Manager Commentary

As of March 31, 2013

As expected, the high yield market is on track for lower returns this year. The Bank of America Merrill Lynch High Yield BB-B (Constrained 2% ) Index¹returns decreased to 2.39% for the quarter ended March 31, 2013 from 4.42% for the same period in 2012.  Even so, returns for the majority of other classes of fixed income securities were negative save for municipal bonds and those blended indexes that include a high yield bond component as measured by the Barclays fixed income bond indexes.²

The Pax World High Yield Bond Fund returned 2.34% for the quarter ended March 31, 2013, a gain just below that of the benchmark’s for the quarter. The largest sector contributors to the fund’s performance relative to its benchmark came from the telecommunications, energy, capital goods and health care sectors with security selection driving the relative contributions. The services, consumer cyclical, technology and electronics sectors detracted on the basis of security selection. We have decreased investments in each of these sectors since the end of last year.

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¹The BofA Merrill Lynch U.S. High Yield BB-B (Constrained 2%) Index tracks the performance of BB- and B-rated fixed income securities publicly issued in the major domestic or eurobond markets, with total index allocation to an individual issuer limited to 2%.  Investors cannot invest directly in any index.

² Returns for major bond indexes representing the largest segments of the fixed income markets as of March 31, 2013 are as follows: Barclays Global Aggregate ex USD -3.51%; Barclays Global High Yield 1.38%; Barclays Global Inflation-Linked – US. TIPS -0.36%; Barclays Global Treasury -2.94%; Barclays Municipal Bond 0.29; Barclays U.S. MBS Agency Fixed Rate MBS -0.05%; Barclays U.S. Aggregate -0.12%; Barclays U.S. Aggregate Credit -0.17%; Barclays U.S. Aggregate Credit/Corporate/High Yield – 2% Issuer Capped 2.89%; Barclays U.S. Aggregate Credit/Corporate/High Yield (BA) – 2% Issuer Capped 1.90%; Barclays U.S. Aggregate Credit/Corporate/Investment Grade -0.11%, Barclays U.S. Aggregate Government -0.16%; Barclays U.S. Aggregate Government-Treasury -0.19%; Barclays U.S. Aggregate Government & Credit (1 – 3 Year) 0.20%; Barclays U.S. Aggregate Government/Credit -0.16%; Barclays U.S. High Yield - Corporate 2.89%; Barclays U.S. Treasury Bellwethers (10 Year) -0.31%; Barclays U.S. Treasury Inflation Protected Notes (TIPS) -0.36%. One cannot invest directly in an index.