Dear Pax World Fund Shareholder:
The year 1998 was another excellent one for Pax World Fund and its loyal
family of shareholders. The Fund achieved a total return of 24.62%, and in
December, the net asset value rose to an all-time high of $21.73.
Pax World Fund enjoyed consistently high rankings in 1998, including being
the top-performing balanced fund among the 394 funds tracked by Lipper
Analytical Services for the one-year period ending October 8, 1998. The Fund was
often among the top ten funds on the WALL STREET JOURNAL'S Balanced Fund
Scorecard, made many magazines' "best funds" lists, and was ranked as the #1
balanced fund through September 30, 1998 by U.S. NEWS AND WORLD REPORT.
Co-managers Chris Brown and Bob Colin deserve much credit for their sound
strategy during a year of volatile stock prices. And on the fixed income side of
the portfolio, their ability to maintain a stable dividend level in spite of
steadily falling interest rates was equally impressive, if less publicly
visible. For further insight into their efforts, please read the Questions and
Answers discussion on page 3.
The stock market has experienced unprecedented growth over the past four
years and it will be a challenge to sustain that performance again in 1999.
Although the economic problems of Latin America and Southeast Asia are likely to
affect certain sectors of the U.S. economy, we expect that our Gross Domestic
Product (GDP) will be up in 1999, as will corporate profits. Hence, we are
cautiously optimistic for the year ahead.
Once again, your Fund's excellent financial results were achieved while
adhering to the social screens that have been the cornerstone of the Fund since
its inception. You can be justifiably proud of the fact that Pax World Fund has
again demonstrated that social responsibility and investment performance are not
mutually exclusive goals.
We encourage as many shareholders as possible to attend the annual meeting
at the State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, on Thursday, June 10, 1999.
Sincerely,
Laurence A. Shadek Thomas W. Grant
Chairman President
February 12, 1999
2
<PAGE>
QUESTIONS AND ANSWERS
ROBERT P. COLIN AND CHRISTOPHER H. BROWN, PORTFOLIO CO-MANAGERS
Q. What were the most important factors that influenced the investment
performance of Pax World Fund during 1998?
A. Pax World Fund out-performed most other balanced (bond/stock) funds last
year for the following reasons:
1. During the first quarter of 1998 when the general market rose 13.5%, we
elected to raise the Fund's cash and equivalent position from 24% at
year-end 1997 to 32.5% at the end of the first quarter of 1998. The
sharp drop in share prices during August-September -- 22% from peak to
trough -- presented an opportunity to re-deploy those funds back into
common equities at what proved to be attractive prices.
2. The Fund's two largest investment sectors -- telecommunications and
health care -- out-performed most other sectors and the market as a
whole. Moreover, we had added to several positions within these two
sectors during the period of market weakness.
3. Technology, in which Pax World Fund traditionally had only a nominal
exposure, was increased from 2.4% at year-end 1997 to 7.4% by year-end
1998. This decision contributed measurably to the performance of the
Fund, particularly during the final quarter of the year.
Q. In carrying out the strategies described above, please give us some examples
of stocks bought and sold during 1998.
A. Indicative of the rather dramatic changes in strategies which occurred
against a backdrop of extreme market volatility during 1998, a total of 11
stocks were sold while 15 new positions were established. All of the Fund's
holdings in the food industry, as well as some retail issues, were sold
during the first quarter of the year. Some of those decisions were
predicated on high valuations while others reflected social concerns. Among
the new purchases by the Fund were: Amgen - biotech pharmaceuticals; Compaq
- personal computers (PCs); EMC - computer storage systems; Guidant -
medical devices; MediaOne - cable TV; and Sony consumer electronics.
Q. How did Pax World perform in 1998?
A. The Net Asset Value (NAV) of the Fund set new records during 1998 and closed
the year at $21.64 per share versus an NAV of $18.52 per share at year-end
1997. Following are some Total Return (interest and dividend income plus
capital appreciation) comparisons:
TOTAL RETURN FOR 1998
Pax World Fund..........................................24.62%
Lipper Balanced Fund Index .............................15.09%
Dow Jones Industrial Average............................18.13%
(PIE CHART)
SECURITY DIVERSIFICATION, 12/31/98
Government Agency Bonds 25%
Telecommunications 16%
Health Care 13%
Technology 7%
Energy 11%
Money Markets 10%
Consumer 13%
Financial 3%
Corporate Bonds 1%
(PIE CHART)
ASSET ALLOCATION, 12/31/98
Common Stocks 63%
Bonds 26%
Cash and Equivalents 11%
3
<PAGE>
(CHART)
TEN YEAR ANNUAL TOTAL RETURN
HISTORICAL
PAX WORLD FUND, INC. LIPPER BALANCED FUND INDEX
1988 $10,000 $10,000
1989 $12,492 $12,145
1990 $13,537 $12,076
1991 $15,617 $14,692
1992 $15,680 $15,404
1993 $15,575 $16,571
1994 $15,840 $16,351
1995 $18,759 $18,810
1996 $19,795 $20,111
1997 $22,307 $22,116
1998 $24,769 $23,625
*PAX WORLD FUND, INC.
24.62% 1 YR. TOTAL RETURN
17.94% 5 YR. AVG. TOTAL RETURN
14.24% 10 YR. AVG. TOTAL RETURN
LIPPER BALANCED FUND INDEX
15.09% 1 YR. TOTAL RETURN
13.87% 5 YR. AVG. TOTAL RETURN
13.32% 10 YR. AVG. TOTAL RETURN
*The cumulative total return (compounding reinvested dividends and capital
gains) of Pax World Fund over the past ten years was 278.67%. A $10,000
investment would have grown to $37,867.
The line graph on the above chart for Pax World Fund was adjusted to
exclude the result of cumulatively compounding earnings from dividends and
capital gains. The Lipper Balanced Fund Index also excludes compounding.
Total return figures represent past performance, which is no guarantee of
future results.
PORTFOLIO HIGHLIGHTS
TEN LARGEST STOCK HOLDINGS, 12/31/98
PERCENT OF
COMPANY NET ASSETS
AirTouch Communications Inc...................6.0%
Gap Inc.......................................5.0%
SBC Communications Inc. ......................4.5%
Amgen Inc.....................................3.7%
Merck & Co. Inc. .............................3.5%
Enron Corp. ..................................3.4%
Pitney Bowes Inc. ............................2.8%
Bay State Gas Co. ............................2.6%
Peoples Energy Corp...........................2.6%
KeySpan Energy Corp...........................2.2%
TOTAL 36.3%
KEY STATISTICS, 12/31/98
Change in NAV ($18.52 to $21.64).............$3.12
Distributions to Shareholders
(per share).................................$1.348
12 Month Total Return.......................24.62%
Net Increase in Net Assets Resulting
From Operations.....................$161.7 million
Total Net Assets....................$837.8 million
4
<PAGE>
ANNUAL MEETING OF SHAREHOLDERS
An Annual Meeting of the Shareholders of the Fund was held at 10:45 a.m. on
Thursday, June 11, 1998 at the State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110. The matters voted upon and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes as to each matter, are as follows:
(A) to elect a Board of eight Directors, each to hold office until the next
Annual Meeting of the Shareholders of the Fund or until a successor shall have
been chosen and shall have qualified:
C. Lloyd Bailey
For: 19,176,371.227
Against: 420,611.266
Abstain: 23,714.000
Broker Non-Votes: 0.000
Carl H. Doerge, Jr.
For: 19,303,706.493
Against: 293,276.000
Abstain: 23,714.000
Broker Non-Votes: 0.000
Thomas W. Grant
For: 19,272,693.372
Against: 324,289.121
Abstain: 23,714.000
Broker Non-Votes: 0.000
Joy L. Liechty
For: 19,339,412.683
Against: 257,569.810
Abstain: 23,714.000
Broker Non-Votes: 0.000
Laurence A. Shadek
For: 19,274,339.921
Against: 322,642.572
Abstain: 23,714.000
Broker Non-Votes: 0.000
Sanford C. Sherman
For: 19,334,685.614
Against: 262,296.879
Abstain: 23,714.000
Broker Non-Votes: 0.000
Nancy S. Taylor
For: 19,338,101.310
Against: 258,881.183
Abstain: 23,714.000
Broker Non-Votes: 0.000
5
<PAGE>
Esther J. Walls
For: 19,301,566.675
Against: 295,415.818
Abstain: 23,714.000
Broker Non-Votes: 0.000
(constituting all of the members of the Board of Directors of the Fund);
(B) to ratify the selection by the Board of Directors of Pannell Kerr
Forster PC as the independent public accountants of the Fund for the year ending
December 31, 1998:
For: 18,926,373.167
Against: 134,423.458
Abstain: 559,899.868
Broker Non-Votes: 0.000
(C) to amend the By-Laws of the Fund and to approve of certain changes to
the Fund's fundamental investment policies so as to permit the Fund to invest in
the Pax World Money Market Fund, Inc.:
For: 16,986,442.666
Against: 492,850.008
Abstain: 610,621.819
Broker Non-Votes: 1,530,782.000
(D) to transact such other business as may properly come before such annual
meeting or any adjournment thereof:
For: 17,827,671.573
Against: 474,351.137
Abstain: 1,318,673.783
Broker Non-Votes: 0.000
6
<PAGE>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS
<S> <C> <C> <C>
CONSUMER
Champion Enterprises, Inc......................... 408,200 $ 11,174,475
Gap, Inc.......................................... 750,000 42,187,500
Masco Corp........................................ 200,000 5,750,000
MediaOne Group, Inc............................... 175,000 8,225,000
OfficeMax, Inc.................................... 250,000 3,062,500
Sony Corp. ADR.................................... 50,000 3,587,500
Starbucks Corp.................................... 210,000 11,786,250
Tribune Co........................................ 200,000 13,200,000
Wendy's International, Inc........................ 350,000 7,634,375
------------
106,607,600 12.7%
------------
ENERGY
Bay State Gas Co.................................. 553,800 22,048,162
Enron Corp........................................ 500,000 28,531,250
KeySpan Energy Corp............................... 587,600 18,215,600
Peoples Energy Corp............................... 551,900 22,007,013
------------
90,802,025 10.8
------------
FINANCIAL
MBIA, Inc......................................... 75,000 4,917,187
SLM Holding Corp.................................. 200,000 9,600,000
Unum Corp......................................... 135,000 7,880,625
------------
22,397,812 2.7
------------
HEALTH CARE
Amgen, Inc........................................ 300,000 31,368,750
Baxter International Inc.......................... 120,000 7,717,500
Bristol-Myers Squibb Co........................... 125,000 16,726,563
Guidant Corp...................................... 100,000 11,025,000
Johnson & Johnson................................. 100,000 8,387,500
Medtronic, Inc.................................... 100,000 7,425,000
Merck & Co., Inc.................................. 200,000 29,537,500
------------
112,187,813 13.4
------------
TECHNOLOGY
Compaq Computer Corp.............................. 300,000 12,581,250
Computer Associate International, Inc............. 150,000 6,393,750
EMC Corp. (Mass.)................................. 125,000 10,625,000
Fiserv, Inc....................................... 175,000 9,001,563
Pitney Bowes, Inc................................. 350,000 23,121,875
------------
61,723,438 7.4
------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS, CONTINUED
<S> <C> <C>
TELECOMMUNICATIONS
AirTouch Communications, Inc...................... 700,000 $ 50,487,500
BellSouth Corp.................................... 350,000 17,456,250
Loral Space Communications........................ 500,000 8,906,250
MCI Worldcom, Inc................................. 100,000 7,175,000
SBC Communications, Inc........................... 702,720 37,683,360
U.S. West, Inc. - Communications Group............ 200,000 12,925,000
-------------
134,633,360 16.1%
------------- ------
TOTAL COMMON STOCKS............................ 528,352,048 63.1
------------- ------
PRINCIPAL
AMOUNT
GOVERNMENT AGENCY BONDS
Federal Farm Credit Bank
<S> <C> <C>
5.000%, due October 2, 2003....................... $10,000,000 9,931,200
Federal Home Loan Bank System
5.025%, due February 23, 1999..................... 9,000,000 8,998,560
5.880%, due March 19, 1999........................ 13,000,000 13,020,280
5.660%, due January 12, 2000...................... 5,000,000 5,002,350
5.630%, due January 29, 2001...................... 10,000,000 9,990,600
5.025%, due November 5, 2002...................... 10,000,000 9,859,400
5.905%, due December 23, 2002..................... 14,000,000 14,369,740
5.590%, due October 6, 2003....................... 12,000,000 11,896,920
5.250%, due October 27, 2003...................... 10,000,000 9,859,330
Federal Home Loan Mortgage Corp.
6.110%, due June 18, 2003......................... 10,000,000 9,995,300
Federal National Mortgage Association
6.110%, due September 20, 2000.................... 12,000,000 12,219,360
6.080%, due September 25, 2000.................... 5,000,000 5,089,050
5.820%, due December 5, 2000...................... 15,000,000 15,227,400
5.370%, due February 7, 2001...................... 20,000,000 20,153,200
5.410%, due February 13, 2001..................... 10,000,000 10,084,400
5.360%, due February 16, 2001..................... 10,000,000 10,075,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
PRINCIPAL PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE NET ASSETS
GOVERNMENT AGENCY BONDS, CONTINUED
Federal National Mortgage Association,
CONTINUED
<S> <C> <C> <C>
6.000%, due April 30, 2001........................ $ 9,000,000 $ 9,016,830
6.710%, due July 24, 2001......................... 7,000,000 7,276,710
5.430%, due November 3, 2003...................... 10,000,000 9,881,200
5.375%, due November 17, 2003..................... 8,000,000 7,952,480
--------------
TOTAL GOVERNMENT AGENCY BONDS.................. 209,899,310
--------------
CORPORATE BONDS
American General Finance Corp.
5.750%, due November 1, 2003...................... 2,500,000 2,506,872
Sears Roebuck Acceptance Corp.
6.000%, due March 20, 2003........................ 2,500,000 2,527,365
--------------
TOTAL CORPORATE BONDS.......................... 5,034,237
--------------
TOTAL BONDS.................................... 214,933,547 25.6%
-------------- ------
NUMBER
MONEY MARKET SHARES OF SHARES
Pax World Money Market Fund.......................... 87,285,202 87,285,202 10.4
------------- ------
TOTAL INVESTMENTS.............................. 830,570,797 99.1
Cash and receivables, less liabilities............... 7,201,727 .9
------------- ------
NET ASSETS..................................... $837,772,524 100.0%
------------- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments, at value - note A
<S> <C>
Common stocks (cost - $279,762,818) ..................................... $528,352,048
Bonds (amortized cost - $213,710,177) ................................... 214,933,547
Pax World Money Market Fund (cost - $87,285,202) ........................ 87,285,202
------------
830,570,797
Cash ....................................................................... 5,710,304
Receivables
Capital stock sold ...................................................... 864,735
Dividends and interest .................................................. 3,709,990
------------
Total assets ......................................................... 840,855,826
------------
LIABILITIES
Payables
Investment securities purchased ......................................... 1,159,375
Capital stock reacquired ................................................ 1,304,600
Accrued expenses
Investment advisory fee - note B ........................................ 339,313
Transfer agent fee ...................................................... 115,000
Other accrued expenses .................................................. 165,014
------------
Total liabilities .................................................... 3,083,302
------------
Net assets (equivalent to $21.64 per share based on 38,712,054
shares of capital stock outstanding) - note E .................... $837,772,524
------------
Net asset value, offering price and redemption price per share
($837,772,524 / 38,712,054 shares outstanding) ................... $ 21.64
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
Investment income
<S> <C> <C>
Income - note A
Dividends
Pax World Money Market Fund...................... $1,629,146
Other investments................................ 6,195,418 $ 7,824,564
----------
Interest ........................................... 15,229,468
-------------
Total income.................................. 23,054,032
Expenses
Investment advisory fee - note B.................... 3,599,066
Distribution expenses - note D...................... 1,390,243
Transfer agent fee.................................. 799,510
State taxes......................................... 324,111
Custodian fees - note F............................. 186,875
Printing and mailing................................ 173,867
Legal fees and related expenses - note B............ 95,062
Registration fees................................... 66,298
Other............................................... 49,033
Directors' fees and expenses - note B .............. 41,822
Audit fees.......................................... 35,904
----------
Total expenses................................... 6,761,791
Less: Fees paid indirectly - note F.............. 181,574
----------
Net expenses............................. 6,580,217
-------------
Investment income, net........................... 16,473,815
-------------
Realized and unrealized gain on investments - note C
Net realized gain on investments....................... 32,342,171
Change in unrealized appreciation of investments
for the year.......................................... 112,901,738
-------------
Net gain on investments.......................... 145,243,909
-------------
Net increase in net assets resulting from
operations...................................... $ 161,717,724
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
<TABLE>
<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS
Years Ended
December 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Increase in net assets
Operations
Investment income - net ........................... $ 16,473,815 $ 15,102,768
Net realized gain on investments .................. 32,342,171 50,894,781
Change in unrealized appreciation of investments .. 112,901,738 61,297,526
------------- -------------
Net increase in net assets resulting from
operations .................................... 161,717,724 127,295,075
Net equalization credits ............................. 275,435 54,638
Distributions to shareholders from
Investment income - net ($.468 and $.503 per share,
respectively) - note A .......................... (16,751,495) (15,480,324)
Net realized gain on investments ($.880 and $1.650
per share, respectively) - note A ............... (32,342,583) (50,894,724)
Capital share transactions - note E .................. 95,872,040 54,593,793
------------- -------------
Net increase in net assets ..................... 208,771,121 115,568,458
Net assets
Beginning of year .................................... 629,001,403 513,432,945
------------- -------------
End of year (including undistributed investment
income - net of $6,969 and $9,214, respectively) .. $ 837,772,524 $ 629,001,403
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pax World Fund, Incorporated ("Fund") is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's policy is to invest in securities of companies producing
goods and services that improve the quality of life and that are not, to any
degree, engaged in manufacturing defense or weapons-related products. Its
investment objective is primarily to provide its shareholders with a diversified
holding of securities of companies which offer primarily income and conservation
of principal and secondarily possible long-term growth of capital through
investment in common and preferred stocks and debt securities.
VALUATION OF INVESTMENTS
Securities listed on any national, regional or local exchange are valued at
the closing prices on such exchanges. Securities listed on the NASDAQ national
market system are valued using quotations obtained from the market maker where
the security is traded most extensively. Shares in money market funds are valued
at $1 per share.
INVESTMENT TRANSACTIONS
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses are determined on the identified cost
basis, which is also used for Federal income tax purposes.
INVESTMENT INCOME
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis and includes accretion of discount and
amortization of premiums.
Commencing January 1, 1997, the Fund amortizes purchase price premium and
accretes discount on bonds over the remaining life of the bonds using the
effective interest method of amortization; for callable bonds, the amortization
period is to the first call date. Net discount accretion (premium amortization)
for 1998 and 1997 was $219,398 and ($765,743), respectively. The amount for 1997
is net of the one-time charge for net premium amortization through January 1,
1997 on bonds held on that date. Reference is made to note G.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
13
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, continued
EQUALIZATION
The Fund uses the accounting practice known as "equalization" by which a
portion of the proceeds from sales and costs of redemptions of capital shares,
equivalent on a per share basis to the amount of undistributed net investment
income on the date of the transactions, is credited or charged to undistributed
income. As a result, undistributed net investment income per share is unaffected
by sales or redemptions of capital shares.
Equalization is a permanent book/tax difference that causes a difference
between investment income and distributions.
DISTRIBUTIONS TO SHAREHOLDERS
All distributions to shareholders are recorded by the Fund on the
ex-dividend dates.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Advisory Agreement ("Agreement") between the Fund and Pax
World Management Corp. ("Adviser"), the Adviser furnishes investment advisory
services in connection with the management of the Fund. Under the Agreement, the
Adviser, subject to the supervision of the Board of Directors of the Fund, is
responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. The Adviser determines
what securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
The Agreement provides for payment by the Fund to the Adviser of an annual
investment advisory fee of 3/4 of 1% of its average daily net assets on the
first $25,000,000 and 1/2 of 1% of its average daily net assets in excess of
that amount. Two officers, who are also directors of the Fund, are also officers
and directors of the Adviser. Two other officers of the Fund, who are not
directors of the Fund, are also officers of the Adviser. The Agreement provides
for an expense reimbursement from the Adviser if the Fund's total expenses,
exclusive of interest, brokerage commissions or fees, and taxes, but including
the investment advisory fee, exceeds 1-1/2% of the average daily net asset value
of the Fund for any full fiscal year. No expense reimbursement was required for
either 1998 or 1997.
All Directors are paid by the Fund for attendance at directors' meetings.
During 1998, the Fund incurred legal fees and related expenses of $95,062
with Bresler Goodman & Unterman, LLP, general counsel for the Fund. Mr. Lee
Unterman, a partner with that firm, is Secretary of the Fund.
14
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, continued
All of the Adviser's capital stock is currently owned by four siblings
whose family has an ownership interest in a brokerage firm which the Fund
utilizes to execute security transactions. Brokerage commissions paid to this
firm during 1998 and 1997 totaled $140,863 and $132,372, respectively, (27.8%
and 36.3%, respectively of total 1998 and 1997 commissions).
At the June 11, 1998 Annual Meeting, the shareholders approved changes to
the Fund's investment policies to permit the Fund to invest in the Pax World
Money Market Fund, which is also managed by the Adviser.
NOTE C - INVESTMENTS
Purchases and proceeds from sales of investments, excluding short-term
investments and U.S. Government agency bonds, aggregated $155,368,899 and
$101,313,490, respectively, for 1998. Purchases and proceeds from sales and
maturities of U.S. Government agency bonds aggregated $120,062,159 and
$64,900,000, respectively, for 1998.
Net realized gain or loss on sales of investments is determined on the
basis of identified cost. If determined on an average cost basis, the net
realized gain for 1998 would have been approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at December 31, 1998 was $580,758,197. Gross unrealized appreciation and
depreciation of investments aggregated $251,955,848 and $2,143,248,
respectively, at December 31, 1998, resulting in net unrealized appreciation of
$249,812,600.
NOTE D - DISTRIBUTION EXPENSES
The Fund maintains a distribution expense plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended. The plan provides that the Fund
may incur distribution expenses to finance activity which is primarily intended
to result in the sale of Fund shares. These expenses include (but are not
limited to) advertising expenses, the cost of printing and mailing prospectuses
to potential investors, commissions and account servicing fees paid to, or on
account of, broker-dealers or certain financial institutions which have entered
into agreements with the Fund, compensation to and expenses incurred by
officers, directors and/or employees of the Fund for their distributional
services and indirect and overhead costs associated with the sale of Fund shares
(including, but not limited to, travel and telephone expenses). The Plan
provides that (i) up to twenty-five one hundredths of one percent (.25%) of the
average daily net assets of the Fund per annum may be used to pay for personal
service and/or the maintenance of shareholder accounts (service fee) and (ii)
total distribution fees (including the service fee of .25%) may not exceed
thirty-five one hundredths of one percent (.35%) of the average daily net assets
of the Fund per annum. The Plan may be terminated at any time, without penalty,
by (a) the vote of a majority of the Directors who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan or (b) the vote of the
holders of a majority of the outstanding shares of the Fund. If the Plan is
terminated, the payment of fees to third parties would be discontinued at that
time.
15
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, continued
NOTE E - CAPITAL AND RELATED TRANSACTIONS
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------------------ ------------------------------
Shares Dollars Shares Dollars
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .............. 9,126,274 $ 182,396,781 2,794,352 $ 50,868,833
Shares issued in reinvest-
ment of distributions .. 2,232,027 45,625,923 3,363,399 61,541,465
------------- ------------- ------------- -------------
11,358,301 228,022,704 6,157,751 112,410,298
Shares redeemed .......... (6,617,044) (132,150,664) (3,195,360) (57,816,505)
------------- ------------- ------------- -------------
Net increase ............. 4,741,257 $ 95,872,040 2,962,391 $ 54,593,793
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
The components of net assets at December 31, 1998, are as follows:
<S> <C>
Paid-in capital (75,000,000 shares of $1 par value authorized) $ 595,873,084
Undistributed investment income .............................. 6,969
Excess distribution of capital gains ......................... (1,958)
Accumulated prior years' net realized losses on investments .. (7,918,171)
Net unrealized appreciation of investments ................... 249,812,600
-------------
Net assets .............................................. $ 837,772,524
-------------
</TABLE>
NOTE F - CUSTODIAN BANK AND CUSTODIAN FEES
State Street Bank and Trust Company is the custodian bank for the Fund's
assets. The custodian fees charged by the bank are reduced, pursuant to an
expense offset arrangement, by an earnings credit which is based upon the
average cash balances maintained at the bank. If the Fund did not have such an
offset arrangement, it could have invested the amount of the offset in an
income-producing asset.
NOTE G - ACCOUNTING CHANGE
Effective January 1, 1997, the Fund adopted the policy of accreting bond
purchase price discounts and amortizing bond purchase price premiums over the
remaining lives of the respective bonds (or to the first call date for callable
bonds). The effect of the change is to reflect the amortization as an adjustment
to interest income. Previously, discounts and premiums were recognized as part
of the net realized gain or loss when the bonds matured or were sold. This
change has no net effect on net assets or on the net increase in net assets
resulting from operations.
16
<PAGE>
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, continued
Upon adopting the new policy, the Fund recognized the cumulative accretion
of discounts and amortization of premiums on the bonds held at January 1, 1997.
This resulted in a one-time charge for net premium amortization through January
1, 1997 on bonds held on that date and a net reduction of approximately
$1,040,000 in interest income (and investment income, net) for 1997 (approxi
mately $.03 per share). Correspondingly, there was an identical one-time credit
to net gain on investments for the period.
NOTE H - YEAR 2000 (Unaudited)
State Street Bank and Trust Company (the custodian), PFPC, Inc. (the
transfer agent) and the Adviser all currently use a wide variety of computer
programs and devices which represent the calendar year portion of dates by their
last two digits. These programs and devices are critical to the Fund's
operations. Calculations performed with these truncated date fields may not work
properly with dates from 2000 and beyond.
These entities are in the process of executing detailed plans to modify or
replace significant applications as necessary to ensure Year 2000 compliance.
All necessary systems modifications and testing are expected to be completed by
mid-1999. The Fund does not expect to incur any costs relating to the year 2000
conversion.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data have been derived
from information provided in the financial statements and the Fund's underlying
financial records.
<TABLE>
<CAPTION>
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE YEAR IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING)
Year Ended December 31
----------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.......... $18.52 $16.56 $16.33 $13.39 $13.55
------- ------ ------ ------ ------
Income from investment operations
Investment income - net (B).............. .468 .493 .550 .80 .49
Realized and unrealized gain (loss)
on investments - net (B)................ 4.008 3.622 1.122 3.07 (.15)
------- ------ ------ ------ ------
Total from investment operations...... 4.476 4.115 1.672 3.87 .34
------- ------ ------ ------ ------
Less distributions
Dividends from net investment income..468 .503 .550 .79 .50
Distributions from realized gains........ .880 1.650 .892 .14 -
Tax return of capital.................... .008 .002 - - -
------- ------ ------ ------ ------
Total distributions................... 1.356 2.155 1.442 .93 .50
------- ------ ------ ------ ------
Net asset value, end of year................ $21.64 $18.52 $16.56 $16.33 $13.39
------- ------ ------ ------ ------
2. TOTAL RETURN............................. 24.62% 25.12% 10.36% 29.19% 2.65%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net
assets (A).............................. .95% .91% .89% .97% .98%
Ratio of investment income - net to
average net assets...................... 2.33% 2.67% 3.24% 3.44% 3.66%
Portfolio turnover rate.................. 28.59% 13.88% 34.55% 28.44% 25.45%
Net assets, end of year ('000s).......... $837,773 $629,001 $513,433 $476,976 $388,249
Number of capital shares outstanding,
end of year ('000s)..................... 38,712 33,971 31,008 29,200 29,000
</TABLE>
(A) In order to conform to current disclosure requirements, the ratios
subsequent to 1994 are based upon total expenses, including the gross
amount of custodian fees (before being reduced pursuant to an expense
offset arrangement). The ratio for 1994 was based upon net expenses and is
not required to be restated.
(B) As of January 1, 1997, the Fund began accreting bond discounts and
amortizing bond premiums and recognized a cumulative adjustment as of that
date, which reduced net investment income and increased net realized and
unrealized gain on investments for 1997 by approximately $.03 per share.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Pax World Fund, Incorporated
We have audited the statement of assets and liabilities of Pax World Fund,
Incorporated, including the schedule of investments, at December 31, 1998, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Pax
World Fund, Incorporated at December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/ PANNELL KERR FORSTER, P.C.
January 19, 1999
19
