Manager Commentary

As of March 31, 2013

The combination of accommodative monetary and economic policies, improving business trends, particularly in the U.S., and increasing investor enthusiasm for stocks created a positive equity investing environment in the quarter ended March 31, 2013. Most major equity indexes in the U.S., across Europe, and in Japan¹ achieved positive returns (as measured in local currencies) for the period while Hong Kong’s Hang Seng² Index and China’s Shanghai³ Index each lost value.

At the end of the period, Pax World Balanced Fund held just over 70% of its assets in stocks. In addition to favorable equity investment opportunities driven by a continued business recovery, especially in the financial and health care sectors, dividend yields in the equity markets during the quarter exceeded income available from government and corporate bonds.

Approximately one-quarter of equity issues in the portfolio on March 31 yielded more than 3% in dividend income. With the 10-year U.S. Treasury Bond interest rate hovering around 2% during the period, the equity investing opportunity was compelling. The portfolio’s bond investments focused on fixed income instruments that include provisions for escalating interest rate payments or that can serve as a hedge against potential inflation.

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¹Returns for major equity indexes representing the world’s largest developed economies as of March 31, 2013 are as follows: the Standard & Poor’s 500 Composite Index 10.61%; the FTSE 100 Index 6.77%; the CAC 40 2.63% (Local); the Dax 2.40% (Local); and the Nikkei 225 Index 9.75%. The S&P 500 is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization maintained by the FTSE Group, a subsidiary of the London Stock Exchange Group. The CAC 40 is a benchmark of the French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Euronext Paris exchange. The DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Nikkei Index is a price-weighted index for the Tokyo Stock Exchange calculated daily by the Nihon Keizai Shimbun newspaper. One cannot invest directly in an index.

²The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 48 constituent companies represent about 60% of capitalization of the Hong Kong Stock Exchange. The total return for the Index for the three-month period ended 3/31/2013 was -1.37%. One cannot invest directly in an index.

³ The SSE (Shanghai) Composite Index is an index of all stocks that are traded at the Shanghai Stock Exchange. The total return for the Index for the three-month period ended 3/31/2013 was -1.04%. One cannot invest directly in an index.