April 2006 Investment Report

Domestic Stocks Flat Against Oil and Inflationary Indicators

Concerns about Iran's nuclear ambitions, Nigeria's unstable political climate and declining gasoline supplies just ahead of the summer driving season drove oil prices to an all time high of $72.05 after starting the month at $68.67 a barrel. Oil prices, now 40% higher than a year ago, stifled investors who fear these costs will create a ripple effect resulting in higher prices in the rest of the economy. Not even a robust earnings season could stimulate the markets. With 226 of the S&P 500 reporting first quarter earnings, 164 exceeded analyst expectations, 34 met expectations and 28 were below expectations.

Another Fed interest rate increase is expected on inflationary concerns …

… when the Fed meets May 10. Consumer prices rose by 0.4% in March, led by a surge in gasoline prices. For the first quarter, overall inflation has been rising at a 4.3% annual rate, compared to 3.4% for 2005. Core inflation, which excludes food and energy, posted the biggest gain in a year, a signal that higher energy prices are creating widespread inflation pressures. Many economists expect new Fed Chairman Ben Bernanke to advocate for further rate increases to help keep inflation in check. Mr. Bernanke, however, has hinted that the Fed may be nearing the end of interest rate hikes.

GM and Ford report losses …

… as America's automakers attempt to return to profitability. GM, the world's largest automaker, and Ford, the nation's second largest automaker, each reported first-quarter losses. GM reported its sixth consecutive loss while Ford reported its worst performance in more than four years. Both companies have announced massive restructuring programs that will result in numerous plant closings; each will layoff approximately 30,000 workers over the next few years.

Wal-Mart attempts to enter banking business …

… but faces staunch opposition. An unprecedented 1,900 comment letters to the Federal Deposit Insurance Corp (FDIC)—most opposed to Wal-Mart's action—prompted the FDIC to hold the first-ever public hearings on an application. Opponents fear Wal-Mart's proposed in-house bank would ultimately destroy local banks. Supporters say consumers would benefit from lower fees and prices.

Inventory of unsold homes hit a record high …

… and may be signaling an end to the once-booming housing market. Though sales of new single-family homes rose 13.8% last month, the median price of homes sold dropped for a 12-month period for the first time since December 2003. Rates on 30-year mortgages have risen to more than 6.5%, the highest level in nearly four years, which will further impair the housing market.

The economy grows 4.8% in the first quarter …

… the strongest growth in 2 ½ years. A Commerce Department report indicates that consumers, businesses and government all went on a spending spree that fueled the economy during the first quarter. Consumer confidence rose to the highest level in almost four years as consumers appeared undeterred by near-record gasoline prices. The unemployment rate dropped to 4.7%, lowest in 4 ½ years, as employers added 211,000 jobs to the economy.

Former Enron executives take the stand …

… in defense of their actions leading to the collapse of the former energy giant. Former CEOs Kenneth Lay and Jeffrey Skilling are accused of painting a false financial picture of Enron, though they allegedly knew the accounting gimmicks hid the company's actual condition. Both lay the blame of Enron's collapse on other company executives. When the trial concludes, it will bring to a close the many high-profile scandals uncovered in the early part of the decade resulting from either improper accounting or insider trading, including Arthur Andersen, WorldCom, Tyco, ImClone (leading to Martha Stewart's conviction) and numerous others.

Fund Performance

Investment performance for the month of April was very good, with all of the General Board's funds posting positive returns. International stocks were particularly strong, aided by weakness in the U.S. dollar. For the year-to-date period, only one General Board fund has a negative return. Generally, the funds' performance is excellent compared to the performance benchmarks.

The Inflation Protection Fund (IPF) gained 0.5% for the month despite a decline of 0.2% for the performance benchmark. For the second month in a row, the fund gained ground compared to its benchmark as a result of its 10% exposure to commodities and the contribution from active management by the fund's global inflation protected securities investment manager. For the month, a basket of commodities held by the fund increased in value by 6.5%. For the year, the IPF has declined 1.5%. However, the aforementioned contribution from commodities and the active investment manager has resulted in a 1.0% improvement compared to the performance benchmark, which has declined 2.5%.

The Domestic Bond Fund (DBF) advanced 0.3% during April, and its performance benchmark also declined 0.2% due to rising interest rates. The fund benefited primarily from its exposure to bonds denominated in foreign currencies as the U.S. dollar depreciated in value during the month. For the year, the DBF is up 0.6% and is handily outpacing the performance benchmark's return of -0.6%. As in the month of April, the depreciating U.S. dollar's impact on the fund's foreign bond holdings is primarily responsible for the fund's excess performance so far this year.

The Multiple Asset Fund produced a positive investment return of 1.8% during the month and exceeded the return of its performance benchmark by 0.4%. The excess performance is attributable to the better-than-benchmark performance of the two bond components, and only slightly offset by the lower-than-benchmark performance of the two stock components. For the year, the fund has produced solid absolute and relative gains compared to the fund's benchmark. Through the end of April, the fund is up 6.7% and its benchmark has gained 5.4%. The benchmark-relative performances of the Inflation Protection, Domestic Bond and Domestic Stock Funds have enhanced relative performance, though the relative performance of the International Stock Fund has detracted from MAF's returns for the first four months of the year.

The Domestic Stock Fund increased in value by 0.9% in April and slightly underperformed its performance benchmark return of 1.1%. The fund has a higher-than-benchmark exposure to the stocks of small and mid-sized companies, which did not perform as well as the stocks of large companies. However, the General Board's small and mid-sized company investment managers collectively outperformed their specific benchmarks; otherwise the differential would have been larger. The General Board's real estate holdings also helped performance. For the year, the fund is up 7.9% and its benchmark is up 6.5%. Despite the reversal in April, the General Board's greater-than-market weighting in small and mid-sized company stocks has benefited the fund, along with the outstanding results from the fund's exposure to private real estate.

The International Stock Fund posted very strong results in April with a gain of 5.0%. This was just slightly below the performance benchmark return of 5.1%. The fund's meaningful exposure to stocks of lesser-developed countries made a positive contribution to performance, but this was offset by the collective underperformance of all of the fund's managers. Five of the managers underperformed their benchmark, and the sixth manager matched the performance of its benchmark. For the year, the fund is up 14.3% and trails the benchmark return of 15.3%. The market index for stocks for developing countries is up 20% for the year, although the positive contribution from these stocks has been more than offset by the collective underperformance of the General Board's investment managers. As for the month of April, five of the General Board's six managers are underperforming their respective benchmarks on a year to date basis. The sixth manager is marginally ahead of its benchmark. The General Board is not at all concerned about the current less-than-market performance by its active management team. The current manager line-up in the International Stock Fund is the same one that produced outstanding results in the international equity component of MAF in 2005. The group has collectively generated excellent long-term investment returns compared to the performance benchmark.

The Balanced Social Values Plus Fund was flat in April compared to a gain of 0.7% for its benchmark. The fund's exposure to companies with earnings growth that is faster than the overall market, and its exposure to stocks of small and mid-sized companies, hurt performance. For the year, the fund is up 4.1%, which is marginally better than the 4.0% return of its performance benchmark.

Market Indices for April 2006

sp0604 The S&P 500 was up 1.2% in April and is up 4.9% for the year.
russ0604 The Russell 2000 was down 1.2% in April but is up 13.3% for the year.
msci0604 The MSCI World ex-USA Index was up 4.5% in March and is up 13.6% for the year.

The performance data for these charts is based on price changes only and do not include the impact of dividend payments.

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