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The Trustees of the Estate and Property, elected by the Convention of the Diocese, will make a change in how the Equity Fund is invested as of January 1, 2007. As of January, the Equity Fund will be known as the Diversified Equity Fund.

For many years the Equity Fund has been almost entirely invested in the stocks of the largest U.S. companies. The Trustees will be adding holdings of mid-sized and smaller U.S. companies to the Diversified Equity Fund, as well as investments in foreign companies. Owners of shares of the Diversified Equity Fund will benefit from exposure to other sectors of the equity markets, since the stocks of companies of different sizes and in different parts of the world perform differently over the cycles of the markets.

The target allocation model for the Diversified Equity Fund is as follows:

• Large-cap domestic equities            70%
• Mid-cap domestic equities            10%
• Small-cap domestic equities            5%
• International equities            15%

The Trustees will review the allocation at the end of each quarter, rebalancing as components move significantly from the target.

The three ways parish assets are held by DIT

DIT is available only to parishes of the Diocese of New York and related Church institutions. DIT holds funds in three ways for the benefit of parishes.

(1) Trust beneficiaries — Donors have set up many perpetual, irrevocable trusts since the inception of the Trustees of the Estate and Property (TEP) in 1877. As Trustees of these funds, TEP invests them in DIT with an asset allocation target of 50% equities/50% fixed income. In most cases, income (interest and dividends) generated by the assets is paid out to the beneficiaries quarterly. The control of the funds rests with TEP under the terms of the trusts; the beneficiaries receive the income.

(2) Parish Endowment Management Service (PEMS) — Some parishes choose to have the DIT manage their investment assets. The parishes sign an investment agreement under which TEP (a) maintains a target allocation of 60% equities/40% fixed income, rebalancing as necessary, (b) reinvests all dividends; (c) calculates a three-year moving average of the total balance; and (d) calculates a drawdown equal to 5% of the three-year average; and (e) sends the parish the drawdown in quarterly installments. PEMS is intended to be a way for parishes to manage their investments in accord with the best practices of total return investing, while providing a reliable structure and oversight for the long-term management and preservation of the funds. The funds always remain parish assets. Unless there is a separate agreement with the Bishop and the Standing Committee, a parish always has the ability to ask for a withdrawal greater than the drawdown or to withdraw from PEMS entirely at the end of any month.

(3) Direct shareholders — Parishes may invest part or all of their investment funds in DIT as they would in any mutual fund. The parishes decide on the asset allocation they require between the Equity and Income Funds. The parish tells DIT if it would like to receive the income quarterly. The parish may also tell DIT to reinvest the income and send a fixed dollar amount monthly or quarterly. The parishes instruct DIT if they want to rebalance their investment allocation.

Some questions about the Diversified Equity Fund

What does the Diversified Equity Fund mean for the funds my parish has with DIT?

It means that your investment automatically will benefit from the wider exposure to other sectors of the equity markets. The change is internal to DIT; investors do not have to do anything to benefit from the new investment allocation. You will continue to receive the same kind of reports you are receiving now. The Executive Director’s letter will contain additional information about the actual allocation of the Diversified Equity Fund at the end of each quarter.

Does this change the investment objectives of DIT?

DIT’s investment objectives remain the same. The Trustees believe the Diversified Equity Fund will allow us to achieve those objectives better. The principal benchmark for the Diversified Equity Fund will remain the S&P 500. The performance of PEMS accounts will continue to be compared to a blended benchmark — 60% S&P 500/40% Lehman Bond Aggregate, reflecting the target allocation between stocks and fixed income investments.

Who will be managing the funds in the Diversified Equity Fund?

At present the Equity Fund is a fund actively managed by Wellington Management. DIT will continue to use Wellington as the active manager of the large-cap portion of the Diversified Equity Fund. For now, the rest of the Diversified Equity Fund will be held in index funds offered through Vanguard. Index funds are not actively managed; the holdings of an index fund simply mirror the components of the index. The returns will be the same as the index, less the fees. The Vanguard funds use mid-cap, small-cap and international indexes standard in the industry.

Will the fees increase because of this?

No, overall the fees will be about the same. The index funds’ fees will not be higher than what we are currently paying Wellington. Total fees may decrease slightly.

Why is DIT doing this now?

Diversification helps manage the risk of investing by exposure to more segments of the market. It is good investment strategy. Now that DIT’s office has moved to the diocesan office and is supported by the financial staff there as well as by DIT’s Executive Director, Michele Kearney, DIT is capable of handling a more sophisticated investment program.

Do we need to do anything?

No. The Diversified Equity Fund will replace the Equity Fund automatically for the trusts and PEMS shareholders.

The Diversified Equity Fund will also replace the Equity Fund for all direct shareholders that don’t opt out. Direct shareholders will receive separate information about that provision.

DIT’s Diversified Equity Fund:

Additional Information for Direct Shareholders

If you have voluntarily put all or part of your long-term investments with DIT, and if you are not a PEMS subscriber, you are a direct shareholder with DIT. That means that DIT makes no decisions for you. You tell DIT how you want your funds invested between the Equity and Income Funds, whether you want the dividends reinvested or sent to you, and whether you want additional funds to be withdrawn and sent to you monthly or quarterly.

We expect almost all direct shareholders will want the Diversified Equity Fund

If the DIT Equity Fund is currently your only investment in stocks, DIT hopes and expects that you will agree that the Diversified Equity Fund provides a better investment vehicle than investments that are wholly concentrated in one part of the market. That is why we expect you will want us automatically to convert your shares of the Equity Fund into the Diversified Equity Fund.

One exception that may apply to a few direct shareholders

However, there is one circumstance in which a direct shareholder may wish to opt out of the Diversified Equity Fund and keep only the large-cap portion. If you have significant investments in stocks with managers other than DIT, and if you have already provided for appropriate asset allocation in other sectors of the equity markets with these managers, you may wish to keep DIT as a large-cap equity manager.

If this is your situation, and if you wish to opt out of the Diversified Equity Fund and keep the DIT Equity Fund as only a large-cap fund, please contact one of the following to make arrangements to opt out of the conversion:

Michele Kearney, 212-932-7312; mkearney@dioceseny.org

Carol O’Neale, 212-316-7457; coneale@dioceseny.org

The Rev. Jerry Keucher, 212-316-7536; jkeucher@dioceseny.org

The deadline for opting out of the conversion of the Equity Fund is Thursday, November 30, 2006.

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