Japan Net System
______ Sumitomo Bank, Ltd. Japan Securities Depository Center
(JASDEC)
Bank of Japan Net System
______ Jordan British Bank of the Middle East None
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
______ Kenya Barclays Bank of Kenya Limited Central Bank of Kenya
______ Republic of The Hongkong and Shanghai Korea Securities Depository
Korea Banking Corporation Limited Corporation
______ Latvia JSC Hansabank-Latvija The Latvian Central Depository
______ Lebanon British Bank of the Middle East The Custodian and Clearing
(as delegate of The Hongkong and Centerof Financial Instruments for
Shanghai Banking Corporation the Middle East (MIDCLEAR)
Limited) S.A.L.
The Central Bank of Lebanon
______ Lithuania Vilniaus Bankas AB The Central Securities Depository
of Lithuania
______ Malaysia Standard Chartered Bank The Malaysian Central Depository
Malaysia Berhad Sdn. Bhd.
Bank Negara Malaysia, Scripless
Securities Trading and Safekeeping
Systems
______ Mauritius The Hongkong and Shanghai The Central Depository &
Banking Corporation Limited Settlement Co. Ltd.
______ Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)
______ Morocco Banque Commerciale du Maroc Maroclear
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ The Netherlands MeesPierson N.V. Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V.
(NECIGEF)
De Nederlandsche Bank N.V.
______ New Zealand ANZ Banking Group New Zealand Central Securities
(New Zealand) Limited Depository Limited
______ Norway Christiania Bank og Verdipapirsentralen (the
Kreditkasse Norwegian Registry of Securities)
______ Oman British Bank of the Middle East Muscat Securities Market
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
______ Pakistan Deutsche Bank AG Central Depository Company of
Pakistan Limited
______ Peru Citibank, N.A. Caja de Valores y Liquidaciones
S.A. (CAVALI)
_____ Philippines Standard Chartered Bank The Philippines Central
Depository, Inc.
The Registry of Scripless Securities
(ROSS) of the Bureau of the
Treasury
______ Poland Citibank (Poland) S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciowych)
Central Treasury Bills Registrar
______ Bank Polska Kasa Opieki S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciowych)
Central Treasury Bills Registrar
______ Portugal Banco Comercial Portugues Central de Valores Mobiliarios
(Central)
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
_______ Romania ING Bank N.V. National Securities Clearing,
Settlement and Depository
Company
Bucharest Stock Exchange
Registry Division
________ Russia Credit Suisse First Boston AO, Moscow None
(as delegate of Credit Suisse
First Boston, Zurich)
______ Singapore The Development Bank The Central Depository (Pte)
of Singapore Limited Limited
Monetary Authority of Singapore
______ Slovak Republic Ceskoslovenska Obchodni Stredisko Cennych Papierov
Banka, A.S.
National Bank of Slovakia
______ Slovenia Bank Austria d.d. Ljubljana Klirinsko Depotna Druzba d.d.
______ South Africa Standard Bank of South Africa Limited The Central Depository Limited
______ Spain Banco Santander, S.A. Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana, Central de
Anotaciones en Cuenta
______ Sri Lanka The Hongkong and Shanghai Central Depository System
Banking Corporation Limited (Pvt) Limited
______ Swaziland Standard Bank Swaziland Limited None
______ Sweden Skandinaviska Enskilda Banken Vardepapperscentralen AB (the
Swedish Central Securities
Depository)
______ Switzerland UBS AG Schweizerische Effekten - Giro AG
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ Taiwan Central Trust of China The Taiwan Securities Central OR
- ROC Depository Co., Ltd.
______ ------------------------------
(Client Designated Subcustodian)
______ Thailand Standard Chartered Bank Thailand Securities Depository Company
Limited
______ Trinidad Republic Bank Limited None
& Tobago
______ Tunisia Banque Internationale Societe Tunisienne Interprofessionelle de
Arabe de Tunisie Compensation et de Depot de Valeurs
Mobilieres
______ Turkey Citibank, N.A. Takas ve Saklama Bankasi A.S.
(TAKASBANK)
Central Bank of Turkey
______ Ottoman Bank Takas ve Saklama Bankasi A.S.
(TAKASBANK)
Central Bank of Turkey
______ Ukraine ING Bank, Ukraine The National Bank of Ukraine
______ United State Street Bank and Trust None
Kingdom Company, London branch
The Bank of England, The Central Gilts
Office and The Central Moneymarkets
Office
______ Uruguay Citibank, N.A. None
______ Venezuela Citibank, N.A. Central Bank of Venezuela
______ Zambia Barclays Bank of Zambia Lusaka Central Depository Limited
Limited
Bank of Zambia
______ Zimbabwe Barclays Bank of Zimbabwe None
Limited
______ Euroclear (The Euroclear System)/State Street London Limited
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
______ Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
CERTIFIED BY:
- ----------------------------------------------- -----------------------
FUND'S AUTHORIZED OFFICER DATE
</TABLE>
-8-
EXHIBIT 7(B)
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
ADDENDUM to the Custodian Contract between Pax World High
Yield Fund, Inc. (the "Customer") and State Street Bank And Trust Company
("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of
certain assets of the Customer pursuant to the attached Custodian Contract (the
"Custodian Contract") dated as of _______________, 1999;
WHEREAS, State Street has developed and utilizes proprietary
accounting and other systems, including State Street's proprietary Multicurrency
HORIZON(R) Accounting System, in its role as custodian of the Customer, and
maintains certain Customer-related data ("Customer Data") in databases under the
control and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain
Data Access Services solely for the benefit of the Customer, and intends to
provide additional services, consistent with the terms and conditions of this
Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. SYSTEM. Subject to the terms and conditions of this
Addendum, State Street hereby agrees to provide the Customer with access to
State Street's Multicurrency HORIZON(SM) Accounting System and the other
information systems (collectively, the "System") as described in Attachment A,
on a remote basis for the purpose of obtaining reports and information, solely
on computer hardware, system software and telecommunication links, as listed in
Attachment B (the "Designated Configuration") of the Customer, or certain third
parties approved by State Street that serve as investment advisors or investment
managers or in other service capacities to the Customer such as the Customer's
independent auditors (each, an "Investment Advisor"), solely with respect to the
Customer or on any designated substitute or back-up equipment configuration with
State Street's written consent, such consent not to be unreasonably withheld.
b. DATA ACCESS SERVICES. State Street agrees to make available
to the Customer the Data Access Services subject to the terms and conditions of
this Addendum and data access operating standards and procedures as may be
issued by State Street from time to time. The ability of the Customer to
originate electronic instructions to State Street on behalf of the Customer in
order to (i) effect the transfer or movement of cash or securities held under
custody by State Street or (ii) transmit accounting or other information (such
transactions are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Addendum.
c. ADDITIONAL SERVICES. State Street may from time to time
agree to make available to the Customer additional Systems that are not
described in the attachments to this Addendum. In the absence of any other
written agreement concerning such additional systems, the term "System" shall
include, and this Addendum shall govern, the Customer's access to and use of any
additional System made available by State Street and/or accessed by the
Customer.
<PAGE>
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection
with the Data Access Services provided under this Addendum, the Customer will
have access, through the Data Access Services, to Customer Data and to functions
of State Street's proprietary systems; provided, however that in no event will
the Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. DESIGNATED EQUIPMENT; DESIGNATED LOCATION. The System and
the Data Access Services shall be used and accessed solely on and through the
Designated Configuration at the offices of the Customer or the Investment
Advisor located in Portsmouth, New Hampshire ("Designated Location").
b. DESIGNATED CONFIGURATION; TRAINED PERSONNEL. State Street
shall be responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable both
parties to perform their respective obligations under this Addendum. State
Street agrees to use commercially reasonable efforts to maintain the System so
that it remains serviceable, provided, however, that State Street does not
guarantee or assure uninterrupted remote access use of the System.
c. SCOPE OF USE. The Customer will use the System and the Data
Access Services only for the processing of securities transactions, the keeping
of books of account for the Customer and accessing data for purposes of
reporting and analysis. The Customer shall not, and shall cause its employees
and agents not to (i) permit any third party to use the System or the Data
Access Services, (ii) sell, rent, license or otherwise use the System or the
Data Access Services in the operation of a service bureau or for any purpose
other than as expressly authorized under this Addendum, (iii) use the System or
the Data Access Services for any fund, trust or other investment vehicle without
the prior written consent of State Street, (iv) allow access to the System or
the Data Access Services through terminals or any other computer or
telecommunications facilities located outside the Designated Locations, (v)
allow or cause any information (other than portfolio holdings, valuations of
portfolio holdings, and other information reasonably necessary for the
management or distribution of the assets of the Customer) transmitted from State
Street's databases, including data from third party sources, available through
use of the System or the Data Access Services to be redistributed or
retransmitted to another computer, terminal or other device for other than use
for or on behalf of the Customer or (vi) modify the System in any way, including
without limitation, developing any software for or attaching any devices or
computer programs to any equipment, system, software or database which forms a
part of or is resident on the Designated Configuration.
d. OTHER LOCATIONS. Except in the event of an emergency or of
a planned System shutdown, the Customer's access to services performed by the
System or to Data Access Services at the Designated Location may be transferred
to a different location only upon the prior written consent of State Street. In
the event of an emergency or System shutdown, the Customer may use any back-up
site included in the Designated Configuration or any other back-up site agreed
to by State Street, which agreement will not be unreasonably withheld. The
Customer may secure from State Street the right to access the System or the Data
Access Services through computer and telecommunications facilities or devices
complying with the Designated Configuration at additional locations only upon
the prior written consent of State Street and on terms to be mutually agreed
upon by the parties.
e. TITLE. Title and all ownership and proprietary rights to
the System, including any enhancements or modifications thereto, whether or not
made by State Street, are and shall remain with State Street.
f. NO MODIFICATION. Without the prior written consent of State
Street, the Customer shall not modify, enhance or otherwise create derivative
works based upon the System, nor shall the Customer reverse engineer, decompile
or otherwise attempt to secure the source code for all or any part of the
System.
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<PAGE>
g. SECURITY PROCEDURES. The Customer shall comply with data
access operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street; provided, that, in such event, State Street shall, for a
period not less than 180 days (or such other shorter period specified by the
Customer) after such discontinuance, assume responsibility to provide accounting
services under the terms of the Custodian Contract.
h. INSPECTIONS. State Street shall have the right to inspect
the use of the System and the Data Access Services by the Customer and the
Investment Advisor to ensure compliance with this Addendum. The on-site
inspections shall be upon prior written notice to the Customer and the
Investment Advisor and at reasonably convenient times and frequencies so as not
to result in an unreasonable disruption of the Customer's or the Investment
Advisor's business.
4. PROPRIETARY INFORMATION
a. PROPRIETARY INFORMATION. The Customer acknowledges and
State Street represents that the System and the databases, computer programs,
screen formats, report formats, interactive design techniques, documentation and
other information made available to the Customer by State Street as part of the
Data Access Services and through the use of the System constitute copyrighted,
trade secret, or other proprietary information of substantial value to State
Street. Any and all such information provided by State Street to the Customer
shall be deemed proprietary and confidential information of State Street
(hereinafter "Proprietary Information"). The Customer agrees that it will hold
such Proprietary Information in the strictest confidence and secure and protect
it in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access to the System unless it has first received from the
Investment Advisor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C to this Agreement. The Customer shall
use all commercially reasonable efforts to assist State Street in identifying
and preventing any unauthorized use, copying or disclosure of the Proprietary
Information or any portions thereof or any of the logic, formats or designs
contained therein.
b. COOPERATION. Without limitation of the foregoing, the
Customer shall advise State Street immediately in the event the Customer learns
or has reason to believe that any person to whom the Customer has given access
to the Proprietary Information, or any portion thereof, has violated or intends
to violate the terms of this Addendum, and the Customer will, at its expense,
co-operate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. INJUNCTIVE RELIEF. The Customer acknowledges that the
disclosure of any Proprietary Information, or of any information which at law or
equity ought to remain confidential, will immediately give rise to continuing
irreparable injury to State Street inadequately compensable in damages at law.
In addition, State Street shall be entitled to obtain immediate injunctive
relief against the breach or threatened breach of any of the foregoing
undertakings, in addition to any other legal remedies which may be available.
d. SURVIVAL. The provisions of this Section 4 shall survive
the termination of this Addendum.
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<PAGE>
5. LIMITATION ON LIABILITY
a. LIMITATION ON AMOUNT AND TIME FOR BRINGING ACTION. The
Customer agrees that any liability of State Street to the Customer or any third
party arising out of State Street's provision of Data Access Services or the
System under this Addendum shall be limited to the amount of the fees paid by
the Customer to the Custodian. In no event shall State Street be liable to the
Customer or any other party for any special, indirect, punitive or consequential
damages even if advised of the possibility of such damages. No action,
regardless of form, arising out of this Addendum may be brought by the Customer
more than two years after the Customer has knowledge that the cause of action
has arisen.
b. LIMITED WARRANTIES. NO OTHER WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. THIRD-PARTY DATA. Organizations from which State Street may
obtain certain data included in the System or the Data Access Services are
solely responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. REGULATORY REQUIREMENTS. As between State Street and the
Customer, the Customer shall be solely responsible for the accuracy of any
accounting statements or reports produced using the Data Access Services and the
System and the conformity thereof with any requirements of law.
e. FORCE MAJEURE. Neither party shall be liable for any costs
or damages due to delay or nonperformance under this Addendum arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street
harmless from any loss, damage or expense including reasonable attorney's fees,
(a "loss") suffered by State Street arising from (i) the negligence or willful
misconduct in the use by the Customer of the Data Access Services or the System,
including any loss incurred by State Street resulting from a security breach at
the Designated Location or committed by the Customer's employees or agents or
the Investment Advisor and (ii) any loss resulting from incorrect Client
Originated Electronic Financial Instructions. State Street shall be entitled to
rely on the validity and authenticity of Client Originated Electronic Financial
Instructions without undertaking any further inquiry as long as such instruction
is undertaken in conformity with security procedures established by State Street
from time to time.
7. FEES
Fees and charges for the use of the System and the Data Access
Services and related payment terms shall be as set forth in the Custody Fee
Schedule in effect from time to time between the parties (the "Fee Schedule").
Any tariffs, duties or taxes imposed or levied by any government or governmental
agency by reason of the transactions contemplated by this Addendum, including,
without limitation, federal, state and local taxes, use, value added and
personal property taxes (other than income, franchise or similar taxes which may
be imposed or assessed against State Street) shall be borne by the Customer. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. TRAINING. State Street agrees to provide training, at a
designated State Street training facility or at the Designated Location, to the
Customer's personnel in connection with the use of the System on the
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<PAGE>
Designated Configuration. The Customer agrees that it will set aside, during
regular business hours or at other times agreed upon by both parties, sufficient
time to enable all operators of the System and the Data Access Services,
designated by the Customer, to receive the training offered by State Street
pursuant to this Addendum.
b. INSTALLATION AND CONVERSION. State Street shall be
responsible for the technical installation and conversion ("Installation and
Conversion") of the Designated Configuration. The Customer shall have the
following responsibilities in connection with Installation and Conversion of the
System:
(i) The Customer shall be solely responsible for the
timely acquisition and maintenance of the hardware
and software that attach to the Designated
Configuration in order to use the Data Access
Services at the Designated Location.
(ii) State Street and the Customer each agree that they
will assign qualified personnel to actively
participate during the Installation and Conversion
phase of the System implementation to enable both
parties to perform their respective obligations under
this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to
provide the support services set out in Attachment D to this Addendum.
10. TERM OF ADDENDUM
a. TERM OF ADDENDUM. This Addendum shall become effective on
the date of its execution by State Street and shall remain in full force and
effect until terminated as herein provided.
b. TERMINATION OF ADDENDUM. Either party may terminate this
Addendum (i) for any reason by giving the other party at least one-hundred and
eighty days' prior written notice in the case of notice of termination by State
Street to the Customer or thirty days' notice in the case of notice from the
Customer to State Street of termination; or (ii) immediately for failure of the
other party to comply with any material term and condition of the Addendum by
giving the other party written notice of termination. In the event the Customer
shall cease doing business, shall become subject to proceedings under the
bankruptcy laws (other than a petition for reorganization or similar proceeding)
or shall be adjudicated bankrupt, this Addendum and the rights granted hereunder
shall, at the option of State Street, immediately terminate with notice to the
Customer. This Addendum shall in any event terminate as to any Customer within
90 days after the termination of the Custodian Contract applicable to such
Customer.
c. TERMINATION OF THE RIGHT TO USE. Upon termination of this
Addendum for any reason, any right to use the System and access to the Data
Access Services shall terminate and the Customer shall immediately cease use of
the System and the Data Access Services. Immediately upon termination of this
Addendum for any reason, the Customer shall return to State Street all copies of
documentation and other Proprietary Information in its possession; provided,
however, that in the event that either party terminates this Addendum or the
Custodian Contract for any reason other than the Customer's breach, State Street
shall provide the Data Access Services for a period of time and at a price to be
agreed upon by the parties.
11. MISCELLANEOUS
a. ASSIGNMENT; SUCCESSORS. This Addendum and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party,
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<PAGE>
except that State Street may assign this Addendum to a successor of all or a
substantial portion of its business, or to a party controlling, controlled by,
or under common control with State Street.
b. SURVIVAL. All provisions regarding indemnification,
warranty, liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Addendum.
c. ENTIRE ADDENDUM. This Addendum and the attachments hereto
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all prior
or contemporaneous representations or agreements, whether oral or written,
between the parties as such may relate to the Data Access Services or the
System, and cannot be modified or altered except in a writing duly executed by
the parties. This Addendum is not intended to supersede or modify the duties and
liabilities of the parties hereto under the Custodian Contract or any other
agreement between the parties hereto except to the extent that any such
agreement specifically refers to the Data Access Services or the System. No
single waiver or any right hereunder shall be deemed to be a continuing waiver.
d. SEVERABILITY. If any provision or provisions of this
Addendum shall be held to be invalid, unlawful, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired.
e. GOVERNING LAW. This Addendum shall be interpreted and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts without regard to the conflict of laws provisions thereof.
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<PAGE>
ATTACHMENT A
Multicurrency HORIZON(SM) Accounting System
SYSTEM PRODUCT DESCRIPTION
I. The Multicurrency HORIZON(SM) Accounting System is designed
to provide lot level portfolio and general ledger accounting for SEC and ERISA
type requirements and includes the following services: 1) recording of general
ledger entries; 2) calculation of daily income and expense; 3) reconciliation of
daily activity with the trial balance, and 4) appropriate automated feeding
mechanisms to (i) domestic and international settlement systems, (ii) daily,
weekly and monthly evaluation services, (iii) portfolio performance and analytic
services, (iv) customer's internal computing systems and (v) various State
Street provided information services products.
II. GlobalQuest(R) is designed to provide customer access to
the following information maintained on The Multicurrency HORIZON(SM) Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3) income
receivables; 4) tax refund receivables; 5) daily priced positions; 6) open
trades; 7) settlement status; 8) foreign exchange transactions; 9) trade
history; and 10) daily, weekly and monthly evaluation services.
<PAGE>
ATTACHMENT B
*Designated Configuration
<PAGE>
ATTACHMENT C
Undertaking
The Undersigned understands that in the course of its
employment as Investment Advisor to Pax World High Yield Fund, Inc. (the
"Customer") it will have access to State Street Bank and Trust Company's ("State
Street") Multicurrency HORIZON(SM) Accounting System and other information
systems (collectively, the "System").
The undersigned acknowledges that the System and the
databases, computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain
access to data in transmission, or attempt entry into any system or files for
which it is not authorized. It will not intentionally adversely affect the
integrity of the System through the introduction of unauthorized code or data,
or through unauthorized deletion.
Upon notice by State Street for any reason, any right to use
the System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
PAX WORLD MANAGEMENT CORP.
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
Undertaking
The undersigned understands that in the course of its
employment as [service provider] to Pax World High Yield Fund, Inc. (the
"Customer") it will have access to State Street Bank and Trust Company's ("State
Street") Multicurrency HORIZON(SM) Accounting System and other information
systems (collectively, the "System").
The Undersigned acknowledges that the System and the
databases, computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain
access to data in transmission, or attempt entry into any system or files for
which it is not authorized. It will not intentionally adversely affect the
integrity of the System through the introduction of unauthorized code or data,
or through unauthorized deletion.
Upon notice by State Street for any reason, any right to use
the System and access to the Data Access Services shall terminate and the
Undersigned shall immediately cease use of the System and the Data Access
Services. Immediately upon notice by State Street for any reason, the
Undersigned shall return to State Street all copies of documentation and other
Proprietary Information in its possession.
*[NAME OF SERVICE PROVIDER]
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
ATTACHMENT D
Support
During the term of this Addendum, State Street agrees to
provide the following on-going support services:
a. TELEPHONE SUPPORT. The Customer Designated Persons may
contact State Street's HORIZON(SM) Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. TECHNICAL SUPPORT. State Street will provide technical
support to assist the Customer in using the System and the Data Access Services.
The total amount of technical support provided by State Street shall not exceed
10 resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. MAINTENANCE SUPPORT. State Street shall use commercially
reasonable efforts to correct system functions that do not work according to the
System Product Description as set forth on Attachment A in priority order in the
next scheduled delivery release or otherwise as soon as is practicable.
d. SYSTEM ENHANCEMENTS. State Street will provide to the
Customer any enhancements to the System developed by State Street and made a
part of the System; provided that, sixty (60) days prior to installing any such
enhancement, State Street shall notify the Customer and shall offer the Customer
reasonable training on the enhancement. Charges for system enhancements shall be
as provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. CUSTOM MODIFICATIONS. In the event the Customer desires
custom modifications in connection with its use of the System, the Customer
shall make a written request to State Street providing specifications for the
desired modification. Any custom modifications may be undertaken by State Street
in its sole discretion in accordance with the Fee Schedule.
f. LIMITATION ON SUPPORT. State Street shall have no
obligation to support the Customer's use of the System: (I) for use on any
computer equipment or telecommunication facilities which does not conform to the
Designated Configuration or (ii) in the event the Customer has modified the
System in breach of this Addendum.
EXHIBIT 7(C)
FUNDS TRANSFER ADDENDUM
OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit
Client's (as named below) account(s) upon the receipt of a payment order in
compliance with the selected Security Procedure chosen for funds transfer and in
the amount of money that State Street has been instructed to transfer. State
Street shall execute payment orders in compliance with the Security Procedure
and with the Client's instructions on the execution date provided that such
payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment orders and
communications received after this time will be deemed to have been received on
the next business day.
2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it
has designated on the Selection Form was selected by the Client from Security
Procedures offered by State Street. The Client shall restrict access to
confidential information relating to the Security Procedure to authorized
persons as communicated in writing to State Street. The Client must notify State
Street immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Client's authorized
personnel. State Street shall verify the authenticity of all instructions
according to the Security Procedure.
3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
4. REJECTION: State Street reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of State Street's receipt of such payment
order; (b) if initiating such payment order would cause State Street, in State
Street's sole judgment, to exceed any volume, aggregate dollar, network, time,
credit or similar limits upon wire transfers which are applicable to State
Street; or (c) if State Street, in good faith, is unable to satisfy itself that
the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the Security Procedure provided that such requests are received
in a timely manner affording State Street reasonable opportunity to act.
However, State Street assumes no liability if the request for amendment or
cancellation cannot be satisfied.
6. ERRORS: State Street shall assume no responsibility for failure to detect any
erroneous payment order provided that State Street complies with the payment
order instructions as received and State Street complies with the Security
Procedure. The Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility
for lost interest with respect to the refundable amount of any unauthorized
payment order, unless State Street is notified of the unauthorized payment order
within thirty (30) days of notification by State Street of the acceptance of
such payment order. In no event shall State Street be liable for special,
indirect or consequential damages, even if advised of the possibility of such
damages and even for failure to execute a payment order.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS:
When a Client initiates or receives ACH credit and debit entries pursuant to
these Guidelines and the rules of the National Automated Clearing House
Association and the New England Clearing House Association, State Street will
act as an Originating Depository Financial Institution and/or Receiving
Depository Institution, as the case may be, with respect to such entries.
Credits given by State Street with respect to an ACH credit entry are
provisional until State Street receives final settlement for such entry from
the Federal Reserve Bank. If State Street does not
<PAGE>
receive such final settlement, the Client agrees that State Street shall receive
a refund of the amount credited to the Client in connection with such entry, and
the party making payment to the Client via such entry shall not be deemed to
have paid the amount of the entry.
9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment
orders shall ordinarily be provided within 24 hours notice which may be
delivered through State Street's proprietary information systems, such as, but
not limited to Horizon and GlobalQuest(R), or by facsimile or callback. The
Client must report any objections to the execution of a payment order within 30
days.
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FUNDS TRANSFER ADDENDUM
SECURITY PROCEDURE(S) SELECTION FORM
Please select one or more of the funds transfer security procedures indicated
below.
--
/__/ SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a
cooperative society owned and operated by member financial institutions that
provides telecommunication services for its membership. Participation is limited
to securities brokers and dealers, clearing and depository institutions,
recognized exchanges for securities, and investment management institutions.
SWIFT provides a number of security features through encryption and
authentication to protect against unauthorized access, loss or wrong delivery of
messages, transmission errors, loss of confidentiality and fraudulent changes to
messages. SWIFT is considered to be one of the most secure and efficient
networks for the delivery of funds transfer instructions. SELECTION OF THIS
SECURITY PROCEDURE WOULD BE MOST APPROPRIATE FOR EXISTING SWIFT MEMBERS.
--
/__/ STANDING INSTRUCTIONS
Standing Instructions may be used where funds are transferred to a broker on the
Client's established list of brokers with which it engages in foreign exchange
transactions. Only the date, the currency and the currency amount are variable.
In order to establish this procedure, State Street will send to the Client a
list of the brokers that State Street has determined are used by the Client. The
Client will confirm the list in writing, and State Street will verify the
written confirmation by telephone. Standing Instructions will be subject to a
mutually agreed upon limit. If the payment order exceeds the established limit,
the Standing Instruction will be confirmed by telephone prior to execution.
--
/__/ REMOTE BATCH TRANSMISSION
Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data
communications between the Client and State Street. Security procedures include
encryption and or the use of a test key by those individuals authorized as
Automated Batch Verifiers. CLIENTS SELECTING THIS OPTION SHOULD HAVE AN EXISTING
FACILITY FOR COMPLETING CPU-CPU TRANSMISSIONS. THIS DELIVERY MECHANISM IS
TYPICALLY USED FOR HIGH-VOLUME BUSINESS.
--
/__/ GLOBAL HORIZON INTERCHANGESM FUNDS TRANSFER SERVICE
Global Horizon Interchange Funds Transfer Service (FTS) is a State Street
proprietary microcomputer-based wire initiation system. FTS enables Clients to
electronically transmit authenticated Fedwire, CHIPS or internal book transfer
instructions to State Street. THIS DELIVERY MECHANISM IS MOST APPROPRIATE FOR
CLIENTS WITH A LOW-TO-MEDIUM NUMBER OF TRANSACTIONS (5-75 PER DAY), ALLOWING
CLIENTS TO ENTER, BATCH, AND REVIEW WIRE TRANSFER INSTRUCTIONS ON THEIR PC PRIOR
TO RELEASE TO STATE STREET.
--
/__/ TELEPHONE CONFIRMATION (CALLBACK)
Telephone confirmation will be used to verify all non-repetitive funds transfer
instructions received via untested facsimile or phone. This procedure requires
Clients to designate individuals as authorized initiators and authorized
verifiers. State Street will verify that the instruction contains the signature
of an authorized person and prior to execution, will contact someone other than
the originator at the Client's location to authenticate the instruction.
SELECTION OF THIS ALTERNATIVE IS APPROPRIATE FOR CLIENTS WHO DO NOT HAVE THE
CAPABILITY TO USE OTHER SECURITY PROCEDURES.
--
/__/ REPETITIVE WIRES
For situations where funds are transferred periodically (minimum of one
instruction per calendar quarter) from an existing authorized account to the
same payee (destination bank and account number) and only the date and currency
amount are variable, a repetitive wire may be implemented. Repetitive wires will
be subject to a mutually agreed upon limit. If the payment order exceeds the
established limit, the instruction will be confirmed by telephone prior to
execution. Telephone confirmation is used to establish this process. Repetitive
wire instructions must be
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<PAGE>
reconfirmed annually. THIS ALTERNATIVE IS RECOMMENDED WHENEVER FUNDS ARE
FREQUENTLY TRANSFERRED BETWEEN THE SAME TWO ACCOUNTS.
--
/__/ TRANSFERS INITIATED BY FACSIMILE
The Client faxes wire transfer instructions directly to State Street Mutual Fund
Services. Standard security procedure requires the use of a random number test
key for all transfers. Every six months the Client receives test key logs from
State Street. The test key contains alpha-numeric characters, which the Client
puts on each document faxed to State Street. This procedure ensures all wire
instructions received via fax are authorized by the Client. WE PROVIDE THIS
OPTION FOR CLIENTS WHO WISH TO BATCH WIRE INSTRUCTIONS AND TRANSMIT THESE AS A
GROUP TO STATE STREET MUTUAL FUND SERVICES ONCE OR SEVERAL TIMES A DAY.
--
/__/ AUTOMATED CLEARING HOUSE (ACH)
State Street receives an automated transmission or a magnetic tape from a Client
for the initiation of payment (credit) or collection (debit) transactions
through the ACH network. The transactions contained on each transmission or tape
must be authenticated by the Client. Clients using ACH must select one or more
of the following delivery options:
--
/__/ GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE
Transactions are created on a microcomputer, assembled into batches and
delivered to State Street via fully authenticated electronic transmissions in
standard NACHA formats.
--
/__/ Transmission from Client PC to State Street Mainframe with Telephone
Callback
--
/__/ Transmission from Client Mainframe to State Street Mainframe with Telephone
Callback
--
/__/ Transmission from DST Systems to State Street Mainframe with Encryption
--
/__/ Magnetic Tape Delivered to State Street with Telephone Callback
State Street is hereby instructed to accept funds transfer instructions only via
the delivery methods and security procedures indicated. The selected delivery
methods and security procedure(s) will be effective __________ for payment
orders initiated by our organization.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
- -------------------------------- ---------------------------------
Name Name
- -------------------------------- ---------------------------------
Address Address
- -------------------------------- ---------------------------------
City/State/Zip Code City/State/Zip Code
- -------------------------------- ---------------------------------
Telephone Number Telephone Number
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<PAGE>
- -------------------------------- ---------------------------------
Facsimile Number Facsimile Number
- -------------------------------- ---------------------------------
SWIFT Number
- --------------------------------
Telex Number
-5-
<PAGE>
FUND TRANSFER ADDENDUM
INSTRUCTION(S)
TELEPHONE CONFIRMATION
FUND Pax World High Yield Fund, Inc.
INVESTMENT ADVISER Pax World Management Corp.
AUTHORIZED INITIATORS
Please Type or Print
PLEASE PROVIDE A LISTING OF FUND OFFICERS OR OTHER INDIVIDUALS ARE CURRENTLY
AUTHORIZED TO INITIATE WIRE TRANSFER INSTRUCTIONS TO STATE STREET:
<TABLE>
<CAPTION>
NAME TITLE (Specify whether position SPECIMEN SIGNATURE
is with Fund, Investment
Adviser or Investment Sub-Adviser)
<S> <C> <C>
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
</TABLE>
AUTHORIZED VERIFIERS
Please Type or Print
PLEASE PROVIDE A LISTING OF FUND OFFICERS OF OTHER INDIVIDUALS WHO WILL BE
CALLED BACK TO VERIFY THE INITIATION OF REPETITIVE WIRES OF $10 MILLION OR MORE
AND ALL NON REPETITIVE WIRE INSTRUCTIONS:
<TABLE>
<CAPTION>
NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF
ANY)
<S> <C> <C>
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
- ------------------------- ------------------------------ ----------------------------
</TABLE>
EXHIBIT 9(A)
Bresler Goodman & Unterman, LLP
28th Floor, 521 Fifth Avenue
New York, NY 10175
September 14, 1999
Pax World High Yield Fund, Inc.
222 State Street
Portsmouth, NH 03801
Pax World High Yield Fund, Inc.
Registration Statement on SEC Form N-1A
SEC FILE NO.: 333-82133
Dear Sirs:
We have acted as counsel for Pax World High Yield Fund, Inc.,
a Delaware corporation (the "Fund"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended, of a registration statement on Form N-1A
relating to the issuance and sale by the Fund of an indefinite number of shares
(the "Shares") of its common stock, par value $1.00 per share (the "Common
Stock"), in the manner and on the terms set forth in such Registration
Statement.
In so acting, we have examined and are familiar with the
following documents:
(i) the Registration Statement, filed by the Fund with the SEC for
the purpose of registering the Shares under the Securities Act
of 1933, as amended, together with exhibits filed therewith
and amendments filed thereto (the "Registration Statement");
(ii) the Certificate of Incorporation and the By-laws of the Fund,
certified by the Secretary of the Fund;
(iii) certain of the corporate minutes of the Fund, certified by the
Secretary of the Fund; and
(iv) good standing certificate(s), telegram(s) or telefax(es)
issued by the jurisdiction in which the Fund is incorporated.
We have also reviewed such other documents and have made such
further investigations as we have considered necessary or appropriate for the
purpose of rendering this opinion. With respect to factual matters which are
material to our opinion, we have relied upon certificates of the Fund and
officers of the Fund, including representations and warranties as to factual
matters contained in the Registration Statement, upon which certificates and
representations and warranties we believe we are justified in relying.
The opinions contained herein are subject to the following
limitations and qualifications:
1. We have made no independent verification of factual matters
with respect to the Fund and consequently we do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement.
<PAGE>
2. The enforceability of, and the rights and remedies set
forth in and the effect of, the agreements, documents and instruments
with respect to which we opine herein may be limited by bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium and other
laws of general application relating to or affecting the enforcement of
rights of creditors; the enforceability of the obligations of the
parties are subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law); and the effect of applicable laws and court decisions may
hereafter limit or render unenforceable certain of your rights and
remedies.
3. We have assumed (i) the authenticity and completeness of
all documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as
certified, conformed or photostatic copies, and (ii) the genuineness of
all signatures on all documents examined by us.
4. We are members of the bar of the State of New York, and we
do not purport to be experts in, and express no opinion with respect
to, the laws of any jurisdiction other than the federal laws of the
United States of America and the laws of the State of New York and, to
the extent necessary to render the opinions expressed herein, the
corporation laws of the State of Delaware. We note that we are not
licensed to practice law in the State of Delaware, and to the extent
that any opinion expressed herein involves the law of Delaware, such
opinion should be understood to be based solely upon our review of the
good standing certificate referred to above, the published statutes of
that State and, where applicable, published cases, rules or regulations
of regulatory bodies of that State.
Based on the foregoing and subject to the assumptions,
limitations and qualifications set forth herein, we are of the opinion that:
1. The Fund is a corporation duly organized and validly
existing under the laws of the State of Delaware.
2. The Company's authorized capital stock consists solely of
25,000,000 shares of Common Stock, par value $1.00 per share, 10,000 of
which are issued and outstanding and 24,990,000 of which are held in
its treasury. Under Delaware law, shares of Common Stock which are
issued and subsequently redeemed by the Fund will be, by virtue of such
redemption, restored to the status of authorized and unissued shares.
3. Subject to the effectiveness of the Registration Statement
and compliance with applicable state securities laws, upon the issuance
of the Shares for a consideration not less than the par value thereof
as required by the laws of Delaware, and not less than the net asset
value thereof as required by the Investment Company Act of 1940, as
amended, and in accordance with the terms of the Registration
Statement, such Shares will be legally issued and outstanding and fully
paid and non-assessable.
This opinion is given as of the date hereof. We assume no
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur.
We hereby consent to the filing of this opinion with the SEC
as part of the Registration Statement and with any state securities commission
where such filing is required. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
-2-
<PAGE>
Please be advised that Lee D. Unterman, a member of this firm,
serves as the Secretary of the Fund.
Sincerely,
/s/ BRESLER GOODMAN & UNTERMAN, LLP
-3-
EXHIBIT 9(B)
Bresler Goodman & Unterman, LLP
28th Floor, 521 Fifth Avenue
New York, NY 10175
September 14, 1999
To the Shareholders and the Board of Directors
of Pax World High Yield Fund, Inc.
CONSENT OF COUNSEL
We consent to the use in the Registration Statement No. 333-82133 of
Pax World High Yield Fund, Inc. on Form N-1A of the reference to us on the back
page of the Prospectus and under the heading "Adviser" in the Statement of
Additional Information.
/s/ BRESLER GOODMAN & UNTERMAN, LLP
EXHIBIT 10
PANNELL KERR FORSTER PC
125 Summer Street
18th Floor
Boston, MA 02110
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors
of Pax World High Yield Fund, Inc.:
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement Number 333-82133 of Pax World High Yield Fund, Inc. of our report
dated as of August 26, 1999, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us on the back page of the Prospectus and under the heading
"Custodian, Transfer and Dividend Disbursing Agent and Independent Accountants"
in the Statement of Additional Information.
/s/ PANNELL KERR FORSTER PC
Boston, Massachusetts
September 14, 1999
EXHIBIT 12
PURCHASE AGREEMENT
The undersigned, PAX WORLD HIGH YIELD FUND, INC. (the "Fund"),
an open-end, diversified management investment company and a Delaware
corporation, and PAX WORLD MANAGEMENT CORP., a Delaware corporation (the
"Adviser"), intending to be legally bound, hereby agree as follows:
1. In order to provide the Fund with its initial capital, the
Fund hereby sells to the Adviser, and the Adviser hereby purchases from
the Fund, 10,000 shares of the common stock, par value $1.00 per share,
of the Fund (collectively, the "Shares") for a purchase price of $10.00
per share. The Fund hereby acknowledges receipt from the Adviser of
funds in the amount of $100,000 in full payment for the Shares.
2. The Adviser represents and warrants to the Fund that the
Adviser is acquiring such Shares for its own account for investment and
with no present intention of distributing or reselling such Shares or
any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
IN WITNESS THEREOF, the parties hereto have executed this
agreement as of the _____ day of _______________, 1999.
PAX WORLD HIGH YIELD FUND, INC.
By:
-----------------------------------
Thomas W. Grant
President
PAX WORLD MANAGEMENT CORP.
By:
-----------------------------------
Laurence A. Shadek
Chairman of the Board
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