PAX WORLD FUND INC, 497, 1999-05-20

PAX WORLD FUND INC
497, 1999-05-20

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PROSPECTUS DATED MAY 20, 1999

PAX WORLD FUND, INCORPORATED

A NO-LOAD BALANCED FUND
222 STATE STREET, PORTSMOUTH, NH 03801-3853
FOR SHAREHOLDER ACCOUNT INFORMATION: 800-372-7827
PORTSMOUTH, NH OFFICE: 800-767-1729 / 603-431-8022
WEBSITE: HTTP://WWW.PAXFUND.COM

Pax World Fund, Incorporated (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. Thus,
the Fund has adopted the name Pax World to denote this endeavor. In addition,
the Fund seeks 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.

This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing. Investors are
advised to read this Prospectus and retain it for future reference.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND 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

Page

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 Bar Chart and Table..................................... 5
RISK / RETURN SUMMARY: FEE TABLE............................................ 5
FINANCIAL HIGHLIGHTS........................................................ 6
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS........................................................... 8
Investment Objectives................................................. 8
Principal Investment Strategies....................................... 8
Related Risks......................................................... 9
Convertible Securities.......................................... 9
Corporate and Other Debt Securities............................. 9
Foreign Securities.............................................. 10
Porfolio Turnover............................................... 10
U.S. Government Agency and/or Instrumentality Securities........ 10
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
OF THE FUND................................................................. 11
Incorporation......................................................... 11
Description of Common Stock........................................... 11
Officers and Directors................................................ 11
Adviser............................................................... 13
Distribution.......................................................... 13
Custodian and Transfer and Dividend Disbursing Agent.................. 14
Shareholder Meetings.................................................. 14
HOW THE FUND VALUES ITS SHARES.............................................. 14
SHAREHOLDER GUIDE........................................................... 14
How to Purchase Shares................................................ 14
In General...................................................... 14
Investing by Mail............................................... 15
Investing by Telephone.......................................... 16
Investing by Wire Transfer...................................... 16
How to Sell Your Shares............................................... 17
In General...................................................... 17
Redemptions by Written Request.................................. 17
Redemptions by Telephone........................................ 17
Involuntary Redemptions......................................... 18
How to Exchange Your Shares........................................... 18
In General...................................................... 18
Exchanges by Mail............................................... 18
Exchanges by Telephone.......................................... 18

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TAXES, DIVIDENDS AND DISTRIBUTIONS.......................................... 19
Taxation of the Fund.................................................. 19
Taxation of Shareholders.............................................. 19
Withholding Taxes..................................................... 19
Dividends and Distributions........................................... 20
SHAREHOLDER SERVICES........................................................ 20
Automatic Reinvestment of Dividends and/or Distributions ............. 20
Automatic Investment Plan............................................. 20
Tax-Deferred Retirement Plans......................................... 20
Systematic Withdrawal Plan............................................ 21
Reports to Shareholders............................................... 21
Shareholder Inquiries................................................. 21
VOLUNTARY INCOME CONTRIBUTION TO PAX WORLD SERVICE.......................... 21
THE PAX WORLD FUND FAMILY................................................... 22
ADDITIONAL INFORMATION...................................................... 22

RISK / RETURN SUMMARY: INVESTMENTS,
RISKS AND PERFORMANCE

WHAT IS THE FUND'S INVESTMENT OBJECTIVE / GOAL?

The Fund's investment objective is 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.

WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE FUND?

The Fund intends to invest about sixty percent (60%) of its assets
in common and preferred stock and/or securities convertible into common stock
and forty percent (40%) in bonds or debentures, which percentage may vary
depending on market conditions. The Fund may also invest in (i) other
equity-related securities, including convertible securities, (ii) equity
securities of foreign issuers, (iii) corporate and other debt securities,
including investment grade fixed-income securities of generally short-average
maturity and high-average credit quality, and (iv) obligations issued or
guaranteed by U.S. Government agencies and 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. The Fund
will not invest in obligations issued or guaranteed by foreign governments 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), (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,

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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 foreign security investments, (v) risks associated with socially
responsible investing, and (vi) management risk.

- Price volatility refers to the fact that securities
values tend to fluctuate in response to activities
specific to the company as well as general market,
economic and political conditions. These values can
fluctuate widely.

- Credit risk refers to the possibility that the issuer of
a security will be unable to make interest payments
and/or repay the principal on its debt.

- 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. In general, if interest rates rise,
fixed-income security prices fall; and if interest rates
fall, fixed-income security prices rise. Interest rate
risk is generally greater for fixed-income securities
with longer durations.

- The Fund's investments in foreign securities may subject
the Fund to the risks of political or economic
instability in the country of the issuer, the
possibility of imposition of exchange controls and the
risk of currency fluctuations. In addition, securities
denominated in a foreign currency will be affected by
changes in currency exchange rates and in exchange
control regulations, and costs may be incurred by the
Fund in connection with conversions between currencies.

- The Fund's socially conscious objectives may limit the
availability of investment opportunities more than is
customary with other mutual funds. Pax World Management
Corp. (the "Adviser") believes, however, that there are
sufficient investment opportunities among companies that
meet the Fund's socially conscious objective to permit
full investment in securities, if the Adviser believes
it is desirable.

- The Adviser strives to anticipate market movements and
the risks described above and actively manages the Fund
based upon its judgment. Management risk, which exists
in varying amounts in most mutual funds, refers to the
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 and
there can be no guarantee against loss resulting from an investment in the Fund,
nor can there be any assurance that the Fund's investment objective will be
attained.
The information set forth in the bar chart and table below provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing

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how the Fund's average annual returns for 1, 5 and 10 years compare with a broad
measure of market performance provided by Wiesenberger, a Thomson Financial
Company, consisting sixty percent (60%) of the S&P 500 Index and forty percent
(40%) of the Lehman Brothers Aggregate Index. Past performance is not
necessarily an indication of how the Fund will perform in the future.

[The following is a barchart in the original
printed piece showing Risk & Return.]

24.92% 10.45% 20.80% 0.63% -1.05% 2.65% 29.19% 10.36% 25.12% 24.62%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

HIGHEST & LOWEST RETURN QUARTER - PAST 10 YEARS

4th quarter 1998: 14.19%
3rd quarter 1990: -5.47%

RISK/RETURN TABLE, AS OF 12/31/98

60% S&P 500 INDEX
PAX WORLD FUND 40% LEHMAN BROTHERS AGGREGATE INDEX*
1 year 24.62% 20.98%
5 year 17.94% 17.32%
10 year 14.24% 15.34%

* THIS BLEND, CONSISTING SIXTY PERCENT (60%) OF THE S&P 500 INDEX AND FORTY
PERCENT (40%) OF THE LEHMAN BROTHERS AGGREGATE INDEX IS PROVIDED BY
WIESENBERGER, A THOMSON FINANCIAL COMPANY.

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.

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)...............................0%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and Other
Distributions
(as a percentage of offering price).......0%

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Redemption Fees (as a percentage of amount redeemed,
if applicable)............................0%
Exchange Fees (as a percentage of average net
assets)...................................0%

ANNUAL FUND NET OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) AS OF DECEMBER 31, 1998 (expenses that are deducted from
Fund assets):
Management Fee.....................................0.51%
Distribution and/or Service (12b-1) Fees...........0.19%
Other Expenses.....................................0.25%
Total Annual Fund Net Operating Expenses.......................0.95%

EXAMPLE

This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds.
The Example 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. The Example 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 5 YEARS 10 YEARS

$95.00 $296.56 $514.58 $1,140.71

As noted in the table, the Fund does not charge any redemption fee.
You would, therefore, pay the same expenses if you did not redeem your shares.
In addition, the Fund does not charge sales fees (loads) on
reinvested dividends and other distributions and, therefore, the 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.

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
incurred for the year ended December 31, 1998.

FINANCIAL HIGHLIGHTS

The following Financial Highlights Table is intended to help you
understand the Fund's financial performance for the past 5 years. Certain
information reflects financial results for a single Fund share.

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The total returns in the table represent the rate an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Pannell Kerr Forster
PC, whose report, along with the Fund's financial statements, are included in
the Statement of Additional Information, a copy of which is available without
charge upon request by writing to the Fund at 222 State Street, Portsmouth, NH
03801-3853 or by telephoning 800-767-1729 (toll-free).

The following per share data, ratios and supplemental data have been
derived from information provided in the financial statements and the Fund's
underlying financial records.

1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE YEAR IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING)
<TABLE>
<CAPTION>
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 (A)...................... .468 .493 .550 .80 .49
Realized and unrealized gain (loss)
on investments - net (A)............. 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 (B). .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) 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
realized and unrealized gain on investments for 1997 by
approximately $.03 per share.

(B) 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.

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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS

INVESTMENT OBJECTIVES

The Fund's investment objective is to provide its shareholders a
diversified holding of securities of companies which offer primarily income and
conservation of principal and secondarily possible long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

In addition, the Fund reserves the right to hold temporarily other
types of securities, including commercial paper, bankers' acceptances,
non-convertible debt securities (corporate) or government securities and high
quality money market securities or cash (foreign currencies or United States
dollars), in such proportions as, in the opinion of the Adviser, prevailing
market, economic or political conditions warrant. The Fund may also temporarily
hold cash and invest in high quality foreign or domestic money market
instruments pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs.

Consistent with its social criteria, the Fund will seek investments
in companies that produce goods and services that improve the quality of life
and are not to any degree engaged in manufacturing defense or weapons-related
products. By way of illustration, the Fund will invest in such industries as
building supplies, computer software, education, food, health care, household
appliances, housing, leisure time, pollution control, publishing, retail,
technology and telecommunications, among others. The Fund will endeavor (but is
not required) to invest in companies which have adopted and administer fair
employment and pollution control policies to the extent information reflecting
such policies and administrative practices is available to the Fund.
The policy of the Fund is to exclude from its portfolio securities
of (i) companies engaged in military activities, (ii) companies appearing on the
United States Department of Defense list of 100 largest contractors, (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

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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.

RELATED RISKS

CONVERTIBLE SECURITIES

A convertible security can be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or a different issuer. Convertible securities are senior to common stocks in a
corporation's capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation dependent upon a market price advance in
the convertible security's underlying common stock.
In general, the market value of a convertible security is at least
the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., its value upon conversion into its
underlying common stock). The price of a convertible security is influenced, in
part, by the market value of the security's underlying stock. The price of a
convertible security tends to increase as the market value of the underlying
stock rises, and it tends to decrease as the market value of the underlying
stock declines. While no securities investment is without some risk, investments
in convertible securities generally entail less risk than investments in the
common stock of the same issuer.

CORPORATE AND OTHER DEBT SECURITIES

The Fund may invest in investment grade corporate and other debt
obligations of domestic and foreign issuers. Bonds and other debt securities are
used by issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest and must repay the amount borrowed at
maturity. Investment grade debt securities are rated within the four highest
quality grades as determined by Moody's Investors Service (currently Aaa, Aa, A
and Baa for bonds), or Standard & Poor's Ratings Group (currently

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AAA, AA, A and BBB for bonds), or by another nationally recognized statistical
rating organization or, in unrated securities which are, in the opinion of the
Adviser, of equivalent quality.
The Fund's investments in corporate and other debt securities
subject the Fund to two types of risks: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security will be
unable to make interest payments and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When the
general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up.

FOREIGN SECURITIES

While the Fund intends to invest primarily in domestic securities,
it may invest up to ten percent (10%) of its net assets in foreign securities.
Investors in the Fund should be aware that foreign securities involve certain
risks, including political or economic instability in the country of the issuer,
the difficulty of predicting international trade patterns, the possibility of
imposition of exchange controls and the risk of currency fluctuations. Such
securities may be subject to greater fluctuations in price than securities
issued by domestic companies or issued or guaranteed by U.S. or foreign
government instrumentalities or agencies. In addition, there may be less
publicly available information about a foreign company than about a domestic
company. Foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic companies.
Additional costs could be incurred in connection with any
international investment activities engaged in by the Fund. Foreign brokerage
commissions are generally higher than U.S. brokerage commissions. Increased
custodian costs as well as administrative difficulties may also be involved.
If a security is denominated in a foreign currency, it will be
affected by changes in currency exchange rates and in exchange control
regulations, and costs may be incurred in connection with conversions between
currencies. Such changes also will affect the Fund's income and distributions to
shareholders. In addition, although the Fund may receive income in such
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars. Therefore, if the exchange rate for any such currency declines
after the Fund's income has been accrued and translated into U.S. dollars, the
Fund could be required to liquidate portfolio securities to make such
distributions, particularly in instances in which the amount of income the Fund
is required to distribute is not immediately reduced by the decline in such
currency.

PORTFOLIO TURNOVER

U.S. GOVERNMENT AGENCY AND/OR INSTRUMENTALITY SECURITIES

The Fund may invest in securities issued or guaranteed by U.S.
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

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National Mortgage Association. Investors should be aware, however,
that not all U.S. Government securities are backed by the full faith and credit
of the United States. Some are supported only by the credit of the issuing
agency.

MANAGEMENT, ORGANIZATION AND CAPITAL
STRUCTURE OF THE FUND

INCORPORATION

The Fund was incorporated under the laws of the State of Delaware in
February 1970. 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 75,000,000 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 $200.00 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 Fund, the Pax World Growth Fund, Inc.
and the Pax

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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. The Adviser has no clients other than the 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 by the Fund for its services at an annual rate of three-quarters of
one percent (.75%) of average daily net assets up to and including $25,000,000
and one-half of one percent (.50%) of average daily net assets in excess of
$25,000,000. The aggregate fees paid by the Fund to the Adviser for the most
recent fiscal year was $3,599,066.
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 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.
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.
Messrs. Robert P. Colin and Christopher H. Brown are the Portfolio
Co-Managers of the Fund. They are the persons responsible for the day-to-day
management of the Fund's portfolio.
Mr. Colin is also the Portfolio Manager of the Pax World Growth
Fund, Inc. Mr. Colin received his bachelor of arts degree from Rutgers
University and his masters in business administration-finance from New York
University. Mr. Colin joined H.G. Wellington Capital Management, a division of
the Distributor, in 1991 as a Senior Vice President and Senior Portfolio
Manager. Mr. Colin was one of the original founders of Faulkner, Dawkins &
Sullivan in 1959, serving as Director of Research and Investment Strategy. After
Faulkner, Dawkins & Sullivan merged with Shearson Lehman, and later, American
Express, Mr. Colin worked briefly for Merrill Lynch Asset Management before
joining Bessemer Trust Company in 1978 as a Senior Portfolio Manager and
Director of Research. In 1983, Mr. Colin joined General Electric Investment
Corporation as a Senior Vice President of Equity Portfolios with
responsibilities for various funds under General Electric's control, including
its own pension fund. Mr. Colin, who is a Chartered Financial Analyst, has
contributed numerous articles on investment research to professional journals
and has served as a consultant to a number of publicly-owned corporations.
Mr. Christopher H. Brown is a graduate of the Boston University
School of Management with a concentration in Finance. Mr. Brown joined the
Adviser in 1998 and joined H.G. Wellington and Co., Inc. in 1998 as a Senior
Vice President. Prior to that, Mr. Brown was an Investment Consultant at
Fahnestock

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<PAGE>

and Co., Inc., a New York Stock Exchange brokerage firm, from 1987 to 1998,
where he also served as a Vice President from 1992 to 1994 and a First Vice
President from 1994 to 1998.
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 on-going 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. Amounts paid by the Fund under the plan for clerical,
advertising, printing, postage and sales expenses (travel, telephone, and sales
literature) for the most recent fiscal year totaled approximately $1,390,243.
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, 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.

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<PAGE>

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 intends to hold annual meetings of shareholders for the
election of directors, ratification of the selection by the Board of Directors
of the independent public accountants for the Fund, and such other matters as
may properly come before such meeting.

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.

SHAREHOLDER GUIDE

HOW TO PURCHASE SHARES

IN GENERAL

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<PAGE>

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.

INVESTING BY MAIL

Prospective shareholders may purchase shares of the Fund by
completing and signing the "New Account Application" enclosed with this
Prospectus and sending the application, together with a check to the Transfer
Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE 19899-8930 or by
overnight delivery c/o PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
Purchases without full payment will not be processed until payment is received.
A confirmation of the purchase will be issued showing the account number and
number of shares owned and the ownership of shares shall be recorded on the
books of the Transfer Agent in an account under the shareholder's name.
Prospective shareholders who wish to register their account in the name of a
beneficiary for the purposes of transferring their account upon their death may
do so subject to the following understanding: the laws of the state listed as
the shareholder's address at the time of registration shall govern such transfer
if such state has adopted the

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<PAGE>

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.
All purchases will be made on the basis of the NAV of the Fund next determined
after the funds are received.
In periods of severe market or economic conditions, the telephone
purchase of shares may be difficult to implement and you should make purchases
by mail by writing to the Transfer Agent at the address noted above.
The Fund may accept telephone orders from broker-dealers which have
been previously approved by the Fund by telephoning 800-635-1404 (toll-free). It
is the responsibility of such broker-dealers to promptly forward purchase orders
and payments for such orders to the Fund. The Fund reserves the right to cancel
any purchase order for which payment has not been received by the third (3rd)
business day following the investment.

INVESTING BY WIRE TRANSFER

Shareholders may purchase shares of the Fund (other than initial
purchases) by wire transfer. To do so, you must (i) telephone the Transfer Agent
at 800-372-7827 (toll-free) (individual shareholders) or 800-635-1404
(toll-free) (broker/dealers) to advise the Transfer Agent that you would like to
purchase shares of the Fund by wire transfer and then (ii) give instructions to
your bank to transfer funds by wire to the following account:

Bank Name: PNC Bank, Philadelphia, PA
ABA Number: 031-0000-53
Account Name: Pax World Fund, Incorporated
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.

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<PAGE>

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.

REDEMPTIONS BY WRITTEN REQUEST

If you hold shares in non-certificate form, a written request for
redemption signed by you exactly as the account is registered is required. If
you hold certificates, the certificates signed in the names(s) shown on the face
of the certificates, must be received by the Transfer Agent in order for the
redemption request to be processed. If redemption is requested by a corporation,
partnership, trust or fiduciary, written evidence of authority acceptable to the
Transfer Agent must be submitted before such request will be accepted. All
correspondence and documents concerning redemptions should be directed to the
Transfer Agent at Pax World Fund Family, P.O. Box 8930, Wilmington, DE
19899-8930 or by overnight delivery c/o PFPC, Inc., 400 Bellevue Parkway,
Wilmington, DE 19809.
If the proceeds of the redemption (i) exceed $10,000.00 (unless the
record owner 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, the signature(s) on the
redemption request and on the certificates, if any, or stock power must be
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any domestic bank or trust company, broker, dealer,
clearing agency or savings association who are participants in a medallion
program recognized by the Securities Transfer Agents Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and the New York Stock
Exchange, Inc. Medallion Signature Program (MSP). Signature guarantees which are
not a part of these programs will not be accepted. The Transfer Agent reserves
the right to request additional information from, and make reasonable inquiries
of, any eligible guarantor institution.
Payment for shares presented for redemption will be made by check
within seven (7) days after receipt by the Transfer Agent of the certificate
and/or written request except as indicated below. Such payment may be postponed
or the right of redemption suspended at times (i) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (ii) when
trading on such Exchange is restricted, (iii) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (iv) during any other period when the Securities
and Exchange Commission (the "SEC"), by order, so permits; provided that
applicable rules and regulations of the SEC shall govern as to whether the
conditions prescribed in (ii), (iii) or (iv) exist.
Payment for redemption of recently purchased shares will be delayed
until the Fund or the Transfer Agent has been advised that the purchase check
has been honored, up to fifteen (15) days from the time of receipt of the
purchase check by the Transfer Agent. Such delay may be avoided by purchasing
shares by wire or by certified or official bank check.

REDEMPTIONS BY 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

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<PAGE>

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.

HOW TO EXCHANGE YOUR SHARES

IN GENERAL

As a shareholder of the Fund, you have an exchange privilege with
the Pax World Growth Fund and the Pax World Money Market Fund, subject to the
minimum investment requirement of such funds. No sales charge will be imposed at
the time of exchange. An exchange will be treated as a redemption and purchase
for tax purposes and any gain on such transaction may be subject to federal
income tax. All exchanges will be made on the basis of the relative NAV of the
two funds next determined after the request is received in good order. The
exchange privilege is available only in states where the exchange may legally be
made. It is contemplated that this exchange privilege will be applicable to any
new Pax World Mutual Funds.

EXCHANGES BY MAIL

You may exchange shares by mail by writing to the Transfer Agent at
Pax World Fund Family, P.O. Box 8930, Wilmington, DE 19899-8930 or by overnight
delivery c/o PFPC, Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
If you hold certificates, the certificates, signed in the name(s)
shown on the face of the certificates, must be returned to the Transfer Agent in
order for the shares to be exchanged.

EXCHANGES BY TELEPHONE

In order to exchange shares by telephone, you must authorize
telephone exchanges on your initial application form or by written notice to the
Transfer Agent and hold shares in non-certificate form. Thereafter, you may call
the Fund at 800-372-7827 (toll-free) on weekdays, except holidays, between the

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<PAGE>

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 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.

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<PAGE>

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,
semi-annually and to make distributions of any capital gains in excess of net
capital losses at least annually. Dividends and distributions will be paid in
additional Fund shares, based on the NAV at the close of business on the ex-
dividend date or such other date as the Board of Directors may determine, unless
the shareholder elects in writing not less than five (5) days prior to the
ex-dividend date to receive (i) such dividends in cash and distributions in
additional shares or (ii) such dividends and distributions in cash. Such
election should be submitted to the Transfer Agent at Pax World Fund Family,
P.O. Box 8930, Wilmington, DE 19899-8930. The Fund will notify each shareholder
after the close of the Fund's taxable year of both the dollar amount and the
taxable status of that year's dividends and distributions on a per share basis.
When the Fund goes "ex-dividend", its NAV is reduced by the amount
of the dividend or distribution. If you buy shares just prior to the ex-dividend
date, the price you pay will include the dividend or distribution and a portion
of your investment will be returned to you as a taxable distribution. You
should, therefore, consider the timing of dividends when making your purchases.

SHAREHOLDER SERVICES

The Fund offers investors the following special programs:

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR
DISTRIBUTIONS. For your convenience, all dividends and
distributions, if any, will be automatically reinvested in
additional full and fractional shares of the Fund at the NAV
prevailing at the close of business on the ex-dividend date unless
and until you notify the Transfer Agent in writing at least five (5)
days prior to such ex-dividend date that you elect to receive (i)
such dividends in cash and distributions in additional shares or
(ii) such dividends and distributions in cash. Stock certificates
will not be physically issued on reinvestment of such dividends and
distributions, but a record of the shares purchased will be added
to your account and a confirmation of such reinvestment will be sent
to you by the Transfer Agent.

AUTOMATIC INVESTMENT PLAN. Under the Fund's Automatic
Investment Plan, you may make regular monthly or quarterly purchases
of the Fund's shares via an automatic debit to a bank account. For
additional information about this service, you may contact the
Transfer Agent directly at 800-372-7827 (toll-free) between the
hours of 8:00 A.M. and 6:00 P.M., New York time.

TAX-DEFERRED RETIREMENT PLANS. Various tax-deferred
retirement plans and accounts, including IRAs, Education IRAs, Roth
IRAs, SIMPLE IRAs, Simplified Employee Pension IRA plans and
"tax-sheltered accounts" under Section 403(b)(7) of the Internal
Revenue Code, are available through the Fund. Information regarding
the establishment of these plans, the administration, custodial fees
and other details is available from the Fund or the Transfer Agent.
If you are considering adopting such a

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<PAGE>

plan, you should consult with your own legal or tax adviser with
respect to the establishment and maintenance of such a plan.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan
is available to shareholders, which provides for monthly, bi-
monthly, quarterly or semi-annual checks.

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 http://www.paxfund.com or visiting the SEC's web
site at http://www.sec.gov for such purpose. In addition, monthly
unaudited financial data is available upon request from the Fund.

SHAREHOLDER INQUIRIES. Inquiries should be directed to
the Transfer Agent at Pax World Fund Family, P.O. Box 8930,
Wilmington, DE 19899-8930, or by telephone at 800-372-7827
(toll-free) or, from outside the United States, at 302-791-2844
(collect).

VOLUNTARY INCOME CONTRIBUTION
TO PAX WORLD SERVICE

To complement the Fund's objectives of investing in securities of
companies whose businesses are essentially of a non-military nature, the Fund's
founders organized the Pax World Foundation in 1970. In 1992, Pax World
Foundation changed its name to Pax World Service.

Pax World Service seeks to provide investors with an opportunity to
amplify the social benefits of their socially responsible investment by
initiating and supporting projects that encourage international understanding,
reconciliation, and sustainable economic development on behalf of world peace
and the world's poor.

Fund shareholders may, at their election, designate a VOLUNTARY
contribution to the Service of a percentage of their Fund income including
capital gains. A Fund shareholder may indicate on a special form the percentage
of income and/or capital gains the shareholder desires to be deducted for
payment to the Service. The Fund will then automatically calculate the dollar
amount this percentage represents and forward it to the Service on behalf of the
shareholder. Contributions to the Service are charitable contributions and as
such are tax deductible on the tax return of the contributor. Shareholders will
receive annually a confirmation for income tax purposes indicating contributions
made.

In January 1998, Pax World Service became formally affiliated with
Mercy Corps International, based in Portland, Oregon. The resulting agency
represents 43 combined years of experience and has provided services or
supported projects in approximately 60 countries around the world. The
organization conducts emergency humanitarian relief, provides assistance with
sustainable development projects, operates a microenterprise program, seeks to
bolster the development of civil society, and provides opportunities for
shareholders and other interested parties to gain first-hand experience and
exposure to areas of need and/or conflict.

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<PAGE>

The officers of the Service are:

Dr. J. Elliott Corbett, Honorary Chair (Founder); Mr. Neal
Keny-Guyer, CEO, Mercy Corps International; Mr. Larry Ekin, President.
No compensation will be paid by the Service directly or indirectly
to the officers and directors of the Pax World Fund, Pax World Growth Fund or
the Pax World Money Market Fund. No compensation will be paid by the Service
directly or indirectly to the directors of the Service or Mercy Corps
International except for travel and other reasonable fees for services rendered
on behalf of projects undertaken by the Service.
Fund shareholders who contribute to the Service receive an annual
report of the activities of the Service, which includes PAX FACTS, the Pax World
Service newsletter, and a financial statement. In addition, contributors are
eligible to participate in Pax World Service educational tours.
The Service does not sell or trade its mailing list, and Fund
shareholders who choose to contribute will not be otherwise solicited by the
Service.
Additional information may be obtained by writing to Pax World
Service at P.O. Box 33078, Washington, D.C. 20033-3078, by telephoning Pax World
Service at 202-293-7290, or by visiting its website at www.paxworld.org.

THE PAX WORLD FUND FAMILY

Pax World Management Corp. currently offers three mutual funds
designed to meet your individual needs -- Pax World Fund, Pax World Growth Fund
and Pax World Money Market Fund. We welcome 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.
FOR TEXAS RESIDENTS ONLY: Investment objectives are hereby clarified
and intended to be consistent with Texas securities regulations. The Fund does
not intend to make and has not made investments in oil, gas and other mineral
leases or arbitrage transactions. The Fund By-Laws contain an investment
restriction which does not allow it to purchase or sell real property but
permits the Fund to make an investment in readily marketable interests in real
estate investment trusts or readily marketable securities of companies which
invest in real estate.

-22-

<PAGE>

PAX WORLD FUND
PROSPECTUS & APPLICATION

[PAX WORLD FUND LOGO]

PROSPECTUS & APPLICATION

MAY 20, 1999

Pax World Fund (PAXWX) [PAX WORLD FUND LOGO]
A No-Load Balanced Fund 222 State Street
Portsmouth, NH 03801-3853
Investment Adviser- www.paxfund.com
Pax World Management Corp.
222 State Street
Portsmouth, NH 03801-3853
For General Fund Information,
please call:
1-800-767-1729
Transfer and Dividend Disbursing Agent-
PFPC, Inc. For Shareholder Information,
P.O. Box 8950 please call:
Wilmington, DE 19899-8950 1-800-372-7827

For Broker Services,
General Counsel- please call:
Bresler Goodman & Unterman, LLP 1-800-635-1404
521 Fifth Avenue
New York, NY 10175 All Account Inquiries should
be addressed to:
Pax World Fund Family
Independent Auditors- P.O. Box 8930
Pannell Kerr Forster PC Wilmington, DE 19899-8930
125 Summer Street
Boston, MA 02110-2326

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 (http://www.sec.gov) that
contains the Statement of Additional Information, the Fund's annual and
semi-annual reports to shareholders, and other reports and information regarding
the Fund which have been filed electronically with the SEC. In addition,
information about the Fund may be obtained at a reasonable charge from the
Public Reference Section of the SEC or may be examined, without charge, at the
Public Reference Room at the office of the SEC in Washington, D.C. Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 800-SEC-0330 (toll-free).

Investment Company Act file no.: 811-02064

-23-

<PAGE>

PAX WORLD FUND, INCORPORATED

222 State Street, Portsmouth, NH 03801-3853
For shareholder account information: 800-372-7827
Portsmouth, NH office: 800-767-1729
603-431-8022
Website: http://www.paxfund.com

STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 20, 1999

This Statement of Additional Information is not a Prospectus and
should be read in conjunction with the Fund's Prospectus dated the date hereof
to which it relates, a copy of which may be obtained by writing to the Fund at
222 State Street, Portsmouth, NH 03801-3853, telephoning the Fund at
800-767-1729 (toll-free), visiting the Fund's web site at http://www.paxfund.com
or visiting the Securities and Exchange Commission's web site at
http://www.sec.gov for such purpose.

<PAGE>

TABLE OF CONTENTS

Page

FUND HISTORY.............................................................. 3
INVESTMENT OBJECTIVE, STRATEGIES AND PHILOSOPHY........................... 3
Investment Objective.......................................... 3
Investment Strategies......................................... 3
Investment Philosophy......................................... 3
INVESTMENTS AND SPECIAL CONSIDERATIONS; RISK FACTORS...................... 4
Borrowing Money............................................... 4
Foreign Securities............................................ 4
Forward Foreign Currency Exchange Contracts................... 5
Illiquid and Restricted Securities............................ 5
Portfolio Turnover............................................ 6
Short-term Investments........................................ 6
U.S. Government Agency and/or Instrumentality Securities...... 6
When-Issued and Delayed Delivery Securities................... 7
INVESTMENT RESTRICTIONS................................................... 7
MANAGEMENT OF THE FUND.................................................... 9
INVESTMENT ADVISORY AND OTHER SERVICES................................... 12
Adviser...................................................... 12
Distribution................................................. 13
Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants...................... 14
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................... 15
NET ASSET VALUE.......................................................... 16
CALCULATION OF PERFORMANCE DATA.......................................... 17
Average Annual Total Return.................................. 17
PURCHASE, REDEMPTION AND EXCHANGE OF FUND SHARES......................... 17
Purchase of Shares........................................... 17
In General....................................... 17
Sale of Shares............................................... 18
In General....................................... 18
Involuntary Redemption........................... 18
Exchange of Shares........................................... 18
TAXES ................................................. 18
SHAREHOLDER SERVICES..................................................... 19
Automatic Reinvestment of Dividends and/or Distributions..... 19
Automatic Investment Plan.................................... 20
Tax-Deferred Retirement Plans and Accounts................... 20
Systematic Withdrawal Plan................................... 20
Reports to Shareholders...................................... 21
Shareholder Inquiries........................................ 21
FINANCIAL STATEMENTS..................................................... 22

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<PAGE>

FUND HISTORY

Pax World Fund, Inc., (the "Fund") is an open-end, diversified
management investment company which was incorporated under the laws of the State
of Delaware in 1970.

INVESTMENT OBJECTIVE, STRATEGIES AND
PHILOSOPHY

INVESTMENT OBJECTIVE

INVESTMENT STRATEGIES

The Fund intends to invest about sixty percent (60%) of its assets
in common and preferred stock and/or securities convertible into common stock
and forty percent (40%) in bonds and debentures, which percentage may vary
depending on market conditions. The Fund may also invest in (i) other
equity-related securities, including convertible securities, (ii) equity
securities of foreign issuers, (iii) corporate and other debt securities,
including investment grade fixed-income securities of generally short-average
maturity and high-average credit quality and (iv) obligations issued or
guaranteed by U.S. or foreign government agencies and 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.
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 connection with its commitment to assist in the development of
housing, the Fund may invest in mortgage-backed securities and other derivative
mortgage products, including those representing an undivided ownership interest
in a pool of mortgages, e.g., Government National Mortgage Association and
Federal Home Loan Mortgage Corporation certificates. These certificates are in
most cases "pass-through" instruments, through which the holder receives a share
of all interest and principal payments from the mortgages underlying the
certificate, net of certain fees.

In addition, the Fund reserves the right to hold temporarily other
types of securities without limit, including commercial paper, bankers'
acceptances, non-convertible debt securities (corporate) or government
securities and high quality money market securities or cash (foreign currencies
or United States dollars), in such proportions as, in the opinion of Pax World
Management Corp. (the "Adviser"), prevailing market, economic or political
conditions warrant. The Fund may also temporarily hold cash and invest in high
quality foreign or domestic money market instruments pending investment of
proceeds from new sales of Fund shares or to meet ordinary daily cash needs.

INVESTMENT PHILOSOPHY

Consistent with its social criteria, the Fund seeks investments in
companies 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. 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, technology and
telecommunications, among others. The Fund's portfolio will consist primarily of
companies located in the United States.

-3-

<PAGE>

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), (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

BORROWING MONEY

The Fund will not borrow money except that, as a temporary measure
for extraordinary or emergency purposes and not for investment purposes, it may
borrow up to five percent (5%) of its total assets taken at cost. Pursuant to
the requirements of the Investment Company Act, any such borrowing will be made
only to the extent that the value of the Fund's assets, less its liabilities
other than borrowings, is equal to at least three hundred percent (300%) of all
borrowings including the proposed borrowing. If the value of the Fund's assets,
when computed in that manner, falls below such three hundred percent (300%)
asset coverage requirement, the Fund is required, within three (3) days, to
reduce its bank debt to the extent necessary to meet that coverage requirement.
To do so, the Fund may have to sell a portion of its investments at a time when
it would otherwise not want to sell such investments. In addition, because
interest on money the Fund borrows is an expense of the Fund, the Fund's
expenses may increase more than the expenses of mutual funds that do not borrow
and the net asset value or "NAV" per share of the Fund may fluctuate more than
the NAV per share of mutual funds that do not borrow.

FOREIGN SECURITIES

The Fund is permitted to invest up to ten percent (10%) of its net
assets in foreign corporate and government securities. "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).

-4-

<PAGE>

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).

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 Fund's custodian (the "Custodian"), will place cash or liquid
securities into a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward foreign
currency exchange contracts. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
The Fund generally will not enter into a forward contract with a
term of greater than one year. At the maturity of a forward contract, the Fund
may either sell the portfolio security and make delivery of the foreign
currency, or it may retain the security and terminate its contractual obligation
to deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to the extent that
there has been movement in forward contract prices. Should forward contract
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase.
Should forward contract prices increase, the Fund will suffer a loss
to the extent that the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.

ILLIQUID AND RESTRICTED SECURITIES

The Fund may not invest more than five percent (5%) of its net
assets in 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

-5-

<PAGE>

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. 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.

PORTFOLIO TURNOVER

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 thirty-five
percent (35%), although the Fund's portfolio turnover rate is not expected to
exceed sixty percent (60%). The portfolio turnover rate is generally the
percentage computed by dividing the lesser of portfolio purchases or sales
(excluding all securities whose maturities or expiration date at acquisition
were one year or less) by the monthly average value of the portfolio. High
portfolio turnover (over sixty percent (60%)) may involve correspondingly
greater brokerage commissions and other transaction costs, which are borne
directly by the Fund. In addition, high portfolio turnover may also mean that a
proportionately greater amount of distributions to shareholders will be taxed as
ordinary income rather than long-term capital gains compared to investment
companies with lower portfolio turnover. See "Portfolio Transactions and
Brokerage" and "Taxes" below.

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. 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 or guaranteed by U.S.
Government agencies or instrumentalities 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

-6-

<PAGE>

United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States if the agency or instrumentality issuing or
guaranteeing the obligation does not meet its commitments. Obligations of the
Government National Mortgage Association, the Farmers Home Administration and
the Small Business Administration are backed by the full faith and credit of the
United States. Securities in which the Fund may invest which are not backed by
the full faith and credit of the United States include obligations such as those
issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association, the Student Loan Marketing
Association and Resolution Funding Corporation, each of which has the right to
borrow from the U.S. Treasury to meet its obligations, and obligations of the
Farm Credit System, the obligations of which may be satisfied only by the
individual credit of the issuing agency. FHLMC investments may include
collateralized mortgage obligations.
In connection with its commitment to assist in the development of
housing, the Fund may invest in mortgage-backed securities, including those
which represent undivided ownership interests in pools of mortgages, e.g.,
Government National Mortgage Association and Federal Home Loan Mortgage
Corporation certificates. The U.S. Government or the issuing agency or
instrumentality guarantees the payment of interest on and principal of these
securities. However, the guarantees do not extend to the yield or value of the
securities nor do the guarantees extend to the yield or value of the Fund's
shares. These securities are in most cases "pass-through" instruments, through
which the holders receive a share of all interest and principal payments from
the mortgages underlying the securities, net of certain fees. Because the
prepayment characteristics of the underlying mortgages vary, it is not possible
to predict accurately the average life of a particular issue of pass-through
certificates. Mortgage-backed securities are often subject to more rapid
repayment than their maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying mortgage obligations.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. The Fund's ability to
invest in high-yielding mortgage-backed securities will be adversely affected to
the extent that prepayments of mortgages must be reinvested in securities which
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.

-7-

<PAGE>

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 the securities of any one issuer
(except government securities) if
immediately after and as a result of such
purchase (a) the market value of the
holdings of the Fund in the securities of
such issuer exceeds five percent (5%) of the
market value of the Fund's total assets, or
(b) the Fund owns more than ten percent
(10%) of the outstanding voting securities
of any one class of securities of such
issuer.

2. Purchase securities of other registered
investment companies, other than the Pax
World Money Market Fund, Inc.

3. Concentrate more than twenty-five percent
(25%) of its investments in one particular
industry.

4. Purchase or sell real estate or other
interests in real estate which are not
readily marketable.

5. Write, purchase or sell put and call options
or combinations thereof.

6. Lend money or securities.

7. Purchase securities on margin or sell short
or purchase or sell commodities.

8. Borrow money except that, as a temporary
measure for extraordinary or emergency
purposes and not for investment purposes,
the Fund may borrow from banks up to five
percent (5%) of its total assets taken at
cost.

9. Mortgage or pledge as security for
indebtedness any securities owned or held by
the Fund except as stated in item 8, above.

10. Participate on a joint and several basis in
any trading account in securities.

11. Invest in companies for the purpose of
exercising control of management.

12. Act as an underwriter of securities of other
issuers, except that 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

-8-

<PAGE>

Act of 1933. 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.

13. Invest more than ten percent (10%) of the
value of its assets in securities of foreign
issuers under circumstances that would
subject it to federal interest equalization
tax or at prices that reflect such tax. (No
such tax is currently in effect.)

14. Invest more than five percent (5%) of its
total assets in securities of companies
having a record of less than three years
continuous operation except for the Pax
World Money Market Fund and those surviving
a merger or consolidation.

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.

Although the Fund does not have a policy with respect to the
issuance of senior securities, the Fund has no present intention of issuing any
securities which are senior to its currently issued and outstanding shares of
Common Stock.

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
NAME, ADDRESS AND AGE WITH THE FUND Principal Occupation(s) During Past Five Years
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
C. Lloyd Bailey Director Mr. Bailey is an attorney. From 1959 to 1979, Mr. Bailey
1216 Foulkeways (since 1970) served as the Executive Director of the United States
Gwynedd, PA 19436; (81) Committee for UNICEF; from 1980 to 1981, Mr. Bailey
served as President of that Committee; and from 1981 to
1984, Mr. Bailey served as a consultant to that Committee.
Mr. Bailey is presently retired.
- -------------------------------------------------------------------------------------------------------------------------
Carl H. Doerge, Jr. Director Mr. Doerge is a private investor (1995-present); he was
867 Remsen Lane (since 1998) Executive Vice President and Managing Director of Smith

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<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------
Oyster Bay, NY 11771***; (60) Barney (1971-1995). Mr. Doerge is also a member of the
(since 1998) Board of Directors of Pax World Growth Fund, Inc.

- -------------------------------------------------------------------------------------------------------------------------
Thomas W. Grant Vice Chairman Mr. Grant is the Vice Chairman of the Board and President
14 Wall Street of the Board of of the Fund, as well as the President of Pax World Growth
New York, NY 10005*/**; (57) Directors and Fund, Inc., the President of Pax World Money Market Fund,
President (since Inc., the President of Pax World Management Corp., the
1996) Fund's adviser, and the President of H.G. Wellington &
Co., Inc. ("H.G. Wellington"). Mr. Grant has been
associated with H.G. Wellington since 1991 and 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 is a graduate of the University of North Carolina
(BA).

- -------------------------------------------------------------------------------------------------------------------------
Anita Green Co-Treasurer Ms. Green is the Co-Treasurer of the Fund, the Assistant
c/o Pax World Management Corp. (since 1998) Treasurer of the Pax World Growth Fund, Inc. and the
222 State Street Manager - Shareholder Services for the Pax World Fund
Portsmouth, NH 03801-3853; (34) Family. Ms. Green has been affiliated with the Pax World
Fund Family since 1990.

- -------------------------------------------------------------------------------------------------------------------------
Michelle L. Guilmette Assistant Ms. Guilmette is the Assistant Treasurer for the Fund and
c/o Pax World Management Corp. Treasurer has held that position since 1997. In addition, Ms.
222 State Street (since 1997) Guilmette has been a Shareholder Services Representative
Portsmouth, NH 03801-3853; (26) for the Pax World Fund Family since 1992.

- -------------------------------------------------------------------------------------------------------------------------
Joy L. Liechty Director Ms. Liechty is a Client and Sales Advocate with the
1403 Ashton Court (since 1991) Mennonite Mutual Aid Association in Goshen, Indiana. Ms.
Goshen, IN 46526; (45) Liechty has been associated with that organization since
1980, serving as the Manager of Client Services from 1980
to 1989. Ms. Liechty is also a member of the Board of
Directors of Pax World Growth Fund, Inc.

- -------------------------------------------------------------------------------------------------------------------------

Laurence A. Shadek Chairman of Mr. Shadek is the Chairman of the Board of Directors of the
14 Wall Street The Board of Fund, as well as the Chairman of the Board of the Pax
New York, NY 10005*/**; (49) Directors World Growth Fund, Inc., an Executive Vice President of
(since 1996) Pax World Money Market Fund, Inc., the Chairman of the
Board of Pax World Management Corp., the Fund's adviser
(the "Adviser"), and an Executive Vice-President of H.G.
Wellington & Co., Inc. ("H.G. Wellington"). Mr. Shadek,
together with members of his family, owns all of the
outstanding shares of capital stock of the Adviser and a
26.67% interest in H.G. Wellington. Mr. Shadek has been
associated with H.G. Wellington since March 1986 and 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 is a graduate of Franklin & Marshall College (BA)
and New York University, School of Graduate Business
Administration (MBA).

- -------------------------------------------------------------------------------------------------------------------------
Sanford C. Sherman Director Mr. Sherman is the President and Chief Executive Officer
91 Hillside Drive (since 1992) of the Piscataqua Savings Bank, Portsmouth, NH, a position
Portsmouth, NH 03801***; (62) he has held since April 1981. For 21 years prior thereto,
Mr. Sherman held various other positions with the bank,
including Vice President and Treasurer. Mr. Sherman also
served the bank as a Trustee for 20 years.

- -------------------------------------------------------------------------------------------------------------------------
Janet Lawton Spates Co-Treasurer Ms. Spates is the Co-Treasurer of the Fund, the Assistant
c/o Pax World Management Corp. (since 1998) Treasurer of the Pax World Growth Fund, Inc., and the

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<PAGE>

- ---------------------------------------------------------------------------------------------------------------------------
222 State Street Operations Manager for the Pax World Fund Family. Ms.
Portsmouth, NH 03801-3853; (29) Spates has been affiliated with the Pax World Fund Family
since 1992.

- ---------------------------------------------------------------------------------------------------------------------------
Nancy S. Taylor Director Rev. Taylor is a Senior Minister with the First
5298 N. Riffle Way (since 1997) Congregational Church in Boise, Idaho and has been
Boise, ID 83703 *** ; (43) associated with that organization since 1992. Prior to that,
Rev. Taylor was an Associate Minister with the Immanuel
Congregational Church in Hartford, Connecticut for
approximately five years. Rev. Taylor is also a member of
the Board of Directors of Pax World Growth Fund, Inc.

- ---------------------------------------------------------------------------------------------------------------------------
Lee D. Unterman Secretary Mr. Unterman, who is the Secretary of the Fund, is a
c/o Bresler Goodman & Unterman, LLP (since 1997) partner with the law firm of Bresler, Goodman & Unterman,
521 Fifth Avenue LLP, which he helped found in 1997. Mr. Unterman began
New York, NY 10175; (48) his legal career in 1975 with the law firm of Whitman &
Ransom and thereafter became a partner with the law firm
of Broudy & Jacobson, with whom he practiced for
approximately nine and one-half years. Mr. Unterman is a
graduate of Colgate University (BA) and the University of
Virginia School of Law (JD). Mr. Unterman is also the
Secretary of Pax World Growth Fund, Inc.

- ---------------------------------------------------------------------------------------------------------------------------
Esther J. Walls Director Ms. Walls was Associate Director of Libraries, State
Apartment 29-J (since 1981) University of New York, Stony Brook, Long Island, NY,
160 West End Avenue which position she held from 1974 to 1990.
New York, NY 10023; (73)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Designates an "Interested" officer or director, as defined in 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 on such date owned of record or beneficially five percent
(5%) or more of the outstanding Common Stock of the Fund, except Charles Schwab
& Co., Inc., 101 Montgomery Street, San Francisco, CA 94101, which held
approximately 2,840,881.458 shares of the Common Stock of the Fund as of April
14, 1999 (approximately 7.109%) in a special custody account for the exclusive
benefit of its customers. 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 the Pax World Growth Fund, Inc., another investment company 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.
Members of the Board of Directors of the Fund are reimbursed for
their travel expenses for attending meetings of the Board of Directors plus
$200.00 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. Director's fees paid by the Fund in 1998 and travel expenses
reimbursed by the Fund to members of the Board of Directors (including members
of the Audit Committee) in 1998 aggregated approximately $25,600.00 and
$14,741.00, respectively.

-11-

<PAGE>

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 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 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 by the Fund for its services at an annual rate of three-quarters of
one percent (.75%) of average daily net assets up to and including $25,000,000
and one-half of one percent (.50%) 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 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 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.
The Advisory Agreement provides that (i) it may be terminated by the
Fund or the Adviser at any time upon sixty (60) 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 approved 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, on June 11, 1998.
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.
Messrs. Robert P. Colin and Christopher H. Brown are the Portfolio
Co-Managers of the Fund. They are the persons responsible for the day-to-day
management of the Fund's portfolio.

-12-

<PAGE>

Mr. Colin is also the Portfolio Manager of the Pax World Growth
Fund. Mr. Colin received his bachelor of arts degree from Rutgers University and
his masters in business administration - finance from New York University. Mr.
Colin joined H. G. Wellington Capital Management, a division of H.G. Wellington
& Co., Inc., in 1991 as a Senior Vice President and Senior Portfolio Manager.
Mr. Colin was one of the original founders of Faulkner, Dawkins & Sullivan in
1959, serving as Director of Research and Investment Strategy. After Faulkner,
Dawkins & Sullivan merged with Shearson Lehman, and later, American Express, Mr.
Colin worked briefly for Merrill Lynch Asset Management before joining Bessemer
Trust Company in 1978 as a Senior Portfolio Manager and Director of Research. In
1983, Mr. Colin joined General Electric Investment Corporation as a Senior Vice
President of Equity Portfolios with responsibilities for various funds under
General Electric's control, including its own pension fund. Mr. Colin, who is a
Chartered Financial Analyst, has contributed numerous articles on investment
research to professional journals and has served as a consultant to a number of
publicly-owned corporations.
Mr. Christopher H. Brown is a graduate of the Boston University
School of Management with a concentration in Finance. Mr. Brown joined the
Adviser in 1998 and joined H.G. Wellington and Co., Inc. in 1998 as a Senior
Vice President. Prior to that, Mr. Brown was an Investment Consultant at
Fahnestock and Co., a New York Stock Exchange brokerage firm, from 1987 to 1998,
where he also served as a Vice President from 1992 to 1994 and a First Vice
President from 1994 to 1998.
The following table shows the approximate amount of the advisory fee
of the Fund for the years ended December 31, 1996, 1997 and 1998.

Approximate Amount of Fee

Year ended December 31, 1996 $2,554,000
Year ended December 31, 1997 $2,889,714
Year ended December 31, 1998 $3,599,066

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. 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. During the 1998
fiscal year, amounts paid by the Fund under the Plan for clerical, advertising,
printing, postage and sales expenses (travel, telephone, and sales literature)
totaled $1,390,243: advertising, $651,255; printing and postage, $139,053; and
sales related expenses, $599,935.

-13-

<PAGE>

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 21, 1984 and approved on June 11, 1998
by the Board of Directors of the Fund, including the Rule 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 11, 1998 by the Board
of Directors of the Fund, including a majority of the Rule 12b-1 Directors, cast
in person at a meeting called for the purpose of voting on such agreement.
In connection with this offering, the Fund and the Distributor have
been represented by single counsel. Therefore, to the extent that the Fund and
this offering would benefit by further independent review, such benefit will not
be available in this offering.

CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 (the "Custodian"), serves as custodian for the Fund's portfolio securities
and cash and, in that capacity, maintains certain financial and accounting books
and records pursuant to an agreement with the Fund. See "Management,
Organization and Capital Structure of the Fund - Custodian and Transfer and
Dividend Disbursing Agent" in the Prospectus.
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

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<PAGE>

shareholder account of Ten Dollars ($10.00), 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
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. 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 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

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<PAGE>

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.
For the years ended December 31, 1996, 1997 and 1998, brokerage
commissions amounted to approximately $367,000, $365,000 and $507,000,
respectively.
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. Brokerage commissions
paid by the Fund to the Distributor during 1997 and 1998 totaled $132,372.00 and
$140,863.00, respectively (36.3% and 27.8%, respectively, of total 1997 and 1998
commissions).

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. 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 investment 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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<PAGE>

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 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

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<PAGE>

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. 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. See "How the Fund Values its Shares" in the Prospectus; and "Net
Asset Value" above.

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.

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 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 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

-18-

<PAGE>

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. Other gains or losses on the sale of securities will be
short-term capital gains or losses. 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.
In addition, positions which are part of a straddle will be subject
to certain wash sale and short sale provisions of the Internal Revenue Code. In
the case of a straddle, the Fund may be required to defer the recognition of
losses on positions it holds to the extent of any unrecognized gain on
offsetting positions held by the Fund. The conversion transaction rules may
apply to certain transactions to treat all or a portion of the gain thereon as
ordinary income rather than as capital gain.
The Fund is required to distribute ninety-eight percent (98%) of its
ordinary income in the same calendar year in which it is earned. The Fund is
also required to distribute during the calendar year ninety-eight percent (98%)
of the capital gain net income it earned during the twelve (12) months ending on
October 31 of such calendar year, as well as all undistributed ordinary income
and undistributed capital gain net income from the prior year or the twelve (12)
month period ending on October 31 of such prior year, respectively. To the
extent it does not meet these distribution requirements, the Fund will be
subject to a nondeductible four percent (4%) excise tax on the undistributed
amount. For purposes of this excise tax, income on which the Fund pays income
tax is treated as distributed.
Any dividends paid shortly after a purchase by an investor may have
the effect of reducing the per share net asset value of the investor's shares by
the per share amount of the dividends. Furthermore, such dividends, although in
effect a return of capital, are subject to federal income taxes. Therefore,
prior to purchasing shares of the Fund, the investor should carefully consider
the impact of dividends, including capital gains distributions, which are
expected to be or have been announced.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

SHAREHOLDER SERVICES

The Fund makes available to its shareholders the following
privileges and plans:

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions,
if any, will be automatically reinvested in additional full and fractional
shares of the Fund. An investor may direct the Transfer Agent in writing not
less than five (5) days prior to the ex-dividend date to receive (i) such
dividends in cash

-19-

<PAGE>

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.

SYSTEMATIC WITHDRAWAL PLAN

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.
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.

-20-

<PAGE>

REPORTS TO SHAREHOLDERS

The Fund will send annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
In order to reduce duplicate mailing and printing expenses, the Fund will
provide one annual and semi-annual shareholder report and one annual prospectus
per household. You may request additional copies of such reports by writing to
the Fund at 222 State Street, Portsmouth, NH 03801-3853, telephoning the Fund at
800-767-1729 (toll-free), visiting the Fund's web site at http://www.paxfund.com
or visiting the SEC's web site at http://www.sec.gov for such purpose. In
addition, monthly unaudited financial data 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).

-21-

<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 PC
--------------------------------

Boston, MA
January 19, 1999

-22-

<PAGE>

PAX WORLD FUND, INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998

ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Investments, at value - note A
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.

-23-

<PAGE>

PAX WORLD FUND, INCORPORATED
STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income
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.

-24-

<PAGE>

PAX WORLD FUND, INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
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.

-25-

<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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS

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>

-26-

<PAGE>

PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS, CONTINUED

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
------------ ----
<CAPTION>

PRINCIPAL
AMOUNT
<S> <C> <C> <C>

GOVERNMENT AGENCY BONDS

Federal Farm Credit Bank
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>

-27-

<PAGE>

PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>

PRINCIPAL PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT AGENCY BONDS, CONTINUED

Federal National Mortgage Association, CONTINUED
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.

-28-

<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.

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.

-29-

<PAGE>

PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED

DISTRIBUTIONS TO SHAREHOLDERS

All distributions to shareholders are recorded by the Fund on the
ex-dividend dates.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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.
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.

-30-

<PAGE>

PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED

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.

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
---------- ------------ ---------- ------------

The components of net assets at December 31, 1998, are as follows:

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>

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<PAGE>

PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED

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.
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
(approximately $.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.

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<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.

1. Per share components of the net change during the year in net asset value
(based upon average number of shares outstanding)
<TABLE>
<CAPTION>
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 (A)...................... .468 .493 .550 .80 .49
Realized and unrealized gain (loss)
on investments - net (A)........................ 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 (B)...................................... .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) 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 investment income - net and increased realized and
unrealized gain on investments for 1997 by approximately $.03 per share.
(B) 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.

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