PAX WORLD HIGH YIELD FUND
PROSPECTUS & APPLICATION
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PROSPECTUS DATED
OCTOBER 8, 1999
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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: 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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RISK / RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE ...................... 3
What is the Fund's Investment Objective / Goal? ........................... 3
What are the Principal Investment Strategies of the Fund? ................. 3
What are the Principal Risks of Investing in the Fund? .................... 4
RISK / RETURN SUMMARY: FEE TABLE ............................................... 6
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS ..... 7
Investment Objectives ..................................................... 7
Principal Investment Strategies ........................................... 7
Principal Risks ........................................................... 8
Convertible Securities ................................................ 8
Corporate and Other Debt Securities ................................... 9
Foreign Securities .................................................... 10
Portfolio Turnover .................................................... 11
Securities of Financially and Operationally Troubled Issuers .......... 11
Zero Coupon, Pay-in-Kind or Deferred Payment Securities ............... 12
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE OF THE FUND ..................... 13
Incorporation ............................................................. 13
Description of Common Stock ............................................... 13
Officers and Directors .................................................... 13
Adviser ................................................................... 13
Distribution .............................................................. 15
Custodian and Transfer and Dividend Disbursing Agent ...................... 16
Shareholder Meetings ...................................................... 16
HOW THE FUND VALUES ITS SHARES ................................................. 16
SHAREHOLDER GUIDE .............................................................. 17
How to Purchase Shares .................................................... 17
In General ............................................................ 17
Investing by Mail ..................................................... 18
Investing by Telephone ................................................ 18
Investing by Wire Transfer ............................................ 18
How to Sell Your Shares ................................................... 19
In General ............................................................ 19
Redemptions by Written Request ........................................ 20
Redemptions by Telephone .............................................. 20
Involuntary Redemptions ............................................... 20
Waiver of Sales Charge ................................................ 20
How to Exchange Your Shares ............................................... 21
In General ............................................................ 21
Exchanges by Mail ..................................................... 21
Exchanges by Telephone ................................................ 21
TAXES, DIVIDENDS AND DISTRIBUTIONS ............................................. 22
Taxation of the Fund ...................................................... 22
Taxation of Shareholders .................................................. 22
Withholding Taxes ......................................................... 22
Dividends and Distributions ............................................... 23
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SHAREHOLDER SERVICES ........................................................... 23
Automatic Reinvestment of Dividends and/or Distributions .................. 23
Automatic Investment Plan ................................................. 23
Tax-Deferred Retirement Plans ............................................. 23
Systematic Withdrawal Plan ................................................ 24
Reports to Shareholders ................................................... 24
Shareholder Inquiries ..................................................... 24
THE PAX WORLD FUND FAMILY ...................................................... 24
ADDITIONAL INFORMATION ......................................................... 24
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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 BBB 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 dollar 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
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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 associated 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.
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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 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.
(v) 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
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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.
(vi) 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, (a) such
investments may not achieve the intended effects and may result in
losses or missed opportunities to the Fund, (b) 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 (c) certain of such investments involve costs to the Fund that
could reduce the Fund's return.
(vii) 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.
(viii)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.
(ix) The Adviser strives to anticipate market movements and the risks
described above and actively manages the Fund based upon its judgment.
Management risk, which exists in varying amounts in most mutual funds,
refers to the possibility that the Adviser may fail to anticipate these
movements or risks, or to execute the Fund's strategy effectively.
Investors should understand that all investments involve risk, 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 not 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.
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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):
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 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 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.
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 example. The expenses shown in the above example would be
greater if 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.
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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 BBB or lower by
Standard & Poor's Ratings Group or 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
dollar 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 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
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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 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 secu-
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rities 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
is 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 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.
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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, "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
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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.
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, securities of financially and
operationally troubled issuers may require the Adviser to participate in
bankruptcy proceedings, reorganizations or
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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 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 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.
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MANAGEMENT, ORGANIZATION AND CAPITAL
STRUCTURE OF THE FUND
INCORPORATION
The Fund was incorporated under the laws of the State of Delaware on 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 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
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Pax World Fund, Incorporated, the Pax World Growth Fund, Inc. and the Pax World
Money Market Fund, Inc. 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 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
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<PAGE>
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, Connecticut Monthly Meeting, Religious Society of
Friends (Quakers) and a member of the Board of Directors of the Norwalk,
Connecticut 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.
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, solic-
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<PAGE>
its 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.
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.
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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, to:
Pax World Fund Family
P.O. Box 8930
Wilmington, DE 19899-8930
or by overnight delivery, to:
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.
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
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<PAGE>
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 as described below. In
some cases, however, sales are not subject to a contingent deferred sales
charge.
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 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 that 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.
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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 name(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 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
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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, 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.
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 hol-
21
<PAGE>
idays, 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.
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
22
<PAGE>
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 payment date, unless
the shareholder elects in writing not less than five (5) days prior to the
record date for such dividends or distributions 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.
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 payment date unless and until you
notify the Transfer Agent in writing at least five (5) days prior to the record
date for such dividends or distributions 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.
23
<PAGE>
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.
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 www.paxfund.com or
visiting the SEC's web site at 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.
24
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NEW ACCOUNT APPLICATION - PAX WORLD HIGH YIELD FUND, INC. PLEASE MAIL TO PAX WORLD FUND FAMILY
DO NOT USE THIS APPLICATION TO OPEN AN IRA OR OTHER RETIREMENT ACCOUNT. P.O. BOX 8930, WILMINGTON, DE 19899-8930.
PLEASE CALL 1-800-767-1729 IF YOU NEED A RETIREMENT APPLICATION.
- ---------------------------------------------------------------------------------- -----------------------------------------
|1| TYPE OF ACCOUNT (CHECK ONE)
| | INDIVIDUAL | | JOINT TENANTS | | GIFT/TRANSFER TO A MINOR Broker/Dealer Name & No. _____________
Complete A only Complete A & B only Complete C only Branch No. & Address _________________
| | TRUST | | CORPORATION | | PARTNERSHIP OR OTHER ENTITY --------------------------------------
Complete D only Complete E only Complete E only Representative's Name & No. __________
- ---------------------------------------------------------------------------------- -----------------------------------------
- - / /
|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 MINOR'S ACT, OR__UNIFORM TRANSFER TO MINORS ACT. MINOR'S SOCIAL SECURITY NUMBER BIRTHDATE (MM DD YY)
State State (Required to open your account)
====================================================================================================================================
|D| NAME OF TRUSTEE _______________________________________________ NAME OF SECOND TRUSTEE (IF ANY)_______________________________
NAME OF TRUST _________________________________________________________________________________________________________________
--------------------------------------------------------- ---------------------------------------------------------------
DATE OF TRUST (MM DD YY) (Required to open your account) 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 (Required to open your account) BUSINESS TYPE
====================================================================================================================================
|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 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, Inc. 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 ________
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<PAGE>
UNFOLD HERE FOR NEW ACCOUNT APPLICATION
NEW ACCOUNT INSTRUCTIONS
1. TYPE OF ACCOUNT. An account may be registered as only one of the following:
o Individual | Supply the Social Security
| Number of the registered
o Joint Tenants | account owner who is to be
| taxed.
o A Custodial Account under the Uniform Gifts
to Minors Account
o A Trust | Supply the Taxpayer Iden-
| tification Number of the
o A Corporation, Partnership, | legal entity or organization
Organization, Fiduciary, etc. | 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. ACCOUNT OPTIONS. In this section you can a authorize telephone privileges for
yourself and/or your representative of record, b add the shareholder redemption
option to your account, c notify us if your account is exempt from the 1%
contingent deferred sales charge levied on shares sold within 6 months of
purchase, and d authorize Automatic Investment, monthly or quarterly, in your
Pax World account. IMPORTANT: 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.
6. YOUR SIGNATURE(S). Please be sure to sign this application. If the account is
registered in the name of:
o an individual -- the individual must sign.
o joint tenants -- both must sign.
o a custodian for a minor --the custodian must sign.
o a trustee or other fiduciary -- the fiduciary(s) must sign and indicate
capacity.
o a corporation or other organization -- an officer must sign and indicate
capacity.
ANY QUESTIONS? Call a Pax World 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
<PAGE>
PAX WORLD HIGH YIELD FUND
PROSPECTUS & APPLICATION
[LOGO OMITTED]
PROSPECTUS & APPLICATION
OCTOBER 8, 1999
- --------------------------------------------------------------------------------
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<CAPTION>
PAX WORLD HIGH YIELD FUND
A DIVERSIFIED HIGH-YIELD FUND [LOGO OMITTED]
<S> <C> <C>
INVESTMENT ADVISER- 222 State Street
Pax World Management Corp. Portsmouth, NH 03801-3853
222 State Street WWW.PAXFUND.COM
Portsmouth, NH 03801-3853
TRANSFER AND DIVIDEND DISBURSING AGENT- For General Fund Information, please call:
PFPC, Inc. 1-800-767-1729
P.O. Box 8950
Wilmington, DE 19899-8950 For Broker Services, please call:
1-800-635-1404
GENERAL COUNSEL-
Bresler Goodman & Unterman, LLP All Account Inquiries should be addressed to:
521 Fifth Avenue Pax World Fund Family
New York, NY 10175 P.O. Box 8930
Wilmington, DE 19899-8930
INDEPENDENT AUDITORS-
Pannell Kerr Forster PC
125 Summer Street
Boston, MA 02110-2326
</TABLE>
[LOGO OMITTED]
PRINTED IN THE USA ON RECYCLED PAPER
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC") in a Statement of Additional Information
dated the date hereof, and in the fund's annual and semi-annual reports to
shareholders, which information is incorporated herein by reference (is legally
considered a part of this prospectus) and is available without charge upon
request to the fund at the address or telephone number noted above, or by
visiting the fund's web site at www.Paxfund.Com. In addition, you will find in
the fund's annual report a discussion of the market conditions and investment
strategies that significantly affected the fund's performance during its last
fiscal year. The sec maintains a web site (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 to the
SEC or may be examined, without charge, at the Public Reference Room at the
office of the SEC in Washington, D.C. Information of the operation of the Public
Reference Room may be obtained by calling the SEC at 800-SEC-0330 (toll-free).
Investment Company Act file no.: 811-09419
<PAGE>
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: www.paxfund.com
STATEMENT OF ADDITIONAL INFORMATION
dated October 8, 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 www.paxfund.com or
visiting the Securities and Exchange Commission's
web site at 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 ............. 4
Asset-Backed Securities ..................................... 4
Bank Debt ................................................... 4
Forward Foreign Currency Exchange Contracts ................. 5
Illiquid and Restricted Securities .......................... 6
Lending of Securities ....................................... 6
Options on Foreign Currencies ............................... 7
Options on Futures Contracts ................................ 7
Options on Securities ....................................... 8
Options on Securities Indices ............................... 8
Position Limits ............................................. 9
Real Estate Investment Trusts ............................... 9
Repurchase Agreements ....................................... 9
Segregated Accounts ......................................... 10
Short Sales Against-the-Box ................................. 10
Short-term Investments ...................................... 10
U.S. Government Agency and/or Instrumentality Securities .... 10
When-Issued and Delayed Delivery Securities ................. 11
INVESTMENT RESTRICTIONS .......................................... 11
MANAGEMENT OF THE FUND ........................................... 13
INVESTMENT ADVISORY AND OTHER SERVICES ........................... 15
Adviser ..................................................... 15
Distribution ................................................ 16
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants ............................... 18
PORTFOLIO TRANSACTIONS AND BROKERAGE ............................. 18
NET ASSET VALUE .................................................. 19
CALCULATION OF PERFORMANCE DATA .................................. 20
Average Annual Total Return ................................. 20
PURCHASE, REDEMPTION AND EXCHANGE OF FUND SHARES ................. 20
Purchase of Shares .......................................... 20
In General .............................................. 20
Sale of Shares .............................................. 21
In General .............................................. 21
Involuntary Redemption .................................. 21
Waiver of Sales Charges ................................. 21
Exchange of Shares .......................................... 22
TAXES ............................................................ 22
SHAREHOLDER SERVICES ............................................. 23
Automatic Reinvestment of Dividends and/or Distributions .... 23
Automatic Investment Plan ................................... 23
Tax-Deferred Retirement Plans and Accounts .................. 23
Systematic Withdrawal Plans ................................. 24
Reports to Shareholders ..................................... 24
Shareholder Inquiries ....................................... 24
FINANCIAL STATEMENTS ............................................. 25-28
2
<PAGE>
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 BBB or lower by
Standard & Poor's Ratings Group or 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 dollar 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 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.
3
<PAGE>
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.
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
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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 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.
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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 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
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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.
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 the Fund's prospectus
under "Principal Risks Foreign Securities," 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 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.
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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.
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
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multipliers. Because exercises of index options are settled in cash, a call
writer cannot determine the amount of its settlement obligations in advance and,
unlike call writing on specific stocks, cannot provide in advance for, or cover,
its potential settlement obligations by acquiring and holding the underlying
securities. In addition, unless the Fund has other liquid assets which are
sufficient to satisfy the exercise of a call, the Fund would be required to
liquidate portfolio securities or borrow in order to satisfy the exercise.
Because the value of an index option depends upon movements in the level of
the index rather than the price of a particular security, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of security prices in the market generally or in an
industry or market segment rather than movements in the price of a particular
security. Accordingly, successful use by the Fund of options on indices would be
subject to the investment adviser's ability to predict correctly movements in
the direction of the securities market generally or of a particular industry.
This requires different skills and techniques than predicting changes in the
price of individual stocks.
The distinctive characteristics of options on indices create certain risks
that are not present with stock options.
Index prices may be distorted if trading of certain stocks included in the
index is interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, the Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, may be unable to exercise an option it holds, which could
result in losses to the Fund. It is the Fund's policy to purchase or write
options only on indices which include a number of stocks sufficient to minimize
the likelihood of a trading halt in the index.
The ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index option contracts. The
Fund will not purchase or sell any index option contract unless and until, in
the Adviser's opinion, the market for such options has developed sufficiently
that the risk in connection with such transactions is not substantially greater
than the risk in connection with options on securities in the index.
The Fund will write put options on stock indices and foreign currencies
only if they are covered by segregating with the Fund's Custodian an amount of
cash, U.S. Government securities, or liquid assets 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
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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 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, 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. Federal Home Loan Mortgage Corporation 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
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underlying mortgages vary, it is not possible to predict accurately the average
life of a particular issue of pass-through certificates. Mortgage-backed
securities are often subject to more rapid repayment than their maturity date
would indicate as a result of the pass-through of prepayments of principal on
the underlying mortgage obligations. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected to
accelerate. The Fund's ability to invest in high-yielding mortgage-backed
securities will be adversely affected to the extent that prepayments of
mortgages must be reinvested in securities which have lower yields than the
prepaid mortgages. Moreover, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses.
The Fund may invest in both Adjustable Rate Mortgage Securities, which are
pass-through mortgage securities collateralized by adjustable rate mortgages,
and Fixed-Rate Mortgage Securities, which are collateralized by fixed-rate
mortgages.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, the Fund may
purchase or sell securities on a when-issued or delayed delivery basis, that is,
delivery and payment can take place a month or more after the date of the
transaction. The Fund will limit such purchases to those in which the date for
delivery and payment falls within one hundred twenty (120) days of the date of
the commitment. The Fund will make commitments for such when-issued transactions
only with the intention of actually acquiring the securities. The Fund's
Custodian will maintain, in a separate account of the Fund, cash, U.S.
Government securities or other liquid high-grade debt obligations having a value
equal to or greater than such commitments. If the Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio security, incur a gain or loss due
to market fluctuations.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. A "majority of the Fund's
outstanding voting securities," when used in this Statement of Additional
Information, means the lesser of (i) sixty-seven percent (67%) of the shares
represented at a meeting at which more than fifty percent (50%) of the
outstanding voting shares are present in person or represented by proxy or (ii)
more than fifty percent (50%) of the outstanding voting shares.
The Fund may not:
1. Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by the Fund of initial or
maintenance margin in connection with futures or options is not
considered the purchase of a security on margin.
2. Make short sales of securities or maintain a short position if, when
added together, more than twenty-five percent (25%) of the value of
the Fund's net assets would be (i) deposited as collateral for the
obligation to replace securities borrowed to effect short sales and
(ii) allocated to segregated accounts in connection with short sales.
Short sales "against-the-box" are not subject to this limitation.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from banks up to twenty percent (20%) of the
value of its total assets (calculated when the loan is made) for
temporary, extraordinary or emergency purposes or for the clearance of
transactions. The Fund may pledge up to twenty percent (20%) of the
value of its total assets to secure such borrowings. For purposes of
this restriction, the purchase or sale of securities on a when-issued
or delayed delivery basis, forward foreign currency exchange contracts
and collateral arrangements relating thereto, and collateral
arrangements with respect to futures contracts and options thereon and
with respect to the writing of options and obligations of the Fund to
Directors pursuant to deferred compensation arrangements are not
deemed to be a pledge of assets or the issuance of a senior security.
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
11
<PAGE>
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 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.
12
<PAGE>
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. 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 WITH
NAME, ADDRESS AND AGE THE FUND PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carl H. Doerge, Jr. Director (since Director, Pax World Fund, Incorporated (1998-present);
867 Remsen Lane 1999) Director, Pax World Growth Fund, Inc. (1997-present);
Oyster Bay, NY 11771***; (61) Private investor (1995-present); Executive Vice President
Smith Barney (1971-1995) and Managing Director,
- ------------------------------------------------------------------------------------------------------------------------------------
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*; (47) 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
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)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Lee D. Unterman Secretary (since Secretary, Pax World Growth Fund, Inc. (1997-present);
c/o Bresler, Goodman & Unterman, 1999) Secretary, Pax World Fund, Incorporated (1997-present);
LLP Partner, Bresler Goodman & Unterman, LLP, New York,
521 Fifth Avenue NY (1997-present); Partner, Broudy & Jacobson, New York, NY
New York, NY 10175; (49) (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, 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. None of the
officers or directors are related to one another by blood, marriage or adoption,
except that Laurence A. Shadek and James M. Shadek are brothers.
COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------------------
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 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 the period commencing on the
date hereof and ending on December 31, 1999 with respect to the Fund, the Pax
World Fund, the Pax World Growth Fund and the Pax World Money Market 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)
15
<PAGE>
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.
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 June 15, 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, Connecticut
Monthly Meeting, Religious Society of Friends (Quakers) and a member of the
Board of Directors of the Norwalk, Connecticut 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.
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
16
<PAGE>
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 June 15, 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 on
sixty (60) days written notice to the Distributor or by the Distributor on sixty
(60) days written notice to the Fund.
The Distribution Agreement was adopted on June 15, 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.
17
<PAGE>
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 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
18
<PAGE>
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 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.
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CALCULATION OF PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
The Fund may from time to time advertise its average annual total return.
Average annual total return is computed according to the following formula:
P (1+T) (n) = ERV
Where: P = a hypothetical initial payment of $1,000.00
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000.00
payment made at the beginning of the one, five or
ten year periods (or fractional portion thereof).
Average annual total return takes into account any applicable initial or
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.
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
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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. 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. 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, 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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<PAGE>
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
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.
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<PAGE>
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.
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 record date for such dividends or distributions to receive
(i) such dividends in cash and distributions in additional shares or (ii) such
dividends and distributions in cash. Any shareholder who receives a cash payment
representing a dividend or distribution may reinvest such dividend or
distribution at net asset value by returning the check or the proceeds to the
Transfer Agent within thirty (30) days after the payment date. Such investment
will be made at the net asset value per share next determined after receipt of
the check or proceeds by the Transfer Agent.
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.
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<PAGE>
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.
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 www.paxfund.com or visiting the
SEC's web site at 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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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
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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
26
<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 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.
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<PAGE>
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 (.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.