Manager Commentary

As of June 30, 2008

So far, 2008 has been a volatile year for the international markets. Recession, credit crunch, and commodity inflation have been the three overarching themes driving the manic market environment.

During the first half of 2008, the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index lost almost 11% in U.S. dollar terms. The negative numbers hide the volatility the market experienced, including a sharp 10% rebound in April and May, which was followed by an even sharper negative reversal, leading to an overall second quarter MSCI EAFE Index decline of 2.25%. The losses this year have been driven by several factors: fears of a global slowdown instigated by a U.S. recession; the drying up of international credit markets due to the inability of financial players to assess counterparty risk; and the impact of rising fuel and food costs on consumers around the world.

Launched March 27, 2008, the Pax World International Fund returned 1.11% in the second quarter, outperforming the MSCI EAFE benchmark by almost 3.4%. While most of the positive attribution was the result of stock selection, the portfolio also benefited from positive regional and sector allocation decisions, most notably our underweighting in the financial services sector and the European region. The strongest contributors to performance this quarter were Statoil Hydro (4.2%*), Mizuho Financial (2.5%*), Rio Tinto (3.0%*), Deutsche Bank Commodity Powershares ETF (1.4%*), and Honda Motor Company (2.1%*). The largest detractors to performance were holdings in Veolia (2.3%*), Lloyds TSB*, Turkcell (0.7%*), Kingspan (0.8%*) and Kesa (1.2%*).

Our strategy is to maintain a strong quality bias in the portfolio, with a focus on low debt leverage, above-market growth and profits, and strong cash flows. The portfolio is underweight in financials and neutral in energy, with significant exposure to alternative energy and efficient technology stocks that benefit from an expensive oil price environment. From a regional perspective, we are underweight in Europe and the United Kingdom, as we consider these markets to be most vulnerable to the persistence of tight credit conditions. We are overweight in Japan based on the very attractive valuation of that market, relative immunity to high commodity prices, and the reversal of the Japan carry trade. We are also overweight in select emerging markets, particularly Taiwan and Turkey, based on solid growth, strong cash flows and attractive valuations.

Looking forward, we believe that the credit crisis has not yet fully played out, and expect to see additional write-downs and credit tightness as financial players continue to shore up deteriorating capital bases. We believe that tight credit markets will remain the transmission mechanism of the U.S. slowdown to other parts of the world. This should continue to adversely affect banks with constrained capital positions, regions with low savings rates, and companies that rely on credit and leverage to maintain and grow their businesses. The loose monetary policy of the U.S. Federal Reserve should continue to fuel inflation of commodities and assets perceived to maintain their value in inflationary times.

On the currency front, we expect U.S. dollar weakness to persist as long as foreign central banks maintain tighter monetary policy to fight inflation. We are very favorably predisposed towards a strengthening Yen.

For the remainder of 2008, we expect a continuation of a volatile market that will oscillate between pessimism that conditions will deteriorate further and optimism that the worst is behind us. This market environment should provide us with ample opportunities to invest in quality companies with sustainable growth prospects at attractive valuations.

*Portfolio holdings as of 6/30/08. Holdings are subject to change. Lloyds TSB is 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. The Fund’s exposure to the technology sector generally will cause fluctuation in the fund’s price, due to the volatile nature of that sector.

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 9.14%. 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. This reimbursement arrangement will remain in effect through at least December 31, 2011.

The 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 US & 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.

PAX000159  (11/08)