Our Mutual Funds

Manager Commentary

Portfolio Manager

Ivka Kalus-Bystricky is the Portfolio Manager of the International Fund. Ms. Kalus-Bystricky has been responsible for the management of the International Fund since its inception in 2008. Prior to joining the Adviser, Ms. Kalus-Bystricky was a Senior International Portfolio Manager with State Street Global Advisors since 2004. From 2003 to 2004, she was a Senior International Portfolio Manager with Baring Asset Management, and an International Analyst and Portfolio Manager with Independence Investment from 2000 to 2003. Ms. Kalus-Bystricky holds a Masters of Business Administration from INSEAD, a Master of Arts from the Fletcher School of Law and Diplomacy and a Bachelor of Arts from Harvard University.

As of March 31, 2009

How did the Fund perform for the period?
For the three-month period ended March 31, 2009, the Pax World International Fund returned -8.56%, outperforming the -13.94% return of the benchmark MSCI EAFE (Net) Index¹.

What factors contributed to the Fund’s performance?
Performance was positively impacted by allocation decisions this quarter, specifically a large relative underweight in financials and overweight in emerging markets, particularly Brazil. Stock selection accounted for the majority of outperformance, providing positive attribution across all sectors, with over 60% of stocks in the portfolio outperforming the benchmark. On the negative side, the portfolio lost some performance from an underweight in Australia, one of the best performing markets in the MSCI EAFE (Net) Index. Also, a large exposure to domestically-oriented Japanese companies impacted performance negatively, as the weakening Japanese yen made those stocks less attractive to investors.

Can you discuss any significant changes in the Fund’s positioning throughout the quarter?
During the period, we increased Fund exposure to emerging markets and reduced exposure to Japan. On a sector level, we took advantage of sector rotation to add to exposure in underperforming sectors, particularly healthcare, telecommunications and financials. We divested the Fund’s positions in fish farmer Cermaq*, energy company Suncor*, Italian bank Unicredit* and Austrian capital equipment producer Andritz* during the quarter. New positions included animal nutrition company Nutreco (1.0%*), Spanish bank Banco Bilbao Vizcaya Argentaria (1.4%*), UK software company Sage Group (0.7%*), Latin American telecom America Movil (0.9%*) and CurrencyShares Australian Dollar Trust ETF (0.8%*).

Which stocks contributed positively to performance?
Notable contributors included Rio Tinto (1.7%*), Petrobras (1.3%*), Asahi Pretec (0.8%*), Nippon Electric Glass (0.6%*) and Horiba (0.7%*), all of which gained during the quarter.

Which stocks detracted from performance?
Notable detractors during the quarter included Kao Corp (2.3%*), Central Japan Rail (2.5%*), and Mizuho Financial Group (1.6%*), all domestically-focused Japanese companies that depreciated substantially, reversing the strong outperformance of the previous nine months. Veolia Environnement (1.5%*) and HSBC Holdings (1.0%*) were also among the largest detractors.

What is your market outlook, particularly with respect to how it will impact your Fund?
While a difficult quarter overall, poor returns were mitigated by a strong rally in March that followed two months of sharp downturn. Volatility in the market continues to provide fodder for bulls and bears alike, but for now consensus seems to be that the latest rally was just a normal rebound in a bear market. The bearishness is based on a continuation of dismal economic news from around the globe: I believe that continued labor market deterioration and crashing house prices speak to a continued drop in consumer spending, while a precipitous drop in global trade indicates more capacity cuts and less capital spending to come. Nevertheless, it was encouraging to see the market leadership during the quarter move from defensive sectors such as healthcare and consumer staples towards more cyclical sectors such as materials, energy and consumer discretionary. Also encouraging was the rally in some emerging markets and commodities. Brazil appreciated by almost 9% and Shanghai by almost 30% during the quarter, while oil and copper rose 25% and 35%, respectively. The “pro-cyclical” buying of commodities and emerging markets is a strong signal that the market could be beginning to anticipate a recovery rather than just short covering.

Based on this recovery signal, we are starting to tilt the portfolio away from a defensive posture and more towards growth. We remain underweight in financials and the United Kingdom, two areas that we expect to continue to suffer the brunt of the global financial crisis. However, the portfolio is less underweight than at the end of last year in these areas. We have also neutralized our previously overweight exposure to Japan and the yen and have started to shift more towards export Japan at the expense of the more defensive domestic Japan. We are also positioning the portfolio more towards what we believe could be a recovery by adding to our emerging market exposure and maintaining overweights in energy, materials and industrials. We maintain a quality focus in the portfolio by investing in companies that we believe exhibit more sustainable growth and return potential, better cash flows, higher dividend yields and stronger balance sheets than their peers.

*Portfolio holdings as of 3/31/09. Holdings are subject to change. Cermaq, Suncor, Unicredit and Andritz are currently not held by the Fund.

An investment in the fund involves risk, including loss of principle. Foreign investing involves special risks such as currency fluctuations and political uncertainty.

Performance data quoted represents past performance, which does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance for the most recent month-end, click here. For standardized performance, click here.

Total annual International Fund operating expenses, gross of any fee waivers or reimbursements, are 11.81% for the Individual Class shares and 11.56% for the Institutional Class shares. The International Fund’s investment adviser has contractually agreed to reimburse expenses (excluding Acquired Fund Fees and Expenses) allocable to Individual Class shares of the International Fund to the extent such expenses exceed 1.40% of the average daily net assets of Individual Investor Class shares and 1.15% of the Institutional Class shares. This reimbursement arrangement will remain in effect through at least December 31, 2012.

¹The MSCI EAFE (Europe, Australasia, Far East) Index is an unmanaged index and is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. As of June 2007 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Performance for the MSCI EAFE Index is shown “net”, which includes dividend reinvestments after deduction of foreign withholding tax. Investors cannot invest directly in any index.