Manager Commentary

As of December 31, 2013

Stock prices continued to increase during the quarter ended December 31, 2013, adding 10.51% during the period as measured by the Standard & Poor’s 500 Index1 (S&P 500). The S&P 500 Index finished the year with a 32.39% return, its highest annual return since 1997. On the other hand, fixed income investments as measured by the Barclays U.S. Aggregate Bond Index2 (Barclays Aggregate) recorded a -2.02% loss for the 12 months ended December 31, 2013, its first annual loss since 1999.

Pax World Balanced Fund earned 5.20% for the quarter ended and, 16.34% for the year ended December 31, 2013. The Fund’s benchmark Blended Index3 returned 6.17% and 17.56% for the same periods. During the quarter, Pax World Balanced Fund allocated approximately 66% of assets to stocks and just under 34% to bonds. The Blended Index is a 60% allocation to stocks and a 40% allocation to bonds. The Fund’s quarterly and year-end returns more closely tracked the returns of peer funds included in the Lipper Balanced Fund Index which earned 5.48% and 16.39% for the same periods.

The financials, utilities and telecommunication services sectors made the strongest contributions to portfolio performance relative to the benchmark for the three-month period ended December 31, 2013. Stock selection decisions, including investments in several larger financial services companies such as American Express Co., Bank of New York/Mellon Corp., BlackRock, Inc., and Morgan Stanley, drove the Fund’s relative outperformance in the financial sector. The Fund’s underweight allocation to the utilities sector relative to the benchmark benefited performance. The Fund also underweighted its allocation to the telecommunications services sector which delivered the lowest return of the 10 industrial sectors in the S&P 500 during 2013.4

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1The S&P 500 is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. One cannot invest directly in an index.

2The Barclays U.S. Aggregate Bond Index represents securities that are U.S. domestic, taxable and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities and asset-backed securities. One cannot invest directly in an index.

3The Blended Index is comprised of 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index. The S&P 500 Index is an unmanaged index of large capitalization common stocks. The Barclays U.S. Aggregate Bond Index represents securities that are U.S. domestic, taxable and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities and asset-backed securities. One cannot invest directly in an index.

4The total returns for the 10 industrial sectors of the S&P 500 for the period ended December 31, 2013 were as follows: Consumer Discretionary 43.08%; Health Care 41.46%; Industrials 40.68%; Information Technology 28.43%; Financials 35.63%; Consumer Staples 26.14%; Materials 25.60%; Energy 25.07%; Utilities 13.21%; and Telecommunication Services 11.47%.

 

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