PAX WORLD FUND FAMILY
ANNUAL REPORTS
DECEMBER 31, 1999
[LOGO}
1999
ANNUAL
REPORTS
PAX WORLD FUND
PAGES 1-17
PAX WORLD GROWTH FUND
PAGES 18-33
PAX WORLD HIGH YIELD FUND
PAGES 34-48
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Dear Pax World Fund Family Shareholders:
In our continuing commitment to a better environment, the Pax World Fund
Family has consolidated the Annual Reports for the Pax World Fund, the Pax World
Growth Fund and the Pax World High Yield Fund. We estimate this consolidation
will save 3.7 MILLION pieces of paper each year!
THE PAX WORLD FUND had an excellent year in 1999 outperforming the Lipper
Balanced Fund Index (LBFI) by 92%. The Fund ended the year with a 17.23% return
as compared to the LBFI return of 8.98%. In November, the Fund hit a notable
milestone as it crossed the $1 billion mark. THE PAX WORLD GROWTH FUND also had
an admirable year beating the Lipper Multi-Cap Core Fund Index (LMCCFI) by 36%.
The Growth Fund gained 28.30% vs the LMCCFI gain of 20.79%. THE PAX WORLD HIGH
YIELD FUND emerged in October and, although in its infancy, shows signs of
becoming an important and necessary asset class for socially responsible
investors. We commend our managers Robert Colin, Christopher Brown and Diane
Keefe for their hard work and excellent results.
Last year, the S&P 500 Index marked its fifth straight year of double-digit
gains. Curiously, much of that strength centered around technology and the
dot.com phenomenon, masking the rather mediocre performance of more traditional
growth companies. Going forward, we will continue to cautiously participate in
this "new economy", ever mindful of the fact that what is in vogue now can, in
today's market, vanish in a cyber-blink. At the same time, we will seek out
companies we believe offer value and "growth at a reasonable price".
Our social responsibility activism and sponsorships remained strong
throughout the year highlighted by the election of Anita Green to the Board of
Directors of the Social Investment Forum. To cite one example of our social
activities, Pax World participated in the International Fund for Animal Welfare
media campaign against Mitsubishi's plans to construct the world's largest salt
plant on the Baja Peninsula of Mexico, that could harm the last untouched
breeding ground for gray whales.
Once again, as evidenced by our 1999 results, our shareholders can be proud
of the fact that investment performance and social responsibility can go hand in
hand.
Sincerely,
Laurence A. Shadek Thomas W. Grant
Chairman President
February 9, 2000
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PAX WORLD FUND, INCORPORATED
QUESTIONS AND ANSWERS
ROBERT P. COLIN & CHRISTOPHER H. BROWN, PORTFOLIO CO-MANAGERS
Q. WHAT WERE THE MOST IMPORTANT FACTORS THAT INFLUENCED THE INVESTMENT
PERFORMANCE OF PAX WORLD FUND DURING 1999?
A. Pax World Fund out-performed most other balanced funds last year for the
following reasons:
1. During the year 1999, the Federal Reserve Bank raised interest rates
three times, totalling 75 basis points (3/4%). We elected to
maintain a short bond duration to help insulate the fixed-income
portfolio from these rate increases. On the equity side, we remained
under-weighted in the financial sector, which was impacted most by
the Fed's tightening bias.
2. Foreign securities continued to play an important role in the
performance of the Fund. Our foreign holdings increased from 1.5% at
year-end 1998 to 14.6% by year-end 1999. This increase was the
result of a merger of one of our largest holdings with another
entity, along with additional investments and capital appreciation.
3. Technology also continued to contribute measurably to the
performance of the Fund. We increased this sector from 7.4% at
year-end 1998 to 9.8% by year-end 1999. Moreover, we added six new
positions within this sector, while eliminating or reducing two
older holdings.
Q. WHAT ARE SOME EXAMPLES OF STOCKS BOUGHT AND SOLD DURING 1999?
A. With interest rates having a significant influence on our investment
strategy during 1999, a total of 6 stocks were sold while 21 new positions
were established. All of the Fund's holdings in the housing industry, as
well as some financial issues, were sold during 1999. Some of those
decisions were predicated on deteriorating fundamentals while others
reflected social concerns. One technology holding, COMPAQ COMPUTER, was
sold due to disappointing earnings and a management shake-out. It was
replaced with APPLE COMPUTER, which performed admirably in 1999. Among
other new purchases by the Fund were: PHILIPS ELECTRONICS - technology and
consumer electronics; AMERICA ONLINE - Internet service provider; CISCO -
computer networking systems; BESTFOODS - food processor; TELEFONOS DE
MEXICO - telecommunications; and COSTCO - wholesale membership warehouses.
Q. HOW DID PAX WORLD FUND PERFORM IN 1999?
A. The Net Asset Value (NAV) of the Fund set new records during 1999 and
closed the year at $23.40 per share versus an NAV of $21.64 per share at
year-end 1998. Following are some 1999 Total Return (interest and dividend
income plus capital appreciation) comparisons: Pax World Fund 17.23%;
Lipper Balanced Fund Index 8.98%; and 60% S&P / 40% Lehman Brothers
Aggregate Bond Index 11.15%.
SECURITY DIVERSIFICATION, 12/31/99 ASSET ALLOCATION, 12/31/99
U.S. Stocks 51%
Government Agency Bonds 25% Bonds 26%
Consumer Products & Services 16% Foreign Stocks 15%
Telecommunications 14% Cash & Equivalents 8%
Health Care 13%
Technology 10%
Cash & Equivalents 8%
Utilities 5%
Energy 5%
Financial/Real Estate 3%
Corporate Bonds 1%
1
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PAX WORLD FUND, INCORPORATED
TEN YEAR ANNUAL TOTAL RETURN
HISTORICAL
Pax World Lipper *Pax World Fund, Inc.
1989 $10,000 $10,000 17.23% 1 YR. TOTAL RETURN
1990 $11,045 $9,931 21.12% 5 YR. AVG. TOTAL RETURN
1991 $13,342 $12,529 13.52% 10 YR. AVG. TOTAL RETURN
1992 $13,426 $13,421
1993 $13,285 $14,987 Lipper Balanced Fund Index
1994 $13,638 $14,658
1995 $17,618 $18,262 8.98% 1 YR. TOTAL RETURN
1996 $19,444 $20,638 16.33% 5 YR. AVG. TOTAL RETURN
1997 $24,328 $24,776 12.26% 10 YR. AVG. TOTAL RETURN
1998 $30,317 $28,514
1999 $35,541 $31,075
Growth of a $10,000 investment, compounded annually.
*Total return figures include reinvested dividends, capital gains distributions,
and changes in principal value and represent past performance, which is no
guarantee of future results.
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PORTFOLIO HIGHLIGHTS
TEN LARGEST STOCK HOLDINGS, 12/31/99 KEY STATISTICS, 12/31/99
<S> <C> <C> <C>
Percent of Change in NAV ($21.64 to $23.40).............$1.76
Company Net Assets
Distributions to Shareholders
Amgen Inc....................................5.92% (per share).................................$1.869
Vodafone Airtouch PLC ADR....................5.81%
Enron Corp. .................................4.17% 12 Month Total Return.......................17.23%
Sony Corp. ADR...............................3.34%
EMC Corp. (Mass.)............................2.56% Net Increase in Net Assets
Merck & Co. Inc..............................2.52% Resulting From Operations...........$152.4 million
Gap Inc......................................2.16%
Tribune Co. .................................2.07% Total Net Assets..................$1,064.9 million
SBC Communications Inc.......................1.83%
Peoples Energy Corp. ........................1.74%
Total 32.12%
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2
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PAX WORLD FUND, INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
An Annual Meeting of the Shareholders of the Fund was held at 10:45 a.m. on
Thursday, June 10, 1999 at the State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110. The matters voted upon and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes as to each matter, are as follows:
(A) To elect a Board of eight Directors, each to hold office until the next
Annual Meeting of the Shareholders of the Fund or until a successor shall have
been chosen and shall have qualified:
NOMINEE: FOR: WITHHELD:
C. Lloyd Bailey 20,429,681.241 1,251,288.976
Carl H. Doerge, Jr. 21,229,038.597 451,931.620
Thomas W. Grant 21,196,755.229 484,214.988
Joy L. Liechty 21,269,449.167 411,521.050
Laurence A. Shadek 21,207,764.113 473,206.104
Sanford C. Sherman 21,247,346.751 433,623.466
Nancy S. Taylor 21,231,463.833 449,506.384
Esther J. Walls 21,206,327.964 474,642.253
(constituting all of the members of the Board of Directors of the Fund) (there
were no abstentions and no broker non-votes with respect to any nominee)
(B) To ratify the selection by the Board of Directors of Pannell Kerr
Forster PC as the independent public accountants of the Fund for the year ending
December 31, 1999:
For: 20,791,464.391
Against: 81,452.882
Abstain: 808,052.944
Broker Non-Votes: 0.000
(C) To transact such other business as may properly come before such annual
meeting or any adjournment thereof:
For: 19,742,367.241
Against: 277,281.268
Abstain: 1,661,321.708
Broker Non-Votes: 0.000
3
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PAX WORLD FUND, INCORPORATED
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PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS
December 31, 1999
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS
<S> <C> <C> <C>
CONSUMER PRODUCTS AND SERVICES
Best Foods, Inc................................... 150,000 $ 7,884,375
Costco Wholesale Corp. ........................... 150,000 13,687,500
Gap, Inc.......................................... 500,000 23,000,000
General Mills, Inc................................ 200,000 7,150,000
Koninklijke Philips Electronics, NV ADR........... 115,000 15,525,000
Masco Corp........................................ 400,000 10,150,000
MediaOne Group, Inc............................... 225,000 17,282,812
Sony Corp. ADR.................................... 125,000 35,593,750
Starbucks Corp.................................... 420,000 10,185,000
Tribune Co........................................ 400,000 22,025,000
Wendy's International, Inc........................ 396,540 8,178,637
--------------
170,662,074 16.0%
--------------
ENERGY
Enron Corp........................................ 1,000,000 44,375,000
Questar Corp. .................................... 200,000 3,000,000
--------------
47,375,000 4.4
--------------
FINANCIAL
American Gen Corp................................. 160,000 12,140,000
H&R Block, Inc.................................... 250,000 10,937,500
SLM Holding Corp.................................. 200,000 8,450,000
--------------
31,527,500 3.0
--------------
HEALTH CARE
Amgen, Inc........................................ 1,050,000 63,065,625
Baxter International, Inc......................... 150,000 9,421,875
Bristol-Myers Squibb Co........................... 250,000 16,046,875
Guidant Corp...................................... 200,000 9,400,000
Johnson & Johnson................................. 100,000 9,312,500
Medtronic, Inc.................................... 200,000 7,287,500
Merck & Co., Inc.................................. 400,000 26,825,000
--------------
141,359,375 13.3
--------------
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4
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PAX WORLD FUND, INCORPORATED
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PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS, CONTINUED
TECHNOLOGY
<S> <C> <C> <C>
America Online, Inc............................... 120,000 $ 9,052,500
Apple Computer.................................... 150,000 15,421,875
ASM Lithography Holdings NV....................... 50,000 5,687,500
Cisco Systems, Inc................................ 100,000 10,712,500
Computer Associates International, Inc............ 150,000 10,490,625
EMC Corp. (Mass.)................................. 250,000 27,312,500
Fiserv, Inc....................................... 275,000 10,535,938
Microsoft Corp.................................... 25,000 2,918,750
Pitney Bowes, Inc................................. 196,593 9,497,899
SAP Aktiengesellschaft ADR........................ 50,000 2,603,125
-------------
104,233,212 9.8%
-------------
TELECOMMUNICATIONS
Allegiance Telecom, Inc........................... 12,000 1,107,000
BellSouth Corp.................................... 350,000 16,384,375
Cable & Wireless PLC.............................. 200,000 10,587,500
Loral Space Communications........................ 500,000 12,156,250
McLeod USA, Inc................................... 5,000 294,375
SBC Communications, Inc........................... 400,000 19,500,000
Telefonos de Mexico, SA ADR (representing
ordinary shares L).............................. 100,000 11,250,000
U.S. West, Inc. - Communications Group............ 250,000 18,000,000
Vodafone AirTouch PLC ADR......................... 1,250,000 61,875,000
-------------
151,154,500 14.2
-------------
UTILITIES
American Water Works, Inc......................... 142,080 3,019,200
DPL, Inc. ........................................ 300,000 5,193,750
Keyspan Corp...................................... 587,600 13,624,975
NiSource, Inc..................................... 400,000 7,150,000
Peoples Energy Corp............................... 551,900 18,488,650
-------------
47,476,575 4.5
------------- -------
TOTAL COMMON STOCKS............................ 693,788,236 65.2
------------- -------
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5
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PAX WORLD FUND, INCORPORATED
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PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
PREFERRED STOCKS
<S> <C> <C> <C>
CONSUMER
Suiza Foods Corp. Capital Trust II
5.500% Convertible Preferred.................... 75,000 $ 2,587,500 .2%
REAL ESTATE
Equity Residential Properties Trust 7.250%
Convertible Preferred Series G.................. 160,000 3,160,000 .3
UTILITIES
NiSource, Inc. 7.750% Series B
Convertible Preferred .......................... 120,000 4,327,500 .4
-------------- -------
TOTAL PREFERRED STOCKS......................... 10,075,000 .9
------------- -------
TOTAL STOCKS......................................... 703,863,236 66.1
------------- -------
PRINCIPAL
GOVERNMENT AGENCY BONDS AMOUNT
-------
Federal Farm Credit Bank
5.000%, due October 2, 2003....................... $10,000,000 9,389,100
Federal Home Loan Bank System
5.250%, due August 9, 2002........................ 10,000,000 9,646,900
6.890%, due August 28, 2002....................... 5,000,000 4,971,100
5.025%, due November 5, 2002...................... 10,000,000 9,551,600
5.905%, due December 23, 2002..................... 14,000,000 13,709,080
5.750%, due April 28, 2003........................ 7,000,000 6,753,880
6.495%, due June 23, 2003......................... 5,000,000 4,897,650
5.590%, due October 6, 2003....................... 12,000,000 11,480,640
5.250%, due October 27, 2003...................... 10,000,000 9,448,400
5.335%, due February 19, 2004..................... 10,000,000 9,454,700
5.485%, due February 26, 2004..................... 5,000,000 4,750,000
6.000%, due May 25, 2004.......................... 5,885,000 5,646,834
6.805%, due June 28, 2004......................... 5,000,000 4,910,950
6.000%, due October 6, 2004....................... 5,000,000 4,771,850
6.750%, due November 16, 2004..................... 5,000,000 4,885,950
</TABLE>
6
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PAX WORLD FUND, INCORPORATED
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<CAPTION>
PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
GOVERNMENT AGENCY BONDS, CONTINUED
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp.
5.400%, due January 14, 2002...................... $ 5,000,000 $ 4,885,150
6.180%, due June 14, 2002......................... 5,000,000 4,911,700
6.110%, due June 18, 2003......................... 10,000,000 9,707,800
Federal National Mortgage Association
6.110%, due September 20, 2000.................... 12,000,000 11,981,280
6.080%, due September 25, 2000.................... 5,000,000 4,991,400
5.820%, due December 5, 2000...................... 15,000,000 14,927,400
5.370%, due February 7, 2001...................... 20,000,000 19,750,000
5.410%, due February 13, 2001..................... 10,000,000 9,878,100
5.360%, due February 16, 2001..................... 10,000,000 9,871,900
6.710%, due July 24, 2001......................... 7,000,000 7,015,330
6.510%, due September 27, 2002.................... 5,000,000 4,954,425
5.430%, due November 3, 2003...................... 10,000,000 9,512,500
5.375%, due November 17, 2003..................... 8,000,000 7,612,480
5.810%, due February 23, 2004..................... 10,000,000 9,585,900
6.000%, due March 12, 2004........................ 10,000,000 9,621,900
5.880%, due March 25, 2004........................ 9,000,000 8,628,750
6.930%, due June 30, 2004......................... 5,000,000 4,908,600
--------------
TOTAL GOVERNMENT AGENCY BONDS.................. 267,013,249 25.1%
-------------- -----
CORPORATE BONDS
American General Finance Corp.
5.750%, due November 1, 2003...................... 2,500,000 2,373,533
Sears Roebuck Acceptance Corp.
6.000%, due March 20, 2003........................ 2,500,000 2,392,038
--------------
TOTAL CORPORATE BONDS.......................... 4,765,571 .4
-------------- ------
TOTAL BONDS.................................... 271,778,820 25.5
-------------- ------
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7
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PAX WORLD FUND, INCORPORATED
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PAX WORLD FUND, INCORPORATED
SCHEDULE OF INVESTMENTS, CONTINUED
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
CERTIFICATES OF DEPOSIT
<S> <C> <C> <C>
South Shore Bank 5.650%, due
October 11, 2000................................ $ 1,000,000 $ 1,000,000
Self Help Credit Union 5.420%, due
May 31, 2000................................... 500,000 500,000
--------------
TOTAL CERTIFICATES OF DEPOSIT................. 1,500,000 .1%
-------------- -------
NUMBER
MONEY MARKET SHARES OF SHARES
---------
Pax World Money Market Fund....................... 71,911,714 71,911,714 6.8
-------------- -------
TOTAL INVESTMENTS............................. 1,049,053,770 98.5
Cash and receivables, less liabilities............ 15,838,029 1.5
-------------- -------
NET ASSETS.................................... $1,064,891,799 100.0%
-------------- -------
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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PAX WORLD FUND, INCORPORATED
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<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
<S> <C>
Investments, at value - note A
Common stocks (cost - $360,087,970) ....................................... $ 693,788,236
Preferred stocks (cost - $12,447,722) ..................................... 10,075,000
Bonds (amortized cost - $279,810,758) ..................................... 271,778,820
Certificates of deposit (cost - $1,500,000) ............................... 1,500,000
Pax World Money Market Fund (cost - $71,911,714) .......................... 71,911,714
--------------
1,049,053,770
Cash ......................................................................... 12,669,258
Receivables
Dividends and interest .................................................... 4,879,663
Other ..................................................................... 3,076
--------------
Total assets ........................................................... 1,066,605,767
--------------
LIABILITIES
Payables
Capital stock reacquired .................................................. 954,791
Withheld foreign dividend tax liability ................................... 14,688
Accrued expenses
Investment advisory fee - note B .......................................... 433,543
Transfer agent fee ........................................................ 120,000
Distribution expenses ..................................................... 130,330
Other accrued expenses .................................................... 60,616
--------------
Total liabilities ...................................................... 1,713,968
--------------
Net assets (equivalent to $23.40 per share based on 45,499,353
shares of capital stock outstanding) - note E ...................... $1,064,891,799
--------------
Net asset value, offering price and redemption price per share
($1,064,891,799 / 45,499,353 shares outstanding).................... $ 23.40
--------------
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SEE NOTES TO FINANCIAL STATEMENTS.
9
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PAX WORLD FUND, INCORPORATED
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<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<S> <C> <C>
Investment income
Income - note A
Dividends
Pax World Money Market Fund............................. $ 4,639,222
Other investments....................................... 8,400,377 $ 13,039,599
------------
Interest .................................................. 14,436,408
--------------
Total income......................................... 27,476,007
Expenses
Investment advisory fee - note B........................... 4,773,917
Distribution expenses - note D............................. 1,755,918
Transfer agent fee......................................... 972,385
Custodian fees - note F.................................... 229,201
State and foreign taxes.................................... 171,400
Printing and mailing....................................... 167,617
Audit fees................................................. 68,959
Registration fees.......................................... 67,734
Legal fees and related expenses - note B................... 60,895
Other...................................................... 51,349
Directors' fees and expenses - note B...................... 35,147
-------------
Total expenses.......................................... 8,354,522
Less: Fees paid indirectly - note F..................... (189,685)
------------
Net expenses.................................... 8,164,837
---------------
Investment income - net................................. 19,311,170
--------------
Realized and unrealized gain on investments - notes A
and C
Net realized gain on investments.............................. 59,654,186
Change in unrealized appreciation of investments
for the year................................................ 73,483,006
--------------
Net gain on investments................................. 133,137,192
-------------
Net increase in net assets resulting from
operations............................................. $152,448,362
------------
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SEE NOTES TO FINANCIAL STATEMENTS.
10
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PAX WORLD FUND, INCORPORATED
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<CAPTION>
PAX WORLD FUND, INCORPORATED
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31
1999 1998
------------------------
<S> <C> <C>
Increase in net assets
Operations
Investment income - net ........................... $ 19,311,170 $ 16,473,815
Net realized gain on investments .................. 59,654,186 32,342,171
Change in unrealized appreciation of investments .. 73,483,006 112,901,738
--------------- ---------------
Net increase in net assets resulting from
operations .................................... 152,448,362 161,717,724
Net equalization credits ............................. 382,410 275,435
Distributions to shareholders from
Investment income - net ($.459 and $.468 per share,
respectively) - note A .......................... (19,169,759) (16,751,495)
Net realized gain on investments ($1.410 and $.880
per share, respectively) - note A ............... (59,654,097) (32,342,583)
Capital share transactions - note E .................. 153,112,359 95,872,040
--------------- ---------------
Net increase in net assets ..................... 227,119,275 208,771,121
Net assets
Beginning of year .................................... 837,772,524 629,001,403
--------------- ---------------
End of year (including undistributed investment
income - net: $530,790 and $6,969, respectively) .. $ 1,064,891,799 $ 837,772,524
--------------- ---------------
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SEE NOTES TO FINANCIAL STATEMENTS.
11
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PAX WORLD FUND, INCORPORATED
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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. Certificates of deposit are valued at cost; accrued interest to
December 31, 1999 is included in dividends and interest receivable.
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.
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 for 1999 and 1998 was $183,942 and $219,398,
respectively.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
EQUALIZATION
The Fund uses the accounting practice known as "equalization" by which a
portion of the proceeds from sales and costs of redemptions of capital shares,
equivalent on a per share basis to the amount of
12
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PAX WORLD FUND, INCORPORATED
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED
undistributed net investment income on the date of the transactions, is credited
or charged to undistributed income. As a result, undistributed net investment
income per share is unaffected by sales or redemptions of capital shares.
Equalization is a permanent book/tax difference that causes a difference
between investment income and distributions.
DISTRIBUTIONS TO SHAREHOLDERS
All distributions to shareholders are recorded by the Fund on the
ex-dividend dates.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Advisory Agreement ("Agreement") between the Fund and Pax
World Management Corp. ("Adviser"), the Adviser furnishes investment advisory
services in connection with the management of the Fund. Under the Agreement, the
Adviser, subject to the supervision of the Board of Directors of the Fund, is
responsible for managing the assets of the Fund in accordance with its
investment objectives, investment program and policies. The Adviser determines
what securities and other instruments are purchased and sold for the Fund and is
responsible for obtaining and evaluating financial data relevant to the Fund.
The Agreement provides for payment by the Fund to the Adviser of an annual
investment advisory fee of 3/4 of 1% of its average daily net assets on the
first $25,000,000 and 1/2 of 1% of its average daily net assets in excess of
that amount. The Adviser has agreed to waive the portion of the advisory fee
necessary to offset the amount of the advisory fee payable by Pax World Money
Market Fund, Inc. to the Adviser with respect to any assets of the Fund which
are invested in the Pax World Money Market Fund, Inc. 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 1999 or 1998.
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.
All Directors are paid by the Fund for attendance at directors' meetings.
During 1999, the Fund incurred legal fees and related expenses of $60,895
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
13
<PAGE>
PAX WORLD FUND, INCORPORATED
PAX WORLD FUND INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED
commissions paid to this firm during 1999 and 1998 totaled $145,892 and
$140,863, respectively, (29.7% and 27.8%, respectively, of total 1999 and 1998
commissions).
At the June 11, 1998 Annual Meeting, shareholders approved changes to the
Fund's investment policies to permit the Fund to invest in the Pax World Money
Market Fund, Inc., 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 $164,348,448 and
$131,205,582, respectively, for 1999. Purchases and proceeds from sales and
maturities of U.S. Government agency bonds aggregated $111,892,461 and
$46,000,000, respectively, for 1999.
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 1999 would have been approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at December 31, 1999 was $725,758,164. Gross unrealized appreciation and
depreciation of investments aggregated $342,792,564 and $19,496,958,
respectively, at December 31, 1999, resulting in net unrealized appreciation of
$323,295,606.
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.
14
<PAGE>
PAX WORLD FUND, INCORPORATED
PAX WORLD FUND, INCORPORATED
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE E - CAPITAL AND RELATED TRANSACTIONS
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998
---- ----
Shares Dollars Shares Dollars
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold .............. 11,130,593 $ 254,077,925 9,126,274 $ 182,396,781
Shares issued in reinvest-
ment of distributions .. 3,299,473 73,784,954 2,232,027 45,625,923
------------- ------------- ------------- -------------
14,430,066 327,862,879 11,358,301 228,022,704
Shares redeemed .......... (7,642,767) (174,750,520) (6,617,044) (132,150,664)
------------- ------------- ------------- -------------
Net increase ............. 6,787,299 $ 153,112,359 4,741,257 $ 95,872,040
------------- ------------- ------------- -------------
The components of net assets at December 31, 1999 are as follows:
<S> <C>
Paid-in capital (75,000,000 shares of $1 par value authorized).. $ 748,985,443
Undistributed investment income ................................ 530,790
Excess distribution of capital gains ........................... (1,869)
Accumulated prior years' net realized losses on investments .... (7,918,171)
Net unrealized appreciation of investments ..................... 323,295,606
---------------
Net assets ................................................ $ 1,064,891,799
---------------
</TABLE>
NOTE F - CUSTODIAN BANK AND CUSTODIAN FEES
State Street Bank and Trust Company is the custodian bank for the Fund's
assets. The custodian fees charged by the bank are reduced, pursuant to an
expense offset arrangement, by an earnings credit which is based upon the
average cash balances maintained at the bank. If the Fund did not have such an
offset arrangement, it could have invested the amount of the offset in an
income-producing asset.
15
<PAGE>
PAX WORLD FUND, INCORPORATED
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data have been derived
from information provided in the financial statements and the Fund's underlying
financial records.
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE YEAR IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....... $ 21.64 $ 18.52 $ 16.56 $ 16.33 $ 13.39
---------- -------- -------- -------- --------
Income from investment operations
Investment income - net (A)........... .471 .468 .493 .550 .80
Net realized and unrealized gain (loss)
on investments (A)................. 3.167 4.008 3.622 1.122 3.07
---------- -------- -------- -------- --------
Total from investment operations............ 3.638 4.476 4.115 1.672 3.87
---------- -------- -------- -------- --------
Less distributions
Dividends from investment
income - net........................ .459 .468 .503 .550 .79
Distributions from realized gains........ 1.410 .880 1.650 .892 .14
Tax return of capital.................... .009 .008 .002 -- --
---------- -------- -------- -------- --------
Total distributions................. 1.878 1.356 2.155 1.442 .93
---------- -------- -------- -------- --------
Net asset value, end of year............. $ 23.40 $ 21.64 $ 18.52 $ 16.56 $ 16.33
---------- -------- -------- -------- --------
2. TOTAL RETURN............................ 17.23% 24.62% 25.12% 10.36% 29.19%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net
assets (B).............................. .89% .95% .91% .89% .97%
Ratio of investment income - net to
average net assets...................... 2.05% 2.33% 2.67% 3.24% 3.44%
Portfolio turnover rate.................. 21.09% 28.59% 13.88% 34.55% 28.44%
Net assets, end of year ('000s).......... $1,064,892 $837,773 $629,001 $513,433 $476,976
Number of capital shares outstanding,
end of year ('000s)..................... 45,499 38,712 33,971 31,008 29,200
</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 net
realized and unrealized gain on investments for 1997 by approximately
$.03 per share.
(B) This ratio is based upon total expenses, including the gross amount of
custodian fees (before being reduced pursuant to an expense offset
arrangement).
16
<PAGE>
PAX WORLD FUND, INCORPORATED
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, 1999, 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, 1999, 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, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/Pannell Kerr Forster, P.C.
January 21, 2000
17
<PAGE>
PAX WORLD GROWTH FUND, INC.
QUESTIONS AND ANSWERS - ROBERT P. COLIN, PORTFOLIO MANAGER
Q. PAX WORLD GROWTH FUND RECORDED A GAIN OF 28.30% IN 1999. WHAT WERE SOME OF
THE SIGNIFICANT FACTORS THAT CONTRIBUTED TO THIS PERFORMANCE?
A. There were two strategies in particular that contributed meaningfully to
bottom line performance of the Fund:
1. Cash reserves were built to a peak of 22% by mid-1999. The market
decline that occurred between mid-July and month-end October
presented us with an opportunity to employ reserves plus cash flow
from new subscriptions into equities at what proved to be attractive
prices. By year-end 1999, cash reserves amounted to only 13.4% of
total assets.
2. Our investment interest remains focused on economic areas which are
growing at rates substantially in excess of overall GDP growth. The
sectors that we emphasized were technology, including
Internet-related companies, and telecommunications, notably
satellite and wireless companies.
Q. WHAT ARE SOME EXAMPLES OF STOCKS WHICH CONTRIBUTED TO THE GROWTH
FUND'S PERFORMANCE IN 1999?
A. In the Q & A section of the 1998 Annual Report, we talked about building a
core of growth stocks that would carry the Fund's performance into the new
year and new millennium. Many of those core holdings did in fact make a
substantial contribution to the 1999 performance of the Fund. Of particular
note were AMERICA ONLINE, NEXTEL COMMUNICATIONS, and TELEFONOS DE MEXICO.
Stocks purchased during 1999 that made a noteworthy contribution to the
bottom line performance of the Fund included: CHIRON - biotechnology;
NOVELL - computer networking software; PHILIPS ELECTRONICS - technology and
consumer electronics; QWEST COMMUNICATIONS - telecom networks; and SPRINT
PCS - a leading wireless telephone concern.
Q. HOW DID PAX WORLD GROWTH FUND'S PERFORMANCE COMPARE WITH OTHER MARKET
RESULTS?
A. As mentioned, Pax World Growth Fund recorded a gain of 28.30%. That
performance compares with the following results: S&P 500 Composite 21.04%;
Russell Mid-Cap Index 8.80%; and Lipper Multi-Cap Core Fund Index 20.79%.
SECURITY DIVERSIFICATION, 12/31/99 ASSET ALLOCATION, 12/31/99
Technology 34% U.S. Common Stocks 78%
Telecommunications 20% Cash & Equivalents 13%
Consumer Products & Services 15% Foreign Common Stocks 9%
Cash & Equivalents 13%
Medical and Health Care 11%
Financial/Real Estate 4%
Industrial/Commercial 3%
18
<PAGE>
PAX WORLD GROWTH FUND, INC.
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
HISTORICAL
*PAX WORLD LIPPER * PAX WORLD GROWTH FUND, INC.
<S> <C> <C> <C> <C>
6/11/1997 $10,000 $10,000 28.30% 1 Yr. Total Return
1997** $9,660 $11,041 14.98% 06-11-97 to 12-31-99 Avg. Total
1998 $11,130 $13,105 Return
1999 $14,280 $15,826
LIPPER MULTI-CAP CORE FUND INDEX
20.79% 1 Yr. Total Return
19.71% 06-11-97 to 12-31-99 Avg. Total
Return
</TABLE>
Growth of a $10,000 investment, compounded annually.
The line graph on the above chart for Pax World Growth Fund does not include the
initial sales charge which was in effect until November 1, 1999. If the initial
sales charge of 2.5% was taken into account, a $10,000 investment would have
grown to $13,918.
PORTFOLIO HIGHLIGHTS, 12/31/99
<TABLE>
<CAPTION>
Key Statistics Ten Largest Stock Holdings
<S> <C> <S> <C>
Change in N.A.V. ($11.13 to $14.28)..........$3.15 Percent of
Company Net Assets
12 Month Total Return*......................28.30%
General Motors Corp. Class H
Net Increase in Net Assets (GM Hughes Electronics)...................6.53%
Resulting from Operations.............$4.6 million Nextel Communications Inc.
Class A ................................5.61%
Total Net Assets.....................$22.1 million Sprint Corp. (PCS Group) Series 1..........4.64%
Novell Inc.................................4.52%
America Online Inc. .......................4.44%
Symbol Technologies Inc....................4.32%
Amgen Inc. ................................4.08%
Chiron Corp................................3.84%
Telefonos de Mexico SA ADR
(representing ordinary shares L).........3.57%
MediaOne Group Inc........................ 3.48%
-----
TOTAL.....................................45.03%
=====
</TABLE>
*Rate of return figures do not include the 2.5% initial sales charge which was
in effect until November 1, 1999. The returns for 1 year as of December 31, 1999
and for the period June 11, 1997 to December 31, 1999 with the initial sales
charge deducted are 25.04% and 13.83%, respectively. Total return figures
include reinvested dividends, capital gains distributions, and changes in
principal value and represent past performance, which is no guarantee of future
results.
**1997 represents a partial year from June 11, 1997 (date of Fund inception) to
December 31, 1997.
19
<PAGE>
PAX WORLD GROWTH FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS
An Annual Meeting of the Shareholders of the Fund was held at 9:45 a.m. on
Thursday, June 10, 1999 at the State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02110. The matters voted upon and the number of votes cast
for, against or withheld, as well as the number of abstentions and broker
non-votes as to each matter, are as follows:
(A) To elect a Board of six Directors, each to hold office until the next
Annual Meeting of the Shareholders of the Fund or until a successor shall have
been chosen and shall have qualified:
NOMINEE: FOR: WITHHELD:
Carl H. Doerge, Jr. 670,226.882 14,089.905
Thomas W. Grant 670,418.959 13,897.828
John L. Kidde 666,226.651 18,090.136
Joy L. Liechty 671,831.841 12,484.946
Laurence A. Shadek 669,476.114 14,840.673
Nancy S. Taylor 670,367.828 13,948.959
(constituting all of the members of the Board of Directors of the Fund)
(there were no abstentions and no broker non-votes with respect to any nominee)
(B) To ratify the selection by the Board of Directors of Pannell Kerr
Forster PC as the independent public accountants of the Fund for the year ending
December 31, 1999:
For: 650,093.724
Against: 2,977.030
Abstain: 31,246.033
Broker Non-Votes: 0.000
(C) To transact such other business as may properly come before such annual
meeting or any adjournment thereof:
For: 605,002.492
Against: 7,609.489
Abstain: 71,704.806
Broker Non-Votes: 0.000
20
<PAGE>
PAX WORLD GROWTH FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS
<S> <C> <C> <C>
CONSUMER PRODUCTS AND SERVICES
Koninklijke Philips Electronics, NV ADR........... 4,600 $ 621,000
Martha Stewart Living, Inc. Class A .............. 5,000 120,000
Masco Corp. ...................................... 20,000 507,500
MediaOne Group, Inc. ............................. 10,000 768,125
Polaroid Corp..................................... 25,000 470,313
Reader's Digest Association, Inc.................. 15,000 438,750
Ross Stores, Inc. ................................ 25,000 448,437
-------------
3,374,125 15.3%
-------------
ELECTRONIC SYSTEMS AND SERVICES
Robotic Vision Systems, Inc. .................... 25,000 231,250
Symbol Technologies, Inc.......................... 15,000 953,437
-------------
1,184,687 5.4
-------------
FINANCIAL/REAL ESTATE
H&R Block, Inc. .................................. 15,000 656,250
Host Marriott Corp. REIT.......................... 19,840 163,680
-------------
819,930 3.7
HEALTH CARE SERVICES
Amgen, Inc. ...................................... 15,000 900,938
BioChem Pharmaceuticals, Inc. ................... 5,000 108,750
Chiron Corp. .................................... 20,000 847,500
Elan PLC ADR...................................... 15,000 442,500
Sunrise Assisted Living, Inc...................... 10,000 137,500
-------------
2,437,188 11.0
-------------
INDUSTRIAL - COMMERCIAL
Airborne Freight Corp. ........................... 20,000 440,000
United Parcel Service, Inc. Class B............... 3,000 207,000
-------------
647,000 2.9
-------------
SATELLITE SYSTEMS
General Motors Corp. Class H
(GM Hughes Electronics)......................... 15,000 1,440,000 6.5
-------------
</TABLE>
21
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
COMMON STOCKS, CONTINUED
<S> <C> <C> <C>
TECHNOLOGY
America Online, Inc............................... 13,000 $ 980,688
At Home Corp. Series A............................ 15,000 643,125
AVT Corp.......................................... 15,000 705,000
BMC Software, Inc................................. 5,000 399,687
Fiserv, Inc....................................... 20,000 766,250
Network Associates, Inc........................... 15,000 400,312
Novell, Inc....................................... 25,000 998,438
-------------
4,893,500 22.2%
-------------
TELECOMMUNICATIONS
Convergys Corp. .................................. 20,000 615,000
Nextel Communications, Inc. Class A ............. 12,000 1,237,500
Qwest Communications International, Inc. ......... 15,000 645,000
Sprint Corp. (PCS Group) Series 1................. 10,000 1,025,000
Telefonos de Mexico, SA ADR (representing
ordinary shares L).............................. 7,000 787,500
--------------
4,310,000 19.6
-------------- -------
TOTAL COMMON STOCKS............................. 19,106,430 86.6
-------------- -------
MONEY MARKET SHARES
Pax World Money Market Fund.......................... 2,628,441 2,628,441 11.9
-------------- -------
TOTAL INVESTMENTS............................... 21,734,871 98.5
Cash, receivables and deferred costs less
liabilities....................................... 333,162 1.5
-------------- -------
NET ASSETS...................................... $ 22,068,033 100.0%
-------------- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
PAX WORLD GROWTH FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
<S> <C>
Investments, at value - note A
Common stocks (cost - $13,241,796) ........................................ $19,106,430
Pax World Money Market Fund (cost - $2,628,441) ........................... 2,628,441
-----------
21,734,871
Cash ........................................................................... 494,868
Receivables
Dividends and interest .................................................... 19,996
Organization costs - note A .................................................... 2,500
Deferred offering costs - note A ............................................... 21,073
Deferred registration fees - note A ............................................ 10,756
-----------
Total assets .......................................................... 22,284,064
-----------
LIABILITIES
Payables
Capital stock reacquired .................................................. 181,668
Organization costs, deferred offering costs and deferred registration fees
payable to Adviser - note A ........................................... 34,329
Accrued expenses ............................................................... 34
-----------
Total liabilities ..................................................... 216,031
-----------
Net assets (equivalent to $14.28 per share based on
1,545,779 shares of capital stock outstanding) - note E ...... $22,068,033
-----------
Net asset value and redemption price per share
($22,068,033 / 1,545,779 shares outstanding) ................. $ 14.28
-----------
Offering price per share (effective November 1, 1999, the Board of
Directors voted to waive the 2.5% initial
sales charge until further notice) ........................... $ 14.28
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
PAX WORLD GROWTH FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<S> <C> <C>
Investment income (loss)
Income - note A
Dividends
Pax World Money Market Fund.............................. $ 84,216
Other investments........................................ 91,367 $ 175,583
-------------
Interest...................................................... 15,148
--------------
Total income............................................... 190,731
Expenses
Investment advisory fee - note B.............................. 148,487
Distribution expenses - note D ............................... 149,537
Transfer agent fee............................................ 68,518
Legal fees and related expenses - note B...................... 45,100
Audit fees.................................................... 44,733
Custodian fees - note F....................................... 42,672
Printing and mailing.......................................... 35,774
Registration fees - note A.................................... 29,776
Directors' fees and expenses - note B......................... 20,487
Amortization of organization costs, deferred offering
costs and deferred registration fees - note A............ 13,732
State and foreign taxes....................................... 3,718
Other......................................................... 3,116
---------------
Total expenses........................................... 605,650
Less: Fees paid indirectly - note F...................... (11,078)
Expenses assumed by Adviser - notes B
and G......................................... (357,533)
---------------
Net expenses....................................... 237,039
---------------
Investment (loss) - net.................................. (46,308)
---------------
Realized and unrealized gain on investments - notes A and C
Net realized gain on investments.................................. 198
Change in unrealized appreciation of investments
for the year ................................................. 4,602,888
--------------
Net gain on investments.................................. 4,603,086
--------------
Net increase in net assets resulting from operations..... $ 4,556,778
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
PAX WORLD GROWTH FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31
----------------------
1999 1998
---- ----
<S> <C> <C>
Increase in net assets
Operations
Investment (loss) - net .............. $ (46,308) $ (49,159)
Net realized gain on investments ..... 198 192
Change in unrealized appreciation
of investments .............. 4,602,888 1,481,290
------------ ------------
Net increase in net assets
resulting from operations ... 4,556,778 1,432,323
Capital share transactions - note E ...... 5,139,164 6,334,540
------------ ------------
Net increase in net assets ...... 9,695,942 7,766,863
Net assets
Beginning of year ........................ 12,372,091 4,605,228
------------ ------------
End of year (net of accumulated investment
loss - net: $101,780 and $55,472,
respectively) ........................ $ 22,068,033 $ 12,372,091
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pax World Growth Fund, Inc. ("Fund"), incorporated in Delaware on March 12,
1997, is a diversified, open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Fund commenced operations on
June 9, 1997 with the issuance of 10,000 shares of capital stock to Pax World
Management Corp., the Fund's Adviser ("Adviser"). Investment operations
commenced July 9, 1997.
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 long-term growth of capital. It seeks to achieve this objective by
investing primarily in equity securities (common stock, securities convertible
into common stock and preferred stock) of established companies with
above-average growth prospects. Current income, if any, is incidental.
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 recognized on the ex-dividend date. Interest income is
recognized on the accrual basis.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Fund ($5,000)
were paid by the Adviser. These costs were capitalized and are being amortized
on a straight-line basis over 60 months from July 9, 1997, the date investment
operations commenced; a corresponding payable to the Adviser was recorded by the
Fund. The costs will be repaid to the Adviser in accordance with the
amortization schedule. Amortization expense of $1,000 for the year ended
December 31, 1999 is included on the statement of operations. Reference is made
to note G.
26
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DEFERRED OFFERING COSTS
Costs incurred in connection with the initial offering of the Fund's shares
($42,148) were paid by the Adviser. These costs were capitalized by the Fund and
are being amortized on a straight-line basis over 60 months from July 9, 1997,
the date investment operations commenced; a corresponding payable to the Adviser
was recorded by the Fund. These costs will be repaid to the Adviser in
accordance with the amortization schedule. Amortization expense of $8,430 for
the year ended December 31, 1999 is included on the statement of operations.
Reference is made to note G.
DEFERRED REGISTRATION FEES
Initial state registration fees were paid by the Adviser. The portion of
the fees incurred for the initial registration of the Fund with the 50 states
and the Commonwealth of Puerto Rico ($21,511), as distinguished from the portion
which represents the recurring, annual fee, was capitalized by the Fund and is
being amortized on a straight-line basis over 60 months from July 9, 1997, the
date investment operations commenced; a corresponding payable to the Adviser was
recorded by the Fund. These costs will be repaid to the Adviser in accordance
with the amortization schedule. Amortization expense of $4,302 for the year
ended December 31, 1999 is included on the statement of operations. Reference is
made to note G.
All recurring, annual fees are included on the statement of operations.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. The repurchase date is
usually within a day or two of the original purchase, although it may extend
over a number of months. The Fund's repurchase agreements will be fully
collateralized at all times by obligations issued or guaranteed by U.S.
Government agencies and instrumentalities (other than the U.S. Treasury) in an
amount at least equal to the purchase price of the underlying securities
(including accrued interest earned thereon). In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will suffer a loss. The Fund has not experienced any such losses. There were no
repurchase agreements outstanding at December 31, 1999.
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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders, if any, are recorded by the Fund on the
ex-dividend dates. There were no distributions made in either 1999 or 1998
because (1) there was a net investment loss for both years and (2) capital gains
for the same periods were $198 and $192, respectively.
27
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 the
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. In the event that the
average net assets of the Fund are less than $5,000,000, the Adviser will be
compensated by the Fund for its services at an annual rate of $25,000; in the
event that average net assets of the Fund are equal to or in excess of
$5,000,000, the annual investment advisory fee will be 1% of its average daily
net assets on the first $25,000,000 and 3/4% of its average daily net assets in
excess of that amount. The Adviser has agreed to waive the portion of the
advisory fee necessary to offset the amount of the advisory fee payable by Pax
World Money Market Fund, Inc. to the Adviser with respect to any assets of the
Fund which are invested in the Pax World Money Market Fund, Inc.
Two officers, who are also directors of the Fund, are also officers and
directors of the Adviser and H.G. Wellington Capital Management, a division of
H.G. Wellington & Co., Inc. ("Sub-Adviser"). Another officer of the Fund, who is
not a director of the Fund, is also an officer and director of the Adviser. Two
other officers of the Fund, who are not directors of the Fund, are also officers
of the Adviser.
The Adviser has 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 1.5% of the average daily net
asset value of the Fund per annum. Such expenses include (i) management and
distribution fees; (ii) the fees of affiliated and unaffiliated Directors; (iii)
the fees of the Fund's Custodian and Transfer Agent; (iv) the fees of the Fund's
legal counsel and independent accountants; (v) the reimbursement of organization
expenses; and (vi) expenses related to shareholder communications including all
expenses of shareholders' and Board of Directors' meetings and of preparing,
printing and mailing reports, proxy statements and prospectuses to shareholders.
The Adviser was required to supply and assume a total of $315,025 and $286,966,
respectively, for such services for 1999 and 1998. Additionally, the Adviser
assumed, on a voluntary basis, expenses of $42,508 and $41,381, respectively,
for 1999 and 1998. Reference is made to note G.
Pursuant to the terms of a Sub-Advisory Agreement between the Adviser and
the Sub-Adviser, the Sub-Adviser furnishes investment advisory services in
connection with the management of the Fund, determines what securities and other
instruments are purchased and sold for the Fund and is responsible
28
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
for obtaining and evaluating financial data relevant to the Fund. The
Sub-Adviser is compensated by the Adviser without reimbursement from the Fund.
All Directors are paid by the Fund for attendance at directors' meetings.
During 1999, the Fund incurred legal fees and related expenses of $45,100
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 the Sub-Adviser, which is a division
of a brokerage firm which the Fund utilizes to execute security transactions.
Brokerage commissions paid to this firm during 1999 and 1998 totaled $15,538 and
$20,799, respectively (27.7% and 31.1%, respectively, of total 1999 and 1998
commissions).
At the June 11, 1998 Annual Meeting, shareholders approved changes to the
Fund's investment policies to permit the Fund to invest in the Pax World Money
Market Fund, Inc., which is also managed by the Adviser.
NOTE C - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investments, excluding short-term
investments, aggregated $14,499,106 and $10,156,288, respectively, for 1999.
There were no U.S. Government agency bonds purchased or sold during the period.
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 1999 would have been approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at December 31, 1999 was $15,870,237. Gross unrealized appreciation and
depreciation of investments aggregated $6,864,073 and $999,439, respectively, at
December 31, 1999, resulting in net unrealized appreciation of $5,864,634.
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, pursuant to which the Fund
incurs the expenses of distributing the Fund's shares. These expenses include
(but are not limited to) advertising expenses, the cost of printing and mailing
prospectuses to potential investors, commissions and account servicing fees paid
to, or on account of, broker-dealers or certain financial institutions which
have entered into agreements with the Fund, compensation to and expenses
incurred by officers, directors and/or employees of the Fund for their
distributional services and indirect and overhead costs associated with the sale
of Fund shares (including, but not limited to, travel and telephone expenses).
The Plan provides that (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
29
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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:
Year Ended December 31
----------------------
1999 1998
---- ----
Shares Dollars Shares Dollars
------ ------- ------ -------
Shares sold ... 646,534 $ 7,753,787 772,823 $ 7,699,550
Shares redeemed (212,526) (2,614,623) (137,836) (1,365,010)
----------- ----------- ----------- -----------
Net increase .. 434,008 $ 5,139,164 634,987 $ 6,334,540
----------- ----------- ----------- -----------
The components of net assets at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Paid-in capital (25,000,000 shares of $1 par value authorized)...... $16,304,744
Accumulated net investment (loss)................................... (101,780)
Undistributed capital gains......................................... 435
Net unrealized appreciation of investments.......................... 5,864,634
-----------
Net assets...................................................... $22,068,033
-----------
</TABLE>
NOTE F - CUSTODIAN BANK AND CUSTODIAN FEES
State Street Bank and Trust Company is the custodian bank for the Fund's
assets. The custodian fees charged by the bank are reduced, pursuant to an
expense offset arrangement, by an earnings credit which is based upon the
average cash balances maintained at the bank. If the Fund did not have such an
offset arrangement, it could have invested the amount of the offset in an
income-producing asset.
30
<PAGE>
PAX WORLD GROWTH FUND, INC.
PAX WORLD GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NOTE G - EXPENSES ASSUMED BY ADVISER
The Adviser has assumed certain expenses incurred by the Fund, some in
accordance with the Advisory Agreement (note B) and others on a voluntary basis,
as follows:
Expenses assumed by the Adviser in accordance with the Advisory
Agreement, including amortization of the organization costs for the
period ($1,000) ................................................. $315,025
Expenses assumed by the Adviser on a voluntary basis
Recurring registration fees ....................................... 29,776
Amortization of deferred offering costs ........................... 8,430
Amortization of deferred registration fees ........................ 4,302
--------
Total expenses assumed by Adviser ................................. $357,533
--------
The expenses assumed on a voluntary basis had the effect of reducing the
ratio of net expenses (after subtracting the expenses assumed by the Adviser in
accordance with the Advisory Agreement) to average net assets from 3.8% to 1.5%
for 1999. (The ratio of total expenses to average net assets which is required
disclosure in the financial highlights is based upon total expenses for the year
after subtracting the expenses assumed by the Adviser but before the reduction
of custodian fees for the income earned pursuant to an expense offset
arrangement. This ratio is 1.6% for 1999.)
Reference is made to notes A and B.
31
<PAGE>
PAX WORLD GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data have been
derived from information provided in the financial statements and the Fund's
underlying financial records.
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE PERIOD IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING).
<TABLE>
<CAPTION>
Period June 9, 1997
Year Ended December 31 (the date operations
---------------------- commenced) to
1999 1998 December 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 11.13 $ 9.66 $ 10.00
------- -------- -------
Gain (loss) from investment operations
Investment (loss) - net........................ (.02) (.04) (.01)
Net realized and unrealized gain (loss)
on investments.............................. 3.17 1.51 (.33)
------- -------- -------
Total gain (loss) from investment
operations............................. 3.15 1.47 (.34)
------- -------- -------
Net asset value, end of period.................... $ 14.28 $ 11.13 $ 9.66
------- -------- -------
2. TOTAL RETURN .................................... 28.30% 15.22% (3.40)%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net
assets (A)(B).................................. 1.58% 1.62% 1.49%
Ratio of investment (loss) - net to
average net assets (A)......................... (.29)% (.61)% (.56)%
Portfolio turnover rate........................... 76.40% 96.72% 50.79%
Net assets, end of period ('000s)................. $22,068 $ 12,372 $ 4,605
Number of capital shares outstanding,
end of period ('000s).......................... 1,546 1,112 477
</TABLE>
(A) These ratios for the period ended December 31, 1997 have been annualized.
(B) This ratio is based upon total expenses, including the gross amount of
custodian fees (before being reduced pursuant to an expense offset
arrangement), net of expenses assumed by the Adviser.
32
<PAGE>
PAX WORLD GROWTH FUND, INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Pax World Growth Fund, Inc.
We have audited the statement of assets and liabilities of Pax World Growth
Fund, Inc., including the schedule of investments, at December 31, 1999, and the
related statement of operations for the year then ended, and 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 two years in the period then ended and
the period June 9, 1997 (the date operations commenced) to December 31, 1997.
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, 1999, 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 Growth Fund, Inc. at December 31, 1999, the results of its operations for
the year then ended, and 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 two years
in the period then ended and the period June 9, 1997 (the date operations
commenced) to December 31, 1997, in conformity with generally accepted
accounting principles.
/s/Pannell Kerr Forster, P.C.
January 21, 2000
33
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
QUESTIONS AND ANSWERS - DIANE M. KEEFE, PORTFOLIO MANAGER
Q. WHAT WERE THE MOST IMPORTANT FACTORS THAT INFLUENCED THE INVESTMENT
PERFORMANCE OF THE PAX WORLD HIGH YIELD FUND IN 1999?
A. Although inception date was October 8, 1999, we first had funds greater
than $100,000 on November 11, 1999. Our first full operation month was
December. During the month of December, we underperformed the Lipper High
Yield Index by 0.59% for the following reasons:
1) The Fund held a large cash position earning only money market rates on
almost a quarter of the assets. This is typical when funds are in the
start-up phase.
2) In the high-yield market generally, the yield available was 1.5% higher
for smaller and mid-sized issues than for larger issues of similar
quality. Initially, we were unable to purchase many of the smaller
issues which passed both our financial and social screens because they
were unavailable in small block sizes. This delayed our investment of
the initial inflows of cash. By December 31, 1999, we succeeded in two
important ways: (a) purchasing approximately 50% of what will
constitute our core holdings; and (b) being almost fully invested.
Going forward, we will add selectively to our portfolio quality
companies in the small and mid-cap sectors enabling us to capture more
of this 1.5% yield advantage.
3) We maintained a shorter bond duration than the high-yield indexes in
order to insulate the portfolio from the impact of expected Federal
Reserve rate increases.
Q. WHAT WAS YOUR INVESTMENT STRATEGY FOR THE YEAR UNDER REVIEW?
A. Our investment strategy for 1999 was as follows:
1) Maintain higher than average credit quality. We intend to hold fewer
CCC and more BB or better rated bonds than the high-yield indexes. At
December 31, 1999, we held no CCC securities; 75% of our positions were
in the B rating category, 17% in the BB rating category and 8% in the
BBB (an investment grade rating) category. Higher quality holdings
generally reduce volatility of high-yield portfolios as long as
duration remains which could mitigate interest rate risk.
2) Overweight two sectors: a) Telecommunications and Cable; and b)
Technology and Media. We believe these sectors provide the best
opportunity to profit from upgrade in credit quality and industry
consolidation.
3) Invest in leading market share companies with strong management,
positive cash flow and revenue growth trends.
4) Identify relative value among sectors and companies within sectors
using a combination of growth and value investing techniques -- growth
in our telecommunications and technology holdings and value in our REIT
and industrial and services holdings.
5) Increase exposure to food and drug sectors because of the recession
resistance of their products, while at the same time remaining highly
selective because of the narrower margins these businesses carry.
6) Add to the energy and utility portions of our portfolio companies with
technological or clean energy related differential advantages which may
help them compete in a deregulated environment.
Q. WHAT ARE SOME EXAMPLES OF SECURITIES OWNED BY THE HIGH YIELD FUND THAT FIT
YOUR STRATEGY?
A. Our two largest holdings are short duration positions in Canadian
telecommunications companies, CLEARNET and MICROCELL, both of which have
high coupons. These were some of the first positions we acquired in the
Fund. The purchase yield was over 10% in each case. They have both reported
strong results since we bought them and have increased in price as a
result.
34
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
We own positions in two European cable companies, TELEWEST (focused in the
UK) and UNITED PAN EUROPEAN COMMUNICATIONS (focused on the continent)
because each has lower costs per subscriber than comparably sized US based
cable companies, solid cash flow and the prospect of greater economies of
scale from their conversion into broadband pipelines for date transmission.
We own positions in the health care sector which have largely sidestepped
the risks associated with reductions in government reimbursement including
DYNACARE, a blood testing business, and HEALTH CARE PROPERTY INVESTORS, a
REIT that owns a diversified pool of healthcare related real estate.
SECURITY DIVERSIFICATION, 12/31/99 ASSET ALLOCATION, 12/31/99
Telecommunications 25% U.S. Bonds 51%
Cable 14% Foreign Bonds 28%
Health Care 10% Preferred Stocks 18%
Services/Distributors 8% Cash and Equivalents 3%
Technology 8%
Food & Beverage 7%
Real Estate 5%
Energy 4%
Lodging & Leisure 4%
Consumer Products 3%
Industrial 3%
Broadcasting/Satellite 3%
Retail 3%
Cash & Equivalents 3%
TEN LARGEST HOLDINGS, 12/31/99
<TABLE>
<CAPTION>
Company Percent of Net Assets
<S> <C>
Clearnet Communications Inc. 0/14.75%, due 12-15-2005................................................8.46%
Microcell Telecommunications Series B 0/14.00%, due 6-01-2006 .......................................7.62%
Health Care Property Investors Inc. 8.60% Preferred Series C.........................................5.02%
Equity Residential Properties Trust 8.60% Convertible Preferred Series J.............................4.83%
Dynacare Inc. 10.75%, due 1-15-2006 .................................................................4.68%
Ingram Micro Inc. 0/5.375%, due 6-09-2018............................................................4.51%
United Pan Europe Communications 144A 10.875%, due 8-01-2009 ........................................4.38%
PSINet Inc. Series B. 10.00%, due 2-15-2005..........................................................4.26%
Nextel Communications Inc. 144A 9.375%, due 11-15-2009...............................................4.23%
Intermedia Communications Inc. 9.50%, due 3-01-2009 .................................................4.12%
----
TOTAL...............................................................................................52.11%
=====
</TABLE>
35
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD HIGH YIELD FUND, INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
NUMBER OF PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE SHARES VALUE NET ASSETS
PREFERRED STOCKS
<S> <C> <C> <C>
FOOD AND BEVERAGE
Suiza Foods Corp. Capital Trust II 5.50%
Convertible Preferred.......................... 3,000 $ 103,500 3.6%
--------------
HEALTH CARE
Health Care Property Investors, Inc. 8.60%
Preferred Series C............................. 10,000 146,250 5.0
--------------
LODGING AND LEISURE
Host Marriott Corp. 10.00% Preferred Class B. 2,000 37,625
Host Marriott Corp. Financial Trust 6.75%
Convertible Preferred .......................... 2,700 84,713
--------------
122,338 4.2
--------------
REAL ESTATE
Equity Residential Properties Trust 8.60%
Convertible Preferred Series J................. 5,400 140,737 4.8
-------------- -------
TOTAL PREFERRED STOCKS......................... 512,825 17.6
-------------- -------
PRINCIPAL
CORPORATE BONDS AMOUNT
------
BROADCASTING/SATELLITE
Echostar DBS Corp. Senior Note, 9.375%,
due February 1, 2009............................ $100,000 101,000 3.5
--------------
CABLE
Century Communications Corp. Senior
Note, 8.75%, due October 1, 2007................ 100,000 96,750
Charter Communications Holding LLC
Senior Note, 8.625%, due April 1, 2009.......... 100,000 92,875
Telewest Communications, Inc. Senior
Note 144A, 0/9.25%, due April 15, 2009.......... 140,000 88,900
United Pan Europe Communications Senior
Note 144A,10.875%, due August 1, 2009........... 125,000 127,187
--------------
405,712 13.9
--------------
</TABLE>
36
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE NET ASSETS
CORPORATE BONDS, continued
<S> <C> <C> <C>
CONSUMER PRODUCTS
Windmere Durable Holdings Inc. Senior
Note, 10.00%, due July 31, 2008................. $ 100,000 $ 99,000 3.4%
-------------
ENERGY
Veritas DGC, Inc. Senior Note, 9.75%, due
October 15, 2003................................ 100,000 102,000 3.5
-------------
FOOD AND BEVERAGE
International Home Foods, Inc. Senior
Subordinated Note, 10.375%, due
November 1, 2006................................ 100,000 104,250 3.6
-------------
HEALTH CARE
Dynacare, Inc., 10.75%, due January 15, 2006...... 140,000 136,500 4.7
-------------
INDUSTRIAL
Russell Stanley Holdings, Inc.,
Subordinated Note Series B, 10.875%,
due February 15, 2009........................... 100,000 87,500 3.0
-------------
RETAIL
Musicland Group, Inc. Senior Subordinated
Note, 9.00%, due June 15, 2003.................. 100,000 97,500 3.3
-------------
SERVICES/DISTRIBUTORS
Ingram Micro, Inc. Subordinated Debenture,
0/5.375%, due June 9, 2018...................... 400,000 131,500
Nationsrent, Inc. Senior Subordinated Note,
10.375%, due December 15, 2008.................. 100,000 99,000
-------------
230,500 7.9
-------------
TELECOMMUNICATIONS
Clearnet Communications Inc. Senior Note,
0/14.75%, due December 15, 2005................. 250,000 246,562
Intermedia Communications, Inc. Senior
Note, 9.50%, due March 1, 2009.................. 125,000 120,000
Microcell Telecommunications Senior Note
Series B, 0/14.00%, due June 1, 2006............ 250,000 221,875
Nextel Communications Inc. Senior Serial
Note 144A, 9.375%, due November 15, 2009........ 125,000 123,125
-------------
711,562 24.4
-------------
</TABLE>
37
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
SCHEDULE OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL PERCENT OF
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE NET ASSETS
CORPORATE BONDS, CONTINUED
<S> <C> <C> <C>
TECHNOLOGY
Apple Computer, Inc. Note, 6.50%, due
February 15, 2004............................... $100,000 $ 93,125
PSINet, Inc. Senior Note Series B, 10.00%,
due February 15, 2005........................... 125,000 124,219
------------
217,344 7.5%
------------ -------
TOTAL CORPORATE BONDS........................... 2,292,868 78.7
------------ -------
NUMBER
MONEY MARKET SHARES OF SHARES
---------
Pax World Money Market Fund.......................... 45,324 45,324 1.6
------------ -------
TOTAL INVESTMENTS............................... 2,851,017 97.9
Cash, receivables and deferred costs less
liabilities....................................... 62,625 2.1
------------ -------
NET ASSETS...................................... $ 2,913,642 100.0%
------------ -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD HIGH YIELD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
<S> <C> <C>
Investments, at value - note A
Preferred stocks (cost - $524,981) .................................... $ 512,825
Bonds (amortized cost - $2,286,191) ................................... 2,292,868
Pax World Money Market Fund (cost - $45,324) .......................... 45,324
----------
2,851,017
Cash ....................................................................... 56,287
Receivables
Dividends and interest (including purchased interest) ................. 51,440
----------
2,958,744
----------
LIABILITIES
Payables
Investment securities purchased ....................................... 26,828
Dividend payable ...................................................... 18,269
Accrued expenses ........................................................... 5
----------
Total liabilities ................................................. 45,102
----------
Net assets (equivalent to $9.67 per share based on
301,268 shares of capital stock outstanding) - note E .... $2,913,642
----------
Net asset value, offering price and redemption price per share
($2,913,642 / 301,268 shares outstanding) ................ $ 9.67
----------
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
39
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
<TABLE>
<CAPTION>
PAX WORLD HIGH YIELD FUND, INC.
STATEMENT OF OPERATIONS
Period June 15, 1999 (the date of incorporation) to December 31, 1999
<S> <C> <C>
Investment income (loss)
Income - note A
Dividends
Pax World Money Market Fund.............................. $ 3,629
Other investments........................................ 7,394 $ 11,023
------------
Interest...................................................... 16,838
---------------
Total income............................................... 27,861
Expenses
Investment advisory fee - note B.............................. 2,083
Distribution expenses - note D ............................... 14,273
Printing and mailing.......................................... 8,619
Custodian fees - note F....................................... 5,420
Registration fees............................................. 10
------------
Total expenses........................................... 30,405
Less: Fees paid indirectly - note F...................... (1,821)
Expenses assumed by Adviser - notes
B and G...................................... (23,320)
------------
Net expenses....................................... 5,264
----------------
Investment income - net.................................. 22,597
----------------
Realized and unrealized (loss) on investments - note C
Net realized (loss) on investments................................ (119)
Change in unrealized (depreciation) of investments
for the period ............................................... (5,479)
----------------
Net (loss) on investments................................ (5,598)
----------------
Net increase in net assets resulting from operations..... $ 16,999
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Period June 15, 1999 (the date of incorporation) to December 31, 1999
Increase in net assets
Operations
Investment income - net ................................. $ 22,597
Net realized (loss) on investments ...................... (119)
Change in unrealized (depreciation) of investments ...... (5,479)
-----------
Net increase in net assets resulting from operations 16,999
Distributions to shareholders from investment income - net ....... (22,597)
Capital share transactions - note E ......................... 2,919,240
-----------
Net increase in net assets ......................... 2,913,642
Net assets
Beginning of period ......................................... --
-----------
End of period ............................................... $ 2,913,642
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Pax World High Yield Fund, Inc. ("Fund"), incorporated in Delaware on June
15, 1999, is a diversified, open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund commenced
operations on August 25, 1999 with the issuance of 10,000 shares of capital
stock to Pax World Management Corp., the Fund's Adviser ("Adviser"). Investment
operations commenced October 13, 1999.
All organization costs were borne by the Adviser.
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 primary
investment objective is to seek high current income. The Fund will, however,
also seek capital appreciation as a secondary objective to the extent that it is
consistent with the Fund's primary objective. It seeks to achieve this objective
by investing primarily in high- yield, fixed income securities rated BBB or
lower by Standard & Poor's Ratings Group or Moody's Investors Service and other
fixed income securities either similarly rated by another major rating service
or unrated securities which are, in the opinion of the Adviser, of comparable
quality.
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 recognized on the ex-dividend date. Interest income is
recognized on the accrual basis and includes accretion of discount and
amortization of premiums.
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 most likely
call date. Net discount accretion for the period October 13, 1999 (the date
investment operations commenced) to December 31, 1999 was $3,883.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. The repurchase date is
usually within a day or two of the original purchase, although it may extend
over a number of months. The Fund's repurchase
42
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
agreements will be fully collateralized at all times by obligations issued or
guaranteed by U.S. Government agencies and instrumentalities (other than the
U.S. Treasury) in an amount at least equal to the purchase price of the
underlying securities (including accrued interest earned thereon). In the event
of a default or bankruptcy by a seller, the Fund will promptly seek to liquidate
the collateral. To the extent that the proceeds from any sale of such collateral
upon a default in the obligation to repurchase are less than the repurchase
price, the Fund will suffer a loss. The Fund has not experienced any such
losses. There were no repurchase agreements outstanding at December 31, 1999.
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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions of investment income are accrued daily (based upon each day's
investment income, net) and are paid monthly on the first business day of the
month subsequent to the month of accrual. Shareholders who redeem shares during
a month receive the dividend accrued to the date of redemption.
Distributions of net realized gain on investments, if any, are recorded on
the ex-dividend date. There were no capital gain distributions during the period
June 15, 1999 (the date of incorporation) to December 31, 1999 since there was a
net realized (loss) on investments for the period.
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 the
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. In the event that the
average net assets of the Fund are less than $5,000,000, the adviser will be
compensated by the Fund for its services at an annual rate of $25,000; in the
event that average net assets of the Fund are equal to or in excess of
$5,000,000, the annual investment advisory fee will be 1% of its average daily
net assets on the first $25,000,000 and 3/4% of its average daily net assets in
excess of that amount. The Adviser has agreed to waive the portion of the
advisory fee necessary to offset the amount of the advisory fee payable
43
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
by Pax World Money Market Fund, Inc. to the Adviser with respect to any assets
of the Fund which are invested in the Pax World Money Market Fund, Inc.
Two officers, who are also directors of the Fund, are also officers and
directors of the Adviser. An officer of the Fund, who is not a director of the
Fund, is an officer and director of the Adviser. Two other officers of the Fund,
who are not directors of the Fund, are also officers of the Adviser.
The Adviser has 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 1.5% of the average daily net
asset value of the Fund per annum. The Adviser has agreed to reduce this
percentage to .85% for fiscal year 2000. Such expenses include (i) management
and distribution fees; (ii) the fees of affiliated and unaffiliated Directors;
(iii) the fees of the Fund's Custodian and Transfer Agent; (iv) the fees of the
Fund's legal counsel and independent accountants; (v) the reimbursement of
organization expenses; and (vi) expenses related to shareholder communications
including all expenses of shareholders' and Board of Directors' meetings and of
preparing, printing and mailing reports, proxy statements and prospectuses to
shareholders. The Adviser was required to supply and assume a total of $23,310
for such services for the period June 15, 1999 (the date of incorporation) to
December 31, 1999. Additionally, the Adviser assumed, on a voluntary basis,
expenses of $10 for the period June 15, 1999 (the date of incorporation) to
December 31, 1999. Reference is made to note G.
All of the Adviser's capital stock is currently owned by four siblings
whose family has an ownership interest in a brokerage firm which the Fund
utilizes to execute security transactions. Brokerage commissions paid to this
firm during the period October 13, 1999 (the date investment operations
commenced) to December 31, 1999 totaled $1,044 (11.1% of total commissions for
the period).
The Fund is permitted to invest in the Pax World Money Market Fund, Inc.,
which is also managed by the Adviser.
At December 31, 1999, the Adviser owned 268,321 shares of the Fund's
capital stock, 89.1% of the shares outstanding on that date.
NOTE C - INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of investments, excluding short-term
investments, aggregated $2,912,434 and $105,025, respectively, for the period
June 15, 1999 (the date of incorporation) to December 31, 1999. There were no
U.S. Government agency bonds purchased or sold during the period.
Net realized gain or loss on sales of investments is determined on the
basis of identified cost. If determined on an average cost basis, the net
realized gain for the period June 15, 1999 (the date of incorporation) to
December 31, 1999 would have been approximately the same.
For Federal income tax purposes, the identified cost of investments owned
at December 31, 1999 was $2,856,496. Gross unrealized appreciation and
depreciation of investments aggregated $23,327 and $28,806, respectively, at
December 31, 1999, resulting in net unrealized (depreciation) of ($5,479).
44
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
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, pursuant to which the Fund
incurs the expenses of distributing the Fund's shares. These expenses include
(but are not limited to) advertising expenses, the cost of printing and mailing
prospectuses to potential investors, commissions and account servicing fees paid
to, or on account of, broker-dealers or certain financial institutions which
have entered into agreements with the Fund, compensation to and expenses
incurred by officers, directors and/or employees of the Fund for their
distributional services and indirect and overhead costs associated with the sale
of Fund shares (including, but not limited to, travel and telephone expenses).
The Plan provides that (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:
Period August 25, 1999
(the date operations
commenced) to
December 31, 1999
--------------------------
Shares Dollars
------ -------
Shares sold .................................... 301,192 $ 2,918,506
Shares issued in reinvestment of distributions.. 92 890
----------- -----------
301,284 2,919,396
Shares redeemed ................................ (16) (156)
----------- -----------
Net increase ................................... 301,268 $ 2,919,240
----------- -----------
The components of net assets at December 31, 1999 are as follows:
Paid-in capital (25,000,000 shares of $1 par value authorized). $2,919,240
Undistributed capital (loss)................................... (119)
Net unrealized (depreciation) of investments................... (5,479)
----------
Net assets.............................................. $2,913,642
----------
45
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
PAX WORLD HIGH YIELD FUND, INC.
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 - EXPENSES ASSUMED BY ADVISER
The Adviser has assumed certain expenses incurred by the Fund, some in
accordance with the Advisory Agreement (note B) and others on a voluntary basis,
as follows:
Expenses assumed by the Adviser in accordance
with the Advisory Agreement .......................................... $23,310
Expenses assumed by the Adviser on a voluntary basis -
registration fees..................................................... 10
-------
Total expenses assumed by Adviser ...................................... $23,320
=======
The ratio of net expenses (after subtracting the expenses assumed by the
Adviser in accordance with the Advisory Agreement) to average net assets was
1.5% for the period June 15, 1999 (the date of incorporation) to December 31,
1999. (The ratio of total expenses to average net assets which is required
disclosure in the financial highlights is based upon total expenses for the
period after subtracting the expenses assumed by the Adviser but before the
reduction of custodian fees for the income earned pursuant to an expense offset
arrangement. This ratio is 2.0% for the period June 15, 1999 (the date of
incorporation) to December 31, 1999.)
Reference is made to note B.
46
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data have been
derived from information provided in the financial statements and the Fund's
underlying financial records.
1. PER SHARE COMPONENTS OF THE NET CHANGE DURING THE PERIOD IN NET ASSET VALUE
(BASED UPON AVERAGE NUMBER OF SHARES OUTSTANDING).
<TABLE>
<CAPTION>
Period October 13, 1999
(the date investment
operations
commenced) to
December 31, 1999
-----------------
<S> <C>
Net asset value, beginning of period ........................ $ 10.00
----------
Income from investment operations
Investment income - net .................................. .093
Net realized and unrealized (loss) on investments ........ (.330)
----------
Total from investment operations ...................... (.237)
----------
Less distributions
Dividends from investment income - net ................... .093
----------
Net asset value, end of period .............................. $ 9.67
----------
2. TOTAL RETURN ............................................... (2.46)%
3. RATIOS AND SUPPLEMENTAL DATA
Ratio of total expenses to average net assets (A)(B) ........ 2.01%
Ratio of investment income - net to average net assets (A)... 6.40%
Portfolio turnover rate ..................................... 7.10%
Net assets, end of period ('000s) ........................... $ 2,914
Number of capital shares outstanding, end of period ('000s).. 301
</TABLE>
(A) These ratios for the period ended December 31, 1999 have been annualized.
(B) This ratio is based upon total expenses, including the gross amount of
custodian fees (before being reduced pursuant to an expense offset
arrangement), net of expenses assumed by the Adviser.
47
<PAGE>
PAX WORLD HIGH YIELD FUND, INC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Pax World High Yield Fund, Inc.
We have audited the statement of assets and liabilities of Pax World High
Yield Fund, Inc., including the schedule of investments, at December 31, 1999,
and the related statements of operations and changes in net assets for the
period June 15, 1999 (the date of incorporation) to December 31, 1999, and the
financial highlights for the period October 13, 1999 (the date investment
operations commenced) to December 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial 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, 1999, 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 audit provides 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 High Yield Fund, Inc. at December 31, 1999, the results of its operations
and the changes in its net assets for the period June 15, 1999 (the date of
incorporation) to December 31, 1999, and the financial highlights for the period
October 13, 1999 (the date investment operations commenced) to December 31,
1999, in conformity with generally accepted accounting principles.
/s/Pannell Kerr Forster, P.C.
January 21, 2000
48
<PAGE>
Dear Shareholders,
As a new feature of the Pax World Fund Family Annual Reports, we would like to
share with you some of the projects the Pax World Management Corp. Social
Research Department initiated during this last year. As you know, one of our
most important jobs is to provide a comprehensive analysis of all current and
potential holdings. We remain dedicated to this screening process, having
reviewed some 200 companies in 1999.
In other activities, we:
o Were named a winner of the Business Ethics Social Investing Award by
Business Ethics Magazine.
o Became a founding member of the Shareholder Advocacy Network, a
web-based repository of information that investors will be able to use
for information about shareholder campaigns.
o Signed onto a letter by the Coalition for Environmentally Responsible
Economies (CERES) entitled, "Leading Socially Responsible Investment
Firms Recommit to CERES on the 10th Anniversary of the Exxon Valdez Oil
Spill."
o Joined a coalition of social researchers working to develop better
methods of researching international investments.
After a year of dialogue, our concern over the class action lawsuit filed
on behalf of workers from the Northern Marianas Islands prompted us to reduce
our position in Gap, Inc. from 1,000,000 shares to 500,000 shares. We are urging
Gap, Inc. to contract with Verite, a non-governmental organization that monitors
overseas working conditions. We understand that, to date, the company has made
no such arrangement.
In another example of corporate dialogue, we contacted Wendy's twice during
1999. Our first concern was a racial discrimination lawsuit filed against the
company by a franchisee, which we understand was resolved when the company
re-purchased the franchises in question. Overall, the company has a very good
record in this area and we believe the lawsuit was an anomaly, not an indicator
of deeper problems. The second contact was over the company's sponsorship of WWF
SMACKDOWN. After researching the matter, the company responded that a local
co-op had purchased a one-time advertising slot and that they would not sponsor
the show again.
Pax World's longstanding social commitment has been, and will continue to
be, a leading example to the investment community. We look forward to the coming
year and the opportunity to provide you with research and social involvement.
Sincerely,
Anita Green
Director of Social Research
February 22, 2000
49
1
<PAGE>
[LOGO]
PERFORMANCE AND PRINCIPLES
PAX WORLD FUND FAMILY
THE SOCIALLY RESPONSIBLE MUTUAL FUND FAMILY
INVESTMENT ADVISER
Pax World Management Corp.
222 State Street
Portsmouth, NH 03801-3853
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Inc.
P.O. Box 8950
Wilmington, DE 19899-8950
GENERAL COUNSEL
Bresler Goodman & Unterman, LLP
521 Fifth Avenue
New York, NY 10175
INDEPENDENT AUDITORS
Pannell Kerr Forster PC
75 Federal Street
Boston, MA 02110
[LOGO]
PAX WORLD FUND FAMILY
222 State Street
Portsmouth, NH 03801-3853
www.paxfund.com
For General Fund Information, please call:
1-800-767-1729
For Shareholder Account Information, please call:
1-800-372-7827
For Broker Services, please call:
1-800-635-1404
All Account Inquiries should be addressed to:
Pax World Fund Family
P.O. Box 8930
Wilmington, DE 19899
Printed in the USA on recycled paper