10-12G

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

FEDERAL HOME LOAN BANK OF BOSTON

(Exact name of registrant as specified in its charter)

Federally chartered corporation	04-6002575
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
111 Huntington Avenue Boston, Massachusetts	02199
(Address of principal executive offices)	(Zip Code)

(617) 292-9600

(Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act:

Class B Stock, par value $100 per share

Table of Contents

Description
	RISK FACTORS
ITEM 1.	BUSINESS
ITEM 2.	FINANCIAL INFORMATION
ITEM 3.	PROPERTIES
ITEM 4.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 5.	DIRECTORS AND EXECUTIVE OFFICERS
ITEM 6.	EXECUTIVE COMPENSATION
ITEM 7.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8.	LEGAL PROCEEDINGS
ITEM 9.	MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 10.	RECENT SALES OF UNREGISTERED SECURITIES
ITEM 11.	DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
ITEM 12.	INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 13.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 14.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 15.	FINANCIAL STATEMENTS AND EXHIBITS

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RISK FACTORS

Certain terms used in this section are defined and/or explained elsewhere in the document such as, Finance Board, Exchange Act, FHLBanks, and FHLBank Act. Unless otherwise indicated or unless the context requires otherwise, all references in this discussion to “the Bank,” “we,” “us,” “our” or similar references mean the Federal Home Loan Bank of Boston.

The following discussion summarizes some of the more important risks that the Bank faces. This discussion is not exhaustive, and there may be other risks that the Bank faces, which are not described below. The risks described below, if realized, could negatively affect the Bank’s business operations, financial condition and future results of operations, and, among other things, could result in the Bank’s inability to pay dividends in respect of its common stock.

The Bank May Become Liable for All or a Portion of the Consolidated Obligations of the FHLBanks.

Each of the FHLBanks relies upon the issuance of consolidated obligations (COs) as a primary source of funds. COs are the joint and several obligations of all of the FHLBanks, backed only by the financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the COs issued by the FHLBanks through the Office of Finance, regardless of whether the Bank receives all or any portion of the proceeds from any particular issuance of COs.

The Federal Housing Finance Board (Finance Board), in its discretion, may require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation. Accordingly, the Bank could incur significant liability beyond its primary obligation under COs due to the failure of other FHLBanks to meet their obligations, which could negatively affect the Bank’s financial condition and results of operations.

The Bank is Subject to a Complex Body of Laws and Regulations, which Could Change in a Manner Detrimental to the Bank’s Operations.

The FHLBanks are government-sponsored enterprises (GSEs), organized under the authority of the FHLBank Act, and, as such, are governed by federal laws and regulations as adopted and applied by the Finance Board, an independent agency in the executive branch of the federal government. The Finance Board supervises the Bank and establishes the regulations governing the Bank. From time to time, Congress has amended the FHLBank Act in ways that have significantly affected the rights and obligations of the FHLBanks and the manner in which the FHLBanks carry out their housing-finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Board could have a negative effect on the Bank’s ability to conduct business, or on the cost of doing business.

On June 23, 2004, the Finance Board approved a rule that requires each of the FHLBanks to register a class of its capital stock with the Securities and Exchange Commission (SEC) under Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The rule requires each FHLBank to ensure that the SEC declares the registration statement registering such stock effective by not later than August 29, 2005. Once registered, the Bank will be required to file quarterly, annual, and other current and periodic reports with the SEC. SEC registration poses some uncertainties and risks to the FHLBanks. The Bank will incur additional legal, accounting, and compliance costs associated with its registration with the SEC and its continuing reporting and certification obligations under the Exchange Act.

The Bank cannot predict whether Congress will enact this or any other new legislation, nor can the Bank predict the effect of this or any other new legislation on the Bank’s operations. Changes in regulatory requirements could result in, among other things, an increase in the FHLBanks’ cost of funding, a change in permissible business activities, or a decrease in the size, scope, or nature of the FHLBanks’ lending investment or mortgage purchase program activities, which could negatively affect the Bank’s financial condition and results of operations.

Multidistrict Membership Could Adversely Affect the Bank.

On October 3, 2001, the Finance Board solicited comments on the implications for the FHLBank System if the Finance Board permitted eligible institutions to become members of more than one FHLBank. The request was prompted by the submission of several petitions asking the Finance Board to permit a single depository institution involved in an interstate merger transaction to become a member of more than one FHLBank concurrently. A decision by the Finance Board to permit multidistrict membership could significantly affect the business and operations of the Bank and the FHLBank System.

While the issues are complex and unprecedented, it is possible that multidistrict membership would result in greater competition among the FHLBanks. Multidistrict membership also would raise a myriad of operational issues, including:

•Whether a single institution would be required to comply with the minimum stock requirements of multiple FHLBanks;

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•The extent to which and the means by which members could create competition among the FHLBanks for their business;

•How collateral pledged by a single institution to secure advances should be apportioned among multiple FHLBanks; and

•The extent to which a single institution should be permitted to have representation on the boards of directors of multiple FHLBanks.

If, as is currently the case, the Finance Board does not permit multidistrict membership, interstate mergers involving members from different FHLBank districts may result in an increase in the concentration of large members in some FHLBanks and a decrease in membership and loss of business in other FHLBanks. In response to questions at a Congressional hearing on July 12, 2004, the Chairman of the Finance Board stated that the Finance Board had no plan to act on the issue of multidistrict membership. However, there can be no assurance that the Finance Board or any new regulator will continue to take this position.

Changes in Interest Rates Could Significantly Affect the Bank’s Earnings.

Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank’s outstanding loans and investments and interest paid on the Bank’s borrowings and other liabilities, as measured by its net interest spread. Although the Bank uses various methods and procedures to monitor and manage exposures due to changes in interest rates, the Bank may experience instances when either the Bank’s interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, interest rate moves contrary to the Bank’s position could negatively affect the Bank’s financial condition and results of operations. Moreover, these impacts can be exacerbated by prepayment and extension risk, which is the risk that mortgage-related assets will be refinanced in low interest-rate environments, or will remain outstanding at below-market yields when interest rates increase.

The Bank Relies Upon Derivative Instruments to Reduce Its Interest-Rate Risk, and the Bank May Not Be Able to Enter Into Effective Derivative Instruments on Acceptable Terms.

The Bank uses derivative instruments to attempt to reduce its interest-rate risk and mortgage-prepayment risk. The Bank’s management determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank’s effective use of these instruments depends upon the ability of the Bank’s management to determine the appropriate hedging positions in light of the Bank’s assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank’s hedging strategy depends upon the Bank’s ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank’s corresponding obligations. If the Bank is unable to manage its hedging positions properly, or is unable to enter into hedging instruments upon acceptable terms, the Bank may be unable to effectively manage its interest-rate and other risks, which could negatively affect the Bank’s financial condition and results of operations.

Counterparty Credit Risk Could Adversely Affect the Bank.

The Bank assumes unsecured credit risk when entering into money-market transactions and financial derivatives transactions with counterparties. The insolvency or other inability of a significant counterparty to perform its obligations under such transactions or other agreement could have an adverse effect on the Bank’s financial condition and results of operations.

Changes in the Bank’s Credit Ratings May Adversely Affect the Bank’s Ability to Issue Consolidated Obligations on Acceptable Terms.

The Bank currently has the highest credit rating from Moody’s Investors Service (Moody’s) and Standard & Poor’s Ratings Services (S&P). In addition, the COs of the FHLBanks have been rated Aaa/P-1 by Moody’s and AAA/A-1+ by S&P. These ratings are subject to revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings.

However, S&P has assigned five other FHLBanks a negative outlook rating and lowered its long-term counterparty credit rating on three FHLBanks through March 31, 2005, in each case to AA+ from AAA. Although the credit ratings of the COs of the FHLBanks have not been affected by these actions, similar ratings actions or negative guidance may adversely affect the Bank’s cost of funds and ability to issue COs on acceptable terms, which could negatively affect the Bank’s financial condition and results of operations.

The Bank’s Funding Depends upon Its Ability to Access the Capital Markets.

The Bank’s primary source of funds is the sale of COs in the capital markets. The Bank’s ability to obtain funds through the sale of COs depends in part on prevailing conditions in the capital markets at that time, which are beyond the Bank’s control. Accordingly,

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the Bank cannot make any assurance that it will be able to obtain funding on terms acceptable to the Bank, if at all. If the Bank cannot access funding when needed, the Bank’s ability to support and continue its operations would be adversely affected, which would negatively affect the Bank’s financial condition and results of operations.

The Bank Faces Competition for Loan Demand, Which Could Adversely Affect Earnings.

The Bank’s primary business is making advances to its members. The Bank competes with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks, and, in certain circumstances, other FHLBanks. The Bank’s members have access to alternative funding sources, which may offer more favorable terms on their loans than the Bank does on its advances, including more flexible credit or collateral standards. In addition, many of the Bank’s competitors are not subject to the same body of regulation applicable to the Bank, which enables those competitors to offer products and terms that the Bank is not able to offer.

The availability to the Bank’s members of alternative funding sources that are more attractive than those funding products offered by the Bank may significantly decrease the demand for the Bank’s advances. Any change made by the Bank in the pricing of its advances in an effort to compete effectively with these competitive funding sources may decrease the Bank’s profitability on advances. A decrease in the demand for the Bank’s advances, or a decrease in the Bank’s profitability on advances would negatively affect the Bank’s financial condition and results of operations.

The Bank’s Efforts to Make Advance Pricing Attractive to Members May Affect Earnings.

The board of directors and management believe that the primary benefits of Bank membership should accrue to borrowing members in the form of low-cost advances. However, any decision to lower advance spreads further in order to gain volume or increase the benefits to borrowing members could result in lower earnings, which could result in lower dividend yields to members.

A Decrease in the Bank’s Earnings Could Reduce Affordable Housing Program (AHP) Subsidies to the Bank’s Members.

In order to fund its AHP, each FHLBank is required to contribute the greater of (1) 10 percent of its net income before AHP charges (excluding the interest expense on mandatorily redeemable capital stock), but after the assessment for the Resolution Funding Corporation (REFCorp) and (2) its prorated share of the FHLBank System’s minimum $100 million annual contribution. Obtaining access to the subsidies in the AHP is a significant benefit to the Bank’s members. If the Bank’s earnings were adversely affected for any reason, then the amount of subsidies, an important benefit of membership, would be reduced.

Increased AHP Contributions by the Bank Could Decrease the Dividends Paid by the Bank to its Members.

If the total annual net income of the 12 FHLBanks were to fall below $1 billion, each FHLBank would be required to contribute more than 10 percent of its net income to its AHP to meet the minimum $100 million annual contribution. Increasing the Bank’s AHP contribution in such a scenario would reduce the Bank’s earnings and potentially reduce the dividend paid to members.

The Bank Relies Heavily Upon Information Systems and Other Technology.

The Bank relies heavily upon information systems and other technology to conduct and manage its business. To the extent that the Bank experiences a failure or interruption in any of these systems or other technology, the Bank may be unable to conduct and manage its business effectively, including, without limitation, its hedging and advances activities. While the Bank has implemented a Disaster Recovery Plan, the Bank can make no assurance that it will be able to prevent, timely and adequately address, or mitigate the negative effects of any such failure or interruption. Any failure or interruption could significantly harm the Bank’s customer relations, risk management, and profitability, which could negatively affect the Bank’s financial condition and results of operations.

The Bank May Not Be Able to Pay Dividends at Rates Consistent with Past Practices.

The Bank’s board of directors may declare dividends on the Bank’s capital stock, payable to members, from the Bank’s retained earnings and current income. The Bank’s ability to pay dividends also is subject to statutory and regulatory liquidity requirements. In March 2004, the Bank adopted a retained earnings policy to increase our retained earnings to improve our ability to absorb future losses, if any. The Bank then revised its retained earnings model in December 2004, and may do so again in the future.

The Bank’s retained earnings policy requires the Bank to establish a target amount of retained earnings by considering factors such as market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank’s control. The Bank’s current target is to achieve a balance of retained earnings of $120 million in 2006. Events such as changes in the Bank’s market-risk profile, credit quality of assets held, and increased volatility of net income effects of the application of certain generally accepted accounting principles (GAAP) may affect the adequacy of the Bank’s retained earnings and may require the Bank to increase its target level of

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retained earnings and reduce its dividends from historical dividend payout ratios in order to achieve and maintain the targeted amount of retained earnings. As a result, the Bank’s members could receive lower dividends in respect of their capital stock in the Bank.

The Public Perception of Government-Sponsored Enterprises, Such as the Bank, May Adversely Affect the Bank’s Business Activities, Future Advance Balances, and the Cost of Raising Capital.

Many GSEs, such as Fannie Mae, Freddie Mac, and the FHLBank System, issue AAA-rated agency debt to fund their operations. All three agencies have grown significantly in recent years. As a result of this growth, these agencies have actively issued debt securities to raise capital, and the capital markets have been under pressure to absorb this increase of debt issuances. In addition, recent negative accounting and other announcements by Fannie Mae and Freddie Mac have created pressure on debt pricing, as investors have perceived such instruments as bearing increased risk.

As a result of this growth and perceived increased risk, the FHLBank System may have to pay a higher rate of interest on its COs to make them attractive to investors. If the Bank maintains its existing pricing on advances, the resulting increased costs of issuing COs could cause advances to be less profitable to the Bank as the net interest margin (the difference between the interest rate received on advances and the interest rate paid on COs) decreases. If, in response to this decrease in net interest margin, the Bank changes the pricing of its advances, the advances may no longer be attractive to members, and the Bank’s outstanding advance balances may decrease. In either case, the increased cost of issuing COs would negatively affect the Bank’s financial condition and results of operations.

The Bank’s Business Activities May Be Adversely Affected Due to Strategy Changes by its Affiliates.

As part of our business, we participate in a mortgage partnership finance program with the Federal Home Loan Bank of Chicago, which accounts for eight percent of our total assets as of March 31, 2005, and approximately 16 percent of net interest income. If the FHLBank of Chicago changes the program or ceases to operate the program, this would have a negative impact on our mortgage purchase business.

ITEM 1. BUSINESS

General

The Federal Home Loan Bank of Boston is a federally chartered corporation organized by Congress in 1932 and is a GSE. The Bank is privately capitalized and its mission is to serve the residential-mortgage and community-development lending activities of member financial institutions located in the New England region. Altogether, there are 12 district Federal Home Loan Banks (FHLBanks) located across the United States (U.S.), each supporting the lending activities of member financial institutions within their specific regions. Each FHLBank is a separate entity with its own board of directors, management, and employees.

The Bank combines private capital and public sponsorship that enables its member financial institutions to assure the flow of credit and other services for housing and community development. The Bank serves the public through member financial institutions by providing members with a readily available, low-cost source of funds, thereby enhancing the availability of residential-mortgage and community-investment credit. In addition, the Bank provides members a means of liquidity through a mortgage-purchase program. Under this program, members are offered the opportunity to originate mortgage loans for sale to the Bank. The Bank’s primary source of income is derived from the spread between interest-earning assets and interest-bearing liabilities. The Bank borrows funds at favorable rates due to its GSE status, conservative risk-management practices, and strong capital position.

The Bank’s members and customers are comprised of eligible financial institutions located throughout the New England region. The region is comprised of Massachusetts, Rhode Island, Connecticut, Vermont, New Hampshire, and Maine. Eligible financial institutions include thrift institutions (savings banks, savings and loan associations, and cooperative banks), commercial banks, credit unions, and insurance companies that are active in housing finance. The Bank is also authorized to lend to certain nonmember institutions (called “housing associates”) such as state housing-finance agencies located in New England. Members are required to purchase and hold the Bank’s capital stock for advances and other lending activities transacted with the Bank. The par value of the Bank’s capital stock is $100 and is not publicly traded on any stock exchange. In addition, the U.S. government guarantees neither the member’s investment in nor any dividend on the Bank’s stock. The Bank is capitalized by the capital stock purchased by its members and retained earnings. Members may receive dividends, which are determined by the Bank’s board of directors, and may redeem their capital stock at par value after satisfying certain requirements discussed further in the Capital Resources section in Item 2 Financial Information - Management’s Discussion and Analysis.

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The Bank’s regulator is the Finance Board, an independent federal agency charged with the regulation and supervision of the FHLBanks and the Office of Finance. The Finance Board’s principal purpose is to ensure that the Bank operates in a safe and sound manner. In addition, the Finance Board’s other duties are to ensure that the Bank carries out its housing-finance mission, remains adequately capitalized, and has the ability to raise funds in the capital markets.

The Office of Finance was established by the Finance Board to facilitate the issuing and servicing of COs of the FHLBanks. These COs are issued on a joint basis. Effective January 2, 2001, the FHLBanks, through the Office of Finance as their agent, became the issuers of COs for which they are jointly and severally liable. Previously, the Finance Board, through the Office of Finance, was the issuer of COs for the FHLBanks. The Office of Finance also provides the FHLBanks with credit and market data and maintains relationships with credit-rating agencies. The Office of Finance manages the REFCorp and Financing Corporation programs.

Following the Bank’s registration with the SEC, the Bank will make available through its website (www.fhlbboston.com) all reports electronically filed, or furnished, to the SEC, including the Bank’s annual report on Form 10-K, the Bank’s quarterly reports on Form 10-Q, and current reports on Form 8-K as well as any amendments. These reports will be made available as soon as reasonably practicable after electronically filing or being furnished to the SEC. These reports may also be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Further information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports and other information regarding the Bank’s electronic filings located at (http://www.sec.gov). The website addresses of the SEC and the Bank have been included as inactive textual references only. Information on those websites is not part of this report.

As of May 31, 2005, the Bank had 177 full-time and three part-time employees.

Membership

The Bank’s members are financial institutions with their principal place of business located in the six New England states. The following table summarizes the Bank’s membership, by type of institution, as of March 31, 2005, December 31, 2004, 2003, and 2002.

Membership Summary

Number of Members by Institution Type

	March 31,	December 31,
	2005	2004	2003	2002
Commercial banks	89	90	99	98
Thrift institutions	241	243	252	258
Credit unions	126	125	111	104
Insurance companies	9	9	9	5
Total members	465	467	471	465

As of March 31, 2005, December 31, 2004, 2003, and 2002, approximately 75.7 percent, 75.8 percent, 72.6 percent, and 70.8 percent, respectively, of the Bank’s members had outstanding advances from the Bank. These usage rates are calculated excluding housing associates and nonmember borrowers. While eligible to borrow, housing associates are not members of the Bank and, as such, are not required to hold capital stock. Nonmember borrowers consist of institutions that are former members or that have acquired former members and assumed the advances held by those former members. Nonmember borrowers are required to hold capital stock to support outstanding advances with the Bank until those advances either mature or are paid off, at which time the nonmember borrower’s affiliation with the Bank is terminated. During the period that the advances remain outstanding, nonmember borrowers may not request new advances nor are they permitted to extend or renew the assumed advances.

Community Financial Institutions (CFIs) are defined by the Gramm-Leach-Bliley Act of 1999 (GLB Act) to include all Federal Deposit Insurance Corporation (FDIC)-insured institutions with average total assets over the three prior years equal to or less than $500 million, as adjusted annually for inflation since 1999. For 2005, CFIs are FDIC-insured institutions with average total assets equal to or less than $567 million over the prior three-year period. In 2004 and 2003, the average total asset ceiling for CFI designation was $548 million and $538 million, respectively. The GLB Act expanded the eligibility for membership of CFIs in the FHLBanks and authorized the FHLBanks to accept expanded types of assets as collateral for advances to CFIs.

The Bank’s membership currently includes the majority of FDIC-insured institutions in its district that are eligible to become members. Eligible nonmembers are primarily smaller depository institutions, such as credit unions, and insurance companies that have thus far elected not to join the Bank. For this reason, the Bank does not currently anticipate that a substantial number of additional institutions will become members, or that additional members will have a significant impact on the Bank’s future business.

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As a cooperative, the Bank is managed with the primary objectives of enhancing the value of membership for member institutions and fulfilling its public purpose. The value of membership includes access to readily available credit from the Bank, the value of the cost differential between Bank advances and other potential sources of funds, and the dividends paid on members’ investment in the Bank’s capital stock.

Business Segments

The Bank has identified two main operating business segments: traditional business activities and mortgage-loan finance. The products and services provided reflect the manner in which financial information is evaluated by management. Refer to Note 15 – Segment Information in the notes to the annual financial statements for additional financial information related to our business segments.

Traditional Business Activities

The Bank’s traditional business segment includes products such as advances and investments and their related funding and hedging costs. Income from this segment is derived primarily from the difference, or spread, between the yield on advances and investments and the borrowing and hedging costs related to those assets. Capital is allocated to the segments based upon asset size.

Advances. The Bank serves as a source of liquidity and makes loans, called advances, to its members and eligible housing associates on the security of mortgages and other collateral that members pledge. The Bank had 352 members, three eligible housing associates and two nonmembers with advances outstanding as of March 31, 2005. All advances must be secured by eligible collateral. Eligible collateral for Bank advances includes: fully disbursed whole first mortgage loans on improved residential real estate; mortgage-backed securities (MBS) issued or guaranteed by the U.S. or any agency thereof; certain private-label MBS representing an interest in whole first mortgage loans on improved residential real estate; and cash on deposit at the Bank that is specifically pledged to the Bank as collateral. The Bank also accepts secured small-business, small agri-business, and small farm loans from member CFIs. In certain circumstances, when a member has pledged all other available qualified collateral, other real-estate-related collateral may be considered by the Bank. Such real-estate-related collateral must have a readily ascertainable value, and the Bank must be able to perfect a security interest in it. In accordance with regulations promulgated by the Finance Board, the Bank accepts home-equity loans, home equity lines of credit, and first mortgage loans on commercial real estate as other real-estate-related collateral. The Bank applies a collateral discount to all eligible collateral, based on the Bank’s analysis of the risk factors inherent in the collateral. The Bank reserves the right, in its sole discretion, to refuse certain collateral, or to adjust collateral discounts applied. The Bank’s collateral policy complies with all applicable regulatory requirements. Access to the Bank’s advances for liquidity purposes can reduce the amount of low-yielding liquid assets a member would otherwise need to hold.

Advances generally support mortgages held in member portfolios. Advances may also be used to provide funds to any member CFIs. Currently, no CFI that is a member of the Bank has pledged loans to small businesses, small farms, or small agri-businesses as collateral for advances. Because members may originate loans that they are unwilling or unable to sell in the secondary mortgage market, the Bank’s advances can serve as a funding source for a variety of conforming and nonconforming mortgages. Thus, advances support important housing markets, including those focused on low- and moderate-income households. For those members that choose to sell or securitize their mortgages, the Bank’s advances can provide interim funding.

Members that have an approved line of credit with the Bank may from time to time overdraw their demand-deposit account. These overdrawn demand-deposit accounts are reported as advances in the statements of condition. These line of credit advances are fully secured by eligible collateral pledged by the member to the Bank. In cases where the member overdraws their demand-deposit account by an amount that exceeds their approved line of credit, the Bank will assess a penalty fee to the member.

In addition to member institutions, the Bank is permitted under the Federal Home Loan Bank Act of 1932 (FHLBank Act) to make advances to nonmembers that are approved mortgagees under Title II of the National Housing Act. These eligible “housing associates” must be chartered under law and have succession, be subject to inspection and supervision by some governmental agency, and lend their own funds as their principal activity in the mortgage field. Housing associates are not subject to capital-stock-purchase requirements; however, they are subject to the same underwriting standards as members, but may be more limited in the forms of collateral that they may pledge to secure advances.

Additionally, the Bank’s advances can provide funding to smaller members that lack diverse funding sources. Smaller members often do not have access to many of the funding alternatives available to larger financial entities, including repurchase agreements and commercial paper. The Bank gives these smaller members access to competitively priced wholesale funding.

Through a variety of specialized advance programs, the Bank provides funding for targeted initiatives that meet defined criteria for providing assistance either to low- or moderate-income individuals or for economic development of areas that are economically

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disadvantaged. As such, these programs help members meet their Community Reinvestment Act (CRA) responsibilities. Through programs such as the AHP and the Community Development advance (CDA), members have access to subsidized and other low-cost funding to create affordable rental and homeownership opportunities, and for commercial and economic-development activities that benefit low- and moderate-income neighborhoods, thus contributing to the revitalization of these communities.

Members are required to purchase and maintain Class B stock equal to 4.5 percent of all advances outstanding. Housing associates are not permitted to invest in stock. For further information regarding member capital requirements, refer to the Capital Resources section in Item 2 Financial Information-Management’s Discussion and Analysis.

The Bank’s advances products also help members in their asset-liability management. The Bank offers advances that members can use to match the cash-flow patterns of their mortgage loans. Such advances can reduce a member’s interest-rate risk associated with holding long-term, fixed-rate mortgages. Principal repayment terms may be structured as 1) interest-only to maturity (sometimes referred to as “bullet” advances) or to an optional early termination date (see putable and callable advances as described below) or 2) as amortizing advances, which are fixed-rate and term structures with equal monthly payments of interest and principal. Repayment terms are offered up to 20 years. Amortizing advances are also offered with partial principal repayment and a balloon payment at maturity. At March 31, 2005, the Bank held $2.5 billion in amortizing advances.

Advances with original fixed maturities of greater than six months may be prepaid at any time, subject to a prepayment fee that makes the Bank economically indifferent to the member’s decision to prepay the advance. Advances with original maturities of six months or less may not be prepaid. Certain adjustable-rate advances are prepayable at rate-reset dates with a fee equal to the present value of a predetermined spread for the remaining life of the advance. The formulas for the calculation of prepayment fees for the Bank’s advances products are included in the advance application for each product. The formulas are standard for each product and apply to all members.

The Bank’s advances program includes products with embedded caps and floors, amortizing advances, callable advances, and putable advances where the member holds the option to cancel without fee.

•Putable advances are intermediate-and long-term advances for which the Bank holds the option to cancel the advance on certain specified dates after an initial lockout period. Putable advances are offered with fixed rates or with an adjustable rate to the first put date. Members may also choose a structure that will be terminated automatically if the London Interbank Offered Rate (LIBOR) hits or exceeds a predetermined strike rate on specified dates. At March 31, 2005, the Bank held $5.6 billion in putable advances.

•LIBOR-indexed collared floating-rate advances adjust monthly or quarterly and are capped and floored at strike levels chosen by the member. At March 31, 2005, the Bank had no outstanding collared floating-rate advances.

•Callable advances are fixed rate and term structures that include a provision whereby the member may prepay the advance prior to maturity on certain specified call dates without fee. At March 31, 2005, the Bank held $30 million in callable advances.

•LIBOR-indexed capped floating-rate advances adjust monthly or quarterly and are capped at a strike level chosen by the member. At March 31, 2005, the Bank held $233.5 million in outstanding capped floating-rate advances.

Advances that have embedded options and advances with coupon structures containing derivatives are usually hedged in order to offset the embedded derivative feature. See the Interest-Rate-Exchange Agreements discussion for additional information.

Because advances are a wholesale funding source for the Bank’s members that must be competitively priced relative to other potential sources of wholesale funds to the Bank’s members, and because they are fully secured and possess very little credit risk, advances are priced at profit margins that are much thinner than those realized by most banking institutions. The Bank prices advances at rates that are generally under 40 basis points above the Bank’s cost of funds for equivalent-term funding. By regulation, the Bank may not price advances at rates that are less than the Bank’s cost of funds for the same maturity, inclusive of the cost of hedging any embedded call or put options in the advance.

Deposits. The Bank offers demand- and overnight-deposit programs to its members and housing associates. Short-term deposit programs are also offered to members. The Bank does not have discretion over the timing and amount of deposits that it receives from members, and therefore, does not rely on deposits as a funding source for advances and loan purchases. Proceeds from deposit issuance are generally invested in short-term investments to ensure that the Bank can liquidate deposits on request.

The Bank must maintain compliance with statutory liquidity requirements that require the Bank to hold cash, obligations of the U.S., and advances with a maturity of less than five years in an amount not less than the amount of deposits of members. The following

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table provides the Bank’s liquidity position with respect to this requirement.

Liquidity Reserves for Deposits

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003
Liquid assets
Cash and due from banks	$	11,346	$	11,891	$	9,218
Interest-bearing deposits in banks	2,500,050		2,655,050		100,050
Advances maturing within five years	26,550,625		25,082,403		18,578,784
Total liquid assets	29,062,021		27,749,344		18,688,052
Total deposits	760,077		890,869		946,166
Excess assets	$	28,301,944	$	26,858,475	$	17,741,886

Refer to the Liquidity Risk section in Item 2 Financial Information - Management’s Discussion and Analysis for further information regarding the Bank’s liquidity requirements.

Investments.The Bank maintains a portfolio of investments for liquidity purposes and to provide additional earnings. To better meet potential member-credit needs at times when access to the CO debt market is unavailable (either due to requests that follow the end of daily debt issuance activities or due to a market disruption event impacting CO issuance), the Bank maintains a portfolio of short-term investments issued by highly rated institutions, including overnight federal funds, term federal funds, interest-bearing certificates of deposits, securities purchased under agreements to resell, and commercial paper. The Bank endeavors to enhance interest income and further support its contingent liquidity needs by maintaining a longer-term investment portfolio, which includes debentures issued by U.S. government agencies and instrumentalities, MBS and asset-backed securities (ABS) that are issued either by government-sponsored mortgage agencies or by other private-sector entities provided that they carry the highest ratings from a nationally recognized statistical-rating organization (NRSRO) as of the date of purchase. Most of the securities can be used as collateral under repurchase agreement borrowings. The Bank’s ABS holdings are limited to securities backed by loans secured by real estate. The long-term investment portfolio is intended to provide the Bank with higher returns than those available in the short-term money markets.

Under Finance Board regulations, the Bank is prohibited from investing in certain types of securities, including:

•instruments, such as common stock, that represent ownership in an entity, other than stock in small-business investment companies, or certain investments targeted to low-income persons or communities;

•instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks;

•non-investment-grade debt instruments, other than certain investments targeted to low-income persons or communities and instruments that were downgraded after purchase by the Bank;

•whole mortgages or other whole loans, other than 1) those acquired under the Bank’s mortgage-purchase program; 2) certain investments targeted to low-income persons or communities; 3) certain marketable direct obligations of state, local, or tribal-government units or agencies, having at least the second-highest credit rating from an NRSRO; 4) MBS or ABS backed by manufactured-housing loans or home-equity loans; and 5) certain foreign housing loans authorized under section 12(b) of the Act; and

•non-U.S. dollar denominated securities.

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The Finance Board’s requirements limit the Bank’s investment in MBS and ABS to 300 percent of the Bank’s previous monthend capital on the day it purchases the securities. In addition, the Bank is prohibited from purchasing:

•interest-only or principal-only stripped MBS;

•residual-interest or interest-accrual classes of collateralized mortgage obligations and real estate mortgage-investment conduits; or

•fixed-rate MBS or floating-rate MBS that on the trade date are at rates equal to their contractual cap and that have average lives that vary by more than six years under an assumed instantaneous interest-rate change of plus or minus 300 basis points.

Other banking activities. The Bank offers standby letters of credit (LOC), which are financial instruments issued by the Bank at the request of a member, promising payment to a third party (beneficiary) on behalf of a member. The Bank agrees to honor drafts or other payment demands made by the beneficiary in the event the member cannot fulfill its obligations. In guaranteeing the obligations of the member, the Bank assists the member in facilitating its transaction with the beneficiary and receives a fee in return. A member is evaluated for eligibility, collateral requirements, limits on maturity, and other credit standards required by the Bank before entering into any LOC transactions. Members must fully collateralize LOC to the same extent that they are required to collateralize advances. The Bank may also issue LOC on behalf of housing associates such as state and local housing agencies upon approval. For the three months ended March 31, 2005, the Bank received fees in connection with the issuance of LOC totaling $8,000. For the years ended December 31, 2004 and 2003, the Bank received fees in connection with the issuance of LOC of $84,000 and $78,000, respectively. Over the past two years, the Bank has not made any payment to a beneficiary to satisfy its obligation for the guarantee.

The Bank provides correspondent services, such as the purchase, sale, and safekeeping of securities on behalf of and solely at the direction of its members.

Members also can enter into interest-rate-exchange agreements directly with the Bank to reduce their exposure to interest-rate risk. The Bank offsets these agreements with matching-term derivatives with its derivatives counterparties, realizing a small fee or spread.

Mortgage-Loan Finance

The Mortgage Partnership Finance^â (MPF^Ò) program is a secondary mortgage market structure under which participating FHLBanks (MPF Banks) serve as a long-term source of liquidity to their participating financial institution members (PFIs) who originate mortgage loans. We have been an MPF Bank since 2000. We utilize the MPF program to provide such liquidity by purchasing mortgage loans after they have been originated by our members that are PFIs.

The MPF program was developed by the Federal Home Loan Bank of Chicago (FHLBank of Chicago) to provide an alternative source of liquidity for PFIs’ home mortgage finance business. Prior to the MPF program, the only alternatives available to many retail mortgage lenders was to hold loans in their portfolios or to sell their fixed-rate mortgage loans to the secondary market, typically to Fannie Mae and Freddie Mac. This involves the payment by the lender of a so-called “guarantee fee” to Fannie Mae and Freddie Mac.

The MPF program is designed to allocate the risks of the MPF loans among the MPF Banks and PFIs and to take advantage of their respective strengths. PFIs have direct knowledge of their mortgage markets and have developed expertise in underwriting and servicing residential mortgage loans. By allowing PFIs to originate MPF loans, whether through retail or wholesale operations, and retain or acquire servicing of MPF loans, the MPF program gives control of those functions that most impact credit quality to PFIs. The credit enhancement (CE) structure (further described below) motivates PFIs to minimize MPF loan losses. We are responsible for managing the interest-rate risk, prepayment risk and liquidity risk associated with owning MPF loans.

The term “MPF provider” refers to the FHLBank of Chicago and its role in the MPF program, which provides operational support to the MPF Banks and their PFIs. This operational support includes:

•Maintenance of loan funding and reporting systems;

•Transaction processing services;

•Operation and staffing of the MPF program Service Center; and

•Operational training.

^â “Mortgage Partnership Finance,” “MPF,” and “eMPF” are registered trademarks of the Federal Home Loan Bank of Chicago.

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The MPF provider establishes the eligibility standards under which an MPF Bank member may become a PFI, the structure of MPF products and the eligibility rules for MPF loans. It also manages the pricing and delivery mechanism for MPF loans. The MPF provider publishes and maintains the MPF Origination Guide and MPF Servicing Guide (together, “MPF guides”) which detail the rules PFIs must follow in originating or selling and servicing MPF loans. The MPF program benefits PFIs, because they receive a CE fee for sharing in the risk of loss on MPF loans rather than paying a guaranty fee to other secondary market purchasers.

We rely on the MPF provider (or its vendor), in the conduct of our mortgage operations, to provide the following:

•Custodial services;

•Master loan servicing;

•Quality assurance services; and

•Allocation of losses and credit enhancement.

However, with regard to price, we either accept or reject the opportunity to participate in the MPF program on a daily basis, after receiving and considering the prices set by the MPF Provider on that date. As long as we do not elect to “opt out” of participation on any given day, all loans that the Bank purchases that day are purchased by us from our members and then are either held in our mortgage portfolio or participations may be sold to the MPF provider (and/or other participating MPF Banks) at prices set by the MPF provider. To date, we have only sold participations to the MPF provider; we have not sold participations directly to other MPF Banks.

Loans that we may purchase as part of the MPF program (MPF program assets) are qualifying conventional conforming and government (that is Federal Housing Authority (FHA) insured and Veterans Affairs (VA) guaranteed) fixed-rate mortgage loans, secured by one- to four-family residential properties, with maturities ranging from five to 30 years (MPF loans), although we have historically purchased only loans with maturities of 15 to 30 years.

The Finance Board’s acquired member asset regulation (AMA regulation) requires MPF loans to be funded or purchased by the MPF Banks through or from PFIs and to be credit enhanced in part by the PFIs. We do not fund loans. We acquire whole loans from our PFI’s, and typically sell participations through the MPF program. We may also acquire participations from another MPF Bank, although to date we have not done so. Our acquisition of eligible loans is consistent with our core mission activity under the Finance Board’s regulations.

The AMA regulation provides the authority for our investment in residential mortgage loans and requires that the loans be credit enhanced by the selling PFI to limit the risk of loss on such investment. The AMA regulation requires that MPF loans be credit enhanced sufficiently so that the risk of loss is limited to the potential losses of an investor in an AA-rated MBS. In certain circumstances, we may determine that the risk of loss to the Bank from certain pools of mortgage loans is greater than the potential loss of an investor in an AA-rated MBS.

Mortgage Standards

The MPF guides set forth the eligibility standards for MPF loans. PFIs are free to use an approved automated underwriting system or to underwrite MPF loans manually when originating or acquiring loans, though the loans must meet MPF program underwriting and eligibility guidelines outlined in the MPF Origination Guide. In some circumstances, a PFI may be granted a waiver exempting it from complying with specified provisions of the MPF guides, such as documentation waivers.

The current underwriting and eligibility guidelines can be broadly summarized as follows with respect to MPF loans:

•Conforming loan size, which is established annually as required by the AMA regulation and may not exceed the loan limits permitted to be set by the Office of Federal Housing Enterprise Oversight each year.

•Fixed-rate, fully-amortizing loans with terms from five to 30 years;

•Secured by first liens on residential owner-occupied primary residences and second homes; primary residences may be up to four units.

•Condominium, planned-unit development, and manufactured homes are acceptable property types as are mortgages on leasehold estates (though manufactured homes must be on land owned in fee simple by the borrower);

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•95 percent maximum loan-to-value ratio (LTV); except for government MPF loans which may not exceed the LTV limits set by FHA and VA;

•MPF loans with LTVs greater than 80 percent require certain amounts of mortgage guaranty insurance (MI), called primary MI, from an MI company rated at least AA or Aa and acceptable to S&P;

•Recently originated loans with no more than five scheduled payments made by the borrowers (unseasoned loans);

•Credit reports and credit scores for each borrower; for borrowers with no credit score, alternative verification of credit is permitted;

•Analysis of debt ratios;

•Verification of income and sources of funds, if applicable;

•Property appraisal;

•Customary property or hazard insurance, and flood insurance, if applicable; from insurers acceptably rated as detailed in the MPF guides;

•Title insurance or, in those areas where title insurance is not customary, an attorney’s opinion of title;

•The mortgage documents, mortgage transaction, and mortgaged property must comply with all applicable laws and loans must be documented using standard Fannie Mae/Freddie Mac Uniform Instruments;

•Loans that are not ratable by a rating agency are not eligible for delivery under the MPF program; and

•Loans that are classified as high cost, high rate, high risk, Home Ownership and Equity Protection Act (HOEPA) loans or loans in similar categories defined under predatory-lending or abusive-lending laws are not eligible for delivery under the MPF program.

In addition to the underwriting guidelines, the MPF guides contain MPF program policies which include anti-predatory-lending policies, eligibility requirements for PFIs such as insurance requirements and annual certification requirements, loan documentation and custodian requirements, as well as detailing the PFI’s servicing duties and responsibilities for reporting, remittances, default management and disposition of properties acquired by foreclosure or deed in lieu of foreclosure.

Upon any MPF loan becoming 90 days or more delinquent, the master servicer (as defined below) monitors and reviews the PFI’s default management activities for that MPF loan until it is brought current, including timeliness of notices to the mortgagor, forbearance proposals, property protection activities, and foreclosure referrals, all in accordance with the MPF guides. Upon liquidation of any MPF loan and submission of each realized loss calculation from the PFI, the master servicer reviews the realized loss calculation for conformance with the primary mortgage insurance requirements, if applicable, and conformance to the cost and timeliness standards of the MPF guides, and disallows the reimbursement to the PFI of any servicing advances related to the PFI’s failure to perform in accordance with the MPF guides standards. Delinquency data is provided within the Allowance for Credit Losses on Mortgage Loans section of Item 2 Financial Information - Management’s Discussion and Analysis.

Investment and Services Agreement

MPF loans are delivered to the Bank through the infrastructure maintained by the MPF provider, which includes both a telephonic delivery system and a web-based delivery system accessed through the eMPF^® website. The Bank has entered into an Investment and Services Agreement with the MPF provider to make the MPF program available to our PFIs. The Investment and Services Agreement sets forth the terms and conditions of our participation in the MPF program, including the MPF provider’s obligations regarding transaction-processing services for the Bank, including acting as master servicer and master custodian for the Bank with respect to the MPF loans. The MPF provider has engaged Wells Fargo Bank N.A. (the “master servicer”) as its vendor for master servicing and as the primary custodian for the MPF program, and has also contracted with other custodians meeting MPF program eligibility standards at the request of certain PFIs. Such other custodians may be affiliates of PFIs and in some cases a PFI may act as self-custodian.

Prior to January 2004, in lieu of paying a fee to the MPF provider for its transaction processing services, we generally sold at least a 25 percent participation interest in MPF loans to the MPF provider. Effective January 21, 2004, the Bank amended its Investment and Services Agreement to allow for the payment of a monthly transaction services fee to the MPF provider for the Bank’s participation in

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the MPF program. The transaction services fee is calculated each month by multiplying one twelfth of the applicable annual rate by the aggregate outstanding balance of our retained interest in the covered loans at the end of the previous month as reported by the master servicer. The annual rate applicable to covered loans acquired by the Bank in 2004 and 2005 is five basis points (0.05 percent). The term “covered loans” represents MPF program loans that we purchased after January 1, 2004. We further amended this agreement on March 12, 2004, to provide that commencing March 2004 the schedule of annual rates for the transaction-services fee applicable to a covered loan shall apply for the life of the loan, and also changed the annual rate applicable to covered loans as follows:

•5.0 basis points (0.05 percent) on the first $2.5 billion of the outstanding aggregate principal balance of the covered loans;

•4.25 basis points (0.0425 percent) on the second $2.5 billion of the outstanding aggregate principal balance of the covered loans; and

•3.5 basis points (0.035 percent) on the aggregate outstanding principal of the covered loans in excess of $5 billion.

Under the Investment and Services Agreement for calendar year 2006 and subsequent years, the MPF provider is required to, on or before June 30, 2005, and each June 30 thereafter, inform us in writing of the schedule of annual rates for the transaction-services fees applicable to the covered loans acquired by us during the following calendar year. We have paid transaction-services fees of $66,000 for the quarter ended March 31, 2005, and $78,000 for the year ended December 31, 2004.

The MPF provider may purchase participation interests in MPF loans from us. The participation percentages in MPF loans may vary by each pool of MPF loans (master commitment) by agreement of the MPF Bank selling the participation interests (the “Owner Bank”). In order to detail the responsibilities and obligations for all participation interests sold by an Owner Bank to the MPF provider or to other participating MPF Banks, each Owner Bank has entered into a participation agreement with the MPF provider and, as applicable, any other participant MPF Banks. We are responsible for all risk of loss commensurate with our ownership interest in the MPF loans in which we have a participation interest. For an explanation of participation arrangements see MPF Bank Participations below.

Under the Investment and Services Agreement, the MPF provider provides the necessary systems for PFIs to deliver MPF loans to us, establishes daily pricing for MPF loans, prepares reports for us and for the PFIs, and provides quality control services on purchased MPF loans. We also conduct our own quality control program.

The MPF provider calculates and publishes on its eMPF website pricing grids with the prices expiring at midnight the following day. After the MPF provider publishes the prices, rates, and fees, we may decline to buy loans for the MPF program on that day. In this case, the MPF provider has the option to purchase 100 percent of loans sold by our PFIs or to refuse to accept loans from our PFIs for that day. We have never declined to buy loans for the MPF program. The prices, rates, and fees associated with the various MPF products are set by the MPF provider using observable third-party pricing sources as inputs to its proprietary pricing model. If market prices move beyond preset ranges, the MPF Provider will reset all or some of the prices at any time during a given business day. The MPF provider will price MPF loan-delivery commitments greater than $10 million directly with us based on current market conditions at the time of the commitment.

Participating Financial Institution Agreement

Our members (or eligible housing associates) must specifically apply to become a PFI. We review the general eligibility of the member while the MPF provider reviews the member’s servicing qualifications and ability to supply documents, data, and reports required to be delivered by PFIs under the MPF program. The member and the Bank sign an MPF program Participating Financial Institution Agreement (PFI agreement) that creates a relationship framework for the PFI to do business with us as a PFI. The PFI agreement provides the terms and conditions for the origination of the MPF Loans to be purchased by us and establishes the terms and conditions for servicing MPF Loans.

The PFI’s credit-enhancement obligation (the “CE amount”) arises under its PFI agreement while the amount and nature of the obligation are determined with respect to each master commitment, which is required for sales of loans to the Bank. Under the AMA regulation, the PFI must “bear the economic consequences” of certain losses with respect to a master commitment based upon the MPF product and other criteria.

Typically, a PFI will sign one master commitment to cover all the conventional MPF loans it intends to deliver to us in a year, or other time period specified in the master commitment agreement. However, a PFI may also sign a master commitment for government MPF loans and it may choose to deliver MPF loans under more than one conventional product, or it may choose to use different servicing remittance options and thus have several master commitments opened at any one time. Master commitments may be for shorter periods than one year and may be extended or increased by agreement of the Bank and the PFI. The master commitment defines the pool of MPF loans for which the CE amount is set so that the risk associated with investing in such pool of MPF loans is equivalent to

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investing in an AA-rated asset without giving effect to the Bank’s obligation to incur losses up to the amount of the first-loss account (FLA) (as further described below in the Allocation of Losses and Credit Enhancement section).

The PFI’s CE amount for a master commitment covers the anticipated loan losses for that master commitment in excess of the FLA, if any, up to an agreed upon amount. The final CE amount is determined once the master commitment is closed (that is, when the maximum amount of MPF loans are delivered, the maximum CE Amount, if any, is reached or the expiration date has occurred).

Under the MPF program, the PFI’s CE may take the form of a direct liability to pay losses incurred with respect to that master commitment, or may require the PFI to obtain and pay for a supplemental mortgage insurance (SMI) policy insuring us for a portion of the losses arising from the master commitment, or the PFI may contract for a contingent performance based credit-enhancement fee whereby such fees are reduced by losses up to a certain amount arising under the master commitment. Under the AMA regulation, the CE amount that is a PFI’s direct liability must be secured by the PFI in the same way that our advances are secured. The PFI agreement provides that the PFI’s obligations under the PFI agreement are secured along with other obligations of the PFI under its regular advances agreement with us and further, that we may request additional collateral to secure the PFI’s obligations. See Allocation of Losses and Credit Enhancement below for further description of the allocation of losses and CE.

All of our acquisitions of loans from PFIs under the MPF program are conducted pursuant to master and delivery commitments. PFIs are neither obligated to enter into master commitments, nor are they obligated to deliver loans against established master commitments. However, once a master commitment is established, the PFI may begin selling loans to the Bank through firm commitments (delivery commitments) under which the PFI is required to deliver a specified dollar amount of loans within a specified period at a price that is specified in the delivery commitment. If the PFI fails to deliver loans in accordance with the terms of a delivery commitment, it may be charged a fee to compensate us for our exposure to adverse market movements.

PFIs deliver MPF loans to us by complying with their delivery commitment. Each MPF loan delivered must conform to within a specified range of interest rates and maturity terms detailed in the delivery commitment or it will be rejected by the MPF system. The MPF loan under a delivery commitment is linked to a master commitment so that the cumulative credit-enhancement level can be determined. The MPF system rejects loans that exceed the maximum amount of a master commitment, exceed the PFI’s maximum CE amount, or would be funded after the expiration of the master commitment.

The aggregate value of MPF loans delivered by the PFI under a specific delivery commitment cannot exceed the amount specified in the delivery commitment. Delivery commitments that are not fully funded by their expiration dates are subject to pair-off fees (fees charged to a PFI for failing to deliver the amount of loans specified in a delivery commitment) or extension fees (fees charged to the PFI for extending the time deadline to deliver loans on a delivery commitment), which protect us against changes in market prices.

A normal delivery commitment for our PFIs requires delivery of 1) an aggregate dollar value of loans that 2) must be delivered to us within a set number of days (for example, a minimum three-day delivery commitment or other periods, generally up to a maximum of 45 business days, unless extended for a fee), and 3) within a specified range of coupon rates. Prices, which are subject to market volatility and the length of the delivery period, have generally ranged from a three percent premium to a three percent discount on the outstanding principal amount payable on each MPF loan.

Once an MPF loan is purchased, the PFI must deliver the promissory note and certain other relevant documents to the designated custodian. The PFI makes certain representations and warranties to us, which are contained in the PFI Agreement and in the MPF guides, in connection with each sale of MPF loans. The representations and warranties are similar to those required by Fannie Mae, Freddie Mac, and for MBS and specifically include compliance with anti-predatory-lending laws and the integrity of the data transmitted to the MPF program system.

MPF Bank Participations

For a master commitment to be set up on the MPF provider’s MPF system, we must specify to the MPF provider the participation arrangement that will be applied to the MPF loans to be acquired under the master commitment and in the related delivery commitments. That participation arrangement may range from 100 percent to be retained by us to 100 percent participated to the MPF provider. Generally, the participation arrangement will not change during the period that the master commitment is open. The MPF provider purchases participation interests directly from us and not from our member.

For a master commitment with the same participation arrangement throughout the period during which the master commitment is open, the risk-sharing and rights of the Owner Bank and participating MPF Bank(s) are as follows:

•Each pays their respective pro rata shares of each MPF loan acquired under the master commitment;

•Each receives its respective pro rata share of principal and interest payments;

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•Each is responsible for its respective pro rata share of credit-enhancement fees, FLA exposure, and losses incurred with respect to the master commitment; and

•Each may hedge its share of the delivery commitments as they are issued during the open period.

The participation arrangement for a master commitment may be changed so that either specified future delivery commitments or all future delivery commitments after a specified date will be funded pro rata by the affected MPF Banks under a revised participation arrangement. An MPF Bank’s pro rata interest in each MPF loan, if any is based on the portion it funded or purchased of that MPF loan whereas the MPF Bank’s pro rata interest in a master commitment is based on the aggregate amount of MPF loan participations it funded or purchased as compared to all the MPF loans delivered by the PFI under the master commitment. The MPF Bank receives principal and interest payments based on its pro rata interest in individual MPF Loans. However, because the FLA and CE apply to all the MPF loans in a master commitment regardless of participation arrangements, the MPF Bank share of losses is based on its final actual participation percentage of all the MPF loans delivered by the PFI under the master commitment. For example, if the MPF Bank were to acquire 25 percent of the first $50 million and 50 percent of the second $50 million of MPF loans delivered under a master commitment, the MPF Bank would share in 37.5 percent of the losses in that $100 million master commitment though it would receive principal and interest payments on the individual MPF loans that remain outstanding in a given month, some in which it may own a 25 percent interest and the others a 50 percent interest.

With regard to recourse provisions related to participation interests, the MPF provider (and any other participating MPF Bank) buys a participation interest in the individual MPF loans concurrently purchased by us from a PFI. The MPF provider has no recourse against us related to the sale of these participations, but we share all losses on a pro rata basis with the MPF provider (and any other participating MPF Bank) to the extent of its participation.

The Owner Bank is responsible for evaluating, monitoring, and certifying to any participant MPF Bank the creditworthiness of each relevant PFI initially, and at least annually thereafter. The Owner Bank is responsible for ensuring that adequate collateral is available from each of its PFIs to secure the CE obligations arising from the origination or sale of MPF loans. The Owner Bank is also responsible for enforcing the PFI’s obligations under the PFI agreement between the PFI and the Owner Bank (See Participating Financial Institution Agreement).

MPF Servicing

The PFI or its servicing affiliate generally retains the right and responsibility for servicing MPF loans it delivers. However, certain PFIs may desire to sell the servicing rights under the MPF program’s concurrent sale of servicing option. To date, the MPF program has designated one servicing PFI, which is eligible to acquire servicing rights under this option.

Alternatively, an originating PFI may negotiate with other PFIs to purchase servicing rights, however this type of arrangement would not include direct support from the MPF program. We have approved one servicing PFI under this option.

The current limited options for selling MPF loans to us on a servicing-released basis may reduce the attractiveness of the MPF program to potential PFIs that do not want to retain servicing. As of March 31, 2005, four PFIs have sold MPF loans to the Bank that are being serviced by third parties, and four additional PFIs have entered into an agreement to transfer their servicing obligations to a third party when and if they begin selling MPF loans to us. We expect this number to increase over time. Typically, when servicing rights for MPF loans are transferred to a third party, the selling PFI institution remains liable for its credit-enhancement obligation.

The PFI is responsible for collecting the borrower’s monthly payments and otherwise dealing with the borrower with respect to the MPF loan and the mortgaged property. Monthly principal and interest payments are withdrawn from the PFI’s deposit account with us on the 18^th day of each month (or prior business day if the 18^th is not a business day) based on reports the PFI is required to provide to the master servicer. Based on these monthly reports, the MPF program system makes the appropriate withdrawals from the PFI’s deposit account. Under the scheduled/scheduled remittance option, the PFI is required to make principal and interest payments to the Bank on the due date whether or not the borrower has remitted any payments to the PFI, provided that the collateral securing the MPF loan is sufficient to reimburse the PFI for advanced amounts. This method of remittance is applied in payments on most of the MPF loans that we have purchased to date. There are two other remittance options that a PFI may elect: Actual/actual (A/A) and actual/actual single remittance (A/A SR). With A/A, the PFI remits principal and interest payments each time the total collected exceeds $2,500 (but not less than once a month). Under the A/A SR option, the PFI makes a single remittance on the 18th day of the month following receipt of the principal and interest payment. Each of the remittance options has different financial and operational benefits and risks, which effect loan-purchase pricing.

If an MPF loan becomes delinquent, the PFI is required to contact the borrower to determine the cause of the delinquency and whether the borrower will be able to cure the default. The MPF guides permit limited types of forbearance plans. If the PFI determines that an

15

MPF loan, which has become 90 days delinquent, is not likely to be brought current, then the PFI is required to prepare a foreclosure plan and commence foreclosure activities. The foreclosure plan includes determining the current condition and value of the mortgaged property and the likelihood of loss upon disposition of the property after foreclosure or in some cases a deed in lieu of foreclosure. The PFI is required to secure and insure the property after it acquires title through the date of disposition. After submitting its foreclosure plan to the master servicer, the PFI provides monthly status reports regarding the progress of foreclosure and subsequent disposition activities. Upon disposition a final report must be submitted to the master servicer detailing the outstanding loan balance, accrued and unpaid interest, the net proceeds of the disposition and the amounts advanced by the PFI, including any principal and interest advanced during the disposition period. If there is a loss on the conventional MPF loan, the loss is allocated to the master commitment and shared in accordance with the risk-sharing structure for that particular master commitment. Gains are the property of the MPF Bank but are available to offset future losses under the master commitment.

Throughout the servicing process, the master servicer monitors the PFI’s compliance with MPF program requirements and makes periodic reports to the MPF provider. The MPF provider will bring any material concerns to our attention. Minor lapses in servicing are simply charged to the PFI rather than being included in determining a loss on an MPF loan. Major lapses in servicing could result in a PFI’s servicing rights being terminated for cause and the servicing of the particular MPF loans being transferred to a new, qualified servicing PFI. To date, the master servicer has not reported any major lapses by our members and no PFI’s servicing rights have been terminated in the history of the MPF program. In addition, the MPF guides require each PFI to maintain errors and omissions insurance and a fidelity bond and to provide an annual certification with respect to its insurance and its compliance with the MPF program requirements.

Quality Assurance

The MPF provider conducts an initial quality assurance (QA) review of a selected sample of MPF loans from the PFI’s initial MPF loan delivery. Thereafter, periodic reviews of a sample of MPF loans are performed to determine whether the reviewed MPF loans complied with the MPF program requirements at the time of acquisition. A QA letter is sent to the PFI noting any critical or general exception compliance matters. The PFI will be required to repurchase any MPF loan or indemnify us for losses on any MPF loan that is determined to be ineligible and for which the ineligibility cannot be cured. Any exception that indicates a negative trend is discussed with the PFI and can result in the suspension or termination of a PFI’s ability to deliver new MPF loans if the concern is not adequately addressed. The MPF provider does not currently conduct any QA reviews of Government MPF loans.

A majority of the states, and some municipalities, have enacted laws against mortgage loans considered predatory or abusive. Some of these laws impose liability for violations not only upon the originator, but also upon purchasers and assignees of mortgage loans. We take measures that we consider reasonable and appropriate to reduce our exposure to potential liability under these laws and we are not aware of any claim, action, or proceeding asserting that the Bank is liable under these laws. However, there can be no assurance that we will never have any liability under predatory- or abusive-lending laws.

Allocation of Losses and Credit Enhancement

The risk characteristics of each MPF loan (as detailed in data provided by the PFI) are analyzed by the MPF provider using Standard & Poor’s LEVELS^Ò model in order to determine the amount of CE required for a loan or group of loans to be acquired by an MPF Bank (MPF program methodology) but which leaves the decision whether or not to deliver the loan or group of loans into the MPF program with the PFI.

The MPF Bank and PFI share the risk of losses on MPF loans by structuring potential losses on conventional MPF loans into layers with respect to each master commitment. The general allocation of losses is described in the table below:

^Ò “Standard & Poor’s LEVELS” and “LEVELS” are registered trademarks of Standard & Poor’s, a division of the McGraw-Hill Companies, Inc.

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MPF Loss Layers
	The first layer of protection against loss is the borrower’s equity in the real property securing the MPF loan.
	Second, as is customary for conventional mortgage loans (with LTV’s greater than 80 percent), the next layer of protection comes from primary Mortgage Insurance (MI) issued by qualified MI companies. •Such coverage is required for MPF loans with LTVs greater than 80 percent. •Covered losses (all types of losses except those generally classified as special hazard losses) are reimbursed by the primary MI provider.
	Third, losses for each master commitment that are not paid by primary MI are incurred by the MPF Bank, up to an agreed upon amount, called a first-loss account or FLA. •The FLA represents the amount of potential expected losses which the Bank must incur before the member’s credit enhancement becomes available to cover losses. •The FLA is not a segregated account where funds are accumulated to cover losses. It is simply a mechanism the Bank uses for tracking its potential loss exposure.
	Fourth, losses for each master commitment in excess of the FLA, if any, up to an agreed upon amount (the CE amount) are covered by the PFI’s credit enhancement. •The PFI’s CE amount is sized using the MPF program methodology to equal the amount of losses in excess of, or including, the FLA (depending on the MPF product) that would need to be paid so that any losses in excess of the CE amount and initial FLA would be equivalent to losses experienced by an investor in an AA-rated MBS. The PFI may procure SMI to cover losses equal to all or a portion of the CE amount (except that losses generally classified as special hazard losses are not covered by SMI). •The PFI is paid a monthly credit-enhancement fee for managing credit risk on the MPF loans. In most cases, the credit-enhancement fees are performance based which further motivates the PFI to minimize loan losses on MPF loans.
	Fifth, any remaining unallocated losses are absorbed by the Bank.

By undertaking to credit enhance (bear the economic consequences of certain losses) on each master commitment, the PFI maintains an interest in the performance of the MPF loans it sells to the Bank. This feature of the MPF program provides continued incentive for active management by the PFI to reduce credit risk in MPF loans and distinguishes the MPF program from other secondary market sale structures. Also, the PFI’s CE Amount for each master commitment (which includes any SMI) is sized to equal the amount of expected losses in excess of the FLA (at the time the CE amount is established) that would need to be paid so that any losses in excess of the CE amount and initial FLA would be limited to the losses of an investor in an AA –MBS, as determined by the MPF program

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methodology. As required by the AMA regulation, the MPF program methodology has been confirmed by S&P, an NRSRO, as providing an analysis of each master commitment that is comparable to a methodology that the NRSRO would use in determining CE levels when conducting a rating review of the asset or pool of assets in a securitization transaction. Thus the required CE determined by the MPF program methodology is calculated to provide to the MPF Bank the same probability as that of an investor in an AA-rated MBS, of incurring losses on any master commitment in excess of the FLA and the required CE amount.

With respect to participation interests, MPF loan losses not avoided by the borrower’s equity or covered by primary MI will be applied to the FLA and allocated amongst the participants proportionately based upon their respective participation interests. Next, losses will be applied to the PFI’s CE amount which may include SMI, as indicated by the particular MPF product, and finally further losses will be shared based on the participation interests of the Owner Bank and MPF Bank(s) in each master commitment.

Any portion of the PFI’s CE amount that is not covered by SMI is secured by collateral pursuant to the terms of the PFI’s advances agreement with the Bank

MPF Products

The MPF Loss Layers chart in Allocation of Losses and Credit Enhancement section above describes the general mechanics for the allocation of losses under the MPF program. The charts below describe how the FLA and the PFI CE obligations are determined for each MPF product type. Each of the MPF products is described in the MPF guides and in marketing materials. The PFI selects the MPF product that best suits its business requirements.

Original MPF – The first layer of losses up to the amount of the FLA is absorbed by the Bank. The member then provides, for a fee paid by the Bank, a second loss CE in an amount needed for the master commitment to have a risk of loss equivalent to an AA-rated MBS. Any losses that exceed the member’s CE obligation will be absorbed by the Bank. The average CE fee paid for Original MPF was 10 basis points on outstanding loan balances for both the quarter ended March 31, 2005, and the year ended December 31, 2004.

Original MPF

FLA •The FLA starts out at zero on the day the first MPF loan under a master commitment is purchased but increases monthly over the life of the master commitment at a rate that ranges from 0.03 percent to 0.05 percent (three to five basis points) per annum based on the monthend outstanding aggregate principal balance of the master commitment. •Over time the FLA is expected to cover expected losses on a master commitment, though losses early in the life of the master commitment could exceed the FLA and be charged in part to the PFIs CE amount.

PFI CE Amount •The PFI’s CE amount is sized using the MPF program methodology to equal the amount needed for the Master Commitment to have a rating equivalent to a AA-rated MBS, without giving effect to the FLA. •The PFI is paid a monthly credit-enhancement fee, typically 0.10 percent (10 basis points) per annum, based on the aggregate outstanding principal balance of the MPF loans in the master commitment.

Original MPF FHA/VA – These mortgage loans are guaranteed by the U.S. government, while the member is responsible for all unreimbursed servicing expenses. The credit-enhancement fees for Original MPF FHA/VA are paid at a fixed rate of two basis points per year on outstanding loan balances.

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Original MPF for FHA/VA

•Only government MPF loans are eligible for sale under this product.

•The PFI provides and maintains FHA insurance or a VA guaranty for the government MPF loans and the PFI is responsible for compliance with all FHA or VA requirements and for obtaining the benefit of the FHA insurance or the VA guaranty with respect to defaulted government MPF loans.

•The PFI’s servicing obligations are essentially identical to those undertaken for servicing loans in a Ginnie Mae security. Because the PFI servicing these MPF loans assumes the risk with respect to amounts not reimbursed by either the FHA or VA, the structure results in the MPF Banks having assets that are expected to perform the same as Ginnie Mae securities.

•The PFI is paid a monthly government loan fee equal to 0.02 percent (2 basis points) per annum based on the monthend outstanding aggregate principal balance of the master commitment in addition to the customary 44 basis point (0.44 percent) per annum servicing fee that is retained by the PFI on a monthly basis based on the outstanding aggregate principal balance of the MPF loans.

•Only PFIs that are licensed or qualified to originate and service FHA and VA loans and that maintain a mortgage-loan delinquency ratio that is acceptable to the MPF provider and that is comparable to the national average and/or regional delinquency rates as published by the Mortgage Bankers Association from time-to-time are eligible to sell and service government MPF loans under the MPF program.

MPF 125 – The first layer of losses up to the value of the FLA is absorbed by the Bank. The member then provides, for a fee paid by the Bank, a second loss CE in an amount needed for the master commitment to have a risk of loss equivalent to an AA-rated MBS including the FLA. Any losses that exceed the member’s CE obligation will be absorbed by the Bank. Additionally, payment of CE fees to the member can be withheld to offset losses incurred by the Bank in the FLA, not to exceed the FLA amount for the life of the pool. The CE fee for MPF 125 is paid at a fixed rate of 10 basis points on outstanding loan balances.

MPF 125

FLA •The FLA is equal to 1.00 percent (100 basis points) of the aggregate principal balance of the MPF loans funded under the master commitment. •Once the master commitment is fully funded, the FLA is expected to cover expected losses on that master commitment.

PFI CE Amount •The PFI’s CE amount is calculated using the MPF program methodology to equal the difference between the amount needed for the master commitment to have a rating equivalent to an AA-rated MBS and the amount of the FLA. •The CE fee is between 0.07 percent and 0.10 percent (seven and 10 basis points) per annum of the aggregate outstanding principal balance of the MPF loans in the master commitment and is performance based in that it is reduced by losses charged to the FLA.

MPF Plus – The first layer of losses up to the amount of the FLA, which is equal to a specified percentage of the outstanding loan balance in the pool as of the sale date, is absorbed by the PFI. The member then provides, for a fee paid by the Bank, a second loss CE in an amount needed for the master commitment to have a risk of loss equivalent to an AA-rated MBS, including the FLA. The member may acquire a SMI to cover the second-layer losses that exceed the deductible FLA of the SMI policy. Second-layer losses not covered by the FLA or SMI coverage amount will be paid by the member, up to the member’s full CE obligation. Any losses that exceed the member’s CE obligation will be absorbed by the Bank. Payment of performance CE fees to the member are delayed for 12 months and performance CE fees can be withheld to offset losses

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incurred by the Bank in the FLA along with future CE fees, not to exceed the FLA amount for the life of the pool. The average credit CE paid for MPF Plus was 13 basis points on outstanding loan balances for both the quarter ended March 31, 2005, and the year ended December 31, 2004.

MPF Plus

FLA •The FLA is equal to an agreed upon number of basis points of the aggregate principal balance of the MPF loans funded under the master commitment that is not less than the amount of expected losses on the master commitment. •Once the master commitment is fully funded, the FLA is expected to cover expected losses on that master commitment.

PFI CE Amount •The PFI is required to provide an SMI policy covering the MPF loans in the master commitment and having a deductible initially equal to the FLA. •Depending upon the amount of the SMI policy, the PFI may or may not have a separate CE amount obligation. •The total amount of the PFI’s CE amount (including the SMI policy) is calculated using the MPF program methodology to equal the difference between the amount needed for the master commitment to have a rating equivalent to an AA-rated MBS and the amount of the FLA. •The performance-based portion of the credit enhancement fee is typically between 0.06 percent and 0.07 percent (six and seven basis points) per annum of the aggregate outstanding balance of the MPF loans in the master commitment. The performance-based fee is reduced by losses charge to the FLA and is delayed for one year from the date MPF loans are sold to the MPF Bank. The fixed portion of the CE fee is typically 0.07 percent (seven basis points) per annum of the aggregate outstanding principal balance of the MPF loans in the master commitment. The lower performance based CE fee is for master commitments without a direct PFI CE amount obligation.

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The following table provides a comparison of the MPF products:

MPF Product Comparison Chart

Product Name	Bank’s First Loss Account Size	PFI Credit Enhancement Size Description	Credit- Enhancement Fee Paid to the Member	Credit- Enhancement Fee Offset	Servicing Fee to Servicer
Original MPF	4 to 7 basis points/added each year	After first loss account, up to AA rating.	7 to 10 basis points/year paid monthly	No	25 basis points/year
Original MPF for FHA/VA	N/A	Unreimbursed servicing expenses.	2 basis points/ year paid monthly	No	44 basis points/year
MPF 125	100 basis points fixed	After first loss account, up to AA rating.	10 basis points/year paid monthly	Yes	25 basis points/year
MPF Plus	35 basis points fixed	0 to 20 basis points, after first loss account and supplemental mortgage insurance, up to AA rating.	13 to 14 basis points/year paid monthly	Yes	25 basis points/year

As specified in each master commitment, PFIs provide a level of CE to the Bank on MPF loans they deliver through the program, for which they receive a CE fee. This CE is an obligation on the part of the PFI and ensures the retention of credit risk on loans the PFI originates. The amount of the CE is determined so that any losses that we and the participating MPF Banks may incur that are in excess of the FLA and the CE amount, would be limited to those that may be expected by an asset rated AA by an NRSRO. The amount of this obligation is either fully collateralized by the member or covered by supplemental primary mortgage insurance provided by a primary mortgage-insurance company rated at least “AA”. Acceptable collateral sufficient to cover the amount of CE obligation includes all forms of collateral allowed to secure advances. The CE fee compensates the member for managing this portion of the inherent risk in the loans. These fees are paid monthly based upon the remaining unpaid principal balance of the MPF loans originated by the member. The required CE obligation amount may vary depending on the particular MPF product selected. For the years ended December 31, 2004 and 2003, the Bank paid $3.9 million and $3.4 million, respectively, in CE fees to its members. For the quarter ended March 31, 2005, and the quarter ended March 31, 2004, the Bank paid $973,000 and $1.1 million, respectively, in CE fees to its members.

In MPF conventional loan products (that is, non government loans), the Bank absorbs the first credit losses that are experienced on each master commitment up to the amount of the FLA of that master commitment. For the MPF 125 and MPF Plus products, the Bank can recoup its losses by withholding the performance CE fee paid to the PFI until the CE fees are exhausted. If the CE fees due to the member are not sufficient to mitigate the Bank’s loss on the FLA, the Bank absorbs the loss. The Bank is also exposed to potential credit losses in the MPF program through the failure of a mortgage-insurance provider to perform as agreed, and through credit losses in excess of the credit-loss protection provided by the PFI in the second-loss position. To date, the Bank has not sustained any credit losses in excess of the FLA.

The Bank’s loan-loss reserve reflects the Bank’s expectation of credit losses inherent in the MPF portfolio. The loan-loss reserve is different from the FLA. The FLA is determined by a contractual agreement between the Bank and the PFI, is based on expected losses over the life of the MPF loans in the master commitment and generally reflects the Bank’s maximum exposure to loss except in the case of losses exceeding those expected in an AA rated MBS. The Bank’s loan loss reserve is determined in accordance with GAAP requirements.

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Consolidated Obligations

COs, consisting of bonds and discount notes (DNs), are the principal funding source for the Bank and are the joint and several obligations of the 12 FHLBanks. COs represent the primary source of debt used by the Bank to fund advances, mortgage loans and investments. All COs are issued on behalf of the FHLBanks through the Office of Finance. COs benefit from GSE status; however, they are not obligations of the U.S. government and the U.S. government does not guarantee them. The Bank’s ability to access the capital markets through the sale of COs, across a broad range of maturities and through a variety of debt structures, allows the Bank to manage its balance sheet. Moody’s currently rates COs Aaa/P-1, and Standard & Poor’s currently rates them AAA/A-1+. These ratings measure the likelihood of timely payment of principal and interest on the COs. The GSE status of the FHLBanks and the ratings of the COs have historically provided the FHLBanks with excellent capital-market access. However, the enactment of certain legislative and regulatory proposals could adversely affect the Bank’s access to the capital markets. See the Capital Resources section in Item 2 Financial Information-Management’s Discussion and Analysis for more information.

CO Bonds. CO bonds may be issued with either fixed-rate coupon-payment terms, zero-coupon terms, or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets including LIBOR, Constant Maturity Treasury (CMT), Eleventh District Cost of Funds Index (COFI), and others. CO bonds may also contain embedded options that affect the term or yield structure of the bond. Such options include call options under which the Bank can redeem bonds prior to maturity, specified interest-rate-related trigger events under which the bonds would be automatically redeemed prior to maturity, and coupon caps or floors for floating-rate coupon debt.

CO bonds are traditionally issued to raise intermediate and long-term funds for the Bank. The maturities of the majority of bonds range from one to 10 years, but they are not subject to any statutory or regulatory limits on maturity. The Bank often issues bonds with terms longer than 10 years. However, the Bank also often enters into matched-term interest-rate swaps to effectively convert the bond coupon to a LIBOR-based floating coupon as a less-expensive substitute for DN funding. The FHLBanks are among the world’s most active issuers of debt, issuing on a daily basis. The Bank frequently participates in these issuances, sometimes engaging in several issuances in a single day. The Bank places orders through the Office of Finance or responds to inquiries by authorized underwriters. In most cases, the Office of Finance is able to issue the requested bonds and allocate proceeds in accordance with each FHLBank’s requested amount. In some cases, proceeds from partially fulfilled offerings must be allocated in accordance with predefined rules that apply to particular issuance programs.

Discount Notes. CO DNs are short-term obligations issued at a discount to par with no coupon. Terms range from overnight up to 360 days. The Bank generally participates in DN issuance on a daily basis as a means of funding short-term assets and managing its short-term funding gaps. Each FHLBank submits commitments to issue DNs in specific amounts with specific terms to the Office of Finance, which in turn, aggregates these commitments into offerings to securities dealers. Such commitments may specify yield limits that the Bank has specified in its commitment, above which the Bank will not accept funding. DNs are sold either at auction on a scheduled basis or through a direct bidding process on an as-needed basis through a group of dealers known as the selling group, who may turn to other dealers to assist in the ultimate distribution of the securities to investors. The selling group dealers receive no selling concession if the bonds are sold at auction. Otherwise, the Bank pays them a selling concession.

Finance Board regulations also state that each FHLBank must maintain the following types of assets free from any lien or pledge in an aggregate amount at least equal to the amount of that FHLBank’s participation in the COs outstanding:

•Cash;

•Obligations of, or fully guaranteed by, the U.S. government;

•Secured advances;

•Mortgages, which have any guaranty, insurance, or commitment from the U.S. government or any agency of the U.S.;

•Investments described in Section 16(a) of the FHLBank Act, which, among other items, includes securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located; and

•Other securities that are rated Aaa by Moody’s or AAA by Standard & Poor’s.

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The following table illustrates the Bank’s compliance with this regulatory requirement:

Ratio of Nonpledged Assets to Total Consolidated Obligations

(dollars in thousands)

	March 31,			December 31,
	2005			2004			2003
Nonpledged assets
Cash and due from banks	$	11,346		$	11,891		$	9,218
Advances	30,959,202			30,208,753			26,074,230
Investments(1)	14,608,406			17,296,108			11,066,179
Mortgage loans	4,150,955			4,011,981			4,536,698
Accrued interest receivable	147,113			140,661			138,128
Less: pledged assets	(117,335		)	(173,256		)	(479,752		)
Total nonpledged assets	$	49,759,687		$	51,496,138		$	41,344,701
Total consolidated obligations	$	46,011,293		$	47,770,395		$	37,404,025
Ratio of nonpledged assets to consolidated obligations	1.08			1.08			1.11

(1)Investments include interest-bearing deposits in banks, securities purchased under agreements to resell, federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.

Although each FHLBank is primarily liable for the portion of COs corresponding to the proceeds received by that FHLBank, each FHLBank is also jointly and severally liable with the other 11 FHLBanks for the payment of principal and interest on all COs. Under Finance Board regulations, if the principal or interest on any CO issued on behalf of one of the FHLBanks is not paid in full when due, then the FHLBank responsible for the payment may not pay dividends to, or redeem or repurchase shares of stock from, any member of the FHLBank. The Finance Board, in its discretion, may require any FHLBank to make principal or interest payments due on any COs, whether or not the primary obligor FHLBank has defaulted on the payment of that obligation.

To the extent that an FHLBank makes any payment on a CO on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from the FHLBank otherwise responsible for the payment. However, if the Finance Board determines that an FHLBank is unable to satisfy its obligations, then the Finance Board may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all COs outstanding, or on any other basis the Finance Board may determine.

The Finance Board has never required the Bank to repay obligations in excess of our participation nor have they allocated to the Bank any outstanding liability of any other FHLBank’s COs.

Capital Resources

Capital Plan. On January 30, 2001, the Finance Board published a final rule requiring the Bank to implement a new capital structure, as mandated by the GLB Act. The new rules established risk-based and leverage-capital requirements for the Bank, provided for different classes of stock that the Bank may issue, and established certain rights and preferences that may be associated with each class of stock. Capital-stock outstanding is redeemable by a withdrawing member on five years’ notice. Members that withdraw from membership may not reapply for membership in any FHLBank for five years. At the Bank’s discretion, members may redeem at par value any capital stock greater than their minimum investment requirement or sell it to other Bank members at par value.

On May 8, 2002, the Finance Board approved the Bank’s Capital Plan and additional amendments were approved on August 6, 2003. On April 19, 2004, the Bank implemented its new Capital Plan and replaced all of the Bank’s outstanding stock with shares of Class B stock. The Class B stock may be issued, redeemed, and repurchased by the Bank only at its par value of $100 per share. The Bank’s Class B stock is exempt from registration under the Securities Act of 1933. The Bank’s Capital Plan is provided as Exhibit 4.

Members were permitted to opt-out of the capital-stock conversion and withdraw from membership by submitting written notice of intent to withdraw, no later than February 19, 2004. Members were also permitted to request that a specified percentage of any shares held in excess of their total stock investment requirement be repurchased by the Bank, subject to the Bank’s discretion. Eight members opted out by submitting written notice of their intent to withdraw from membership, requiring the redemption of $109.1 million of capital stock on April 19, 2004. Additionally, 52 members requested that the Bank repurchase an estimated

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$627.0 million of capital stock in excess of the members’ total stock requirement. The Bank honored these requests. Accordingly, on April 19, 2004, the Bank’s total outstanding capital stock was reduced to $1.8 billion.

Redemptions of Capital Stock. Our capital plan requires that members purchase Class B stock equal to the value of the sum of (1) 0.35 percent of the value of certain member assets eligible to secure advances and (2) 4.5 percent of the value of specified assets related to activity between the Bank and the member, which we refer to in the aggregate as the member’s total stock investment requirement. Any stock held by a member in excess of this amount is considered “excess capital stock.”  At March 31, 2005, members and nonmembers with capital stock outstanding held excess capital stock totaling $360.9 million, representing approximately 16.0 percent of total capital stock outstanding.

Members may submit a written request for redemption of excess capital stock. The stock subject to the request will be redeemed at par value by the Bank upon expiration of a five-year stock redemption period. Also subject to a five-year redemption period are shares of stock held by a member that (1) gives notice of intent to withdraw from membership, or (2) becomes a non-member due to merger or acquisition, charter termination, or involuntary termination of membership. At the end of the five-year stock redemption period, the Bank must comply with the redemption request unless doing so would cause the Bank to fail to comply with its minimum regulatory capital requirements, would cause the member to fail to comply with its total stock investment requirements, or would violate any other regulatory prohibitions.

Mandatorily Redeemable Capital Stock. In compliance with Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150), the Bank will reclassify stock subject to redemption from equity to a liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains a non member status by merger or acquisition, charter termination, or involuntary termination from membership, since the member shares will then meet the definition of a mandatorily redeemable financial instrument. Member shares meeting this definition are reclassified to a liability at fair value. Dividends declared on member shares classified as a liability in accordance with SFAS 150 are accrued at the expected dividend rate and reflected as interest expense in the statement of income. The repayment of these mandatorily redeemable financial instruments is reflected as financing cash outflows in the statement of cash flows once settled. At March 31, 2005, the Bank had $57.9 million in capital stock subject to mandatory redemption from two former members. This amount has been classified as a liability as mandatorily redeemable capital stock in the statement of condition in accordance with SFAS 150. It is anticipated that these shares will be redeemed in 2009. The Bank is not required to redeem or repurchase activity-based stock until the later of the expiration of the five-year notice of redemption or until the activity no longer remains outstanding. If activity-based stock becomes excess capital stock as a result of an activity no longer outstanding, the Bank may, in its sole discretion, repurchase the excess activity-based stock as described below.

Repurchases of Excess Capital Stock. The Bank may, in its sole discretion, repurchase excess capital stock from any member at par value upon 15 days prior written notice to the member, unless a shorter notice period is agreed to in writing by the member, if the repurchase will not cause the Bank to fail to meet any of its regulatory capital requirements or violate any other regulatory prohibitions. In conjunction with the implementation of the Bank’s Capital Plan on April 19, 2004, the Bank repurchased $627.0 million of excess capital stock. Throughout the remainder of 2004 following the implementation of the Bank’s Capital Plan, the Bank repurchased $65.5 million of excess capital stock, and during the first quarter of 2005 the Bank repurchased $91.0 million of excess capital stock.

Additionally, the Bank’s board of directors has a right and an obligationto call for additional capital-stock purchases by the Bank’s members, as a condition of membership, as needed to satisfy statutory and regulatory capital requirements. These requirements include the maintenance of a stand-alone credit rating of no lower than AA from an NRSRO.

Dividends. The Bank may pay dividends from current net earnings or previously retained earnings, subject to certain limitations and conditions. Refer to Item 9 - Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters. The Bank’s board of directors may declare and pay dividends in either cash or capital stock.

Retained Earnings. In August 2003, the Finance Board issued guidance to the FHLBanks calling for each FHLBank, at least annually, to assess the adequacy of its retained earnings. The Finance Board cited the increased risks to earnings associated with the FHLBanks’ significant use of derivatives (due to hedge ineffectiveness) and to the FHLBanks’ increasing purchases of mortgage loans as the reason for the new guidance. Prior to this guidance, the Bank had, in March 2003, established a tiered target dividend-rate strategy based on the Bank’s retained earnings level. Provided that the Bank’s projected level of retained earnings after dividend was at least eight basis points of total assets (approximately $32 million) and that the projected dividend did not exceed projected core net income, the Bank would pay a target dividend yield of the daily average three-month LIBOR rate plus 205 basis points, adjusted as follows:

•if retained earnings was at least $40 million but less than $50 million, 95 percent of the target dividend yield, or

•if retained earnings was less than $40 million, 85 percent of the target dividend yield

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In the first quarter of 2004, the Bank’s board of directors adopted a methodology for determining the Bank’s target level of retained earnings based on risk factors that could adversely affect the Bank’s income. The methodology sought to establish a base of retained earnings necessary to cover 95 percent of potential earnings threats due to market risk and to cover the potential losses that might occur due to credit impairment of assets to a BBB level. The Bank’s retained earnings plan, which superseded the March 2003 dividend strategy, called for the Bank to achieve a balance of retained earnings of $88.0 million by December 31, 2004. At December 31, 2004, the balance of retained earnings was $95.9 million.

In June 2004, the Finance Board reviewed the Bank’s retained earnings plan and recommended that the Bank reassess some of the assumptions and scenarios employed by the model. In December 2004, the Bank’s board of directors reviewed the target based on a reassessment of the market risk (as measured by the Bank’s value-at-risk) and credit risks (based primarily on the probability of credit deterioration to a BBB level and the implied loss on sale of the affected assets when rated at that level). The targeted retained earnings level was revised to $120 million, which the Bank expects to reach in 2006. The Bank’s retained earnings target is subject to revision as the Bank’s balance sheet and risk profile change or as the Bank enhances its methodology for calculation of the retained-earnings target. The Bank will continue its initiative to grow retained earnings and may reduce its dividend payout, as considered necessary.

Interest-Rate-Exchange Agreements

Finance Board regulations establish guidelines for interest-rate-exchange agreements. The Bank can use interest-rate swaps, swaptions, interest-rate-cap and floor agreements, calls, puts, futures, and forward contracts as part of its interest-rate-risk management and funding strategies. Finance Board regulations require the documentation of nonspeculative use of these instruments and establish limits to credit risk arising from these instruments.

In general, the Bank uses interest-rate-exchange agreements in three ways: 1) by designating them as a fair-value or cash-flow hedge of an underlying financial instrument, firm commitments or a forecasted transaction, 2) economic hedges in asset-liability management that are undesignated as hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), or 3), by acting as an intermediary between members and the capital markets. For example, the Bank uses interest-rate-exchange agreements in its overall interest-rate-risk management to adjust the interest-rate sensitivity of COs to approximate more closely the interest-rate sensitivity of assets, including advances, investments, and mortgage loans, and/or to adjust the interest-rate sensitivity of advances, investments, and mortgage loans to approximate more closely the interest-rate sensitivity of liabilities. In addition to using interest-rate-exchange agreements to manage mismatches of interest rates between assets and liabilities, the Bank also uses interest-rate-exchange agreements to manage embedded options in assets and liabilities; to hedge the market value of existing assets, liabilities, and anticipated transactions; to hedge the duration risk of prepayable instruments; and to reduce funding costs.

The Bank may enter into interest-rate-exchange agreements concurrently with the issuance of COs to reduce funding costs. This allows the Bank to create synthetic floating-rate debt at a cost that is lower than the cost of a floating-rate cash instrument issued directly by the Bank. This strategy of issuing bonds while simultaneously entering into interest-rate-exchange agreements enables the Bank to offer a wider range of attractively priced advances to its members. The continued attractiveness of the debt depends on price relationships in both the bond market and interest-rate-exchange markets. When conditions in these markets change, the Bank may alter the types or terms of COs issued.

The most common ways in which the Bank uses derivatives are:

•To reduce funding costs by combining a derivative and a CO. The combined funding structure can be lower in cost than a comparable CO bond;

•To preserve a favorable interest-rate spread between the yield of an asset (for example, an advance) and the cost of the supporting liability (for example, the CO bond used to fund the advance). Without the use of derivatives, this interest-rate spread could be reduced or eliminated when the interest rate on the advance and/or the interest rate on the bond change differently or change at different times;

•To mitigate the adverse earnings effects of the shortening or extension of certain assets (for example, advances or mortgage assets) and liabilities; and

•To protect the value of existing asset or liability positions or of anticipated transactions.

Advances that have embedded options allowing the Bank to accelerate repayment on or after certain dates (for example, putable advances) and advances with coupon structures containing derivatives (for example, a floating-rate advance with an embedded cap) are usually hedged in a manner that offsets the embedded derivative feature and creates a synthetic floating-rate advance. For

25

example, a putable advance is hedged with an interest-rate swap that pays a fixed rate and receives a variable LIBOR rate, but that can be terminated by the swap counterparty on the same dates that the Bank can accelerate repayment of the hedged advance. The Bank can hedge a LIBOR floating-rate advance with an embedded cap by purchasing an interest-rate cap that accrues interest when LIBOR exceeds the cap strike rate (inclusive of any coupon-spread adjustment to LIBOR) embedded in the advance. The hedge is structured so that the Bank maintains a net neutral derivative position, meaning that the effects of the embedded derivative are offset by the hedging derivative. Derivative instruments discussed above affect both net interest income and other income (loss). In most cases, the Bank opts to hedge these advances, but may choose not to hedge in cases when the advance’s embedded optionality creates an offset to risks elsewhere in the Bank’s balance sheet. In this case, the Bank would likely not hedge these advances.

For fixed-rate bullet advances that receive only interest payments until maturity and that do not contain an option for the member to accelerate repayment without a make-whole prepayment fee, the Bank may decide to enter into an interest-rate swap that effectively converts the fixed rate to a floating-rate. The Bank funds these synthetic floating-rate advances with synthetic floating-rate debt or three-month DNs. In deciding whether to swap fixed-rate bullet advances, the Bank analyzes the disparity between the cost of funds/swap-curve spread and the three-month DN/LIBOR spread. In the case where this disparity is large, the Bank would likely swap the advance and pass the savings in the form of lower advance rates to our members.

The effects on net interest income are discussed in the section, Results of Operations – Net Interest Spread and Net Interest Margin, while the effects on other income (loss) are discussed in the section, Results of Operations – Other Income (Loss).

Competition

Demand for the Bank’s advances is affected by, among other things, the cost of other available sources of liquidity for its members, including deposits. The Bank competes with other suppliers of wholesale funding, both secured and unsecured. Such other suppliers may include investment-banking concerns, commercial banks, and, in certain circumstances, other FHLBanks. Smaller members may have access to alternative-funding sources, including sales of securities under agreements to resell, while larger members may have access to federal funds, negotiable certificates of deposit, bankers’ acceptances, and medium-term notes, and may also have independent access to the national and global credit markets. The availability of alternative funding sources to members can significantly influence the demand for the Bank’s advances and can vary as a result of a variety of factors including, among others, market conditions, members’ creditworthiness, and availability of collateral.

The Bank competes for the purchase of mortgage loans held for portfolio. For single-family products, the Bank competes primarily with other GSEs, such as Fannie Mae and Freddie Mac. The Bank competes primarily on the basis of price and products.

The Bank also competes with corporate, sovereign, and supranational entities for funds raised in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than otherwise would be the case. In addition, the availability and cost of funds raised through the issuance of certain types of unsecured debt may be adversely affected by regulatory initiatives that tend to discourage investments by certain institutions in unsecured debt with certain volatility or interest-rate-sensitivity characteristics. Similar factors to those noted above may adversely impact the Bank’s ability to effectively complete transactions in the swap market. Because the Bank uses interest-rate-exchange agreements to modify the terms of many of its CO bond issues, conditions in the swap market may affect the Bank’s cost of funds.

In addition, the sale of callable debt and the simultaneous execution of callable interest-rate-exchange agreements that mirror the debt have been important sources of competitive funding for the Bank. As such, the availability of markets for callable debt and interest-rate-exchange agreements may be an important determinant of the Bank’s relative cost of funds. There is considerable competition among high-credit-quality issuers in the markets for callable debt and for interest-rate-exchange agreements. There can be no assurance that the current breadth and depth of these markets will be sustained.

Assessments

REFCorp Assessment. Although the Bank is exempt from all federal, state, and local taxation, except for property taxes, it is obligated to make payments to REFCorp in the amount of 20 percent of net earnings after AHP expenses. The REFCorp contribution requirement was established by Congress in 1989 to provide funds to pay a portion of the interest on debt issued by the Resolution Trust Corporation that was used to assist failed savings and loan institutions. These interest payments totaled $300 million per year, or $75 million per quarter for the 12 FHLBanks through 1999. In 1999, the GLB Act changed the annual assessment to a flat rate of 20 percent of net earnings (defined as GAAP net income) after AHP expense. Since 2000, the FHLBanks have been required to make payments to REFCorp until the total amount of payments made is equivalent to a $300 million annual annuity with a final maturity date of April 15, 2030. The expiration of the obligation is shortened as the 12 FHLBanks make payments in excess of $75 million per quarter.

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Because the FHLBanks contribute a fixed percentage of their net earnings to REFCorp, the aggregate amounts paid have exceeded the required $75 million per quarter for the past several years. As specified in the Finance Board regulation that implemented section 607 of the GLB Act, the payment amount in excess of the $75 million required quarterly payment is used to simulate the purchase of zero-coupon treasury bonds to “defease” all or a portion of the most distant remaining $75 million quarterly payment. The Finance Board, in consultation with the Secretary of the Treasury, will select the appropriate zero-coupon yields used in this calculation. Through March 31, 2005, the FHLBanks have satisfied the $300 million annual annuity requirements for all years between 2030 and 2019. These defeased payments, or portions thereof, could be restored in the future if actual REFCorp payments of the 12 FHLBanks fall short of $75 million in any given quarter. Contributions to REFCorp will be discontinued once all obligations have been fulfilled. However, due to the interrelationships of all future earnings of the 12 FHLBanks, the total cumulative amount to be paid by the Bank to REFCorp is not determinable.

AHP Assessment.Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of the current year’s net income before charges for AHP, REFCorp, and interest expense associated with mandatorily redeemable capital stock (regulatory net income), minus the assessment for REFCorp. This definition of regulatory net income for purposes of calculating the AHP assessment has been determined by the Finance Board.

In annual periods where the Bank’s regulatory net income is zero or less, the AHP assessment for the Bank is zero. However, if the annual 10 percent contribution provided by each individual FHLBank is less than the minimum $100 million contribution required for FHLBanks as a whole, the shortfall is allocated among the FHLBanks based upon the ratio of each FHLBank’s income before AHP and REFCorp to the sum of the income before AHP and REFCorp of the 12 FHLBanks combined. REFCorp determines allocation of this shortfall. There was no such shortfall in any of the preceding three years.

The actual amount of the AHP contribution is dependent upon both the Bank’s regulatory net income minus payments to REFCorp, and the income of the other FHLBanks; thus future contributions are not determinable.

Through the AHP, the Bank is able to address some of the affordable-housing needs of the communities in its region. The Bank partners with member financial institutions to work with housing organizations to apply for funds to support initiatives that serve very low- to moderate-income households. The Bank uses funds contributed to the AHP program by providing grants and low interest-rate advances through its member financial institutions.

The AHP and REFCorp assessments are calculated simultaneously due to their interdependence. The REFCorp has been designated as the calculation agent for AHP and REFCorp assessments. Each FHLBank provides its net income before AHP and REFCorp assessments to the REFCorp, which then performs the calculations at each quarterend date.

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ITEM 2. FINANCIAL INFORMATION

The following selected financial data for each of the five years ended December 31, 2004, have been derived from the Bank’s audited financial statements. Financial information is included elsewhere in this report in regards to the Bank’s financial condition as of December 31, 2004 and 2003, and the Bank’s results of operations for the years ended December 31, 2004, 2003, and 2002. Selected financial data for the March 31, 2005, and 2004, periods have been derived from the Bank’s unaudited financial statements. This selected financial data should be read in conjunction with the Bank’s financial statements and the related notes thereto appearing in this report.

SELECTED FINANCIAL DATA

(dollars in thousands)

	(Unaudited)
	March 31,						December 31,
	2005			2004			2004			2003			2002			2001			2000
Statement of Condition
Total assets	$	49,918,963		$	42,207,672		$	51,755,095		$	41,896,215		$	41,477,179		$	38,184,976		$	38,284,886
Investments (1)	14,608,406			11,283,590			15,796,108			10,566,179			11,727,264			11,682,279			16,061,101
Securities purchased under agreements to resell	—			700,000			1,500,000			500,000			39,000			1,550,000			100,000
Advances	30,959,202			25,586,214			30,208,753			26,074,230			26,931,239			24,361,152			21,594,401
Mortgage loans held for portfolio, net	4,150,955			4,432,838			4,011,981			4,536,698			2,488,181			329,874			16,622
Deposits and other borrowings	760,077			2,032,679			890,869			946,166			1,980,322			2,543,214			1,310,405
Consolidated obligations, net	46,011,293			36,506,538			47,770,395			37,404,025			35,909,521			32,875,059			34,425,548
AHP liabilities	31,640			33,279			33,199			32,180			31,416			37,165			33,770
REFCorp liabilities	6,375			6,832			5,137			6,032			6,141			4,446			9,575
Mandatorily redeemable capital stock	57,892			109,201			57,882			—			—			—			—
Class B capital stock outstanding – putable (2), (3)	2,192,569			—			2,085,814			—			—			—			—
Capital stock outstanding – putable (2)	—			2,355,361			—			2,427,960			2,278,446			1,984,948			1,857,926
Total capital	2,300,752			2,415,472			2,178,964			2,472,045			2,294,583			2,032,915			1,905,906
Results of Operations
Net interest income	$	54,761		$	52,389		$	215,192		$	207,633		$	171,241		$	205,489		$	222,928
Other (loss) income	(6,985		)	(5,589		)	(53,430		)	(49,211		)	(36,014		)	(22,226		)	1,527
Other expense	11,480			9,571			39,645			33,789			30,897			26,852			25,218
AHP and REFCorp assessments	9,657			9,905			32,472			33,065			27,373			40,779			52,858
Net income	26,567			27,326			89,522			91,563			75,800			112,923			146,377
Other Information
Dividends declared	$	21,062		$	12,751		$	55,425		$	74,483		$	78,203		$	113,271		$	138,212
Dividend payout ratio	79.28		%	46.66		%	61.91		%	81.35		%	103.17		%	100.31		%	94.42		%
Weighted-average dividend rate (4)	4.00			2.15			2.75			3.05			3.68			5.88			7.63
Return on average equity	4.80			4.46			4.25			3.65			3.48			5.66			7.82
Return on average assets	0.22			0.26			0.22			0.21			0.19			0.30			0.41
Net interest margin (5)	0.45			0.51			0.52			0.48			0.43			0.54			0.62
Total capital ratio (6)	4.60			5.76			4.22			5.94			5.60			5.32			4.98

(1)Investments include available-for-sale securities, held-to-maturity securities, trading securities, interest-bearing deposits in banks, and federal funds sold.

(2)Capital stock is putable at the option of a member.

(3)On April 19, 2004, the Bank replaced its capital-stock-subscription structure as mandated by the GLB Act.

(4)Weighted-average dividend rate is dividend amount declared divided by the average daily balance of capital stock eligible for dividends.

(5)Net interest margin is net interest income before mortgage-loan-loss provision as a percentage of average earning assets.

(6)Total capital ratio is capital stock plus retained earnings as a percentage of total assets. See Management’s Discussion and Analysis-Capital regarding the Bank’s regulatory capital ratios.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Forward-Looking Statements

This document includes statements describing anticipated developments, projections, estimates, or future predictions of the Bank. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The Bank cautions that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including risks set forth below, and that actual results could differ materially from those expressed or implied in these forward-looking statements. As a result, you are cautioned not to place undue reliance on such statements. The Bank does not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.

Forward-looking statements in this registration statement include, among others, the following:

•the Bank may reduce its dividend payout to achieve its retained earnings target;

•the Bank’s expectation of relatively modest balance-sheet growth;

•the targets under the Bank’s retained earnings plan; and

•the Bank’s expectations for reduced growth in its mortgage-loan portfolio as compared to prior periods.

Actual results may differ from forward-looking statements for many reasons, including but not limited to:

•changes in economic and market conditions;

•changes in demand for Bank advances and other products resulting from changes in members’ deposit flows and credit demands;

•an increase in advance prepayments as a result of changes in interest rates or other factors;

•the volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for obligations of Bank members and counterparties to interest-rate-exchange agreements and similar agreements;

•political events, including legislative developments that affect the Bank, its members, counterparties, and/or investors in the COs of the FHLBanks;

•competitive forces including, without limitation, other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled employees;

•the pace of technological change and the ability of the Bank to develop and support technology and information systems, including the internet, sufficient to manage the risks of the Bank’s business effectively;

•changes in investor demand for COs and/or the terms of interest-rate-exchange agreements and similar agreements;

•timing and volume of market activity;

•ability to introduce new Bank products and services and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances;

•risk of loss arising from litigation filed against one or more of the FHLBanks;

•inflation or deflation; and

•issues and events within the Federal Home Loan Bank System and in the political arena that may lead to regulatory, judicial, or other developments may affect the marketability of the COs, the Bank’s financial obligations with respect to such COs, and the Bank’s ability to access the capital markets. Recent examples affecting the FHLBanks include rating agency downgrades of certain FHLBanks; earnings restatements by certain FHLBanks, which will also affect the combined financial statements of the FHLBanks; delayed issuance of the 2004 audited financial statements of certain FHLBanks and the combined financial statements of the FHLBanks; and an announcement by the Federal Home Loan Bank of Seattle that the actions of two of its directors in connection with two member institution repurchases of Federal

29

Home Loan Bank of Seattle stock involved an appearance of impropriety and failed to comply with an applicable disclosure rule.

Risks and other factors could cause actual results of the Bank to differ materially from those implied by such forward-looking statements. These risk factors may not be exhaustive. The Bank operates in a changing economic and regulatory environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors nor can it assess the impact, if any, of such new risk factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.

Overview

Financial Market Conditions

The Bank’s primary source of revenues is derived from net interest income from advances, investments, and mortgage loans. These interest-earning asset volumes and yields are primarily impacted by economic conditions, market-interest rates, and other factors such as competition.

In 2004, economic trends improved and the financial markets continued to exhibit volatility. Short-term interest rates began to trend upward towards the latter half of 2004 as evidenced by five consecutive increases in the overnight federal-funds rate by the Federal Open Market Committee. Although these interest rates have been increasing steadily, they remain at low levels relative to those experienced over the last 40 years. During 2004, the Bank experienced a decline in residential mortgage growth due, in part, to the lack of mortgage purchases under the MPF program resulting from the market-driven decline in mortgage-refinancing activities. Through the first three quarters of 2004, advance levels remained relatively unchanged due to an increase in prepayment activity as a result of merger transactions, normal member prepayments, and advances callable by the Bank, mostly offset by new advance issuances. Advances outstanding increased during the fourth quarter primarily due to an increase in short-term borrowing by several large members.

Recent trends in the economy suggest stronger economic growth than over the last several years. Interest-rate increases have increased the yield on short-term assets that are funded by shareholder equity, increasing net income. However, the impact of the trends on advances volumes and mortgage-loan purchases cannot be reliably predicted.

Interim Comparison

Net income for the three months ended March 31, 2005, was $26.6 million compared with $27.3 million for the three months ended March 31, 2004. This $0.7 million decrease was primarily due to an $8.1 million decrease in prepayment-fee income, a $5.5 million decline in gain/loss on trading securities, a $1.9 million increase in losses on early debt extinguishments, and a $1.8 million increase in operating expenses. These decreases were partially offset by a $6.0 million improvement in derivatives and hedging activities as well as an increase in net interest income, excluding prepayment fee income, of $10.5 million.

Net interest income for the three months ended March 31, 2005, was $54.8 million compared with $52.4 million for the three months ended March 31, 2004. This increase was mainly driven by higher short-term advance balances, which earned higher yields due to a general increase in market interest rates, which was partially offset by lower prepayment-fee income recognized in the first quarter of 2005 compared to the first quarter of 2004, primarily the result of a reduction in advance prepayment activities.

For the three months ended March 31, 2005 and 2004, average total assets were $50.1 billion and $42.0 billion, respectively. Return on average assets and return on average equity were 0.22 percent and 4.80 percent, respectively, for the three months ended March 31, 2005, compared with 0.26 percent and 4.46 percent, respectively, for the three months ended March 31, 2004. Return on average assets decreased due to lower earnings and return on average equity improved mainly due to the decline in capital stock outstanding resulting from the implementation of the new capital plan on April 19, 2004, which resulted in a reduction in shares outstanding.

The weighted-average dividend rate was 4.00 percent for the three months ended March 31, 2005, 185 basis points higher than the weighted-average dividend rate of 2.15 percent for the comparable 2004 period. The Bank’s retained earnings plan currently calls for the Bank to achieve a retained earnings balance of $113 million by December 31, 2005. As of March 31, 2005, the Bank’s retained earnings was $101.4 million. The Bank’s retained earnings target is subject to revision as the Bank’s risk factors change or as the Bank enhances its methodology for calculation of the retained earnings target. The Bank will continue its initiative to increase retained earnings and may reduce future period dividend payouts to meet current or revised retained earnings targets, as considered necessary.

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Comparison of December 31, 2004 and 2003

Net income for the year ended December 31, 2004, was $89.5 million compared with $91.6 million for the year ended December 31, 2003. This $2.1 million decrease was mainly due to a higher level of losses resulting from derivatives and hedging activities of $6.2 million as well as a $5.7 million increase in operating expenses, which were partially offset by improvements in net interest income of $7.6 million and an improvement in unrealized gains and losses on trading securities of $2.0 million.

Net interest income for the year ended December 31, 2004, was $215.2 million compared with $207.6 million for the year ended December 31, 2003. Net interest income increased $7.6 million mainly as a result of a $55.9 million decrease in funding costs partly offset by a $48.3 million decrease in interest income on earning assets. In particular, interest income reflected an increase in total prepayment-fee income in the amount of $8.1 million. Net interest spread, for the year ended December 31, 2004, improved by eight basis points over the prior year.

For the years ended December 31, 2004 and 2003, average total assets were $41.6 billion and $43.6 billion, respectively. Return on average assets and return on average equity were 0.22 percent and 4.25 percent, respectively, for the year ended December 31, 2004, compared with 0.21 percent and 3.65 percent, respectively, for the year ended December 31, 2003. Return on average assets essentially remained unchanged for the comparable periods and return on equity improved mainly due to the decline in capital stock outstanding resulting from the implementation of the new capital plan on April 19, 2004, which resulted in a reduction in the number of shares outstanding. Refer to the Capital section below, as well as Note 13 – Capital, located in the footnotes to the December 31, 2004 Annual Financial Statements, for further detail.

The composition of the Bank’s total assets changed during the year ended December 31, 2004, as follows:

•Advances, as a percentage of total assets, decreased to 58.4 percent at December 31, 2004, from 62.2 percent at December 31, 2003, due to an increase in short-term investments which largely contributed to the increase in total assets;

•Investments, as a percentage of total assets, increased to 33.4 percent at December 31, 2004, from 26.4 percent at December 31, 2003, mainly the result of an increase in short-term investments; and

•Net mortgage loans, as a percentage of total assets, decreased to 7.8 percent at December 31, 2004, from 10.8 percent at December 31, 2003, due to the slowdown in mortgage-refinancing activities resulting in a decline in mortgage-loan purchases. The decline in the mortgage portfolio balance is attributable to principal payments during the normal course of business as well as mortgage-loan prepayments.

The weighted-average dividend rate was 2.75 percent for the year ended December 31, 2004, which was 30 basis points lower than the weighted-average dividend rate of 3.05 percent for the comparable 2003 period.

RESULTS OF OPERATIONS

Net Interest Spread and Net Interest Margin

Net interest income for the three months ended March 31, 2005, was $54.8 million, compared with $52.4 million for the three months ended March 31, 2004, increasing $2.4 million or 4.5 percent from the previous year. Advances growth mainly contributed to the improvement in net interest income. However, both net interest spread and net interest margin for the quarter ended March 31, 2005, declined when compared to the same period in 2004 due to lower prepayment-fee income. Prepayment fee income recognized on advances declined $10.4 million to $4.6 million for the three months ended March 31, 2005 from $15.0 million for the three months ended March 31, 2004.

Net interest income for the year ended December 31, 2004, was $215.2 million compared with $207.6 million for the year ended December 31, 2003, increasing $7.6 million or 3.7 percent from the previous year. Lower funding costs on COs contributed to this improvement, as well as a slight increase in mortgage loans held in portfolio. Net interest income was unfavorably impacted by declines in interest income related to advances and investments when compared to the prior year.

The following tables present major categories of average balances, related interest income/expense, and average yields for interest-earning assets and interest-bearing liabilities. The primary source of earnings for the Bank is net interest income, which is the interest earned on advances, mortgage loans, and investments less interest paid on COs, deposits, and other borrowings. Net interest spread is the difference between the yields on interest-earning assets and interest-bearing liabilities. Net interest margin is expressed as the percentage of net interest income to average earning assets.

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Net Interest Spread and Margin

(dollars in thousands)

	For the Three Months Ended March 31, 2005						For the Three Months Ended March 31, 2004
	Average Balance		Interest Income /Expense		Average Yield(1)		Average Balance		Interest Income /Expense		Average Yield(1)
Assets
Advances	$	30,018,918	$	221,736	3.00	%	$	26,089,591	$	153,321	2.36	%
Interest-bearing deposits in banks	2,834,328		17,610		2.52		31,912		87		1.10
Securities purchased under agreements to resell	610,000		3,746		2.49		1,039,396		2,691		1.04
Federal funds sold	4,671,719		29,180		2.53		1,990,269		5,126		1.04
Investment securities (2)	7,370,453		74,735		4.11		7,790,753		66,825		3.45
Mortgage loans	4,051,731		48,769		4.88		4,492,014		52,492		4.70
Other earnings assets	—		—		—		1,242		3		0.97
Total interest-earning assets	49,557,149		395,776		3.24	%	41,435,177		280,545		2.72	%
Other non-interest-earning assets	512,077						552,595
Total assets	$	50,069,226	$	395,776	3.21	%	$	41,987,772	$	280,545	2.69	%
Liabilities and capital
Consolidated obligations	$	46,120,183	$	336,837	2.96	%	$	37,145,276	$	226,051	2.45	%
Deposits	725,059		3,536		1.98		1,009,670		1,753		0.70
Mandatorily redeemable capital stock	57,888		571		4.00		61,803		330		2.15
Other borrowings	12,436		71		2.32		9,597		22		0.92
Total interest-bearing liabilities	46,915,566		341,015		2.95	%	38,226,346		228,156		2.40	%
Other non-interest-bearing liabilities	908,903						1,315,296
Total capital	2,244,757						2,446,130
Total liabilities and capital	$	50,069,226	$	341,015	2.76	%	$	41,987,772	$	228,156	2.19	%
Net interest income			$	54,761					$	52,389
Net interest spread					0.29	%					0.32	%
Net interest margin					0.45						0.51

(1)Yields are annualized.

(2)The average balances of available-for-sale securities are reflected at amortized cost; therefore the resulting yields do not give effect to changes in fair value.

Net interest spread and net interest margin for the three months ended March 31, 2005, was 0.29 percent and 0.45 percent compared with 0.32 percent and 0.51 percent, respectively, for the three months ended March 31, 2004. For the quarter ended March 31, 2005, the average yields on total interest-earning assets increased 51 basis points and yields on total interest-bearing liabilities increased 55 basis points, as compared to the same period in 2004.

Average advance balances increased $3.9 billion or 15.1 percent for the quarter ended March 31, 2005, when compared to the same period in 2004. The increase in advances was attributable to strong member demand for short-term advances. The increasing interest-rate environment during the latter half of 2004 and into the first quarter of 2005 contributed to the increase in yields on advances.

Average investment balances declined $420.3 million or 5.4 percent for the quarter ended March 31, 2005, when compared to the same period in 2004. This decrease was mainly due to lower balances of MBS and state housing agency securities. MBS declined during 2004 following the implementation of the Bank’s capital plan in April 2004, due to the constraint that MBS not exceed 300 percent of capital. Upon implementation of the Bank’s capital plan, capital stock balances were reduced and the Bank temporarily exceeded the 300 percent of capital limitation, and therefore suspended MBS purchasing activity until the ratio of MBS to capital was once again below 300 percent. State housing agency securities decreased due to call activity arising from low interest rates, and the Bank has not purchased any additional state housing agency securities during this time period.

Average mortgage-loan balances for the quarter ended March 31, 2005 were $440.3 million, or 9.8 percent, lower than the average balance for the three months ended March 31, 2004. This decrease in average mortgage-loan balances was attributable to:

•The slowdown in mortgage-refinancing activities in 2004, resulting in reduced loan production;

32

•A reluctance by some members to sell mortgages to the Bank following the Bank’s capital conversion due to the imposition of a requirement for members to purchase Class B shares to support mortgage loans delivered to the Bank; and

•Mortgage-loan prepayments and regular payments.

Average federal funds sold balances increased $2.7 billion or 134.7 percent from March 31, 2004 to March 31, 2005. Higher average balances in 2005 were a result of management taking advantage of more favorable interest rates as indicated by the yield increase in the table above.

Average CO balances increased $9.0 billion or 24.2 percent from March 31, 2004 to March 31, 2005. This increase was mainly due to the issuance of CO DNs to fund short-term advances and short-term investments.

Net Interest Spread and Margin

(dollars in thousands)

	For the Years Ended December 31,
	2004						2003							2002
	Average Balance		Interest Income / Expense		Average Yield			Average Balance		Interest Income / Expense		Average Yield			Average Balance		Interest Income / Expense		Average Yield
Assets
Advances	$	25,810,641	$	650,634	2.52	%		$	26,346,383	$	677,763	2.57	%		$	24,364,780	$	835,142	3.43	%
Interest-bearing deposits in banks	589,952		10,654		1.81			284,383		3,734		1.31			677,501		13,245		1.95
Securities purchased under agreements to resell	602,773		8,569		1.42			737,049		8,527		1.16			1,617,921		28,818		1.78
Federal funds sold	2,291,177		34,530		1.51			3,266,566		38,196		1.17			4,062,339		73,015		1.80
Investment securities	7,596,824		276,314		3.64			8,366,366		305,710		3.65			7,864,538		360,609		4.59
Mortgage loans	4,209,448		197,773		4.70			3,947,362		192,821		4.88			1,213,424		72,037		5.94
Other earnings assets	1,191		17		1.43			8,140		98		1.20			5,103		90		1.76
Total interest-earning assets	41,102,006		1,178,491		2.87	%		42,956,249		1,226,849		2.86	%		39,805,606		1,382,956		3.47	%
Other non-interest-earning assets	509,062							642,727							591,256
Total assets	$	41,611,068	$	1,178,491	2.83	%		$	43,598,976	$	1,226,849	2.81	%		$	40,396,862	$	1,382,956	3.42	%
Liabilities and capital
Consolidated obligations	$	37,402,844	$	952,567	2.55	%		$	37,950,281	$	1,005,362	2.65	%		$	34,969,362	$	1,181,539	3.38	%
Deposits	957,347		9,338		0.98			1,610,167		13,668		0.85			2,052,386		29,849		1.45
Mandatorily redeemable capital stock	46,361		1,306		2.82			—		—		—			—		—		—
Other borrowings	7,450		88		1.18			16,051		186		1.16			20,254		327		1.61
Total interest-bearing liabilities	38,414,002		963,299		2.51	%		39,576,499		1,019,216		2.58	%		37,042,002		1,211,715		3.27	%
Other non-interest-bearing liabilities	1,100,748							1,540,292							1,192,333
Total capital	2,096,318							2,482,185							2,162,527
Total liabilities and capital	$	41,611,068	$	963,299	2.32	%		$	43,598,976	$	1,019,216	2.34	%		$	40,396,862	$	1,211,715	3.00	%
Net interest income			$	215,192						$	207,633						$	171,241
Net interest spread					0.36	%						0.28	%						0.20	%
Net interest margin					0.52							0.48							0.43

Net interest spread and net interest margin for the year ended December 31, 2004, was 0.36 percent and 0.52 percent compared with 0.28 percent and 0.48 percent, respectively, for the year ended December 31, 2003. This improvement is mainly attributable to the lower funding costs on COs as higher-yielding debt is extinguished as a result of advance prepayments by members. Other improvements contributing to this increase were realized in interest-bearing deposits and the mortgage-loan portfolio. These improvements were partially offset by a reduction in interest income realized on investments and advances due to the decline in average balances. At December 31, 2004, the average yields on total interest-earning assets remained relatively unchanged and yields on total interest-bearing liabilities decreased seven basis points, as compared to  2003.

Average advance balances declined $535.7 million or 2.0 percent at December 31, 2004 when compared to the same period in 2003. The decrease in advances was attributable to the significant amount of advance prepayments that occurred in 2004, which were partially offset by new advance issuances. The increased level of prepayment activity was largely driven by merger activity of

33

members and member balance-sheet restructurings. In addition, prepayment of higher-yielding advances contributed to the decline in yields.

Included in net interest income are prepayment fees related to advances and investments. Prepayment fees make the Bank financially indifferent to the prepayment of advances or investments and are net of any hedging fair-value adjustments associated with SFAS 133. For the three months ended March 31, 2005 and 2004, prepayment fees on advances were $4.6 million and $15.0 million, and prepayment fees recognized on investments were $3.6 million and $1.2 million, respectively. For the years ended December 31, 2004, 2003, and 2002, prepayment fees on advances were $54.3 million, $50.5 million, and $29.2 million, and prepayment fees recognized on investments were $9.9 million, $5.7 million, and $4.2 million, respectively. Prepayment fee income is unpredictable and inconsistent from period to period, occurring only when advances and investments are prepaid prior to the scheduled maturity or repricing dates. Because prepayment fee income recognized during these periods does not necessarily represent a trend that will continue in future periods, and due to the fact that prepayment fee income represents a one-time fee recognized in the period in which the corresponding advance or investment security is prepaid, we believe it is important to review the results of net interest spread and net interest margin excluding the impact of prepayment-fee income. These results are presented in the following table.

Net Interest Spread and Margin without Prepayment-Fee Income

(dollars in thousands)

	For the Three Months Ended March 31,								For the Year s Ended December 31,
	2005				2004				2004				2003				2002
	Interest Income		Average Yield(1)		Interest Income		Average Yield(1)		Interest Income		Average Yield		Interest Income		Average Yield		Interest Income		Average Yield
Advances	$	217,167	2.93	%	$	138,316	2.13	%	$	596,338	2.31	%	$	627,231	2.38	%	$	805,985	3.31	%
Investment securities	71,135		3.91		65,577		3.39		266,389		3.51		300,041		3.59		356,377		4.53
Total interest-earning assets	387,607		3.17		264,292		2.57		1,114,270		2.71		1,170,648		2.73		1,349,567		3.39
Net interest income	46,592				36,136				150,971				151,432				137,852
Net interest spread			0.22	%			0.17	%			0.20	%			0.15	%			0.12	%
Net interest margin			0.38	%			0.35	%			0.36	%			0.35	%			0.34	%

(1) Yields are annualized.

Average investment balances declined $769.5 million or 9.2 percent for the year ended December 31, 2004, when compared to the same period in 2003. This decrease was mainly due to lower balances of MBS and state housing agency securities. The Bank refrained from purchases of MBS in the first quarter of 2004 in anticipation of converting to its new capital plan, which occurred on April 19, 2004. State housing agency bond balances decreased due to call activity arising from low interest rates.

Average mortgage-loan balances for 2004 were $262.1 million, or 6.6 percent, higher than the average balance of 2003. This increase in average mortgage-loan balances was attributable to a higher level of mortgage-loan balances at the beginning of 2004 compared to the average balance for 2003. The Bank experienced rapid growth in its mortgage-loan portfolio during the first half of 2003, and then loan balances began to gradually decline during the second half of 2003. This decline continued throughout 2004, as mortgage-loan prepayment activity outpaced mortgage-loan purchases.

The decline in mortgage-loan yields was attributable to the acquisition of loans at historically low interest rates during 2003 and early 2004 and the amortization and prepayment of principal associated with higher coupon loans throughout this period. The yield effect of premium amortization was unchanged as average long-term interest rates were only modestly higher in 2004 than in 2003, despite considerable fluctuation within each year. The CE fees in 2004 and 2003 reflect the higher proportion of loans originated under the MPF Plus product, which has a higher average CE fee than the other MPF products (see the MPF Product Comparison Chart in Item 1 Business-Mortgage Loan Finance).

34

Composition of the Yields of Mortgage Loans

(dollars in thousands)

	For the Three Months Ended March 31,
	2005					2004
	Interest Income			Average Yield		Interest Income			Average Yield
Coupon accrual	$	53,470		5.35	%	$	59,953		5.37	%
Premium/discount amortization	(3,683		)	- 0.37		(6,316		)	- 0.57
Credit enhancement fees and other	(1,018		)	- 0.10		(1,145		)	- 0.10
Total interest income	$	48,769		4.88	%	$	52,492		4.70	%
Average mortgage-loan balance	$ 4,051,731					$ 4,492,014

	For the Years Ended December 31,
	2004					2003					2002
	Interest Income			Average Yield		Interest Income			Average Yield		Interest Income			Average Yield
Coupon accrual	$	223,183		5.30	%	$	216,368		5.48	%	$	76,211		6.28	%
Premium/discount amortization	(21,201		)	- 0.50		(19,897		)	- 0.50		(3,286		)	- 0.27
Credit enhancement fees and other	(4,209		)	- 0.10		(3,650		)	- 0.10		(888		)	- 0.07
Total interest income	$	197,773		4.70	%	$	192,821		4.88	%	$	72,037		5.94	%
Average mortgage-loan balance	$ 4,209,448					$ 3,947,362					$ 1,213,424

Average federal funds sold balances decreased $975.4 million or 29.9 percent at December 31, 2004 when compared to the same period in 2003. Higher average balances in 2003 were a result of management assessing its liquidity position in anticipation of converting to the new capital plan in April 2004 and potentially redeeming excess capital stock and satisfying redemption requests for those members opting out of the new capital plan. Lower average balances were also the result of unattractive yields on federal funds sold during the first three quarters of 2004.

Average CO balances declined $547.4 million or 1.4 percent at December 31, 2004 when compared to the same period in 2003. This decrease was mainly due to the maturing and retiring of higher-yielding debt throughout 2004, which also caused a reduction in debt costs.

Net interest income includes interest paid and received on those interest-rate-exchange agreements associated with advances, investments, deposits, and debt instruments that qualify for hedge accounting under SFAS 133. The Bank utilizes derivative instruments that qualify for hedge accounting as an interest-rate-risk management tool. These derivatives serve to stabilize net interest income and net interest margin when interest rates fluctuate. Accordingly, the impact of derivatives on net interest income and net interest margin should be viewed in the overall context of the Bank’s risk-management strategy.

35

Impact of Derivatives on Gross Interest Income and Gross Interest Expense

(dollars in thousands)

	For the Three Months Ended March 31,						For the Years Ended December 31,
	2005			2004			2004			2003			2002
Gross interest income before effect of derivatives	$	435,943		$	373,251		$	1,486,902		$	1,621,543		$	1,719,468
Net interest adjustment for derivatives	(40,167		)	(92,706		)	(308,411		)	(394,694		)	(336,512		)
Total interest income reported	$	395,776		$	280,545		$	1,178,491		$	1,226,849		$	1,382,956
Gross interest expense before effect of derivatives	$	368,986		$	306,296		$	1,208,771		$	1,319,672		$	1,483,706
Net interest adjustment for derivatives	(27,971		)	(78,140		)	(245,472		)	(300,456		)	(271,991		)
Total interest expense reported	$	341,015		$	228,156		$	963,299		$	1,019,216		$	1,211,715

For the three months ended March 31, 2005 and 2004, net interest margin would have been approximately 0.55 percent and 0.65 percent, respectively, if hedges had not been used to mitigate interest-rate fluctuations, while for the years ended December 31, 2004, 2003, and 2002, net interest margin would have been approximately 0.67 percent, 0.69 percent, and 0.59 percent, respectively, if hedges had not been used to mitigate interest-rate fluctuations.

Interest paid and received on interest-rate-exchange agreements that are used by the Bank in its asset and liability management, but which do not meet hedge-accounting requirements of SFAS 133 (economic hedges), are classified as net loss on derivative and hedging activities in other income. As shown in the Other Income (Loss) section below, interest accruals on derivatives classified as economic hedges totaled ($0.8) million and ($1.6) million for the three months ended March 31, 2005 and 2004, respectively, and ($6.4) million, ($5.2) million, and ($6.5) million for the years ended December 31, 2004, 2003, and 2002, respectively.

More information about the Bank’s use of derivative instruments to manage interest-rate risk is provided in the Risk Management – Market and Interest-Rate Risk section of this discussion and analysis.

Rate and Volume Analysis

Changes in both average balances (volume) and interest rates influence changes in net interest income and net interest margin. The following table summarizes changes in interest income and interest expense between the three months ended March 31, 2005 and 2004, between the years ended December 31, 2004 and 2003, and between the years ended December 31, 2003 and 2002. Changes in interest income and interest expense that are not identifiable as either volume-related or rate-related, but rather equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the volume and rate changes.

36

Rate and Volume Analysis

(dollars in thousands)

	For the Three Months Ended									For the Year s Ended									For the Years Ended
	March 31, 2005 vs. 2004									December 31, 2004 vs. 2003									December 31, 2003 vs. 2002
	Increase (decrease) due to									Increase (decrease) due to									Increase (decrease) due to
	Volume			Rate			Total			Volume			Rate			Total			Volume			Rate				Total
Interest income
Advances	$	24,649		$	43,766		$	68,415		$	(13,643	)	$	(13,486	)	$	(27,129	)	$	63,757		$		(221,136	)	$	(157,379		)
Interest-bearing deposits in banks	17,268			255			17,523			5,128			1,792			6,920			(6,074		)	(3,437			)	(9,511			)
Securities purchased under agreements to resell	(6,654		)	7,709			1,055			(1,711		)	1,753			42			(12,344		)	(7,947			)	(20,291			)
Federal funds sold	11,604			12,450			24,054			(13,080		)	9,414			(3,666		)	(12,508		)	(22,311			)	(34,819			)
Investment securities	(20,904		)	28,814			7,910			(27,997		)	(1,399		)	(29,396		)	21,893			(76,792			)	(54,899			)
Mortgage loans	(14,371		)	10,648			(3,723		)	12,492			(7,540		)	4,952			135,644			(14,860			)	120,784
Other earnings assets	(1		)	(2		)	(3		)	(96		)	15			(81		)	42			(34			)	8
Total interest income	11,591			103,640			115,231			(38,907		)	(9,451		)	(48,358		)	190,410			(346,517			)	(156,107			)
Interest expense
Consolidated obligations	59,252			51,534			110,786			(14,350		)	(38,445		)	(52,795		)	94,563			(270,740			)	(176,177			)
Deposits	(3,207		)	4,990			1,783			(6,145		)	1,815			(4,330		)	(5,518		)	(10,663			)	(16,181			)
Mandatorily redeemable capital stock	(140		)	381			241			653			653			1,306			—			—				—
Other borrowings	8			41			49			(102		)	4			(98		)	(60		)	(81			)	(141			)
Total interest expense	55,913			56,946			112,859			(19,944		)	(35,973		)	(55,917		)	88,985			(281,484			)	(192,499			)
Change in net interest income	$	(44,322	)	$	46,694		$	2,372		$	(18,963	)	$	26,522		$	7,559		$	101,425		$	(65,033		)	$		36,392

Other Income (Loss)

Other Income (Loss)

(dollars in thousands)

	For the Three Months Ended March 31,						For the Years Ended December 31,
	2005			2004			2004			2003			2002
Gains (losses) on derivatives and hedging activities:
Net gains (losses) related to fair-value hedge ineffectiveness	$	2,837		$	342		$	(2,556	)	$	1,781		$	(666	)
Net losses related to cash-flow hedge ineffectiveness	—			—			—			—			(142		)
Net unrealized gains (losses) related to derivatives not receiving hedge accounting under SFAS 133 associated with:
Advances	751			—			—			—			—
Trading securities	3,262			(3,624		)	3,637			2,419			(17,947		)
Mortgage loans	(1,669		)	3,184			(1,698		)	143			—
Consolidated obligations	—			—			—			—			(618		)
Member intermediated	—			—			—			(68		)	84
Net interest-accruals related to derivatives not receiving hedge accounting under SFAS 133	(816		)	(1,564		)	(6,437		)	(5,178		)	(6,482		)
Net gains (losses) on derivatives and hedging activities	4,365			(1,662		)	(7,054		)	(903		)	(25,771		)
Loss on early extinguishment of debt	(8,025		)	(6,127		)	(40,218		)	(40,611		)	(19,017		)
Service-fee income	562			589			2,233			2,592			1,793
Net unrealized (losses) gains on trading securities	(3,889		)	1,593			(8,394		)	(10,436		)	6,977
Net realized gains from the sale of available-for-sale securities	—			—			247			122			—
Net realized gains on sale of held-to-maturity securities	—			—			13			—			—
Other	2			18			(257		)	25			4
Total other loss	$	(6,985	)	$	(5,589	)	$	(53,430	)	$	(49,211	)	$	(36,014	)

Losses on early extinguishment of debt totaled $8.0 million and $6.1 million for the three months ended March 31, 2005 and 2004, respectively. Early extinguishment of debt is primarily driven by the prepayment of advances and investments, which generate fee income to the Bank in the form of make-whole prepayment penalties. The Bank generally attempts to use a portion of the proceeds of prepaid advances and investments to retire higher-costing debt and to manage the relative interest-rate sensitivities of assets and liabilities. However, the Bank is limited in its ability to employ this strategy due to the limited availability of specific bonds for purchase and retirement. For example, an advance with seven years remaining to maturity might have been funded by a bond issued at

37

approximately the same time that has a similar, though not identical, maturity date. If the Bank is able to find an investor willing to sell the target bond back to the Bank, then the Bank will purchase this bond using the principal and prepayment fee proceeds that resulted from the asset prepayment. However, if the Bank cannot find an investor willing to sell the specific desired bond, the Bank will attempt to buy other bonds with reasonably proximate maturities in amounts that reasonably maintain its asset-liability repricing profile. In cases when a similar bond is not available for repurchase, rather than retiring debt, the Bank will attempt to redeploy the prepayment proceeds in a new asset with maturity similar to that of the prepaid asset. In this manner, the Bank preserves its asset-liability repricing balance and stabilizes the net interest margin. During the three months ended March 31, 2005 and 2004, the Bank extinguished debt totaling $144.4 million and $80.4 million, respectively. During the years ended December 31, 2004 and 2003, the Bank extinguished debt of $865.7 million and $602.0 million, respectively.

Changes in the fair value of trading securities are recorded in other income (loss). For the three months ended March 31, 2005 and 2004, net unrealized losses of $3.9 million and net unrealized gains of $1.6 million, respectively, were recognized. The change is primarily due to an increase in interest rates during the first quarter of 2005 as compared to a decline in interest rates during the first quarter of 2004. These securities are economically hedged with interest-rate-exchange agreements that do not qualify for hedge accounting under SFAS 133, but are acceptable hedging strategies under the Bank’s risk-management program. Changes in the fair value of these economic hedges, including interest accruals on these derivatives, are recorded in current-period earnings and amounted to a gain of $3.3 million and a loss of $3.6 million for the three months ended March 31, 2005 and 2004, respectively.

Changes in the fair value of trading securities are recorded through other income. For the years ended December 31, 2004 and 2003, net unrealized losses of $8.4 million and $10.4 million, respectively, were recognized. The change is due to an increase in interest rates during the latter half of 2004. Changes in fair value of these economic hedges, including interest accruals on these derivatives, are recorded in current-period earnings and amounted to a gain of $3.6 million and $2.4 million for the years ended December 31, 2004 and 2003, respectively. The net impact to earnings resulting from these activities amounted to a loss of $4.8 million and $8.0 million for the years ended December 31, 2004 and 2003, respectively.

As noted in the Other Income (Loss) table above, SFAS 133 introduces the potential for considerable timing differences between income recognition from assets or liabilities and income effects of hedging instruments entered into to mitigate interest-rate risk and cash-flow activity.

Other Expenses

Operating expenses for the three months ended March 31, 2005 and 2004, and for the years ended December 31, 2004, 2003, and 2002, are summarized in the following table:

Operating Expenses

(dollars in thousands)

	For the Three Months Ended March 31,						For the Years Ended December 31,
	2005			2004			2004			2003			2002
Salaries and benefits	$	6,372		$	5,406		$	22,316		$	18,335		$	16,437
Occupancy costs	975			974			3,804			3,924			3,501
Other operating expenses	3,184			2,358			10,687			8,853			8,427
Total operating expenses	$	10,531		$	8,738		$	36,807		$	31,112		$	28,365
Ratio of operating expenses to average assets	0.09		%	0.08		%	0.09		%	0.07		%	0.07		%

Total operating expenses increased $1.8 million for the three months ended March 31, 2005, when compared to the same period in 2004. The increase was mainly due to a $1.0 million increase in salaries and benefits and a $0.8 million increase in other operating expenses.

The $1.0 million increase in salaries and benefits is due to approximately $0.4 million increase in salary expenses attributable to planned staffing increases and annual merit increases, and approximately $0.6 million increase in employee benefits. At March 31, 2005, staffing levels increased 10.1 percent to 175 employees compared to 159 employees at March 31, 2004.

Other operating expenses increased $0.8 million primarily due to a $0.6 million increase in professional fees related to costs of implementing information systems and a $0.2 million increase in temporary help to assist in complying with the Sarbanes-Oxley Act of 2002.

38

The Bank, together with the other FHLBanks, is assessed for the cost of operating the Finance Board and the Office of Finance. These expenses totaled $0.9 million and $0.8 million for the three months ended March 31, 2005 and 2004, respectively, and are included in other expenses. These expenses totaled $2.7 million in both 2004 and 2003.

Total operating expenses increased $5.7 million for the year ended December 31, 2004, when compared to the same period in 2003. The increase was mainly due to a $4.0 million increase in salaries and benefits and a $1.8 million increase in other operating expenses.

The $4.0 million increase in salaries and benefits is due to approximately $2.4 million increase in salary expenses attributable to planned staffing increases, annual merit increases and severance, and approximately $1.3 million increase in employee benefits. At December 31, 2004, staffing levels increased 7.7 percent to 167 employees when compared to the prior yearend.

Other operating expenses increased in large part due to professional fees related to costs of implementing information systems.

FINANCIAL CONDITION

Advances

At March 31, 2005, the advances portfolio increased to $31.0 billion compared to $30.2 billion at December 31, 2004. This increase was primarily the result of a net increase in short-term advances of $0.5 billion as members continued to increase their short-term borrowings. The $0.5 billion increase was mainly the result of a $2.9 billion increase in overnight advances partially offset by a decline in short-term fixed-rate advances of $2.4 billion. However, at March 31, 2005, 57.2 percent of total advances outstanding had original maturities of greater than one year, compared with 56.7 percent as of December 31, 2004.

At December 31, 2004, the advances portfolio totaled $30.2 billion, an increase of $4.1 billion, or 16 percent, from $26.1 billion at December 31, 2003. This increase was primarily due to a $6.9 billion increase in short-term fixed advances as several of the Bank’s members increased short-term advance borrowings in the fourth quarter of 2004 in response to attractive pricing that the Bank offered at that time. The FHLBanks were able to issue short-term DNs at a comparatively low cost relative to benchmarks such as term federal funds in the fourth quarter of 2004, and the Bank responded to this opportunity by reducing advances pricing slightly. Partially offsetting this increase was a $2.8 billion decrease in putable advances, driven by an increase in put and prepayment activity due to higher market interest rates and member balance-sheet restructuring activity. At December 31, 2004, 56.7 percent of total advances outstanding had original maturities of greater than one year, compared with 75.5 percent as of December 31, 2003.

The following table summarizes advances outstanding at March 31, 2005, December 31, 2004, and December 31, 2003, by year of maturity.

Advances Outstanding by Year of Maturity

(dollars in thousands)

	March 31,					December 31,
	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
	Amount			Rate		Amount			Rate		Amount			Rate
Overdrawn demand-deposit accounts	$	41,784		3.24	%	$	33,200		2.67	%	$	84,249		1.38	%
Due in one year or less	15,994,590			2.96		15,216,451			2.50		8,947,601			2.04
Due after one year through two years	3,856,493			3.38		3,017,754			3.31		2,599,196			4.17
Due after two years through three years	2,811,052			3.84		2,894,633			3.73		2,566,074			3.75
Due after three years through four years	1,944,034			3.96		1,940,475			3.71		2,696,108			4.38
Due after four years through five years	1,902,672			4.42		1,979,890			4.05		1,685,556			3.68
Thereafter	4,295,330			4.71		4,863,883			4.71		6,806,389			4.65
Total par value	30,845,955			3.49	%	29,946,286			3.24	%	25,385,173			3.49	%
Premium on advances	10,669					10,442					1,858
Discount on advances	(11,793		)			(10,700		)			(10,360		)
SFAS 133 hedging adjustments	114,371					262,725					697,559
Total	$	30,959,202				$	30,208,753				$	26,074,230

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Advances originated by the Bank with its members are recorded at par. However, the Bank may record premiums or discounts on advances in the following cases:

•Advances may be acquired from other FHLBanks when a member of the Bank acquires a member of another FHLBank. In these cases, the Bank purchases the advance from the other FHLBank at a price that results in a fair market yield for the acquired advance.

•In the event that a hedge of an advance is discontinued, the cumulative basis adjustment is recorded as a premium or discount and amortized over the remaining life of the advance.

•When the prepayment of an advance is followed by disbursement of a new advance, and the transactions effectively represent a modification of the previous advance under Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (SFAS 91), the prepayment fee received is deferred, recorded as a discount to the modified advance, and accreted over the life of the new advance.

•When the Bank makes an AHP advance, the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and the Bank’s related cost of funds for comparable maturity funding is charged against the AHP liability and recorded as a discount on the AHP advance.

During 2004, the Bank purchased $195.5 million of advances from another FHLBank. Premiums associated with these purchased advances totaled $9.8 million, which are being amortized over the remaining life of the advances.

As of March 31, 2005, SFAS 133 hedging adjustments decreased $148.4 million from December 31, 2004 due to higher market interest rates, which resulted in a lower estimated fair value of the hedged advances. As of December 31, 2004, SFAS 133 hedging adjustments decreased $434.8 million due to higher market interest rates, which resulted in a lower estimated fair value of the hedged advances, as well as a reduced need for advances hedging due to prepayments and option exercise.

The Bank offers advances to members that may be prepaid on pertinent dates (call dates) without incurring prepayment or termination fees (callable advances). At March 31, 2005 and December 31, 2004, the Bank had callable advances outstanding of $30.0 million. No callable advances were outstanding at December 31, 2003.

Advances Outstanding by Year of Maturity or Next Call Date

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003
Overdrawn demand-deposit accounts	$	41,784	$	33,200	$	84,249
Due in one year or less	15,994,590		15,216,451		8,947,601
Due after one year through two years	3,856,493		3,017,754		2,599,196
Due after two years through three years	2,841,052		2,924,633		2,566,074
Due after three years through four years	1,944,034		1,940,475		2,696,108
Due after four years through five years	1,902,672		1,979,890		1,685,556
Thereafter	4,265,330		4,833,883		6,806,389
Total par value	$	30,845,955	$	29,946,286	$	25,385,173

The Bank also offers putable advances, in which the Bank purchases a put option from the member that allows the Bank to terminate the advance on specific dates through its term. At March 31, 2005, December 31, 2004 and 2003, the Bank had putable advances outstanding totaling $5.6 billion, $5.7 billion, and $8.3 billion, respectively. The decrease in putable advances outstanding for the three months ended March 31, 2005, and for the year ended December 31, 2004, was primarily due to the prepayment of putable advances totaling $122.0 million and $2.8 billion, respectively. The following table summarizes advances outstanding at March 31, 2005, December 31, 2004, and December 31, 2003, by year of maturity or next put date for putable advances.

40

Advances Outstanding by Year of Maturity or Next Put Date

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003
Overdrawn demand-deposit accounts	$	41,784	$	33,200	$	84,249
Due in one year or less	20,476,290		18,975,101		15,731,351
Due after one year through two years	3,992,393		3,264,704		2,204,196
Due after two years through three years	2,363,602		2,626,533		2,499,024
Due after three years through four years	1,561,984		1,578,975		1,620,708
Due after four years through five years	1,012,372		1,379,440		1,282,056
Thereafter	1,397,530		2,088,333		1,963,589
Total par value	$	30,845,955	$	29,946,286	$	25,385,173

The following table summarizes advances outstanding by type at March 31, 2005, December 31, 2004, and December 31, 2003.

Advances Outstanding By Product Type

(dollars in thousands)

	March 31, 2005				December 31, 2004				December 31, 2003
			Percent of				Percent of				Percent of
	Balance		Total		Balance		Total		Balance		Total
Overnight advances	$	3,546,973	11.5	%	$	622,309	2.1	%	$	1,773,809	7.0	%
Fixed-rate advances
Short-term	9,357,192		30.3		12,137,518		40.5		4,396,722		17.3
Long-term	7,515,414		24.4		7,359,963		24.6		7,528,939		29.7
Amortizing	2,543,163		8.2		2,499,783		8.3		2,038,803		8.0
Putable	5,538,400		18.0		5,675,400		19.0		8,121,600		32.0
Callable	30,000		0.1		30,000		0.1		—		—
	24,984,169		81.0		27,702,664		92.5		22,086,064		87.0
Variable-rate advances
Putable	30,000		0.1		30,000		0.1		150,000		0.6
Indexed	2,284,813		7.4		1,591,313		5.3		1,375,300		5.4
	2,314,813		7.5		1,621,313		5.4		1,525,300		6.0
Total par value	$	30,845,955	100.0	%	$	29,946,286	100.0	%	$	25,385,173	100.0	%

The Bank lends to member financial institutions within the six New England states. Advances are diversified across the Bank’s member institutions. At March 31, 2005, the Bank had advances outstanding to 352, or 75.7 percent, of its 465 members. At December 31, 2004, the Bank had advances outstanding to 354, or 75.8 percent, of its 467 members. At December 31, 2003, the Bank had advances outstanding to 342, or 72.6 percent, of its 471 members.

Advances Outstanding by Member Type

(dollars in millions)

	Commercial Banks		Thrifts		Credit Unions		Insurance Companies		Other (1)		Total Par Value
March 31, 2005	$	15,411.2	$	11,845.5	$	1,454.8	$	1,079.8	$	1,054.7	$	30,846.0
December 31, 2004	14,564.0		11,814.9		1,427.6		1,079.8		1,060.0		29,946.3
December 31, 2003	7,399.4		15,720.1		1,157.8		1,004.8		103.1		25,385.2
December 31, 2002	7,063.6		18,008.2		859.0		—		60.4		25,991.2
December 31, 2001	7,947.2		15,213.1		754.8		—		33.5		23,948.6
December 31, 2000	6,660.3		14,393.4		513.2		—		34.9		21,601.8

(1)“Other” includes advances of former members involved in mergers with nonmembers where the resulting institution is not a member of the Bank, as well as advances outstanding to eligible nonmember housing associates.

41

Top Five Advance Holding Members

(dollars in millions)

									Advances Interest
					As of March 31, 2005				Income for the
					Percent of Total		Weighted-Average		Three Months Ended
Name	City	State	Advances		Advances		Rate (2)		March 31, 2005
Fleet National Bank	Providence	RI	$	4,134.8	13.4	%	2.94	%	$	23.0
Banknorth, N.A.	Portland	ME	2,323.4		7.5		3.17		16.8
Webster Bank	Waterbury	CT	2,293.2		7.4		3.84		21.6
Citizens Financial Group (1)	Providence	RI	2,143.7		7.0		3.16		14.4
Travelers Insurance Company	Hartford	CT	1,075.0		3.5		3.21		7.4

(1)Citizens Financial Group is the holding company of four of the Bank’s members: Citizens Bank of Rhode Island, Citizens Bank of Massachusetts, Citizens Bank of New Hampshire and Citizens Bank of Connecticut. Advances outstanding to each individual member are aggregated together in the above table.

(2)Weighted-average rates are based on the contract rate of each advance without taking into consideration the effects of interest-rate exchange agreements that may be used as a hedging instrument.

The Bank closely monitors the financial condition of all members, including the members noted in the above table. The Bank reviews publicly available financial data, such as regulatory call reports, SEC filings, and rating agency reports to ensure that potentially troubled members are identified as soon as possible. In addition, the Bank has access to members’ regulatory examination reports. The Bank’s Credit Department analyzes this information on a regular basis. All of the advances to members noted above are secured by eligible qualified collateral. Member institutions with advances outstanding at yearend that pledge collateral under the Bank’s blanket lien are required to obtain an audit opinion that confirms the existence of sufficient eligible collateral to secure the Bank’s advances in accordance with the Bank’s collateral policies. The Bank may conduct an on-site credit and collateral review at any time.

The Bank prices advances based on the marginal cost of funding with a similar maturity profile, as well as market rates for comparable funding alternatives. In accordance with regulations, the Bank prices its advance products in a consistent and non discriminatory manner to all members. However, the Bank may price its products on a differential basis, which is based on the creditworthiness of the member, volume or other reasonable criteria applied consistently to all members. Differences in the weighted-average rates of advances outstanding to the five largest members noted in the table above result from several factors, including the disbursement date of the advances, the product type selected, and the term to maturity.

The Bank has experienced no credit losses on advances since it was founded, nor does management currently anticipate any credit losses on advances. The Bank is required by statute to obtain sufficient collateral on advances to protect against losses, and to accept as collateral on such advances only certain U.S. government or government-agency securities, residential mortgage loans, deposits in the Bank, and other real-estate-related assets. The Bank’s capital stock, which is owned by the Bank’s members, is pledged as additional collateral on advances. The Bank retains the right to require additional collateral at any time or substitutions of collateral by the borrowing member. At March 31, 2005, December 31, 2004, and December 31, 2003, the Bank had rights to collateral, either loans or securities, on a member-by-member basis, with an estimated value in excess of outstanding advances. Bank management believes that policies and procedures are in place to appropriately manage the credit risk associated with advances.

Prepayment Fees. Advances with a maturity of six months or less may not be prepaid, whereas advances with a maturity period greater than six months generally require a fee to make the Bank financially indifferent should a member decide to prepay an advance. For the three months ended March 31, 2005, advances totaling $319.2 million were prepaid, resulting in gross prepayment-fee income of $8.6 million, which was partially offset by a $4.0 million loss related to fair-value hedging adjustments on those prepaid advances. For the three months ended March 31, 2004, advances totaling $1.1 billion were prepaid, resulting in gross prepayment-fee income of $17.5 million partially offset by a $2.5 million loss on fair-value hedging adjustments. For the year ended December 31, 2004, advances totaling $4.0 billion were prepaid, resulting in prepayment-fee income of $54.3 million. During 2003, advances totaling $3.5 billion were prepaid, resulting in prepayment-fee income of $50.5 million. Advance prepayments may increase as a result of changes in interest rates or other factors. In a declining interest-rate environment, this may result in an increase in prepayment fees but also a reduced rate of return on the Bank’s interest-earning assets. Thus, the amount of future advance prepayments and the impact of such prepayments on the Bank’s future earnings is unpredictable.

Investments

The Bank maintains an investment portfolio consisting of MBS issued by the government-sponsored mortgage agencies or those carrying AAA ratings from NRSROs; AA or higher-rated taxable securities issued by state and local housing or economic-development finance agencies (HFAs); and A or higher-rated, short-term investments, such as federal funds sold, certificates of

42

deposit, reverse-repurchase agreements, and commercial paper. This is consistent with regulations and policies promulgated by the Finance Board. The Bank uses short-term investments to maintain the liquidity necessary to meet its credit needs, even under adverse credit-market conditions. The Bank does not hold MBS or collateralized mortgage obligations issued by its members.

The Bank invests in longer-term assets, primarily MBS, HFAs, and U.S. government-agency debentures, in an effort to achieve a reliable income stream, a desired maturity structure for its asset portfolio, and an additional source of liquidity. MBS provide an alternative method by which the Bank promotes liquidity in the mortgage-finance markets. Similarly, HFAs are intended to provide the Bank with an additional revenue stream. The Bank endeavors to use both short- and long-term investments to generate returns consistent with its financial obligations.

At March 31, 2005, investment securities and short-term money-market instruments totaled $14.6 billion, compared with $17.3 billion and $11.1 billion at December 31, 2004, and December 31, 2003, respectively. Short-term investment balances had increased sharply during the fourth quarter of 2004 as the Bank responded to investment opportunities made possible by a reduction in the cost of short-term DN funding relative to market benchmarks, such as overnight and term federal funds. The reduction of short-term investments over the first quarter of 2005 reflects a return to more normal balances in proportion to the Bank’s total assets. Consistent with Finance Board requirements, the Bank’s Risk Management Policy limits additional investments in MBS and certain securities issued by the Small Business Administration (SBA) if the Bank’s investments in such securities exceed 300 percent of capital as measured at the previous monthend. At March 31, 2005, December 31, 2004, and December 31, 2003, the Bank’s MBS and SBA holdings represented 266 percent, 293 percent, and 265 percent of capital, respectively.

The Bank classifies most of its investments as held to maturity. However, from time to time, the Bank invests in certain securities and simultaneously enters into matched-term interest-rate swaps to achieve a LIBOR-based variable yield, particularly when the Bank can earn a wider interest spread between the swapped yield on the investment and short-term debt instruments than it can earn between the bond’s fixed yield and comparable-term fixed-rate debt. Because an interest-rate swap can only be designated as a hedge of an available-for-sale investment security, the Bank classifies these investments as available-for-sale. The Bank classifies certain investments acquired for purposes of meeting short-term contingency liquidity needs and asset/liability management as “trading securities” and carries them at fair value. However, the Bank does not participate in speculative trading practices and holds these investments indefinitely as management periodically evaluates the Bank’s liquidity needs.

Additional financial data on the Bank’s investment securities as of December 31, 2004, 2003, and 2002, are included in the following tables.

Trading Securities

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003		2002
Mortgage-backed securities
U.S. government guaranteed	$	70,072	$	75,293	$	111,826	$	186,118
Government-sponsored enterprises	120,914		129,114		167,664		242,285
Other	83,905		91,000		119,485		142,806
Total	$	274,891	$	295,407	$	398,975	$	571,209

43

Investment Securities Classified as Available-for-Sale

(dollars in thousands)

	March 31,				December 31,
	2005				2004				2003				2002
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
International agency obligations	$	352,477	$	388,158	$	352,626	$	387,211	$	347,869	$	373,912	$	348,837	$	384,465
U.S. government corporations	213,926		222,906		213,963		223,350		207,863		212,456		208,094		220,122
Government-sponsored enterprises	184,955		194,677		185,035		196,315		294,609		310,675		322,621		348,878
Other FHLBanks’ bonds	14,884		15,376		14,911		15,704		14,912		16,291		14,997		16,706
State or local housing-agency obligations	—		—		—		—		2		2		39		44
	766,242		821,117		766,535		822,580		865,255		913,336		894,588		970,215
Mortgage-backed securities
Government-sponsored  enterprises	174,080		179,088		174,250		182,915		174,901		184,276		175,508		188,596
Total	$	940,322	$	1,000,205	$	940,785	$	1,005,495	$	1,040,156	$	1,097,612	$	1,070,096	$	1,158,811

The maturities, fair value, and weighted-average yields of debt securities available-for-sale as of March 31, 2005, are:

Redemption Terms of Available-for-Sale Securities

(dollars in thousands)

	Due in one year or less		Due after one year through five years				Due after five years through 10 years				Due after 10 years
		Weighted			Weighted				Weighted				Weighted
	Amortized	Average	Amortized		Average		Amortized		Average		Amortized		Average
	Cost	Yield	Cost		Yield		Cost		Yield		Cost		Yield		Total
International agency obligations	—	—	—		—		—		—		$	352,477	6.79	%	$	352,477
U.S. government corporations	—	—	—		—		—		—		213,926		6.15		213,926
Government-sponsored enterprises	—	—	$	81,551	5.44	%	$	14,597	6.80	%	88,807		6.10		184,955
Other FHLBanks’ bonds	—	—	14,884		6.39		—		—		—		—		14,884
Total	—	—	$	96,435	5.59	%	$	14,597	6.80	%	$	655,210	6.49	%	$	766,242

Investment Securities Classified as Held-to-Maturity

(dollars in thousands)

	March 31,				December 31,
	2005				2004				2003				2002
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
U.S. agency obligations	$	88,503	$	91,933	$	91,477	$	96,114	$	110,472	$	116,959	$	130,671	$	140,128
Government-sponsored enterprises	200,029		198,942		200,076		199,236		—		—		135,256		136,985
Other FHLBanks’ bonds	—		—		—		—		—		—		10,000		9,968
State or local housing-agency obligations	383,752		390,018		435,829		445,313		557,344		572,486		790,729		835,405
	672,284		680,893		727,382		740,663		667,816		689,445		1,066,656		1,122,486
Mortgage-backed securities:
U.S. government guaranteed	25,248		26,273		27,038		28,274		40,014		42,615		81,346		86,332
Government-sponsored enterprises	1,233,763		1,262,159		1,302,867		1,349,846		1,442,978		1,523,108		1,624,905		1,744,554
Other	4,404,965		4,423,522		4,196,069		4,233,285		4,392,734		4,461,740		3,791,287		3,893,718
	5,663,976		5,711,954		5,525,974		5,611,405		5,875,726		6,027,463		5,497,538		5,724,604
Total	$	6,336,260	$	6,392,847	$	6,253,356	$	6,352,068	$	6,543,542	$	6,716,908	$	6,564,194	$	6,847,090

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The maturities, amortized cost, and weighted-average yields of debt securities held-to-maturity as of March 31, 2005, are:

Redemption Terms of Held-to-Maturity Securities

(dollars in thousands)

	Due in one year or less				Due after one year through five years				Due after five years through 10 years				Due after 10 years
			Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield		Total
U.S. agency obligations	—		—		—		—		—		—		$	88,503	6.05	%	$	88,503
Government-sponsored enterprises	$	200,029	2.50	%	—		—		—		—		—		—		200,029
State or local housing-agency obligations	—		—		$	5,214	7.29	%	$	13,140	6.73	%	365,398		4.88		383,752
Total	$	200,029	2.50	%	$	5,214	7.29	%	$	13,140	6.73	%	$	453,901	5.11	%	$	672,284

At March 31, 2005, the Bank held securities from the following issuers with total book values greater than 10 percent of total capital, as follows:

Issuers with Total Book Value greater than 10% of Total Capital

(dollars in thousands)

	Book		Fair
Name of Issuer	Value(1)		Value
Non-Mortgage-backed securities:
Inter-American Development Bank	$	388,158	$	388,158
Fannie Mae	141,562		141,562
Freddie Mac	208,734		207,647
Mortgage-backed securities:
Fannie Mae	$	1,323,235	$	1,347,378
Freddie Mac	210,529		214,783
Countrywide Home Loans	275,617		275,675
MLCC Mortgage Investors, Inc.	251,660		252,065
Sequoia Mortgage Trust	239,380		239,114
Washington Mutual Bank	558,594		549,233

(1)Book value for trading and available-for-sale securities represents fair value. Book value for held-to-maturity securities represents amortized cost.

The Bank’s MBS investment portfolio consists of the following categories of securities as of March 31, 2005, December 31, 2004, and December 31, 2003.

Mortgage-Backed Securities

	March 31,		December 31,
	2005		2004		2003
Non federal agency residential mortgage-backed securities	46	%	40	%	28	%
U.S. agency residential mortgage-backed securities	27		29		30
Home equity loans	11		14		24
Non federal agency commercial mortgage-backed securities	16		17		18
Total mortgage-backed securities	100	%	100	%	100	%

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Mortgage Loans

Under the MPF program, the Bank invests in fixed-rate mortgage loans that are purchased from PFIs. The Bank manages the liquidity, interest-rate, and prepayment-option risks of the mortgage loans, while the member retains the marketing and servicing activities. PFIs provide a measure of credit-loss protection to the Bank on loans generated through the program, for which they receive a CE fee.

The following table presents information relating to the Bank’s mortgage portfolio as of March 31, 2005, and for the five-year period ended December 31, 2004.

Mortgage Loans Held in Portfolio

(dollars in thousands)

	March 31,			December 31,
	2005			2004			2003			2002			2001			2000
Real estate:
Fixed-rate 15 year single-family mortgages	$	1,325,806		$	1,267,861		$	1,355,068		$	747,658		$	84,595		$	3,158
Fixed-rate 20-and 30-year single-family mortgages	2,780,460			2,697,010			3,118,436			1,717,106			244,744			13,418
Fixed-rate multifamily mortgages	—			—			—			—			1,727			—
Unamortized premiums	51,132			52,365			69,150			29,043			1,167			92
Unamortized discounts	(4,534		)	(4,138		)	(4,829		)	(4,558		)	(2,182		)	(44		)
SFAS 133 hedging adjustments	(458		)	262			190			266			—			—
Total mortgage loans held for investment	4,152,406			4,013,360			4,538,015			2,489,515			330,051			16,624
Less: allowance for credit losses	(1,451		)	(1,379		)	(1,317		)	(1,334		)	(177		)	(2		)
Total mortgage loans, net of allowance for credit losses	$	4,150,955		$	4,011,981		$	4,536,698		$	2,488,181		$	329,874		$	16,622
Volume of mortgage-loan purchases, by product name:
Conventional loans
Original MPF	$	37,472		$	215,469		$	287,987		$	99,340		$	31,183		$	15,395
MPF 125	7,576			35,346			279,168			178,548			148,623			—
MPF Plus	290,677			217,400			1,958,995			1,326,722			14,670			—
Multifamily	—			—			—			—			1,732			—
Total conventional loans	335,725			468,215			2,526,150			1,604,610			196,208			15,395
Government-insured loans
Original MPF for FHA/VA	—			—			750,303			739,511			134,646			1,550
Total par value	$	335,725		$	468,215		$	3,276,453		$	2,344,121		$	330,854		$	16,945
Mortgage loans outstanding by product name:
Conventional loans
Original MPF	$	522,276		$	498,945		$	342,103		$	116,934		$	38,279		$	15,027
MPF 125	361,529			370,663			402,418			275,844			143,717			—
MPF Plus	2,420,090			2,235,531			2,548,576			1,274,892			14,650			—
Multifamily	—			—			—			—			1,727			—
Total conventional loans	3,303,895			3,105,139			3,293,097			1,667,670			198,373			15,027
Government-insured loans
Original MPF for FHA/VA	802,371			859,732			1,180,407			797,094			132,693			1,549
Total par value	$	4,106,266		$	3,964,871		$	4,473,504		$	2,464,764		$	331,066		$	16,576

46

The following table presents mortgage-loan purchases from PFIs that represent greater than 10 percent of total mortgage loan purchases.

Mortgage-Loan Purchases from PFIs

(dollars in thousands)

	March 31,			December 31,
	2005			2004			2003			2002		2001			2000
Countrywide Financial Corporation
$ amount	$	285,127		$	402,097		$	2,298,936		1,810,310		$	148,108		—
% of total mortgage-loan purchases	85		%	86		%	70		%	77	%	45		%	—
Webster Bank *
$ amount	5,550			—			410,362			279,699		152,975			13,448
% of total mortgage-loan purchases	2		%	—			13		%	12	%	47		%	79	%

* Loans sold to the Bank between 2000 and 2003 were purchased from First Federal Saving Bank of America, which was subsequently acquired by Webster Bank during the second quarter of 2004. Webster Bank resumed selling loans to the Bank in the first quarter of 2005.

Neither of these members has received preferential pricing on the mortgage loans we purchased from them as compared to any other member.

When a PFI fails to comply with its representations and warranties concerning its duties and obligations described within the PFI Agreement and the MPF Origination and Servicing Guides, applicable laws, or terms of mortgage documents, the PFI may be required to repurchase the MPF loans which are impacted by such failure. Reasons for which a PFI could be required to repurchase an MPF loan may include, but are not limited to, MPF loan in-eligibility, failure to deliver documentation to an approved custodian, a servicing breach, fraud, or other misrepresentation. The following table provides a summary of MPF loans that have been repurchased by our PFIs.

Summary of MPF Loan Repurchases

(dollars in thousands)

	For the Three Months Ended March 31,		For The Years Ended December 31,
	2005		2004		2003		2002		2001		2000
Conventional loans	$	—	$	5,931	$	887	$	—	$	—	$	—
Government-insured loans	—		1,901		225		432		—		—
Total	$	—	$	7,832	$	1,112	$	432	$	—	$	—

The following table presents the scheduled repayments for mortgage loans outstanding at December 31, 2004.

Redemption Terms of Mortgage Loans

(dollars in thousands)

	Due in one year or less		Due after one year through five years		Due after five years		Total
Fixed-rate conventional loans	$	104,929	$	481,595	$	2,518,615	$	3,105,139
Fixed-rate government-insured loans	14,369		66,970		778,393		859,732
Total par value	$	119,298	$	548,565	$	3,297,008	$	3,964,871

Mortgage loans as of March 31, 2005, totaled $4.2 billion, an increase of $0.2 billion from the December 31, 2004, balance of $4.0 billion. This increase was due to an increase in mortgage-loan-purchase activity partially offset by loan amortization and prepayments. As of March 31, 2005, 120 of the Bank’s 465 members have been approved to participate in the MPF program.

47

Mortgage loans as of December 31, 2004, totaled $4.0 billion, a decrease of $524.7 million from the December 31, 2003, balance of $4.5 billion. As of December 31, 2004, 112 of the Bank’s 467 members have been approved to participate in the MPF program. While the Bank experienced rapid growth in its mortgage-loan portfolio during the first half of 2003, growth slowed during the second half of 2003 and throughout 2004 for the following reasons:

•Prior to the implementation of the Bank’s capital plan on April 19, 2004, the Bank decided not to participate in the acquisition of certain loans due to the potential repurchase of a large amount of excess shares of stock on the effective date of the Bank’s capital plan and the anticipated reduction in the Bank’s capital;

•Upon the effective date of the Bank’s capital plan, an activity-based stock investment requirement of 4.5 percent of acquired member assets held by the Bank pursuant to master commitments entered into after the effective date applied, which reduced the desire of some members to sell mortgage loans to the Bank; and

•The general slowdown in mortgage-refinancing activity.

Effective in October 2004, the Bank’s board of directors approved a temporary reduction of the activity-based stock-investment requirement to zero for mortgage loans acquired from members. This action was taken to stimulate usage of the MPF program and to prudently add leverage to the Bank’s balance sheet. The Bank’s board of directors may reinstate an activity-based stock-investment requirement at any time, provided that members are given at least 30 days but no more than 45 days advance written notice.

Allowance for Credit Losses on Mortgage Loans

Allowance for Credit Losses Activity

(dollars in thousands)

	As of and for the Period Ended					As of and for the Year Ended
	March 31,					December 31,
	2005		2004			2004			2003			2002		2001		2000
Balance at January 1	$	1,379	$	1,317		$	1,317		$	1,334		$	177	$	2	—
Charge-offs	—		(10		)	(91		)	(22		)	—		—		—
Recoveries	—		—			30			—			—		—		—
Net charge-offs	—		(10		)	(61		)	(22		)	—		—		—
Provisions for (reduction of) credit losses	72		(2		)	123			5			1,157		175		$	2
Balance at period end	$	1,451	$	1,305		$	1,379		$	1,317		$	1,334	$	177	$	2

The allowance for credit losses on mortgage loans was $1.5 million at March 31, 2005, which represented a slight increase of $72,000 from the balance of $1.4 million at December 31, 2004. The increase in the allowance for credit losses during the first three months of 2005 was the result of an increase in the balance of outstanding mortgage loans held in the portfolio.

The allowance for credit losses on mortgage loans was $1.4 million at December 31, 2004, which represented a slight increase of $62,000 from the balance of $1.3 million at December 31, 2003. The Bank recognized a total of $61,000 in net charge-offs for 2004 as compared to $22,000 for 2003 due to a higher level of real-estate-owned sales. The ratio of net charge-offs to average loans outstanding was less than one basis point for the years ended December 31, 2004 and 2003.

Allocation of Allowance for Credit Losses

(dollars in thousands)

	March 31				December 31,
	2005				2004				2003				2002				2001				2000
	Amount		Percent of Total Loans		Amount		Percent of Total Loans		Amount		Percent of Total Loans		Amount		Percent of Total Loans		Amount		Percent of Total Loans		Amount		Percent of Total Loans
Conventional loans	$	1,451	80.5	%	$	1,379	78.3	%	$	1,317	73.6	%	$	1,334	67.7	%	$	177	59.9	%	$	2	90.7	%
Government-insured loans	—		19.5		—		21.7		—		26.4		—		32.3		—		40.1		—		9.3
Total	$	1,451	100.0	%	$	1,379	100.0	%	$	1,317	100.0	%	$	1,334	100.0	%	$	177	100.0	%	$	2	100.0	%

48

The Bank places conventional mortgage loans on nonaccrual when the collection of the contractual principal or interest is 90 days or more past due. Accrued interest on nonaccrual loans are reversed against interest income. The Bank monitors the delinquency levels of the mortgage-loan portfolio on a monthly basis. A summary of mortgage-loan delinquencies at March 31, 2005, are as follows.

Summary of Delinquent Mortgage Loans

(dollars in thousands)

As of March 31, 2005

				Government-
Days delinquent	Conventional			Insured (1)			Total
30 days	$	26,401		$	26,982		$	53,383
60 days	2,658			6,574			9,232
90 days or more and accruing	—			587			587
90 days or more and nonaccruing	3,029			—			3,029
Total delinquencies	$	32,088		$	34,143		$	66,231
Total mortgage loans outstanding	$	3,303,896		$	802,371		$	4,106,267
Total delinquencies as a percentage of total mortgage loans	0.97		%	4.26		%	1.61		%
Delinquencies 90 days or more as a percentage of total mortgage loans	0.09		%	0.07		%	0.09		%

(1) Government-insured loans continue to accrue interest after 90 or more days delinquent since the U.S. government guarantees them.

Loan-Portfolio Analysis.The Bank’s outstanding mortgage loans, nonperforming loans, and loans 90 days or more past due and accruing interest as of March 31, 2005, and for the five-year period ended December 31, 2004, are provided in the following table.

Loan-Portfolio Analysis

(dollars in thousands)

	As of March 31,		As of December 31,
	2005		2004		2003		2002		2001		2000
Real-estate mortgages	$	4,150,955	$	4,011,981	$	4,536,698	$	2,488,181	$	329,874	$	16,622
Nonperforming real-estate mortgages	$	3,029	$	2,708	$	1,426	$	232	—		—
Real-estate mortgages past due 90 days or more and still accruing (1)	$	587	$	663	$	261	—		—		—
Interest contractually due during the period	$	47	$	205	$	119	—		—		—
Interest actually received during the period	40		177		108		—		—		—
Shortfall	$	7	$	28	$	11	—		—		—

(1) Only government-guaranteed loans (for example, FHA, VA) continue to accrue interest after 90 or more days delinquent.

As of March 31, 2005, December 31, 2004, and December 31, 2003, loans in foreclosure were $2.0 million, $1.4 million, and $875,000, respectively, and real-estate owned (REO) was $377,000, $539,000, and $604,000, respectively. Real-estate owned is recorded on the statement of condition in other assets.

Sale of REO assets. During the quarter ended March 31, 2005 and the year ended December 31, 2004, the Bank sold REO assets with a recorded carrying value of $335,000 and $763,000, respectively. Upon sale of these properties, and inclusive of any proceeds received from primary mortgage insurance coverage, the Bank did not recognize any gains or losses on the sale of REO assets during the quarter ended March 31, 2005. The Bank recognized losses totaling $40,000 on the sale of REO assets during the year ended December 31, 2004. Additionally, the Bank incurred expenses associated with maintaining these properties during the period in which we had title to the properties totaling $7,000 and $48,000 respectively.

49

The Bank’s mortgage-loan portfolio is geographically diversified across all 50 states and Washington, D.C., and no single zip code represented more than one percent of outstanding mortgage loans at March 31, 2005, December 31, 2004, or December 31, 2003. The Bank observes little correlation between the geographic locations of loans and delinquency, and there is no concentration of delinquent loans in any particular geographic area. The following tables provide the portfolio characteristics of mortgage loans held by the Bank.

Characteristics of the Bank’s Mortgage-Loan Portfolio (1)

	March 31,		December 31,
	2005		2004		2003
Loan-to-value ratio at origination
< 60.00%	35	%	34	%	32	%
60.01% to 70.00%	14		14		13
70.01% to 80.00%	18		17		15
80.01% to 90.00%	15		15		16
Greater than 90.00%	18		20		24
Total	100	%	100	%	100	%
Weighted average	68	%	69	%	71	%
FICO score (2)
< 620	5	%	5	%	7	%
620 to < 660	9		9		10
660 to < 700	14		14		14
700 to < 740	21		21		20
> 740	48		48		46
Not available	3		3		3
Total	100	%	100	%	100	%
Weighted average	727		726		722

(1)Percentages calculated based on unpaid principal balance at the end of each period.

(2)FICO® is a widely used credit-industry model developed by Fair Isaac, and Company, Inc. to assess borrower credit quality with scores ranging from a low of 300 to a high of 850.

Regional Concentration of Mortgage Loans Outstanding (1)

	March 31,		December 31,
	2005		2004		2003
Regional concentration (2)
Midwest	9	%	9	%	10	%
Northeast	39		40		36
Southeast	15		14		15
Southwest	14		15		15
West	23		22		24
Total	100	%	100	%	100	%
State concentration (3)
Massachusetts	22	%	23	%	20	%
California	15		14		16

(1)Percentages calculated based on unpaid principal balance at the end of each period.

(2)Midwest includes IA, IL, IN, MI, MN, ND, NE, OH, SD, and WI.

Northeast includes CT, DE, MA, ME, NH, NJ, NY, PA, RI, and VT.

Southeast includes AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, and WV.

Southwest includes AR, AZ, CO, KS, LA, MO, NM, OK, TX, and UT.

West includes AK, CA, HI, ID, MT, NV, OR, WA, and WY.

(3)State concentrations are provided for any individual state in which the Bank has a concentration of 10 percent or more.

As of March 31, 2005, three of the Bank’s PFIs individually service more than five percent of the Bank’s outstanding mortgage loans. Countrywide Financial Corporation services approximately 69 percent of the Bank’s mortgage loans, Webster Bank services approximately 10 percent of the Bank’s mortgage loans, and Banknorth services approximately 5 percent of the Bank’s mortgage loans. Banknorth and Webster Bank are two of the Bank’s five largest advance borrowers.

50

Debt Financing — Consolidated Obligations

The Bank funds its assets primarily through the sale of debt securities, known as COs, which are issued through the Office of Finance. This allows the Bank to have a readily accessible source of funds at relatively favorable rates. The Bank’s ability to access the money and capital markets — across the entire maturity spectrum, in a variety of debt structures through the sale of COs — has historically allowed the Bank to manage its balance sheet effectively and efficiently. The FHLBanks compete with Fannie Mae, Freddie Mac, and other GSEs for funds raised through the issuance of unsecured debt in the agency-debt market.

Although the Bank is primarily liable for its portion of COs, that is, those issued on its behalf, the Bank is also jointly and severally liable with the other eleven FHLBanks for the payment of principal and interest on COs issued by all of the FHLBanks. The par amounts of the FHLBank’s outstanding COs, including COs held by other FHLBanks, were approximately $872.7 billion, $869.2 billion, and $759.5 billion at March 31, 2005, December 31, 2004, and December 31, 2003, respectively. COs are backed only by the combined financial resources of the 12 FHLBanks. COs are not obligations of the U.S. government, and the U.S. government does not guarantee them. Moody’s Investors Service has rated COs Aaa/P-1, and Standard and Poor’s has rated them AAA/A-1+. The Bank has not paid any obligations on behalf of the other FHLBanks during the three months ended March 31, 2005, and the years ended 2004 and 2003.

COs consist of bonds and DNs. In general, the maturities of CO bonds range from three months to 20 years, but they are not subject to any statutory or regulatory limits as to their maturities. DNs are issued to raise short-term funds; they are issued at less than their face amount, and are redeemed at par value upon maturity, which may range between one and 360 days.

The following is a summary of the Bank’s CO bonds outstanding at March 31, 2005, December 31, 2004, and December 31, 2003, by the year of maturity, for which the Bank is primarily liable.

Consolidated Obligation Bonds Outstanding

by Year of Maturity

(dollars in thousands)

	March 31,					December 31,
	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
	Amount			Rate		Amount			Rate		Amount			Rate
Due in one year or less	$	7,040,245		3.59	%	$	8,628,085		3.38	%	$	8,579,925		3.46	%
Due after one year through two years	8,395,705			3.15		6,074,030			3.07		7,097,930			3.48
Due after two years through three years	4,545,635			3.61		4,163,125			3.44		5,081,815			3.31
Due after three years through four years	2,875,140			3.80		3,075,640			3.80		2,486,210			3.90
Due after four years through five years	1,404,000			3.80		1,672,000			3.80		3,402,280			3.93
Thereafter	7,958,355			5.76		8,884,355			5.90		10,394,800			5.78
Total par value	32,219,080			4.04	%	32,497,235			4.08	%	37,042,960			4.17	%
Bond premium	37,060					41,298					52,066
Bond discount	(3,950,089		)			(4,768,800		)			(5,081,926		)
SFAS 133 hedging adjustments	(193,782		)			(90,019		)			44,421
Total	$	28,112,269				$	27,679,714				$	32,057,521

CO bonds outstanding at March 31, 2005, December 31, 2004, and December 31, 2003, include callable bonds totaling $14.7 billion, $15.7 billion, and $16.4 billion, respectively. The Bank uses fixed-rate callable debt to finance its assets. Contemporaneous with such a debt issue, the Bank may also enter into an interest-rate swap (in which the Bank pays variable and receives fixed) with a call feature that mirrors the option embedded in the debt (a sold callable swap). The combined sold callable swap and callable debt effectively creates floating-rate funding at rates that are more attractive than other available alternatives.

The discount associated with CO bonds is primarily attributable to zero-coupon callable bonds. The zero-coupon callable bonds are issued at substantial discounts to their par amounts because they have very long terms with no coupon. The Bank has hedged these bonds with interest-rate swaps, resulting in a LIBOR-based funding rate on the original bond proceeds over the life of the bonds.

As of December 31, 2004, SFAS 133 hedging adjustments decreased $134 million due to higher market interest rates, which resulted in a lower estimated fair value of the hedged CO bonds.

51

The following table summarizes CO bonds outstanding at March 31, 2005, December 31, 2004, and December 31, 2003, by the earlier of the year of maturity or next call date.

Consolidated Obligation Bonds Outstanding

by Year of Maturity or Next Call Date

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003
Due in one year or less	$	20,004,745	$	20,870,585	$	21,557,425
Due after one year through two years	5,638,705		5,239,030		7,552,930
Due after two years through three years	3,320,635		2,838,125		3,511,815
Due after three years through four years	1,185,140		1,815,640		1,796,210
Due after four years through five years	1,114,000		942,000		1,702,280
Thereafter	955,855		791,855		922,300
Total par value	$	32,219,080	$	32,497,235	$	37,042,960

Interest Rate-Payment Terms. The following table details interest-rate-payment terms for CO bonds at March 31, 2005, December 31, 2004, and December 31, 2003.

Consolidated Obligation Bonds by

Interest-Rate-Payment Terms

(dollars in thousands)

	March 31,		December 31,
	2005		2004		2003
Fixed-rate bonds	$	26,996,580	$	24,699,735	$	28,445,460
Variable-rate bonds	500,000		2,000,000		2,500,000
Zero-coupon bonds	4,722,500		5,797,500		6,097,500
Total par value	$	32,219,080	$	32,497,235	$	37,042,960

At March 31, 2005, December 31, 2004, and December 31, 2003, outstanding COs, including bonds and DNs, totaled $46.0 billion, $47.8 billion and $37.4 billion, respectively. CO bonds are generally issued with either fixed-rate coupon-payment terms or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets. In addition, to meet the needs of the Bank and of certain investors in COs, fixed-rate bonds and variable-rate bonds may also contain certain provisions that may result in complex coupon-payment terms and call or amortization features. When such COs (structured bonds) are issued, the Bank either enters into interest-rate-exchange agreements containing offsetting features, which effectively change the characteristics of the bond to those of a simple variable-rate bond, or uses the bond to fund assets with characteristics similar to those of the bond.

CO DNs are also a significant funding source for the Bank. DNs are short-term instruments with maturities up to 360 days. The issuance of DNs with maturities of one business day influences the aggregate origination volume. The Bank uses DNs to fund short-term advances, longer-term advances with short repricing intervals, and money-market investments. DNs comprised 38.9 percent of outstanding COs at March 31, 2005, but accounted for 98.0 percent of the proceeds from the sale of COs in the first three months of 2005. Much of the DN activity reflects the refinancing of overnight DNs, which averaged $2.8 billion during the first three months of 2005, up from an average of $0.8 billion in the first three months of 2004.

DNs comprised 42.1 percent of outstanding COs at December 31, 2004, but accounted for 97.4 percent of the proceeds from the sale of COs in 2004. Much of the DN activity reflects the refinancing of overnight DNs, which averaged $1.2 billion during 2004, up from an average of $1.1 billion in 2003. During 2004 and 2003, the maximum amount of DNs outstanding at any monthend was $20.1 billion and $12.3 billion, respectively.

The significant growth in DNs outstanding at December 31, 2004, as compared to December 31, 2003, is attributable to the attractive funding costs that the FHLBanks enjoyed on DN issuance during the fourth quarter of 2004, which was deployed, in large part, to fund growth in short-term advances and in short-term investments as described above.

The Bank’s participation in consolidated DNs, all of which are due within one year, was as follows:

52

Participation in Consolidated Discount Notes

(dollars in thousands)

	Book Value		Par Value		Weighted Average Rate
March 31, 2005	$	17,899,024	$	17,931,302	2.65	%
December 31, 2004	20,090,681		20,115,715		2.08
December 31, 2003	5,346,504		5,351,807		0.99

Average Consolidated Obligations Outstanding

(dollars in thousands)

	March 31,				December 31,
	2005				2004				2003				2002
	Average Balance		Yield		Average Balance		Yield		Average Balance		Yield		Average Balance		Yield
Overnight discount notes	$	2,772,692	2.40	%	$	1,214,203	1.47	%	$	1,056,510	1.07	%	$	809,761	1.58	%
Term discount notes	14,872,371		2.45		6,395,180		1.43		6,447,108		1.12		5,504,116		1.81
Total discount notes	17,645,063		2.44		7,609,383		1.44		7,503,618		1.11		6,313,877		1.78
Bonds	28,475,120		3.29		29,793,461		2.83		30,446,663		3.03		28,655,485		3.73
Total consolidated obligations	$	46,120,183	2.96	%	$	37,402,844	2.55	%	$	37,950,281	2.65	%	$	34,969,362	3.38	%

The average balances of COs for the three months ended March 31, 2005, were higher than the average balances for the comparable 2004 period, which is consistent with the increase in total average assets. The majority of the increase occurred in the average balance of term DNs, while average bonds declined $2.1 billion from the prior period. The average balance of DNs represented approximately 38.3 percent of total average COs during the first three months of 2005, as compared with 17.7 percent of total average COs during the first three months of 2004, and the average balance of bonds represented 61.7 percent and 82.3 percent of total average COs outstanding during the first three months of 2005 and 2004, respectively.

The average balances of COs for the year ended December 31, 2004, were lower than the average balances for the comparable 2003 period, which is consistent with the decline in average total assets. The majority of the decline occurred in the average balance of bonds, while average DNs slightly increased at December 31, 2004, compared to the same period for 2003. DNs represented approximately 20.3 percent of total average COs for the year ended December 31, 2004, compared with 19.8 percent of total average COs for 2003, and bonds represented 79.7 percent and 80.2 percent, respectively, of total average COs outstanding for the years ended 2004 and 2003.

Deposits

The Bank offers demand and overnight deposits, custodial mortgage accounts, and term deposits to its members. Deposit programs are intended to provide members a low-risk earning asset that satisfies regulatory liquidity requirements. Deposit balances depend on members’ need to place excess liquidity and can fluctuate significantly. Due to the relatively small size of the Bank’s deposit base, and the unpredictable nature of member demand for deposits, the Bank does not rely on deposits as a core component of its funding.

As of March 31, 2005, deposits totaled $760.1 million compared with $890.9 million at December 31, 2004, decreasing $130.8 million. This decrease was mainly the result of a lower level of member deposits in the Bank’s overnight deposit accounts, which provide members with a short-term liquid investment.

For the three months ended March 31, 2005, and March 31, 2004, average demand- and overnight-deposit balances were $693.3 million and $969.9 million, respectively, and the average rate paid was 2.02 percent and 0.72 percent, respectively.

As of December 31, 2004, deposits totaled $890.9 million compared with $946.2 million at December 31, 2003, decreasing $55.3 million. This decrease was mainly the result of a lower level of member deposits in the Bank’s overnight-deposit accounts, which provide members with a short-term liquid investment.

For years ended December 31, 2004 and 2003, average demand and overnight deposit balances were $924.3 million and $1.6 billion, respectively and the average rate paid was 1.00 percent and 0.86 percent, respectively.

53

The following table presents term deposits issued in amounts of $100,000 or more at March 31, 2005, December 31, 2004, and December 31, 2003:

Term Deposits Greater Than $100,000

(dollars in thousands)

	March 31,				December 31,
	2005				2004				2003
			Weighted				Weighted				Weighted
			Average				Average				Average
	Amount		Rate		Amount		Rate		Amount		Rate
Term Deposits by Maturity
Three months or less	$	500	2.20	%	$	1,000	2.96	%	$	2,000	0.81	%
Over three through six months	4,000		2.40		500		2.20		2,000		2.15
Over six months through 12 months	2,000		1.91		2,000		1.85		—		—
Greater than 12 months	22,000		4.52		23,000		4.40		23,500		4.35
Total par value	$	28,500	3.99	%	$	26,500	4.11	%	$	27,500	3.93	%

Capital

On April 19, 2004, the Bank replaced its capital-stock-subscription structure, as mandated by the GLB Act. All outstanding capital stock was replaced with shares of Class B stock at a one-for-one exchange rate. Under the new capital structure, members are required to purchase Class B stock equal to the sum of 0.35 percent of certain member assets eligible to secure advances under the FHLBank Act and 4.5 percent of specified assets related to activity between the Bank and the member. Members may redeem Class B stock five years following a notice of withdrawal or other termination of membership or by giving five years’ notice with respect to stock that is not required by the member to meet its total stock investment requirement (excess stock). The Bank, at its discretion, may repurchase excess stock from the member at any time. Both redemptions and repurchases of Class B stock are not permitted if (1) they will cause the Bank to fail to meet any of its capital requirements; (2) the principal and interest due on any COs issued through the Office of Finance has not been paid in full or, under certain circumstances, if the Bank becomes a noncomplying FHLBank under Finance Board regulations as a result of its inability to comply with regulatory liquidity requirements or to satisfy its current obligations; (3) the Finance Board or the Bank’s board of directors has determined that the Bank has incurred, or is likely to incur, losses that result in, or are likely to result in, charges against the capital of the Bank, unless the redemption or repurchase is approved in writing by the Finance Board; and (4) the redemption or repurchase would cause the member to be out of compliance with its minimum investment requirement.

In addition, the Bank’s board of directors may suspend redemption of Class B stock if the Bank reasonably believes that continued redemption of such stock would cause the Bank to fail to meet its minimum capital requirements in the future, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its minimum capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. The Bank may not repurchase any Class B stock without the written consent of the Finance Board during any period in which the Bank has suspended redemption of Class B stock.

Prior to the implementation of the Bank’s capital plan, members were permitted to opt-out of the capital-stock conversion and withdraw from membership by submitting written notice of intent to withdraw from the Bank no later than February 19, 2004. Members were also permitted to request that a specified percentage of any shares held in excess of their total stock investment requirement be repurchased by the Bank, subject to the Bank’s sole discretion. As of February 19, 2004, eight members holding $109.1 million of capital stock opted out by submitting written notice of their intent to withdraw from membership, and 52 members requested that the Bank repurchase an estimated $627.0 million of capital stock in excess of the members’ total stock requirement. As a result of these membership withdrawals, the fulfillment of all stock-repurchase requests, and the issuance of Class B shares to members that were required to purchase additional shares under the Bank’s capital structure plan, the Bank’s total outstanding capital stock was reduced to $1.8 billion on April 19, 2004.

The board of directors of the Bank may, but is not required to, declare and pay noncumulative dividends in cash, stock, or a combination thereof. Dividends may only be paid from current net earnings or previously retained earnings. See Item 9 – Market Price of and Dividend on the Registrant’s Common Equity and Related Stockholder Matters for additional information regarding the Bank’s dividends.

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Regulatory Capital Requirements. Upon implementation of its new capital structure on April 19, 2004, the Bank became subject to risk-based capital rules established by the Finance Board. Only permanent capital, defined as retained earnings plus Class B stock, can satisfy the risk-based capital requirement.

The Bank was in compliance with these requirements, following the implementation of its new capital structure, and remains in compliance at March 31, 2005, as noted in the following table.

Risk-Based Capital Requirements

(dollars in thousands)

	March 31, 2005		December 31, 2004
Permanent capital
Class B stock	$	2,192,569	$	2,085,814
Mandatorily redeemable capital stock	57,892		57,882
Retained earnings	101,371		95,866
Permanent capital	$	2,351,832	$	2,239,562
Risk-based capital requirement
Credit-risk capital	$	230,379	$	240,363
Market-risk capital	123,353		110,394
Operations-risk capital	106,120		105,227
Risk-based capital requirement	$	459,852	$	455,984

In addition to the risk-based capital requirements, the GLB Act specifies a five percent minimum leverage ratio based on total capital using a 1.5 weighting factor applied to permanent capital, and a four percent minimum capital ratio that does not include a weighting factor applicable to permanent capital. The Bank was in compliance with these requirements, following the implementation of its new capital structure, and remains in compliance at March 31, 2005.

The following table provides the Bank’s capital ratios as of March 31, 2005, December 31, 2004, and December 31, 2003. However, these capital ratio requirements were not applicable to the Bank prior to April 19, 2004. Therefore, the 2003 ratios are provided for comparison purposes only. Additionally, capital stock outstanding prior to implementation of the Bank’s capital plan was not considered “permanent” capital, as members had the ability to request redemptions of their shares at any time with a six-month waiting period. For purposes of the capital ratios provided in the table below, capital stock prior to April 19, 2004, is considered equivalent to Class B capital stock outstanding subsequent to April 19, 2004.

Capital Ratio Requirements

(dollars in thousands)

	March 31,			December 31,
	2005			2004			2003
Capital ratio
Minimum capital (4% of total assets)	$	1,996,759		$	2,070,204		$	1,675,849
Actual capital (capital stock plus retained earnings)	2,351,832			2,239,562			2,489,729
Total assets	49,918,963			51,755,095			41,896,215
Capital ratio (permanent capital as a percentage of total assets)	4.7		%	4.3		%	5.9		%
Leverage ratio
Minimum leverage capital (5% of total assets)	$	2,495,948		$	2,587,755		$	2,094,811
Leverage capital (permanent capital multiplied by a 1.5 weighting factor)	3,527,748			3,359,343			3,734,594
Leverage ratio (leverage capital as a percentage of total assets)	7.1		%	6.5		%	8.9		%

The capital ratio decreases noted above from December 31, 2003, to December 31, 2004, are related to the implementation of the Bank’s capital plan, when the amount of capital stock outstanding decreased due to member redemptions and withdrawals, as discussed above. Subsequent to the implementation of the Bank’s capital plan in April 2004, the Bank began to target an operating range of 4.0 percent to 5.0 percent for the capital ratio. In general, due to the member stock-purchase requirements, which are based on member activity with the Bank, as member assets grow, the Bank’s capital stock will increase by a proportionate amount.

Derivative Instruments

The Bank adopted SFAS 133, on January 1, 2001. The Bank’s derivative transactions are recorded on the statements of condition at fair value, netted by counterparty where the legal right of offset exists. If these netted amounts are positive, they are recorded as an

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asset; if negative, they are recorded as a liability. The Bank bases the estimated fair values of these agreements on the cost of interest-rate-exchange agreements with similar terms or available market prices. Consequently, fair values for these instruments must be estimated using techniques such as discounted cash-flow analysis and comparison to similar instruments. Estimates developed using these methods are highly subjective and require judgments, regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. The Bank formally establishes hedging relationships associated with balance-sheet items to obtain economic results. These hedge relationships may include fair-value and cash-flow hedges, as designated under SFAS 133, as well as economic hedges.

The Bank had commitments for which it was obligated to purchase mortgage loans totaling $94.9 million, $26.7 million, and $12.5 million at March 31, 2005, December 31, 2004, and December 31, 2003, respectively. In April 2003, Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149), which was effective for the Bank on July 1, 2003. This statement prospectively requires all mortgage-loan-purchase commitments entered into after June 30, 2003, to be recorded at fair value on the statement of condition as derivative instruments. Upon fulfillment of the commitment, the recorded fair value is then reclassified as a basis adjustment of the purchased mortgage assets.

SFAS 133 requires that all derivative instruments be recorded on the statement of condition at fair value, while FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, allows derivative instruments to be classified as assets or liabilities according to the net fair value of derivatives aggregated by counterparty. Derivative assets’ net fair value totaled $14.6 million, $60.1 million, and $40.6 million as of March 31, 2005, December 31, 2004, and December 31, 2003, respectively. Derivative liabilities’ net fair value totaled $311.9 million, $397.6 million, and $737.1 million as of March 31, 2005, December 31, 2004, and December 31, 2003, respectively.

As of March 31, 2005, the Bank did not have any derivative contracts with its members in which the Bank acts as an intermediary between the member and the derivative counterparties. However, as part of the Bank’s hedging activities as of March 31, 2005, we had entered into derivative contracts directly with affiliates of our members. These derivative contracts are entered into for the Bank’s own risk-management purposes and are not related to requests from the members to enter into such contracts.

Outstanding Derivative Contracts with Affiliates of Our Members

(dollars in thousands)

		March 31, 2005
Derivatives Counterparty	Affiliate Member	Notional Outstanding		% of Notional Outstanding
Bank of America NA	Fleet National Bank	$	1,763,700	7.81	%
Citigroup Financial Products Inc.	Travelers Insurance Company	$	2,105,575	9.32	%

RISK MANAGEMENT

The Bank has a comprehensive risk-governance structure. The Bank’s Risk-Management Policy identifies six major risk categories relevant to business activities:

•Credit risk is the risk to earnings or capital of an obligor’s failure to meet the terms of any contract with the Bank or otherwise perform as agreed. The Credit Committee oversees credit risk primarily through ongoing oversight and limits on credit utilization.

•Market risk is the risk to earnings or market value of equity (MVE) due to adverse movements in interest rates or interest rate spreads. Market risk is primarily overseen by the Asset-Liability Committee through ongoing review of value-at-risk and the economic value of capital. The Asset-Liability Committee also reviews income simulations to oversee potential exposure to future earnings volatility.

•Liquidity risk is the risk that the Bank may be unable to meet its funding requirements, or meet the credit needs of members, at a reasonable cost and in a timely manner. The Asset-Liability Committee, through its regular reviews of funding and liquidity oversees liquidity risk.

•Business risk is the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions, or from external factors as may occur in both the short- and long-run. Business risk is overseen by Management Committee (through the development of the Strategic Business Plan), the Product Strategy Committee, and through the conduct of the Bank’s New Activity Evaluation procedure.

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•Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from internal or external events, inclusive of exposure to potential litigation resulting from inappropriate conduct of Bank personnel. The Operational Risk Committee primarily oversees Operational Risk.

•Reputation risk is the risk to earnings or capital arising from negative public opinion, which can affect the Bank’s ability to establish new business relationships or to maintain existing business relationships. Management Committee oversees reputation risk.

The board of directors defines the Bank’s risk profile and provides risk oversight through its Finance Committee for market risk and credit risk, and through its Audit Committee for operational risk. The board of directors also reviews and approves the Bank’s Risk-Management Policy. Additionally, management conducts an annual risk assessment for its major business processes and provides a summary to the board of directors.

Management further delineates the Bank’s risk appetite for specific business activities and provides risk oversight through the following committees:

•Management Committee is the Bank’s overall risk-governance, strategic-planning, and policymaking group. The committee, which is comprised of the Bank’s senior officers, reviews and recommends to the board of directors for approval revisions to all major policies of the organization. All decisions by this committee are subject to final approval by the president of the Bank.

•Asset-Liability Committeeis responsible for approving policies and risk limits for the management of market-risk, including liquidity and options risks. The Asset-Liability Committee approves valuation, market risk measurement, and regulatory capital calculation models. The Asset-Liability Committee also conducts monitoring and oversight of these risks on an ongoing basis, and promulgates strategies to enhance the Bank’s financial performance within established risk limits consistent with the Strategic Business Plan (SBP).

•Credit Committee oversees the Bank’s credit-underwriting functions and collateral eligibility standards. The committee also reviews the creditworthiness of the Bank’s investments, including purchased mortgage assets, and oversees the classification of the Bank’s assets and the adequacy of its loan-loss reserves.

•Operational Risk Committee reviews and assesses the Bank’s exposure to operational risks and determines tolerances for potential operational threats that may arise from new products and services. The committee also discusses operational exceptions and assesses appropriate control actions to mitigate reoccurrence and improve future detection.

•Product Strategy Committee promotes customer-focused initiatives that meet the financial objectives of the Bank, including product positioning, structure, targeting, new product proposals, and responding to customer requests. The committee also makes recommendations regarding pricing to the Asset-Liability Committee.

•Information Systems Committee coordinates resource utilization surrounding the Bank’s multiple and varied application development and implementation projects. The committee monitors and coordinates all major systems projects and determines the appropriate allocation of resources to achieve the Bank’s information-systems priorities.

This list of internal management committees may change from time to time based on new business or regulatory requirements.

Credit Risk

Credit Risk – Advances. The Bank minimizes credit risk on advances by holding sufficient collateral to protect itself from losses. The Bank has never experienced a credit loss on an advance. Based upon the collateral held as security on advances and the Bank’s prior repayment history, the Bank does not believe that an allowance for losses on advances is necessary at this time.

Based upon the financial condition of the member, the Bank classifies each member into one of three collateral categories: blanket-lien status, listing-collateral status, or possession-collateral status. Under the blanket-lien status, the Bank allows a member to retain possession of eligible one- to four-family mortgage-loan collateral pledged to the Bank, provided the member executes a written security agreement and agrees to hold such collateral for the benefit of the Bank. Under listing-collateral status, the member retains possession of eligible mortgage-loan collateral, however, the Bank requires the member to specifically list this collateral with the Bank. Securities pledged to the Bank by members in either blanket-lien or listing-collateral status must be delivered to the Bank or its safekeeping agent. For members in possession-collateral status, the Bank requires the member to place physical possession of all pledged eligible collateral with the Bank or the Bank’s safekeeping agent.

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Additionally, members in blanket-lien and listing-collateral status must submit to the Bank, on at least an annual basis, an audit opinion that confirms that the member is maintaining sufficient amounts of qualified collateral in accordance with the Bank’s policies.

Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by a member or a member’s affiliate to the Bank priority over the claims or rights of any other party, including any receiver, conservator, trustee, or similar entity that has the rights of a lien creditor, unless these claims and rights would be entitled to priority under otherwise applicable law and are held by actual purchases or by parties that are secured by actual perfected security interests.

Advances outstanding to members in blanket-lien status at March 31, 2005, totaled $29.4 billion. For these members, the Bank had access to collateral underwritten security agreements, where the member agrees to hold such collateral for the benefit of the Bank, totaling more than $69.6 billion as of March 31, 2005. Of this total, $6.0 billion of securities have been delivered to the Bank or to a third-party custodian, and an additional $3.6 billion of securities are held by members’ securities corporations, and $13.6 billion of residential mortgage loans that have been pledged by members’ real estate investment trusts. Additionally, all nonmember borrowers and housing associates are placed in possession-collateral status.

The following table provides information regarding advances outstanding with members and nonmember borrowers in listing- and possession-collateral status at March 31, 2005, along with their corresponding collateral balances.

Advances Outstanding by Borrower Collateral Status

As of March 31, 2005

(dollars in thousands)

	Number of Borrowers	Advances Outstanding		Collateral
Listing-collateral status	13	$	125,598	$	182,712
Possession-collateral status	13	1,367,334		1,540,993
Total par value	26	$	1,492,932	$	1,723,705

Credit Risk – Investments. The Bank is also subject to credit risk on unsecured investments consisting primarily of money-market instruments and bonds issued by U.S. agencies and instrumentalities. The Bank places funds with large, high-quality financial institutions with long-term credit ratings no lower than A on an unsecured basis for terms of up to 270 days; most such placements expire within 90 days. Management actively monitors the credit quality of these counterparties. At March 31, 2005, the Bank’s unsecured credit exposure related to investment securities and money-market instruments was $8.0 billion to 52 counterparties, of which $4.5 billion was for federal funds sold and $3.5 billion was for other unsecured investments. As of March 31, 2005, no individual counterparty represented more than 10 percent of the Bank’s total unsecured credit exposure.

The Bank also invests in and is subject to credit risk related to MBS, ABS, and HFA bonds that are directly or indirectly supported by underlying mortgage loans. Investments in MBS and ABS may be purchased as long as the balance of outstanding MBS/ABS is equal to or less than 300 percent of the Bank’s total capital, and must be rated AAA at the time of purchase. HFA bonds must carry a credit rating of AA or higher as of the date of purchase.

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As of March 31, 2005, money-market instruments totaled $7.0 billion, while investment securities totaled $7.6 billion. Credit ratings on these investments as of March 31, 2005, are provided in the following table.

Credit Ratings of Investments

As of March 31, 2005

(dollars in thousands)

	Long-Term Credit Rating
Investment category	AAA		AA		A		BBB		Unrated
Money-market instruments:
Interest-bearing deposits	$	50	$	1,305,000	$	1,195,000	—		—
Federal funds sold	—		2,567,000		1,830,000		$	100,000	—
Investment securities:
U.S. agency obligations	88,503		—		—		—		—
U.S. government corporations	222,906		—		—		—		—
Government-sponsored enterprises	363,992		—		—		—		$	30,714
Other FHLBanks’ bonds	15,376		—		—		—		—
International agency obligations	388,158		—		—		—		—
State or local housing-agency obligations	256,382		127,370		—		—		—
MBS issued by government-sponsored enterprises	1,629,085		—		—		—		—
MBS issued by private trusts	3,818,293		—		—		—		—
ABS backed by home-equity loans	670,577		—		—		—		—
Total investments	$	7,453,322	$	3,999,370	$	3,025,000	$	100,000	$	30,714

Credit Risk – Mortgage Loans

The Bank is subject to credit risk on purchased mortgage loans acquired through the MPF program. Bank management believes this risk is appropriately managed through underwriting standards and member-CEs.

The Bank also maintains an allowance for credit losses. The Bank’s allowance for credit losses pertaining to mortgage loans was $1.5 million at March 31, 2005, and $1.4 million at December 31, 2004. As of March 31, 2005, 48 loans out of approximately 48,400 loans were on nonaccrual status. During the first three months of 2005, the Bank had no charge-offs related to mortgage loans foreclosed upon, and the Bank had no recoveries from the resolution of loans previously charged off. The evaluation of the allowance for credit losses pertaining to mortgage loans is based on analysis of loan-reserve levels used by Fannie Mae and Freddie Mac, the GSEs comprising the bulk of the secondary mortgage market. This evaluation incorporates best estimates for losses on a seasoned, diversified national portfolio of mortgage loans with similar underwriting standards for the MPF program. The Bank relies on this approach, as MPF is a new program with a limited loss history. Management reviews the allowance on a regular basis and anticipates moving away from the GSE-indexing methodology and relying primarily on the actual loss experience of the MPF portfolio. Management will begin to rely primarily on the Bank’s actual loss experience when the MPF portfolio is sufficiently seasoned to allow the Bank to reasonably estimate probable losses based on its own loss experience.

The Bank is exposed to credit risk from mortgage-insurance companies that provide CEs in place of the PFI, as well as primary mortgage insurance coverage on individual loans. As of March 31, 2005, the Bank is the beneficiary of primary mortgage-insurance coverage on $314.5 million of conventional mortgage loans, and the Bank is the beneficiary of SMI coverage on mortgage pools with a total unpaid principal balance of $2.4 billion. Seven mortgage-insurance companies provide all of the coverage under these policies. All of these companies are rated at least AA by Standard and Poor’s and Aa by Moody’s Investors Service. The Bank closely monitors the financial conditions of these mortgage-insurance companies. The Bank has established limits on exposure to individual mortgage-insurance companies to ensure that the insurance coverage is sufficiently diversified. The limit considers the size, capital, and financial strength of the insurance company. No single mortgage-insurance company provides more than 30 percent of the Bank’s total coverage.

Credit Risk – Interest-Rate-Exchange Agreements. The Bank is subject to credit risk on interest-rate-exchange agreements. Credit exposure from derivatives arises from the risk of counterparty default on the derivative contract. The amount of loss created by default is the replacement cost, or current positive fair value, of the defaulted contract, net of any collateral held by the Bank. Unsecured credit exposure is mitigated by the credit quality of the counterparties. Also, the Bank uses master-netting agreements to reduce its credit exposure from counterparty defaults. The Bank enters into master-netting agreements for derivatives transactions only with institutions with long-term credit ratings that are at or above the third-highest generic ratings classification as reported by NRSROs. These agreements generally contain bilateral-collateral-exchange agreements that require that credit exposures beyond a defined amount be secured by investment-grade securities. Exposures are measured at least weekly and, in many cases, daily, and adjustments

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to collateral positions are made as necessary to minimize the Bank’s exposure to credit risk. These agreements generally are structured to allow for smaller amounts of unsecured exposure to lower-rated counterparties.

As illustrated in the following table, the Bank’s maximum credit exposure on interest-rate-exchange agreements is much less than the notional amount of the agreements. Additionally, mortgage-loan-purchase commitments are reflected in the following table as derivative instruments, in accordance with the provisions of SFAS 149. The Bank does not collateralize mortgage-loan-purchase commitments. However, should the PFI fail to deliver the mortgage loans as agreed, the member institution is charged a fee to compensate the Bank for nonperformance of the agreement.

Derivative Instruments

(dollars in thousands)

	Notional Amount		Number of Counterparties	Total Net Exposure at Fair Value		Net Exposure after Collateral
As of March 31, 2005
Interest-rate-exchange agreements:
AAA	$	40,725	1	—		—
AA	15,974,308		10	—		—
A	6,581,925		7	$	14,017	$	409
Total interest-rate-exchange agreements	22,596,958		18	14,017		409
Mortgage-loan-purchase commitments(1)	94,893		—	474		—
Total derivatives	$	22,691,851	18	$	14,491	$	409
As of December 31, 2004
Interest-rate-exchange agreements:
AAA	$	40,725	1	—		—
AA	13,711,945		10	$	44,704	—
A	6,115,801		7	15,363		—
Total interest-rate-exchange agreements	19,868,471		18	60,067		—
Mortgage-loan-purchase commitments(1)	26,736		—	46		—
Total derivatives	$	19,895,207	18	$	60,113	—
As of December 31, 2003
Interest-rate-exchange agreements:
AAA	$	40,725	1	—		—
AA	15,612,076		10	—		—
A	9,066,801		8	$	40,504	$	747
Total interest-rate-exchange agreements	24,719,602		19	40,504		747
Mortgage-loan-purchase commitments(1)	12,523		—	68		—
Total derivatives	$	24,732,125	19	$	40,572	$	747

(1)   Total fair-value exposures related to mortgage-loan-purchase commitments are offset by pair-off fees from the Bank’s members.

The notional amount of interest-rate-exchange agreements outstanding totaled $22.7 billion, $19.9 billion, and $24.7 billion at March 31, 2005, December 31, 2004, and December 31, 2003, respectively.The Bank only enters in interest-rate-exchange agreements with major global financial institutions that are rated A or better by Moody’s Investors Services or Standard and Poor’s. The Bank had no interest-rate-exchange agreements with other FHLBanks as of March 31, 2005.

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As of March 31, 2005, December 31, 2004, and December 31, 2003, the following counterparties represented more than 10 percent of the total notional amount outstanding (dollars in thousands):

	March 31, 2005
Counterparty	Notional Amount Outstanding		Percent of Total Notional Outstanding
JP Morgan Chase Bank	$	3,573,858	16	%
Deutsche Bank AG	2,863,575		13

	December 31, 2004
Counterparty	Notional Amount Outstanding		Percent of Total Notional Outstanding
JP Morgan Chase Bank	$	2,639,545	13	%
Deutsche Bank AG	2,474,833		12
UBS AG	2,215,250		11

	December 31, 2003
Counterparty	Notional Amount Outstanding		Percent of Total Notional Outstanding
Deutsche Bank AG	$	3,315,833	13	%
Goldman Sachs Capital Markets Inc.	3,284,184		13
JP Morgan Chase Bank	2,617,035		11
Bank of America NA	2,536,217		10

The Bank also maintains unsecured lines of credit with these counterparties and their affiliates for short-term money-market investments, including overnight federal funds, term federal funds, and interest-bearing certificates of deposit. Terms for such investments are 180 to 270 days. The Bank also engages in short-term secured reverse-repurchase agreements with affiliates of these counterparties. All of these counterparties and/or their affiliates buy, sell, and distribute the Bank’s COs and DNs.

Market and Interest-Rate Risk

Sources of Market and Interest-Rate Risk

The Bank’s balance sheet is a collection of different portfolios that require different types of market and interest-rate risk-management strategies. The majority of the Bank’s balance sheet is comprised of assets that can be funded individually or collectively without imposing significant residual interest-rate risk on the Bank.

However, the Bank’s mortgage-related assets, including the portfolio of whole loans acquired through the MPF program, its portfolio of MBS and ABS, and its portfolio of bonds issued by HFAs, represent more complex cash-flow structures and contain more risk of prepayment and/or call options. Because many of these assets are backed by residential mortgages that allow the borrower to prepay and refinance at any time, the behavior of these portfolios is asymmetric based on the movement of interest rates. If rates fall, borrowers have an incentive to refinance mortgages without penalty, which could leave the Bank with lower-yielding replacement assets against existing debt assigned to the portfolio. If rates rise, borrowers will tend to hold on to existing loans longer than they otherwise would, imposing on the Bank the risk of having to refinance maturing debt assigned to these portfolios at a higher rate, thereby narrowing the interest spread generated by the assets.

These risks cannot be profitably managed with a strategy in which each asset is offset by a liability with a substantially identical cash flow structure. Therefore, the Bank views each portfolio as a whole and allocates funding and hedging to these portfolios based on an evaluation of the collective market and interest-rate risks posed by these portfolios. The Bank measures the estimated impact to fair values of these portfolios as well as the potential for income to decline due to movements in interest rates, and makes adjustments to the funding and hedge instruments assigned as necessary to keep the portfolios within established risk limits.

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Types of Market and Interest-Rate Risk

Interest-rate and market risk can be divided into several categories, including repricing risk, yield-curve risk, basis risk, and options risk. Repricing risk refers to differences in the average sensitivities of asset and liability yields attributable to differences in the average timing of maturities and/or coupon resets between assets and liabilities. In isolation, repricing risk assumes that all rates may change by the same magnitude. However, differences in the timing of repricing of assets and liabilities can cause spreads between assets and liabilities to decline.

Yield-curve risk reflects the sensitivity of net income to changes in the shape or slope of the yield curve that could impact the performance of assets and liabilities differently, even though average sensitivities are the same.

When assets and liabilities are affected by yield changes in different markets, basis risk can result. For example, if the Bank invests in LIBOR-based floating-rate assets and funds those assets with short-term DNs, potential compression in the spread between LIBOR and DN rates could adversely affect the Bank’s net income.

The Bank also faces options risk, particularly in its portfolios of advances, mortgage loans, MBS, and HFA bonds. When a member prepays an advance, the Bank could suffer lower future income if the principal portion of the prepaid advance were reinvested in lower-yielding assets that continue to be funded by higher-cost debt. In the mortgage loan, MBS, and HFA-bond portfolios, borrowers or issuers often have the right to redeem their obligations prior to maturity without penalty, potentially requiring the Bank to reinvest the returned principal at lower yields. If interest rates decline, borrowers may be able to refinance existing mortgage loans at lower interest rates, resulting in the prepayment of these existing mortgages and forcing the Bank to reinvest the proceeds in lower-yielding assets. If interest rates rise, borrowers may avoid refinancing mortgage loans for periods longer than the average term of liabilities funding the mortgage loans, causing the Bank to have to refinance the assets at higher cost. This right of redemption is effectively a call option that the Bank has written to the obligor. Another less prominent form of options risk includes coupon-cap risk, which may be embedded into certain MBS and limit the amount by which asset coupons may increase.

Strategies to Manage Market and Interest-Rate Risk

General

The Bank uses various strategies and techniques to manage its market and interest-rate risk. Principal among its tools for interest-rate-risk management is the issuance of debt that is used to match interest-rate-risk exposures of the Bank’s assets. The Bank can issue CO debt with maturities ranging from overnight to 20 years or more. The debt may be noncallable until maturity or callable on and/or after a certain date.

To reduce the duration exposure caused by long-term, fixed-rate assets, the Bank may issue long-term, fixed-rate noncallable bonds. These bonds may be issued to fund specific assets or to generally manage the overall exposure of a portfolio or the balance sheet. At March 31, 2005, fixed-rate noncallable debt amounted to $10.4 billion, compared with fixed-rate noncallable debt levels of $10.7 billion at December 31, 2004.

To achieve certain risk-management objectives, the Bank also uses interest-rate derivatives that alter the effective maturities, repricing frequencies, or option-related characteristics of financial instruments. These may include swaps; caps, collars, and floors; futures and forward contracts; and exchange-traded options. For example, as an alternative to issuing a fixed-rate bond to fund a fixed-rate advance, the Bank might enter into an interest-rate swap that receives a floating-rate coupon and pays a fixed-rate coupon, thereby effectively converting the fixed-rate advance to a floating-rate advance.

Advances

In addition to the general strategies described above, one tool that the Bank uses to reduce the interest-rate risk associated with advances is a contractual provision that requires members to pay prepayment fees for advances that, if prepaid prior to maturity, might expose the Bank to a loss of income under certain interest-rate environments. In accordance with applicable regulations, the Bank has an established policy to charge fees sufficient to make the Bank financially indifferent to a member’s decision to repay an advance prior to its maturity date in the event that interest rates decline. Prepayment fees are recorded as income for the period in which they are received.

Prepayment-fee income can be used to offset the cost of purchasing and retiring high-cost debt in order to maintain the Bank’s asset liability sensitivity profile. In cases where derivatives are used to hedge prepaid advances, prepayment-fee income can be used to offset the cost of terminating the associated hedge.

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Investments

The Bank holds long-term bonds issued by U.S. agencies and instrumentalities. To hedge the market and interest-rate risk associated with these assets, the Bank has entered into interest-rate swaps with matching terms to those of the bonds in order to create synthetic floating-rate assets. At March 31, 2005, and December 31, 2004, this portfolio amounted to $766.2 million and $766.5 million, respectively.

The Bank also manages the market and interest-rate risk in its MBS portfolio in several ways. For MBS classified as held-to-maturity, the Bank uses debt that matches the characteristics of the portfolio assets. For example, for floating-rate ABS, the Bank uses debt that reprices on a short-term basis, such as CO DNs or bonds that are swapped to a LIBOR-based floating-rate. For commercial MBS that are nonprepayable or prepayable for a fee for an initial period, the Bank may use fixed-rate debt. For MBS that are classified as trading securities the Bank uses interest-rate swaps to economically hedge the duration characteristics and interest-rate caps and floors to economically hedge the prepayment risk in these assets.

Mortgage Loans

The Bank manages the interest rate and prepayment risk associated with mortgages through a combination of debt issuance and derivatives. The Bank issues both callable and noncallable debt to achieve cash-flow patterns and liability durations similar to those expected on the mortgage loans.

To offset some of the interest-rate risk and options risk embedded in its mortgage-loan portfolio, in part, the Bank issues fixed-rate callable debt, which the Bank can redeem at par at its discretion on predetermined call dates. These bonds are effective in managing prepayment risk by allowing the Bank to respond in kind to prepayment activity. Conversely, if interest rates increase, the debt may remain outstanding until maturity. At March 31, 2005, fixed-rate callable debt for this purpose amounted to $3.2 billion, compared with fixed-rate callable-debt levels of $3.0 billion at December 31, 2004. The Bank uses various cash instruments including short-term debt, callable and noncallable long-term debt to optimize its ability to reprice debt when mortgages prepay faster or slower than expected. The Bank’s debt repricing capacity depends on market demand for callable and noncallable debt, which fluctuates from time to time. Moreover, certain interest-rate and options-risk strategies may require hedge structures that are not available to the Bank through debt-issuance activities, such as options with out-of-the-money strike prices. For this reason, management has enacted a more comprehensive hedging strategy, incorporating the use of derivatives, to effectively mitigate the residual risks inherent in the sensitivity profile.

To hedge the risk of loss of premium on mortgage loans due to potentially high prepayment speeds in the event of a drop in interest rates, the Bank has purchased options to receive fixed rates on interest-rate swaps exercisable on specific future dates (receiver swaptions). These derivatives are structured to provide an offset to the loss of purchase premiums that might result from rapid prepayments in the event of a downturn in interest rates. In accordance with SFAS 133, these derivatives are recorded at fair value. However, these derivatives are not accounted for as hedges under SFAS 133, as changes in their fair values are designed to provide an offset to the amortization of premium on mortgage loans purchased under the MPF program in a falling interest-rate environment. At March 31, 2005, receiver swaptions amounted to $475 million (notional) with an estimated fair value of $0.7 million.

Interest-rate-risk management activities can significantly affect the level and timing of net income due to a variety of factors. As receiver swaptions are accounted for on a stand-alone basis and not as part of a hedge relationship under SFAS 133, changes in their fair values are recorded through net income each month. This may increase net income volatility if the offsetting periodic change in the MPF premium profile is markedly different from the fair value change in the receiver swaptions. Additionally, performance of the MPF portfolio is interest-rate path-dependent, while receiver swaptions values are solely based on forward-looking rate expectations. Under the SFAS 91 retrospective method, the Bank applies adjustments to the unamortized balance of premiums and discounts from applying the updated effective yield as if it had been in effect since acquisition and recognizes the adjustment through interest income.

A short-term drop in interest rates could provide borrowers with an economic incentive to refinance existing mortgages by borrowing new, lower interest-rate mortgages. Generally, it takes several months for borrowers to apply for refinancing mortgage loans and for those applications to be processed and funded. While the Bank’s application of SFAS 91 causes changes in expected life assumptions to affect the amortization of premium in the current period, ultimately, differences in prepayment assumptions can result in materially different income recognition results. Since the Bank has no way of knowing if the borrowers of loans that the Bank holds have elected to refinance the loans until the payoff occurs, the refinancing-processing lag introduces the potential for “whipsaw risk.” Whipsaw risk occurs when a short-term drop in interest rates is reversed, but not before refinancing activity has been triggered. The end result is that premium expense from the loan liquidations is recognized after the drop in interest rates has reversed, which causes unrealized gains in the receiver swaptions to be reversed. Consequently, an expense from both the premium impairment and the receiver swaption’s decline in fair value can be recognized in the same month. To protect against whipsaw risk, it is sometimes necessary to execute rebalancing strategies that generate realized gains to offset the expense of premium impairment expected to be processed in the future. While this risk-management activity is prudent from an economic perspective, the timing of the income recognition could contribute short-term income volatility from a GAAP perspective. For these reasons, management does not believe that this hedging strategy qualifies for hedge accounting under SFAS 133.

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When the Bank executes transactions to purchase mortgage loans, in some cases the Bank may be exposed to significant market risk until permanent hedging and funding can be obtained in the market. In these cases, the Bank may enter into a forward sale of MBS to be announced (TBA) or other derivatives for forward settlement. As of March 31, 2005, the Bank had no outstanding hedges using TBA.

Swapped Consolidated-Obligation Debt

The Bank may also issue bonds in conjunction with interest-rate swaps that receive a coupon that offsets the bond coupon, and that offset any optionality embedded in the bond, thereby effectively creating a floating-rate liability. The Bank employs this strategy to achieve a lower cost of funds than may be available from the issuance of short-term consolidated DNs. Total debt used in conjunction with interest-rate-exchange agreements was $17.5 billion, or 54.4 percent of the Bank’s total outstanding CO bonds at March 31, 2005, up from $16.1 billion, or 49.4 percent of outstanding CO bonds, at December 31, 2004.

The Bank also uses interest-rate swaps, caps, and floors to manage the fair-value sensitivity of the portion of its MBS portfolio that is held at fair value. These interest-rate-exchange agreements provide an economic offset to the duration and convexity risks arising from these assets.

The following table presents a summary of the notional amounts and estimated fair values of the Bank’s outstanding derivative financial instruments, excluding accrued interest, and related hedged item by product and type of accounting treatment as of March 31, 2005, December 31, 2004, and December 31, 2003. The categories “fair value” and “cash flow” represent the hedge classification for transactions that qualify for hedge-accounting treatment in accordance with SFAS 133. The category “economic” represents hedge strategies that do not qualify for hedge accounting under the guidelines of SFAS 133, but are acceptable hedging strategies under the Bank’s risk-management program.

Hedged Item and Hedge-Accounting Treatment

As of March 31, 2005

(dollars in thousands)

			SFAS 133	Derivative		Derivative
			Hedge	Notional		Estimated
Hedged Item	Derivative	Hedged Risk	Designation	Amount		Fair Value
Advances	Swaps	Benchmark interest rate	Fair value	$	7,566,928	$	(119,788	)
	Caps	Benchmark interest rate	Fair value	233,500		3,527
Total associated with advances				7,800,428		(116,261		)
Available-for-sale securities	Swaps	Benchmark interest rate	Fair value	890,756		(108,719		)
Trading securities	Swaps	Overall fair value	Economic	332,500		(2,249		)
	Caps	Overall fair value	Economic	446,000		9
Total associated with trading securities				778,500		(2,240		)
Mortgage loans	Swaptions	Overall fair value	Economic	475,000		717
	Delivery commitments	Overall cash-flow variability	Cash glow	94,893		474
Total associated with mortgage loans				569,893		1,191
Consolidated obligations	Swaps	Benchmark interest rate	Fair value	12,632,274		(196,462		)
Deposits	Swaps	Benchmark interest rate	Fair value	20,000		4,937
Total derivatives				$	22,691,851	(417,554		)
Accrued interest						120,202
Net derivatives						$	(297,352	)
Derivative asset						$	14,552
Derivative liability						(311,904		)
Net derivatives						$	(297,352	)

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Hedged Item and Hedge-Accounting Treatment

As of December 31, 2004

(dollars in thousands)

			SFAS 133	Derivative		Derivative
			Hedge	Notional		Estimated
Hedged Item	Derivative	Hedged Risk	Designation	Amount		Fair Value
Advances	Swaps	Benchmark interest rate	Fair value	$	7,472,863	$	(267,694	)
Available-for-sale securities	Swaps	Benchmark interest rate	Fair value	890,756		(123,833		)
Trading securities	Swaps	Overall fair value	Economic	332,500		(5,517		)
	Caps	Overall fair value	Economic	446,000		15
Total associated with trading securities				778,500		(5,502		)
Mortgage loans	Swaptions	Overall fair value	Economic	425,000		1,454
	Swaps	Overall fair value	Economic	30,000		90
	Delivery commitments	Overall cash-flow variability	Cash flow	26,736		45
Total associated with mortgage loans				481,736		1,589
Consolidated obligations	Swaps	Benchmark interest rate	Fair value	10,251,352		(95,972		)
Deposits	Swaps	Benchmark interest rate	Fair value	20,000		5,653
Total derivatives				$	19,895,207	(485,759		)
Accrued interest						148,234
Net derivatives						$	(337,525	)
Derivative asset						$	60,113
Derivative liability						(397,638		)
Net derivatives						$	(337,525	)

Hedged Item and Hedge-Accounting Treatment

As of December 31, 2003

(dollars in thousands)

			SFAS 133	Derivative		Derivative
			Hedge	Notional		Estimated
Hedged Item	Derivative	Hedged Risk	Designation	Amount		Fair Value
Advances	Swaps	Benchmark interest rate	Fair value	$	9,488,103	$	(695,584	)
	Collars	Benchmark interest rate	Fair value	80,000		(1,617		)
Total associated with advances				9,568,103		(697,201		)
Available-for-sale securities	Swaps	Benchmark interest rate	Fair value	990,756		(122,428		)
Trading securities	Swaps	Overall fair value	Economic	155,500		(14,057		)
	Caps	Overall fair value	Economic	859,500		577
	Floors	Overall fair value	Economic	32,000		231
Total associated with trading securities				1,047,000		(13,249		)
Mortgage loans	Swaptions	Overall fair value	Economic	280,000		3,880
	Delivery commitments	Overall cash-flow variability	Cash flow	12,523		65
Total associated with mortgage loans				292,523		3,945
Consolidated obligations	Swaps	Benchmark interest rate	Fair value	12,813,743		39,133
Deposits	Swaps	Benchmark interest rate	Fair value	20,000		5,952
Total derivatives				$	24,732,125	(783,848		)
Accrued interest						87,278
Net derivatives						$	(696,570	)
Derivative asset						$	40,572
Derivative liability						(737,142		)
Net derivatives						$	(696,570	)

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Measurement of Market and Interest-Rate Risk

The Bank measures its exposure to market and interest-rate risk using several techniques applied to the balance sheet and to certain portfolios within the balance sheet. Principal among these measurements as applied to the balance sheet is the potential future change in MVE and interest income due to potential changes in interest rates. For purposes of measuring interest-income sensitivity over time, the Bank measures the repricing gaps between its assets and liabilities. The Bank also measures the duration gap of its mortgage-loan portfolio, including all assigned funding and hedging transactions.

The Bank uses sophisticated information systems to evaluate its financial position. These systems are capable of employing various interest-rate term-structure models and valuation techniques to determine the values and sensitivities of complex or option-embedded instruments such as mortgage loans; MBS; callable bonds and swaps; and adjustable-rate instruments with embedded caps and floors, among others. These models require the following:

•Specification of the contractual and behavioral features of each instrument;

•Determination and specification of appropriate market data, such as yield curves and implied volatilities;

•Utilization of appropriate term-structure and prepayment models to reasonably describe the potential evolution of interest rates over time and the expected behavior of financial instruments in response;

•For option-free instruments, the expected cash flows are specified in accordance with the term structure of interest rates and discounted using spot rates derived from the same term structure;

•For option-embedded instruments that are path-independent, such as callable bonds and swaps, a backward-induction process is used to evaluate each node on a lattice that captures the variety of scenarios specified by the term-structure model; and

•For option-embedded instruments that are path-dependent, such as mortgage-related instruments, a Monte Carlo simulation process is used to specify a large number of potential interest-rate scenarios that are randomly generated in accordance with the term structure of interest rates.

Market Value of Equity Estimation and Risk Limit. MVE is the net economic value (or net present value) of total assets and liabilities, including any off-balance sheet items. In contrast to the GAAP-based shareholders’ equity account, MVE represents the shareholder’s equity account in present value terms. Interest–rate risk analysis using MVE involves evaluating the potential changes in fair values of assets and liabilities and off-balance sheet items under different potential future interest rate scenarios and determining the potential impact on MVE according to each scenario and the scenario’s likelihood.

Value-at-risk (VaR) is defined to equal the ninety-ninth percentile potential reduction in MVE based on historical simulation of interest-rate scenarios. These scenarios correspond to interest-rate changes historically observed over monthly 120-business day periods starting at the most recent monthend and going back monthly to the beginning of 1978. This approach is useful in establishing risk-tolerance limits and is commonly used in asset/liability management; however, it does not imply a forecast of future interest-rate behavior. The Bank’s Risk-Management Policy requires that VaR not exceed the latest quarterend level of retained earnings plus the Bank’s most recent quarterly estimate of net income over the next six months.

The table below presents the historical simulation VaR estimate as of March 31, 2005, December 31, 2004, and December 31, 2003, which represents the estimates of potential losses to the Bank’s market value of portfolio equity from changes in interest rates and other market factors. Estimated potential loss exposures are expressed as a percentage of base-case MVE and are based on historical behavior of market prices and interest rates over a six-month time horizon.

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Value-at-Risk

	(Gain) Loss Exposure
	March 31,					December 31,
	2005					2004					2003
Confidence Level	% of MVE (1)		$ (million)			% of MVE (1)		$ (million)			% of MVE (1)		$ (million)
50%	-0.27	%	$	(6.62	)	-0.28	%	$	(6.21	)	-0.18	%	$	(4.65	)
75%	1.33		32.14			1.15		26.70			0.98		24.77
95%	3.56		85.87			3.27		76.14			2.56		64.76
99%	5.11		123.35			4.80		110.39			3.64		92.12

(1) Loss exposure is expressed as a percentage of base MVE.

As measured by VaR, the Bank’s potential losses to MVE due to changes in interest rates and other market factors increased at March 31, 2005, from December 31, 2004. The increased estimates of loss are due to higher interest rates, a flatter yield curve, and the Bank’s modest exposure to higher interest rates as a result of the relative repricing sensitivities of assets and liabilities. From yearend to March 31, 2005, the two-year interest-rate-swap rate increased 0.74 percent while the ten-year swap rate has increased just 0.30 percent. Because rates are higher across the yield curve, the Bank’s exposure to higher rates resulted in modestly higher exposure, however, because the shorter part of the curve (five years and shorter) rose more than the 10-year rate, and the Bank’s repricing imbalances are concentrated in the two to five-year part of the yield curve, the Bank’s increased exposure is higher than would be implied by the change in the 10-year swap rate.

As measured by VaR, the Bank’s potential losses to MVE due to changes in interest rates and other market factors increased at December 31, 2004, from December 31, 2003. As a percent of base MVE, the higher estimates of loss are due in part to the change in the base MVE which declined from $2.5 billion at December 31, 2003, to $2.3 billion at December 31, 2004, due largely to a reduction to paid-in capital that occurred with the implementation of the Bank’s capital plan on April 19, 2004. The increase in dollar terms is attributable to a combination of slightly higher exposure to higher interest rates as a result of the relative positioning of assets and liabilities and the flatter yield curve as of December 31, 2004.

Income Simulation and Repricing Gaps. In 2004, to provide an additional perspective on market and interest-rate risks, the Bank developed an income-simulation model which projects net interest income over a wide range of interest-rate scenarios including parallel interest-rate shocks, nonparallel interest-rate shocks and nonlinear changes to the Bank’s funding curve and LIBOR. No historical data for this metric exists. However, management has put in place escalation-action triggers whereby senior management is explicitly informed of income volatility where the Bank’s projected return on equity falls below LIBOR in any of the modeled scenarios.

Also in 2004, the Bank developed a model to show the repricing dates of all assets and liabilities. This report, like the income simulation, augments the Bank’s VaR model by showing repricing imbalances between assets and liabilities that could expose the Bank to market or interest-rate risk.

Liquidity Risk

The Bank maintains operational liquidity in order to ensure that it meets its day-to-day business needs as well as its contractual obligations with normal sources of funding. The Bank’s Risk Management Policy has established a metric and policy limit within which the Bank is expected to operate. The Bank defines structural liquidity as the difference between contractual sources and uses of funds adjusted to assume that all maturing advances are renewed, members deposits are withdrawn at a rate of 50 percent per day, and five percent of unused outstanding MPF master commitments are funded each day. The Bank defines available liquidity as the sources of funds available to the Bank through its access to the capital markets subject to leverage, line, and collateral constraints. The Risk-Management Policy requires the Bank to maintain structural liquidity each day so that any excess of uses over sources is covered by available liquidity for the four-week forecast and 50 percent of the excess of uses over sources is covered by available liquidity over the eight-week forecast. The following table shows the Bank’s structural liquidity as of March 31, 2005.

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Structural Liquidity

(dollars in thousands)

	Month 1			Month 2
Contractual sources of funds	$	2,984,374		$	6,871,841
Less: Contractual uses of funds	(1,908,348		)	(5,985,514		)
Equals: Net cash flow	1,076,026			886,327
Less: Cumulative contingent obligations	11,222,047			16,407,178
Equals: Net structural liquidity requirement	(10,146,021		)	(15,520,851		)
Available borrowing capacity	$	19,568,762		$	25,234,986
Ratio of available borrowing capacity to net Structural liquidity need	1.93			1.63
Required ratio	1.00			0.50

In February 2005, the Bank’s board of directors revised the Bank’s Risk-Management Policy to adopt an additional requirement for the Bank to maintain a standard of net excess of liquidity within a 90-day timeframe, such that total liquidity sources less total liquidity uses represents a net positive liquidity position. Examples of liquidity sources include CO traded but not settled, money-market maturities, advance maturities, and the discounted value of securities available for repurchase. Examples of liquidity uses include contractual principal payments, commitments to be settled, and member deposit outflow of 50 percent and 100 percent for overnight and term deposits, respectively. In the event that the Bank does not meet the standard of a positive net excess of liquidity within a 90-day timeframe, the Bank’s senior management team is immediately notified to determine whether any action is required to correct the Bank’s net liquidity position. The following shows the Bank’s 90-day liquidity position at March 31, 2005.

90-Day Liquidity Position

(dollars in thousands)

	90-Day Cumulative Amount
Principal receipts from maturing assets	$	17,830,000
Pledgeable assets	8,206,000
Total 90-day liquidity sources	26,036,000
Consolidated obligations due	19,099,000
Unsettled commitments	394,000
Estimated potential deposit outflows	397,000
Total 90-day liquidity uses	19,890,000
Net 90-day liquidity	$	6,146,000

The Bank also maintains contingency-liquidity plans designed to enable it to meet its obligations and the liquidity needs of its members in the event of operational disruption at the Bank, the Office of Finance, or the capital markets. The Bank is required to ensure that it can meet its liquidity needs for a minimum of five business days without access to CO debt issuance. As of March 31, 2005 and December 31, 2004, the Bank held a surplus of $9.0 billion and $8.6 billion, respectively, of liquidity (exclusive of access to CO debt) issuance within the first five prospective business days. Management measures liquidity on a daily basis and maintains an adequate base of operating and contingency liquidity by investing in short-term, high-quality, money-market investments that can provide a ready source of liquidity during stressed market conditions. As of March 31, 2005, the Bank’s contingency liquidity, as measured in accordance with 12 CFR §917 was determined as follows:

Contingency Liquidity

(dollars in thousands)

	Cumulative Fifth Business Day
Contractual sources of funds	$	5,288,636
Less: contractual uses of funds	(7,021,682		)
Equals: net cash flow	(1,733,046		)
Contingency borrowing capacity (exclusive of CO debt)	10,711,966
Net contingency borrowing capacity	$	8,978,920

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Capital-Stock-Redemptions and Repurchases. The Bank offers only Class B stock and members must purchase Class B stock equal to the value of the sum of (1) 0.35 percent of the value of certain member assets eligible to secure advances and (2) 4.5 percent of the value of specified assets related to activity between the Bank and the member, which we refer to in the aggregate as the member’s total stock investment requirement. Members may submit a written request for redemption of excess capital stock. The stock subject to the request will be redeemed at par value by the Bank upon expiration of a five-year stock redemption period. Also subject to a five-year stock redemption period are shares of stock held by a member that (1) gives notice of intent to withdraw from membership, or (2) becomes a non-member due to merger or acquisition, charter termination, or involuntary termination of membership. At March 31, 2005, $57.9 million of capital stock was subject to a five-year stock redemption period, and it is anticipated that these shares will be redeemed in 2009. The Bank is not required to redeem or repurchase activity-based stock until the later of the expiration of the five-year notice of redemption or until the activity no longer remains outstanding. If activity-based stock becomes excess capital stock as a result of an activity no longer outstanding, the Bank may, in its sole discretion, repurchase the excess activity-based stock as described below.

The Bank may, in its sole discretion, repurchase stock from any member at par value upon 15 days prior written notice to the member, unless a shorter notice period is agreed to in writing by the member, if that stock is not required by the member to meet its total stock-investment requirement and the repurchase will not cause the Bank to fail to meet any of its regulatory capital requirements or violate any other regulatory prohibitions. In conjunction with the implementation of the Bank’s Capital Plan on April 19, 2004, the Bank repurchased $627.0 million of excess capital stock. Throughout the remainder of 2004 following the implementation of the Bank’s Capital Plan, the Bank repurchased $65.5 million of excess capital stock, and during the first quarter of 2005 the Bank repurchased $91.0 million of excess capital stock. All such repurchases were completed after determining that we would remain in compliance with our minimum regulatory capital requirements after making such repurchases. At March 31, 2005, members and nonmembers with capital stock outstanding held excess capital stock totaling $360.9 million, representing approximately 16.0 percent of total capital stock outstanding.

A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership prior to the end of the five-year stock redemption period. The Bank’s capital plan provides that the Bank will charge the member a cancellation fee equal to two percent of the par amount of the shares of Class B stock that is the subject of the redemption notice. The Bank will assess a redemption-cancellation fee unless the board of directors decides that it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the GLB Act.

Off-Balance-Sheet Arrangements and Aggregate Contractual Obligations.Commitments that legally bind and obligate the Bank for additional advances totaled approximately $193.3 million, $52.2 million, and $50.7 million at March 31, 2005, December 31, 2004, and December 31, 2003, respectively. Commitments generally are for periods up to 12 months. Standby letters of credit are executed with members for a fee. If the Bank is required to make a payment for a beneficiary’s draw, these amounts are converted into a collateralized advance to the member. Notional amounts of outstanding standby letters of credit were $120.3 million, $118.9 million, and $87.4 million at March 31, 2005, December 31, 2004, and December 31, 2003, respectively.

Commitments for unused lines-of-credit advances totaled $1.5 billion, $1.5 billion, and $1.6 billion at March 31, 2005, December 31, 2004, and December 31, 2003, respectively. Commitments are generally for periods up to 12 months. Since many of the commitments are not expected to be drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The Bank has entered into standby bond-purchase agreements with state-housing authorities, whereby the Bank, for a fee, agrees to purchase and hold the authority’s bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the Bank to purchase the bond. The bond purchase commitments entered into by the Bank expire after five years, no later than 2008. Total commitments for bond purchases were $621.3 million, $622.3 million, and $638.6 million at March 31, 2005, December 31, 2004, and December 31, 2003, respectively. The Bank was not required to purchase any bonds under these agreements through March 31, 2005.

The Bank only records a liability for COs on its statement of condition for the proceeds it receives from the issuance of those COs. In addition, each FHLBank is jointly and severally obligated for the payment of all COs of all of the FHLBanks. Accordingly, should one or more of the FHLBanks be unable to repay their participation in the COs, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board.

The Bank is required to pay 20 percent of its net earnings (after its AHP obligation) to REFCorp to support payment of part of the interest on bonds issued by REFCorp. The Bank must make these payments to REFCorp until the total amount of payments made by all FHLBanks is equivalent to a $300 million annual annuity whose final maturity date is April 15, 2030. Additionally, annually the FHLBanks must set aside for the AHP the greater of an aggregate of $100 million or 10 percent of the current year’s income before

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charges for AHP (but after expenses for REFCorp). See the Business – Assessments section for additional information regarding REFCorp and AHP assessments.

Contractual Obligations. The following table presents contractual obligations of the Bank as of December 31, 2004.

Contractual Obligations

(dollars in thousands)

	Payment due by period
Contractual Obligations	Less than one year		One to three years		Three to five years		More than five years		Total
Long-term debt obligations	$	8,628,085	$	10,237,155	$	4,747,640	$	8,884,355	$	32,497,235
Operating lease obligations	3,372		7,054		6,964		10,392		27,782
Purchase obligations (1)	820,169		—		—		—		820,169
Members’ unused lines of credit (2)	1,516,055		—		—		—		1,516,055
Mandatorily redeemable capital stock	—		—		57,882		—		57,882
Consolidated obligations traded not settled	—		65,500		—		—		65,500
Total contractual obligations	$	10,967,681	$	10,309,709	$	4,812,486	$	8,894,747	$	34,984,623

(1)Includes standby letters of credit, unconditional commitments for advances, standby bond-purchase agreements, and commitments to fund/purchase mortgage loans.

(2)Many of the members’ unused lines of credit are not expected to be drawn upon, and therefore the commitment amount does not necessarily represent future cash requirements.

Business Risk

Management’s strategies for mitigating business risk include annual and long-term strategic planning exercises, continually monitoring key economic indicators and projections, the Bank’s external environment, and developing contingency plans where appropriate. The Bank’s risk-assessment process also considers business risk, where appropriate, for each of the Bank’s major business activities.

Operational Risk

The Bank has a system of controls and appropriate insurance coverage to mitigate operational risks. The Bank ensures that employees are properly trained for their roles and that written policies and procedures exist to support the key functions of the Bank. The Bank maintains a system of internal controls to ensure that responsibilities are adequately segregated and that the activities of the Bank are appropriately monitored and reported to management and the board of directors. Annual risk assessments review these controls for efficacy and potential opportunities for enhancement. The Bank’s Internal Audit Department, which reports directly to the Audit Committee of the board of directors, regularly monitors the Bank’s adherence to established policies and procedures. However, some operational risks are beyond its control, and the failure of other parties to adequately address their operational risks could adversely affect the Bank.

Disaster-Recovery Provisions. The Bank maintains a disaster-recovery site in Westborough, Massachusetts to provide continuity of operations in the event that its Boston headquarters becomes unavailable. Data for critical computer systems is backed up regularly and stored offsite to avoid disruption in the event of a computer failure. The Bank also has a back-up agreement in place with the FHLBank of Topeka to provide short-term liquidity advances in the event that both of the Massachusetts facilities are inoperable.

Insurance Coverage. The Bank has insurance coverage for employee fraud, forgery, alteration, and embezzlement, as well as director and officer liability coverage that provides protection for breach of duty, misappropriation of funds, negligence, and acts of omission. Additionally, comprehensive insurance coverage is currently in place for electronic data-processing equipment and software, personal property, leasehold improvements, fire/explosion/water damage, and personal injury including slander and libelous actions. The Bank maintains additional insurance protection as deemed appropriate, which covers automobiles, company credit cards, and business-travel accident and supplemental traveler’s coverage for both directors and staff. The Bank uses the services of an insurance consultant who periodically conducts a comprehensive review of insurance-coverage levels.

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Reputation Risk

The Bank has established a code of conduct and operational risk-management procedures to ensure ethical behavior among its staff and directors, and provides training to employees about its code of conduct. The Bank works to ensure that all communications are presented accurately, consistently, and in a timely way to multiple audiences and stakeholders. In particular, the Bank regularly conducts outreach efforts with its membership and with housing and economic development advocacy organizations throughout New England. The Bank also cultivates relationships with government officials at the federal, state, and municipal levels; key media outlets; nonprofit housing and community-development organizations; and regional and national trade and business associations to foster awareness of the Bank’s mission, activities, and value to members. The Bank works closely with the Council of Federal Home Loan Banks and the Office of Finance to coordinate communications on a broader scale.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities (if applicable), and the reported amounts of income and expenses during the reported periods. Although management believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

The Bank has identified four accounting policies that it believes are critical because they require management to make subjective or complex judgments about matters that are inherently uncertain, and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies include accounting for derivatives, the use of fair-value estimates, accounting for deferred premiums and discounts on prepayable assets, and the allowance for loan losses. The Bank’s Audit Committee has reviewed these policies.

Accounting for Derivatives

Derivative instruments are required to be carried at fair value on the statement of condition. Any change in the fair value of a derivative is required to be recorded each period in current period earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. All of the Bank’s derivatives are structured to offset some or all of the risk exposure inherent in its member-lending, mortgage-purchase, investment, and funding activities. Under SFAS 133, the Bank is required to recognize unrealized losses or gains on derivative positions, regardless of whether offsetting gains or losses on the underlying assets or liabilities being hedged are permitted to be recognized in a symmetrical manner. Therefore, the accounting framework imposed by SFAS 133 introduces the potential for considerable income variability. Specifically, a mismatch can exist between the timing of income and expense recognition from assets or liabilities and the income effects of derivative instruments positioned to mitigate market risk and cash-flow variability. Therefore, during periods of significant changes in interest rates and other market factors, the Bank’s reported earnings may exhibit considerable variability. The Bank emphasizes hedging techniques that are effective under the hedge-accounting requirements of SFAS 133. However, not all of the Bank’s hedging relationships meet the hedge-accounting requirements of SFAS 133. In some cases, the Bank has elected to retain or enter into derivatives that are economically effective at reducing risk but do not meet the hedge-accounting requirements of SFAS 133, either because the cost of the hedge was economically superior to nonderivative hedging alternatives or because no nonderivative hedging alternative was available. As required by Finance Board regulation and Bank policy, derivative instruments that do not qualify as hedging instruments pursuant to GAAP may be used only if the Bank documents a nonspeculative purpose.

A hedge relationship is created from the designation of a derivative financial instrument as either hedging the Bank’s exposure to changes in the fair value of a financial instrument or changes in future cash flows attributable to an on-balance sheet financial instrument or anticipated transaction. Fair-value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings. Highly effective hedges that use interest-rate swaps as the hedging instrument and that meet certain stringent criteria can qualify for “shortcut” fair-value hedge accounting. Shortcut accounting allows for the assumption of no ineffectiveness, which means that the change in fair value of the hedged item can be assumed to be equal to the change in fair value of the derivative. If the hedge does not meet the criteria for shortcut accounting, it is treated as a “long-haul” fair-value hedge, where the change in fair value of the hedged item must be measured separately from the derivative and effectiveness testing must be performed with results falling within established tolerances. If the hedge fails effectiveness testing, the hedge no longer qualifies for hedge accounting and the derivative is marked through current-period earnings without any offset related to the hedged item.

For derivative transactions that potentially qualify for long-haul fair-value hedge-accounting treatment, management must assess how effective the derivatives have been, and are expected to be, in hedging offsetting changes in the estimated fair values attributable to the risks being hedged in the hedged items. Hedge-effectiveness testing is performed at the inception of the hedging relationship and on an ongoing basis. The Bank performs testing at hedge inception based on regression analysis of the hypothetical performance of the

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hedge relationship using historical market data. The Bank then performs regression testing on an ongoing basis using accumulated actual values in conjunction with hypothetical values. Specifically, each month the Bank uses a consistently applied statistical methodology that uses a sample of at least 12 historical interest-rate environments and includes an R-square test, a slope test, and an F-statistic test. These tests measure the degree of correlation of movements in estimated fair values between the derivative and the related hedged item. For the hedging relationship to be considered effective, the R-square must be greater than 0.8, the slope must be between –0.8 and –1.25, and the computed F significance must be less than 0.05.

Given that a derivative qualifies for long-haul fair-value hedge-accounting treatment, the most important element of effectiveness testing is the price sensitivity of the derivative and the hedged item in response to changes in interest rates and volatility as expressed by their effective durations. The effective duration will be affected mostly by the final maturity and any option characteristics. In general, the shorter the effective duration, the more likely it is that effectiveness testing would fail. This is because, given a relatively short duration, the LIBOR leg of the swap is a relatively important component of the monthly change in the derivative’s estimated fair value, and there is no offsetting LIBOR leg in the hedged item. In this circumstance, the slope criterion is the more likely factor to cause the effectiveness test to fail.

The fair values of the derivatives and hedged items do not have any cumulative economic effect if the derivative and the hedged item are held to maturity, or mutual optional termination at par. Since these fair values fluctuate throughout the hedge period and eventually return to par value on the maturity date, the effect of fair values is normally only a timing issue.

For derivative instruments and hedged items that meet the requirement of SFAS 133 as described above, the Bank does not anticipate any significant impact on its financial condition or operating performance. For derivative instruments where no identified hedged item qualifies for hedge accounting under SFAS 133, changes in the market value of the derivative is reflected in monthly income. As of March 31, 2005, the Bank held a small portfolio of derivatives that is marked to market with no offsetting SFAS 133-qualifying hedged item including: $475.0 million of interest-rate swaptions where the Bank owns the right to receive a fixed rate and $446.0 million of interest-rate caps and $332.5 million of interest rate swaps where the Bank pays a fixed rate and receives a floating-rate. The total fair value of these positions as of March 31, 2005, was an unrealized loss of $1.5 million. The following table shows the estimated differences in the fair value of these derivatives under alternative parallel interest-rate shifts:

Change in Fair Value of Undesignated Derivatives

March 31, 2005

(dollars in thousands)

	-100 basis points		-50 basis points		+50 basis points		+100 basis points
Change from base case	$	5,848	$	283	$	1,793	$	4,044

The fair values of these derivatives are intended to offset potential rapid increases in amortization of deferred premiums on prepayable assets and the change in market value of trading account securities. Bank projections of changes in value of the derivatives have been consistent with actual market conditions. For the balance-sheet risks that these derivatives hedge, changes in value historically have been directionally consistent with changes in actual market conditions.

Fair-Value Estimates

Certain of the Bank’s assets and liabilities, including investments classified as available-for-sale and trading, and all derivatives, are presented on the statement of condition at fair value. Under GAAP, the fair value of an asset, liability, or derivative is the amount at which that asset could be bought or sold, or that liability could be incurred or settled in a current transaction between willing parties, other than in liquidation. Fair values play an important role in the valuation of certain Bank assets, liabilities, and derivative transactions. Management also estimates the fair value of collateral that borrowers pledge against advance borrowings to confirm that collateral is sufficient to meet regulatory requirements and to protect against a loss.

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that are actively traded and have quoted market prices or parameters readily available, there is little to no subjectivity in determining fair value. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility or on dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on management’s best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, and the related income and expense. The use of different models and assumptions as well as changes in market conditions could significantly affect the Bank’s financial position and results of operations.

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Management classifies the fair values into one of the following categories:

1)Market quotes readily available;

2)Fair values derived from approved and independent valuation methodologies based on the inputs of market observables, such as yields, volatility and credit spreads; or

3)Fair values derived from approved and independent valuation methodologies based on inputs for which market observables are less reliable or are not readily available.

The fair values for the Bank’s derivatives portfolio, hedged items in which the hedged risk is the risk of changes in fair value attributable to changes in the benchmark LIBOR interest rate, and investments classified as available-for-sale and trading are calculated internally by our risk management department.

Fair Value of Bank Portfolios by Pricing Method

Fair value based on:	Derivatives		Available for Sale Portfolio		Trading Portfolio
Quoted market prices	0	%	0	%	0	%
Internal models with significant observable market parameters	94		26		100
Internal models with significant unobservable market parameters	6		74		0

For purposes of estimating the fair value of derivatives and items for which the Bank is hedging the changes in fair value attributable to changes in the designated benchmark interest rate, the Bank employs a valuation model which uses market data from the Eurodollar futures, cash LIBOR, U.S. Treasury obligations, and the U.S. dollar interest-rate-swap markets to construct discount and forward-yield curves using standard bootstrapping and smoothing techniques. “Bootstrapping” is the name given to the methodology of constructing a yield curve using shorter-dated instruments to obtain near-term discount factors progressing to longer-dated instruments to obtain the longer-dated discount factors. “Smoothing techniques” refer to the use of parametric equations to estimate a continuous series of discount factors by fitting an equation (representing a curve or line) to discount factors directly observed from market data. The model also calibrates an implied volatility surface from the at-the-money LIBOR cap/floor prices and the at-the-money swaptions prices. The application uses a modified Black-Karasinski process to model the term structure of interest rates.

Fair values of investments classified as available-for-sale or trading for which quoted market prices are not readily available are determined on the basis of spreads listed in dealer publications or dealer quotations, whereby the Bank attempts to obtain values from multiple securities dealers and uses the average of given spreads or values.

Deferred Premium/Discount Associated with Prepayable Assets

When the Bank purchases mortgage loans and MBS, it often pays an amount that is different than the unpaid principal balance. The difference between the purchase price and the contractual note amount is a premium if the purchase price is higher, and a discount if the purchase price is lower. SFAS 91 establishes accounting guidance that permits the Bank to amortize (or accrete) these premiums (or discounts) in a manner such that the yield recognized on the underlying asset is constant over the asset’s estimated life.

The Bank typically pays more than the unpaid principal balances when the interest rates on the purchased mortgages are greater than prevailing market rates for similar mortgages on the transaction date. The net purchase premiums paid, in accordance with SFAS 91, are then amortized using the constant-effective-yield method over the expected lives of the mortgages as a reduction in their book yields (that is, interest income). Similarly, if the Bank pays less than the unpaid principal balances due to interest rates on the purchased mortgages being lower than prevailing market rates on similar mortgages on the transaction date, the net discount is accreted in the same manner as the premiums, resulting in an increase in the mortgages’ book yields.

The constant-effective-yield amortization method is applied using expected cash flows that incorporate prepayment projections that are based on mathematical models that describe the likely rate of consumer refinancing activity in response to incentives created (or removed) by changes in interest rates. Changes in interest rates have the greatest effect on the extent to which mortgages may prepay. When interest rates decline, prepayment speeds are likely to increase, which accelerates the amortization of premiums and the accretion of discounts. The opposite occurs when interest rates rise.

Mortgage loans are stratified into multiple portfolios according to common characteristics, such as coupon-interest rate, final original maturity, and the type of mortgage (that is, conventional or FHA/VA). For MBS, the Bank estimates prepayment speeds on each individual security using the most recent three months of historical constant prepayment rates, as available, or may subscribe to third-

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party data services that provide estimates of cash flows, from which the Bank determines expected asset lives. The constant-effective-yield method uses actual prepayments received and projected future prepayment speeds, as well as scheduled principal payments, to determine the amount of premium/discount that needs to be recognized so that the book yield of each mortgage-loan portfolio and each MBS is constant for each month until maturity.

Amortization of mortgage premiums could accelerate in falling interest-rate environments or decelerate in rising interest-rate environments. Exact trends will depend on the relationship between market interest rates and coupon rates on outstanding mortgage assets, the historical evolution of mortgage interest rates, the age of the mortgage loans, demographic and population trends, and other market factors.

Changes in amortization will also depend on the accuracy of prepayment projections compared to actual experience. Prepayment projections are inherently subject to uncertainty because it is difficult to accurately predict future market conditions and difficult to accurately predict the response of borrowing consumers in terms of refinancing activity to future market conditions even if the market conditions were known. In general, lower interest rates are expected to result in the acceleration of premium and discount amortization and accretion, compared to the effect of higher interest rates that would tend to decelerate the amortization and accretion of premiums and discounts.

The effect on net income from the amortization and accretion of premiums and discounts on mortgage loans and MBS for the three months ended March 31, 2005, and the years ended December 31, 2004 and 2003, was a net expense of $5.3 million, $26.0 million, and $24.1 million, respectively.

Allowance for Loan Losses

Advances. The Bank has experienced no credit losses on advances and management currently does not anticipate any credit losses on advances. Based on the collateral held as security for advances, management’s credit analyses, and prior repayment history, no allowance for losses on advances is deemed necessary. The Bank is required by statute to obtain sufficient collateral on advances to protect against losses, and to accept as collateral on such advances only certain types of qualified collateral, which are primarily U.S. government or government-agency securities, residential-mortgage loans, deposits in the Bank, and other real-estate-related assets.

At March 31, 2005, December 31, 2004, and December 31, 2003, and December 31, 2002, the Bank had rights to collateral, either loans or securities, on a member-by-member basis, with an estimated fair value in excess of outstanding advances. Management believes that policies and procedures are in place to appropriately manage the credit risk associated with advances.

Mortgage Loans. The Bank purchases both conventional mortgage loans and FHA/VA mortgage loans under the MPF program. FHA/VA loans are government-guaranteed and as such, management has determined that no allowance for losses is necessary for such loans. Conventional loans, in addition to having the related real estate as collateral, are also credit enhanced either by qualified collateral pledged by the member, or by SMI purchased by the member. The CE is the PFI’s potential loss in the second-loss position. It absorbs a percentage of realized losses prior to the Bank having to incur an additional credit loss in the third-loss position.

The Bank stratifies the conventional portfolio between loan pools that are credit enhanced to the equivalent of a AA long-term credit rating, and those loan pools that are credit enhanced to the equivalent of an A long-term credit rating. The Bank’s risk-sharing arrangements, as described in the previous paragraph, and the underwriting characteristics of the mortgage loans, are the primary factors used to determine the equivalent long-term credit ratings of the Bank’s loan pools. As noted in the following paragraph, the equivalent long-term credit ratings of the Bank’s loan pools are a significant factor in determining the adequacy of the allowance.

The allowance considers probable incurred losses that are inherent in the portfolio, but have not yet been realized. The allowance for the Bank’s conventional loan pools is based on an analysis of the performance of the Bank’s loan portfolio, general economic conditions, the credit value of the Bank’s risk-sharing arrangements as expressed by the equivalent long-term credit rating of the Bank’s loan pools, and an analysis of loan-reserve levels used by Fannie Mae and Freddie Mac, the GSEs comprising the bulk of the secondary mortgage market. The loan-loss reserve levels of Fannie Mae and Freddie Mac incorporate the best estimates for losses on a seasoned, diversified, national portfolio of mortgage loans with similar underwriting standards to the MPF program. The Bank’s analysis also incorporates the historical loss experience for similarly rated residential MBS over the expected life of the Bank’s conventional loan pools. The Bank relies on this approach, as MPF is a relatively new program and the Bank has limited loss history. Management reviews the allowance on a regular basis and anticipates moving away from the GSE-indexing methodology and relying primarily on the actual loss experience of the MPF portfolio. Management will begin to rely primarily on the Bank’s actual loss experience when the MPF portfolio is sufficiently seasoned to allow the Bank to reasonably estimate probable losses based on its own loss experience.

The process of determining the allowance for loan losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions. Due to variability in the data underlying the assumptions

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made in the process of determining the allowance for loan losses, estimates of the portfolio’s inherent risks will change as warranted by changes in the economy, particularly the residential mortgage market and changes in house prices. The Bank periodically reviews general economic conditions to determine if the loan-loss reserve is adequate in view of economic or other risk factors that may affect markets in which the Bank’s mortgage loans are located. The degree to which any particular change would affect the allowance for loan losses would depend on the severity of the change.

As of March 31, 2005, December 31, 2004, and December 31, 2003, the allowance for loan losses on the conventional mortgage-loan portfolio stood at $1.5 million, $1.4 million, and $1.3 million, respectively. The allowance reflects the Bank’s understanding of probable incurred losses inherent in the MPF portfolio as of March 31, 2005.

RECENT ACCOUNTING AND REGULATORY DEVELOPMENTS

EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. In March 2004, the FASB reached a consensus on EITF 03-1, which clarifies the application of an impairment model to determine whether investments are other-than-temporarily impaired. The provisions of EITF 03-1 must be applied prospectively to all current and future investments accounted for in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. On September 15, September 30, and November 15, 2004, the FASB issued proposed staff positions to provide guidance on the application and scope of certain paragraphs and to defer the effective date of the impairment measurement and recognition provisions contained in specific paragraphs of EITF 03-1. This deferral will be superseded in FASB’s final issuance of the staff position. The management of the Bank does not expect the revised EITF to have a material impact on its results of operations or financial condition at the time of adoption.

Adoption of SFAS 150. The FASB issued SFAS 150, in May 2003. This statement establishes a standard for how certain financial instruments with characteristics of both liabilities and equity are classified in the financial statements and provides accounting guidance for, among other things, mandatorily redeemable financial instruments.

The Bank adopted SFAS 150 as of January 1, 2004, based on the SFAS 150 definition of a nonpublic entity, the definition of an SEC registrant in FASB Staff Position No. 150-3, and related implementation guidance as it relates to both the Bank’s member shares and its COs. The Bank is a cooperative whose member financial institutions own all of the Bank’s capital stock. Member shares cannot be purchased or sold except between the Bank and its members at $100 per share par value, the Bank does not have equity securities that trade in a public market, and the Bank is not in the process of registering equity securities with the SEC for the purpose of a sale of equity securities in a public market. Additionally, although the Bank is a nonpublic entity, the Bank does issue joint and several COs that can be traded in a public market. The public nature of the COs, addressed in the SFAS 150 implementation guidance, is the primary reason for the adoption of SFAS 150 on January 1, 2004.

In compliance with SFAS 150, the Bank will reclassify stock subject to redemption from equity to liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership, since the shares of capital stock will then meet the definition of a mandatorily redeemable financial instrument. Shares of capital stock meeting this definition are reclassified to a liability at fair value. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense on the statement of income. The repayment of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the statement of cash flows.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to equity in compliance with SFAS 150. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

On January 1, 2004, the Bank reclassified $8.7 million of its outstanding capital stock to “mandatorily redeemable capital stock” in the liability section of the statement of condition. For the year ended December 31, 2004, dividends on mandatorily redeemable capital stock in the amount of $1.3 million were recorded as interest expense.

Although the mandatorily redeemable capital stock is not included in capital for financial reporting purposes, such outstanding stock is considered capital for regulatory purposes. See Note 13 – Capital, located in the footnotes of the December 31, 2004 Financial Statements, for more information, including significant restrictions on stock-redemption.

Adoption of SOP 03-3. The American Institute of Certified Public Accountants issued Statement of Position 03-3 (herein referred to as “SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer, in December 2003. SOP 03-3 provides guidance on the accounting for differences between contractual and expected cash flows from the purchaser’s initial investment in loans or debt securities acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3: (1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss accrual, or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be

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recognized prospectively through an adjustment of yield; and (3) requires that subsequent decreases in expected cash flows be recognized as an impairment. In addition, SOP 03-3 prohibits the creation or carryover of a valuation allowance in the initial accounting of all loans within its scope that are acquired in a transfer. The Bank adopted SOP 03-3 as of January 1, 2005. At the time of adoption, the Bank has determined that the requirements of SOP 03-3 will not have a material impact on the Bank’s results of operations or financial condition.

Proposed Changes to GSE Regulation

The Senate Banking Committee and House Financial Services Committee are expected to consider legislation in 2005 that would create a new regulator for Fannie Mae, Freddie Mac, and the FHLBanks. The legislation would eliminate, among other things, the Office of Federal Housing Enterprise Oversight and the Finance Board and combine their functions into a single, new regulator for the three GSEs. It is impossible to predict whether the House and Senate would approve such GSE legislation, whether any such change in regulatory structure ultimately would be signed into law, or if enacted, what effect such legislation would have on the Bank and the FHLBank System.

Federal Reserve Policy Regarding Payments System Risk

The Federal Reserve Board in September 2004 announced, through Docket No.OP-1182, that it has revised its Policy Statement on Payments System Risk (PSR policy) concerning interest and redemption payments on securities issued by GSEs and certain international organizations. The Federal Reserve Banks are currently processing and posting these payments to depository institutions’ Federal Reserve accounts by 9:15 a.m. Eastern Time, the same posting time as for U.S. Treasury securities’ interest and redemption payments, even if the issuer has not fully funded its payments. The revised policy requires that, beginning July 20, 2006, Federal Reserve Banks will release these interest and redemption payments as directed by the issuer provided the issuer’s Federal Reserve account contains sufficient funds to cover them. While the issuer will determine the timing of these payments during the day, each issuer will be required to fund its interest and redemption payments by 4:00 p.m. Eastern Time in order for the payments to be processed that day. Also beginning July 20, 2006, the revised policy will align the treatment of the general corporate account activity of GSEs and certain international organizations with the treatment of activity of other account holders that do not have regular access to the discount window and thus are not eligible for intraday credit. Such treatment will include applying a penalty fee to daylight overdrafts resulting from these entities’ general corporate payment activity.

The Federal Reserve Board’s decision to revise its PSR policy only affects the Bank’s intra-day liquidity, not its overall liquidity position. Consequently, the Bank will manage its intra-day liquidity by forecasting and identifying specific business days that represent high liquidity risk. An example may be a date the Bank has a large debt payment scheduled.

The Bank has three main strategies to mitigate this potential intra-day liquidity risk:

1.Since cash proceeds from DN issuance are available in the morning, the Bank plans to actively utilize the DN market such that the DNs would settle on days with large anticipated bond maturities.

2.The Bank maintains sufficient unencumbered securities collateral to enter into repurchase agreement transactions to mitigate liquidity risk. The repurchase-agreement transactions would settle on a delivery-versus-payment basis no later than 3:00 p.m. Eastern Time deadline (assuming no extension). Moreover, to ensure that the return of funds on money-market investments is compliant with the 4:00 p.m. Eastern Time settlement deadline for principal and interest payments on CO bonds, the Bank can utilize reverse-repurchase agreements, which would also require settlement by 3:00 p.m. Eastern Time.

3.The Bank can move the advance-repayment deadline on its members earlier than the current 5:00 p.m. Eastern Time target. This method would be considered a last resort to mitigate the Bank’s liquidity risk. The Bank would fully consider the impact on its members and would not utilize this method unless the Bank deemed it to be absolutely necessary.

The FHLBanks are evaluating the impact of this proposed change on their operations. Among other impacts, these changes will affect the FHLBanks’ cash-management routines and related business practices. However, it is not possible to reliably predict what, if any, changes will be made and what effect the changes would have on the FHLBanks.

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ITEM 3. Properties

The Bank occupies 60,774 square feet of leased office space at 111 Huntington Avenue, Boston, Massachusetts 02199. The Bank also maintains 9,969 square feet of leased property for an off-site back-up facility in Westborough, Massachusetts. The Bank believes its properties are adequate to meet its requirements for the foreseeable future.

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Bank is a cooperative, its members or former members own all of the outstanding capital stock of the Bank, and a majority of the directors of the Bank are elected by and from the membership. The exclusive voting right of members is for the election of a portion of the Bank’s directors who are not appointed by the Finance Board. Furthermore, each member is eligible to vote for the open director seats only in the state in which its principal place of business is located. Membership is voluntary, and members must give notice of their intent to withdraw from membership. Members that withdraw from membership may not be readmitted to membership for five years.

The Bank does not offer any compensation plan under which equity securities of the Bank are authorized for issuance.

Member institutions, including affiliated institutions under common control of a single holding company, holding five percent or more of the outstanding capital stock of the Bank as of March 31, 2005, are noted in the following table.

Members Holding five Percent or More of

Outstanding Capital Stock

(dollars in thousands)

Member Name and Address	Capital Stock		Percent of Total Capital Stock
Fleet National Bank	$	242,204	10.8	%
111 Westminster Street
Providence, RI 02903
Webster Bank, N.A.	189,975		8.4
145 Bank Street
Waterbury, Connecticut 06702
Banknorth, N.A.	159,138		7.1
One Portland Square
Portland, ME 04112
Citizens Bank of Massachusetts *	67,621		3.0
28 State Street
Boston, MA 02109
Citizens Bank of Rhode Island *	47,796		2.1
One Citizens Plaza
Providence, RI 02903
Citizens Bank of New Hampshire *	27,012		1.2
875 Elm Street
Manchester, NH 03101
Citizens Bank of Connecticut *	13,173		0.6
63 Eugene O’Neill Drive
New London, CT 06320

*      Citizens Bank of Massachusetts, Citizens Bank of Rhode Island, Citizens Bank of New Hampshire, and Citizens Bank of Connecticut are affiliated institutions under the common control of a single holding company, Citizens Financial Group. The combined amount of capital stock for these affiliated institutions represents 6.9 percent of total capital stock of the Bank.

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Additionally, due to the fact that a majority of the board of directors of the Bank is elected from the membership of the Bank, these elected directors serve as officers or directors of member institutions that own the Bank’s capital stock. The following table provides capital stock outstanding to member institutions whose officers or directors were serving as directors of the Bank as of March 31, 2005 (dollars in thousands):

Member Name and Address	Capital Stock		Percent of Total Capital Stock
Union Savings Bank	$	17,324	0.77	%
226 Main Street
Danbury, Connecticut 06810
Bank of Newport	11,093			*
10 Washington Square
Newport, Rhode Island 02840
South Shore Savings Bank	10,669			*
1530 Main Street
South Weymouth, Massachusetts 02190
Wainwright Bank & Trust Company	8,810			*
63 Franklin Street
Boston, Massachusetts 02110
Central Cooperative Bank	8,300			*
399 Highland Avenue
Somerville, Massachusetts 02144
Androscoggin Savings Bank	5,735			*
30 Lisbon Street
Lewiston, Maine 04240
Mascoma Savings Bank, FSB	4,877			*
67 North Park Street
Lebanon, New Hampshire 03766
Northwest Community Bank **	2,918			*
86 Main Street
Winsted, Connecticut 06098
East Boston Savings Bank	2,867			*
67 Prospect Street
Peabody, Massachusetts 01960
Newport Federal Savings Bank	2,227			*
100 Bellevue Avenue
Newport, Rhode Island 02840
Passumpsic Savings Bank	2,132			*
124 Railroad Street
St. Johnsbury, Vermont 05819
Litchfield Bancorp **	1,926			*
294 West Street
Litchfield, Connecticut 06759
Depositors Insurance Fund	1,095			*
One Linscott Road
Woburn, MA 01801
Total stock ownership by members whose officers serve as directors of the Bank	$	79,973	3.55	%

*   Represents ownership of less than 0.50 percent

** Subsidiaries of the same holding company.

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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

The Bank is governed by a 16-member board of directors. All directors are New Englanders. Member financial institutions elect eleven of the directors. The Finance Board appoints four. Another four directorships may be appointed, however, the Finance Board has chosen not to fill these vacancies to date. There are no family relationships between any director, executive officer, or person nominated to become a director or executive officer. No director or executive officer has an involvement in any legal proceeding disclosable pursuant to Item 401(f).

Directors Elected by Members

Directors elected by the Bank’s members, including one appointed to fill a vacancy of an elected director, have provided the following information about their principal occupation, business experience, and other matters. Each director serves a three-year term, ending on December 31 of his or her third year of directorship. None of the Bank’s directors serve as executive officers of the Bank.

Stephen F. Christy, age 55, president and chief executive officer of Mascoma Savings Bank, FSB located in Lebanon, New Hampshire. Mr. Christy has served as a director since January 1, 2002, and his current term as a director expires on December 31, 2007. Mr. Christy has been president and chief executive officer of Mascoma Savings Bank, FSB for the past 15 years.

Steven A. Closson, age 56, president and chief executive officer of Androscoggin Savings Bank, located in Lewiston, Maine. Mr. Closson has served as a director since January 1, 2004, and his term as a director expires on December 31, 2006. Mr. Closson joined Androscoggin Savings Bank as a senior vice president and treasurer in 1987. He was promoted to president and chief executive officer and elected to the board of directors in 1991.

Arthur R. Connelly, age 60, chairman and chief executive officer of South Shore Savings Bank, located in South Weymouth, Massachusetts. Mr. Connelly has served as a director since January 1, 1997, and his current term as a director expires on December 31, 2006. Mr. Connelly became chairman and chief executive officer of South Shore Savings Bank at its creation in 1997. He also serves as a director of The Savings Bank Life Insurance Company of Massachusetts, and as a director of Americas’ Community Bankers.

Peter F. Crosby, age 55, president, chief executive officer, and trustee of Passumpsic Savings Bank and president, chief executive officer, and director of Passumpsic Bancorp, located in St. Johnsbury, Vermont. Mr. Crosby joined Passumpsic in 1973. He has served as a director of the Bank since January 1, 2005, and his term as a director expires on December 31, 2007.

John H. Ellis, age 65, director of Bank Newport, located in Newport, Rhode Island. Mr. Ellis previously served as president and chief executive officer of Bank of Newport. Mr. Ellis was first named president and chief executive officer of Bank of Newport in 1999, and retired in 2003 after 42 years in banking. Mr. Ellis has served as a director since January 1, 1998, and his current term as a director expires on December 31, 2005.

Charles F. Frosch, age 60, president and chief executive officer of Union Savings Bank, located in Danbury, Connecticut. Mr. Frosch has served as a director since January 1, 1998, and his current term as a director expires on December 31, 2006. Mr. Frosch has served as president and chief executive officer of Union Savings Bank since 1982. Mr. Frosch also serves as a director for the Independent Community Bankers of America.

Mark E. Macomber, age 59, president and chief executive officer of Litchfield Bancorp, located in Litchfield, Connecticut. Mr. Macomber is also a nonvoting, ex-officio director of Northwest Community Bank located in Winsted, Connecticut, as well as president and chief executive officer of Connecticut Mutual Holding Company, the mutual holding company for Litchfield Bancorp and Northwest Community Bank. Mr. Macomber became president and chief executive officer of Litchfield Bancorp in March 1994. Mr. Macomber has served as a director since April 16, 2004, and his term as a director expires on December 31, 2005.

Kevin M. McCarthy, age 57, president and chief executive officer of Newport Federal Savings Bank, located in Newport, Rhode Island. Mr. McCarthy became president and chief executive officer of Newport Federal Savings Bank in June 1993. Mr. McCarthy has served as a director since January 1, 2004, and his term as a director expires on December 31, 2006.

Jan A. Miller, age 55, president, chief executive officer and director of Wainwright Bank & Trust Company, located in Boston, Massachusetts. Mr. Miller became president and chief executive officer of Wainwright in 1997. Mr. Miller has served as a director since January 1, 2004, and his term as a director expires on December 31, 2006.

William P. Morrissey, age 77, executive vice president and chief operating officer of Central Co-operative Bank, headquartered in Somerville, Massachusetts since 1992. Prior to 1992, he served as executive vice president for corporate affairs at Boston Five Cents Savings Bank and as Deputy Commissioner of Banks for the Commonwealth of Massachusetts. Mr. Morrissey had served as a

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director from October 19, 1990, through December 31, 1996, and again was elected as director on January 1, 1999, and again on January 1, 2005. His current term as a director expires on December 31, 2007. Mr. Morrissey has held his position at Central Co-operative Bank for the past five years.

Robert F. Verdonck, age 59, president and chief executive officer of East Boston Savings Bank, located in Peabody, Massachusetts. He also serves as president and chief executive officer of Meridian Financial Services, Inc., holding company for East Boston Savings Bank. He has held various positions at East Boston Savings Bank for the past 21 years. Mr. Verdonck also serves as an independent trustee of John Hancock Variable Series Trust; as a director of The Savings Bank Life Insurance Company of Massachusetts; and a director of Depositors Insurance Fund, a member of the Bank. He has served as a director of the Bank since January 1, 1998, and his term as a director will expire on December 31, 2005. Mr. Verdonck has been elected to serve as chairman of the board in 2004 and 2005.

Directors Appointed by the Finance Board

Directors appointed by the Finance Board have provided the following information about their principal occupation, business experience, and other matters. Each director serves a three-year term, ending on December 31 of his or her third year of directorship.

Thomas R. Eaton, age 55, President of the New Hampshire State Senate, located in Concord, New Hampshire. Senator Eaton was elected to the New Hampshire Senate in 1999. He has served as a director since January 29, 2003, and his term as a director expires on December 31, 2005. Senator Eaton has been elected to serve as vice chairman of the board for 2005.

Joyce H. Errecart, age 55, Representative to the Vermont House of Representatives, located in Montpelier, Vermont. Rep. Errecart has served as a director since January 23, 2004, and her term as a director expires on December 31, 2006. Rep. Errecart was elected to the Vermont House in 2002. Prior to holding public office, Rep. Errecart served as Vermont’s Commissioner of Taxes and practiced law both independently and, from 1994 to 2002, with the law firm of Bergeron, Paradis & Fitzpatrick of Burlington, Vermont.

Ann R. Robinson, age 43, attorney and partner with the firm of Preti, Flaherty, Believeau, Pachios, and Haley, located in Augusta, Maine. Ms. Robinson has served as a director since January 29, 2003, and her term as a director expires on December 31, 2005. Ms. Robinson joined Preti, Flaherty, Believeau, Pachios, and Haley in 1988 and attained membership status in 1996. She specializes in legislative and regulatory law, with extensive experience in health, environmental, insurance, and professional regulation issues. She serves on the firm’s Management Committee and chairs its Legislative, Regulatory and Governmental Services Practice Group.

James. L. Taft, Jr., age 74, attorney and partner with the firm of Taft & McSally LLP, located in Cranston, Rhode Island. Mr. Taft has served as a director since January 23, 2004, and his term as a director expires on December 31, 2006. Mr. Taft engaged in general legal practice as proprietor of Taft & McSally law firm from 1955 to December 2000, and since then has continued that practice as partner of Taft & McSally LLP.

Directors’ Compensation

The Bank pays members of the board of directors fees for each board and committee meeting that they attend subject to an annual maximum amount for each director. The Finance Board establishes the maximum annual compensation amounts for the directors of all FHLBanks on an annual basis based on the percentage increase in the Consumer Price Index for all urban consumers (CPI-U) during the year. The amounts paid to the members of the board of directors for attendance at board and committee meetings during 2005 and 2004, along with the annual maximum compensation amounts for those years, are detailed in the following table:

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Director Compensation

	2005		2004
Fee per board meeting
Chair of the board	$	3,400	$	3,200
Vice chair of the board	2,600		2,400
All other board members	1,900		1,800
Fee per committee meeting	750		750
Fee per telephonic conference call	500		500
Annual maximum compensation amount
Chair of the board	28,364		27,405
Vice chair of the board	22,692		21,924
All other board members	17,019		16,443

In addition, the Bank maintains a deferred-compensation plan available to all directors that is, in substance, an unfunded supplemental retirement plan. The plan’s liability consists of the accumulated compensation deferrals and accumulated earnings on these deferrals. The Bank’s obligation from this plan at December 31, 2003, was $1.2 million, and the obligation from this plan at December 31, 2004, was $1.3 million.

Executive Officers

The following table sets forth the names, titles, and ages of the executive officers of the Bank:

Name	Title	Age
Michael A. Jessee	President and Chief Executive Officer	58
Michael L. Wilson	Senior Executive Vice President and Chief Operating Officer	48
M. Susan Elliott	Executive Vice President of Member Services	51
Edward B. Dumas	Senior Vice President, Chief Risk Officer	44
John T. Eller	Senior Vice President of Housing and Community Investment	62
William P. Hamilton	Senior Vice President and Director of Public Affairs	50
Ellen M. McLaughlin	Senior Vice President, General Counsel and Corporate Secretary	53
Frank Nitkiewicz	Senior Vice President, Chief Financial Officer and Treasurer	44
William L. Oakley	Senior Vice President, Chief Information Officer	56

Michael A. Jessee has been president and chief executive officer of the Bank since May 1989. Before that, he served 12 years with the FHLBank of San Francisco as executive vice president and chief operating officer; executive vice president, economics and corporate policy; senior vice president and chief economist; and assistant vice president and director of research. Mr. Jessee also worked as an economist with the Federal Reserve Bank of New York and in corporate planning and correspondent banking with the Bank of Virginia. He holds a PhD., M.A., and M.B.A. from The Wharton School at the University of Pennsylvania, and a B.A. from Randolph-Macon College.

Michael L. Wilson has been senior executive vice president and chief operating officer of the Bank since August 1999. Previously, he served as executive vice president of finance from October 1997 to August 1999, and senior vice president of planning and research from January 1994 to October 1997. Prior to his employment with the Bank, Mr. Wilson served as the director of the office of policy and research with the Finance Board in Washington, D.C. He joined the Finance Board in 1992. Prior to joining the Finance Board, he was vice president and director of research for the U.S. League of Savings Institutions in Chicago and Washington, D.C. Mr. Wilson holds an M.S. in economics from the University of Wisconsin-Madison and a B.A. in economics and political science from the University of Wisconsin-Milwaukee.

M. Susan Elliott has been executive vice president of member services of the Bank since January 1994. She previously served as senior vice president and director of marketing from August 1992 to January 1994. Ms. Elliott joined the Bank in 1981. Ms. Elliott holds a B.S. from the University of New Hampshire and an M.B.A. from Babson College.

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Edward B. Dumas has been senior vice president and chief risk officer of the Bank since May 2004. Previously, he served as director of capital market analytics at FleetBoston Financial, where he was also co-chair of the corporation’s valuation committee. He joined the Bank of Boston (a predecessor of FleetBoston Financial) in 1996. Prior to joining the Bank of Boston, he developed supervisory policies for risk management of financial derivatives at the Office of the Comptroller of the Currency. Mr. Dumas holds a Ph.D. and M.A. in economics and a B.A. in physics from the University of California-Santa Barbara.

John T. Eller has been senior vice president and director of housing and community investment of the Bank since March 2004. Previously, he served as first vice president and assistant director of housing and community investment. He joined the Bank in 1991. Prior to his employment with the Bank, Mr. Eller served as president of Eller & Associates, Inc, executive director of the Massachusetts Housing Finance Agency, associate vice president of the University of Massachusetts, and director of research and policy for the Office of the Speaker of the Massachusetts House of Representatives. Mr. Eller holds a B.A. from Hiram College and a Masters of Divinity degree from Andover Newton Theological School.

William P. Hamilton has been senior vice president and director of public affairs of the Bank since June 2000. Prior to his employment with the Bank, he served for seven years as vice president and director of external affairs for the Federal Home Loan Bank of Seattle. Mr. Hamilton holds a J.D. from George Washington University’s National Law Center and a B.A. from Washington State University. He is also a member of the Washington State Bar Association.

Ellen M. McLaughlin has been senior vice president, general counsel of the Bank since August 2004. She previously served as vice president, associate general counsel from 2000 to July 2004. Ms. McLaughlin joined the Bank in 1990. She earned a J.D. from Suffolk University Law School and an L.L.M. from Boston University School of Law. She is a member of the Massachusetts Bar Association.

Frank Nitkiewicz has been senior vice president, chief financial officer and treasurer of the Bank since August 1999. Previously, he served as senior vice president and treasurer from October 1997 to August 1999. Mr. Nitkiewicz joined the Bank in 1991. He holds an M.B.A from the Kellogg Graduate School of Management at Northwestern University and a B.S. and a B.A. from the University of Maryland.

William L. Oakley has been senior vice president and chief information officer of the bank since May 2004. Mr. Oakley came to the Bank from John Hancock Financial Services, Inc., where he served as vice president and chief technology officer from November 1996 to April 2004. Prior to his employment with John Hancock, he served as vice president, treasurer, and founding manager of American Business Insurors Corporation; vice president of technology services at United States Fidelity & Guaranty Company; senior vice president with Fidelity Investments; and vice president at American Fletcher National Bank. Mr. Oakley received his B.S. in computer technology from Purdue University.

Employment Arrangements

The Bank has no employment arrangements with any executive officer or director.

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ITEM 6. Executive Compensation

The following table sets forth all compensation received from the Bank for the three fiscal years ended December 31, 2004, by the Bank’s chief executive officer and the four most highly paid executive officers (other than the chief executive officer) who were serving as executive officers at the end of 2004 (collectively, the “Named Executive Officers”). Annual compensation includes amounts deferred.

	Annual Compensation					All Other
Name and Principal Position	Year	Salary ($)		Bonus ($)		Compensation ($)
Michael A. Jessee	2004	$	500,000	$	192,500	$	45,486	(1), (2)
President and	2003	500,000		196,850		45,040
Chief Executive Officer	2002	475,000		198,360		36,367
Michael L. Wilson	2004	303,000		86,537		24,563		(1), (2)
Senior Executive Vice President and	2003	303,000		89,146		21,490
Chief Operating Officer	2002	290,000		39,710		23,193
M. Susan Elliott	2004	209,000		71,409		17,288		(1), (2)
Executive Vice President	2003	209,000		61,613		17,168
	2002	200,000		61,480		14,489
Frank Nitkiewicz	2004	207,600		59,291		16,610		(1), (2)
Senior Vice President,	2003	207,600		61,200		16,571
Chief Financial Officer and Treasurer	2002	200,000		61,480		14,023
Ellen M. McLaughlin	2004	150,908		58,123		11,189		(1)
Senior Vice President, General Counsel	2003	129,000		35,578		9,510
and Corporate Secretary	2002	120,000		29,508		7,984

(1)The 2004 amounts for the Named Executive Officers include: (a) contributions made by the Bank to a defined contribution plan: Mr. Jessee, $41,811; Mr. Wilson, $23,529; Ms. Elliott, $16,237; Mr. Nitkiewicz, $16,128; and Ms. McLaughlin, $11,189, (b) insurance premiums paid by the Bank with respect to term-life insurance: Mr. Jessee, $3,675; Mr. Wilson, $1,034; Ms. Elliott, $1,051; and Mr. Nitkiewicz, $482.

(2)To match and fund the Bank’s Benefit Equalization Plan (BEP) liability, the Bank is providing a collateral assignment split-dollar life insurance policy for which the applicable Named Executive Officers have rights to a cash surrender value, not to exceed the present value of their benefit under the BEP. To the extent the cash value offsets a liability under the BEP, the liability under the plan will be reduced. The premium of the term-life component of the policy has been separately disclosed in footnote 1 above. The benefits under the BEP are reported below.

Retirement Plan

The Bank participates in the Financial Institutions Retirement Fund (FIRF) to provide retirement benefits for eligible employees. Employees become eligible to participate in FIRF after the completion of 12 consecutive months of employment with the Bank and the attainment of age 21. FIRF excludes hourly paid employees from participation. Benefits under FIRF are based on the participant’s years of service and salary. A participant may elect early retirement as early as age 45. However, a participant’s normal retirement benefits will be reduced by an early retirement reduction factor based on age at early retirement.

Participants generally have no vested interest in FIRF benefits prior to the completion of five years of service with the Bank. Following the completion of five years of vesting service, or in the event of a participant’s attainment of age 65, a participant becomes 100 percent vested in his/her accrued benefit under FIRF.

Benefit Equalization Plan

The Bank also maintains a BEP, which is a nonqualified, unfunded defined-benefit plan covering certain senior officers, as defined in the plan. A BEP ensures, among other things, that participants receive the full amount of benefits to which they would have been entitled under their pension plans in the absence of limits on benefits levels imposed by the Internal Revenue Service.

The following table shows annual benefits payable from FIRF and BEP combined upon retirement at age 65 and calculated in accordance with the formula currently in effect for specified years-of-service and remuneration classes for the Bank participating in both plans. Retirement benefits are not subject to any offset provision for Social Security benefits that are received in the defined-benefit plans.

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	Years of Service
Remuneration	15		20		25		30		35		40
200,000	$	71,250	$	95,000	$	118,750	$	142,500	$	160,000	$	160,000
300,000	106,875		142,500		178,125		213,750		240,000		240,000
400,000	142,500		190,000		237,500		285,000		320,000		320,000
500,000	178,125		237,500		296,875		356,250		400,000		400,000
600,000	213,750		285,000		356,250		427,500		480,000		480,000
700,000	249,375		332,500		415,625		498,750		560,000		560,000
800,000	285,000		380,000		475,000		570,000		640,000		640,000
900,000	320,625		427,500		534,375		641,250		720,000		720,000

Benefits payable from these defined benefit plans are computed based upon the following factors:

•Formula: 2.375 percent x high three-year average compensation x credited years of service (not to exceed 80 percent of high three-year average compensation);

•Compensation is the highest three-year compensation (salary and bonus) paid in the year; and

•The regular form of retirement benefits is a straight-life annuity including a lump-sum retirement death benefit.

Credited Years of Service

The estimated credited years of service for the Bank’s executive officers are as follows: Michael A. Jessee, 27 years of service, Michael L. Wilson, 11 years of service, M. Susan Elliott, 23 years of service, Frank Nitkiewicz, 13 years of service, and Ellen McLaughlin, 14 years of service.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since the Bank is a cooperative, capital-stock ownership is a prerequisite to transacting business with the Bank. During 2005, 2004, 2003, and 2002, the Bank was party to certain business transactions with member institutions related to directors of the Bank. These transactions were done in the ordinary course of business, with terms and conditions substantially the same as those prevailing for comparable transactions with other member institutions.

ITEM 8. LEGAL PROCEEDINGS

The Bank from time to time is subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material adverse effect on the Bank’s financial condition or results of operations.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Bank capital stock is issued and redeemed at its par value of $100 per share. The Bank’s stock is not publicly traded and can be held only by the Bank’s members.

During 2005, 2004, and 2003, the Bank declared quarterly cash dividends as outlined in the following table. Dividend rates are quoted in the form of an interest rate, which is then applied to each member’s average capital-stock-balance outstanding during the quarter to determine the dollar amount of the dividend that each member will receive. Dividends are solely within the discretion of the Bank’s board of directors. Generally, the dividend rate is based upon a spread to average short-term interest rates experienced during the quarter. However, there can be no assurance that the historical spreads will be sustained in the future, as dividends are dependant on the Bank’s quarterly earnings, its desire to increase retained earnings, as well as regulatory capital requirements.

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Quarterly Dividends Declared

(dollars in thousands)

	2005						2004						2003
	Average				Annualized		Average				Annualized		Average				Annualized
	Capital		Dividend		Dividend		Capital		Dividend		Dividend		Capital		Dividend		Dividend
Quarter Ending	Stock		Amount		Rate		Stock		Amount		Rate		Stock		Amount		Rate
March 31	$	2,135,423	$	21,062	4.00	%	$	2,385,324	$	12,751	2.15	%	$	2,304,177	$	18,465	3.25	%
June 30							1,924,593		11,963		2.50		2,555,749		20,071		3.15
September 30							1,846,449		13,910		3.00		2,496,776		19,194		3.05
December 31							1,909,622		16,801		3.50		2,416,865		16,753		2.75

Additionally, the Bank’s board of directors has declared a dividend rate for the three months ended June 30, 2005 equal to an annualized rate of 4.25 percent.

Dividends are subsequently paid to members in the month following each quarterend. Dividends may be paid only from current net earnings or previously retained earnings. In accordance with the FHLBank Act and Finance Board regulations, the Bank may not declare a dividend if the Bank is not in compliance with its minimum capital requirements or if the Bank would fall below its minimum capital requirements as a result of a dividend. The Bank also may not pay dividends to its members if the principal and interest due on any CO issued through the Office of Finance has not been paid in full, or under certain circumstances, if the Bank becomes a noncomplying FHLBank under Finance Board regulations as a result of its inability to comply with regulatory liquidity requirements or to satisfy its current obligations.

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

Par Value

The par value of the Class B stock is $100 per share. Class B stock is issued, redeemed, repurchased, and transferred at par value.

Background

The GLB Act and Finance Board regulations require the FHLBanks to adopt capital plans that, when implemented, would provide them with sufficient capital to meet their minimum regulatory capital requirements. Each capital plan must include, among other things, provisions relating to the minimum investment required of each member, the classes of stock to be offered by the FHLBank (Class A, Class B, or both), the rights, terms, and preferences associated with each class of stock, the criteria for the redemption, repurchase, and transfer of FHLBank stock and the disposition of FHLBank stock held by institutions that withdraw from membership.

The new capital structure does not become effective with respect to an FHLBank until the effective date of its capital plan. Until the effective date, the Bank and its members remain subject to the capital-stock-related provisions of the FHLBank Act and Finance Board regulations that were in effect on the day prior to the enactment of the GLB Act.

Development of the Capital Plan

Beginning in the summer of 2000, the Bank analyzed various possible capital structures to meet the requirements of the GLB Act, Finance Board regulations, and the needs of its members. The Bank’s board of directors approved the capital plan on September 13, 2001. On October 26, 2001, the Bank submitted the capital plan to the Finance Board for its approval. In response to Finance Board staff comments, modifications were made to the capital plan. The Bank’s board of directors approved an amended version of the capital plan on April 25, 2002. On May 8, 2002, the Finance Board approved the Bank’s capital plan, subject to the Bank’s board of director’s adopting an amendment to the capital plan. The Bank’s board of directors approved the amendment on June 21, 2002. On March 21, 2003, and June 20, 2003, the Bank’s board of directors approved additional amendments to the capital plan. The Finance Board approved these amendments on August 6, 2003. The capital plan became effective on April 19, 2004 (the “effective date”).

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Total Stock-Investment Requirement

General

The capital plan is designed to provide the Bank with sufficient capital to meet its minimum regulatory capital requirements. Toward this end, the capital plan requires that members purchase and maintain a certain minimum investment in the Class B stock of the Bank. This minimum investment is referred to as the total stock-investment requirement. A member’s total stock-investment requirement is the sum of the member’s membership stock-investment requirement and the member’s activity-based stock-investment requirement, if any. From time to time the Bank may rely on Class B stock held by members in excess of their total stock-investment requirements. When this is the case it may affect the ability of members to have their stock repurchased or redeemed.

Membership Stock-Investment Requirement

The initial membership stock-investment requirement on the effective date will be 0.35 percent of the member’s membership stock-investment base. The membership stock-investment base is an amount calculated in accordance with a formula specified in detail in the capital plan that is based on certain assets held by a member that are reflected on call reports submitted to applicable regulatory authorities, or if a member does not file such reports, then in similar data provided to the Bank. The membership stock-investment requirement on the effective date shall be determined based on the most recently filed call report available to the Bank. Notwithstanding the result obtained by multiplying the initial percentage by the membership stock-investment base, the initial membership stock-investment requirement of each member shall be no less than $10,000 and no more than $25 million.

As a condition of membership, each member is required to purchase and maintain the required amounts of Class B stock necessary to satisfy its membership stock-investment requirement. Following the effective date, a member’s membership stock-investment requirement will be recalculated annually by April 30 of each year based on a member’s most recent calendar yearend call report data. The Bank may, for a bona fide business purpose, recalculate a member’s membership stock-investment requirement between annual calculations.

Under the capital plan, the Bank’s board of directors may, from time to time, adjust the factors that determine the membership stock-investment requirement within certain ranges. The percentage requirement applied to the membership stock-investment base may range from 0.05 percent to 0.50 percent. The minimum membership stock-investment requirement may range from $5,000 to $50,000. The maximum membership stock-investment requirement may range from $5 million to $100 million.

Activity-Based Stock-Investment Requirement

The initial activity-based stock-investment requirement on the effective date is determined by calculating the sum of the following required holdings of Class B stock:

(1)A member is required to hold Class B stock in an amount equal to 4.50 percent of the member’s outstanding principal balances of advances from the Bank.

(2)A member is required to hold Class B stock in an amount equal to 0.00 percent of the member’s advance commitments with the Bank adjusted by the appropriate conversion factor found in Table 2 of Section 932.4(f) of the Finance Board’s regulations.

(3)A member is required to hold Class B stock in an amount equal to 4.50 percent of the amount of standby letters of credit issued by the Bank on behalf of the member adjusted by the appropriate conversion factor in Table 2 of
Section 932.4(f) of the Finance Board regulations.

(4)A member is required to hold Class B stock in an amount equal to 4.50 percent of the value of intermediated derivative contracts between the member and the Bank which shall be equal to the sum of (1) the Bank’s current credit exposure for all intermediated derivative contracts between the Bank and the member, as calculated in accordance with
Section 932.4(h)(1) of the Finance Board’s regulations and (2) the Bank’s potential future exposure for all intermediated derivative contracts between the Bank and the member, as calculated in accordance with Section 932.4(h)(2) of the Finance Board’s regulations.

(5)A member is required to hold Class B stock in an amount equal to 4.50 percent of the principal balance of acquired member assets acquired by the Bank from the member that remain on the Bank’s statement of condition.

(6)A member is required to hold Class B stock in an amount equal to 0.00 percent of the amount of delivery commitments issued to a member for acquired member assets to be held on the Bank’s statement of condition adjusted by the appropriate conversion factor found in Table 2 of Section 932.4(f) of the Finance Board regulations.

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Acquired member assets or binding delivery commitments by the Bank to provide or purchase acquired member assets that are in existence prior to the effective date are subject exclusively to contractual requirements to hold capital stock, if any, that were in existence immediately prior to the effective date until they are no longer held by the Bank, and are not subject to any activity-based stock-investment requirement.

Each member is required to purchase and maintain the required amounts of Class B stock necessary to satisfy its activity-based stock-investment requirement while the activity-based assets to which the activity-based stock-investment requirement apply remain outstanding. A member’s activity-based stock-investment requirement is subject to change from time to time as the member’s activity with the Bank changes. On and after the effective date, a member that engages the Bank with respect to an activity-based asset must comply with any associated requirement to purchase additional Class B stock at the time the activity-based asset transaction occurs.

Under the capital plan, the Bank’s board of directors may, from time to time, change the percentages that determine the various components of the activity-based stock-investment requirement within certain ranges, as set forth below.

(1)A member may be required to hold Class B stock in an amount ranging from between 3.00 percent and 6.00 percent of the amount of the member’s outstanding principal balances of advances.

(2)A member may be required to hold Class B stock in an amount ranging between 0.00 percent and 6.00 percent of the amount of the member’s advance commitments with the Bank adjusted by the appropriate conversion factor found in Table 2 of Section 932.4(f) of the Finance Board regulations.

(3)A member may be required to hold Class B stock in an amount ranging between 3.00 percent and 6.00 percent of the amount of standby letters of credit issued by the Bank on behalf of the member adjusted by the appropriate conversion factor in Table 2 of Section 932.4(f).

(4)A member may be required to hold Class B stock in an amount ranging between 3.00 percent and 6.00 percent of the value of intermediated derivative contracts between the member and the Bank which shall be equal to the sum of (1) the Bank’s current credit exposure for all intermediated derivative contracts between the Bank and the member, as calculated in accordance with Section 932.4(h)(1) of the Finance Board’s regulations and (2) the Bank’s potential future exposure for all intermediated derivative contracts between the Bank and the member, as calculated in accordance with Section 932.4(h)(2) of the Finance Board’s regulations.

(5)A member may be required to hold Class B stock in an amount ranging between 0.00 percent and 6.00 percent of the principal balance of acquired member assets acquired by the Bank from the member that remain on the Bank’s statement of condition.

(6)A member may be required to hold Class B stock in an amount ranging between 0.00 percent to 6.00 percent of the amount of delivery commitments issued to a member for acquired member assets to be held on the Bank’s statement of condition adjusted by the appropriate conversion factor found in Table 2 of Section 932.4(f) of the Finance Board’s regulations.

The Bank’s board of directors adjusted the activity-based stock-investment requirement for acquired member assets sold by members under the MPF program to zero percent on October 18, 2004, provided that the acquired member assets were sold pursuant to (1) master commitments that were in existence on or after April 19, 2004 and remained open on October 18, 2004, and (2) new master commitments entered into on or after October 18, 2004. The Bank’s decision to suspend the activity-based stock-investment requirement for MPF loans gives members the opportunity to take better advantage of the MPF program while also enabling us to increase our leverage of existing paid-in capital. The suspension of the activity-based stock-investment requirement for acquired member assets sold under the MPF program will remain in effect at the discretion of the Bank’s board of directors. However, as further described below, our capital plan requires that the Bank notify its members at least 30 days but not more than 45 days in advance of the effective date of any subsequent adjustment to the activity-based stock-investment requirement.

Changes outside of these ranges would constitute an amendment to the capital plan that would require Finance Board approval.

Bank Monitoring of Member Compliance with Total Stock-Investment Requirement

The total stock-investment requirement for a member is the amount of Class B stock that equals the sum of the member’s membership stock-investment requirement and activity-based stock-investment requirement, in all events rounded up to the next $100 increment. These amounts must be maintained at all times by each member. The Bank will, on a continuing basis, monitor each member’s total stock-investment requirement and the member’s actual ownership of Class B stock and will send, transmit, or give the member written notice of the need to purchase additional Class B stock within seven days of determining that a deficiency exists. A member is required to purchase an amount of Class B stock necessary to satisfy the deficiency within seven days of the date that the Bank sends, transmits, or gives written notice to the member.

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Adjustments to the Membership Stock-Investment Requirement or the Activity-Based Stock-investment Requirement

At least 30 days but not more than 45 days prior to implementing any adjustment to the membership stock-investment requirement or the activity-based stock-investment requirement, the Bank will transmit, send, or give members written notice of its intent to do so and the effective date of such adjustment. A member must purchase any additional Class B stock required to comply with such adjustment on or before the date specified by the Bank for such adjustment. A member may also achieve compliance with such an adjustment by sufficiently reducing its volume of activity-based assets on or before the date specified by the Bank for the adjustment. The Bank reserves the right to determine whether to apply any adjustment to the activity-based stock-investment requirement to activity-based assets that are in existence prior to the effective date of the adjustment and/or to activity-based assets in which the member engages the Bank on and after the effective date of the adjustment to the activity-based stock-investment requirement.

Retention and Purchase of Excess Stock

On and after the effective date, a member may hold excess shares of Class B stock, to the extent it has the legal authority under applicable statutes and regulations to do so, provided that the Bank may limit purchases of excess stock at any time. The Bank from time to time may, in its discretion and subject to conditions it establishes, offer to issue excess shares of Class B stock to members, subject to members’ authority to hold such shares. Members will be provided with access to a disclosure, either in electronic or written form, prior to a member’s purchase of excess stock, regarding the nature of the member’s investment in such excess shares of Class B stock. The Bank reserves the right to impose a limit on member holdings of excess shares of Class B stock at any time. The Bank, subject to applicable regulatory restrictions may, at any time, repurchase excess shares of Class B stock.

Redemptions of Class B Stock

General

Shares of Class B stock are subject to redemption at par value in cash by the Bank upon expiration of a five-year stock-redemption period following the Bank’s receipt of a written notice of redemption for such shares from a member. Shares of Class B stock are also subject to redemption in connection with the termination of an institution’s membership in the Bank. See the Termination of Membership section later in this item.

Redemption Notice

Aredemption notice submitted by a member must be in writing and shall identify the particular shares that are the subject of the redemption notice by reference to the date acquired and the manner in which the shares were acquired. If a redemption notice does not identify the particular shares to be redeemed, the shares subject to redemption shall be identified using a first-acquired, first-redeemed method of identification. Only one redemption notice may be outstanding at any time with respect to a particular share of Class B stock.

Cancellation of Redemption Notice

A redemption notice may be cancelled by giving written notice to the Bank that is received by the Bank at any time prior to the expiration of the applicable stock-redemption period. A redemption notice will automatically be cancelled in its entirety if the Bank is prevented from redeeming the shares subject to the redemption notice within five business days after the expiration of the applicable stock-redemption period because the member would not be in compliance with its total stock-investment requirement after such redemption. If a redemption notice is cancelled, either by submission of a voluntary cancellation notice by the member or by automatic cancellation, the Bank will impose a redemption-cancellation fee equal to two percent of the par amount of the shares of Class B stock subject to the redemption notice unless the Bank’s board of directors decides it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the FHLBank Act.

Limitations on Redemption

Under Finance Board regulations and the capital plan, the Bank’s ability to redeem stock is subject to a number of contingencies. Accordingly, there can be no assurance that a member’s shares of Class B stock subject to a redemption notice will, in fact, be redeemed at the expiration of the applicable stock-redemption period. The potential limitations on redemptions are as follows:

(1)In order to qualify for redemption upon the expiration of the applicable stock-redemption period, the shares subject to the redemption notice must be shares that are held in excess of the member’s total stock-investment requirement at that time. Moreover, as described above, if the Bank is prevented from redeeming the member’s stock because the member would not meet its total stock-investment requirement following the redemption, the stock-redemption notice applicable to such shares will be automatically cancelled and the member will be subject to a redemption cancellation fee, unless such fee is waived by the board of directors of the Bank.

(2)The Bank may not redeem shares if, following such a redemption, it would not be in compliance with each of its minimum regulatory capital requirements.

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(3)Approval from the Finance Board for the redemption of shares would be required if the Finance Board or the board of directors of the Bank determined that the Bank has incurred, or is likely to incur, losses that result in, or are likely to result in, charges against the capital of the Bank. Under such circumstances, there can be no assurance that the Finance Board would grant such approval or, if it did, upon what terms it might do so.

(4)The Bank may determine to suspend redemptions if it reasonably believes that such redemptions would cause the Bank to fail to meet any of its minimum regulatory capital requirements, would prevent the Bank from maintaining adequate capital against potential risks that are not adequately reflected in its minimum regulatory capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. The Bank is required to notify the Finance Board of any such suspension of redemptions and its plan for addressing the conditions that led to the suspension. The Finance Board may require the Bank to reinstitute the redemption of Class B stock.

(5)The Bank may not redeem shares if it is a noncomplying FHLBank.

The Bank may not redeem shares if the principal and interest on any COs issued through the Office of Finance has not been paid in full when due.

Pro Rata Allocation of Redemptions

If at any time, the five-year stock-redemption period for stock owned by a member or other stockholder has expired, either with respect to stock subject to a redemption notice or stock of a terminated or withdrawing member, and if the redemption by the Bank of such stock would cause the Bank to fail to be in compliance with any of its minimum regulatory capital requirements, then the Bank shall fulfill such redemptions as the Bank is able to do so from time to time, beginning with such redemptions as to which the stock-redemption period expired on the earliest date and fulfilling such redemptions related to that date on a pro rata basis from time to time until satisfied, and then fulfilling such redemptions as to which the stock-redemption period expired on the next earliest date in the same manner, and continuing in that order until all of such redemptions as to which the stock-redemption period has expired have been fulfilled.

Retention of Redemption Proceeds as Collateral

The Bank may retain the proceeds of a redemption of Class B stock as additional collateral if the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by the member or other stockholder to the Bank and the member or other stockholder has failed to deliver additional collateral to resolve the existing or anticipated collateral deficiency to the Bank’s satisfaction, until all such obligations have been satisfied or the anticipated deficiency is resolved to the Bank’s satisfaction.

Repurchases of Class B Stock

General

Under the capital plan, the Bank may, in its discretion, at any time, repurchase for cash at par value shares of Class B stock held by a member or other stockholder in excess of its total stock-investment requirement, provided that the Bank must transmit, send, or give the member or other stockholder written notice at least 15 days prior to the date of such repurchase, unless a shorter notice period is agreed to in writing by the member or other stockholder. The Bank is to conduct its repurchase activities fairly and impartially and without discrimination in favor or against any member.

Identification of Repurchased Shares

The capital plan includes a methodology for the identification of shares to be repurchased by the Bank. Specifically, if a member or other stockholder has one or more redemption notices outstanding on the date the Bank is to repurchase shares, the Bank shall first repurchase shares subject to the redemption notice that has been outstanding for the longest period of time and then, to the extent necessary, shall repurchase shares subject to the redemption notice that has been outstanding for the next longest period of time and so on, until there are no remaining outstanding redemption notices, in which case, the shares to be repurchased shall be determined by the Bank using a first-acquired, first-repurchased method of identification. To the extent that the Bank repurchases shares that are subject to a redemption notice, the repurchased shares shall be deducted from the outstanding redemption notice. If a member or other stockholder does not have any outstanding redemption notices, the shares to be repurchased shall be determined by the Bank using a first-acquired, first-repurchased method of identification.

Limitations on Repurchases

Under Finance Board regulations and the Capital Plan, the Bank’s ability to repurchase shares of Class B stock held by a member or other stockholder in excess of its total stock-investment requirement is subject to a number of contingencies. Specifically, the Bank may not repurchase excess stock if:

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(1)following any such repurchase, the Bank would not be in compliance with each of its minimum regulatory capital requirements;

(2)a determination has been made by the Finance Board or the board of directors of the Bank that the Bank has incurred, or is likely to incur, losses that result in or are likely to result in, charges against the capital of the Bank, unless the Bank has obtained approval from the Finance Board for such repurchase;

(3)the Bank has suspended redemptions and the Finance Board has not approved the Bank’s repurchase of stock during the period such suspension is in effect;

(4)the Bank is a noncomplying FHLBank; or

(5)the principal or interest on any COs issued through the Office of Finance has not been paid in full when due.

Retention of Repurchase Proceeds as Collateral

The Bank may retain the proceeds of a repurchase of Class B stock as additional collateral if the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by the member or other stockholder to the Bank and the member or other stockholder has failed to deliver additional collateral to resolve the existing or anticipated collateral deficiency to the Bank’s satisfaction, until all such obligations have been satisfied or the anticipated deficiency is resolved to the Bank’s satisfaction.

Termination of Membership

Voluntary Withdrawal

On and after April 19, 2004, a member may withdraw from membership in the Bank by providing written notice of its intent to withdraw to the Bank. A member may cancel its notice of withdrawal at any time prior to the effective date of the membership withdrawal by providing the Bank with written notice of such cancellation. The Bank will impose a redemption-cancellation fee equal to two percent of the par amount of the shares of Class B stock held by the member as of the date the Bank receives notice from the member that the member is canceling its notification of intent to withdraw from membership, unless the board of directors of the Bank decides it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the FHLBank Act.

The date of receipt by the Bank of written notice of withdrawal shall commence the five-year stock-redemption period for the Class B stock held by the member that is not already subject to a pending redemption notice. If a member acquires or receives any shares of Class B stock after that date, the five-year stock-redemption period shall commence on the date such shares are acquired or received. The membership of a voluntarily withdrawing member shall terminate upon the expiration of the last applicable five-year stock-redemption period for the Class B stock that the member is required to hold under the membership stock-investment requirement as of the date that the Bank received the member’s written notification of its intent to withdraw from membership.

Until the effective date of termination of membership, a voluntarily withdrawing member may continue to have access to the benefits of membership; however, the Bank need not commit to providing a withdrawing member any further services, including advances, that would mature or otherwise terminate subsequent to the effective date of the member’s withdrawal. If a member provides the Bank with written notice of its intention to withdraw, the membership stock-investment requirement applicable to the member will not increase during the pendency of the notice. The activity-based stock-investment requirement applicable to the member’s activity-based assets in existence on the date the notice of intent to withdraw is received by the Bank will not increase during the pendency of the notice. After the date the Bank has received the notice of intent to withdraw, if the member is required to purchase additional Class B stock to meet its total stock-investment requirement as a result of new activity-based assets that the member engages in with the Bank, the activity-based stock-investment requirement applicable to such activity-based asset on the date of the transaction shall apply but shall not be increased subsequently during the pendency of the notice.

On and after the effective date of a member’s withdrawal, the former member will no longer have the benefits of membership and will no longer have any voting rights other than if it had been a member as of the applicable record date. The former member will continue to receive dividends on its Class B stock until the stock is redeemed or repurchased.

Upon the effective date of termination of membership, the former member will not be deemed to be subject to membership stock-investment requirement. The former member will continue to be subject to the activity-based stock-investment requirement. If activity-based assets remain outstanding beyond the effective date of termination of membership, the Bank will not redeem Class B stock as to which the applicable stock-redemption period has expired to the extent that the former member’s outstanding Class B stock-investment would fall below the activity-based stock-investment requirement corresponding to such outstanding activity-based

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assets. The Bank may repurchase Class B stock held by the terminated member in excess of the total stock-investment requirement as activity-based assets are extinguished or repurchased by the terminated member.

No member may withdraw from membership unless, on the date membership is terminated, there is in effect a certification from the Finance Board that the withdrawal of a member will not cause the FHLBank System to fail to satisfy its obligation to contribute to the payments owed on REFCorp obligations. The Finance Board has issued such a certification that is currently in effect, so case-by-case certification with respect to member withdrawals is not currently necessary.

Involuntary Termination

The board of directors of the Bank has the right to terminate the membership of any member that: (1) fails to comply with any requirement of the FHLBank Act, any regulation adopted by the Finance Board, or any requirement of the Capital Plan, (2) becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law, or (3) would jeopardize the safety and soundness of the Bank if it were to remain a member. A member whose membership is involuntarily terminated will cease to be a member as of the date on which the board of directors of the Bank acts to terminate the membership.

The terminated member will no longer have the benefits of membership and will no longer have any voting rights other than if it had been a member as of the applicable record date. The former member will continue to receive dividends on its Class B stock until the stock is redeemed or repurchased.

The five-year stock-redemption period for the Class B stock held by the member that is terminated that is not already subject to a pending redemption notice shall commence on the date of termination. If the terminated member acquires or receives any shares of Class B stock after that date, the five-year stock-redemption period shall commence on the date such shares are acquired or received.

Upon the effective date of termination of membership, the terminated member will continue to be subject to the membership stock-investment requirement that applied to the terminated member on the effective date of termination, provided that effective upon the expiration of the five-year stock-redemption period that commences on the date of termination, the terminated member’s membership stock-investment requirement will be deemed to be zero. The terminated member will continue to be subject to the activity-based stock-investment requirement. The activity-based stock-investment requirement will not be increased on and after the date of the termination. If activity-based assets remain outstanding beyond the effective date of termination of membership, the Bank will not redeem Class B stock as to which the applicable stock-redemption period has expired to the extent that the former member’s outstanding Class B stock-investment would fall below the activity-based stock-investment requirement corresponding to such outstanding activity-based assets. The Bank may, in its discretion, repurchase Class B stock held by the terminated member in excess of its total stock-investment requirement.

Merger or Consolidation of Member into a Member of Another FHLBank or into an Institution That Is Not an FHLBank Member

The membership of a member may be terminated as a result of a merger or consolidation of the member into a member of another FHLBank or into a nonmember institution. In such a case, the member’s membership will terminate on the date that its charter is cancelled.

Upon the date of termination, the Class B stock held by the disappearing member will be transferred on the books of the Bank to the surviving nonmember institution. The surviving nonmember institution will not have the right to benefits of membership and will no longer have any voting rights other than if the disappearing institution had been a member as of the applicable record date. The surviving nonmember institution will receive dividends on its Class B stock until the stock is redeemed or repurchased.

The five-year stock-redemption period for the Class B stock held by the disappearing member that is not already subject to a pending redemption notice shall commence on the date of termination. If the surviving nonmember institution acquires or receives any shares of Class B stock after that date, the five-year stock-redemption period shall commence on the date such shares are acquired or received.

Upon the effective date of termination of membership, the surviving nonmember institution will continue to be subject to the membership stock-investment requirement that applied to the disappearing member on the effective date of termination, provided that the membership stock-investment requirement will be deemed to be zero as of the next recalculation by the Bank of the membership stock-investment requirement in accordance with the capital plan. The surviving nonmember institution will continue to be subject to the activity-based stock-investment requirement. The activity-based stock-investment requirement will not be increased on and after the date of the termination. If activity-based assets remain outstanding beyond the effective date of termination of membership, the Bank will not redeem Class B stock as to which the applicable stock-redemption period has expired to the extent that the surviving nonmember institution’s outstanding Class B stock-investment would fall below the activity-based stock-investment requirement corresponding to such outstanding activity-based assets. The Bank may, in its discretion, repurchase Class B stock held by the surviving nonmember institution in excess of its total stock-investment requirement. The Finance Board regulations and the capital

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plan also contain provisions that address a circumstance where the disappearing member merges or consolidates into an institution that is eligible for membership in the Bank.

Relocation of a Member’s Principal Place of Business

The membership of a member may be terminated as a result of the relocation of a member’s principal place of business to another FHLBank district. The effective date of such termination shall be the date on which the transfer of membership becomes effective under Finance Board regulations.

The relocated institution will not have the right to benefits of membership and will no longer have any voting rights other than if it was a member as of the applicable record date. The relocated institution will receive dividends on its Class B stock until the stock is redeemed or repurchased.

The five-year stock-redemption period for the Class B stock held by the relocated member that is not already subject to a pending redemption notice shall commence on the date of termination. If the relocated institution acquires or receives any shares of Class B stock after that date, the five-year stock-redemption period shall commence on the date such shares are acquired or received.

Upon the effective date of termination of membership, the relocated institution will continue to be subject to the membership stock-investment requirement that applied to it on the effective date of termination, provided that effective upon the expiration of the five-year stock-redemption period that commences on the date of termination, the terminated member’s membership stock-investment requirement will be deemed to be zero. The relocated member will continue to be subject to the activity-based stock-investment requirement. The activity-based stock-investment requirement will not be increased on and after the date of the termination. If activity-based assets remain outstanding beyond the effective date of termination of membership, the Bank will not redeem Class B stock as to which the applicable stock-redemption period has expired to the extent that the relocated member’s outstanding Class B stock-investment would fall below the activity-based stock-investment requirement corresponding to such outstanding activity-based assets. The Bank may, in its discretion, repurchase Class B stock held by the relocated member in excess of its total stock-investment requirement.

Merger or Consolidation of Member into Another Member

A member of the Bank that merges or consolidates into another member of the Bank shall have its membership terminated as of the date of the cancellation of its charter. At such time, the Class B stock held by the disappearing member will be transferred on the books of the Bank into the name of the surviving member. The termination of the disappearing member’s membership shall not commence a five-year stock-redemption period for the Class B stock previously held by the disappearing member. The five-year stock-redemption periods applicable to a redemption notice or notices received by the Bank from the disappearing member prior to the date of its termination will continue to run.

As of the termination of the disappearing member’s membership, the surviving member’s membership stock-investment requirement shall immediately be increased by the amount of the disappearing member’s membership stock-investment requirement immediately prior to the cancellation of its charter. As of that date, the surviving member’s activity-based stock-investment requirement will be calculated based on its current activity-based assets including those acquired from the disappearing member.

Disposition of Claims

In the case of a member that has voluntarily withdrawn from membership, that is involuntarily terminated, that merges into a nonmember institution, or that relocates to another FHLBank district, the Bank shall determine an orderly manner for the disposition of such institution’s or its successor’s activity-based assets outstanding from the Bank. The Bank may allow such institution or successor institution to leave its obligations to the Bank outstanding for any length of time up to and including maturity. The Bank may, in its discretion, require immediate settlement of all obligations of such institution or successor institution on the effective date of the institution’s termination, in which case such institution or successor institution shall be subject to any applicable prepayment fees.

Redemption and Repurchase of Class B Stock of an Institution Whose Membership has Terminated

The redemption of Class B stock, held by a member that has voluntarily withdrawn from membership, that is involuntarily terminated, that merges into a nonmember institution or that relocates to another FHLBank district, as to which the applicable five-year stock-redemption period has expired is subject to the following limitations on redemption:

(1)The shares to be redeemed must be shares that are held in excess of the institution’s or successor institution’s total stock-investment requirement at that time. To the extent that such shares were the subject of a redemption notice or notices outstanding as of the effective date of the former member’s termination of membership, the redemption notice or notices are not subject to automatic cancellation. Such redemption notice or notices shall remain pending until they can be satisfied.

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(2)The Bank may not redeem shares if, following such a redemption, it would not be in compliance with each of its minimum regulatory capital requirements.

(3)Approval from the Finance Board for the redemption of shares would be required if the Finance Board or the board of directors of the Bank determined that the Bank has incurred, or is likely to incur, losses that result in, or are likely to result in, charges against the capital of the Bank. Under such circumstances, there can be no assurance that the Finance Board would grant such approval or, if it did, upon what terms it might do so.

(4)The Bank may determine to suspend redemptions if it reasonably believes that such redemptions would cause the Bank to fail to meet any of its minimum regulatory capital requirements, would prevent the Bank from maintaining adequate capital against potential risks that are not adequately reflected in its minimum regulatory capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner. The Bank is required to notify the Finance Board of any such suspension of redemptions and its plan for addressing the conditions that led to the suspension. The Finance Board may require the Bank to reinstitute the redemption of Class B stock.

(5)The Bank may not redeem shares if it is a noncomplying FHLBank.

(6)The Bank may not redeem shares if the principal and interest on any COs issued through the Office of Finance has not been paid in full when due.

The redemption of Class B stock held by such an institution or successor institution is subject to the provisions regarding pro rata allocation of redemptions and retention of redemption proceeds as are described above in regard to a redemption notice submitted by a member. See “Description of the Bank’s Capital Plan— Redemptions of Class B stock — Pro Rata Allocation of Redemptions”; “Description of the Bank’s Capital Plan— Redemptions of Class B stock - Retention of Redemption Proceeds as Collateral.”

Impact of Voluntary Withdrawal or Termination of Membership

Any member that withdraws from membership or that has had its membership terminated may not be readmitted as a member of any FHLBank for a period of five years from the date membership was terminated and all of the member’s stock was redeemed or repurchased. A transfer of membership without interruption between FHLBanks shall not constitute a termination of membership for this purpose.

Amendments to the Capital Plan; Periodic Review

The Bank reserves the right to amend the Capital Plan from time to time. Such amendments might include, but would not be limited to, the sale of one or more subclasses of Class A stock and one or more subclasses of Class B stock.

Any amendment to the Capital Plan must be approved by the board of directors of the Bank and submitted to the Finance Board for its approval prior to implementation. The Bank will transmit, send, or give its members notice in writing at least 30 days prior to the effective date of any amendment to the Capital Plan.

In addition, the board of directors of the Bank has a continuing obligation to review and adjust the total stock-investment requirement, as necessary to ensure that the Bank remains in compliance with each of its minimum regulatory capital requirements, taking into account all components of the Bank’s total permanent capital and total capital, including shares of Class B stock held by members and other stockholders in excess of their total stock-investment requirements. The board of directors of the Bank also must review the capital plan at least annually to consider potential amendments to the Capital Plan.

Notices under the Capital Plan

Written notices transmitted, sent, or given by the Bank under the Capital Plan shall be addressed to the chief executive officer of the member or other stockholder, or such other person designated by the member or other stockholder, at the postal address, physical address, or fax number appearing in the Bank’s records from time to time. Written notices given to the Bank under the Capital Plan shall be addressed to the corporate secretary of the Bank at the Bank’s postal address, physical address, or by fax to 617-292-9645, and shall be deemed to have been received by the Bank in each case upon actual receipt by the Bank.

Voting Rights

Voting rights in regard to the election of directors are set forth in Section 915 of the Finance Board’s regulations. Holders of Class B stock that are members as of the record date (December 31 of the year immediately preceding an election) shall be entitled to vote for the election of directors not appointed by the Finance Board. Each member is eligible to vote for the number of open director seats in the state in which its principal place of business is located. Each member is eligible to cast one vote for each share of Class B stock that the member was required to hold as of the record date; except that the number of votes that each member may cast for each

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directorship shall not exceed the average number of shares of Class B stock that were required to be held by all members located in that state on the record date. There are no voting preferences for any share of Class B stock and members shall not be entitled to vote any shares of excess stock in the election of directors. Under the Capital Plan, members have the right to vote only with respect to the election of directors.

Dividends

The board of directors of the Bank may, but is not required to, declare and pay noncumulative dividends in cash, stock, or a combination thereof. Dividends may only be paid from current net earnings or previously retained earnings. Holders of Class B stock are entitled to receive dividends that are declared on Class B stock based upon the holder’s average daily balance of Class B stock held during the applicable period. The board of directors of the Bank cannot declare or pay a dividend if: (1) the Bank is not in compliance with each of its minimum regulatory capital requirements or (2) the Bank would not be in compliance with each of its minimum regulatory capital requirements after paying the dividend. The Bank also will not pay dividends if any principal or interest on COs issued through the Office of Finance has not been paid in full when due or if the Bank is a noncomplying FHLBank.

Retained Earnings

The retained earnings, surplus, undivided profits, and equity reserves, if any, of the Bank shall be owned by the holders of the Class B stock in an amount proportional to each stockholder’s share of the total shares of Class B stock. The stockholders shall have no right to receive any portion of those items except through the declaration of a dividend or capital distribution approved by the board of directors of the Bank or through the liquidation of the Bank.

Rights in Case of Liquidation, Merger, or Consolidation

In the event the Bank is liquidated, after payment of all creditors of the Bank, all shares of Class B stock will be redeemed at par value, or if sufficient funds are not available to accomplish full redemption at par value, on a pro rata basis among all stockholders. If there is a full redemption at par value, any remaining assets following the redemption will be distributed on a pro rata basis among all Class B stockholders. However, the Finance Board has authority to prescribe rules, regulations, or orders governing the liquidation of an FHLBank that may modify, restrict, or eliminate any of the rights set forth above.

In the event the Bank merges or is consolidated into another FHLBank, stockholders shall be entitled to the rights and benefits set forth in the applicable plan of merger and/or terms established or approved by the Finance Board. Similarly, in the event another FHLBank is merged or consolidated into the Bank, the holders of the outstanding stock of the other FHLBank will be entitled to the rights and benefits set forth in any applicable plan of merger and/or terms established or approved by the Finance Board.

Transfers of Class B Stock

With the prior written approval of the Bank a stockholder may transfer, at par value, any shares of Class B stock that it holds in excess of its total stock-investment requirement to any other member or an institution that has satisfied all conditions for becoming a member other than the purchase of the Class B stock required to satisfy its total stock-investment requirement. An institution wishing to transfer Class B stock shall identify the particular shares to be transferred by reference to the date acquired and the manner in which such shares were acquired. If the institution fails to identify the shares to be transferred, the shares subject to transfer shall be determined using a first-acquired, first-transferred method of identification. In the event that transferred shares are subject to a redemption notice or notices, the respective transferred shares shall be deducted from the outstanding redemption notice or notices.

Limitations on Issuance and Holding of Class B Stock

The Bank may issue Class B stock only in accordance with the Capital Plan and applicable Finance Board regulations. Class B stock shall be issued to and owned only by members, and institutions that have been approved for membership, with the exception of former members or successors thereto that acquire, receive, or retain the Class B stock in accordance with the provisions of the Capital Plan. Class B stock will be issued in book-entry form only. The Bank will act as its own transfer agent. Shares of Class B stock that are redeemed or repurchased by the Bank shall be retired.

94

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 7(k) of the FHLBank Act (12 USC §1427(k)) provides that the board of directors of each FHLBank shall determine the terms and conditions under which it may indemnify its directors, officers, employees, or agents. Pursuant to this statutory authority, the Bank provides for indemnification of its directors, officers, and employees, as discussed below.

In accordance with the Bank’s bylaws, the Bank shall indemnify and hold harmless any of its directors, officers, and employees (or anyone serving at the Bank’s request as a director, officer, or employee for another entity, including the Office of Finance, any committee or council of the Federal Home Loan Banks, the Financing Corporation, the Resolution Funding Corporation or the Financial Institutions Retirement Fund), if such person, by reason of the fact that he or she is or was serving in such capacity, is a party (or is threatened to be made a party) to, or is involved (including as a witness) in, any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative. Such person shall be indemnified against all expenses, liabilities, and losses (including attorneys’ fees and related disbursements, judgments, fines, penalties, and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by him or her in connection with such action, suit, or proceeding if, as determined in the sole discretion of the Bank’s board of directors, he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Bank, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not meet the applicable standard of conduct for indemnification.

The bylaws provide that expenses (including attorney’s fees, costs, and charges) incurred by a director or officer in defending an action, suit, or proceeding shall be paid or advanced by the Bank in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall be ultimately determined that he or she did not meet the applicable standard of conduct for indemnification.

The bylaws also provide that the Bank may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Bank (or is or was serving at the Bank’s request as a director, officer, employee, or agent for another entity, as described above) against any liability asserted or threatened against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Bank would have the power to indemnify him or her against such liability under the indemnification provisions of the bylaws.

The Bank maintains a policy of insurance under which all directors and officers are insured, subject to the policy limitations and applicable exclusions, against any covered losses which they are legally obligated to pay by reason of any covered claim made against them as insured persons under the policy during the policy period or any applicable discovery period.

95

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

The following financial statements and accompanying notes, including the Report of Independent Accountants, are set forth on pages F-1 to F-7 of this Form 10.

Audited Financial Statements

Report of Independent Auditors – PricewaterhouseCoopers, LLP

Statements of Condition as of December 31, 2004 and 2003

Statements of Income for the Years Ended December 31, 2004, 2003, and 2002

Statements of Capital for the Years Ended December 31, 2004, 2003, and 2002

Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002

Notes to the Financial Statements

Unaudited Financial Statements

Statements of Condition as of March 31, 2005, and December 31, 2004

Statements of Income for the Three Months Ended March 31, 2005 and 2004

Statements of Capital for the Three Months Ended March 31, 2005 and 2004

Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004

Notes to the Financial Statements

96

Supplementary Financial Data

Supplementary financial data for the quarter ended March 31, 2005, and each full quarter in the years ended December 31, 2004 and 2003, are included in the following tables. The following unaudited results of operations include, in the opinion of management, all adjustments necessary for a fair presentation of the results of operations for each quarterly period presented below.

Quarterly Results of Operations – Unaudited

(dollars in thousands)

	2005 - Quarter Ended
		March 31
Total interest income		$	395,776
Total interest expense		341,015
Net interest income before provision for credit losses		54,761
Provision for credit losses on mortgage loans		72
Net interest income after provision for credit losses		54,689
Non-interest income		(6,985		)
Non-interest expense		11,480
Income before assessments		36,224
Assessments		9,657
Net income		$	26,567

	2004 - Quarter Ended
	December 31			September 30			June 30			March 31
Total interest income	$	333,662		$	287,809		$	276,475		$	280,545
Total interest expense	273,184			240,178			221,781			228,156
Net interest income before provision for credit losses	60,478			47,631			54,694			52,389
Provision for (reduction of) credit losses on mortgage loans	198			13			(86		)	(2		)
Net interest income after provision for credit losses	60,280			47,618			54,780			52,391
Non-interest income	(23,906		)	(4,736		)	(19,199		)	(5,589		)
Non-interest expense	9,953			10,565			9,556			9,571
Income before assessments	26,421			32,317			26,025			37,231
Assessments	7,051			8,601			6,915			9,905
Net income	$	19,370		$	23,716		$	19,110		$	27,326

	2003 - Quarter Ended
	December 31			September 30			June 30			March 31
Total interest income	$	281,619		$	297,882		$	325,100		$	322,248
Total interest expense	236,185			244,473			269,703			268,855
Net interest income before provision for credit losses	45,434			53,409			55,397			53,393
Provision for (reduction of) credit losses on mortgage loans	58			(1,094		)	488			553
Net interest income after provision for credit losses	45,376			54,503			54,909			52,840
Non-interest income	(3,086		)	(10,834		)	(20,150		)	(15,141		)
Non-interest expense	9,451			8,012			8,250			8,076
Income before assessments	32,839			35,657			26,509			29,623
Assessments	8,713			9,460			7,033			7,859
Net income	$	24,126		$	26,197		$	19,476		$	21,764

97

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes or disagreements with accountants on accounting and financial disclosures as defined by Item 304 of Regulation S-K.

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

a)Financial Statements

b)Exhibits

3.1	Restated Organization Certificate of the Federal Home Loan Bank of Boston
3.2	By-laws of the Federal Home Loan Bank of Boston
4	Capital Plan of the Federal Home Loan Bank of Boston
10	Material contracts:
	10.1	The Federal Home Loan Bank of Boston Pension Benefit Equalization Plan as amended and restated as of August 1, 1997
	10.2	The Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan as amended and restated as of August 1, 2000
	10.3	The Federal Home Loan Bank of Boston 2005 Executive Incentive Plan(1)
	10.4	Lease between BP 111 Huntington Ave LLC and the Federal Home Loan Bank of Boston
	10.5	Mortgage Partnership Finance Investment and Services Agreement dated April 20, 2000 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
	10.5.1	First Amendment to Mortgage Partnership Finance Investment and Services Agreement dated September 7, 2000 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
	10.5.2	Second Mortgage Partnership Finance Investment and Services Agreement dated May 2000 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
	10.5.3	Third Mortgage Partnership Finance Investment and Services Agreement dated March 18, 2003 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
	10.5.4	Fourth Mortgage Partnership Finance Investment and Services Agreement dated September 21, 2004 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
	10.5.5	Custody Agreement for Second Charter Reinsurance Company Mortgage Partnership Finance Investment and Services Agreement dated December 31, 2001 between the Federal Home Loan Bank of Boston the Federal Home Loan Bank of Chicago
12	Computation of ratios of earnings to fixed charges

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on June 30, 2005.

Federal Home Loan Bank of Boston
By:	/s/	Michael A Jessee
		Michael A. Jessee
		President and Chief Executive Officer

(1) To be filed by amendment.

98

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

the Federal Home Loan Bank of Boston:

In our opinion, the accompanying statements of condition and the related statements of income, capital and of cash flows, present fairly, in all material respects, the financial position of the Federal Home Loan Bank of Boston (the “Bank”) at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, the Bank adopted Statement of Financial Accounting Standards No. 150, Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity, on January 1, 2004.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 17, 2005, except for Note 19, as to which the date is June 24, 2005

F-1

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CONDITION

(dollars and shares in thousands, except par value)

	December 31,
	2004			2003
ASSETS
Cash and due from banks	$	11,891		$	9,218
Interest-bearing deposits in banks	2,655,050			100,050
Securities purchased under agreements to resell	1,500,000			500,000
Federal funds sold	5,586,800			2,426,000
Investments:
Trading securities - includes $16,972 and $39,701 pledged as collateral in 2004 and 2003 that may be repledged	295,407			398,975
Available-for-sale securities - includes $122,880 and $239,552 pledged as collateral in 2004 and 2003 that may be repledged	1,005,495			1,097,612
Held-to-maturity securities - includes $33,404 and $131,186 pledged as collateral in 2004 and 2003 that may be repledged (1)	6,253,356			6,543,542
Advances	30,208,753			26,074,230
Mortgage loans held for portfolio, net of allowance for credit losses of $1,379 and $1,317 in 2004 and 2003	4,011,981			4,536,698
Accrued interest receivable	140,661			138,128
Premises and equipment, net	6,166			5,946
Derivative assets	60,113			40,572
Other assets	19,422			25,244
Total Assets	$	51,755,095		$	41,896,215
LIABILITIES
Deposits:
Interest-bearing:
Demand and overnight	$	856,335		$	912,762
Term	27,781			28,793
Other	3,116			3,537
Non-interest-bearing:
Other	3,637			1,074
Total deposits	890,869			946,166
Consolidated obligations, net:
Bonds	27,679,714			32,057,521
Discount notes	20,090,681			5,346,504
Total consolidated obligations, net	47,770,395			37,404,025
Mandatorily redeemable capital stock	57,882			—
Accrued interest payable	223,276			268,105
Affordable Housing Program (AHP)	33,199			32,180
Payable to Resolution Funding Corporation (REFCorp)	5,137			6,032
Dividends payable	16,801			16,753
Derivative liabilities	397,638			737,142
Other liabilities	180,934			13,767
Total liabilities	49,576,131			39,424,170
Commitments and contingencies (Note 18)
CAPITAL
Capital stock – Class B – putable ($100 par value) 20,858 shares issued and outstanding at December 31, 2004	2,085,814			—
Capital stock – putable ($100 par value) 24,280 shares issued and outstanding at December 31, 2003	—			2,427,960
Retained earnings	95,866			61,769
Accumulated other comprehensive income:
Net unrealized loss on available-for-sale securities	(7,572		)	(24,269		)
Net unrealized gain relating to hedging activities	5,085			6,585
Minimum pension liability	(229		)	—
Total capital	2,178,964			2,472,045
Total Liabilities and Capital	$	51,755,095		$	41,896,215

(1) Fair values of held-to-maturity securities were $6,352,068 and $6,716,908 at December 31, 2004 and 2003, respectively.

The accompanying notes are an integral part of these financial statements.

F-2

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF INCOME

(dollars in thousands)

	For the Years Ended December 31,
	2004			2003			2002
INTEREST INCOME
Advances	$	596,338		$	627,231		$	805,985
Prepayment fees on advances	54,296			50,532			29,157
Interest-bearing deposits in banks	10,654			3,734			13,245
Securities purchased under agreements to resell	8,569			8,527			28,818
Federal funds sold	34,530			38,196			73,015
Investments:
Trading securities	17,667			26,208			40,108
Available-for-sale securities	16,207			14,375			18,329
Held-to-maturity securities	232,515			259,458			297,940
Prepayment fees on investments	9,925			5,669			4,232
Mortgage loans held for portfolio	197,773			192,821			72,037
Other	17			98			90
Total interest income	1,178,491			1,226,849			1,382,956
INTEREST EXPENSE
Consolidated obligations	952,567			1,005,362			1,181,539
Deposits	9,338			13,668			29,849
Mandatorily redeemable capital stock	1,306			—			—
Other borrowings	88			186			327
Total interest expense	963,299			1,019,216			1,211,715
NET INTEREST INCOME	215,192			207,633			171,241
Provision for credit losses on mortgage loans	123			5			1,157
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ON MORTGAGE LOANS	215,069			207,628			170,084
OTHER INCOME (LOSS)
Loss on early extinguishment of debt	(40,218		)	(40,611		)	(19,017		)
Service fees	2,233			2,592			1,793
Net realized and unrealized (loss) gain on trading securities	(8,394		)	(10,436		)	6,977
Net realized gain from sale of available-for-sale securities	247			122			—
Net realized gain from sale of held-to-maturity securities	13			—			—
Net loss on derivatives and hedging activities	(7,054		)	(903		)	(25,771		)
Other	(257		)	25			4
Total other loss	(53,430		)	(49,211		)	(36,014		)
OTHER EXPENSE
Operating	36,807			31,112			28,365
Finance Board and Office of Finance	2,708			2,661			2,444
Other	130			16			88
Total other expense	39,645			33,789			30,897
INCOME BEFORE ASSESSMENTS	121,994			124,628			103,173
AHP	10,092			10,174			8,423
REFCorp	22,380			22,891			18,950
Total assessments	32,472			33,065			27,373
NET INCOME	$	89,522		$	91,563		$	75,800

The accompanying notes are an integral part of these financial statements.

F-3

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CAPITAL

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

(dollars and shares in thousands)

	Capital Stock - Putable					Capital Stock Class B - Putable					Retained			Accumulated Other Comprehensive			Total
	Shares		Par Value			Shares		Par Value			Earnings			Income			Capital
BALANCE, DECEMBER 31, 2001	19,849		$	1,984,948		—		—			$	47,092		$	875		$	2,032,915
Proceeds from sale of capital stock	2,993		299,266			—		—									299,266
Repurchase/redemption of capital stock	(58	)	(5,768		)	—		—									(5,768		)
Comprehensive income:
Net income											75,800						75,800
Other comprehensive income:
Net unrealized loss on available-for-sale securities														(20,741		)	(20,741		)
Net unrealized loss relating to hedging activities														(8,169		)	(8,169		)
Less: reclassification adjustment for previously deferred hedging gains and losses included in income														(517		)	(517		)
Total comprehensive income																	46,373
Cash dividends on capital stock (3.68%)											(78,203		)				(78,203		)
BALANCE, DECEMBER 31, 2002	22,784		2,278,446			—		—			44,689			(28,552		)	2,294,583
Proceeds from sale of capital stock	5,042		504,137			—		—									504,137
Repurchase/redemption of capital stock	(3,546	)	(354,623		)	—		—									(354,623		)
Comprehensive income:
Net income											91,563						91,563
Other comprehensive income:
Net unrealized gains on available-for-sale securities														8,167			8,167
Less: reclassification adjustment for realized net gains included in net income relating to available-for-sale securities														(122		)	(122		)
Net unrealized loss relating to hedging activities														(966		)	(966		)
Less: reclassification adjustment for previously deferred hedging gains and losses included in income														3,789			3,789
Total comprehensive income																	102,431
Cash dividends on capital stock (3.05%)											(74,483		)				(74,483		)
BALANCE, DECEMBER 31, 2003	24,280		2,427,960			—		—			61,769			(17,684		)	2,472,045
Proceeds from sale of capital stock	529		52,917			4,789		$	478,852								531,769
Repurchase/redemption of capital stock	(143	)	(14,271		)	(6,925	)	(692,479		)							(706,750		)
Reclassification of shares to mandatorily redeemable capital stock	(1,093	)	(109,283		)	(579	)	(57,882		)							(167,165		)
Conversion to Class B shares	(23,573	)	(2,357,323		)	23,573		2,357,323									—
Comprehensive income:
Net income											89,522						89,522
Other comprehensive income:
Net unrealized gains on available-for-sale securities														16,944			16,944
Less: reclassification adjustment for realized net gains included in net income relating to available-for-sale securities														(247		)	(247		)
Net unrealized gains relating to hedging activities														368			368
Less: reclassification adjustment for previously deferred hedging gains and losses included in income														(1,868		)	(1,868		)
Minimum pension liability adjustment														(229		)	(229		)
Total comprehensive income																	104,490
Cash dividends on capital stock (2.75%)											(55,425		)				(55,425		)
BALANCE, DECEMBER 31, 2004	—		$	—		20,858		$	2,085,814		$	95,866		$	(2,716	)	$	2,178,964

The accompanying notes are an integral part of these financial statements.

F-4

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CASH FLOWS

(dollars in thousands)

	For the Years Ended December 31,
	2004			2003			2002
OPERATING ACTIVITIES
Net income	$	89,522		$	91,563		$	75,800
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations, investments, and derivatives	68,051			(11,127		)	(44,868		)
Net premiums and discounts on mortgage loans	21,201			19,898			3,285
Concessions on consolidated obligations	10,508			9,495			6,779
Premises and equipment	1,526			1,582			1,513
Other	13,792			711			—
Provision for credit losses on mortgage loans	123			5			1,157
Realized loss from sale of mortgage loans	—			—			85
Net decrease in trading securities	103,568			172,234			198,221
Realized net gain from sale of available-for-sale securities	(247		)	(122		)	—
Realized net gain from sale of held-to-maturity securities	(13		)	—			—
Net (gain) loss due to change in net fair value adjustments on derivatives and hedging activities	(28,426		)	(21,850		)	13,316
Loss on early extinguishment of debt	40,218			40,611			19,017
Net realized loss on disposal of premises and equipment	251			—			—
(Increase) decrease in accrued interest receivable	(2,533		)	22,416			4,587
(Increase) decrease in derivative asset – accrued interest	(78,272		)	2,178			267
Increase (decrease) in derivative liability – accrued interest	17,315			(23,664		)	6,416
Decrease (increase) in other assets	2,676			(5,280		)	(77		)
Net increase (decrease) in AHP liability and discount on AHP and other housing program advances	1,825			1,519			(4,980		)
Decrease in accrued interest payable	(44,829		)	(37,097		)	(19,924		)
(Decrease) increase in payable to REFCorp	(895		)	(109		)	1,695
Increase (decrease) in other liabilities	1,938			(3,884		)	2,081
Total adjustments	127,777			167,516			188,570
Net cash provided by operating activities	217,299			259,079			264,370
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks	(2,555,000		)	565,000			(590,000		)
Net (increase) decrease in securities purchased under agreements to resell	(1,000,000		)	(461,000		)	1,511,000
Net (increase) decrease in federal funds sold	(3,160,800		)	342,000			1,012,000
Purchases of available-for-sale securities	(24,950		)	(175,000		)	(124,331		)
Proceeds from sales of available-for-sale securities	142,471			31,275			—
Proceeds from maturities of available-for-sale securities	2			175,037			120,163
Purchases of held-to-maturity securities	(1,459,159		)	(2,694,849		)	(2,131,579		)
Proceeds from sales of held-to-maturity securities	2,659			—			—
Proceeds from maturities of held-to-maturity securities	1,907,774			2,689,356			1,606,552
Principal collected on advances	509,135,492			542,649,715			177,812,347
Advances made	(513,706,362		)	(542,045,268		)	(179,854,893		)

The accompanying notes are an integral part of these financial statements.

F-5

	For the Years Ended December 31,
	2004			2003			2002
Principal collected on mortgage loans	976,128			1,267,321			210,133
Purchases of mortgage loans	(473,402		)	(3,336,204		)	(2,372,932		)
Principal collected on other loans	—			—			495
Net increase in premises and equipment	(1,997		)	(1,638		)	(858		)
Net cash used in investing activities	(10,217,144		)	(994,255		)	(2,801,903		)
FINANCING ACTIVITIES
Net decrease in deposits	(54,997		)	(843,200		)	(755,772		)
Net (decrease) increase in borrowings from other FHLBanks	—			(190,000		)	190,000
Net proceeds from sale of consolidated obligations:
Discount notes	384,763,463			325,921,115			238,921,230
Bonds	10,259,736			24,331,436			16,703,542
Payments for maturing and retiring consolidated obligations:
Discount notes	(370,037,172		)	(327,577,997		)	(239,950,343		)
Bonds	(14,588,871		)	(20,983,273		)	(12,779,973		)
Proceeds from issuance of capital stock	531,769			504,137			299,266
Payments for redemption of mandatorily redeemable capital stock	(109,283		)	—			—
Payments for repurchase/redemption of capital stock	(706,750		)	(354,623		)	(5,768		)
Cash dividends paid	(55,377		)	(77,453		)	(80,783		)
Net cash provided by financing activities	10,002,518			730,142			2,541,399
Net increase (decrease) in cash and cash equivalents	2,673			(5,034		)	3,866
Cash and cash equivalents at beginning of the year	9,218			14,252			10,386
Cash and cash equivalents at yearend	$	11,891		$	9,218		$	14,252
Supplemental Disclosure:
Interest paid	$	1,269,690		$	1,078,138		$	1,279,412
AHP payments	$	7,818		$	8,887		$	12,923
REFCorp payments	$	23,275		$	23,000		$	17,255

The accompanying notes are an integral part of these financial statements.

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FEDERAL HOME LOAN BANK OF BOSTON

NOTES TO FINANCIAL STATEMENTS

Background Information

The Federal Home Loan Bank of Boston (the Bank), a federally chartered corporation, is one of 12 district Federal Home Loan Banks (FHLBanks). The FHLBanks serve the public by enhancing the availability of credit for residential mortgages and targeted community development. Each FHLBank operates in a specifically defined geographic territory, or district. The Bank provides a readily available, low-cost source of funds to its member institutions located within the six New England states. The Bank is a cooperative; current and former members own all of the outstanding capital stock of the Bank and may receive dividends on their investment. The Bank does not have any wholly or partially owned subsidiaries, and the Bank does not have an equity position in any partnerships, corporations, or off-balance-sheet special-purpose entities. Regulated financial depositories and insurance companies engaged in residential housing finance may apply for membership.

All members must purchase stock in the Bank as a condition of membership, as well as a condition of engaging in certain business activities with the Bank. Capital stock of former members will remain outstanding as long as business activities with those former members exists. See Note 13 for a complete description of the capital-stock-purchase requirements. As a result of these requirements, the Bank conducts business with related parties on a regular basis. The Bank considers related parties to be those members with capital stock outstanding in excess of 10 percent of its total capital stock outstanding. See Note 19 for additional information related to transactions with related parties.

The Federal Housing Finance Board (Finance Board), an independent agency in the executive branch of the United States (U.S.) government, supervises and regulates the FHLBanks and the Office of Finance, the FHLBanks’ fiscal agent. The Finance Board’s principal purpose is to ensure that the FHLBanks operate in a safe and sound manner. In addition, the Finance Board is responsible for ensuring that the FHLBanks carry out their housing-finance mission, remain adequately capitalized, and can raise funds in the capital markets. Also, the Finance Board establishes policies and regulations covering the operations of the FHLBanks. Each FHLBank operates as a separate entity with its own management, employees, and board of directors.

The FHLBanks’ debt instruments (consolidated obligations) are the joint and several obligations of all the FHLBanks and are the primary source of funds for the FHLBanks. Deposits, other borrowings, and the issuance of capital stock – which is owned by the FHLBanks’ members – provide other funds. Each FHLBank primarily uses these funds to provide advances to members and to purchase mortgage loans from members.

Note 1 – Summary of Significant Accounting Policies

Use of Estimates. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements requires management to make assumptions and estimates. These assumptions and estimates affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Actual results could differ from these estimates.

Investments. The Bank carries, at cost, investments for which it has both the ability and intent to hold to maturity, adjusted for the amortization of premiums and accretion of discounts using the level-yield method.

Under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities(SFAS 115), changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. Thus, the sale or transfer of a held-to-maturity security due to certain changes in circumstances such as evidence of significant deterioration in the issuer’s creditworthiness or changes in regulatory requirements is not considered to be inconsistent with its original classification. Other events that are isolated, nonrecurring, and unusual for the Bank that could not have been reasonably anticipated may cause the Bank to sell or transfer a held-to-maturity security without necessarily calling into question its intent to hold other debt securities to maturity.

In addition, in accordance with SFAS 115, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities:  1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) that interest-rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not have a significant effect on the security’s fair value, or 2) the sale of a security occurs after the Bank has already collected a substantial portion (at least 85 percent) of the principal outstanding at acquisition due either to prepayments on the debt security or to scheduled payments on a debt security payable in equal installments (both principal and interest) over its term.

The Bank classifies certain investments that it may sell before maturity as “available-for-sale” and carries them at fair value. The change in fair value of the available-for-sale securities not being hedged by derivative instruments is recorded in other

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comprehensive income as a net unrealized gain or loss on available-for-sale securities. For available-for-sale securities that have been hedged and qualify as a fair-value hedge, the Bank records the portion of the change in value related to the risk being hedged in other income as “net loss on derivatives and hedging activities” together with the related change in the fair value of the derivative, and records the remainder of the change in accumulated other comprehensive income as “net unrealized loss on available-for-sale securities.”  For available-for-sale securities that have been hedged and qualify as a cash flow hedge, the Bank records the effective portion of the change in value of the derivative related to the risk being hedged in accumulated other comprehensive income as “net unrealized gain relating to hedging activities.”  The ineffective portion is recorded in other income and presented as “net loss on derivatives and hedging activities.” Additional information is provided in Note 16.

The Bank classifies certain investments acquired for purposes of meeting short-term contingency liquidity needs and asset/liability management as “trading securities” and carries them at fair value. The Bank records changes in the fair value of these investments through other income. However, the Bank does not participate in speculative trading practices and holds these investments indefinitely as management periodically evaluates its liquidity needs.

The Bank computes the amortization and accretion of premiums and discounts on mortgage-backed securities (MBS) using the level-yield method over the estimated lives of the securities. This method requires a retrospective adjustment of the effective yield each time the Bank changes the estimated life, based on actual prepayments received and changes in expected prepayments, as if the new estimate had been known since the original acquisition date of the securities. The Bank computes the amortization and accretion of premiums and discounts on other investments using the level-yield method to the contractual maturity of the securities.

The Bank computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in other income

Investment securities issued by government-sponsored enterprises and U.S. government corporations are not guaranteed by the U.S. government.

The Bank regularly evaluates outstanding investments for impairment and determines whether unrealized losses are temporary based on a number of factors including: issuer-specific and collateral-specific issues; general business and market conditions; rating-agency actions; and the Bank’s willingness and ability to hold the securities for a sufficient period of time to allow for a possible recovery in the fair value of the investment. An impairment is deemed other-than-temporary when, based on an analysis of the probability of collection of the contractual cash flows, the Bank determines that it will not receive all amounts due, or when the Bank determines that it is not willing and able to hold the investment for a sufficient period of time to allow for a possible recovery in the fair value of the investment. If there is an other-than-temporary impairment in value of an investment, the decline in value is recognized as a loss and presented in the statement of income as other expense. The Bank has not experienced any other-than-temporary impairment in value of investments during 2004, 2003, or 2002.

Advances. The Bank presents advances, net of premiums and discounts, as discussed in Note 8. The Bank amortizes the premiums and discounts on advances to interest income using the level yield method. The Bank credits interest on advances to income as earned. Following the requirements of the Federal Home Loan Bank Act of 1932 (the Act), as amended, the Bank obtains sufficient collateral on advances to protect it from losses. The Act limits eligible collateral to certain investment securities, residential mortgage loans, cash or deposits with the Bank, and other eligible real-estate-related assets. As Note 8 more fully describes, Community Financial Institutions (CFIs), FDIC-insured institutions with average assets over the preceding three-year period of $548 million or less during 2004, are eligible to utilize expanded statutory collateral rules that include small-business and agricultural loans. The Bank has not incurred any credit losses on advances since its inception. Based upon the collateral held as security for the advances and the repayment history of the Bank’s advances, management believes that an allowance for credit losses on advances is unnecessary.

Mortgage Loans Held for Portfolio. The Bank participates in the Mortgage Partnership Finance® (MPF®) program under which the Bank invests in government-insured and conventional residential fixed-rate mortgage loans that are purchased from a participating member (see Note 10). The Bank manages the liquidity, interest-rate, and options risk of the loans, while the member retains the marketing and servicing activities. The Bank and the member share in the credit risk of the loans, with the Bank assuming the first-loss obligation limited by the first-loss account (FLA), and the member or a third-party insurer assuming credit losses in excess of the FLA, the “Second-Loss Credit Enhancement,” up to the amount of the credit-enhancement obligation as specified in the master agreement. All losses in excess of the Second-Loss Credit Enhancement are assumed by the Bank.

The credit enhancement is an obligation on the part of the participating member which ensures the retention of credit risk on loans it originates. Under certain programs, the member may rely on a supplemental mortgage-insurance policy from a third-party insurer but remains ultimately responsible for meeting its credit-enhancement obligation. The amount of the credit enhancement is determined so that any losses in excess of the enhancement are limited to those permitted for “AA” credit risks. Depending on the program utilized, the participating member receives from the Bank a credit-enhancement fee for

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managing this portion of the inherent risk in the loans, or a premium is paid by the loan master servicer to a supplemental mortgage insurer. This fee is paid monthly based upon the remaining unpaid principal balance. The required credit-enhancement obligation amount may vary depending on the various product alternatives selected.

The Bank classifies mortgage loans as held for investment and, accordingly, reports them at their principal amount outstanding, net of premiums and discounts.

The Bank defers and amortizes mortgage-loan-origination fees (premiums and discounts) paid to and received from the Bank’s participating members as interest income using the level-yield method over the estimated lives of the related mortgage loans. Actual prepayment experience and estimates of future principal prepayments are used in calculating the estimated lives of the mortgage loans. The Bank aggregates the mortgage loans by similar characteristics (for example, by type, maturity, note rate, and acquisition date) in determining prepayment estimates. This approach requires a retrospective adjustment each time the Bank changes the estimated amounts as if the new estimate had been known since the original acquisition date of the assets.

The Bank records credit-enhancement fees as an offset to mortgage loan interest income. The Bank records other non-origination fees, such as delivery-commitment-extension fees and pair-off fees, in other income. Delivery-commitment-extension fees are charged when a member requests to extend the period of the delivery commitment beyond the original stated maturity. Pair-off fees are assessed when the principal amount of the funded loans is less than or greater than a specified percentage of the contractual delivery commitment amount.

The Bank places conventional mortgage loans on nonaccrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on nonaccrual status, accrued but uncollected interest is reversed against interest income. The Bank records cash payments received on nonaccrual loans first as interest income and then as a reduction of principal.

The Bank bases the allowance for credit losses on management’s analysis of probable credit losses inherent in the Bank’s conventional mortgage-loan portfolio as of the date of the statement of condition. Actual losses greater than defined levels are offset by the member’s credit enhancement. The Bank performs periodic reviews of its portfolio to identify probable losses inherent within the portfolio and to determine the likelihood of collection of the portfolio. The overall allowance is determined by an analysis that includes consideration of various data observations such as past performance, current performance, loan-portfolio characteristics, collateral valuations, industry data, and prevailing economic conditions. As a result of this analysis, the Bank has recorded an allowance for credit losses in the amounts of $1.4 million and $1.3 million as of December 31, 2004 and 2003, respectively.

Mortgage-Loan Participations. The Bank also sells participations in mortgage loans acquired under the MPF program to the FHLBank of Chicago. Under a master commitment, the Bank may enter into a participation arrangement with the FHLBank of Chicago that specifies an agreed upon ownership percentage for the mortgage loans to be acquired from participating members under the master commitment and related delivery commitments. Both the Bank and the FHLBank of Chicago share in the pro rata purchase amounts for each respective loan acquired from the participating member; receives the relevant pro rata share of principal and interest payments; maintains responsibility for their pro rata share of credit-enhancement fees and credit losses; and each may hedge its share of the delivery commitments. These participations to the FHLBank of Chicago are transacted contemporaneously with and at the same price as the loan purchases by the Bank, resulting in no gain or loss on the transaction. Based on the terms of the participation agreement between the Bank and the FHLBank of Chicago, these participations are accounted for as sales under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, (SFAS 140).

Affordable Housing Program. The Act requires each FHLBank to establish and fund an AHP (see Note 9). The Bank charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide grants to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The Bank also issues AHP advances at interest rates below the customary rate for nonsubsidized advances. When the Bank makes an AHP advance, the present value of the variation in the cash flow caused by the difference in the interest rate between the AHP advance rate and the Bank’s related cost of funds for comparable maturity funding is charged against the AHP liability and recorded as a discount on the AHP advance. The discount on AHP advances is accreted to interest income on advances using the level-yield method over the life of the advance.

Prepayment Fees. The Bank charges a member a prepayment fee when the member prepays certain advances before the original maturity. The Bank records prepayment fees net of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities hedging fair-value adjustments included in the book basis of the advance as “prepayment fees on advances” in the interest income section of the statement of income.

In cases in which the Bank funds a new advance concurrent with the prepayment of an existing advance by the same member, the Bank applies the guidance provided in Emerging Issues Task Force Issue No. 01-07, Creditor’s Accounting for a

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Modification or Exchange of Debt Instruments (EITF 01-07), and evaluates whether the new advance meets the accounting criteria to qualify as a modification of the existing advance. If the new advance qualifies as a modification of the existing advance, the net prepayment fee on the prepaid advance is deferred, recorded in the basis of the modified advance, and amortized to interest income over the life of the modified advance. If the modified advance is hedged, it is marked to fair value after the amortization of the basis adjustment. This amortization results in offsetting amounts being recorded in net interest income and “net loss on derivatives and hedging activities” in other income. If the Bank determines that the advance should be treated as a new advance, it records the net fees as “prepayment fees on advances” in the interest income section of the statement of income.

Commitment Fees. The Bank records commitment fees for standby letters of credit as a deferred credit when received, and amortizes these fees on a straight-line basis to service-fee income in other income over the term of the standby letter of credit. The Bank believes the likelihood of standby letters of credit being drawn upon is remote based upon past experience.

Derivatives. Accounting for derivatives is addressed in the Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivatives Instruments and Hedging Activities – Deferral of Effective Date of FASB Statement No. 133, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 133). All derivatives are recognized on the statement of condition at their fair values. Each derivative is designated as one of the following:

(1)a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a “fair-value” hedge);

(2)a hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash-flow” hedge);

(3)a nonqualifying hedge of an asset or liability (economic hedge) for asset-liability-management purposes; or

(4)a nonqualifying hedge of another derivative (an intermediation hedge) that is offered as a product to members or used to offset other derivatives with nonmember counterparties.

Changes in the fair value of a derivative that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in other income as “net loss on derivatives and hedging activities.”

Changes in the fair value of a derivative that is designated and qualifies as a cash-flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, a component of capital, until earnings are affected by the variability of the cash flows of the hedged transaction (for example, until the periodic recognition of interest on a variable-rate asset or liability is recorded in other income as “net loss on derivatives and hedging activities”).

For both fair-value and cash-flow hedges, any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative differ from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction) is recorded in other income as “net loss on derivatives and hedging activities.”

Changes in the fair value of a derivative not qualifying as a hedge are recorded in current period earnings with no fair value adjustment to an asset or liability. Both the net interest on the derivative and the fair-value adjustments are recorded in other income as “net loss on derivatives and hedging activities.”

The Bank may issue debt and may make advances in which a derivative instrument is “embedded.” Upon execution of these transactions, the Bank assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When the Bank determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and designated as a stand-alone derivative instrument pursuant to an economic hedge. The Bank has determined that all embedded derivatives in currently outstanding transactions as of December 31, 2004, are clearly and closely related to the host contracts, and therefore no embedded derivatives have been bifurcated. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, with changes in fair value reported in current earnings (for example, an investment security classified as “trading” under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities), or if the Bank cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract is carried on the statement of condition at fair value and no portion of the contract is designated as a hedging instrument.

When hedge accounting is discontinued because the Bank determines that the derivative no longer qualifies as an effective fair-value hedge of an existing hedged item, the Bank continues to carry the derivative on the statement of condition at its fair

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value, ceases to adjust the hedged asset or liability for changes in fair value, and begins amortizing the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item using the level-yield method.

When hedge accounting is discontinued because the Bank determines that the derivative no longer qualifies as an effective cash-flow hedge of an existing hedged item, the Bank continues to carry the derivative on the statement of condition at its fair value and amortizes the cumulative other comprehensive adjustment to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction.

Under limited circumstances, when the Bank discontinues cash-flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable that the transaction will still occur in the future, the gain or loss on the derivative remains in accumulated other comprehensive income and is recognized in earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were accumulated in other comprehensive income are recognized immediately in earnings.

When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the Bank continues to carry the derivative on the statement of condition at its fair value, removing from the statement of condition any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.

During the second quarter of 2004, the Bank changed its manner of assessing effectiveness for certain highly effective hedging relationship transactions used since the adoption of SFAS 133 on January 1, 2001. See Note 2 for more information.

Premises and Equipment. The Bank records premises and equipment at cost less accumulated depreciation and amortization. The Bank’s accumulated depreciation and amortization was approximately $8.0 million and $7.8 million at December 31, 2004 and 2003, respectively. The Bank computes depreciation on a straight-line basis over the estimated useful lives of relevant assets ranging from three to 10 years. It amortizes leasehold improvements on a straight-line basis over the shorter of the estimated useful life of the improvement or the remaining term of the lease. The Bank capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred. Depreciation and amortization expense was $1.5 million, $1.6 million, and $1.5 million for the years ended December 31, 2004, 2003, and 2002, respectively. The Bank includes gains and losses on disposal of premises and equipment in other income. The net realized loss on disposal of premises and equipment was $251,000 in 2004. There was no realized gain or loss on disposal of premises and equipment in 2003 and 2002.

Concessions on Consolidated Obligations. The Office of Finance prorates the amounts paid to dealers in connection with the sale of consolidated obligations (COs) to the Bank based upon the percentage of debt issued that is assumed by the Bank. The Bank defers and amortizes these dealer concessions using the level-yield method over the estimated life of the COs. Unamortized concessions were $4.5 million and $8.4 million at December 31, 2004 and 2003, respectively, and are included in other assets on the statement of condition. Amortization of such concessions are included in CO interest expense and totaled $9.5 million, $8.7 million, and $6.0 million in 2004, 2003, and 2002, respectively.

Discounts and Premiums on Consolidated Obligations. The Bank amortizes discounts on CO discount notes to expense using the level-yield method throughout the term of the related notes. It amortizes discounts and premiums on CO bonds to expense using the level-yield method over the estimated lives of the CO bonds.

Resolution Funding Corporation Assessments. The Resolution Funding Corporation (REFCorp) was established in 1989 under 12 U.S.C. Section 1441b as a means of funding the Resolution Trust Corporation (RTC), a federal instrumentality established by federal statute to provide funding for the resolution and disposition of insolvent savings institutions. Although the Bank is exempt from ordinary federal, state, and local taxation except for local real-estate tax, it is required to make payments to REFCorp. Each FHLBank is required to pay to REFCorp 20 percent of its net earnings, which is based upon GAAP net income, before REFCorp assessments and after deducting the AHP assessment amount. REFCorp has been designated as the calculation agent for the AHP and REFCorp assessments. The AHP and REFCorp assessments are calculated simultaneously due to their interdependence. The Bank accrues its REFCorp assessment on a monthly basis. Each quarter the 12 FHLBanks report their net income before AHP and REFCorp assessments to the REFCorp, which then performs the quarterly assessment payment calculations.

If a FHLBank experiences a net loss during a quarter, but still had net income for the year, the FHLBank’s obligation to REFCorp would be calculated based upon the FHLBank’s year-to-date net income. The FHLBank would be entitled to a refund of amounts paid for the full year that were in excess of its calculated annual obligation. If the FHLBank had net income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experiences a net loss for a full year, the FHLBank would have no obligation to REFCorp for the year.

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The FHLBanks will continue to expense these amounts until the aggregate amounts actually paid by all 12 FHLBanks are equivalent to a $300 million annual annuity (or a scheduled payment of $75 million per quarter) whose final maturity date is April 15, 2030, at which point the required payment of each FHLBank to REFCorp will be fully satisfied. The Finance Board, in consultation with the Secretary of the Treasury, selects the appropriate discounting factors to be used in this annuity calculation. The FHLBanks use the actual payments made to determine the amount of the future obligation that has been defeased. The cumulative amount to be paid to REFCorp by the Bank is not determinable at this time because it depends on the future earnings of all FHLBanks and interest rates.

The Finance Board will extend the term of the FHLBanks’ obligation to REFCorp for each calendar quarter in which there is a deficit quarterly payment. A deficit quarterly payment is the amount by which the actual quarterly payment falls short of $75 million.

The FHLBanks’ aggregate payments through 2004 have exceeded the scheduled payments due to REFCorp, effectively accelerating payment of the REFCorp obligation and shortening its remaining term to the second quarter of 2019. The FHLBanks’ aggregate payments through 2004 have satisfied $45.2 million of the $75 million scheduled payment for the second quarter of 2019 and all scheduled payments thereafter, through the final maturity date of April 15, 2030. This date assumes that all $300 million annual payments required after December 31, 2004, will be made.

The benchmark payments or portions of them could be reinstated if the actual REFCorp payments of the FHLBanks fall short of $75 million in a quarter. The maturity date of the REFCorp obligation may be extended beyond April 15, 2030, if such extension is necessary to ensure that the value of the aggregate amounts paid by the FHLBanks exactly equals a $300 million annual annuity. Any payment beyond April 15, 2030, will be paid to the U. S. Department of the Treasury.

Finance Board and Office of Finance Expenses.The Bank is assessed for its proportionate share of the costs of operating the Finance Board, the Bank’s primary regulator, and the Office of Finance, which manages the sale of COs. The Finance Board allocates its operating and capital expenditures to the FHLBanks based on each FHLBank’s percentage of total combined capital. The Office of Finance allocates its operating and capital expenditures based on each FHLBank’s percentage of capital stock, percentage of COs issued, and percentage of COs outstanding.

Estimated Fair Values. Some of the Bank’s financial instruments lack an available trading market characterized by transactions between a willing buyer and a willing seller engaging in an exchange transaction. Therefore, the Bank uses internal models employing significant estimates and present-value calculations when disclosing estimated fair values. Note 17 details the estimated fair values of the Bank’s financial instruments.

Cash Flows. In the statement of cash flows, the Bank considers cash and due from banks as cash and cash equivalents. Federal funds sold are not treated as cash equivalents for purposes of the statement of cash flows, but are instead treated as short-term investments and are reflected in the investing activities section of the statement of cash flows.

Reclassification. Certain amounts in the 2003 and 2002 financial statements have been reclassified to conform to the 2004 presentation. In particular, for the years ended December 31, 2003 and 2002, the Bank reclassified prepayment fee income on the statement of income. Previously, advances prepayment fee income was classified as a separate line item within other income, and prepayment fee income generated from certain asset-backed investment securities was recorded within other income on the statement of income. These amounts have been reclassified and are now included as separate line items in interest income for the years ended December 31, 2003 and 2002. As a result of this reclassification, net interest income after provision for credit losses on mortgage loans was adjusted by $56.2 million and $33.4 million for the years ended December 31, 2003 and 2002, respectively. There was no impact to net income as a result of these reclassifications.

Note 2 – Accounting Adjustments and Change in Accounting Principle and Recently Issued Accounting Standards

Accounting Adjustments. During the second quarter of 2004, the Bank changed the manner in which it assesses effectiveness for certain highly-effective CO hedging relationships. Under the Bank’s prior approach, the Bank inappropriately assumed no ineffectiveness for these hedging transactions, since the CO and the designated interest-rate-swap agreement had identical terms with the exception that the interest-rate swaps used in these relationships were structured with one settlement amount under the receive-side of the swap that differed from all other receive-side settlements by an amount equivalent to the concession cost associated with the CO. During 2004, the Bank changed its method of accounting for these relationships to begin measuring effectiveness for such transactions during each reporting period. The Bank assessed the impact of this change on all prior annual periods since the adoption of SFAS 133 on January 1, 2001, and all prior quarterly periods for 2004 and 2003, and determined that had the Bank applied this approach since January 1, 2001, it would not have had a material impact on the results of operations or financial condition of the Bank for any of these prior reporting periods. The Bank recorded a decrease of $253,000 to income before assessments included in other income in “net loss on derivatives and hedging activities” in the second quarter of 2004. These amounts include an increase of $1.1 million to net income before assessments related to periods prior to January 1, 2004, and reflect the accounting as if the Bank had employed the new approach from the date of adoption of SFAS 133 until its implementation of the new approach for measuring effectiveness.

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During the third quarter of 2004, the Bank recorded a correction to the historical cost of certain available-for-sale investment securities due to the incorrect amortization of premiums on these securities. If the Bank had recorded the amortization of these premiums correctly in all prior periods with respect to which this correction affected, the amounts would not have been materially different from the reported results of operations or financial condition of the Bank for any of these prior reporting periods. Therefore, the full amount of the correction was recorded in accumulated other comprehensive income the third quarter of 2004, and has resulted in an increase to net interest income in the amount of $2.5 million and an increase of $1.8 million to net income (after AHP and REFCorp assessments), and a reduction to other comprehensive income in the amount of $2.5 million.

EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. In March 2004, the Financial Accounting Standards Board (FASB) reached a consensus on EITF 03-1, which clarifies the application of an impairment model to determine whether investments are other-than-temporarily impaired. The provisions of EITF 03-1 must be applied prospectively to all current and future investments accounted for in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. On September 15, September 30, and November 15, 2004, the FASB issued proposed staff positions to provide guidance on the application and scope of certain paragraphs and to defer the effective date of the impairment measurement and recognition provisions contained in specific paragraphs of EITF 03-1. This deferral will be superseded in FASB’s final issuance of the staff position. The management of the Bank does not expect the revised EITF to have a material impact on its results of operations or financial condition at the time of adoption.

Adoption of SFAS 150. The FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150), in May 2003. This statement establishes a standard for how certain financial instruments with characteristics of both liabilities and equity are classified in the financial statements and provides accounting guidance for, among other things, mandatorily redeemable financial instruments.

The Bank adopted SFAS 150 as of January 1, 2004, based on SFAS 150’s definition of a nonpublic entity, the definition of an Securities and Exchange Commission (SEC) registrant in FASB Staff Position No. 150-3 (FSP 150-3), and related implementation guidance as it relates to both the Bank’s member shares and its COs. The Bank is a cooperative whose member financial institutions own all of the Bank’s capital stock. Member shares cannot be purchased or sold except between the Bank and its members at $100 per share par value, the Bank does not have equity securities that trade in a public market, and the Bank is not in the process of registering equity securities with the SEC for the purpose of a sale of equity securities in a public market. Additionally, although the Bank is a nonpublic entity, the Bank does issue joint and several COs that can be traded in a public market. The public nature of the COs, addressed in the SFAS 150 implementation guidance, is the primary reason for the adoption of SFAS 150 on January 1, 2004.

In compliance with SFAS 150, the Bank will reclassify stock subject to redemption from equity to liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains nonmember status by merger or acquisition, charter termination, or involuntary termination from membership, since the shares of capital stock will then meet the definition of a mandatorily redeemable financial instrument. Shares of capital stock meeting this definition are reclassified to a liability at fair value. Dividends related to capital stock classified as a liability are accrued at the expected dividend rate and reported as interest expense on the statement of income. The repayment of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the statement of cash flows.

If a member cancels its written notice of redemption or notice of withdrawal, the Bank will reclassify mandatorily redeemable capital stock from a liability to equity in compliance with SFAS 150. After the reclassification, dividends on the capital stock will no longer be classified as interest expense.

On January 1, 2004, the Bank reclassified $8.7 million of its outstanding capital stock to “mandatorily redeemable capital stock” in the liability section of the statement of condition. For the year ended December 31, 2004, dividends on mandatorily redeemable capital stock in the amount of $1.3 million were recorded as interest expense.

Although the mandatorily redeemable capital stock is not included in capital for financial reporting purposes, such outstanding stock is considered capital for regulatory purposes. See Note 13 for more information, including significant restrictions on stock redemption.

Adoption of SOP 03-3. The American Institute of Certified Public Accountants issued Statement of Position 03-3 (SOP 03-3), Accounting for Certain Loans or Debt Securities Acquired in a Transfer, in December 2003. SOP 03-3 provides guidance on the accounting for differences between contractual and expected cash flows from the purchaser’s initial investment in loans or debt securities acquired in a transfer, if those differences are attributable, at least in part, to credit quality. Among other things, SOP 03-3: (1) prohibits the recognition of the excess of contractual cash flows over expected cash flows as an adjustment of yield, loss accrual or valuation allowance at the time of purchase; (2) requires that subsequent increases in expected cash flows be recognized prospectively through an adjustment of yield; and (3) requires that subsequent decreases in expected cash flows be recognized as an impairment. In addition, SOP 03-3 prohibits the creation or carryover of a

F-13

valuation allowance in the initial accounting of all loans within its scope that are acquired in a transfer. The Bank adopted SOP 03-3 as of January 1, 2005. At the time of adoption, the Bank has determined that the requirements of SOP 03-3 would not have a material impact on the Bank’s results of operations or financial condition.

Note 3 – Cash and Due from Banks

Compensating Balances. The Bank maintains collected cash balances with various commercial banks in return for certain services. These agreements contain no legal restrictions about the withdrawal of funds. The average compensating balances for the years ended December 31, 2004 and 2003 were approximately $1.7 million and $2.1 million, respectively.

Restricted Balances. The Bank maintained average required clearing balances with the Federal Reserve Bank of Boston of approximately $7.6 million and $6.5 million for the years ended December 31, 2004 and 2003, respectively. These are required clearing balances and may not be withdrawn; however, the Bank may use earnings credits on these balances to pay for services received from the Federal Reserve Bank.

Pass-Through Deposit Reserves. The Bank acts as a pass-through correspondent for member institutions required to deposit reserves with the Federal Reserve Banks. The amount shown as cash and due from banks may include pass-through reserves deposited with the Federal Reserve Bank of Boston. There were no pass-through reserves deposited at December 31, 2004 and 2003. The Bank includes member reserve balances in other liabilities on the statement of condition.

Note 4 – Securities Purchased Under Agreements to Resell

The Bank has entered into purchases of securities under agreements to resell those securities. These amounts represent short-term loans and are assets on the statement of condition. The securities purchased under agreements to resell are held in safekeeping in the name of the Bank by third-party custodians approved by the Bank. Should the market value of the underlying securities decrease below the market value required as collateral, the counterparty must place an equivalent amount of additional securities in safekeeping in the name of the Bank or the dollar value of the resale agreement will be decreased accordingly. The collateral received on securities purchased under agreements to resell has not been sold or repledged by the Bank. Securities purchased under agreements to resell averaged $602.8 million and $737.0 million during 2004 and 2003, respectively, and the maximum amounts outstanding at any monthend during 2004 and 2003 were $2.1 billion and $2.4 billion, respectively.

Note 5 – Trading Securities

Major Security Types. Trading securities as of December 31, 2004 and 2003, were as follows (dollars in thousands):

	2004		2003
Mortgage-backed securities
U.S. government guaranteed	$	75,293	$	111,826
Government-sponsored enterprises	129,114		167,664
Other	91,000		119,485
Total	$	295,407	$	398,975

Net gains on trading securities for the years ended December 31, 2004 and 2003, include a change in net unrealized holding losses of $8.4 million and $10.4 million for securities held on December 31, 2004 and 2003, respectively.

The Bank does not participate in speculative trading practices and holds these investments indefinitely as management periodically evaluates its liquidity needs.

Note 6 – Available-for-Sale Securities

Major Security Types. Available-for-sale securities as of December 31, 2004, were as follows (dollars in thousands):

	Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses	Estimated Fair Value
International agency obligations	$	352,626		$	34,585	—	$	387,211
U.S. government corporations	213,963			9,387		—	223,350
Government-sponsored enterprises	185,035			11,280		—	196,315
Other FHLBanks’ bonds	14,911			793		—	15,704
	766,535			56,045		—	822,580
Mortgage-backed securities
Government-sponsored enterprises	174,250			8,665		—	182,915
Total	$		940,785	$	64,710	—	$	1,005,495

F-14

Available-for-sale securities as of December 31, 2003, were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses	Estimated Fair Value
International agency obligations	$	347,869	$	26,043	—	$	373,912
U.S. government corporations	207,863		4,593		—	212,456
Government-sponsored enterprises	294,609		16,066		—	310,675
Other FHLBanks’ bonds	14,912		1,379		—	16,291
State or local housing-agency obligations	2		—		—	2
	865,255		48,081		—	913,336
Mortgage-backed securities
Government-sponsored enterprises	174,901		9,375		—	184,276
Total	$	1,040,156	$	57,456	—	$	1,097,612

As discussed in Note 1, the gross unrealized gains and losses noted above for December 31, 2004 and 2003, do not reflect the impact of available-for-sale hedge accounting.

Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at December 31, 2004 and 2003, are shown below (dollars in thousands). Expected maturities of some securities and mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	2004				2003
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
Year of Maturity	Cost		Value		Cost		Value
Due in one year or less	—		—		$	2	$	2
Due after one year through five years	$	96,517	$	100,587	71,584		77,612
Due after five years through 10 years	14,613		15,072		14,556		15,608
Due after 10 years	655,405		706,921		779,113		820,114
	766,535		822,580		865,255		913,336
Mortgage-backed securities	174,250		182,915		174,901		184,276
Total	$	940,785	$	1,005,495	$	1,040,156	$	1,097,612

As of December 31, 2004 and 2003, the Bank’s investment in other FHLBanks’ bonds are included in the “due after one year through five years” category in the above table.

The amortized cost of the Bank’s MBS classified as available-for-sale includes net premiums of $5.0 million and $5.7 million at December 31, 2004 and 2003, respectively.

Interest-Rate-Payment Terms. The following table details additional interest-rate-payment terms for investment securities classified as available-for-sale at December 31, 2004 and 2003 (dollars in thousands):

	2004		2003
Amortized cost of available-for-sale securities other than mortgage-backed securities:
Fixed-rate	$	766,535	$	865,253
Variable-rate	—		2
	766,535		865,255
Amortized cost of available-for-sale mortgage-backed securities:
Fixed-rate collateralized mortgage obligations	174,250		174,901
Total	$	940,785	$	1,040,156

As of December 31, 2004 and 2003, the Bank’s investment in other FHLBanks’ bonds is fixed-rate.

F-15

Gains and Losses. Gross gains of $7.3 million and $3.8 million were realized on sales of available-for-sale securities for the years ended December 31, 2004 and 2003, respectively. These gains were netted with losses incurred on derivatives associated with these available-for-sale securities of $7.0 million and $3.6 million during the years ended December 31, 2004 and 2003, respectively. There were no sales of available-for-sale securities for the year ended December 31, 2002.

Note 7 – Held-to-Maturity Securities

Major Security Types. Held-to-maturity securities as of December 31, 2004, were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. agency obligations	$	91,477	$	4,637	—			$	96,114
Government-sponsored enterprises	200,076		—		$	(840	)	199,236
State or local housing-agency obligations	435,829		14,700		(5,216		)	445,313
	727,382		19,337		(6,056		)	740,663
Mortgage-backed securities
U.S. government guaranteed	27,038		1,236		—			28,274
Government-sponsored enterprises	1,302,867		50,369		(3,390		)	1,349,846
Other	4,196,069		45,172		(7,956		)	4,233,285
	5,525,974		96,777		(11,346		)	5,611,405
Total	$	6,253,356	$	116,114	$	(17,402	)	$	6,352,068

F-16

Held-to-maturity securities as of December 31, 2003, were as follows (dollars in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. agency obligations	$	110,472	$	6,487	—			$	116,959
State or local housing-agency obligations	557,344		28,465		$	(13,323	)	572,486
	667,816		34,952		(13,323		)	689,445
Mortgage-backed securities
U.S. government guaranteed	40,014		2,616		(15		)	42,615
Government-sponsored enterprises	1,442,978		83,450		(3,320		)	1,523,108
Other	4,392,734		85,478		(16,472		)	4,461,740
	5,875,726		171,544		(19,807		)	6,027,463
Total	$	6,543,542	$	206,496	$	(33,130	)	$	6,716,908

The following table summarizes the held-to-maturity securities with unrealized losses as of December 31, 2004 (dollars in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
Government-sponsored enterprises	$	199,236	$	(840	)	—		—			$	199,236	$	(840	)
State or local housing-agency obligations	—		—			$	233,734	$	(5,216	)	233,734		(5,216		)
Mortgage-backed securities
Government-sponsored enterprises	111,320		(2,750		)	65,208		(639		)	176,528		(3,389		)
Other	1,572,266		(7,515		)	177,738		(442		)	1,750,004		(7,957		)
Total temporarily impaired	$	1,882,822	$	(11,105	)	$	476,680	$	(6,297	)	$	2,359,502	$	(17,402	)

The following table summarizes the held-to-maturity securities with unrealized losses as of December 31, 2003 (dollars in thousands). The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
State or local housing-agency obligations	$	58,979	$	(4,916	)	$	167,782	$	(8,407	)	$	226,761	$	(13,323	)
Mortgage-backed securities
U.S. government guaranteed	5,159		(15		)	—		—			5,159		(15		)
Government-sponsored enterprises	188,149		(3,206		)	39,484		(114		)	227,633		(3,320		)
Other	1,602,991		(15,803		)	536,908		(669		)	2,139,899		(16,472		)
Total temporarily impaired	$	1,855,278	$	(23,940	)	$	744,174	$	(9,190	)	$	2,599,452	$	(33,130	)

The Bank reviewed its investment security holdings and has determined that all unrealized losses reflected above are temporary, based in part on the creditworthiness of the issuers and the underlying collateral. Additionally, the Bank has the ability and the intent to hold such securities through to recovery of the unrealized losses.

Redemption Terms. The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at December 31, 2004 and 2003, are shown below (dollars in thousands). Expected maturities of some securities and MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

F-17

	2004				2003
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
Year of Maturity	Cost		Value		Cost		Value
Due in one year or less	$	200,076	$	199,235	$	9,115	$	9,213
Due after one year through five years	3,594		3,849		8,571		9,346
Due after five years through 10 years	47,988		51,209		77,624		84,406
Due after 10 years	475,724		486,370		572,506		586,480
	727,382		740,663		667,816		689,445
Mortgage-backed securities	5,525,974		5,611,405		5,875,726		6,027,463
Total	$	6,253,356	$	6,352,068	$	6,543,542	$	6,716,908

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net premiums of $10.1 million and $12.0 million at December 31, 2004 and 2003, respectively.

Interest-Rate-Payment Terms. The following table details additional interest-rate-payment terms for investment securities classified as held-to-maturity at December 31, 2004 and 2003 (dollars in thousands):

	2004		2003
Amortized cost of held-to-maturity securities other than mortgage-backed securities:
Fixed-rate	$	530,517	$	468,901
Variable-rate	196,865		198,915
	727,382		667,816
Amortized cost of held-to-maturity mortgage-backed securities
Pass-through securities:
Fixed-rate	1,095,831		1,183,725
Variable-rate	33,711		46,099
Collateralized mortgage obligations:
Fixed-rate	898,643		1,002,309
Variable-rate	3,497,789		3,643,593
	5,525,974		5,875,726
Total	$	6,253,356	$	6,543,542

Gains and Losses. A gross gain of $13,000 was realized on the sale of a held-to-maturity security for the year ended December 31, 2004. The Bank sold an MBS of which at least 85 percent of the principal outstanding at acquisition had been collected. The sale was considered a maturity for the purpose of security classification. There were no sales of held-to-maturity securities for the years ended December 31, 2003 and 2002.

Note 8 – Advances

Redemption Terms. At December 31, 2004 and 2003, the Bank had advances outstanding, including AHP advances (see Note 9), at interest rates ranging from zero percent to 8.44 percent, and zero percent to 8.55 percent, respectively, as summarized below (dollars in thousands). Advances with interest rates of zero percent are AHP subsidized advances.

F-18

	2004					2003
Year of Maturity	Amount			Weighted Average Rate		Amount			Weighted Average Rate
Overdrawn demand-deposit accounts	$	33,200		2.67	%	$	84,249		1.38	%
2004	—			—		8,947,601			2.04
2005	15,216,451			2.50		2,599,196			4.17
2006	3,017,754			3.31		2,566,074			3.75
2007	2,894,633			3.73		2,696,108			4.38
2008	1,940,475			3.71		1,685,556			3.68
2009	1,979,890			4.05		1,313,701			4.52
Thereafter	4,863,883			4.71		5,492,688			4.68
Total par value	29,946,286			3.24	%	25,385,173			3.49	%
Premium on advances	10,442					1,858
Discount on advances	(10,700		)			(10,360		)
SFAS 133 hedging adjustments	262,725					697,559
Total	$	30,208,753				$	26,074,230

The Bank offers advances to members that may be prepaid on pertinent dates (call dates) without incurring prepayment or termination fees (callable advances). Other advances may only be prepaid by paying a fee to the Bank (prepayment fee) that makes the Bank financially indifferent to the prepayment of the advance. At December 31, 2004, the Bank had callable advances outstanding of $30.0 million. At December 31, 2003, the Bank had no callable advances outstanding.

The following table summarizes advances at December 31, 2004 and 2003, by year of maturity or next call date for callable advances (dollars in thousands):

Year of Maturity or Next Call Date	2004		2003
Overdrawn demand-deposit accounts	$	33,200	$	84,249
2004	—		8,947,601
2005	15,216,451		2,599,196
2006	3,017,754		2,566,074
2007	2,924,633		2,696,108
2008	1,940,475		1,685,556
2009	1,979,890		1,313,701
Thereafter	4,833,883		5,492,688
Total par value	$	29,946,286	$	25,385,173

The Bank also offers putable advances. A putable advance is an advance in which the Bank purchases a put option from the member that allows the Bank to terminate the advance on specific dates through its term. At December 31, 2004 and 2003, the Bank had putable advances outstanding totaling $5.7 billion and $8.3 billion, respectively.

The following table summarizes advances outstanding at December 31, 2004 and 2003, by year of maturity or next put date for putable advances (dollars in thousands):

Year of Maturity or Next Put Date	2004		2003
Overdrawn demand-deposit accounts	$	33,200	$	84,249
2004	—		15,731,351
2005	18,975,101		2,204,196
2006	3,264,704		2,499,024
2007	2,626,533		1,620,708
2008	1,578,975		1,282,056
2009	1,379,440		783,801
Thereafter	2,088,333		1,179,788
Total par value	$	29,946,286	$	25,385,173

F-19

Security Terms. The Bank lends to financial institutions involved in housing finance within the six New England states according to federal statutes, including the Act. The Act requires the Bank to obtain sufficient collateral on advances to protect against losses and to accept only certain U.S. government or government-agency securities, residential mortgage loans, cash or deposits and member capital stock in the Bank, and other eligible real-estate-related assets as collateral on such advances. However, CFIs are eligible to utilize expanded statutory collateral provisions dealing with loans to small business or agriculture. At December 31, 2004 and 2003, the Bank had rights to collateral, on a member-by-member basis, with an estimated value greater than outstanding advances. Based upon the financial condition of the member, the Bank either:

1.Allows a member to retain possession of the collateral assigned to the Bank, if the member executes a written security agreement and agrees to hold such collateral for the benefit of the Bank; or

2.Requires the member to specifically assign or place physical possession of such loan collateral with the Bank or its safekeeping agent; or

3.Requires the member to place physical possession of such securities collateral with the Bank’s safekeeping agent.

Beyond these provisions, Section 10(e) of the Act affords any security interest granted by a member to the Bank priority over the claims or rights of any other party. The exceptions are those claims that would be entitled to priority under otherwise applicable law and are held by bona fide purchasers for value or by secured parties with perfected security interests.

Credit Risk and Related Party Activities. While the Bank has never experienced a credit loss on an advance to a member, the expansion of collateral for CFIs and nonmember housing associates provides the potential for additional credit risk for the Bank. Management of the Bank has policies and procedures in place to appropriately manage this credit risk. Based on these policies, the Bank has not provided any allowances for losses on advances.

The Bank’s potential credit risk from advances is concentrated in commercial banks and savings institutions. As of December 31, 2004 and 2003, the Bank had advances of $4.3 billion and $94.0 million outstanding to Fleet National Bank, representing 14.3 percent and 0.4 percent of total advances outstanding, respectively. Interest income from advances to this member amounted to $16.8 million, $20.7 million, and $18.1 million during 2004, 2003, and 2002, respectively. The Bank held sufficient collateral to cover the advances to this institution and the Bank does not expect to incur any credit losses on these advances.

Interest-Rate-Payment Terms. The following table details additional interest-rate-payment terms for advances at December 31, 2004 and 2003 (dollars in thousands):

	2004		2003
Par amount of advances:
Fixed-rate	$	28,175,031	$	23,666,137
Variable-rate	1,771,255		1,719,036
Total	$	29,946,286	$	25,385,173

Variable-rate advances noted in the above table include advances outstanding at December 31, 2004 and 2003, totaling $40.0 million and $155.0 million, respectively, which contain embedded interest-rate caps and floors.

Prepayment Fees. The Bank records prepayment fees received from members on prepaid advances net of any associated SFAS 133 hedging fair-value adjustments on those advances. Additionally, under certain advances programs, the prepayment-fee provisions of the advance agreement could result in either a payment from the member or to the member when such an advance is prepaid, based upon market conditions at the time of prepayment (referred to as a “symmetrical” prepayment fee). Advances with a symmetrical prepayment-fee provision are hedged with derivatives containing offsetting terms, so that the Bank is financially indifferent to the members’ decision to prepay such advances. The net amount of prepayment fees is reflected as interest income in the statement of income. For the three years ended December 31, 2004, 2003, and 2002, advance prepayment fees received from members and the associated hedging fair-value adjustments are reflected in the following table (dollars in thousands):

	2004				2003			2002
Prepayment fees received from members	$		244,626		$	77,470		$	38,993
Hedging fair-value adjustments	(190,330			)	(26,938		)	(9,836		)
Net prepayment fees	$	54,296			$	50,532		$	29,157
Advance principal amount prepaid	$	4,026,512			$	3,493,814		$	1,660,833

F-20

During 2003, the Bank paid prepayment fees to Fleet National Bank totaling $3.6 million related to an advance containing a symmetrical prepayment provision. The corresponding principal amount prepaid during 2003 was $1.0 billion. The Bank did not pay or receive any prepayment fees from Fleet National Bank during 2004 or 2002.

Note 9 – Affordable Housing Program

Section 10(j) of the Act requires each FHLBank to establish an AHP. Each FHLBank provides subsidies in the form of direct grants and below-market-rate advances to members, who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside for the AHP the greater of $100 million or 10 percent of the current year’s net income before charges for AHP, REFCorp, and interest expense associated with mandatorily redeemable capital stock (regulatory net income), minus the assessment for REFCorp (see Note 1). This definition of regulatory net income for purposes of calculating the AHP assessment has been determined by the Finance Board. The AHP and REFCorp assessments are calculated simultaneously due to their interdependence.

The REFCorp has been designated as the calculation agent for AHP and REFCorp assessments. Each FHLBank provides its net income before AHP and REFCorp assessments to the REFCorp, which then performs the calculations at each quarterend date.

In annual periods where the Bank’s regulatory net income is zero or less, the AHP assessment for the Bank is zero. However, if the result of the aggregate 10 percent calculation described above is less than $100 million for all 12 FHLBanks on an annual basis, then the Act requires the shortfall to be allocated among the FHLBanks based upon the ratio of each FHLBank’s income before AHP and REFCorp to the sum of the income before AHP and REFCorp of the 12 FHLBanks. Allocation of this shortfall is determined by REFCorp. There was no shortfall in either 2004 or 2003.

The Bank charges the amount set aside for AHP to income and recognizes it as a liability. The Bank then relieves the AHP liability as members use subsidies. The Bank had outstanding principal in AHP-related advances of $34.6 million and $30.3 million at December 31, 2004 and 2003, respectively.

An analysis of the AHP liability for the years ended December 31, 2004 and 2003, follows (dollars in thousands):

Roll-forward of the AHP Liability	2004			2003
Balance at beginning of year	$	32,180		$	31,416
AHP expense for the year	10,092			10,174
AHP direct grant disbursements	(7,818		)	(8,887		)
AHP subsidy for below-market-rate advance disbursements	(2,221		)	(1,686		)
Return of previously disbursed grants and subsidies	966			1,163
Balance at end of year	$	33,199		$	32,180

Note 10 – Mortgage Loans Held for Portfolio

The Bank’s MPF program involves investment by the Bank in fixed-rate mortgage loans that are purchased from participating members. All mortgage loans are held-for-investment. Under the MPF program, the Bank’s members originate, service, and credit-enhance home-mortgage loans that are then sold to the Bank.

The following table presents mortgage loans held for portfolio as of December 31, 2004 and 2003 (dollars in thousands):

	2004			2003
Real estate
Fixed-rate 15 year single-family mortgages	$	1,267,861		$	1,355,068
Fixed-rate 20 and 30 year single-family mortgages	2,697,010			3,118,436
Premiums	52,365			69,150
Discounts	(4,138		)	(4,829		)
Deferred hedging gains and losses, net	262			190
Total mortgage loans held for portfolio	4,013,360			4,538,015
Less: allowance for credit losses	(1,379		)	(1,317		)
Total mortgage loans, net of allowance for credit losses	$	4,011,981		$	4,536,698

The par value of mortgage loans held for portfolio at December 31, 2004 and 2003, was comprised of the following (dollars in thousands):

F-21

	2004		2003
Conventional loans	$	3,105,139	$	3,293,097
Government-insured loans	859,732		1,180,407
Total par value	$	3,964,871	$	4,473,504

An analysis of the allowance for credit losses at December 31, 2004, 2003 and 2002, follows (dollars in thousands):

	2004			2003			2002
Balance at beginning of year	$	1,317		$	1,334		$	177
Charge-offs	(91		)	(22		)	—
Recoveries	30			—			—
Net charge-offs	(61		)	(22		)	—
Provision for credit losses	123			5			1,157
Balance at end of year	$	1,379		$	1,317		$	1,334

The estimated fair values of mortgage loans held for portfolio as of December 31, 2004 and 2003, are reported in Note 17.

Mortgage loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage-loan agreement. At December 31, 2004 and 2003, the Bank had no recorded investments in impaired mortgage loans. Mortgage loans on nonaccrual status at December 31, 2004 and 2003, totaled $2.7 million and $1.4 million, respectively. The Bank’s mortgage-loan portfolio is geographically diversified on a national basis. There is no concentration of delinquent loans in any geographic region. Real estate owned (REO) at December 31, 2004 and 2003, totaled $539,000 and $604,000, respectively. REO is recorded on the statement of condition in other assets.

Note 11 – Deposits

The Bank offers demand and overnight deposits for members and qualifying nonmembers. In addition, the Bank offers short-term deposit programs to members. Members that service mortgage loans may deposit in the Bank funds collected in connection with mortgage loans pending disbursement of such funds to the owners of the mortgage loans; the Bank classifies these items as other deposits on the statement of condition. Deposits at December 31, 2004 and 2003, include SFAS 133 hedging adjustments of $5.7 million and $6.0 million, respectively. The average interest rates paid on average deposits during 2004, 2003, and 2002 were 0.98 percent, 0.85 percent, and 1.45 percent, respectively.

Redemption Terms. At December 31, 2004 and 2003, the Bank had term deposits outstanding at interest rates ranging from 1.74 percent to 4.71 percent, and 0.81 percent to 4.71 percent, respectively, as summarized below (dollars in thousands):

	2004				2003
Term Deposits by Maturity	Amount		Weighted Average Rate		Amount		Weighted Average Rate
Three months or less	$	1,000	2.96	%	$	2,000	0.81	%
Over three months through six months	500		2.20		2,000		2.15
Over six months through 12 months	2,000		1.85		—		—
Greater than 12 months	23,000		4.40		23,500		4.35
Total par value	$	26,500	4.11	%	$	27,500	3.93	%

Note 12 – Consolidated Obligations

COs are the joint and several obligations of the 12 FHLBanks and consist of consolidated bonds and discount notes. The FHLBanks issue COs through the Office of Finance, which serves as their agent. In connection with each debt issuance, each FHLBank specifies the amount of debt it wants issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of COs and is the primary obligor for its specific portion of COs issued. COs are issued primarily to raise intermediate and long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on maturity. Consolidated discount notes are issued to raise short-term funds. These notes sell at less than their face amount and are redeemed at par value when they

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mature.

The Finance Board, in its discretion, may require any FHLBank to make principal or interest payments due on any COs. Although this has never occurred, to the extent that an FHLBank would make a payment on a CO on behalf of another FHLBank, the paying FHLBank would be entitled to reimbursement from the noncomplying FHLBank. However, if the Finance Board determines that the noncomplying FHLBank is unable to satisfy its obligations, then the Finance Board may allocate the outstanding liability among the remaining FHLBanks on a pro rata basis in proportion to each FHLBanks’ participation in all COs outstanding, or on any other basis the Finance Board may determine.

The par amounts of the FHLBanks’ outstanding COs, including COs held by other FHLBanks, were approximately $869.2 billion and $759.5 billion at December 31, 2004 and 2003, respectively. Regulations require the FHLBanks to maintain unpledged qualifying assets equal to its participation in the COs outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the COs; obligations of or fully guaranteed by the U.S.; obligations, participations, or other instruments of or issued by Fannie Mae or Ginnie Mae; mortgages, obligations or other securities which are or have ever been sold by Freddie Mac under the Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located.

Each FHLBank’s leverage limit has been based on a ratio of assets to capital. For FHLBanks that have not adopted capital restructuring plans pursuant to 12 C.F.R. §933, the final rule limits each FHLBank’s assets generally to no more than 21 times its capital. Nevertheless, an FHLBank that has nonmortgage assets, after deducting deposits and capital, that do not exceed 11 percent of its total assets, may have total assets in an amount not greater than 25 times its capital. As a result of the implementation of its new capital structure in April 2004, the Bank is no longer required to follow this regulation (see Note 13).

To provide holders of COs issued prior to January 29, 1993 (prior bondholders), the protection equivalent to that provided under the FHLBanks’ previous leverage limit of 12 times the FHLBanks’ regulatory capital stock, prior bondholders have a claim on a certain amount of the qualifying assets (Special Asset Account [SAA]) if regulatory capital stock is less than 8.33 percent of COs. At December 31, 2004 and 2003, respectively, the FHLBanks’ regulatory capital stock was 4.7 percent and 5.0 percent of the par value of COs outstanding, and the required minimum pledged asset balance was approximately $219,000 and $24.0 million. Further, the regulations require each FHLBank to transfer qualifying assets in the amount of its allocated share of the FHLBanks’ SAA to a trust for the benefit of the prior bondholders if its capital-to-assets ratio falls below two percent. As of December 31, 2004 and 2003, no FHLBank had a capital-to-assets ratio less than two percent; therefore no assets were being held in a trust. In addition, no trust has ever been established as a result of this regulation, as the ratio has never fallen below two percent.

General Terms. COs are issued with either fixed-rate coupon-payment terms or variable-rate coupon-payment terms that use a variety of indices for interest-rate resets, including the London Interbank Offered Rate (LIBOR), Constant Maturity Treasury (CMT), Eleventh District Cost of Funds Index (COFI), and others. In addition, to meet the expected specific needs of certain investors in COs, both fixed-rate bonds and variable-rate bonds may also contain certain features, which may result in complex coupon-payment terms and call options. When such COs are issued, the Bank enters into derivatives containing offsetting features that effectively convert the terms of the bond to those of a simple variable-rate bond or a fixed-rate bond.

These COs, beyond having fixed-rate or simple variable-rate coupon-payment terms, may also have the following broad term regarding either principal repayment or coupon-payment terms:

Optional Principal Redemption Bonds (callable bonds) that the Bank may redeem in whole or in part at its discretion on predetermined call dates according to the terms of the bond offerings.

With respect to interest payments, consolidated bonds may also have the following term:

Zero-Coupon Callable Bonds are long-term discounted instruments that earn a fixed yield to maturity or the optional principal-redemption date. All principal and interest are paid at maturity or on the optional principal redemption date, if exercised prior to maturity.

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Interest-Rate-Payment Terms. The following table details interest-rate-payment terms for consolidated bonds at December 31, 2004 and 2003 (dollars in thousands):

	2004		2003
Par amount of consolidated bonds
Fixed-rate bonds	$	24,699,735	$	28,445,460
Variable-rate bonds	2,000,000		2,500,000
Zero-coupon bonds	5,797,500		6,097,500
Total par amount	$	32,497,235	$	37,042,960

Redemption Terms. The following is a summary of the Bank’s participation in consolidated bonds outstanding at December 31, 2004 and 2003, by the year of maturity (dollars in thousands):

	2004					2003
				Weighted					Weighted
				Average					Average
Year of Maturity	Amount			Rate		Amount			Rate
2004	—			—		$	8,579,925		3.46	%
2005	$	8,628,085		3.38	%	7,097,930			3.48
2006	6,074,030			3.07		5,081,815			3.31
2007	4,163,125			3.44		2,486,210			3.90
2008	3,075,640			3.80		3,402,280			3.93
2009	1,672,000			3.80		799,000			4.47
Thereafter	8,884,355			5.90		9,595,800			5.89
Total par value	32,497,235			4.08	%	37,042,960			4.17	%
Bond premium	41,298					52,066
Bond discount	(4,768,800		)			(5,081,926		)
SFAS 133 hedging adjustments	(90,019		)			44,421
Total	$	27,679,714				$	32,057,521

Consolidated bonds outstanding at December 31, 2004 and 2003, include callable bonds totaling $15.7 billion and $16.4 billion, respectively. The Bank uses fixed-rate callable debt to finance its assets. Contemporaneous with such a debt issue, the Bank may also enter into an interest-rate swap (in which the Bank pays variable and receives fixed) with a call feature that mirrors the option embedded in the debt (a sold callable swap). The combined sold callable swap and callable debt effectively create floating-rate funding at rates that are more attractive than other available alternatives.

The Bank’s consolidated bonds outstanding at December 31, 2004 and 2003 include (dollars in thousands):

	2004		2003
Par amount of consolidated bonds:
Noncallable or non-putable	$	16,779,735	$	20,680,460
Callable	15,717,500		16,362,500
Total par amount	$	32,497,235	$	37,042,960

The following table summarizes consolidated bonds outstanding at December 31, 2004 and 2003, by the earlier of the year of maturity or next call date (dollars in thousands):

Year of Maturity or Next Call Date	2004		2003
2004	—		$	21,557,425
2005	$	20,870,585	7,552,930
2006	5,239,030		3,511,815
2007	2,838,125		1,796,210
2008	1,815,640		1,702,280
2009	942,000		99,000
Thereafter	791,855		823,300
Total par value	$	32,497,235	$	37,042,960

Consolidated Discount Notes. Consolidated discount notes are issued to raise short-term funds. Discount notes are COs with

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original maturities up to 360 days. These notes are issued at less than their face amount and redeemed at par value when they mature.

The Bank’s participation in consolidated discount notes, all of which are due within one year, was as follows (dollars in thousands):

					Weighted
					Average
	Book Value		Par Value		Rate
December 31, 2004	$	20,090,681	$	20,115,715	2.08	%
December 31, 2003	$	5,346,504	$	5,351,807	0.99	%

The Act authorizes the Secretary of the Treasury, at his or her discretion, to purchase COs of the FHLBanks aggregating not more than $4 billion under certain conditions. The terms, conditions, and interest rates are determined by the Secretary of the Treasury. There were no such purchases by the U.S. Treasury during the two years ended December 31, 2004.

Note 13 – Capital

The Gramm-Leach-Bliley Act (GLB Act) has resulted in a number of changes in the capital structure of the FHLBanks. The final Finance Board capital rule was published on January 30, 2001, and amendments were published on October 26, 2001. The capital rule required each FHLBank to submit a capital structure plan to the Finance Board by October 29, 2001, in accordance with the provisions of the GLB Act and final capital rule. The Finance Board approved the Bank’s final amended capital plan on August 6, 2003. The Bank converted to its new capital structure on April 19, 2004, and was in compliance with its capital plan on the conversion date. The conversion was considered a capital transaction and was accounted for at par value.

The Bank is subject to three capital requirements under the new capital structure plan that became effective on April 19, 2004. The Bank shall maintain at all times:

1.Permanent capital in an amount at least equal to the sum of its credit-risk capital requirement, its market-risk capital requirement, and its operations-risk capital requirement, calculated in accordance with the rules and regulations of the Finance Board. Only “permanent capital,” defined as retained earnings and Class B stock, satisfies the risk-based capital requirement. The Finance Board may require the Bank to maintain a greater amount of permanent capital than is required by the risk-based capital requirements as defined.

2.A four percent total capital-to-asset ratio, and

3.At least a five percent leverage ratio, defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0 times divided by total assets.

The following table shows the Bank’s compliance with the Finance Board’s capital requirements at December 31, 2004 (dollars in thousands):

	December 31, 2004
	Required			Actual
Regulatory Capital Requirements
Risk-based capital	$	455,984		$	2,239,562
Total regulatory capital	$	2,070,204		$	2,239,562
Total capital-to-asset ratio	4.0		%	4.3		%
Leverage capital	$	2,587,755		$	3,359,343
Leverage ratio	5.0		%	6.5		%

Mandatorily redeemable capital stock is considered capital for regulatory purposes.

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The Bank offers only Class B stock and members are required to purchase Class B stock equal to the sum of 0.35 percent of certain member assets eligible to secure advances under the Act and 4.5 percent of specified assets related to activity between the Bank and the member. Members may redeem Class B stock by giving five years’ notice. The Bank, in its discretion, can repurchase stock from the member at par value if that stock is not required by the member to meet its total stock-investment requirement (excess capital stock) and the repurchase will not cause the Bank to fail to meet any of its capital requirements. The Bank may also allow the member to sell the excess capital stock at par value to another member of the Bank. During 2004, the Bank honored all excess capital stock-repurchase requests from members, after determining that the Bank would remain in compliance with its capital requirements after making such repurchases. At December 31, 2004, members and nonmembers with capital stock outstanding held excess capital stock totaling $287.1 million, representing approximately 13.4 percent of total capital stock outstanding.

The GLB Act made membership voluntary for all members. Any member that withdraws from membership must wait five years from the divestiture date for all capital stock that is held as a condition of membership, as that requirement is set out in the Bank’s capital plan, unless the institution has cancelled its notice of withdrawal prior to that date, before being readmitted to membership in any FHLBank. A five-year redemption notice period can also be triggered by the involuntary termination of membership of a member by the Bank’s board of directors or by the Finance Board, the merger or acquisition of a member into a nonmember institution, or the relocation of a member to a principal location outside the six New England states. At the end of the five-year redemption notice period, if the former member’s activity-based stock-investment requirement is greater than zero, the Bank may require the associated remaining obligations to the Bank to be satisfied in full prior to allowing the member to redeem the remaining shares.

Because the Bank’s Class B shares are redeemable, the Bank can experience a reduction in its capitalization, particularly due to membership terminations due to merger and acquisition activity. However, there are several mitigants to this potential risk, including the following:

•First, the activity-based portion of the stock-investment requirement allows the Bank to retain stock beyond the five-year redemption notice period if the associated member-related activity is still outstanding, until the obligations are paid in full.

•Second, the five-year redemption notice period allows for a significant period in which the Bank can restructure its balance sheet to accommodate a reduction in capital.

•Third, the Bank’s concentration of ownership is limited by the $25 million maximum membership stock-investment requirement.

•Fourth, the Bank’s board of directors may modify the membership stock-investment requirement or the activity-based stock-investment requirement, or both, to address expected shortfalls in capitalization due to membership termination.

•Fifth, the Bank’s board of directors or the Finance Board may suspend redemptions in the event that such redemptions would cause the Bank not to meet its minimum regulatory capital requirements.

The Bank’s board of directors may declare and pay dividends out of previously retained earnings and current earnings in either cash or capital stock.

Mandatorily Redeemable Capital Stock. In compliance with SFAS 150, the Bank will reclassify stock subject to redemption from equity to a liability once a member exercises a written redemption right, gives notice of intent to withdraw from membership, or attains a nonmember status by merger or acquisition, charter termination, or involuntary termination from membership, since the member shares will then meet the definition of a mandatorily redeemable financial instrument. Member shares meeting this definition are reclassified to a liability at fair value. Dividends declared on member shares classified as a liability in accordance with SFAS 150 are accrued at the expected dividend rate and reflected as interest expense in the statement of income. The repayment of these mandatorily redeemable financial instruments is reflected as financing cash outflows in the statement of cash flows once settled.

The Finance Board has determined that shares of capital stock that have been reclassified to a liability in accordance with SFAS 150 will continue to be included in the definition of total capital for purposes of determining the Bank’s compliance with its regulatory capital requirements, calculating its mortgage securities investment authority (300 percent of total capital), calculating its unsecured credit exposure to other GSEs (100 percent of total capital), or calculating its unsecured credit limits to other counterparties (various percentages of total capital depending on the rating of the counterparty).

At December 31, 2004, the Bank had $57.9 million in capital stock subject to mandatory redemption from two former members. This amount has been classified as a liability as mandatorily redeemable capital stock in the statement of condition

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in accordance with SFAS 150. It is anticipated that these shares will be redeemed in 2009. Consistent with Bank practice, the Bank will not redeem or repurchase membership stock until five years after the membership is terminated or the Bank receives notice of withdrawal. The Bank is not required to redeem or repurchase activity-based stock until the later of the expiration of the notice of redemption or until the activity no longer remains outstanding. In accordance with the Bank’s current practice, if activity-based stock becomes excess stock as a result of an activity no longer outstanding, the Bank may repurchase, in its sole discretion, the excess activity-based stock subject to the limitations discussed below.

The Bank’s activity for mandatorily redeemable capital stock was as follows in 2004 (dollars in thousands). Roll-forward amounts for 2003 and 2002 are not provided because the Bank adopted SFAS 150 on January 1, 2004.

	2004
Balance at beginning of year	$	—
Capital stock subject to mandatory redemption reclassified from equity upon adoption of SFAS 150 on January 1, 2004	8,656
Capital stock subject to mandatory redemption reclassified from equity during the year	158,509
Redemption of mandatorily redeemable capital stock	(109,283		)
Balance at yearend	$	57,882

A member may cancel or revoke its written notice of redemption or its notice of withdrawal from membership prior to the end of the five-year redemption period. The Bank’s capital plan provides that the Bank will charge the member a cancellation fee equal to two percent of the par amount of the shares of Class B stock that is the subject of the redemption notice. The Bank will assess a redemption cancellation fee unless the board of directors decides that it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the GLB Act.

Statutory and Regulatory Restrictions on Capital Stock Redemption. In accordance with the GLB Act, each class of Bank stock is considered putable, subject to the significant restrictions on the obligation/right to redeem and the limitation of the redemption privilege to a small fraction of outstanding stock. Statutory and regulatory restrictions on the redemption of Bank stock include the following:

•In no case may the Bank redeem any capital stock if, following such redemption, the Bank would fail to satisfy its minimum capital requirements (that is, a statutory capital/asset ratio requirement, established by the GLB Act, and a regulatory risk-based capital/asset ratio requirement established by the Finance Board). By law, all member holdings of Bank stock immediately become nonredeemable if the Bank becomes undercapitalized. Accordingly, at the macro-level, only a minimal portion of outstanding stock qualifies for redemption consideration.

•In no case may the Bank redeem any capital stock if either its board of directors or the Finance Board determine that it has incurred, or is likely to incur, losses resulting, or expected to result, in a charge against capital.

•The Bank may determine to suspend redemptions if it reasonably believes that such redemptions would cause the Bank to fail to meet any of its minimum capital requirements, would prevent the Bank from maintaining adequate capital against potential risks that are not adequately reflected in its minimum capital requirements, or would otherwise prevent the Bank from operating in a safe and sound manner.

•If, during the period between receipt of a stock-redemption notification from a member and the actual redemption (which lasts indefinitely if the Bank is undercapitalized, does not have the required credit rating, etc.), the Bank becomes insolvent and is either liquidated or forced to merge with another FHLBank, the redemption value of the stock will be established either through the market liquidation process or through negotiation with a merger partner. In either case all senior claims must first be settled at par, and there are no claims which are subordinated to the rights of FHLBank stockholders.

•Under the GLB Act, the Bank may only redeem stock investments that exceed the members’ required minimum investment in Bank stock.

•In no case may the Bank redeem any capital stock if the principal or interest due on any CO issued through the Office of Finance on which the Bank is the primary obligor has not been paid in full when due.

•In no case may the Bank redeem any capital stock if the Bank fails to provide the Finance Board quarterly certification required by section 966.9(b)(1) of the Finance Board’s rules prior to declaring or paying dividends for a quarter.

•In no case may the Bank redeem any capital stock if the Bank is unable to provide the required certification, projects that it will fail to comply with statutory or regulatory liquidity requirements or will be unable to timely and fully

F-27

meet all of its obligations, actually fails to satisfy these requirements or obligations, or negotiates to enter or enters into an agreement with another FHLBank to obtain financial assistance to meet its current obligations.

In addition to possessing the authority to prohibit stock redemptions, the Bank’s board of directors has a right and an obligationto call for additional capital stock purchases by the Bank’s members, as a condition of membership, as needed to satisfy statutory and regulatory capital requirements. These requirements include the maintenance of a stand-alone credit rating of no lower than AA from a nationally recognized statistical rating organization.

Prior Capital Rules. Prior to the Bank’s implementation of its new capital plan, the prior capital rules were in effect. In particular, the Act required members to purchase capital stock equal to the greater of one percent of their mortgage-related assets or five percent of outstanding Bank advances. However, the GLB Act removed the provision that required a nonthrift member to purchase additional stock to borrow from the Bank if the nonthrift member’s mortgage-related assets were less than 65 percent of total assets. Under the prior capital rules, the Bank at its discretion could repurchase at par value any capital stock greater than a member’s minimum statutory and regulatory requirements. During 2004 and 2003, the Bank honored all redemption requests from members, after determining that the member would remain in compliance with the minimum statutory and regulatory requirements after making such redemptions.

Related-Party Activities. The Bank defines related parties as those members whose capital stock outstanding was in excess of 10 percent of the Bank’s total capital stock outstanding. The following table presents member holdings of 10 percent or more of the Bank’s total capital stock outstanding at December 31, 2004 and 2003 (dollars in thousands):

	As of December 31, 2004				As of December 31, 2003
Name	Capital Stock Outstanding		Percent of Total		Capital Stock Outstanding		Percent of Total
Fleet National Bank Providence, RI	$	234,641	10.9	%	$	508,380	20.9	%

Note 14 – Employee Retirement Plans

Employee Retirement Plans. The Bank participates in the Financial Institutions Retirement Fund (FIRF), a defined benefit plan. The plan covers substantially all officers and employees of the Bank. Funding and administrative costs of FIRF charged to operating expenses were $2.0 million, $1.5 million, and $1.0 million in the years ended December 31, 2004, 2003, and 2002, respectively. FIRF is a multi-employer plan and does not segregate its assets, liabilities, or costs by participating employer. As a result, disclosure and accounting of the accumulated benefit obligations, plan assets, and the components of annual pension expense attributable to the Bank cannot be made.

Supplemental Retirement Benefits. The Bank also maintains a nonqualified, unfunded defined benefit plan covering certain senior officers, as defined in the plan.

Postretirement Benefits. The Bank sponsors a fully insured retirement benefit program that includes life insurance benefits for eligible retirees. The Bank provides life insurance to all employees who retire on or after age 55 after completing six years of service. No contributions are required from the retirees. The accumulated postretirement benefit obligation was $270,000 and $234,000 for December 31, 2004 and 2003, respectively.

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In connection with the supplemental retirement and postretirement benefit plans, the Bank recorded the following amounts for the years ended December 31, 2004 and 2003 (dollars in thousands):

	Supplemental Retirement Plan						Postretirement Benefit Plan
	2004			2003			2004			2003
Change in benefit obligation
Benefit obligation at beginning of year	$	5,697		$	3,990		$	234		$	200
Service cost	294			267			10			10
Interest cost	387			343			15			15
Actuarial loss	1,203			1,097			23			19
Benefits paid	(1,103		)	—			(12		)	(10		)
Benefit obligation at yearend	6,478			5,697			270			234
Change in plan assets
Fair value of plan assets at beginning of year	—			—			—			—
Employer contribution	1,103			—			12			10
Benefits paid	(1,103		)	—			(12		)	(10		)
Fair value of plan assets at yearend	—			—			—			—
Funded status	(6,478		)	(5,697		)	(270		)	(234		)
Unrecognized net actuarial loss	2,522			1,757			49			27
Unrecognized transition obligation	59			79			—			—
Unrecognized prior service cost	27			55			—			—
Net amount recognized	$	(3,870	)	$	(3,806	)	$	(221	)	$	(207	)

Amounts recognized in the statement of condition for the Bank’s supplemental retirement and postretirement benefit plans for the years ended December 31, 2004 and 2003, were (dollars in thousands):

	Supplemental Retirement Plan						Postretirement Benefit Plan
	2004			2003			2004			2003
Accrued benefit cost	$	(4,185	)	$	(3,806	)	$	(221	)	$	(207	)
Accumulated other comprehensive income	229			—			—			—
Intangible asset	86			—			—			—
Net amount recognized	$	(3,870	)	$	(3,806	)	$	(221	)	$	(207	)

Components of net periodic pension cost for the Bank’s supplemental retirement and postretirement benefit plans for the years ended December 31, 2004, 2003, and 2002 were (dollars in thousands):

	Supplemental Retirement Plan							Postretirement Benefit Plan
	2004			2003		2002		2004		2003		2002
Service cost	$		294	$	267	$	174	$	10	$	10	$	9
Interest cost	387			343		239		15		15		14
Amortization of unrecognized prior service cost	29			29		29		—		—		—
Amortization of unrecognized net loss	175			178		16		—		—		—
Amortization of unrecognized net obligation	20			20		20		—		—		—
Net periodic benefit cost	$	905		$	837	$	478	$	25	$	25	$	23

The measurement date used to determine current year’s benefit obligation was December 31, 2004.

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Key assumptions and other information for the actuarial calculations for the Bank’s supplemental retirement and postretirement benefit plans for the years ended December 31, 2004 and 2003, were:

	Supplemental Retirement Plan				Postretirement Benefit Plan
	2004		2003		2004		2003
Discount rate	5.75	%	6.75	%	5.75	%	6.75	%
Salary increases	5.50	%	5.50	%	—		—
Amortization period (years)	7		8		—		—

Estimated future benefit payments for the Bank’s supplemental retirement plan, reflecting expected future services, for the years ending December 31 are (dollars in thousands):

Years	Payments
2005	$	22
2006	36
2007	66
2008	119
2009	116
2010-2014	1,379

Defined Contribution Plan. The Bank also participates in the Financial Institutions Thrift Plan, a defined contribution plan. The Bank’s contributions are equal to a percentage of participants’ compensation and a matching contribution equal to a percentage of voluntary employee contributions, subject to certain limitations. The Bank contributed $511,000, $454,000, and $409,000 in the years ended December 31, 2004, 2003, and 2002, respectively.

The Bank also maintains a nonqualified, unfunded deferred compensation plan covering certain senior officers, as defined in the plan. The plan’s liability consists of the accumulated compensation deferrals and the accumulated earnings on these deferrals. The Bank contributed $113,000, $108,000, and $85,000 in the years ended December 31, 2004, 2003, and 2002, respectively. The Bank’s obligation from this plan at December 31, 2004 and 2003, was $2.7 million and $2.2 million, respectively.

Note 15 – Segment Information

The Bank analyzes the financial performance based on the net interest income of two operating segments based upon its method of internal reporting: mortgage-loan finance and all other business activity. The products and services provided reflect the manner in which financial information is evaluated by management. The mortgage-loan-finance segment includes mortgage loans acquired through the MPF program and the related funding. Income from the mortgage-loan-finance segment is derived primarily from the difference, or spread, between the yield on mortgage loans and the borrowing and hedging costs related to those assets. The remaining business segment includes products such as advances and investments and their related funding and hedging costs. Income from this segment is derived primarily from the difference, or spread, between the yield on advances and investments and the borrowing and hedging costs related to those assets. Capital is allocated to the segments based upon asset size.

The following table presents net interest income after provision for credit losses on mortgage loans by business segment, other income/(loss), other expense, and income before assessments as of December 31, 2004, 2003, and 2002 (dollars in thousands):

	Net Interest Income after Provision for Credit Losses on Mortgage Loans by Segment
	Mortgage Loan Finance		Other Business Activities		Total		Other Income/ (Loss)			Other Expense		Income Before Assessments
2004	$	27,854	$	187,215	$	215,069	$	(53,430	)	$	39,645	$	121,994
2003	$	25,248	$	182,380	$	207,628	$	(49,211	)	$	33,789	$	124,628
2002	$	6,743	$	163,341	$	170,084	$	(36,014	)	$	30,897	$	103,173

F-30

The following table presents total assets by business segment as of December 31, 2004, 2003, and 2002 and average-earning assets by business segment for the years ended December 31, 2004, 2003, and 2002 (dollars in thousands):

	Total Assets by Segment						Total Average-Earning Assets by Segment
	Mortgage Loan Finance		Other Business Activities		Total		Mortgage Loan Finance		Other Business Activities		Total
2004	$	4,031,749	$	47,723,346	$	51,755,095	$	4,209,448	$	36,948,997	$	41,158,445
2003	$	4,558,658	$	37,337,557	$	41,896,215	$	3,947,362	$	39,090,936	$	43,038,298
2002	$	2,500,853	$	38,976,326	$	41,477,179	$	1,213,424	$	38,594,841	$	39,808,265

Note 16 – Derivatives and Hedging Activities

The Bank may enter into interest-rate swaps (including callable and putable swaps), swaptions, interest-rate cap and floor agreements, calls, puts, and futures and forward contracts(collectively, derivatives) to manage its exposure to changes in interest rates.

The Bank may adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. The Bank uses derivatives in several ways: by designating them as either a fair-value or cash-flow hedge of a financial instrument or a forecasted transaction; by acting as an intermediary; or in general asset-liability management where derivatives serve a documented risk-mitigation purpose but do not qualify for hedge accounting (that is, an economic hedge). For example, the Bank uses derivatives in its overall interest-rate-risk management to adjust the interest-rate sensitivity of COs to approximate more closely the interest-rate sensitivity of assets (both advances and investments), and/or to adjust the interest-rate sensitivity of advances, investments, or mortgage loans to approximate more closely the interest-rate sensitivity of liabilities.

In addition to using derivatives for general asset-liability management, the Bank also uses derivatives as follows: (1) to manage embedded options in assets and liabilities, (2) to hedge the market value of existing assets and liabilities, and anticipated transactions, (3) to hedge the duration risk of prepayable instruments, (4) to exactly offset other derivatives executed with members (when the Bank serves as an intermediary) and (5) to reduce funding costs.

An economic hedge is defined as a derivative hedging specific or nonspecific underlying assets, liabilities, or firm commitments, or designated groups thereof that does not qualify or was not designated for hedge accounting, but is an acceptable hedging strategy under the Bank’s risk-management program. These economic hedging strategies also comply with Finance Board regulatory requirements prohibiting speculative hedging transactions. An economic hedge by definition introduces the potential for earnings variability caused by the change in fair value on the derivatives that are recorded in the Bank’s income but not offset by corresponding changes in the value of the economically hedged assets, liabilities, or firm commitments.

The Bank, consistent with Finance Board regulations, enters into derivatives only to reduce the interest-rate-risk exposures inherent in otherwise unhedged assets and funding positions, to achieve the Bank’s risk-management objectives, and to act as an intermediary between its members and counterparties. Bank management uses derivatives when they are considered to be the most cost-efficient alternative to achieve the Bank’s financial and risk-management objectives. Accordingly, the Bank may enter into derivatives that do not necessarily qualify for hedge accounting (economic hedges). As a result, the Bank recognizes only the change in fair value of these derivatives in other income as “net loss on derivatives and hedging activities” with no offsetting fair-value adjustments for the asset, liability, or firm commitment. In addition, the Bank requires collateral agreements on some derivatives.

For the years ended December 31, 2004, 2003, and 2002, the Bank recorded net losses on derivatives and hedging activities totaling $7.1 million, $903,000, and $25.8 million, respectively, in other income. Net losses on derivatives and hedging activities for the years ended December 31, 2004, 2003, and 2002 are as follows (dollars in thousands):

	2004			2003			2002
Net (losses) gains related to fair-value hedge ineffectiveness	$	(2,556	)	$	1,781		$	(666	)
Net losses related to cash-flow hedge ineffectiveness	—			—			(142		)
Net losses resulting from economic hedges not receiving hedge accounting	(4,498		)	(2,684		)	(24,963		)
Net losses on derivatives and hedging activities	$	(7,054	)	$	(903	)	$	(25,771	)

F-31

There were no material amounts for the years ended December 31, 2004, 2003, and 2002 that were reclassified into earnings as a result of the discontinuance of cash-flow hedges because it became probable that the original forecasted transactions would not occur by the end of the originally specified time period or within a two-month period thereafter.

As of December 31, 2004, the amount of deferred net gains on derivative instruments accumulated in other comprehensive income expected to be reclassified to earnings during the next 12 months is $2.2 million. As of December 31, 2004, the maximum remaining length of time over which the Bank is hedging its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, is approximately two months.

The following table represents outstanding notional balances and estimated fair values of derivatives outstanding at December 31, 2004 and 2003 (dollars in thousands):

	2004					2003
	Notional		Estimated Fair Value			Notional		Estimated Fair Value
Interest-rate swaps:
Fair value	$	18,634,971	$	(481,845	)	$	23,312,602	$	(772,927	)
Economic	362,500		(5,427		)	155,500		(14,057		)
Interest-rate swaptions:
Economic	425,000		1,454			280,000		3,880
Interest-rate caps/floors:
Fair value	—		—			80,000		(1,617		)
Economic	446,000		15			891,500		808
Mortgage delivery commitments:
Cash flow	26,736		44			12,523		65
Total derivatives	$	19,895,207	(485,759		)	$	24,732,125	(783,848		)
Accrued interest			148,234					87,278
Net derivatives			$	(337,525	)			$	(696,570	)
Derivative asset			$	60,113				$	40,572
Derivative liability			(397,638		)			(737,142		)
Net derivatives			$	(337,525	)			$	(696,570	)

The Bank formally documents all relationships between derivatives designated as hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions and its method of assessing ineffectiveness. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to (1) assets and liabilities on the statement of condition, (2) firm commitments, or (3) forecasted transactions. The Bank also formally assesses (both at the hedge’s inception and monthly on an ongoing basis) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value or cash flows of hedged items and whether those derivatives may be expected to remain effective in future periods. The Bank typically uses regression analyses or other statistical or scenario-based analyses to assess the effectiveness of its hedges. For hedges that are deemed highly effective that meet the hedge-accounting requirements of SFAS 133, the Bank applies hedge accounting. When it is determined that a derivative has not been or is not expected to be effective as a hedge, the Bank discontinues hedge accounting prospectively, as discussed below.

The Bank discontinues hedge accounting prospectively when: (1) it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur in the originally expected period; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument in accordance with SFAS 133 is no longer appropriate.

Consolidated Obligations. While COs are the joint and several obligations of the FHLBanks, each FHLBank has COs for

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which it is the primary obligator. The Bank enters into derivatives to hedge the interest-rate risk associated with its specific debt issuances.

In a typical transaction, fixed-rate COs are issued for one or more FHLBanks, and the FHLBank simultaneously enters into a matching derivative in which the counterparty pays fixed-interest cash flows to the FHLBank designed to mirror in timing and amount the interest cash outflows the FHLBank pays on the CO. These transactions are treated as fair-value hedges under SFAS 133. At the same time, the FHLBank may pay a variable cash flow that closely matches the interest payments it receives on short-term or variable-rate assets. This intermediation between the capital and derivatives markets permits the FHLBank to raise funds at lower costs than would otherwise be available through the issuance of simple fixed- or floating-rate COs in the capital markets.

In a typical cash flow or economic hedge of anticipated CO issuance, the Bank enters into a hedge upon the execution of an asset transaction that is expected to be funded by a CO with similar interest-rate risk. The hedge transaction is monitored until the anticipated COs are issued, at which time the hedge is terminated at its fair value. If the hedge is designated as a cash-flow hedge and is highly effective, the gain or loss is recorded as a basis adjustment to the hedged CO. If the hedge is designated as an economic hedge or if the hedge is less than highly effective, the fair value of the hedge at termination is recorded in current net income.

Advances. The Bank may use interest-rate swaps to adjust the repricing and/or options characteristics of advances in order to more closely match the characteristics of the Bank’s funding liabilities. Typically, the Bank hedges fixed-rate advances with interest-rate swaps where the Bank pays a fixed-rate coupon and receives a floating-rate coupon, effectively converting the advance to a floating-rate advance. Alternatively, the advance might have a floating-rate coupon based on an interest-rate index other than the LIBOR, in which case, the Bank would receive a coupon based on the non-LIBOR index and pay a LIBOR-based coupon.

With issuances of putable advances, the Bank purchases from the member a put option that enables the Bank to terminate a fixed-rate advance and extend additional credit on new terms. The Bank may hedge a putable advance by entering into a derivative that is cancelable by the derivative counterparty, where the Bank pays a fixed coupon and receives a variable coupon. This type of hedge is treated as a fair-value hedge under SFAS 133. The swap counterparty would normally exercise its option to cancel the derivative at par on any defined exercise date if interest rates had risen, and at that time, the Bank could, at its option, require immediate repayment of the advance.

The member’s ability to prepay can create interest-rate risk. When a member prepays an advance, the Bank could suffer lower future income if the principal portion of the prepaid advance were invested in lower-yielding assets that continue to be funded by higher-cost debt. To protect against this risk, the Bank generally charges a prepayment fee that makes it financially indifferent to a member’s decision to prepay an advance. When the Bank offers advances (other than short-term advances) that a member may prepay without a prepayment fee, it usually finances such advances with callable debt or otherwise hedges this option.

Mortgage Loans. The Bank invests in fixed-rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected lives of these investments, depending on changes in estimated prepayment behavior. The Bank addresses a portion of the interest-rate risk inherent in mortgage loans by duration-matching mortgage loans and the funding liabilities. As interest rates change, the portfolio is rebalanced to maintain the targeted duration level. The Bank may also manage against prepayment, or convexity, risk by funding some mortgage loans with COs that have redemption features. In addition, the Bank may use derivatives to manage the prepayment and duration variability of mortgage loans. Net income could be reduced if the Bank replaces mortgage loans with lower-yielding assets and if the Bank’s higher funding costs are not reduced concomitantly.

Swaptions, which are options to enter into specified interest-rate swaps at a future date, may also be used to hedge prepayment risk on the mortgage loans, many of which are not designated to specific mortgage loans and, therefore, do not receive fair-value or cash-flow hedge-accounting treatment. The options are marked to market through current earnings and presented on the statement of income as “net loss on derivatives and hedging activities.” The Bank may also purchase interest-rate caps and floors, swaptions, callable swaps, calls, and puts to minimize the prepayment risk embedded in the mortgage loans. Although these derivatives are valid economic hedges against the prepayment risk of the loans, they are not specifically linked to individual loans and, therefore, do not receive either fair-value or cash-flow hedge accounting. The derivatives are marked to market through earnings.

Firm Commitment Strategies. Prior to July 1, 2003, the Bank hedged the market value of certain purchase commitments on fixed-rate mortgage loans by using derivatives with similar market-value characteristics. Typically, the Bank hedged these commitments by selling MBS to be announced (TBA) or other derivatives for forward settlement. A TBA represents a forward contract for the sale of MBS at a future agreed upon date. Upon the expiration of the mortgage-purchase commitment, the Bank purchases the TBA to close the hedged position. When the derivative settled, the current market value of the commitments was included with the basis of the mortgage loans and amortized accordingly. This transaction was

F-33

treated as a fair-value hedge. Mortgage-purchase commitments entered into after June 30, 2003, are considered derivatives. Accordingly, both the mortgage-purchase commitment and the TBA used in the firm-commitment hedging strategy are recorded on the statement of condition at fair value, with changes in fair value recognized in the current-period earnings. When the mortgage-purchase-commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan and amortized accordingly.

The Bank may designate these mortgage-purchase commitments as a cash-flow hedge of the anticipated purchase of mortgage loans. The change in value of the delivery commitment is recorded in accumulated other comprehensive income on the statement of condition. When the mortgage-purchase commitment derivative settles, the current market value of the commitment is included with the basis of the mortgage loan. The basis adjustments on the resulting performing loans and the balance in accumulated other comprehensive income are then amortized into net interest income in offsetting amounts over the life of these loans, resulting in no impact on earnings.

Commitments to originate advances are not derivatives under Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS 149). The Bank may also hedge a firm commitment for a forward starting advance through the use of an interest-rate swap. In this case, the swap functions as the hedging instrument for both the firm commitment and the subsequent advance. The basis movement associated with the firm commitment will be rolled into the basis of the advance at the time the commitment is terminated and the advance is issued. The basis adjustment will then be amortized into interest income over the life of the advance.

Investments. The Bank invests in United States agency securities, mortgage-backed securities, asset-backed securities, and the taxable portion of state or local housing-finance-agency securities. The interest-rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. Finance Board regulations prohibit investments in securities issued by foreign entities (other than U.S. branches of commercial banks) or securities denominated in currencies other than U.S. dollars. Moreover, the Finance Board’s regulations and the Bank’s policies limit this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to those with limited average life changes under certain interest-rate-shock scenarios and establishing limitations on duration of equity and changes to market value of equity. The Bank may manage against prepayment and duration risk by funding investment securities with COs that have call features, by hedging the prepayment risk with caps or floors, callable swaps or swaptions. These securities may be classified as “held-to-maturity,” “available-for-sale,” or “trading securities.”

For long-term securities that are classified as “held-to-maturity,” the Bank manages its interest-rate-risk exposure by issuing funding instruments with offsetting market-risk characteristics. For example, the Bank typically funds floating-rate MBS whose coupons reset monthly with short-term discount notes or with other bonds with fixed coupons that have been converted to a floating coupon with an interest-rate swap, while it might use long-term bonds to fund fixed-rate commercial MBS.

For available-for-sale securities that have been hedged and qualify as a fair-value hedge, the Bank records the portion of the change in fair value related to the risk being hedged in other income as “net loss on derivatives and hedging activities” together with the related change in the fair value of the derivative, and the remainder of the change in value is recorded in other comprehensive income as “net unrealized loss on available-for-sale securities.” For available-for-sale securities that have been hedged and qualify as a cash-flow hedge, the Bank records the effective portion of the change in value of the derivative related to the risk being hedged in other comprehensive income as “net unrealized gain relating to hedging activities.” The ineffective portion is recorded in other income in the statement of income and presented as “net loss on derivatives and hedging activities.”

The Bank may also manage the risk arising from changing market prices or cash flows of investment securities classified as “trading” by entering into derivatives (economic hedges) that offset the changes in fair value or cash flows of the securities. These derivatives are not specifically designated as hedges of individual assets, but rather, are collectively managed to provide an offset to the changes in the fair values of the assets. The market-value changes of both the trading securities and the associated derivatives are included in other income in the statements of income and presented as “net loss on derivatives and hedging activities.”

Anticipated Debt Issuance. The Bank may enter into interest-rate swaps for the anticipated issuance of fixed-rate bonds to “lock in” a spread between the earning asset and the cost of funding. The interest-rate swap is terminated upon issuance of the fixed-rate bond, with the realized gain or loss reported on the interest-rate swap recorded in accumulated other comprehensive income. Realized gains and losses reported in accumulated other comprehensive income are recognized as earnings in the periods in which earnings are affected by the cash flows of the fixed-rate bonds.

Intermediation. To assist its members in meeting their hedging needs, the Bank acts as an intermediary between the members and other counterparties by entering into offsetting derivatives. This intermediation allows smaller members indirect access to the derivatives market. The derivatives used in intermediary activities do not qualify for SFAS 133 hedge-accounting treatment and are separately marked to market through earnings. The net result of the accounting for these derivatives does not significantly affect the operating results of the Bank. These amounts are recorded in other income and presented as “net loss on derivatives and hedging activities.”

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The Bank is not a derivatives dealer and does not trade derivatives for short-term profit.

Credit Risk. The Bank is subject to credit risk on its hedging activities due to the risk of nonperformance by counterparties to the derivative agreements. The degree of potential counterparty risk on derivative agreements depends on the extent to which master-netting arrangements are included in such contracts to mitigate the risk. The Bank manages counterparty credit risk through its ongoing monitoring of counterparty credit worthiness and by following the requirements set forth in Finance Board regulations. All counterparties must execute master netting agreements prior to entering into any interest-rate-exchange agreement with the Bank. These agreements generally contain bilateral-collateral exchange agreements that require that credit exposure beyond a defined threshold amount be secured by readily marketable, investment-grade securities or cash. The level of these collateral threshold amounts varies according to the counterparty’s Standard & Poor’s or Moody’s Investor Services ratings. Credit exposures are then measured at least weekly and, in most cases daily, and adjustments to collateral positions are made as necessary to minimize the Bank’s exposure to credit risk. These master-netting agreements also generally contain bilateral ratings-tied termination events permitting the Bank to terminate all outstanding agreements with a counterparty in the event of a specified rating downgrade by Moody’s Investors Services or Standard and Poor’s. Based on credit analyses and collateral requirements, Bank management does not anticipate any credit losses on its derivative agreements.

The contractual or notional amount of derivatives reflects the involvement of the Bank in the various classes of financial instruments. The notional amount of derivatives does not measure the credit-risk exposure of the Bank, and the maximum credit exposure of the Bank is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans executed after June 30, 2003, and purchased caps and floors if the counterparty defaults, and the related collateral, if any is of no value to the Bank.

At December 31, 2004 and 2003, the Bank’s maximum credit risk, as defined above, was approximately $60.1 million and $40.5 million, respectively. These totals include $102.1 million and $23.9 million of net accrued interest receivable, respectively. In determining maximum credit risk, the Bank considers accrued interest receivable and payable, and the legal right to offset derivative assets and liabilities by counterparty. The Bank held securities and cash with a fair value of $63.9 million and $40.1 million as collateral as of December 31, 2004 and 2003, respectively. This collateral has not been sold or repledged. Additionally, collateral with respect to derivatives with member institutions includes collateral assigned to the Bank, as evidenced by a written security agreement and held by the member institution for the benefit of the Bank.

The Bank generally executes derivatives with counterparties rated A or better by either Standard and Poor’s or Moody’s. Some of these counterparties or their affiliates buy, sell, and distribute COs. Note 18 discusses assets pledged by the Bank to these counterparties.

The Bank has not issued COs denominated in currencies other than U.S. dollars.

Note 17 – Estimated Fair Values

The following estimated fair-value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank as of December 31, 2004 and 2003. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases, fair values are not subject to precise quantification or verification and may change as economic and market factors and evaluation of those factors change. Therefore, these estimated fair values are not necessarily indicative of the amounts that would be realized in current market transactions. The fair-value summary tables do not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities.

Cash and Due from Banks. The estimated fair value approximates the recorded book balance.

Interest-Bearing Deposits and Investment Securities. The estimated fair value is based on average quoted prices from two or more investment securities dealers, where available, or determined by calculating the present value of the estimated future cash flows. The market-environment assumptions used in these calculations are those used by the market in determining fair values of investments with similar terms.

Securities Purchased under Agreements to Resell. The estimated fair value is determined by calculating the present value of the expected future cash flows. The discount rates used in these calculations approximate rates for securities with similar terms.

Federal Funds Sold. The estimated fair value is determined by calculating the present value of the future cash flows. The discount rates used in these calculations approximate rates for federal funds with similar terms.

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Advances. The Bank determines the estimated fair value of advances with fixed rates and advances with complex floating rates by calculating the present value of expected cash flows from the advances and excluding the amount for accrued interest receivable. The discount rates used in these calculations are the current replacement rates for advances and loans with similar terms. Under the Finance Board’s advances regulations, except in cases where advances are funded by callable debt or otherwise hedged so as to be financially indifferent to prepayments, advances with a maturity or repricing period greater than six months require a prepayment fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advances. Therefore, the estimated fair value of advances does not assume prepayment risk.

Mortgage Loans. The estimated fair values of mortgage loans are calculated using market-environment and prepayment-behavior assumptions that are calibrated to quoted market prices and prepayment speeds of similar mortgage loans. These prices, however, are highly dependent upon the underlying prepayment assumptions, and changes in the prepayment rates used could have an effect on the estimated fair values.

Accrued Interest Receivable and Payable. The estimated fair value approximates the recorded book value.

Derivative Assets and Liabilities. The Bank bases the estimated fair values of derivatives with similar terms on available market prices, including accrued interest receivable and payable. However, active markets may not exist for many types of financial instruments. Consequently, fair values for these instruments must be estimated using techniques such as discounted cash-flow analysis and comparisons to similar instruments. Estimates developed using these methods are highly subjective and require judgments regarding significant matters such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Because these estimates are made as of a specific point in time, they are susceptible to material near-term changes. The fair values are netted by counterparty where such legal right exists. If these netted amounts are positive they are classified as an asset, and if negative, they are classified as a liability.

Deposits. The Bank determines estimated fair values of deposits by calculating the present value of expected future cash flows from the deposits and reducing this amount for accrued interest payable. The discount rates used in these calculations are the cost of deposits with similar terms.

Consolidated Obligations. The Bank estimates fair value based on the present value of each obligation discounted at the estimated cost of raising comparable term debt as indicated by the Office of Finance. For COs with remaining maturities of three months or less, the fair value is estimated as the current book value.

Mandatorily Redeemable Capital Stock. The fair value of capital subject to mandatory redemption is generally at par value. Capital stock can only be acquired by the Bank’s members at par value and redeemed at par value. Capital stock is not traded and no market mechanism exits for the exchange of stock outside the cooperative structure.

Commitments. The estimated fair value of the Bank’s standby bond-purchase agreements is based on the present value of the estimated fees taking into account the remaining terms of the agreements. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The estimated fair value of the Bank’s standby letters of credit was immaterial at December 31, 2004 and 2003.

F-36

The carrying values and estimated fair values of the Bank’s financial instruments at December 31, 2004, were as follows (dollars in thousands):

	Carrying Value			Net Unrealized Gain/(Loss)			Estimated Fair Value
Financial instruments
Assets:
Cash and due from banks	$	11,891		$	—		$	11,891
Interest-bearing deposits in banks	2,655,050			(331		)	2,654,719
Securities purchased under agreements to resell	1,500,000			(20		)	1,499,980
Federal funds sold	5,586,800			(201		)	5,586,599
Trading securities	295,407			—			295,407
Available-for-sale securities	1,005,495			—			1,005,495
Held-to-maturity securities	6,253,356			98,712			6,352,068
Advances	30,208,753			3,452			30,212,205
Mortgage loans, net	4,011,981			6,496			4,018,477
Accrued interest receivable	140,661			—			140,661
Derivative assets	60,113			—			60,113
Liabilities:
Deposits	(890,869		)	1,276			(889,593		)
Consolidated obligations:
Bonds	(27,679,714		)	(106,639		)	(27,786,353		)
Discount notes	(20,090,681		)	1,895			(20,088,786		)
Mandatorily redeemable capital stock	(57,882		)	—			(57,882		)
Accrued interest payable	(223,276		)	—			(223,276		)
Derivative liabilities	(397,638		)	—			(397,638		)
Other:
Commitments to extend credit for advances	—			(830		)	(830		)
Standby bond-purchase agreements	—			1,274			1,274

The carrying values and estimated fair values of the Bank’s financial instruments at December 31, 2003, were as follows (dollars in thousands):

	Carrying Value			Net Unrealized Gain/(Loss)			Estimated Fair Value
Financial instruments
Assets:
Cash and due from banks	$	9,218		$	—		$	9,218
Interest-bearing deposits in banks	100,050			(3		)	100,047
Securities purchased under agreements to resell	500,000			(3		)	499,997
Federal funds sold	2,426,000			(17		)	2,425,983
Trading securities	398,975			—			398,975
Available-for-sale securities	1,097,612			—			1,097,612
Held-to-maturity securities	6,543,542			173,366			6,716,908
Advances	26,074,230			173,019			26,247,249
Mortgage loans, net	4,536,698			(1,583		)	4,535,115
Accrued interest receivable	138,128			—			138,128
Derivative assets	40,572			—			40,572
Liabilities:
Deposits	(946,166		)	1,606			(944,560		)
Consolidated obligations:
Bonds	(32,057,521		)	(408,434		)	(32,465,955		)
Discount notes	(5,346,504		)	160			(5,346,344		)
Accrued interest payable	(268,105		)	—			(268,105		)
Derivative liabilities	(737,142		)	—			(737,142		)
Other:
Commitments to extend credit for advances	—			(197		)	(197		)
Standby bond-purchase agreements	—			1,667			1,667

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Note 18 – Commitments and Contingencies

As described in Note 12, the 12 FHLBanks have joint and several liability for all the COs issued on their behalves. Accordingly, should one or more of the FHLBanks be unable to repay its participation in the COs, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board. No FHLBank has had to assume or pay the CO of another FHLBank.

The Bank considered the guidance under FASB interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), and determined it was not necessary to recognize the fair value of the Bank’s joint and several liability for all of the COs. The Bank considers the joint and several liability as a related party guarantee. Related party guarantees meet the scope exceptions in FIN 45. Accordingly, the Bank has not recognized a liability for its joint and several obligation related to other FHLBanks’ COs at December 31, 2004 and 2003. The par amounts of other FHLBanks’ outstanding COs for which the Bank is jointly and severally liable were approximately $816.6 billion and $717.1 billion at December 31, 2004 and 2003, respectively.

Commitments to Extend Credit. Commitments that legally bind and unconditionally obligate the Bank for additional advances totaled approximately $52.2 million and $50.7 million at December 31, 2004 and 2003, respectively. Commitments generally are for periods up to 12 months. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have any additional liability on these commitments. Commitments are fully collateralized at the time of issuance (see Note 8). The estimated fair values of commitments as of December 31, 2004 and 2003, are reported in Note 17.

Commitments for unused line-of-credit advances totaled approximately $1.5 billion and $1.6 billion at December 31, 2004 and 2003, respectively. Commitments are generally for periods of up to 12 months. Since many of these commitments are not expected to be drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Mortgage Loans. Commitments that obligate the Bank to fund or purchase mortgage loans totaled $26.7 million and $12.5 million at December 31, 2004 and 2003, respectively. Commitments are generally for periods not to exceed 45 business days. In accordance with SFAS 149, such commitments entered into after June 30, 2003, have been recorded as derivatives at their fair values on the statement of condition.

Standby Bond-Purchase Agreements. The Bank has entered into standby bond-purchase agreements with state housing authorities whereby the Bank, for a fee, agrees to purchase and hold the authority’s bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the Bank to purchase the bond. The bond-purchase commitments entered into by the Bank expire after five years, no later than 2008. Total commitments for bond purchases were $622.3 million and $638.6 million at December 31, 2004 and 2003, respectively; the Bank had agreements with three state housing authorities at December 31, 2004 and 2003. During 2004 and 2003, the Bank was not required to purchase any bonds under these agreements. The estimated fair value of standby bond-purchase agreements as of December 31, 2004 and 2003, is reported in Note 17.

Counterparty Credit Exposure. The Bank generally executes derivatives with counterparties rated A or better by either Standard and Poor’s or Moody’s, and generally enters into bilateral collateral agreements. As of December 31, 2004 and 2003, the Bank had pledged as collateral securities with a carrying value of $173.3 million and $479.8 million, respectively, to counterparties that have credit-risk exposure to the Bank related to derivatives. Of the amounts pledged as collateral at December 31, 2004 and 2003, $173.3 million and $410.4 million, respectively, were subject to contractual agreements whereby the counterparties had the right to sell or repledge the collateral.

Forward Settling Derivative Contracts. As of December 31, 2004 and 2003, the Bank had entered into derivatives with notional amounts totaling $477.0 million and $280.0 million, respectively, with settlement dates in 2005 and 2006.

Unsettled Consolidated Obligations. The Bank entered into $65.5 million and $42.0 million par value of CO bonds that had traded but not settled as of December 31, 2004 and 2003, respectively. There were no unsettled discount notes as of December 31, 2004. The Bank entered into $260.9 million par value of discount notes that had traded but not settled as of December 31, 2003.

F-38

Lease Commitments. The Bank charged to operating expense net rental costs of approximately $3.6 million, $3.7 million, and $3.3 million, during the years ending December 31, 2004, 2003, and 2002, respectively. Future minimum rentals at December 31, 2004 were as follows (dollars in thousands):

Year	Premises		Equipment		Total
2005	$	3,353	$	19	$	3,372
2006	3,371		4		3,375
2007	3,679		—		3,679
2008	3,500		—		3,500
2009	3,464		—		3,464
Thereafter	10,392		—		10,392
Total	$	27,759	$	23	$	27,782

Lease agreements for Bank premises generally provide for increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Such increases are not expected to have a material effect on the Bank.

Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

Other commitments and contingencies are discussed in Notes 8, 9, 12, 13, 14, and 16.

Note 19 – Transactions with Related Parties and Other FHLBanks

Transactions with Related Parties. The Bank is a cooperative whose member institutions own the capital stock of the Bank and may receive dividends on their investment in the Bank. In addition, certain former members that still have outstanding transactions with the Bank are also required to maintain their investment in the Bank’s capital stock until the transactions mature or are paid off. All advances are issued to members, and all mortgage loans held for portfolio are purchased from members. The Bank also maintains demand deposit accounts for members primarily to facilitate settlement activities that are directly related to advances, mortgage-loan purchases, and other transactions between the Bank and the member institution. All transactions with members are entered into in the normal course of business. In instances where the member has an officer who serves as a director of the Bank, those transactions are subject to the same eligibility and credit criteria, as well as the same terms and conditions, as transactions with all other members. The Bank defines related parties as 1) those members whose capital stock outstanding was in excess of 10 percent of the Bank’s total capital stock outstanding and 2) other FHLBanks. As discussed in Note 13, the Bank had one member, Fleet National Bank, which held more than 10 percent of total capital stock outstanding as of December 31, 2004 and 2003. The Bank’s advances and capital stock activity with Fleet National Bank are discussed in Notes 8 and 13.

In the normal course of business, the Bank invested in overnight federal funds sold with Fleet National Bank during the years ended December 31, 2003 and 2002. There were no federal funds sold transacted with Fleet National Bank during 2004. All federal funds sold transactions were transacted through third-party brokers at current market rates.

Transactions with Other FHLBanks. The Bank may occasionally enter into transactions with other FHLBanks. These transactions are summarized below.

Investments in Consolidated Obligations. The Bank has invested in COs of other FHLBanks. The Bank’s carrying value of other FHLBank COs classified as available-for-sale was $15.7 million and $16.3 million at December 31, 2004 and 2003, respectively (see Note 6). The Bank recorded interest income of $932,000, $907,000, and $1.1 million from these investment securities for the years ended December 31, 2004, 2003, and 2002 respectively. Purchases of COs issued for other FHLBanks occur at market prices through third-party securities dealers.

Overnight Funds. The Bank may borrow or lend unsecured overnight funds from or to other FHLBanks. All such transactions are at current market rates. Interest income and interest expense related to these transactions with other FHLBanks is included within other interest income and interest expense from other borrowings in the statements of income.

The Bank did not have any loans to other FHLBanks outstanding at December 31, 2004 and 2003. Interest income from loans to other FHLBanks during the years ended December 31, 2004, 2003, and 2002 are shown in the following table, by FHLBank (dollars in thousands):

F-39

	2004		2003		2002
Interest Income from Other FHLBanks
Atlanta	$	—	$	3	$	—
Cincinnati	7		2		—
Pittsburgh	10		85		83
Seattle	—		4		1
Topeka	—		4		—
Total	$	17	$	98	$	84

The Bank did not have any borrowings from other FHLBanks outstanding at December 31, 2004 and 2003. Interest expense from borrowings from other FHLBanks for the years ended December 31, 2004, 2003, and 2002 are shown in the following table, by FHLBank (dollars in thousands):

	2004		2003		2002
Interest Expense from Other FHLBanks
Atlanta	$	13	$	19	$	8
Chicago	1		7		32
Cincinnati	8		4		4
Dallas	—		—		5
Des Moines	—		10		2
Indianapolis	2		1		—
New York	4		3		—
Pittsburgh	1		41		21
San Francisco	20		12		66
Seattle	6		4		29
Topeka	6		8		19
Total	$	61	$	109	$	186

Advances. From time to time, a member of one FHLBank may be acquired by a member of another FHLBank. Upon such an event, the two FHLBanks may agree to transfer the advances of the acquired member to the FHLBank of the surviving member. FHLBanks may also agree to the purchase and sale of any attendant hedges.

In the first quarter of 2004, the Bank engaged in two such transactions with the FHLBank of Pittsburgh:

•The Bank sold advances with a par value and fair value of $195.5 million and $207.0 million, respectively, and assigned $120.0 million notional in associated derivative hedges with a fair value of ($10.2) million; and

•The Bank purchased advances with a par value and fair value of $195.5 million and $205.3 million, respectively, and assumed $87.0 million notional in associated derivative hedges with a fair value of ($6.0) million.

In the first quarter of 2003, the Bank engaged in one such transaction with the FHLBank of San Francisco:

•The Bank purchased advances with a par value and fair value of $44.5 million and $47.2 million, respectively, and assumed $18.0 million notional in associated derivative hedges with a fair value of ($2.0) million.

There were no transfers of advances between the Bank and other FHLBanks during the year ended December 31, 2002.

MPF Mortgage Loans. In the ordinary course of business, the Bank sells to the FHLBank of Chicago participations in mortgage assets that the Bank purchases from its members. During the years ended December 31, 2004, 2003, and 2002, the Bank sold to the FHLBank of Chicago approximately $3.6 billion, $6.7 billion, and $788.2 million, respectively, in such mortgage-loan participations.

Beginning in 2004, the Bank began paying a transaction-services fee to the FHLBank of Chicago for the Bank’s participation in the MPF program. This fee is assessed monthly, and is based upon the amount of MPF loans outstanding that remain on the Bank’s statement of condition. The Bank recorded $78,000 in MPF transaction-services fee expense to the FHLBank of Chicago during the year ended December 31, 2004, which has been recorded in the statements of income as other expense.

Consolidated Obligations. From time to time, other FHLBanks may transfer to the Bank debt obligations in which the other FHLBank was the primary obligor and upon transfer we became the primary obligor. During the years ended December 31, 2004 and 2003, the Bank assumed debt obligations with a par amount of approximately $351.0 million and $567.5 million, respectively, with a fair value of approximately $345.9 million and $560.7 million, respectively, which had previously been the obligation of the FHLBank of Chicago. There were no transfers of debt obligations between the Bank and other FHLBanks during the year ended December 31, 2002.

F-40

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CONDITION

(dollars and shares in thousands, except par value)

(unaudited)

	March 31,			December 31,
	2005			2004
ASSETS
Cash and due from banks	$	11,346		$	11,891
Interest-bearing deposits in banks	2,500,050			2,655,050
Securities purchased under agreements to resell	—			1,500,000
Federal funds sold	4,497,000			5,586,800
Investments:
Trading securities – includes $849 and $16,972 pledged as collateral at March 31, 2005, and December 31, 2004, that may be repledged	274,891			295,407
Available-for-sale securities – includes $84,435 and $122,880 pledged as collateral at March 31, 2005, and December 31, 2004, that may be repledged	1,000,205			1,005,495
Held-to-maturity securities – includes $24,213 and $33,404 pledged as collateral at March 31, 2005, and December 31, 2004, that may be repledged (1)	6,336,260			6,253,356
Advances	30,959,202			30,208,753
Mortgage loans held for portfolio, net of allowance for credit losses of $1,451 and $1,379 at March 31, 2005, and December 31, 2004	4,150,955			4,011,981
Accrued interest receivable	147,113			140,661
Premises and equipment, net	5,980			6,166
Derivative assets, net	14,552			60,113
Other assets	21,409			19,422
Total Assets	$	49,918,963		$	51,755,095
LIABILITIES
Deposits:
Interest-bearing:
Demand and overnight	$	725,447		$	856,335
Term	29,142			27,781
Other	2,294			3,116
Non-interest-bearing:
Other	3,194			3,637
Total deposits	760,077			890,869
Consolidated obligations, net:
Bonds	28,112,269			27,679,714
Discount notes	17,899,024			20,090,681
Total consolidated obligations, net	46,011,293			47,770,395
Mandatorily redeemable capital stock	57,892			57,882
Accrued interest payable	245,661			223,276
Affordable Housing Program (AHP)	31,640			33,199
Payable to Resolution Funding Corporation (REFCorp)	6,375			5,137
Dividends payable	21,062			16,801
Derivative liabilities, net	311,904			397,638
Other liabilities	172,307			180,934
Total liabilities	47,618,211			49,576,131
Commitments and contingencies (Note 7)
CAPITAL
Capital stock – Class B – putable ($100 par value), 21,926 shares and 20,858 shares issued and outstanding at March 31, 2005, and December 31, 2004	2,192,569			2,085,814
Retained earnings	101,371			95,866
Accumulated other comprehensive income:
Net unrealized gain/(loss) on available-for-sale securities	2,719			(7,572		)
Net unrealized gain relating to hedging activities	4,322			5,085
Minimum pension liability	(229		)	(229		)
Total capital	2,300,752			2,178,964
Total Liabilities and Capital	$	49,918,963		$	51,755,095

(1)Fair values of held-to-maturity securities were $6,392,847 and $6,352,068 at March 31, 2005, and December 31, 2004, respectively.

The accompanying notes are an integral part of these financial statements.

F-41

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF INCOME

(dollars in thousands)

(unaudited)

	Three Months Ended March 31,
	2005			2004
INTEREST INCOME
Advances	$	217,167		$	138,316
Prepayment fees on advances, net	4,569			15,005
Interest-bearing deposits in banks	17,610			87
Securities purchased under agreements to resell	3,746			2,691
Federal funds sold	29,180			5,126
Investments:
Trading securities	3,661			4,967
Available-for-sale securities	5,628			2,898
Held-to-maturity securities	61,846			57,712
Prepayment fees on investments	3,600			1,248
Mortgage loans held for portfolio	48,769			52,492
Other	—			3
Total interest income	395,776			280,545
INTEREST EXPENSE
Consolidated obligations	336,837			226,051
Deposits	3,536			1,753
Mandatorily redeemable capital stock	571			330
Other borrowings	71			22
Total interest expense	341,015			228,156
NET INTEREST INCOME	54,761			52,389
Provision for/(reduction of) credit losses on mortgage loans	72			(2		)
NET INTEREST INCOME AFTER PROVISION FOR/ (REDUCTION OF) CREDIT LOSSES ON MORTGAGE LOANS	54,689			52,391
OTHER INCOME/(LOSS)
Loss on early extinguishment of debt	(8,025		)	(6,127		)
Service fees	562			589
Net unrealized (loss)/gain on trading securities	(3,889		)	1,593
Net gain/(loss) on derivatives and hedging activities	4,365			(1,662		)
Other	2			18
Total other income/(loss)	(6,985		)	(5,589		)
OTHER EXPENSE
Operating	10,531			8,738
Finance Board and Office of Finance	877			819
Other	72			14
Total other expense	11,480			9,571
INCOME BEFORE ASSESSMENTS	36,224			37,231
AHP	3,015			3,073
REFCorp	6,642			6,832
Total assessments	9,657			9,905
NET INCOME	$	26,567		$	27,326

The accompanying notes are an integral part of these financial statements.

F-42

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CAPITAL

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

(dollars and shares in thousands)

(unaudited)

	Capital Stock - Putable					Capital Stock Class B - Putable					Retained			Accumulated Other Comprehensive			Total
	Shares		Par Value			Shares		Par Value			Earnings			Income			Capital
BALANCE, DECEMBER 31, 2003	24,280		$	2,427,960		—		—			$	61,769		$	(17,684	)	$	2,472,045
Proceeds from sale of capital stock	509		50,873			—		—									50,873
Repurchase/redemption of capital stock	(143	)	(14,271		)	—		—									(14,271		)
Reclassifications of shares to mandatorily redeemable capital stock	(1,092	)	(109,201		)	—		—									(109,201		)
Comprehensive income:
Net income											27,326						27,326
Other comprehensive income:
Net unrealized gains on available-for-sale securities														1,218			1,218
Net unrealized gains relating to hedging activities														412			412
Less: reclassification adjustment for previously deferred hedging gains and losses included in income														(179		)	(179		)
Total net comprehensive income																	28,777
Cash dividends on capital stock (2.15%) (1)											(12,751		)				(12,751		)
BALANCE, MARCH 31, 2004	23,554		$	2,355,361		—		—			$	76,344		$	(16,233	)	$	2,415,472
BALANCE, DECEMBER 31, 2004	—		—			20,858		$	2,085,814		$	95,866		$	(2,716	)	$	2,178,964
Proceeds from sale of capital stock	—		—			1,978		197,765									197,765
Repurchase/redemption of capital stock	—		—			(910	)	(91,000		)							(91,000		)
Reclassifications of shares to mandatorily redeemable capital stock-	—		(10		)						(10		)
Comprehensive income:
Net income											26,567						26,567
Other comprehensive income:
Net unrealized gains on available-for-sale securities														10,291			10,291
Net unrealized losses relating to hedging activities														(214		)	(214		)
Less: reclassification adjustment for previously deferred hedging gains and losses included in income														(549		)	(549		)
Total net comprehensive income																	36,095
Cash dividends on capital stock (4.00%) (1)											(21,062		)				(21,062		)
BALANCE, MARCH 31, 2005	—		—			21,926		$	2,192,569		$	101,371		$	6,812		$	2,300,752

(1)     Dividend rate is annualized

The accompanying notes are an integral part of these financial statements.

F-43

FEDERAL HOME LOAN BANK OF BOSTON

STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

	Three Months Ended March 31,
	2005			2004
OPERATING ACTIVITIES
Net income	$	26,567		$	27,326
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Net premiums and discounts on consolidated obligations, investments, and derivatives	(41,876		)	10,553
Net premiums and discounts on mortgage loans	3,683			6,316
Concessions on consolidated obligations	1,921			4,261
Premises and equipment	304			394
Other	1,987			2,603
Provision for/(reduction of) credit losses on mortgage loans	72			(2		)
Net decrease in trading securities	20,516			27,884
Net gain due to change in net fair-value adjustments on derivatives and hedging activities	(13,290		)	(28,757		)
Loss on early extinguishment of debt	8,025			6,127
(Increase)/decrease in accrued interest receivable	(6,272		)	11,877
Decrease/(increase) in derivative asset – accrued interest	82,290			(6,050		)
Decrease in derivative liability – accrued interest	(54,257		)	(41,942		)
(Increase)/decrease in other assets	(941		)	76
Net (decrease)/increase in AHP liability and discount on AHP and other housing-program advances	(375		)	901
Increase in accrued interest payable	22,385			7,799
Increase in payable to REFCorp	1,238			800
Decrease in other liabilities	(492		)	(208		)
Total adjustments	24,918			2,632
Net cash provided by operating activities	51,485			29,958
INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks	155,000			100,000
Net decrease/(increase) in securities purchased under agreements to resell	1,500,000			(200,000		)
Net decrease/(increase) in federal funds sold	1,089,800			(784,500		)
Proceeds from maturities of available-for-sale securities	—			2
Purchases of held-to-maturity securities	(582,686		)	(380,738		)
Proceeds from maturities of held-to-maturity securities	489,997			462,480
Principal collected on advances	234,474,002			119,491,948
Advances made	(235,373,670		)	(118,970,862		)
Principal collected on mortgage loans	194,149			200,068
Purchases of mortgage loans	(337,782		)	(102,326		)
Net increase in premises and equipment	(118		)	(553		)
Net cash provided by (used in) investing activities	1,608,692			(184,481		)

F-44

	Three Months Ended March 31,
	2005			2004
FINANCING ACTIVITIES
Net (decrease)/increase in deposits	(130,076		)	1,085,752
Net proceeds from sale of consolidated obligations:
Discount notes	202,098,275			63,623,944
Bonds	4,074,904			2,845,754
Payments for maturing and retiring consolidated obligations:
Discount notes	(204,302,202		)	(62,476,227		)
Bonds	(3,491,587		)	(4,945,734		)
Proceeds from issuance of capital stock	197,765			50,873
Payments for redemption of mandatorily redeemable capital stock	—			(1		)
Payments for repurchase/redemption of capital stock	(91,000		)	(14,271		)
Cash dividends paid	(16,801		)	(16,753		)
Net cash (used by)/provided by financing activities	(1,660,722		)	153,337
Net decrease in cash and cash equivalents	(545		)	(1,186		)
Cash and cash equivalents at beginning of the period	11,891			9,218
Cash and cash equivalents at end of the period	$	11,346		$	8,032
Supplemental disclosure:
Interest paid	$	315,904		$	540,803
AHP payments	$	3,208		$	2,127
REFCorp payments	$	5,404		$	6,032

The accompanying notes are an integral part of these financial statements.

F-45

CONFIDENTIAL TREATMENT REQUESTED BY THE FEDERAL HOME LOAN BANK OF BOSTON

(PURSUANT TO 17 C.F.R § 200.83)

FEDERAL HOME LOAN BANK OF BOSTON

NOTES TO THE FINANCIAL STATEMENTS

(unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair statement have been included. The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2005. The unaudited financial statements should be read in conjunction with the Bank’s audited financial statements and related notes as of December 31, 2004.

Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation.

Note 2 – Trading Securities

Major Security Types. Trading securities as of March 31, 2005, and December 31, 2004, were as follows (dollars in thousands):

	March 31,		December 31,
	2005		2004
Mortgage-backed securities
U.S. government guaranteed	$	70,072	$	75,293
Government-sponsored enterprises	120,914		129,114
Other	83,905		91,000
Total	$	274,891	$	295,407

Net gains on trading securities for the three months ended March 31, 2005 and 2004, include a change in net unrealized holding losses of  $3.9 million and net unrealized holding gains of $1.6 million, respectively.

Note 3 – Available-for-Sale Securities

Major Security Types. Available-for-sale securities as of March 31, 2005, were as follows (dollars in thousands):

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
International agency obligations	$	352,477	$	35,681	—			$	388,158
U.S. government corporations	213,926		8,980		—			222,906
Government-sponsored enterprises	184,955		9,806		$	(84	)	194,677
Other FHLBanks’ bonds	14,884		492		—			15,376
	766,242		54,959		(84		)	821,117
Mortgage-backed securities
Government-sponsored enterprises	174,080		5,008		—			179,088
Total	$	940,322	$	59,967	$	(84	)	$	1,000,205

F-46

Available-for-sale securities as of December 31, 2004, were as follows (dollars in thousands):

			Gross		Gross	Estimated
	Amortized		Unrealized		Unrealized	Fair
	Cost		Gains		Losses	Value
International agency obligations	$	352,626	$	34,585	—	$	387,211
U.S. government corporations	213,963		9,387		—	223,350
Government-sponsored enterprises	185,035		11,280		—	196,315
Other FHLBanks’ bonds	14,911		793		—	15,704
	766,535		56,045		—	822,580
Mortgage-backed securities
Government-sponsored enterprises	174,250		8,665		—	182,915
Total	$	940,785	$	64,710	—	$	1,005,495

The Bank has concluded that, based on the creditworthiness of the issuers and any underlying collateral, the unrealized loss on each security in the above tables represents a temporary impairment and does not require an adjustment to the carrying amount of any of the securities.

Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities, as of March 31, 2005, and December 31, 2004, by contractual maturity, are shown below (dollars in thousands). Expected maturities of some securities and mortgage-backed securities (MBS) will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	March 31, 2005				December 31, 2004
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
Year of Maturity	Cost		Value		Cost		Value
Due after one year through five years	$	96,435	$	98,414	$	96,517	$	100,587
Due after five years through 10 years	14,597		14,818		14,613		15,072
Due after 10 years	655,210		707,885		655,405		706,921
	766,242		821,117		766,535		822,580
Mortgage-backed securities	174,080		179,088		174,250		182,915
Total	$	940,322	$	1,000,205	$	940,785	$	1,005,495

The amortized cost of the Bank’s MBS classified as available-for-sale includes net premiums of $4.9 million and $5.0 million at March 31, 2005, and December 31, 2004, respectively.

Note 4 – Held-to-Maturity Securities

Major Security Types. Held-to-maturity securities as of March 31, 2005, were as follows (dollars in thousands):

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. agency obligations	$	88,503	$	3,430	$	—		$	91,933
Government-sponsored enterprises	200,029		—		(1,087		)	198,942
State or local housing-agency obligations	383,752		10,498		(4,232		)	390,018
	672,284		13,928		(5,319		)	680,893
Mortgage-backed securities
U.S. government guaranteed	25,248		1,025		—			26,273
Government-sponsored enterprises	1,233,763		33,734		(5,338		)	1,262,159
Other	4,404,965		31,526		(12,969		)	4,423,522
	5,663,976		66,285		(18,307		)	5,711,954
Total	$	6,336,260	$	80,213	$	(23,626	)	$	6,392,847

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Held-to-maturity securities as of December 31, 2004, were as follows (dollars in thousands):

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. agency obligations	$	91,477	$	4,637	—			$	96,114
Government-sponsored enterprises	200,076		—		$	(840	)	199,236
State or local housing-agency obligations	435,829		14,700		(5,216		)	445,313
	727,382		19,337		(6,056		)	740,663
Mortgage-backed securities
U.S. government guaranteed	27,038		1,236		—			28,274
Government-sponsored enterprises	1,302,867		50,369		(3,390		)	1,349,846
Other	4,196,069		45,172		(7,956		)	4,233,285
	5,525,974		96,777		(11,346		)	5,611,405
Total	$	6,253,356	$	116,114	$	(17,402	)	$	6,352,068

The Bank has concluded that, based on the creditworthiness of the issuers and any underlying collateral, the unrealized loss on each security in the above tables represents a temporary impairment and does not require an adjustment to the carrying amount of any of the securities.

Redemption Terms. The amortized cost and estimated fair value of held-to-maturity securities as of March 31, 2005, and December 31, 2004, by contractual maturity, are shown below (dollars in thousands). Expected maturities of some securities and MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.

	March 31, 2005				December 31, 2004
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
Year of Maturity	Cost		Value		Cost		Value
Due in one year or less	$	200,029	$	198,941	$	200,076	$	199,235
Due after one year through five years	5,214		5,613		3,594		3,849
Due after five years through 10 years	13,140		13,952		47,988		51,209
Due after 10 years	453,901		462,387		475,724		486,370
	672,284		680,893		727,382		740,663
Mortgage-backed securities	5,663,976		5,711,954		5,525,974		5,611,405
Total	$	6,336,260	$	6,392,847	$	6,253,356	$	6,352,068

The amortized cost of the Bank’s MBS classified as held-to-maturity includes net premiums of $8.9 million and $10.1 million at March 31, 2005, and December 31, 2004, respectively.

Note 5 – Employee Retirement Plans

The Bank participates in the Financial Institutions Retirement Fund (FIRF), a defined benefit plan. The plan covers substantially all officers and employees of the Bank. Funding and administrative costs of FIRF charged to operating expenses were $1.0 million and $0.4 million for the three months ended March 31, 2005 and 2004, respectively. FIRF is a multi-employer plan and does not segregate its assets, liabilities, or costs by participating employer. As a result, disclosure and accounting of the accumulated benefit obligations, plan assets, and the components of pension expense attributable to the Bank cannot be made.

Also, the Bank maintains a nonqualified, unfunded defined benefit plan (supplemental retirement plan) covering certain senior officers and the Bank sponsors a fully insured retirement benefit program (postretirement benefit plan) that includes life insurance benefits for eligible retirees.

Components of net periodic pension cost for the Bank’s supplemental retirement plan and postretirement benefit plan for the three months ended March 31, 2005 and 2004, were (dollars in thousands):

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	Supplemental Retirement Plan				Postretirement Benefit Plan
	2005		2004		2005		2004
Service cost	$	82	$	73	$	2	$	2
Interest cost	91		96		4		4
Amortization of unrecognized prior service cost	7		7		—		—
Amortization of unrecognized net loss	65		44		—		—
Amortization of unrecognized net obligation	5		5		—		—
Net periodic benefit cost	$	250	$	225	$	6	$	6

Note 6 – Segment Information

The Bank has identified two main operating segments based upon its method of internal reporting: mortgage-loan finance and all other business activity. The products and services provided reflect the manner in which financial information is evaluated by management. The mortgage-loan-finance segment includes mortgage loans acquired through the Mortgage Partnership Finance program and the related funding. Income from the mortgage-loan-finance segment is derived primarily from the difference, or spread, between the yield on mortgage loans and the borrowing and hedging costs related to those assets. The remaining business segment includes products such as advances and investments and their related funding and hedging costs. Income from this segment is derived primarily from the difference, or spread, between the yield on advances and investments, and the borrowing and hedging costs related to those assets. Capital is allocated to the segments based upon asset size.

The following table presents net interest income after provision for credit losses on mortgage loans by business segment, other income/(loss), other expense and income before assessments as of March 31, 2005 and 2004 (dollars in thousands):

	Net Interest Income after Provision for Credit Losses on Mortgage Loans by Segment
March 31,	Mortgage Loan Finance			Other Business Activities		Total		Other Income/ (Loss)			Other Expense		Income Before Assessments
2005	$		8,598	$	46,091	$	54,689	$	(6,985	)	$	11,480	$	36,224
2004	$	6,040		$	46,351	$	52,391	$	(5,589	)	$	9,571	$	37,231

The following table presents total assets by business segment as of March 31, 2005 and 2004, and average-earning assets by business segment for the three months ended March 31, 2005 and 2004 (dollars in thousands):

	Total Assets by Segment						Total Average-Earning Assets by Segment
March 31,	Mortgage Loan Finance		Other Business Activities		Total		Mortgage Loan Finance		Other Business Activities		Total
2005	$	4,171,437	$	45,747,526	$	49,918,963	$	4,051,731	$	45,580,503	$	49,632,234
2004	$	4,454,395	$	37,753,277	$	42,207,672	$	4,492,014	$	37,017,236	$	41,509,250

Note 7 – Commitments and Contingencies

The 12 FHLBanks have joint and several liability for all the consolidated obligations (COs) issued on their behalves. Accordingly, should one or more of the FHLBanks be unable to repay its participation in the COs, each of the other FHLBanks could be called upon to repay all or part of such obligations, as determined or approved by the Finance Board. No FHLBank has had to assume or pay the CO of another FHLBank.

The Bank considered the guidance under FASB interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), and determined it was not necessary to recognize the fair value of the Bank’s joint and several liability for all of the COs. The Bank considers the joint and several liability as a related party guarantee. Related party guarantees meet the scope exceptions in FIN 45. Accordingly, the Bank has not recognized a liability

F-49

for its joint and several obligation related to other FHLBanks’ COs. The par amounts of other FHLBanks’ outstanding COs for which the Bank is jointly and severally liable were approximately $822.6 billion and $816.6 billion at March 31, 2005, and December 31, 2004, respectively.

Commitments to Extend Credit. Commitments that legally bind and unconditionally obligate the Bank for additional advances totaled approximately $193.3 million and $52.2 million at March 31, 2005, and December 31, 2004, respectively. Commitments generally are for periods up to 12 months. Based on management’s credit analyses and collateral requirements, the Bank does not deem it necessary to have any additional liability on these commitments.

Commitments for unused line-of-credit advances totaled approximately $1.5 billion at both March 31, 2005, and December 31, 2004. Commitments are generally for periods of up to 12 months. Since many of these commitments are not expected to be drawn upon, the total commitment amount does not necessarily represent future cash requirements.

Mortgage Loans. Commitments that obligate the Bank to purchase mortgage loans totaled $94.9 million and $26.7 million at March 31, 2005, and December 31, 2004, respectively. Commitments are generally for periods not to exceed 45 business days. All such commitments have been recorded as derivatives at their fair values on the statement of condition.

Standby Bond-Purchase Agreements. The Bank has entered into standby bond-purchase agreements with state-housing authorities whereby the Bank, for a fee, agrees to purchase and hold the authority’s bonds until the designated marketing agent can find a suitable investor or the housing authority repurchases the bond according to a schedule established by the standby agreement. Each standby agreement dictates the specific terms that would require the Bank to purchase the bond. The bond purchase commitments entered into by the Bank expire after five years, no later than 2008. Total commitments for bond purchases were $621.3 million and $622.3 million at March 31, 2005, and December 31, 2004, respectively. The Bank had agreements with three state housing authorities at March 31, 2005, and December 31, 2004. For the quarters ended March 31, 2005 and 2004, the Bank was not required to purchase any bonds under these agreements.

Counterparty Credit Exposure. The Bank generally executes derivatives with counterparties rated A or better by either Standard and Poor’s or Moody’s, and generally enters into bilateral-collateral agreements. As of March 31, 2005, and December 31, 2004, the Bank had pledged as collateral securities with a carrying value of $117.3 million and $173.3 million, respectively, to counterparties that have credit-risk exposure to the Bank related to derivatives. Of the amounts pledged as collateral at March 31, 2005, and December 31, 2004, $109.5 million and $173.3 million, respectively, were subject to contractual agreements whereby the counterparties had the right to sell or repledge the collateral.

Forward-Settling Derivative Contracts. As of March 31, 2005, and December 31, 2004, the Bank had entered into forward-settling derivatives with notional amounts totaling $727.9 million and $477.0 million, respectively, with settlement dates in 2005 and 2006.

Unsettled Consolidated Obligations. The Bank entered into $373.1 million and $65.5 million par value of CO bonds that had traded but not settled as of March 31, 2005, and December 31, 2004, respectively. There were no unsettled discount notes as of March 31, 2005, and December 31, 2004.

Legal Proceedings. The Bank is subject to various pending legal proceedings arising in the normal course of business. After consultation with legal counsel, management does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on the Bank’s financial condition or results of operations.

Note 8 — Subsequent Events

During the second quarter of 2005, the Bank evaluated its estimation methodology for determining the fair value hedge adjustments for certain CO bonds that are accounted for as hedges of changes in fair value due to changes in the benchmark interest rate under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. After performing this evaluation, management determined that another available estimation methodology would have more accurately reflected the changes in fair value due to changes in the benchmark interest rate. Accordingly, management will change the estimation methodology for calculating the benchmark fair value hedge adjustments for these transactions during the second quarter of 2005 to the more accurate method. Management has determined that the differences between our current estimation methodology and the new estimation methodology are immaterial to prior periods. The change will be reflected as a change in estimate as of June 30, 2005. Based on the analysis performed by management, as of March 31, 2005, the cumulative difference between the two estimation methodologies was a reduction to income before assessments of approximately $10.7 million ($7.8 million after assessments). However, this amount is not necessarily indicative of the amount that will be recorded at the end of the second quarter, and we cannot determine the amount of the change in estimation methods until the second quarter is complete. Additionally, it is expected that the use of the new methodology will lead to increased volatility in reported ineffectiveness associated with these hedging relationships, and therefore there will be increased volatility in the amount of gains and losses from derivative and hedging activities and reported net income in future periods.

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EX-3.1

EXHIBIT 3.1

RESTATED ORGANIZATION CERTIFICATE

THE FEDERAL HOME LOAN BANK OF BOSTON

The directors of the Federal Home Loan Bank of Boston, all of whom are citizens of the United States, bona fide residents of the district in which this Bank is located, having been elected by the shareholders of this Bank or appointed by the Federal Housing Finance Board and having been directed by the Act of Congress, known as the Federal Home Loan Bank Act, approved July 22, 1932, as amended from time to time thereafter (the “Act”) and in accordance with rules and regulations prescribed by said Board;

Now, THEREFORE, in order that the statutes of the United States may be fully complied with, the following Restated Organization Certificate is made and executed.  This Restated Organization Certificate restates and amends the original Organization Certificate of this Bank executed as of October 17, 1932, on which date this Bank, then known as the Federal Home Loan Bank of Cambridge, became a body corporate pursuant to the Act.

1.The title of this Bank shall be the FEDERAL HOME LOAN BANK OF BOSTON.

2.The location of the principal office of this Bank will be in the City of Boston, State of Massachusetts, or at such other city as the Federal Housing Finance Board may from time to time determine is suited to the convenient and customary course of business of the institutions which are members or are eligible to become members of this Bank.

3.This Bank shall be established in the City of Boston, State of Massachusetts, in District Number One, as defined by the Federal Housing Finance Board, or as may from time to time be readjusted or modified by said Board.  Said District Number One as now defined is as follows:

The States of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.

4.This Bank shall engage in the business authorized by said Federal Home Loan Bank Act, and it shall exercise such powers as are permitted or prescribed by said Act, subject to the supervision of the Federal Housing Finance Board.

5.The amount of capital stock of this Bank shall be determined in accordance with the Act, the rules and regulations of the Federal Housing Finance Board and, upon its effective date, a capital plan established by the board of directors of this Bank and approved by the Federal Housing Finance Board.  The capital stock of this Bank may from time to time be increased to such amount or amounts as may be necessary to provide for the issuance of shares to members or non-member holders of capital stock in accordance with the Act, the rules and regulations of the Federal Housing Finance Board and, upon its effective date, the provisions of the capital plan. The capital stock of this Bank shall from time to time be paid off and retired in accordance with the requirements and subject to the conditions and limitations prescribed in the Act such rules, regulations, and orders, not inconsistent with law, as the Federal Housing Finance Board may from time to time prescribe or issue and, upon its effective date, the provisions of the capital plan.

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6.This Certificate is made for the purpose of carrying out the provisions of the Act of Congress, known and cited as the Federal Home Loan Bank Act, approved July 22, 1932, and such other acts as may be passed by Congress amending or supplementing the said Federal Home Loan Bank Act, in so far as it or they may be applicable to the Federal Home Loan Bank of Boston, and is subject to such changes or additions, not inconsistent with law, as the Federal Housing Finance Board may deem necessary or expedient and may from time to time direct.

This Bank shall have succession until dissolved by the Federal Housing Finance Board under this Act or by further Act of Congress.

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EX-3.2

EXHIBIT 3.2

BY-LAWS

OF THE

FEDERAL HOME LOAN BANK OF BOSTON

ARTICLE I

OFFICES

SECTION 1. PRINCIPAL OFFICE

The principal office of the Federal Home Loan Bank of Boston (“Bank”) is to be located in the City of Boston, County of Suffolk, State of Massachusetts.

SECTION 2. OTHER OFFICES

In addition to its principal office, the Bank may maintain offices at any other place, or places designated by the Board of Directors of the Federal Home Loan Bank of Boston (“Board”).

ARTICLE II

STOCKHOLDERS’ MEETING

SECTION 1. ANNUAL MEETING

An Annual Meeting of Stockholders may be held in any year at such time and place within the District as the Board shall from time to time designate.  Notice of the time and place for any Annual Meeting shall be given to each stockholder at least ten (10) days prior to such Annual Meeting.

At an Annual Meeting any appropriate business may be transacted. The Board, any officer thereof or the Chief Executive Officer of the Bank may submit such matters to the Stockholders’ Meeting as they may deem to be appropriate.  The stockholders may discuss all of the affairs of the Bank and the situation in the District in reference to home financing and make such recommendations, as to them may appear to be appropriate, to the Board or the Chief Executive Officer.

The Chairman, or in his absence the Vice Chairman, or in the absence of both, the Chief Executive Officer of the Bank, shall preside at all meetings of the stockholders.

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SECTION 2.  STOCKHOLDER VOTING

The stockholders of the Bank shall be entitled to vote for the election of directors of the Bank in accordance with Part 915 of the Rules and Regulations of the Federal Housing Finance Board (“FHFB”).  The stockholders shall be entitled to vote with respect to such matters, if any, as may be provided for in the Capital Plan of the Bank, as in effect from time to time, subject to such rules and procedures as may be established in the Capital Plan and/or the By-Laws.

SECTION 3. SPECIAL MEETING

Special meetings of the stockholders of the Bank shall be called by the Board or Executive Committee upon written request of the Chief Executive Officer of the Bank, or a majority of the Board.  The Board or Executive Committee shall designate the time and place for such special meeting to be held no less than fifteen (15) days, nor more than sixty (60) days, after such request therefore.  Should the Board or Executive Committee fail to act for a period of thirty (30) days after request for such meeting, the Secretary of the Bank shall designate a time and place.  A notice of such meeting shall be sent at least ten (10) days before such meeting and shall contain a statement of the purposes and of the time and place of the meeting.

ARTICLE III

DIRECTORS

SECTION 1. NUMBER AND QUALIFICATIONS

The Board shall consist of such persons as shall be appointed or elected thereto in accordance with the Federal Home Loan Bank Act as from time to time amended; and the Rules and Regulations of the FHFB.

SECTION 2. REGULAR MEETINGS

Stated meetings of the Board may be held at such time and place as shall be determined from time to time by the Board.  Stated meetings may be held without notice thereof, but the Board may direct the giving of five (5) days’ notice of such a meeting to each Director.

SECTION 3. SPECIAL MEETINGS

Special meetings of the Board may be called by its chairman or the Chief Executive Officer of the Bank on at least five (5) days’ written notice or three (3) days’ telephonic, electronic, telecopy, facsimile, or similar notice to each Director, and shall be called upon like notice by the Secretary of the Bank on the written request of three

2

Directors stating the reasons therefor.  The notice of such special meetings shall stipulate the time and place of such meetings and shall contain a statement of the purpose or purposes of such meetings.  Such meetings may be held at any time and place without previous notice if all of the Directors are actually present or consent thereto.

SECTION 4. QUORUM VOTING

At any regular or special meeting of the Board of Directors, a majority of the Directors shall constitute a quorum for the transaction of business, but a smaller number may adjourn from time to time until a quorum is present.  A majority of the Directors present at any meeting, a quorum being present, shall decide questions submitted for decision.

SECTION 5. OFFICERS OF THE BOARD

The officers of the Board shall be a Chairperson and a Vice Chairperson, each elected from among the directors for a two-year term by a majority of the Board.  In the event of the absence or disability of the Chairperson for any period or in the event of a vacancy during the term of office of the Chairperson, the Vice Chairperson shall perform such duties until the vacancy has been filled or the remaining term of the Chairperson has expired.  In the event neither the Chairperson nor the Vice Chairperson are available to carry out the requirements of the Chairperson for any period or in the event of concurrent vacancies during the term of office of Chairperson and the Vice Chairperson, a majority of the Board (a) shall elect from among the directors an Acting Chairperson to fulfill the duties usually performed by the Chairperson of the Board until the vacancy has been filled or the remaining term of the Chairperson has expired, and (b) may elect from among the directors an Acting Vice Chairperson to fulfill the duties usually performed by the Vice Chairperson of the Board until the vacancy has been filled or the remaining term of the Vice Chairperson has expired.The Chief Executive Officer of the Bank, or in his absence, such other officer as may be so designated by the Board, shall be the Secretary of the Board.  The officers shall have such duties as are usually incident to their respective offices and such as may be assigned to them by the Board.

SECTION 6. REMOVAL OF OFFICERS OF THE BOARD

Upon the request of any member of the Board, the Chairperson, the Vice Chairperson or the Chief Executive Officer may convene a meeting of the Board to determine whether the Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson should be removed from office for good cause.  Notice of the time, place and purpose of such meeting shall be sent to all members of the Board.  Notice shall be given five days prior to the meeting if given by written notice sent by U.S. mail or three days prior to the meeting if sent by facsimile, electronic mail or overnight delivery.  At such meeting, the person calling the meeting shall report fully on the reason for the meeting.  If a majority of the Board determines that there is an adequate basis to conclude that good cause may exist for removal, the Governance Committee shall be charged with the responsibility for making a full investigation of the facts bearing on

3

whether the Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson should be removed for good cause and for recommending the action to be taken, if any, in any particular case.  Removal for good cause, at a minimum, should be based upon a violation of the Bank’s Code of Conduct or the director’s duties and obligations as provided under the Federal Home Loan Bank Act and the Rules and Regulations of the FHFB.  All Governance Committee members, except for the Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson who is the subject of the investigation, shall be permitted to participate in the deliberations and actions of the Governance Committee. The Governance Committee shall provide the Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson who is the subject of the investigation a reasonable opportunity to be heard and to respond to the charges.  The Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson may be represented by legal counsel in connection with any removal proceedings, and shall be indemnified for expenses, including attorneys’ fees, subject to the standards of conduct and other procedures set forth in Article VIII of these Bylaws.  After completion of the investigation, the Governance Committee shall report to the Board at a regular meeting or a special meeting called for such purpose with respect to its investigation and its recommendation as to action to be taken, if any.  Upon receiving such recommendation, the Board by majority vote of all directors eligible to serve on the Board, except for the person who is the subject of the removal proceeding, may remove the respective Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson for good cause.  Removal of the Chairperson, Vice Chairperson, Acting Chairperson or Acting Vice Chairperson shall not affect such individual’s right to continue as a director.

SECTION 7. ORDER OF BUSINESS

At meetings of the Board, business shall be transacted in such order as,  from time to time, the Board may determine.  At all meetings of the Board, the Chairman of the Board, or in his absence the Vice Chairman, or in the absence of both of these officers, a chairman pro tempore selected by the Board, shall preside.

SECTION 8. DESIGNATION OF DEPOSITORIES

The Board shall designate the trust company, or trust companies, bank or banks, in which shall be deposited the monies or securities of the Bank, except as otherwise provided by the Act and Rules and Regulations made thereunder.

Notwithstanding the foregoing provisions of this section, any special series United States Treasury obligations owned by the Bank shall be held with such depository or depositories as may be provided in the Rules and Regulations for the Federal Home Loan Bank System.

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ARTICLE IV

COMMITTEES

SECTION 1. EXECUTIVE COMMITTEES

At their first meeting after their election, the Board shall select an Executive Committee, consisting of the Chairman of the Board, the Vice-Chairman of the Board, and at least three other directors.  At such meeting, the Board may also select members of the Board as alternate members of the Executive Committee.  The Chairman of the Board, or in his absence, the Vice-Chairman, or in the absence of both, a member, designated by a majority of the members present at any meeting, shall serve as Chairman of the Executive Committee.  If any member or members of the Executive Committee are unavailable for duty at a meeting, any alternate may serve and shall be empowered to act as a member of the committee for the meeting.  If all of the alternate members of the Executive Committee are unavailable for duty at a meeting, any other member of the Board who may have been selected by the person calling a meeting of the committee may serve and shall be empowered to act as an alternate member of the committee for the meeting.  Vacancies in the Executive Committee shall be filled by the Board.

During the intervals between the meetings of the Board, the Executive Committee shall possess and may exercise all of the powers of the Board in the management and direction of the affairs of the Bank in all cases in which specific directions shall not have been given by the Board.

All action by the Executive Committee shall be reported to the Board at its meeting next succeeding such action, and shall be subject to revision and alteration by the Board, provided that no rights of third parties shall be affected by any such revision or alteration.

Regular minutes of the proceedings of the Executive Committee shall be kept in a book provided for that purpose.

A majority of the committee shall be necessary to constitute a quorum and in every case the affirmative vote of a majority of the members shall be necessary for the passage of any resolution.  The Executive Committee may act by the written resolution of a quorum thereof although not formally convened; it shall fix its own rules of procedure, and shall meet as provided by such rules or by resolution of the Board, and it shall also meet at the call of the Chairman of the Board or of the Chief Executive Officer of the Bank.  Meetings of the Executive Committee or any other committee of the Board may be held without notice if all members of the committee are actually present or consent thereto.

In the event of a national emergency, if all of the persons herein before authorized to call a meeting of the committee are unavailable for duty, a meeting may be called by any other member of the Board.

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SECTION 2. OTHER COMMITTEES

The Board may delegate from time to time to suitable committees any duties that are required to be executed during the intervals between the meeting of the Board, and such committees shall report to the Board when and as required.  Such committees shall be selected so as to employ the services as nearly as is feasible of all of the membership of the Board.  Nothing in this section shall limit the power of the Board to establish additional committees on an ad hoc or standing basis or to assign additional responsibilities to any committee.

ARTICLE V

OFFICERS AND EMPLOYEES

SECTION 1. OFFICERS

The corporate officers of the Bank shall be a President, one or more Vice Presidents, a Treasurer and a Secretary, all of whom shall be elected by the Board.

The President shall also be the Chief Executive Officer of the Bank and shall, subject to the direction of the Board, have responsibility for the general and active management of the business of the Bank, and shall see that all orders and resolutions of the Board are carried out.

The same person may hold two or more offices but no person shall execute, acknowledge or verify any instrument in more than one capacity.  All corporate officers shall hold office for one year or until their respective successors are elected and qualified.  The Board may also appoint such other corporate officers as they shall deem necessary who shall have such authority and shall perform such duties as from time to time may be prescribed by the Board.  Additional officers, known as functional officers, may be appointed by the President.

Each of the salaried corporate officers of the Bank shall devote his entire time, skill and energy to the business of the Bank, unless the contrary is expressly consented to the Board.  The corporate officers shall have such powers and duties as are usually incident to their respective offices and such as may be assigned to them by the Board.  They shall have full responsibility for the operation of the Bank under the direction of the Board and the Executive Committee.  They shall make a full report to committees of the Board of matters under consideration or to be considered by such committees and shall see that a full report of the operation of the Bank is made to the Board at each regular meeting.

6

When so designated by resolution of the Board, and under such directions as may be stated therein, the President, or a Vice President, or other corporate officers may act as ex officio members of any standing committee of the Board; provided that the presence of only one such ex officio member may be counted in determining the requirement of a quorum.

The corporate officers of the Bank designated by its Board of Directors may extend or deny credit and take such other action as it is in conformity with the Credit Policy of the Bank.

SECTION 2. EMPLOYEES AND LEGAL COUNSEL

There shall also be such other employees (which may include inside legal counsel) as the Board may authorize or whose appointment the Board may ratify; and they shall have such duties as shall be assigned to them by the Board and the Chief Executive Officer of the Bank.  The Board may retain outside legal counsel.

ARTICLE VI

CAPITAL STOCK

SECTION 1. ISSUANCE, TRANSFER, REDEMPTION, REPURCHASE AND DIVIDENDS

Each member and former member shall be required to acquire and retain capital stock in the manner and amount prescribed by the Federal Home Loan Bank Act, as amended, the Rules and Regulations of the FHFB and the Capital Plan of the Bank, as in effect from time to time.

The manner of issuance, transfer, redemption, and repurchase of capital stock as well as the payment of dividends thereon shall be prescribed in the Federal Home Loan Bank Act, as amended, the Rules and Regulations of the FHFB, and the Capital Plan of the Bank, as in effect from time to time.

ARTICLE VII

GENERAL PROVISIONS

SECTION 1. MINUTES

Accurate minutes of all meetings of the stockholders of the Bank, of the Board, and of the Executive Committee, shall be signed by the presiding officer and attested under the seal of the Bank by the Secretary officiating at such meeting, and a certified copy of the same shall immediately be transmitted to the FHFB.  The original copies of such minutes shall be preserved by the Bank in minute books in custody of the Secretary

7

of the Board but available to any member of the FHFB or to the examiners or other official representatives of said FHFB.

SECTION 2. CORPORATE SEAL

The Seal of the Bank shall be as hereto affixed and shall be in charge of the Secretary.  If and when so directed by the Board, a duplicate of the Seal may be kept and used by the Treasurer.

SECTION 3. TELEPHONE MEETINGS

Members of the Board or any committee thereof may participate in a meeting of the Board or such committee by means of a telephone of similar communications equipment allowing all persons participating in the meeting to hear each other at the same time.  Participation by such means shall constitute presence in person at a meeting.

SECTION 4. BANKING HOURS

The Bank shall be kept open for business for such hours as the Board shall fix, and employees shall remain in performance of their duties for such hours as may be required by said Board.

SECTION 5. BUDGET

The President or Chief Executive Officer of the Bank shall prepare and submit to the Board a proposed budget for the following calendar year.  The Board shall promptly consider the proposed budget and shall adopt a budget for the following calendar year.  The budget, when adopted, shall be forwarded to the FHFB at such time as the FHFB shall from time to time require.

SECTION 6. SURETY BONDS

The Bank shall maintain adequate surety bonds, covering all officers, employees, attorneys or agents having control over or access to monies or securities owned by the Bank or in its possession.  The Bank shall comply with all provisions of the law as to the maintenance of liability, compensation, or other insurance, and shall maintain such additional forms and amounts of insurances the Board may, from time to time determine necessary for its protection.

SECTION 7. SIGNING OF PAPERS

All checks, contracts, deeds, bonds, assignments, releases or other documents of the Bank shall be signed in the name of the Bank by any officer or employee designated by the Board of Directors.  When authorized by the Board, checks may be issued by the Bank bearing the facsimile signature of any officer or employee designated by the Board.  Any facsimile device shall be used and controlled in the manner and by the person or persons designated by the Board.

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SECTION 8.  OPERATIONS

The Bank shall operate and do business within the provisions of the Federal Home Loan Bank Act, as amended, the Rules and Regulations of the FHFB, its certificate of organization, its Capital Plan as in effect from time to time, these By-laws and such directives not inconsistent with the foregoing as the Board may from time to time adopt.

SECTION 9. FISCAL YEAR

The fiscal year of the Bank shall begin on the first day of January.

SECTION 10. AMENDMENT

These By-laws may be altered, amended or repealed and new By-laws may be adopted at any meeting of the Board at which a quorum is present, by a majority vote of Directors present at the meeting so long as notice of the action proposed to be taken in respect of the By-laws shall have been given to each Director at least ten (10) days prior to such meeting.

ARTICLE VIII

INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

SECTION 1. GENERAL

The Bank shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “Proceeding”), by reason of the fact that he is or was a director, officer or employee of the Bank, or is or was serving at the request of the Bank as a director, officer or employee of another corporation, partnership, limited liability company, joint venture, trust or other enterprise hereinafter an “Indemnitee”), against all expenses liabilities and losses (including attorneys’ fees and related disbursements, judgments, fines, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Indemnitee in connection with such action, suit or proceeding if, as determined in the Board’s sole discretion,  such Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Bank, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

Any director, officer or employee of the Bank who is or was rendering services to the Financial Institutions Retirement Fund, the Financing Corporation, the Resolution Funding Corporation, the Office of Finance, the Council of Federal Home Loan Banks and any Federal Home Loan Bank System committee, including but not limited to the

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Bank Presidents Conference, shall be deemed to be serving or have served, at the request of the Bank.

The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Bank, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

SECTION 2. PROCEDURE

Any indemnification under Section 1 of this Article VIII (unless ordered by a court) shall be made by the Bank only as authorized in the specific case upon a determination that indemnification of the present or former director, officer or employee is proper in the circumstances because, in the Board’s sole discretion, he has met the applicable standard of conduct set forth in such Section 1.

Such determination shall be made with respect to a person who is a director or officer at the time of such determination (a) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding or any similar action, suit or proceeding then pending even though less than a quorum (“Disinterested Directors”), or (b) by a committee of such Disinterested Directors designated by majority vote of such Disinterested Directors, even though less than a quorum, or (c) if there are no such Disinterested Directors, or if such Disinterested Directors so direct, by independent legal counsel in a written opinion.

Any Indemnification or advance of expenses (including attorney’s fees, costs and charges) under this Article VIII shall be made promptly, but in any event no later than sixty (60) days after the date a written request from the person seeking indemnification was received by the Bank.  The right to indemnification or advancement of expenses as granted by this Article VIII shall be enforceable by such director, officer or employee in any court of competent jurisdiction, if the Bank denies such request, in whole or in part, or if no disposition thereof is made within 60 days.  It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses, including attorney’s fees, costs and charges, under this Article VIII where the required undertaking, if any, has been received by the Bank) that the claimant has not met the standard of conduct set forth in Section 1 of this Article VIII, but the burden of proving such defense shall be on the Bank.  Neither the failure of the Board to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he/she has met the applicable standard of conduct set forth in Section 1 of this Article VIII, nor the fact that there has been an actual determination by the Board that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

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Such person’s costs and expenses incurred in connection with successfully establishing his/her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Bank.

SECTION 3. ADVANCEMENT OF EXPENSES

Expenses (including attorney’s fees, costs and charges) incurred by a director of officer in defending a Proceeding shall be paid or advanced by the Bank in advance of the final disposition of such Proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Bank as authorized in this Article VIII.

SECTION 4. RIGHTS NOT EXCLUSIVE

The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or Disinterested Directors or otherwise, both as to actions in his official capacity and as to actions in another capacity undertaken at the request of the Bank, while holding such office.

SECTION 5. INDEMNIFICATION OF AGENTS OF THE BANK

The Bank may, to the extent authorized by the Board from time to time, grant rights to indemnification and advancement of expenses to agents of the Bank to the full extent of the provisions of this Article VIII with respect to the indemnification of directors, officers or employees of the Bank.

SECTION 6. INSURANCE

The Bank shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Bank, or is or was serving at the request of the Bank as a director, officer, employee or agent of any corporation, partnership, joint venture, trust or other enterprise against any liability asserted or threatened against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Bank would have the power to indemnify him against such liability under the provisions of the Article VIII.

SECTION 7. SURVIVAL OF RIGHTS

The indemnification and advancement of expenses provided by, or granted pursuant to this Article VIII, shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

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In the event that any change is made to these Bylaws to reduce or eliminate the indemnification and advancement of expenses provisions of this Article VIII, such provisions shall continue unchanged as to any director, officer, employee or agent of the Bank, with respect to any action taken or omitted by such director, officer, employee or agent (in such person’s position with the Bank or any other entity which such person is or was serving at the request of the Bank) prior to the time that such change is the Bylaws was made.

If this Article VIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Bank shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article VIII as to all expenses, liability and loss (including attorney’s fees and related disbursements, judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VIII to the full extent permitted by any applicable portion of this Article VIII that shall not have been invalidated and to the full extent permitted by applicable law.

All rights to indemnification under this Article VIII shall be deemed to be a contract between the Bank and each director, officer or employee of the Bank who serves or served in such capacity at any time while this Article VIII is in effect.  Any repeal or modification of this Article VIII shall not in any way diminish any rights to indemnification of such director, officer or employee or the obligations of the Bank arising hereunder with respect to any proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal.  For the purposes of this Article VIII, references to “the Bank” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who is or was a director or officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VIII, with respect to the resulting or surviving corporation, as he would if he/she had served the resulting or surviving corporation in the same capacity.

SECTION 8. LIMITATION OF LIABILITY

A director of the Bank shall not be personally liable to the Bank or its members for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Bank or its members, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the director derived an improper personal benefit.

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EX-4

EXHIBIT 4

Capital Plan of the
Federal Home Loan
Bank of Boston

Approved by the Board of Directors

April 25, 2002

and as amended on

June 21, 2002, March 20, 2003, and June 20, 2003

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§I.	Definitions
§II.	Leverage and Risk-Based Capital Requirements
II.A.Regulatory Standard
II.A.1. Leverage Ratio
II.A.2. Risk-Based Capital Ratio
II.A.3. Finance Board Designated Capital Levels
§III.	Classes of Stock
III.A.General
III.A.1. Redemption
III.A.2. Repurchase
III.A.3. Limitations on Redemptions and Repurchases
III.A.4. Pro Rata Allocation of Redemptions
III.A.5. Redeemed and Repurchased Stock
III.A.6. Par Value
III.A.7. Dividends
III.A.8. Ownership of Retained Earnings
III.B.Voting Rights
III.B.1. Matters Subject to Vote; Eligibility
III.B.2. Share Voting Determinations; Voting Rights
III.C.Rights Upon Liquidation, Merger, or Consolidation of the Federal Home Loan Bank of Boston
III.C.1. Liquidation
III.C.2. Merger or Consolidation
§IV.	Stock Investment Requirements
IV.A.Membership Stock Investment Requirement
IV.A.1. General
IV.A.2. Frequency of Recalculation
IV.A.3. Continuing Requirement as Condition of Membership
IV.A.4. Ranges of Allowable Membership Stock Investment Requirements
IV.B.Activity-Based Stock Investment Requirement
IV.B.1. General
IV.B.2. Range of Allowable Activity-Based Stock Investment Requirements
IV.B.3. Notice of Withdrawal from Membership
IV.B.4. Requirement upon Termination of Membership
IV.B.5. Pre-existing Non-Advance Activity-Based Assets
IV.C.Total Stock Investment Requirement
IV.C.1. General
IV.C.2. Bank Monitoring and Notification
IV.C.3. Prompt Compliance with Adjustments to Membership and Activity-Based Stock Investment Requirements
IV.D.Excess Stock Investment
IV.E.Transfers of Stock
IV.E.1. Conditions for Approval of Transfers
IV.E.2. Relation of Redemption Notices to Transfers of Stock
IV.E.3. Transfers Occurring in Connection with Mergers or Consolidations
IV.F.Membership Termination
IV.F.1. Voluntary Withdrawal from Membership

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IV.F.2. Involuntary Termination of Membership
IV.F.3. Merger or Consolidation of Members
IV.F.4. Merger or Consolidation of Member into a Member of another FHLBank or into a Nonmember
IV.F.5. Relocation of Principal Place of Business
§V.	Transition, Review, and Amendments
V.A.Transition
V.A.1. Effective Date
V.A.2. Plan of Reorganization
V.A.3. Good Faith Determination
V.B.Review and Amendments
V.B.1. Annual Review of the Capital Plan
V.B.2. Amendments to the Capital Plan
§VI.	Miscellaneous
VI.A.Interpretation of the Capital Plan
VI.B.Notices
VI.B.1. Notices by the Bank
VI.B.2. Notices to the Bank

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§I.Definitions

As used in the Capital Plan, the following capitalized terms shall have the following meanings:

Acquired Member Assets – Those assets that may be acquired by the Bank under Part 955 of the Regulations.

Act – The Federal Home Loan Bank Act.

Activity-Based Assets – Advances, advance commitments, standby letters of credit, intermediated derivatives, Acquired Member Assets, and delivery commitments issued to a Member for Acquired Member Assets to be held on the Bank’s balance sheet, that the Bank obtains from or through its Members.

Activity-Based Stock Investment Requirement – The amount of Class B Stock required to be held by each Member to support the outstanding Activity-Based Assets for which the Member has engaged the Bank.

Bank – The Federal Home Loan Bank of Boston.

Board of Directors – The board of directors of the Bank.

Capital Plan – The capital plan of the Bank as adopted by the Board of Directors and approved by the Finance Board, as amended from time to time.

Capital Stock – The capital stock of the Bank outstanding prior to the Effective Date.

Class A Stock – Class A Stock as defined by the Act.

Class B Stock – Class B Stock as defined by the Act.

Credit Risk Capital Requirement – The amount of Permanent Capital that is required to support the Bank’s credit risk, as required by 12 C.F.R. §932.4.

Effective Date – The date upon which the provisions of the Capital Plan become effective and existing shares of the Bank’s Capital Stock are converted to shares of Class B Stock in accordance with the Capital Plan.

FHLBank – A Federal Home Loan Bank.

Finance Board – The Federal Housing Finance Board.

GAAP – The accounting principles generally accepted in the United States.

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Market Risk Capital Requirement – The amount of Permanent Capital that is required to support the Bank’s market risk, as required by 12 C.F.R. §932.5.

Member – An institution that has been approved for membership in the Bank and that has purchased the required amount of Bank Capital Stock or Class B Stock, as applicable.

Membership – The rights, privileges, and obligations of being a member of the Bank.

Membership Stock Investment Requirement – The amount of Class B Stock required to be held by each Member as a condition of continued Membership in the Bank.

Membership Stock Investment Base – For the purpose of determining the Membership Stock Investment Requirement, the summation of non-discounted values of certain Member assets eligible to secure advances under Section 10(a)(3) of the Act as determined by the Bank from call report data and as defined in the Products Policy.(1)  Members that do not submit financial information to a regulatory body through a publicly available call reporting process will be required to submit data directly to the Bank that are similar in substance and time frame to those data filed in thrift, bank, and credit union call reports.

Minimum Regulatory Capital Requirement - A minimum regulatory capital requirement for the Bank established by the Regulations (as referenced in §§II.A.1 and II.A.2 of the Capital Plan) or on a basis specifically applicable to the Bank by the Finance Board (as referenced in §II.A.3).

NRSRO – A credit rating organization regarded as a Nationally Recognized Statistical Rating Organization by the Securities and Exchange Commission.

(1) For Members filing an OTS Thrift Financial Report, the Membership Stock Investment Base would equal the sum of the following line items: SC250 (Permanent, Closed-end Mortgages and Junior Liens on 1-4 Family Dwelling Units), SC256 (Permanent Mortgages on 5 or More Family Dwelling Units), SC130 (U.S. Government and Agency Securities), SC210 (Mortgage-backed Securities Insured or Guaranteed by an Agency or Instrument of the United States), SC150 (Mortgage Derivative Securities), and SC215 (Other Mortgage Pool Securities).

For Members filing FFIEC Reports of Condition and Income, the Membership Stock Investment Base would equal the sum of the following line items: Schedule RC-C, lines 1.c.(2)(a) and 1.c.(2)(b) (Closed-end First and Junior Liens on 1-4 Family Residential Properties), Schedule RC-C, line 1.d (Mortgage Loans Secured by Multifamily Properties), Schedule RC-B, lines 1, 2.a, and 2.b (U.S. Treasury and Agency Securities, Excluding Mortgage-backed Securities), Schedule RC-B, lines 4.a.(1), 4.a.(2), 4.b.(1), and 4.b.(2) (Mortgage-backed Securities Guaranteed by Ginnie Mae or Issued by Fannie Mae and Freddie Mac), and Schedule RC-B, lines 4.a.(3) and 4.b.(3) (Other Mortgage-backed Securities).

For Members filing a Credit Union 5300 Call Report, the Membership Stock Investment Base would equal the sum of line items: Balance Sheet Account Code 703 (Total 1st Mortgage Real Estate Loans), Schedule C Account Code 741C (U.S. Government Obligations), and Schedule C Account Code 742C (Federal Agency Securities).

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Operations Risk Capital Requirement – The amount of Permanent Capital that is required to support the Bank’s operations risk, as required by 12 C.F.R. §932.6.

Opt-Out Date – The date sixty (60) days prior to the Effective Date.

Other Institution – A financial institution that is not a Member and that acquires, receives, or retains Class B Stock under the Capital Plan.

Permanent Capital – The retained earnings of the Bank, determined in accordance with GAAP, plus the amount paid-in for the Bank’s Class B Stock.

Plan of Merger – The formal agreement governing the terms of a merger, consolidation, or acquisition between the Bank and any other FHLBank or group of FHLBanks.

Products Policy – The Products Policy of the Bank, as amended from time to time by the Board of Directors.

Redemption Cancellation Fee – As applicable, (i) a fee in the amount of two percent (2%) of the par amount of the shares of Class B Stock that is the subject of a Redemption Notice, subject to any deductions from the number of shares subject to such Redemption Notice in accordance with §III.A.1 of the Capital Plan, which may be imposed in the event that a Member cancels a Redemption Notice, or a Member’s Redemption Notice is subject to automatic cancellation, or (ii) a fee in the amount of two percent (2%) of the amount of the par amount of the shares of Class B Stock held by a Member as of the date that the Bank receives notice from the Member that the Member is canceling its notification of intent to withdraw from Membership which may  be imposed in the event that a Member cancels its notification of intent to withdraw from Membership.

Redemption Notice – A written notice provided by a Member to the Bank requesting redemption of a specified number of shares of Class B Stock, subject to the time limits prescribed in the Act for Class B Stock and the other restrictions set forth in the Capital Plan, the Regulations and the Act.

Regulations - - Regulations promulgated by the Federal Housing Finance Board.

Repurchase Request Notice Date - The date sixty (60) days prior to the Effective Date.

Required Risk-Based Capital Ratio – The amount of Permanent Capital that is required to be outstanding at all times in order to simultaneously meet the Market Risk Capital Requirement, the Credit Risk Capital Requirement, and the Operations Risk Capital Requirement.

Stock Redemption Period – The five-year period, as applicable, following: (i) the Bank’s receipt of a Member’s Redemption Notice to redeem Class B Stock (with such Redemption Notice applicable only to the number of shares of Class B Stock that are the subject of such Redemption Notice); (ii) the Bank’s (or as applicable, the Finance

6

Board’s) receipt of a Member’s written notice to the Bank (or as applicable, the Finance Board) of intent to withdraw from Membership, or the date of acquisition or receipt of any additional shares of Class B Stock after the Bank’s (or as applicable, the Finance Board’s) receipt of such notice, (iii) a Member’s termination of Membership as a result of merger or consolidation into a Member of another FHLBank or a nonmember, or the date of acquisition or receipt of any additional shares of Class B Stock after such termination from Membership, (iv) a Member’s termination from Membership as a result of the relocation of its principal place of business, or the date of acquisition or receipt of any additional shares of Class B Stock after such termination of Membership, or (v) a Member’s involuntary termination from Membership, or the date of acquisition or receipt of any additional shares of Class B Stock after such termination of Membership.

Total Assets - - Total assets of the Bank, as determined in accordance with GAAP.

Total Capital – The sum of Permanent Capital, the amounts paid-in for Class A Stock, the amount of any general allowance for losses, and the amount of other instruments identified in the Capital Plan that the Finance Board has determined to be available to absorb losses incurred by the Bank.

Total Stock Investment Requirement – The sum of the Membership Stock Investment Requirement and the Activity-Based Stock Investment Requirement.

Unweighted Leverage Ratio – The ratio of Total Capital to Total Assets, wherein the portion of Total Capital that is Permanent Capital is recorded as its book value.

Weighted Leverage Ratio - The ratio of Total Capital to Total Assets, wherein the portion of Total Capital that is Permanent Capital is weighted 1.5 times.

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§II.Leverage and Risk-Based Capital Requirements

II.A.Regulatory Standard

The Act and the Regulations require the Bank to maintain the following capital levels at all times:

II.A.1.Leverage Ratio

The Bank must, at all times, maintain a Weighted Leverage Ratio in the amount of not less than five percent (5%), wherein Permanent Capital is weighted at 1.5 times its par value.  The Bank must also, at all times, maintain an Unweighted Leverage Ratio of not less than four percent (4%), wherein all capital is weighted at its carrying value.

II.A.2.Risk-Based Capital Ratio

The Bank must, at all times, maintain an amount of Permanent Capital equal to the sum of its required Market Risk Capital Requirement, Credit Risk Capital Requirement, and Operations Risk Capital Requirement.

II.A.2(a)Market Risk Capital Requirement

As required by 12 C.F.R. §932.5(a), the Bank must maintain Permanent Capital in an amount not less than the sum of:

(i) The market value of the Bank’s portfolio at risk from movements in interest rates, foreign exchange rates, commodity prices, and equity prices that could occur during periods of market stress, where the market value of the Bank’s portfolio at risk is determined using an internal market risk model that fulfills the requirements of 12 C.F.R. §932.5(b) and that has been approved by the Finance Board; and

(ii) The amount, if any, by which the Bank’s current market value of Total Capital is less than eighty-five percent (85%) of the Bank’s book value of Total Capital.

II.A.2(b)Credit Risk Capital Requirement

The Bank must maintain Permanent Capital in an amount sufficient to meet its Credit Risk Capital Requirement.

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II.A.2(c)Operations Risk Capital Requirement

As required by 12 C.F.R. §932.6, the Bank must maintain Permanent Capital in an amount equal to thirty percent (30%) of the sum of the Market Risk Capital Requirement and the Credit Risk Capital Requirement. With the approval of the Finance Board, the Operations Risk Capital Requirement may be reduced to as low as ten percent (10%) of the sum of the Market Risk Capital Requirement and the Credit Risk Capital Requirement if (i) the Bank provides an alternative methodology for assessing and quantifying an Operations Risk Capital Requirement; or (ii) the Bank purchases an insurance policy to cover operational risk from an insurer that is rated in not lower than the second-highest rating category by an NRSRO.  The Bank reserves the right from time to time to seek Finance Board approval for either of the foregoing alternative approaches to satisfy its Operations Risk Capital Requirement.

II.A.3.Finance Board Designated Capital Levels

For reasons of safety and soundness, the Finance Board in accordance with 12 C.F.R. §§932.2(b) and 932.3(b) may require the Bank to have and maintain a greater amount of capital than that which is described in §§II.A.1 and II.A.2 of the Capital Plan.

§III.Classes of Stock

III.A.General

The Bank shall issue one class of stock – Class B Stock – as authorized by the Board of Directors. Class B Stock shall be redeemable for cash at par value five (5) years following the Bank’s receipt of a Member’s Redemption Notice to redeem Class B Stock, or as provided in §IV.F of the Capital Plan, subject to the provisions of §§ III.A.1, III.A.3 and III.A.4 of the Capital Plan.  The Class B Stock shall be issued to and owned only by Members or institutions that have been approved for Membership, with the exception of former Members or successors thereto that acquire, receive or retain the Class B Stock in accordance with the provisions of the Capital Plan.  The Bank may not issue Class B Stock other than in accordance with Section 931.2 of the Regulations and in accordance with the Capital Plan. Class B Stock may only be traded between the Bank and its Members in accordance with §IV.E of the Capital Plan.

Subject to the approval of the Board of Directors and of the Finance Board, the Bank reserves the right to revise the Capital Plan from time to

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time.  Such amendments might include, but would not be limited to, the sale of one or more subclasses of Class A Stock (which would be redeemable on six months’ notice and with other terms and rights as specified in an amended Capital Plan) and/or one or more subclasses of Class B Stock, all of which may be issued separate and apart from the Membership Stock Investment Requirement and Activity-Based Stock Investment Requirement, as described herein.

III.A.1.Redemption

A redemption of Class B Stock may occur in conjunction with a Membership termination in accordance with §IV.F of the Capital Plan.  In addition, a Member may request that shares of Class B Stock be redeemed by submitting a Redemption Notice to the Bank.

III.A.1(a)Written Notice; Specific Share Identification

A Member that provides a Redemption Notice to the Bank of its intention to redeem Class B Stock pursuant to this §III.A.1(a) of the Capital Plan shall identify in that Redemption Notice the particular shares that are subject of that Redemption Notice by reference to the date acquired, and the manner in which the shares subject to notice were acquired (i.e., whether by purchase at par value or as a stock distribution by the Bank).  If a Member fails to identify the shares to be redeemed, the shares subject to redemption shall be determined using a first acquired, first redeemed method of identification.  Class B Stock will be redeemed upon the expiration of the applicable Stock Redemption Period subject to the conditions and limitations set forth in §§III.A.3 and III.A.4 of the Capital Plan.  A Member may not have more than one Redemption Notice outstanding at any time with respect to the same shares of Class B Stock.

III.A.1(b)Cancellation of Request for Redemption

A Member may cancel its Redemption Notice by providing the Bank with a written notice of cancellation that is received by the Bank at any time prior to the expiration of the applicable Stock Redemption Period. The Bank will assess a Redemption Cancellation Fee unless the Board of Directors decides it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the Act.

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III.A.1(c)Bank Repurchase of Shares under Redemption Notice

To the extent that the Bank repurchases pursuant to §III.A.2 of the Capital Plan shares of Class B Stock that are subject to a Redemption Notice or Notices, the respective repurchased shares shall be deducted from the outstanding Redemption Notice or Notices.

III.A.1(d)Transfer of Shares under Redemption Notice

To the extent that a Member, or Other Institution, transfers pursuant to §IV.E of the Capital Plan shares of Class B Stock that are subject to a Redemption Notice or Notices, the respective transferred shares shall be deducted from the outstanding Redemption Notice or Notices.

III.A.1(e)Redemption Cancellation to Satisfy Total Stock Investment Requirement

A Redemption Notice by a Member to redeem shares of Class B Stock shall automatically be cancelled if the Bank is prevented from redeeming the Member’s Class B Stock within five business days after the expiration of the applicable Stock Redemption Period because the Member would not be in compliance with its Total Stock Investment Requirement after such redemption.  In the event of an automatic cancellation of a Member’s Redemption Notice as provided in the preceding sentence, the Bank will assess a Redemption Cancellation Fee unless the Board of Directors decides it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the Act.

III.A.2.Repurchase

III.A.2(a)Bank Authority to Repurchase

The Bank may repurchase for cash shares of Class B Stock from a Member, or Other Institution, that are in excess of the Member’s, or Other Institution’s, Total Stock Investment Requirement at any time, subject to the Bank transmitting, sending or giving the Member, or Other Institution, written notice of such repurchase at least 15 days prior to the date of such repurchase, unless a shorter notice period is agreed to in writing by the affected Member, or Other Institution.

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III.A.2(b)Identification of Repurchased Shares

If a Member, or Other Institution, has one or more Redemption Notices outstanding as of the date that the Bank is to repurchase shares of Class B Stock pursuant to §III.A.2(a) of the Capital Plan, the Bank shall repurchase shares of Class B Stock by first repurchasing shares of a Member, or Other Institution, that are subject to a Redemption Notice that has been outstanding for the longest period of time and then, to the extent necessary, by repurchasing shares that are subject to a Redemption Notice that was outstanding for the next longest period of time and continuing in that order, to the extent necessary, until there are no remaining outstanding Redemption Notices by a Member, or Other Institution, in which instance the shares to be repurchased shall be determined by the Bank using a first acquired, first repurchased method of identification.  If a Member, or Other Institution, does not have any Redemption Notices outstanding as of the date that the Bank is to repurchase shares of Class B Stock, the shares to be repurchased shall be determined by the Bank using a first acquired, first repurchased method of identification.

III.A.2(c)Conduct of Repurchase Activities

The Bank shall conduct its repurchase activities fairly and impartially and without discrimination in favor of or against any Member.

III.A.3.Limitations on Redemptions and Repurchases

III.A.3(a)Prohibitions on Redemptions and Repurchases

III.A.3(a)(1)Bank Compliance with Minimum Regulatory Capital Requirements

The Bank shall not redeem or repurchase any shares of Class B Stock if, following such redemption or repurchase, the Bank would not be in compliance with each of its Minimum Regulatory Capital Requirements.

III.A.3(a)(2)Member Compliance with Total Stock Investment Requirements

The Bank shall not redeem or repurchase any shares of Class B Stock from any Member, or Other Institution, if, following the redemption or

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repurchase, the Member, or Other Institution, would not be in compliance with its Total Stock Investment Requirement.

III.A.3(a)(3)Other Limitations on Redemptions and Repurchases

The Bank shall not redeem or repurchase any shares of Class B Stock without the prior written approval of the Finance Board if the Finance Board or the Board of Directors, has determined that the Bank has incurred or is likely to incur losses that result in or are likely to result in “charges against the capital of the Bank,” as that term is defined in the Regulations.  This prohibition shall apply even if the Bank is in compliance with its Minimum Regulatory Capital Requirements and shall remain in effect for however long the Bank continues to incur such charges or until the Finance Board determines that such charges are not expected to continue.

III.A.3(b)Bank’s Discretion to Suspend Redemptions

III.A.3(b)(1)Conditions for Suspension of Redemptions

The Board of Directors, or a committee thereof, may suspend the redemption of Class B Stock, if the Bank reasonably believes that continued redemption of Class B Stock would cause the Bank to fail to meet its minimum capital requirements as set forth in Sections 932.2 and 932.3 of the Regulations, would prevent the Bank from maintaining adequate capital against a potential risk that may not be adequately reflected in its Minimum Regulatory Capital Requirements or would otherwise prevent the Bank from operating in a safe and sound manner.

III.A.3(b)(2)Written Notification to the Finance Board of a Suspension of Redemptions

If a decision is made to suspend redemption of Class B Stock, the Bank shall notify the Finance Board in writing within two business days of the decision, informing the Finance Board of the reasons for the suspension and of the Bank’s strategies and time frames for addressing the conditions that led to the suspension, as indicated in Section 931.8(b) of the Regulations.

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III.A.3(b)(3)Finance Board May Require Re-institution of Redemptions

The Finance Board may require the Bank to re-institute the redemption of Class B Stock.

III.A.3(b)(4)Limitation on Repurchases During Period of Suspension of Redemptions

The Bank may not repurchase any Class B Stock without the written permission of the Finance Board during any period in which the Bank has suspended the redemption of Class B Stock as provided for in §III.A.3(b)(1) of the Capital Plan.

III.A.3(c)Retention of Redemption or Repurchase Proceeds as Collateral

The Bank may retain the proceeds of the redemption or repurchase of Class B Stock as additional collateral if the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by the Member, or Other Institution, to the Bank and the Member, or Other Institution, has failed to deliver additional collateral to resolve the existing or anticipated collateral deficiency to the Bank’s satisfaction, until all such obligations have been satisfied or the anticipated deficiency is resolved to the Bank’s satisfaction.

III.A.3(d)Limitations on Redemptions and Repurchases Associated with Termination of Membership

The restrictions on redemptions and repurchases set forth in §§III.A.3(a), III.A.3(b) and III.A.3(c) of the Capital Plan apply with respect to redemptions pursuant to a Redemption Notice as well as to redemptions in connection with a termination of Membership in accordance with §IV.F of the Capital Plan and to all repurchases of Class B Stock held by Members and by Other Institutions.

If a Member whose Membership is terminated pursuant to §§IV.F.1, IV.F.2, IV.F.4 or IV.F.5 of the Capital Plan has one or more Redemption Notices outstanding as of the effective date of its termination from Membership, such Redemption Notice or Notices shall not be subject to automatic cancellation in accordance with §III.A.1(e) of the Capital Plan. Such Redemption Notices shall remain pending until they can be satisfied

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in accordance with §§III.A.1, III.A.3 and III.A.4 of the Capital Plan.

III.A.4.Pro Rata Allocation of Redemptions

If at any time more than one Member, or Other Institution, has outstanding a Redemption Notice in accordance with §III.A.1(a) of the Capital Plan or redemption of Class B Stock in connection with a termination of Membership in accordance with §IV.F of the Capital Plan as to which the applicable Stock Redemption Period has expired, and if the redemption by the Bank of all of the shares of Class B Stock subject to such Redemption Notice or termination of Membership would cause the Bank to fail to be in compliance with any of its Minimum Regulatory Capital Requirements, then the Bank shall fulfill such redemptions as the Bank is able to do so from time to time, beginning with such redemptions as to which the Stock Redemption Period expired on the earliest date and fulfilling such redemptions relating to that date on a pro rata basis from time to time until fully satisfied, and then fulfilling such redemptions as to which the Stock Redemption Period expired on the next earliest date in the same manner, and continuing in that order until all such redemptions as to which the Stock Redemption Period has expired have been fulfilled.

III.A.5.Redeemed and Repurchased Stock

All shares of Class B Stock that are acquired by the Bank pursuant to redemption or repurchase shall be retired.

III.A.6.Par Value

The par value of each share of Class B Stock shall be one hundred dollars ($100).  All Class B Stock shall be issued, redeemed, repurchased, and transferred only at par value.

III.A.7.Dividends

III.A.7(a)General

The Board of Directors, in its discretion, subject to the provisions of §III.A.7 of the Capital Plan, may declare dividends to be paid on the Class B Stock on a quarterly basis or as otherwise determined by the Board of Directors.  Each Member or Other Institution is entitled to receive dividends that are declared on Class B Stock based upon the Member’s or Other Institution’s average daily balance of Class B Stock held during the applicable period.  Dividends are non-cumulative with respect to payment obligation.

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III.A.7(b)Sources and Forms of Payment

Dividends may only be paid from current net earnings or previously retained earnings.  Dividend payments may be in the form of cash, additional shares of Class B Stock, or a combination thereof as determined by the Board of Directors.

III.A.7(c)Limitations on Dividends

The Board of Directors may not declare or pay a dividend if the Bank is not at the time in compliance with each of its Minimum Regulatory Capital Requirements or if following such declaration or payment of such a dividend the Bank would not be in compliance with each of its Minimum Regulatory Capital Requirements.

III.A.8.Ownership of Retained Earnings

Class B Stock shareholders are the owners of the retained earnings, surplus, undivided profits, and equity reserves, if any, of the Bank.  Ownership of each of these items is apportioned in accordance with each Class B Stock shareholder’s proportional ownership of the total shares of Class B Stock.  Holders of Class B Stock shall have no right to receive any portion of these items, except through the declaration of a dividend or capital distribution approved by the Board of Directors or through the liquidation of the Bank as provided for in §III.C.1 of the Capital Plan.

III.B.Voting Rights

III.B.1.Matters Subject to Vote; Eligibility

Holders of Class B Stock that are Members of the Bank as of the record date shall be entitled to vote for the election of directors to the Board of Directors in accordance with Part 915 of the Regulations.

III.B.2.Share Voting Determinations; Voting Rights

For purposes of applying Part 915 of the Regulations, the Class B Stock that a Member was “required to hold” shall be the Member’s Total Stock Investment Requirement as of the record date provided for in Part 915, provided that if the Capital Plan was not in effect as of the record date, the number of shares of Capital Stock that a Member was required to hold as of the record date shall be as determined in accordance with Sections 925.20 and 925.22 of the Regulations.  The number of shares of Class B Stock that a particular Member, or Other Institution (to the extent such institution is permitted to vote under Part 915 of the Regulations),

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may vote in connection with an election of directors shall be subject to the limitations set forth in the Act and Part 915 of the Regulations.

III.C.Rights Upon Liquidation, Merger, or Consolidation of the Federal Home Loan Bank of Boston

III.C.1.Liquidation

Upon the liquidation of the Bank, following the retirement of all outstanding liabilities of the Bank to its creditors, all shares of Class B Stock are to be redeemed at par value, provided that if sufficient funds are not available to accomplish the redemption in full of the Class B Stock, then such redemption shall occur on a pro rata basis among all holders of Class B Stock.  Following the redemption in full of all Class B Stock any remaining assets will be distributed on a pro rata basis to the holders of Class B Stock immediately prior to such liquidation.  This provision does not limit the authority granted the Finance Board under 12 U.S.C. §1446 to prescribe rules, regulations or orders governing the liquidation of a FHLBank which may modify, restrict or eliminate any of the rights set forth above.

III.C.2.Merger or Consolidation

III.C.2(a)Bank Acquired

In the event that the Bank is merged or consolidated into another FHLBank, the holders of the outstanding Class B Stock of the Bank will be entitled to the rights and benefits set forth in any applicable Plan of Merger and/or terms established or approved by the Finance Board.

III.C.2(b)Bank Acquires Other FHLBank

In the event that another FHLBank is merged or consolidated into the Bank, the holders of the outstanding stock of the other FHLBank will be entitled to the rights and benefits set forth in any applicable Plan of Merger and/or terms established or approved by the Finance Board.

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§IV.Stock Investment Requirements

IV.A.Membership Stock Investment Requirement

IV.A.1.General

The initial minimum Membership Stock Investment Requirement is as follows:

Class B Stock:  0.35 percent (0.35%) of the Member’s Membership Stock Investment Base, subject to a minimum investment of $10,000 and a maximum investment of $25,000,000.

IV.A.2.Frequency of Recalculation

The Membership Stock Investment Requirement on the Effective Date shall be determined based on a Member’s Membership Stock Investment Base as of the most recently available call report data.  Thereafter, the Membership Stock Investment Requirement will be recalculated annually by April 30 of each year based on the Member’s most recent calendar year-end call report data.  Provided however, that the Bank may, for a bona fide business purpose, recalculate a Member’s Membership Stock Investment Requirement between annual calculations.

IV.A.3.Continuing Requirement as Condition of Membership

As a condition of Membership, each Member is required to purchase and maintain the amounts of Class B Stock indicated above while its Membership is continuing.  In order to become a Member, an approved applicant must purchase shares of Class B Stock equal to its Membership Stock Investment Requirement within sixty (60) days of membership approval by the Bank.

IV.A.4.Ranges of Allowable Membership Stock Investment Requirements

The Board of Directors may change each or any of the applicable percentage, the minimum investment and maximum investment under the Membership Stock Investment Requirement, but any such revision must fall within the following ranges:

Base requirement:  not less than 0.05 percent (0.05%) nor more than 0.50 percent (0.50%) of a member’s Membership Stock Investment Base, subject to the following minimum and maximum investments.

Minimum investment:  not less than $5,000 nor more than $50,000.

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Maximum investment:  not less than $5,000,000 nor more than $100,000,000.

In the event that a Member provides the Bank with written notice of its intent to withdraw from Membership, the Membership Stock Investment Requirement for said Member shall not be increased during the pendency of said notice.

IV.B.Activity-Based Stock Investment Requirement

IV.B.1.General

The initial minimum Activity-Based Stock Investment Requirement is as follows:

IV.B.1(a)Advances

A Member is required to hold Class B Stock in an amount equal to 4.50 percent (4.50%) of the Member’s outstanding principal balances of advances from the Bank.

IV.B.1(b)Advance Commitments

A Member is required to hold Class B Stock in an amount equal to 0.00 percent (0.00%) of the amount of the Member’s advance commitments with the Bank adjusted by the appropriate conversion factor found in Table 2 of 12 C.F.R. §932.4(f).

IV.B.1(c)Standby Letters of Credit

A Member is required to hold Class B Stock in an amount equal to 4.50 percent (4.50%) of the amount of standby letters of credit issued by the Bank on behalf of the Member adjusted by the appropriate conversion factor in Table 2 of 12 C.F.R. §932.4(f).

IV.B.1(d)Intermediated Derivative Contracts

A Member is required to hold Class B Stock in an amount equal to 4.50 percent (4.50%) of the value of intermediated derivative contracts between the Member and the Bank which shall be equal to the sum of (1) the Bank’s current credit exposure for all intermediated derivative contracts between the Bank and the Member, as calculated in accordance with 12 C.F.R. §932.4(h)(1), and (2) the Bank’s potential future

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exposure for all intermediated derivative contracts between the Bank and the Member, as calculated in accordance with 12 C.F.R. §932.4(h)(2).

IV.B.1(e)Acquired Member Assets

A Member is required to hold Class B Stock in an amount equal to 4.50 percent (4.50%) of the principal balance of Acquired Member Assets acquired by the Bank from the Member that remain on the Bank’s balance sheet.

IV.B.1(f)Delivery Commitments for Acquired Member Assets

A member is required to hold Class B Stock in an amount equal to 0.00 percent (0.00%) of the amount of the delivery commitments issued to a Member for Acquired Member Assets to be held on the Bank’s balance sheet adjusted by the appropriate conversion factor found in Table 2 of 12 C.F.R. §932.4(f).

Each Member will be required to purchase and maintain, as a component of its Total Stock Investment Requirement, the amounts of Class B Stock indicated above while the Activity-Based Assets to which such requirement applies remain outstanding.  Each Member’s Activity-Based Stock Investment Requirement will change from time to time (as often as daily) as the Member’s activity with the Bank changes.  On and after the Effective Date a Member that engages the Bank with respect to an Activity-Based Asset must comply with any associated requirement to purchase additional Class B Stock at the time the Activity-Based Asset transaction occurs.

IV.B.2.Range of Allowable Activity-Based Stock Investment Requirements

The Board of Directors may amend the Activity-Based Stock Investment Requirement, but any such change must fall within the following ranges:

IV.B.2(a)Advances

A Member may be required to hold Class B Stock in an amount ranging between 3.00 percent (3.00%) and 6.00 percent (6.00%) of the Member’s outstanding principal balances of advances from the Bank.

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IV.B.2(b)Advance Commitments

A Member may be required to hold Class B Stock in an amount ranging between 0.00 percent (0.00%) and 6.00 percent (6.00%) of the amount of the Member’s advance commitments with the Bank adjusted by the appropriate conversion factor found in Table 2 of 12 C.F.R. §932.4(f).

IV.B.2(c)Standby Letters of Credit

A Member may be required to hold Class B Stock in an amount ranging between 3.00 percent (3.00%) and 6.00 percent (6.00%) of the amount of standby letters of credit issued by the Bank on behalf of the Member adjusted by the appropriate conversion factor in Table 2 of 12 C.F.R. §932.4(f).

IV.B.2(d)Intermediated Derivative Contracts

A Member may be required to hold Class B Stock in an amount ranging between 3.00 percent (3.00%) and 6.00 percent (6.00%) of the value of intermediated derivative contracts between the Member and the Bank which shall be equal to the sum of (1) the Bank’s current credit exposure for all intermediated derivative contracts between the Bank and the Member, as calculated in accordance with 12 C.F.R. §932.4(h)(1), and (2) the Bank’s potential future exposure for all intermediated derivative contracts between the Bank and the Member, as calculated in accordance with 12 C.F.R. §932.4(h)(2).

IV.B.2(e)Acquired Member Assets

A Member may be required to hold Class B Stock in an amount ranging from 0.00 percent (0.00%) to 6.00 percent (6.00%) of the principal balance of Acquired Member Assets acquired by the Bank from the Member that remain on the Bank’s balance sheet.

IV.B.2(f)Delivery Commitments for Acquired Member Assets

A Member may be required to hold Class B Stock in an amount ranging from 0.00 percent

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(0.00%) to 6.00 percent (6.00%) of the amount of the delivery commitments issued to a Member for Acquired Member Assets to be held on the Bank’s balance sheet adjusted by the appropriate conversion factor found in Table 2 of 12 C.F.R. §932.4(f).

IV.B.3.Notice of Withdrawal from Membership

In the event that a Member provides the Bank with written notice of its intent to withdraw from Membership, the Activity-Based Stock Investment Requirement applicable to the Member’s Activity-Based Assets in existence on the date of the Member’s notice of intent to withdraw from Membership is received by the Bank shall not be increased during the pendency of said notice.  After the date the Bank has received written notice from a Member of its intent to withdraw from Membership, if the Member is required to purchase additional Class B Stock to meet its Total Stock Investment Requirement as a result of a new Activity-Based Asset that the Member engages in with the Bank, the Activity-Based Stock Investment Requirement applicable to such Activity-Based Asset on the date of the transaction shall apply but shall not be increased subsequently during the pendency of said notice.  If such a withdrawing institution is no longer a Member it shall nevertheless be required to maintain sufficient Class B Stock to meet the Activity-Based Stock Investment Requirement applicable to all outstanding Activity-Based Assets in accordance with this §IV.B.3 of the Capital Plan for as long as any such Activity-Based Assets remain outstanding.

IV.B.4.Requirement upon Termination of Membership

In the event that a Member’s Membership terminates in accordance with §§IV.F.2, IV.F.4 or IV.F.5 of the Capital Plan, the terminated Member or its successor shall nevertheless be required to maintain sufficient Class B Stock to meet the Activity-Based Stock Investment Requirement applicable to all outstanding Activity-Based Assets. However, such Activity-Based Stock Investment Requirement shall not be increased on and after the date of the termination of the Member’s Membership.

IV.B.5.Pre-existing Non-Advance Activity-Based Assets

Acquired Member Assets or binding commitments by the Bank to provide or purchase Acquired Member Assets that are in existence prior to the Effective Date shall be subject exclusively to contractual requirements to hold Capital Stock, if any, that were in existence immediately prior to the Effective Date until they are no

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longer held by the Bank, and shall not be subject to requirements set forth from time to time in §IV.B of the Capital Plan.

IV.C.Total Stock Investment Requirement

IV.C.1.General

The Total Stock Investment Requirement for a Member is the amount of Class B Stock that equals the sum of the Member’s Membership Stock Investment Requirement and the Member’s Activity-Based Stock Investment Requirement, in all events rounded up to the next even $100 increment.  These amounts must be maintained at all times by each Member and adjusted, as necessary, to reflect adjustments in the bases upon which they are calculated.  The Board of Directors has a continuing obligation to review and adjust the Total Stock Investment Requirement, as necessary to ensure that the Bank remains in compliance with each of its Minimum Regulatory Capital Requirements, provided that the Board of Directors in conducting such review may take into account all components of the Bank’s Permanent Capital and Total Capital, including, without limitation, shares of Class B Stock held by Members and Other Institutions in excess of their Total Stock Investment Requirements.

IV.C.2.Bank Monitoring and Notification

The Bank will, on a continuing basis, monitor each Member’s Total Stock Investment Requirement and the Member’s actual Class B Stock ownership and will transmit, send or give the Member written notice of the need to purchase additional Class B Stock within seven (7) days of the date that the Bank determines that a deficiency exists.  Such a Member will be required to purchase an amount of Class B shares (rounded to the next higher $100 increment) needed to satisfy its deficiency within seven (7) days of the date that the Bank sends, transmits, or gives notice to the Member of such a deficiency.

IV.C.3.Prompt Compliance with Adjustments to Membership and Activity-Based Stock Investment Requirements

At least thirty (30) days but no more that forty-five (45) days prior to implementing any adjustment to the Membership Stock Investment Requirement or the Activity-Based Stock Investment Requirement the Bank will transmit, send or give Members written notice of its intent to do so and the effective date of such adjustment.  A Member must purchase any additional Class B Stock required to comply with such adjustment on or before the date specified by the Bank for such adjustment.  Alternatively, a Member may achieve compliance with such adjustment by

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sufficiently reducing its volume of Activity-Based Assets on or before the date specified by the Bank for such adjustment.  The Bank reserves the right to determine whether to apply any adjustment to the Activity-Based Stock Investment Requirement to Activity-Based Assets that are in existence prior to the effective date of the adjustment and/or to Activity-Based Assets in which the Member engages the Bank on or after the effective date of adjustment to the Activity-Based Stock Investment Requirement.

IV.D.Excess Stock Investment

IV.D.1.Member Purchase and Retention of Excess Stock

A Member may hold Class B Stock in excess of its Membership Stock Investment Requirement, its Activity-Based Stock Investment Requirement, or its Total Stock Investment Requirement, subject to the limitations of 12 C.F.R. § 925.23.  The Bank from time to time may, in its discretion and subject to conditions established by the Bank, offer to issue excess shares of Class B Stock to Members, subject to the limitations of 12 C.F.R. § 925.23.  In the event the Bank determines to issue such excess shares of Class B Stock, Members will be provided access to a disclosure, either in electronic or written form, prior to the Member’s purchase of excess shares of Class B Stock, regarding the nature of the Member’s investment in such excess shares of Class B Stock.  The Bank reserves the right to impose a limit on Member holdings of excess shares of Class B Stock at any time.  Subject to the provisions of §§III.A.2 and III.A.3 of the Capital Plan, the Bank may, at any time, repurchase excess shares of Class B Stock.

IV.D.2.Capital Treatment of Excess Stock

All issued and outstanding shares of Class B Stock shall be included in any calculation of the Bank’s compliance with the capital requirements under the Capital Plan, the Regulations and the Act.

IV.E.Transfers of Stock

IV.E.1.Conditions for Approval of Transfers

Subject to compliance with 12 C.F.R. §931.6, and with the prior written approval of the Bank, and in compliance with procedures specified by the Bank from time to time, a Member, or Other Institution, may transfer, at par value, any Class B Stock that it holds in excess of its Total Stock Investment Requirement to any

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other Member or institution that has satisfied all conditions for becoming a Member other than the purchase of the Class B Stock required to satisfy its Total Stock Investment Requirement.  A Member, or Other Institution, that wishes to transfer Class B Stock shall identify in a written notice to the Bank the particular shares that are to be transferred by reference to the date acquired, and the manner in which the shares subject to notice were acquired (i.e., whether by purchase at par value or as a stock distribution by the Bank).  If a Member, or Other Institution, fails to identify the shares to be transferred, the shares subject to transfer shall be determined using a first acquired, first transferred method of identification.  All Class B Stock transfers will be effective upon being recorded on the appropriate books and records of the Bank.  Approval for all transfers is subject to a requirement, that following the transfer, the transferring Member, or Other Institution, would continue to hold sufficient Class B Stock to meet the Member’s, or Other Institution’s, Total Stock Investment Requirement.

IV.E.2.Relation of Redemption Notices to Transfers of Stock

In the event that the Bank approves the transfer of any shares of Class B Stock on which a Member, or Other Institution, has filed a Redemption Notice, such Redemption Notice will not apply to the transferred shares of Class B Stock, provided that this provision shall not apply in the case of transfers occurring pursuant to §§IV.F.3 and IV.F.4 of the Capital Plan.

IV.E.3.Transfers Occurring in Connection with Mergers or Consolidations

Transfers of Class B Stock occurring pursuant to §§IV.F.3 and IV.F.4 of the Capital Plan shall be deemed to be approved by the Bank as of the cancellation of the disappearing Member’s charter for purposes of this §IV.E of the Capital Plan.

IV.F.Membership Termination

IV.F.1.Voluntary Withdrawal from Membership

IV.F.1(a)Written Notification

A Member may withdraw from Membership at any time by providing written notice of its intent to withdraw from Membership to the Bank.  A Member may cancel a notice of withdrawal prior to its effective date by providing the Bank with written notice of such cancellation and any such cancellation will result in the imposition of the Redemption Cancellation Fee with

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respect to the Member’s Class B Stock unless the Board of Directors decides it has a bona fide business purpose for waiving the imposition of the fee, and the waiver is consistent with Section 7(j) of the Act.

IV.F.1(b)Access to Benefits of Membership

Until the effective date of a Member’s withdrawal from the Bank, such Member will continue to have access to the benefits of Membership, provided that the Bank need not commit to providing any further services, including advances, to a withdrawing Member that would mature or otherwise terminate subsequent to the effective date of the Member’s withdrawal.  On and after the effective date of the Member’s withdrawal, regardless of whether the former Member is required to maintain an investment in the Class B Stock, the former Member will no longer have the benefits of Membership including access to the Bank’s products and services and will no longer have any voting rights other than as provided in the Regulations, but the former Member will still be entitled to any and all dividends declared on its Class B Stock until the Class B Stock is redeemed or repurchased by the Bank.

IV.F.1(c)Finance Board Notification

The Bank shall notify the Finance Board within ten (10) calendar days of the receipt of any notice of intent to withdraw from Membership or cancellation of a notice of withdrawal from Membership.

IV.F.1(d)Finance Board Certification

No Member may withdraw from Membership unless, on the date that the Membership is to terminate, there is in effect a certification from the Finance Board that the withdrawal of the Member will not cause the Bank System to fail to satisfy its requirements under 12 U.S.C. §1441b(f)(2)(c) to contribute toward the interest payments owed on obligations issued by the Resolution Funding Corporation.

IV.F.1(e)Disposition of Claims

The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to a Member that withdraws from Membership.  The Bank may allow the withdrawing Member to leave its obligations to the Bank outstanding for any length of

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time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of the withdrawing Member on the effective date of the Member’s withdrawal, in which case the Member shall be subject to any applicable prepayment fees.  The Stock Redemption Period for the Class B Stock held by a Member as of the date of the Bank’s receipt of the written notification of the Member’s intent to withdraw from Membership and not already subject to a Redemption Notice shall commence as of that date.  The Stock Redemption Period for shares of Class B Stock acquired or received by such a withdrawing Member after the date that its notice of intent to withdraw is received by the Bank will commence on the date such shares are acquired or received.  If Activity-Based Assets remain outstanding beyond the effective date of the termination of Membership, the Bank will not redeem Class B Stock to the extent that the former Member’s outstanding Class B Stock investment would fall below the minimum Activity-Based Stock Investment Requirement corresponding to such outstanding Activity-Based Assets.

Class B Stock held by the Member as of the effective date of its withdrawal from Membership shall not be deemed automatically to be excess Class B Stock solely by virtue of the termination of the Member’s Membership.  Upon the effective date of a Member’s withdrawal from Membership, such a terminated Member shall not be deemed to be subject to the Membership Stock Investment Requirement.  The Bank may repurchase Class B Stock held by the terminated Member in excess of the minimum Total Stock Investment Requirement as Activity-Based Assets are extinguished or repurchased by the terminated Member.

IV.F.1(f)Effective Date of Withdrawal

The Membership of a Member that has submitted a notice of intent to withdraw, and that has not cancelled such notice, shall terminate as of the date on which the last applicable Stock Redemption Period ends for Class B Stock that the Member is required to hold under the Membership Stock Investment Requirement as of the date that the Member’s written notification of its intent

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to withdraw from Membership was received by the Bank.

IV.F.2.Involuntary Termination of Membership

IV.F.2(a)Written Notification

The Board of Directors may terminate the Membership of any Member that: (i) fails to comply with any requirement of the Act, any regulation adopted by the Finance Board, or any requirement of the Capital Plan, (ii) becomes insolvent or otherwise subject to the appointment of a conservator, receiver, or other legal custodian under federal or state law, or (iii) would jeopardize the safety and soundness of the Bank if it were to remain a Member.

IV.F.2(b)Access to Benefits of Membership

A Member whose Membership is terminated involuntarily shall cease being a Member of the Bank as of the date on which the Board of Directors acts to terminate the Membership.  After that date the institution whose Membership has been terminated shall have no right to obtain any of the benefits of Membership including access to the Bank’s products and services and will no longer have any voting rights, other than as provided in the Regulations, but shall be entitled to receive any dividends declared on its Class B Stock until the Class B Stock is redeemed or repurchased by the Bank.

IV.F.2(c)Disposition of Claims

The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to a Member whose Membership has been terminated.  The Bank may allow the Member whose Membership has been terminated to leave its obligations to the Bank outstanding for any length of time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of the Member on the date on which the Member’s Membership is terminated, in which case the Member shall be subject to any applicable prepayment fees.  The Stock Redemption Period for the Class B Stock owned by a Member as of the date of its termination and not already subject to a Redemption Notice shall commence on the date that the Member’s Membership is terminated.  The

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Stock Redemption Period for Class B Stock acquired or received by a Member after the date of the termination of its Membership shall commence on the date of such acquisition or receipt.  If Activity-Based Assets remain outstanding beyond the effective date of the termination of Membership, the Bank will not redeem Class B Stock to the extent that the former Member’s outstanding Class B Stock investment would fall below the minimum Activity-Based Stock Investment Requirement corresponding to such outstanding Activity-Based Assets.

Class B Stock held by the Member as of the effective date of its termination shall not be deemed automatically to be excess Class B Stock solely by virtue of the termination of the Member’s Membership; provided however, that on and after the effective date of termination, any Class B Stock that is not required to meet the terminated Member’s Membership Stock Investment Requirement on the date on which the Member’s Membership was terminated, or its Activity-Based Stock Investment Requirement shall be excess Class B Stock that shall be subject to repurchase by the Bank; and provided further that effective upon the expiration of the Stock Redemption Period that commences on the date that the Member’s Membership is terminated, the terminated Member’s Membership Stock Investment Requirement shall be deemed to be zero.

IV.F.3.Merger or Consolidation of Members

IV.F.3(a)Termination of Charter and Stock Redemption Period

If a Member’s Membership is terminated as a result of a Member’s merger or other consolidation into another Member, the Membership shall terminate upon cancellation of the disappearing Member’s charter.  On that date, the Class B Stock held by the disappearing Member will be transferred on the books of the Bank into the name of the surviving Member.  The Stock Redemption Period for the Class B Stock previously held by the disappearing Member shall not be deemed to commence on the date on which the disappearing Member’s charter is cancelled, but shall commence only upon:  (i) the Bank’s receipt of a Redemption

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Notice, (ii) the Bank’s receipt of the surviving Member’s written notice of its intent to withdraw from Membership, (iii) the surviving Member’s termination of Membership as a result of merger or consolidation into a member of another FHLBank or into a nonmember, (iv) the surviving Member’s termination from Membership as a result of the relocation of its principal place of business, or (v) the involuntary termination of the surviving Member’s Membership.  Stock Redemption Periods applicable to a Redemption Notice or Notices received by the Bank from the disappearing Member prior to the effective date of the cancellation of the disappearing Member’s charter shall continue to run with respect to the surviving Member from the date such Redemption Notice was received by the Bank, subject to the provisions of §III.A.1 of the Capital Plan.

IV.F.3(b)Stock Requirement of Surviving Member

As of the effective date of the cancellation of the disappearing Member’s charter, the surviving Member’s Membership Stock Investment Requirement shall be immediately increased by the amount of the disappearing Member’s Membership Stock Investment Requirement immediately prior to the cancellation of its charter.  Future calculations of the surviving Member’s Membership Stock Investment Requirement shall be as determined in accordance with §IV.A of the Capital Plan, provided that if the most recently available call report data for the surviving Member does not include the assets of the disappearing Member, then, in that event, the Membership Stock Investment Requirement for the surviving Member will be calculated by adding together the most recently available call report data of the disappearing Member and of the surviving Member.  As of the effective date of the cancellation of the disappearing Member’s charter, the surviving Member’s Activity-Based Stock Investment Requirement will be calculated based on its current Activity-Based Assets including those acquired from the disappearing Member.

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IV.F.4.Merger or Consolidation of Member into a Member of another FHLBank or into a Nonmember

IV.F.4(a)General

If a Member’s Membership is terminated as a result of the Member’s merger or consolidation into a member of another FHLBank or a nonmember, the Membership shall terminate as of the date on which the Member’s charter is cancelled.  On that date, the Class B Stock held by the disappearing Member will be transferred on the books of the Bank into the name of the surviving institution.  After that date the terminated Member (or its successor) shall have no right to obtain any of the benefits of Membership including access to the Bank’s products and services and will no longer have any voting rights other than as provided in the Regulations, but shall be entitled to receive any dividends declared on its Class B Stock until the Class B Stock is redeemed or repurchased by the Bank.

IV.F.4(b)Disposition of Claims

The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to a Member whose Membership has been terminated.  The Bank may allow the Member whose Membership has been terminated (or its successor) to leave its obligations to the Bank outstanding for any length of time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of the Member on the date on which the Member’s Membership is terminated, in which case the Member shall be subject to any applicable prepayment fees.  The Stock Redemption Period for the Class B Stock then held by the former Member (or its successor) and not already subject to a Redemption Notice shall be deemed to commence on the date on which the Member’s charter is cancelled.  The Stock Redemption Period for any Class B Stock acquired or received by the terminated Member (or its successor) after the date of the termination of its Membership shall commence on the date of acquisition or receipt.

If Activity-Based Assets remain outstanding beyond the effective date of the termination of Membership, the Bank will not redeem Class B Stock to the extent that the terminated Member’s outstanding Class B

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Stock investment would fall below the minimum Activity-Based Stock Investment Requirement corresponding to such outstanding Activity-Based Assets.

Class B Stock held by the Member as of the effective date of its termination shall not be deemed automatically to be excess Class B Stock solely by virtue of the termination of the Member’s Membership; provided however, that on and after the effective date of termination any Class B Stock that is not required to meet the terminated Member’s Membership Stock Investment Requirement on the date on which the Member’s Membership was terminated, or its Activity-Based Stock Investment Requirement, shall be excess Class B Stock that shall be subject to repurchase by the Bank, provided that the terminated Member’s Membership Stock Investment Requirement shall be deemed to be zero as of the next recalculation by the Bank of the Membership Stock Investment Requirement in accordance with §IV.A of the Capital Plan.

IV.F.4(c)Acquiring Institution Applies for Bank Membership

If the institution into which the Member merges or is consolidated is eligible for Membership and intends to become a Member of the Bank, it must provide written notification to the Bank of its intention to apply for Membership within sixty (60) calendar days of the cancellation of the charter of the former Member.

Following the submission of this notification, the application for Membership must be submitted within sixty (60) calendar days.  If the institution is approved for Membership, then it must purchase the appropriate amounts, if any, of Class B Stock to comply with its minimum Total Stock Investment Requirement.  Such purchase must be made within the timeframe specified in §IV.A.3 of the Capital Plan for its Membership Stock Investment Requirement and, with respect to any Activity-Based Stock Investment Requirement, prior to engaging in such Activity-Based Assets.

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If the institution does not provide required notification and application for Membership within the respective required time periods, or is disapproved for Membership, the provisions of §IV.F.4(b) of the Capital Plan will apply with respect to the disposition of Activity-Based Assets and redemption and repurchase of Class B Stock.

IV.F.5.Relocation of Principal Place of Business

IV.F.5(a)General

If a Member’s Membership is terminated as a result of the relocation of the Member’s principal place of business, as defined in the Regulations, the Membership shall terminate on the date on which the transfer of membership under the Regulations becomes effective.  After that date the terminated Member shall have no right to obtain any of the benefits of Membership including access to the Bank’s products and services and will no longer have any voting rights other than as provided in the Regulations, but shall be entitled to receive any dividends declared on its Class B Stock until the Class B Stock is redeemed or repurchased by the Bank.

IV.F.5(b)Disposition of Claims

The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to a Member whose Membership has been terminated.  The Bank may allow the Member whose Membership has been terminated to leave its obligations to the Bank outstanding for any length of time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of the Member on the date on which the Member’s Membership is terminated, in which case the Member shall be subject to any applicable prepayment fees.  The Stock Redemption Period for the Class B Stock then held by the Member and not already subject to a Redemption Notice shall be deemed to commence on the date on which the Member’s relocation becomes effective.  The Stock Redemption Period for any Class B Stock acquired or received by the terminated Member after the date of the termination of its Membership shall commence on the date of acquisition or receipt.

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If Activity-Based Assets remain outstanding beyond the effective date of the termination of Membership, the Bank will not redeem Class B Stock to the extent that the terminated Member’s outstanding Class B Stock investment would fall below the Activity-Based Stock Investment Requirement corresponding to such outstanding Activity-Based Assets.

Class B Stock held by the Member as of the effective date of its termination shall not be deemed automatically to be excess Class B Stock solely by virtue of the termination of the Member’s Membership, provided however, that on and after the effective date of termination any Class B Stock that is not required to meet the terminated Member’s Membership Stock Investment Requirement on the date on which the Member’s Membership was terminated, or its Activity-Based Stock Investment Requirement shall be excess Class B Stock that shall be subject to repurchase by the Bank; and provided further that effective upon the expiration of the Stock Redemption Period that commences on the date that the Member’s Membership is terminated, the terminated Member’s Membership Stock Investment Requirement shall be deemed to be zero.

§V.Transition, Review, and Amendments

V.A.Transition

V.A.1.Effective Date

On a date determined by the Board of Directors, which shall not occur more than thirty-six (36) months after final written approval by the Finance Board for the Bank to implement the Capital Plan, which date shall be subject to adjustment by the Finance Board, the Capital Plan shall be implemented by the conversion of the Capital Stock of the Bank as described in §V.A.2 of the Capital Plan.

V.A.1(a)Bank Notification to Members

The Opt-Out Date is sixty (60) days prior to the Effective Date.  Not less than forty-five (45) nor more than sixty (60) days prior to the Opt-Out Date, a copy of the Capital Plan as approved by the Finance Board, an estimate of each Member’s individual Total Stock Investment Requirement, the disclosures required by Section 933.5 of the Regulations, including a

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description of a Member’s option to withdraw from Membership prior to the implementation of the Capital Plan, and a notification of a Member’s opportunity to request that the Bank repurchase shares of Class B Stock in excess of the Member’s Total Stock Investment Requirement on the Effective Date will be transmitted, sent or given to each Member.

V.A.1(b)Member Notification of Intent to Withdraw on or before Opt-Out Date

V.A.1(b)(1)General

Members will be informed that written notice of the Member’s intent to withdraw from Membership must be received by the Finance Board and the Bank no later than the Opt-Out Date.  The Membership of a Member whose written notice of intent to withdraw from Membership is received by the Finance Board and the Bank on or before the Opt-Out Date shall terminate on the Effective Date, and such Member’s Capital Stock shall be redeemed and retired and shall not be converted into Class B Stock.

V.A.1(b)(2)Disposition of Claims; Collateral Deficiency Upon Withdrawal

The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to the withdrawing Member.  The Bank may allow the withdrawing Member to leave its obligations to the Bank outstanding for any length of time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of the Member on the date on which the Member’s Membership is terminated, in which case the Member shall be subject to any applicable prepayment fees.  In the case of such a withdrawing Member, if on the Effective Date the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by the Member to the Bank, and the Member has failed to deliver additional collateral to resolve the existing or anticipated collateral deficiency to the Bank’s satisfaction, the Bank shall redeem all of the Member’s Capital Stock and remit the

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proceeds to a deposit account as collateral security for such obligations until all such obligations have been satisfied or the existing or anticipated deficiency is resolved to the Bank’s satisfaction.

V.A.1(c)Affirmative Election to Convert Shares

Any Member whose written notice of intent to withdraw from Membership is not received by the Finance Board and the Bank on or prior to the Opt-Out Date shall be deemed to have affirmatively elected to convert its existing Capital Stock to Class B Stock on the Effective Date pursuant to the Capital Plan.

V.A.1(c)(1)Notice of Intent to Withdraw after Opt-Out Date

In the event a Member that is deemed to have affirmatively elected to convert its existing Capital Stock to Class B Stock files written notice of its intent to withdraw from Membership that is received by the Finance Board and the Bank after the Opt-Out Date, the Stock Redemption Period for the Class B Stock issued to the Member upon the conversion of the shares of Capital Stock that the Member held as of the date its notice of intent to withdraw is received will be deemed to commence on the date that the notice of intent to withdraw is received by the Finance Board and the Bank.

V.A.1(c)(2)Additional Shares Received Prior to Effective Date

If a Member described in the preceding paragraph acquires or receives any additional shares of the Bank’s Capital Stock after the date its notice of withdrawal is received by the Finance Board and the Bank and before the Effective Date, the Stock Redemption Period for the Class B Stock issued to the Member upon the conversion of such Capital Stock will be deemed to commence on the date that such shares of Capital Stock were acquired or received.  If a Member described in the preceding paragraph acquires or receives any shares of Class B Stock on or after the Effective Date other than through the conversion occurring on the Effective Date, the Stock Redemption Period for such shares shall commence on the date such shares of Class B Stock were acquired or received.

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V.A.1(d)Treatment of Former Members

With respect to any institution the Membership of which has terminated on or prior to the Effective Date other than by virtue of §V.A.1(b) of the Capital Plan that continues to hold Capital Stock, such Capital Stock shall be redeemed for cash and retired on or before the Effective Date and shall not be converted into Class B Stock.  The Bank shall determine an orderly manner for the disposition of Activity-Based Assets outstanding to such an institution.  The Bank may allow such an institution to leave its obligations to the Bank outstanding for any length of time up to and including maturity.  The Bank may, in its discretion, require immediate settlement of all obligations of such an institution on or before the Effective Date, in which case the institution shall be subject to any applicable prepayment fees.  In the event that the Bank reasonably determines that there is an existing or anticipated collateral deficiency related to any obligations owed by such an institution to the Bank and the institution has failed to deliver additional collateral to resolve the existing or anticipated collateral deficiency to the Bank’s satisfaction, upon redeeming the institution’s Capital Stock the Bank shall remit the proceeds to a deposit account as collateral security for such obligations until all such obligations have been satisfied or the anticipated deficiency is resolved to the Bank’s satisfaction.

V.A.1(e)Member Opportunity to Request Repurchase of Excess Stock

Members will be informed that they may submit a written notice to the Bank requesting, that to the extent that the Member upon the conversion of its Capital Stock to Class B Stock on the Effective Date holds shares of Class B Stock in excess of the Member’s Total Stock Investment Requirement, that the Bank exercise its discretion and repurchase a Member- specified percentage of the Member’s shares of Class B Stock in excess of the Member’s Total Stock Investment Requirement on the Effective Date.  In order to be considered under this provision a Member’s written notice must be received by the Bank by the Repurchase Request Notice Date, which is sixty (60) days prior to the Effective Date.  The Bank will treat all

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written notices received by the Bank by the Repurchase Request Notice Date equally.

The Bank shall have the sole discretion to determine the extent, if any, to which it will repurchase Class B Stock in response to written notices from Members and any such repurchases shall be subject to the limitations set forth in §III.A.3 of the Capital Plan, and shall be rounded down to the next even $100 increment.  To the extent that the Bank determines not to repurchase all shares of Class B Stock that are subject to such written notices, the Bank shall allocate such repurchases among Members that have submitted such notices on a pro rata basis.  This provision shall be deemed to satisfy the notice period set forth in §III.A.2 of the Capital Plan.

Any request by a Member for the Bank to repurchase shares of Class B Stock that is received by the Bank after the Repurchase Request Notice Date or prior to the Effective Date shall not be considered by the Bank.

V.A.2.Plan of Reorganization

The following actions, which constitute the Bank’s Plan of Reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, are to be taken in order to implement the Capital Plan.

V.A.2(a)Calculation of Total Stock Investment Requirements

On the Effective Date, each Member’s Total Stock Investment Requirement will be calculated by applying the Membership Stock Investment Requirement in accordance with the calculation method set forth in §IV.A of the Capital Plan and by applying the Activity-Based Stock Investment Requirement determined as of the Effective Date.

V.A.2(b)Identification of Member Stock Positions

With respect to each Member, the Bank will determine whether upon the conversion of the Member’s current holdings of Capital Stock for Class B Stock, the Member would exceed its Total Stock Investment Requirement, exactly meet its Total Stock Investment Requirement, or not meet its Total Stock Investment Requirement.

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V.A.2(c)Conversion of Existing Capital Stock into Class B Stock

On the Effective Date, prior to the commencement of the Bank’s business day the outstanding shares of Capital Stock shall automatically be deemed converted into shares of an equal amount of par value of Class B Stock without any action on the part of the Members.  The Bank will reflect that conversion by appropriate book entries.  All such shares of Capital Stock shall become null and void and shall cease to represent any ownership interest in the Bank.

V.A.2(d)Members that do not meet their Total Stock Investment Requirement

If after all of a Member’s holdings of Capital Stock as of the Effective Date have been converted into Class B Stock the Member does not meet its Total Stock Investment Requirement, the Bank shall notify the Member of the extent of the deficiency.  If the Member was a Member as of November 12, 1999, the Member shall have sixty (60) calendar days in which to purchase sufficient additional shares of Class B Stock to cause the Member to meet its Total Stock Investment Requirement.  Without regard to the foregoing, such a Member must immediately purchase any additional Class B Stock necessary to satisfy the Activity-Based Stock Investment Requirements that arise from that Member’s new Activity-Based Asset transactions occurring on or after the Effective Date.  If the Member became a Member after November 12, 1999, the Member must purchase sufficient additional shares of Class B Stock on the Effective Date to cause the Member to meet its Total Stock Investment Requirement as of the Effective Date.

V.A.2(e)Repurchase of Class B Stock on Effective Date

Following the conversion of Capital Stock to Class B Stock on the Effective Date, the Bank to the extent that it has determined to repurchase excess shares of Class B Stock held by Members that submitted written notices to the Bank in accordance with §V.A.1(e) of the Capital Plan will repurchase such shares of Class B Stock.

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V.A.3.Good Faith Determination

Management of the Bank has made a good faith determination that the Bank will be able to implement the Capital Plan and that the Bank will be in compliance with its Minimum Regulatory Capital Requirements immediately after the Capital Plan is implemented.  An analysis of the Bank’s projected capital position after implementation of the Capital Plan has been provided to the Finance Board.

V.B.Review and Amendments

V.B.1.Annual Review of the Capital Plan

At least annually, the Board of Directors shall review the Capital Plan and the Board of Directors may from time to time consider potential amendments to the Capital Plan.

V.B.2.Amendments to the Capital Plan

Any amendments adopted by the Board of Directors will require submission of the amended Capital Plan to the Finance Board for approval prior to the implementation of the amended Capital Plan.  Adjustments listed in §§IV.A.4 and IV.B.2 of the Capital Plan related to changes to a Member’s Membership Stock Investment Requirement or Activity-Based Stock Investment Requirement within the ranges permitted by the Capital Plan are not amendments to the Capital Plan.  The Bank will transmit, send or give its Members notice in writing at least thirty (30) calendar days prior to the effective date of any amendment to the Capital Plan to be implemented pursuant to Finance Board approval in accordance with this §V.B.2 of the Capital Plan.

§VI.Miscellaneous

VI.A.Interpretation of the Capital Plan

The Capital Plan takes into account the applicable provisions of the Act and the Regulations and it is not intended to contradict such provisions. If any restatement of the Act or a Regulation contained in the Capital Plan conflicts with the actual provisions of the Act or the Regulation, the actual provisions of the Act or the Regulation shall govern.  In this Capital Plan unless the context otherwise requires, words describing the singular number shall include the plural and vice versa.

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VI.B.Notices

VI.B.1.Notices by the Bank

Written notices transmitted, sent or given by the Bank under this Capital Plan shall be addressed to the chief executive officer of the Member, or Other Institution, or such other person, designated by the Member, or Other Institution, in a written notice in accordance with §VI.B.2 of the Capital Plan received by the Bank.  Such written notices shall be directed to the postal address, physical address or fax number appearing in the Bank’s records from time to time.

VI.B.2.Notices to the Bank

Written notices given to the Bank in accordance with the provisions of the Capital Plan shall be addressed to the President of the Bank at the Bank’s postal address, physical address, or by fax to (617) 292-9645 and shall be deemed to have been received by the Bank in each case upon actual receipt by the Bank.  The Bank may from time to time change the postal address, physical address, fax number at which it will receives such written notices by transmitting, sending or giving written notice to the Member, or Other Institution, in accordance with §VI.B.1 of the Capital Plan.

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EX-10.1

Exhibit 10.1

THE FEDERAL HOME LOAN BANK OF BOSTON

PENSION BENEFIT EQUALIZATION PLAN

Effective January 1, 1993

As Amended and Restated

Effective as of October 1, 1997

THE FEDERAL HOME LOAN BANK OF BOSTON

PENSION BENEFIT EQUALIZATION PLAN

TABLE OF CONTENTS

ARTICLE I.		DEFINITIONS
	1.01	Actuary
	1.02	Adoption Date
	1.03	Bank
	1.04	Beneficiary
	1.05	Board of Directors
	1.06	Code
	1.07	Code Limitations
	1.08	Committee
	1.09	Effective Date
	1.10	Eligible Executive
	1.11	Executive Officer
	1.12	Incentive Compensation
	1.13	Member
	1.14	Plan
	1.15	Retirement Fund
	1.16	Thrift Benefit Equalization Plan
ARTICLE II.		MEMBERSHIP
ARTICLE III.		AMOUNT AND PAYMENT OF PENSION BENEFITS
ARTICLE IV.		DESIGNATION OF BENEFICIARIES
ARTICLE V.		SOURCE OF PAYMENT
ARTICLE VI.		ADMINISTRATION OF THE PLAN
ARTICLE VII.		AMENDMENT AND TERMINATION
ARTICLE VIII.		GENERAL PROVISIONS

THE FEDERAL HOME LOAN BANK OF BOSTON

PENSION BENEFIT EQUALIZATION PLAN

THE FEDERAL HOME LOAN BANK OF BOSTON (the “Bank”) established the Benefit Equalization Plan effective as of January 1, 1993. The Plan is now being amended and restated as follows:

INTRODUCTION

The Benefit Equalization Plan was originally established to provide to certain employees of the Bank the benefits which would have been payable under the Comprehensive Retirement Program of the Financial Institutions Retirement Fund (the “Retirement Fund”), and benefits equivalent to the matching contributions and 401(k) contributions which would have been available under the Financial Institutions Thrift Plan (the “Thrift Plan”), but for (i) the limitations placed on benefits and matching contributions for such employees by Sections 401(a)(17), 401(k)(3)(A)(ii), 401(m), 402(g) and 415 of the Internal Revenue Code of 1986, as amended, and (ii) the exclusion of bonuses, amounts paid under the Bank’s incentive compensation plan and amounts deferred under Sections 4.01 and 4.02 of that Plan from the definition of “Base Salary” under the Retirement Fund and the Thrift Plan. Effective as of January 1, 1997, the Bank split the Plan into two plans, one covering retirement-related benefits and the other addressing thrift-related benefits. The Plan is now being amended to provide that any benefits payable to or on behalf of

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a Member covered by a split dollar life insurance policy issued in connection with the Plan shall be distributed in one lump sum following his termination of employment or death. Accordingly, this Plan as hereinafter set forth is intended to provide the retirement-related benefits previously provided under Article III of the Plan as in effect on December 31, 1996 and to provide certain additional benefits.

All benefits payable under this Plan shall be paid solely out of the general assets of the Bank. No benefits under this Plan shall be payable by the Retirement Fund or its asset.

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ARTICLE I. DEFINITIONS

When used in the Plan, the following terms shall have the following meanings:

1.01“Actuary” means the independent consulting actuary retained by the Bank to assist the Committee in its administration of the Plan.

1.02“Adoption Date” means the date the Plan is adopted by the Board of Directors.

1.03“Bank” means the Federal Home Loan Bank of Boston.

1.04“Beneficiary” means the beneficiary or beneficiaries designated in accordance with Article IV of the Plan to receive the benefit, if any, payable upon the death of a Member of the Plan.

1.05“Board of Directors” means the Board of Directors of the Bank.

1.06“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

1.07“Code Limitations” means the cap on compensation taken into account by a plan under Code Section 401(a)(17) and the overall limitations on contributions and benefits imposed

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on qualified plans by Code Section 415, as such provisions may be amended from time to time, and any similar successor provisions of federal tax law.

1.08“Committee” means the Personal Committee of the Board of Directors of the Bank, which is authorized to administer the Plan.

1.09“Effective Date” means January 1, 1993. The effective date of this restatement is January 1, 1997.

1.10“Eligible Executive” means an employee of the Bank who is a corporate officer and who has been selected to be an Eligible Executive by the Committee.

1.11“Executive Officer” means an Eligible Executive who is designated as an Executive Officer by the Personal Committee of the Bank.

1.12“Incentive Compensation” means bonuses and other incentive compensation payments, including any long term incentive payments, payable to a Member under the Bank’s incentive compensation plan.

1.13“Member” means any person included in the membership of the Plan as provided in Article II.

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1.14“Plan” means The Federal Home Loan Bank of Boston Pension Benefit Equalization Plan, as set forth herein or as it may be amended or restated from time to time.

1.15         “Retirement Fund” means the Comprehensive Retirement Program of the Financial Institutions Retirement Fund, a qualified and tax-exempt defined benefit pension plan and trust under Sections 401(a) and 501(a) of the Code, as adopted by the Bank.

1.16“Thrift Benefit Equalization Plan” means the Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan, as it may be amended from time to time.

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ARTICLE II. MEMBERSHIP

2.01Each Eligible Executive of the Bank shall become a Member of the Plan on the latest of (i) the date on which he is included in the membership of the Retirement Fund, (ii) the date he is selected as an Eligible Executive, or (iii) the Effective Date.

2.02Section 2.01 to the contrary notwithstanding, the Committee may, in its discretion, elect to include in the membership of the Plan an Eligible Executive on the date that he commences employment with the Bank, but no earlier than the Effective Date.

2.03A benefit shall be payable under the Plan to or on account of a Member only upon the Member’s retirement, death or other termination of employment with the Bank.

2.04No employee shall have the automatic right to be selected as an Eligible Executive for any year, or, having been selected as an Eligible Executive for one year, be considered an Eligible Executive for any other year. If a Member ceases to be an Eligible Executive but continues to be employed by the Bank, he shall cease to accrue any further pension benefit under Sections 3.01(a)(ii) and (iv).

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ARTICLE III. AMOUNT AND PAYMENT OF PENSION BENEFITS

3.01Subject to the provisions of Sections 3.02 and 3.03, the amount, if any, of the annual pension benefit payable to or on account of a Member pursuant to the Plan shall equal the excess of (a) over (b), as determined by the Committee, where:

(a)is the annual pension benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under it by the Member) that would otherwise be payable to or on account of the Member by the Retirement Fund if its provisions were administered

(i)without regard to the Code Limitations;

(ii)with the inclusion in the definition of “Base Salary” for the year deferred of any amounts deferred by a Member under the Thrift Benefit Equalization Plan, and for the year paid of any Incentive Compensation (determined prior to any deferral under the Thrift Benefit Equalization Plan);

(iii)by recognizing his years of service rendered from his initial date of employment with any employer participating in the Retirement Fund to his date of membership in the Retirement Fund as benefit service under the Retirement Fund; and

(iv)solely with respect to Executive Officers, by taking into account such increased benefit accrual rate under the Retirement Fund’s benefit formula

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as may be established from time to time by resolution of the Board of Directors, which resolution shall be appended to and deemed a part of this Plan.

(b)is the annual pension benefit (as calculated by the Retirement Fund on the basis of the form of payment elected under it by the Member) that is payable to or on account of the Member under the Retirement Fund.

For purposes of this section 3.01, “annual pension benefit” includes any “Active Service Death Benefit”, “Retirement Adjustment Payment”, “Annual Increment” and “Single Purchase Fixed Percentage Adjustment” which the Bank elected to provide its employees under the Retirement Fund.

The Bank’s obligation for the benefit provided under this Plan may be satisfied in whole or in part by any proceeds payable to the Member (or the Member’s Beneficiary, if applicable) from any insurance policy (including a split dollar arrangement) insuring the life of the Member issued in connection with the Plan.

3.02The following provision shall govern the payment of benefits to or on behalf of a Member who is not covered by a split dollar life insurance policy issued in connection with the Plan:

(a)The benefit payable to or on account of a Member pursuant to Section 3.01 shall be paid in the same form as elected by the Member under the Retirement Fund.

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Notwithstanding the foregoing, in no event shall a Member be entitled to receive a lump sum payment under the terms of this Plan unless he has filed an irrevocable election to that effect with the Committee at least 12 full calendar months prior to his date of retirement. In the event a Member elects to receive his benefit under the Retirement Fund in the form of a lump sum payment and has failed to make the election required by the preceding sentence, the Member’s pension benefit payable under this Plan shall be payable to or on account of the Member in the “Regular Form” of payment as defined in the Retirement Fund.

If the Member’s benefit is not payable in the “Regular Form” under this Section 3.02, the benefit payable in an optional form shall be of equivalent actuarial value to the benefit otherwise payable in the Regular Form.  For this purpose, equivalent actuarial value shall be determined by the actuary under the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

(b)If a Member dies after the date his benefit payments under the plan had commenced, the only death benefit payable under the Plan in respect of said Member shall be the amount, if any, payable under the form of payment which the Member had elected. If a Member who had elected a lump sum payment under paragraph (a) above dies before the date his benefit payments under the Plan commences, his election of the lump sum payment shall be inoperative.

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(c)If a Member to whom an annual pension benefit is payable under the plan dies while in active service or following retirement or other termination of employment but prior to the commencement of his pension under this Plan, the death benefit will be computed as under the Retirement Fund with the adjustments as in Section 3.01 above and any amount which may not be paid under the Retirement Fund shall be payable under this Plan.

(d)Notwithstanding any other provision of this Plan, if on the date payment under the Plan would otherwise commence the lump sum settlement value of a Member’s benefit determined by the Actuary does not exceed $3,500, then that Member’s benefit shall automatically be paid in the form of a lump sum settlement.

(e)All annual pension benefits under the Plan shall be paid in monthly, quarterly, or annual installments, as determined by the committee in its discretion.  Benefits shall commence as soon as practicable following the Member’s retirement date under the Retirement Fund, except that no benefits shall be paid prior to the date that benefits under the Plan can be definitely determined by the Committee.

3.03The following provisions shall govern the payment of benefits to or on behalf of a Member who is covered by a split dollar life insurance policy issued in connection with the Plan:

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(a)Upon termination of employment of a Member to whom a benefit is payable under the Plan, the Member’s benefit shall be determined under Section 3.01 and shall be paid in one lump sum payment as soon as practicable following the Member’s date of termination of employment with the Bank. For purposes of calculating the benefit due under Section 3.01, (i) the Member shall be deemed to have elected a lump sum payment under the Retirement Fund, and (ii) in the event the Member was vested under the Retirement Fund but had not reached the minimum age to elect commencement of his retirement benefit under the Retirement Fund, the amount of the retirement benefit deemed to be payable under the Retirement Fund and this Plan as of his date of termination shall be the equivalent actuarial value of the retirement benefit which would be payable at the earliest date at which the Member could elect benefit commencement under that Plan and this Plan had he deferred payment to that date.  For purposes of this paragraph (a), equivalent actuarial value shall be determined by the Actuary on the basis of the interest rate and mortality table then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

(b)If a Member to whom a benefit is payable under the Plan dies while in active service, the Member’s Beneficiary shall be entitled to receive the benefit which would have been payable to the Member had the Member retired on the day preceding his date of death and had made an effective election of a lump sum

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payment under the Retirement Fund and this Plan payable as of the first day of the month following his date of death. In the event the Member was vested under the Retirement Fund but had not reached the minimum age to elect commencement of his retirement benefit under the Retirement Fund, the amount of the retirement benefit deemed to be payable under the Retirement Fund and this Plan as of his date of death shall be the equivalent actuarial value of the retirement benefit which would be payable at the earliest date at which the Member could elect benefit commencement under that Plan and this Plan had be survived to that date. The lump sum payment shall be made as soon as practicable following the death of the Member. For purposes of this paragraph (b), equivalent actuarial value shall be determined by the Actuary on the basis of the interest rate and mortality table then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

3.04If a Member is restored to employment with the Bank, payment of any pension benefits shall cease. Upon his subsequent retirement or termination of employment with the Bank, his benefit under the Plan shall be recomputed in accordance with Section 3.01, but shall be reduced by the equivalent actuarial value of the amount of any benefit paid by the Plan in respect of his previous retirement or termination of employment, and such reduced benefit shall be paid to the Member in accordance with the provisions of the Plan. For purposes of this Section 3.04, the equivalent actuarial value of the benefit paid

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in respect of the Member’s previous retirement or termination of employment shall be determined by the Actuary utilizing for that purpose the same actuarial factors and assumptions then used by the Retirement Fund to determine actuarial equivalence under the Retirement Fund.

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ARTICLE IV. DESIGNATION OF BENEFICIARIES

4.01Each Member of the Plan may file with the Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. The Member may, from time to time, revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Member’s death, and in no event shall it be effective as of a date prior to such receipt.

4.02If no such Beneficiary designation is in effect at the time of a Member’s death, or if no designated Beneficiary survives the Member, or if, in the opinion of the Committee, such designation conflicts with applicable law, the Member’s estate shall be deemed to have been designated his Beneficiary and shall be paid the amount, if any, payable under the Plan upon the Member’s death. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Bank therefor.

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ARTICLE V. SOURCE OF PAYMENT

5.01All payments of benefits under the Plan shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in Code Sections 671 through 677) to reflect or to aid it in meeting its obligations under the Plan with respect to any Member or prospective Member or Beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the Retirement Fund.

5.02No Member shall have any right, title or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan. To the extent that any person acquires a right to receive payments from the Bank under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Bank.

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ARTICLE VI. ADMINISTRATION OF THE PLAN

6.01The Committee shall have general authority over and responsibility for the administration and interpretation of the Plan. The Committee shall have full power and discretionary authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and any trust referred to in Article V, and the calculation of the amount of benefits payable thereunder, and to review claims for benefits under the Plan. Unless arbitrary or capricious, the Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes.

6.02The Committee shall arrange for the engagement of the Actuary, and if the Committee deems it advisable, it shall arrange for the engagement of legal counsel and certified public accountants (who may be counsel or accountants for the Bank), and other consultants, and make use of agents and clerical or other personnel, for purposes of the Plan. The Committee may rely upon the written opinions of such Actuary, counsel, accountants and consultants, and upon any information supplied by the Retirement Fund for purposes of Section 3.01, and delegate to any agent or to any sub-committee or Committee member its authority to perform any act hereunder, including without limitations those matters involving the exercise of discretion; provided, however, that such delegation shall be subject to revocation at any time at the discretion of the Committee. The Committee shall report to the Board of Directors, or to a committee

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designated by the Board, at such intervals as shall be specified by the Board or such designated committee, with regard to the matters for which it is responsible under the Plan.

6.03No Committee member shall be entitled to act on or decide any matters relating solely to such member or any of his rights or benefits under the Plan.

6.04Each Committee member shall be reimbursed for any reasonable expenses incurred in connection with his services as a Committee member. No bond or other security need be required of the Committee or any member thereof in any jurisdiction.

6.05All claims for benefits under the Plan shall be submitted in writing to the Chairman of the Committee. Written notice of the decision on each such claim shall be furnished with reasonable promptness to the Member or his Beneficiary (the claimant). The claimant may request a review by the Committee of any decision denying the claim in whole or in part. Such request shall be made in writing and filed with the Committee within 30 days of such denial. A request for review shall contain all additional information which the claimant wishes the Committee to consider. The Committee may hold any hearing or conduct any independent investigation which it deems desirable to render its decision, and the decision on review shall be made as soon as feasible after the Committee’s receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant. For all purposes under the Plan, such decisions on claims (where no review is

15

requested) and decisions on review (where review is requested) shall be final, binding and conclusive on all interested persons as to all matters relating to the Plan.

6.06All expenses incurred by the Committee in its administration of the Plan shall be paid by the Bank.

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ARTICLE VII. AMENDMENT AND TERMINATION

7.01The Board of Directors may amend, suspend or terminate, in whole or in part, the Plan without the consent of the Committee, any Member, beneficiary or other person, except that no amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any Member, Beneficiary or other person to benefits under the Plan which have accrued prior to the date of such action, as determined by the amendment or take any other action which may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto.

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ARTICLE VIII. GENERAL PROVISIONS

8.01The Plan shall be binding upon and inure to the benefit of the Bank and its successors, and assigns and the Members, and the successors, assigns, designees and estates of the Members. The Plan shall also be binding upon and inure to the benefit of any successor bank or organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another bank which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of Members’ rights under the Plan in any agreement or plan which it may enter into to effect any merger, consolidation, reorganization or transfer of assets. In such a merger, consolidation, reorganization, or transfer of assets and assumption of Plan obligations of the Bank, the term Bank shall refer to such other bank and the Plan shall continue in full force and effect.

8.02Neither the Plan nor any action taken thereunder shall be construed as giving to a Member the right to be retained in the employ of the Bank or as affecting the right of the Bank to dismiss any Members from its employ.

8.03The Bank shall withhold or cause to be withheld from all benefits payable under the Plan all federal, state, local or other taxes required by applicable law to be withheld with respect to such payments.

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8.04No right or interest of a Member under the Plan may be assigned, sold, encumbered, transferred or otherwise disposed of and any attempted disposition of such right or interest shall be null and void. Further, no right or interest of a Member may be reached by any creditor of the Member.

8.05If the Committee shall find that any person to whom any amount is or was payable under the Plan is unable to care for his affairs because of illness or accident or because he is a minor, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee is so inclined, be paid to such person’s spouse, child or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of the Plan and the Bank therefor.

8.06All elections, designations, requests, notices, instructions, and other communications from a Member, Beneficiary or other person to the Committee required or permitted under the Plan shall be in such from as is prescribed from time to time by the Committee and shall be mailed by first-class mail or delivered to such location as shall be specified by the Committee and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

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8.07The benefits payable under the Plan shall be in addition to all other benefits provided for employees of the Bank and shall not be deemed salary or other compensation by the Bank for the purpose of computing benefits to which he may be entitled under any other plan or arrangement of the Bank.

8.08No Committee member shall be personally liable by reason for any instrument executed by him or on his behalf, or action taken by him, in his capacity as a Committee member nor for any mistake or judgment made in good faith. The Bank shall indemnify and hold harmless the Retirement Fund, and each Committee member and each employee, officer or director of the Bank, or the Retirement Fund, to whom any duty, power, function or action in respect of the Plan may be delegated or assigned, or from whom any information is requested for Plan purposes, against any cost or expense (including fees of legal counsel) and liability (including any sum paid in settlement of a claim or legal action with the approval of the Bank) arising out of anything done or omitted to be done in connection with the Plan, unless arising out of such person’s fraud or bad faith.

8.09As used in the Plan, the masculine gender shall be deemed to refer to the feminine, and the singular person shall be deemed to refer to the plural, wherever appropriate.

8.10The captions preceding the Sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

8.11The Plan shall be construed according to the laws of the State of Massachusetts in effect from time to time.

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IN WITNESS WHEREOF, THE FEDERAL HOME LOAN BANK OF BOSTON has caused the Plan to be executed effective as of                                     .

THE FEDERAL HOME LOAN BANK
OF BOSTON

By

Date

Attest:

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EX-10.2

Exhibit 10.2

THE FEDERAL HOME LOAN BANK OF BOSTON

THRIFT BENEFIT EQUALIZATION PLAN

Effective January 1, 1993

As Amended and Restated as of August 1, 2000

THE FEDERAL HOME LOAN BANK OF BOSTON

THRIFT BENEFIT EQUALIZATION PLAN

TABLE OF CONTENTS

ARTICLE I.	DEFINITIONS
1.01	Account
1.02	Adoption Date
1.03	Bank
1.04	Base Salary
1.05	Beneficiary
1.06	Board of Directors
1.07	Code
1.08	Code Limitations
1.09	Committee
1.10	Deferral Agreement
1.11	Effective Date
1.12	Eligible Executive
1.13	Incentive Compensation
1.14	Member
1.15	Plan
1.16	Post-Secondary Education Subaccount
1.17	Qualifying Student
1.18	Retirement Subaccount
1.19	Subaccount
1.20	Thrift Plan
1.21	Valuation Date
ARTICLE II.  MEMBERSHIP
ARTICLE III.  AMOUNT OF THRIFT BENEFITS
ARTICLE IV.  MAINTENANCE OF ACCOUNTS
4.01	Adjustment of Accounts
4.02	Investment Performance Elections
4.03	Changing Investment Elections
4.04	Vesting of Account
4.05	Individual Accounts
ARTICLE V.  PAYMENT OF ACCOUNTS
5.01	Commencement of Payment
5.02	Method of Payment

5.03	Hardship
5.04	Death Benefit
5.05	Designation of Beneficiary
5.06	Status of Accounts Pending Distribution
5.07	Installments and Withdrawals Pro-Rata
ARTICLE VI.  SUBACCOUNTS
6.01	Qualification for Post-Secondary Education Subaccount
6.02	Treatment of Subaccounts
6.03	Modification of Plan Provisions Applying to Subaccounts
6.04	Special Rules for Post-Secondary Education Subaccounts
6.05	Special One-Time Election
ARTICLE VII.  SOURCE OF PAYMENTS
ARTICLE VIII.  ADMINISTRATION OF THE PLAN
ARTICLE IX.  AMENDMENT AND TERMINATION
ARTICLE X.  GENERAL PROVISIONS

INTRODUCTION

The Benefit Equalization Plan was originally established, effective as of January 1, 1993, to provide certain employees of The Federal Home Loan Bank of Boston (the “Bank”) with the benefits which would have been payable under the Comprehensive Retirement Program of the Financial Institutions Retirement Fund (the “Retirement Fund”), and benefits equivalent to the matching contributions and 401(k) contributions which would have been available under the Financial Institutions Thrift Plan (the “Thrift Plan”), but for (i) the limitations placed on benefits and matching contributions for such employees by Sections 401(a)(17), 401(k)(3)(A)(ii), 401(m), 402(g) and 415 of the Internal Revenue Code of 1986, as amended, and (ii) the exclusion of bonuses, amounts paid under the Bank’s incentive compensation plan and amounts deferred under Sections 4.01 and 4.02 of this Plan from the definition of “Base Salary” under the Retirement Fund and the Thrift Plan. Effective as of January 1, 1997, the Bank deemed it advisable to split the Plan into two plans, one covering retirement-related benefits and the other addressing thrift-related benefits. This Plan as hereinafter set forth is intended to provide the thrift-related benefits previously provided under Article IV of the Plan as in effect on December 31, 1996 and to reflect certain administrative changes. Further, this Plan is now being amended, effective as of August 1, 2000, to permit subaccounts to be established for the purpose of providing financing for post-secondary education for qualifying students and to permit the election of an earlier payment date.

This plan is intended to constitute a nonqualified, unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of the Employee Retirement Income Security Act of 1974, as amended. All benefits payable under this Plan shall be paid solely

out of the general assets of the Bank. No benefits under this Plan shall be payable by the Thrift Plan or its assets.

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ARTICLE I. DEFINITIONS

When used in the Plan, the following terms shall have the following meanings:

1.01“Account” means the account established and maintained hereunder the record the contributions deferred by the Member and the contributions deemed made on their behalf by the Bank, as adjusted pursuant to Article IV.

1.02“Adoption Date” means the date the Plan is adopted by the Board of Directors.

1.03“Bank” means the Federal Home Loan Bank of Boston.

1.04“Base Salary” means base salary as defined under the Thrift Plan.

1.05“Beneficiary” means the beneficiary or beneficiaries designed in accordance with Section 5.05 of the Plan to receive the benefit, if any, payable upon the death of a Member of the Plan.

1.06“Board of Directors” means the Board of Directors of the Bank.

1.07“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

1.08“Code Limitations” means the cap on compensation taken into account by a plan under Code Section 401(a)(17), the limitations on 401(k) contributions necessary to meet the average deferral percentage (“ADP”) test under Code
Section 401(k)(3)(A)(ii), the

limitations on employee and matching contributions necessary to meet the average contribution percentage (“ACP”) test under Code Section 401(m), the dollar limitations on elective deferrals under Code Section 402(g) and the overall limitations on contributions and benefits imposed on qualified plans by Code Section 415, as such provisions may be amended from time to time, and any similar successor provisions of federal tax law.

1.09“Committee” means the Personnel Committee of the Board of Directors of the Bank, which is authorized to administer the plan.

1.10“Deferral Agreement” means the agreement under which a Member elects to defer compensation under the Plan in accordance with the provisions of Section 3.06.

1.11“Effective Date” means January 1, 1993. The effective date of this restatement is August 1, 2000.

1.12“Eligible Executive” means an employee of the Bank who is a corporate officer and who has been selected to be an Eligible Executive by the Committee.

1.13“Incentive Compensation” means bonuses and other incentive compensation payments, including any long-term incentive compensation payments, payable to a Member under the Bank’s incentive compensation plan.

1.14“Member” means any person included in the membership of the Plan as provided in Article II.

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1.15“Plan” means The Federal Home Loan Bank of Boston Thrift Benefit Equalization Plan, as set forth herein or as it may be amended or restated from time to time.

1.16“Post-Secondary Education Subaccount” means each Subaccount established by a Member for the purpose of providing financing for post-secondary education for a Qualifying Student all as provided in Article VI.

1.17“Qualifying Student” means any of the Employee’s (a) children, (b) legal spouse, (c) brothers or sisters, or spouses thereof, or their direct lineal descendants.

1.18“Retirement Subaccount” means the residual remaining in a Member’s Account after disregarding each and every Post-Secondary Education Subaccount established for a Member.

1.19“Subaccount” means a Member’s Retirement subaccount and all of the Post-Secondary Education Subaccounts established for the Member, or any of them.

1.20“Thrift Plan” means the Financial Institutions Thrift Plan, a qualified and tax-exempt defined contribution plan and trust under Sections 401(a) and 501(a) of the Code, as adopted by the Bank.

1.21“Valuation Date” means the last day of each calendar quarter.

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ARTICLE II. MEMBERSHIP

2.01Each Eligible Executive of the Bank shall become a Member of the Plan on the latest of (i) the date on which he is credited with an elective contribution under the Thrift Plan, (ii) the date he is selected as an Eligible Executive, or (iii) the Adoption Date.

2.02Section 2.01 to the contrary notwithstanding, the Committee may, in its discretion, elect to include an Eligible Executive in the membership of the Plan on the date that he commences employment with the Bank, but no earlier than the Adoption Date.

2.03A benefit shall be payable under the Plan to or on account of a Member only upon the Member’s retirement, death or other termination of employment with the Bank, except as provided in Section 5.03.

2.04No employee shall have the automatic right to be selected as an Eligible Executive for any year, or, having been selected as an Eligible Executive for one year, to be considered an Eligible Executive for any other year. If a Member ceases to be an Eligible Executive but continues to be employed by the Bank, he shall continue to have all the rights of a Member of the Plan except that he shall not be eligible to defer any further portion of his compensation under the Plan until he shall again become an Eligible Executive. An Eligible Executive shall cease to be a Member when he has received all amounts to which he is entitled under the terms of the Plan.

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ARTICLE III. AMOUNT OF THRIFT BENEFITS

3.01During each calendar year after 1992 and prior to 1997, if the employee’s 401(k) account contributions under the Thrift Plan for such year have reached the maximum permitted by the Code Limitations as determined by the Committee, and if the employee has elected to reduce his compensation for the current calendar year in accordance with the provisions of Section 3.06, then such employee shall be credited with an elective contribution addition under this Plan equal to the reduction in his compensation made in accordance with such election; provided, however, that the sum of all such elective contribution additions for an employee with respect to any single calendar year shall not be greater than the excess of (a) over (b), where

(a)is an amount equal to the maximum 401(k) account contributions permitted under the Thrift Plan for the calendar year as determined under the Thrift Plan if its provisions were administered without regard to the Code Limitations and if compensation as defined in the Thrift Plan included any deferrals made under this Section 3.01 or Section 3.02; and

(b)is an amount equal to his regular account and 401(k) account contributions actually made under the Thrift Plan for the calendar year.

The requirement that a Member have contributed the maximum 401(k) account contributions permitted by the Code Limitations under the Thrift Plan before he shall be eligible to make an election under this Section 3.01 shall not apply to an Eligible Executive who becomes a

5

Member on his date of hire under Section 2.02 until the date he first becomes eligible to participate in the Thrift Plan.

If the reduction in an employee’s compensation under such election is determined to exceed the maximum allowable elective contribution additions for such year, the excess and any related earnings credited under Article IV shall be paid to such employee within the first two and one-half months of the succeeding calendar year.

3.02During each calendar year after 1993 and prior to 1998, if a portion of an employee’s regular account contribution or 401(k) account contribution to the Thrift Plan for the preceding year is returned to an employee after the end of such preceding year on account of the Code Limitations, and if the employee has elected in accordance with the provisions of Section 3.06 to reduce his compensation for the current year by an amount up to the sum of such Thrift Plan contributions and related earnings returned to him for the preceding year, then such employee shall be credited with a makeup contribution addition under this Plan equal to the reduction in his compensation made in accordance with such election.

3.03For each calendar year after 1992 and prior to 1997, a Member may elect, in accordance with the provisions of Section 3.06, to defer from 2% to the “maximum deferral percentage” (as hereinafter defined), in multiples of 1%, of the Incentive Compensation otherwise payable to him for such year. The “maximum deferral percentage” means the maximum deferral percentage of Base Salary a member of the Thrift Plan may elect to contribute as 401(k) account contributions to the Thrift Plan for the applicable calendar year, determined without

6

regard to any Code Limitations. A Member who has made an election under this Section 3.03 shall be credited with an incentive compensation contribution addition under the plan equal to the reduction in his compensation made in accordance with such election.

3.04For each calendar year after 1996, if a Member’s 401(k) account contributions under the Thrift Plan for such year have reached the maximum permitted by the Code Limitations as determined by the Committee and if the employee has elected to reduce his compensation for the current calendar year in accordance with the provisions of Section 3.06, then the Member’s Base Salary earned for periods beginning after the date such Limitations are reached shall be reduced by the applicable percentage elected by the Member. Such percentage may be from 1% to 100%, in multiples of 1% (except that the 1% multiple limitation shall not apply to Base Salary earned in the payroll period in which the Limitations are reached). A Member who has made an election under this Section 3.04 shall be credited with an elective contribution addition under the Plan equal to the reduction in his compensation made in accordance with such election.

3.05Subject to the provisions of Section 3.06, for each calendar year after 1996, a Member may defer form 1% to 100%, in multiples of 1%, of the Incentive Compensation otherwise payable to him for such year. A Member who has made an election under this Section 3.05 shall be credited with an incentive compensation contribution addition under the Plan equal to the reduction in his compensation made in accordance with such election.

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3.06A Member’s elections under Sections 3.01, 3.02, 3.03, 3.04 and 3.05 shall be made in accordance with the following provisions:

(a)The Committee shall provide each Member with a Deferral Agreement at least 30 days prior to the commencement of the calendar year in which compensation is to be earned and paid. Each Member shall execute and deliver the Deferral Agreement to the Committee no later than the last business day preceding the calendar year in which compensation is to be earned and paid, except that an election with respect to Incentive Compensation under Section 3.03, or 3.05 may be made on or before the last business day of December of the calendar year preceding the calendar year in which the Incentive Compensation is paid.

(b)Notwithstanding the above, an Eligible Executive who becomes eligible to participate during a calendar year may execute a Deferral Agreement with respect to his elections under Sections 3.01, 3.02 and 3.04 within 30 days of the date he becomes eligible to participate. An individual who is an Eligible Executive immediately prior to the Adoption Date may file a Deferral Agreement with the Committee with in such period prior to the Adoption Date and in such manner as the Committee may prescribe. With respect to Sections 3.01, 3.02 and 3.04, the Deferral Agreement made under this paragraph (b) shall only apply to compensation earned by the Member in the payroll periods beginning on or after the later of the date such Agreement is submitted to the Committee or the Adoption Date.

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(c)The Deferral Agreement shall provide for separate elections with respect to elective contribution additions under Section 3.01 and 3.04, and incentive compensation contribution additions under Section 3.03 and 3.05.

(d)An Eligible Executive’s election on his Deferral Agreement of the rates at which he authorizes deferrals under Sections 3.01, 3.02, 3.03, 3.04 and 3.05 shall be irrevocable for the calendar year for which the deferral is elected. Notwithstanding the foregoing, a Member may, in the event of an unforeseeable emergency which results in a severe financial hardship, request a suspension of his salary deferrals under the Plan. The request shall be made in a time and manner determined by the Committee. The suspension shall be effective with respect to the portion of the calendar year remaining after the Committee’s determination that the Member has incurred a severe financial hardship. The Committee shall apply standards, to the extent applicable, identical to those described in Section 5.03 in making its determination.

(e)A member shall not be entitled to make deferrals under this Plan on or after attaining the age, if any, which he has designated under Section 5.01(a)(ii) or (iii) for the purpose of commencing distribution of his Account.

(f)In its sole discretion, the Committee may establish such other maximum or minimum limits on the amount of elective contribution additions and incentive compensation contribution additions a Member may make under Sections 3.04 and 3.05 as it deems

9

appropriate. Members shall be given written notice of any such limits at least seven days prior to the date they take effect.

3.07For each elective contribution addition credited to a Member’s Account under Sections 3.01 and 3.04, such Member’s Account shall also be credited with a matching contribution addition under this Plan equal to the matching contribution, if any, that would be credited under the Thrift Plan with respect to such amount if contributed to the Thrift Plan, determined as if the provisions of the Thrift Plan were administered without regard to the Code Limitations and determined after taking into account the Member’s actual contributions to and actual matching contributions under the Thrift Plan. For each makeup contribution addition credited to a Member’s Account under Section 3.02, such Member’s Account shall also be credited with a matching contribution addition under this Plan equal to the matching contribution, if any, that was lost under the Thrift Plan with respect to the contributions returned for the preceding calendar year. For each incentive compensation contribution addition credited to a Member’s Account under Sections 3.03 and 3.05, such Member’s Account shall also be credited with a matching contribution addition under this Plan equal to the matching contribution, if any, that would be credited under the Thrift Plan with respect to such amount if contributed to the Thrift Plan, determined as if the provisions of the Thrift Plan were administered without regard to the Code Limitation and on the basis that Base Salary under the Thrift Plan included Incentive Compensation in the year payable.

3.08The Committee shall maintain an Account on the books and record of the Bank for each employee who is a Member by reason of amounts credited under Sections 3.01, 3.02, 3.03,

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3.04, 3.05 and 3.07. The elective contribution additions, makeup contribution additions, incentive compensation contribution additions and matching contribution addition of a Member under Sections 3.01, 3.02, 3.03, 3.04, 3.05 and 3.07 shall be credited to the Member’s Account as soon as practical after the date that the compensation reduced under Section 3.01, 3.02, 3.03, 3.04 and/or 3.05 would otherwise have been paid to such Member.

3.09As of each Valuation Date, the Account of each Member shall be credited or debited on the books of the Bank with the earnings, gains, or losses that would have been generated if assets equal to each Member’s Account had been invested in accordance with the provisions of Article IV.

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ARTICLE IV. MAINTENANCE OF ACCOUNTS

4.01Adjustment of Accounts

(a)Subject to the provisions of paragraphs (b) and (c) below, the Account of a Member shall be credited from time to time with interest at the rate equivalent to the yield on the Bank’s average earning assets.

(b)As an alternative to crediting the Account of a Member with interest or other investment returns under paragraph (a) above, the Member may elect that his Account be deposited in a split dollar life insurance policy. The investment performance of the Member’s Account shall then be measured in accordance with the terms of such policy.

(c)In addition to the investment return credit specified in paragraph (a) and the investment option offered under paragraph (b) above, the Committee may designate from time to time one or more phantom investment funds with may be used to measure the investment performance of Accounts. The designation of any such phantom investment funds shall not require the Bank to invest or carmark its general assets in any way. The Committee may change the designation of investment funds from time to time, in its sole discretion.

4.02Investment Performance Elections

In the event the Committee designated one or more investment funds under Section 4.01(c), each Member who has not made an election under Section 4.01(b) above may file an investment election with the Committee with respect to the investment of his Account within such time period and on such form as the Committee may prescribe. The election shall

12

designate the investment fund or funds which shall be used to measure the investment performance of the Member’s Account. In the event an Member fails to make an election under this Section 4.02 when first eligible, any subsequent election made under this Section 4.02 shall be effective as of the first business day of the calendar quarter next following the date the election is filed. The election shall be in increments of 1%. If a Member fails to make an election under this Section 4.02 (and Section 4.01(b) above does not apply), the Member’s Account shall be adjusted in accordance with the provisions of Section 4.01(a) above.

4.03Changing Investment Elections

(a)A Member may change his election under Sections 4.01(a) and 4.02 with respect to his future contributions to his Account by filing an appropriate written notice with the Committee. The notice shall be effective as of the first business day of calendar quarter following the date the notice is field with the Committee.

(b)A Member may change his election under Sections 4.01(a) and 4.02 with respect to the measurement of the future investment performance of his existing Account balance, by filling an appropriate written notice with the Committee. The election shall be effective as of the first business day of the calendar quarter following the date the notice is filed with the Committee.

4.04Vesting of Account

The Member shall be fully vested in his Account.

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4.05Individual Accounts

The committee shall maintain, or cause to be maintained, records showing the individual balances of each Account.  At least once a year, each Member shall be furnished with a statement setting forth the value of his Account.

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ARTICLE V. PAYMENT OF ACCOUNTS

5.01Commencement of Payment

(a)Except as otherwise provided in this Article or in Article VI relating to Post-Secondary Education Subaccounts, the distribution of the Member’s Account shall commence as soon as practicable after the Valuation Date coincident with or next following the occurrence of (i), (ii), (iii) or (iv) below, as elected by the Member on his initial Deferral Agreement:

(i)the Member’s termination of employment with the Bank,

(ii)any stated date, as long as, on that date, the Member has attained age 50 but not age 70%

(iii)the earlier of (i) or (ii) above, or

(iv)the later of (i) or (ii) above.

In the event a Member elects either (ii) or (iii) above, he may not elect a date less than three (3) years subsequent to the date he makes the election. In the event a Member fails to make an election under this paragraph (a), he shall deemed to have elected to have payment made in accordance with subparagraph (i) above. In addition, an Eligible Executive who is a Member on December 31, 1996 shall be deemed to have elected payment made in accordance with subparagraph (i) above.

(b)In lieu of a distribution as described in paragraph (a) above, a Member may elect on his initial Deferred Agreement that payment of his Account commence as soon as practicable following

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the January 1 coincident with or next following the date the Member incurs the distributable event elected by the Member under paragraph (a) above.

(c)A Member may change his designation of the event which entitles him to distribution of his entire Account provided that such election shall not be effective until the January 1 of the second calendar year following the calendar year in which such election is received by the Committee and provided payment would not otherwise be made prior to the effective date.

5.02Method of Payment

(a)A Member’s Account shall be distributed to him, or in the event of his death to his Beneficiary, in a cash single sum payment. Notwithstanding the foregoing, a Member may elect to receive distribution of his Account in installments over a period not to exceed ten (10) years installments shall be payable as of January 1 and July 1, and the amount of each installment shall equal the balance in the Account as of the Valuation Date of determination, divided by the number of remaining installments (including the installment being determined). The election of a form of payment shall be made on the Member’s initial Deferral Agreement and shall be irrevocable except as provided in paragraph (b) below. An Eligible Executive who is a Member on December 31, 1996 shall be deemed to have elected payment in a lump sum.

(b)Notwithstanding paragraph (a) above, a Member or former Member may change the form in which his Account is distributed, no more than once in any calendar year, by filing with the Committee an amendment to his Deferral Agreement. The change shall be limited to those

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forms of distribution described in paragraph (a) above, shall be subject to approval of the Committee and shall be effective as of the January 1 of the second calendar year following the calendar year in which such election is received by the Committee.

5.03Hardship

(a)While employed by the Bank, a Member may, in the event of a severe financial hardship, request a withdrawal from his Account. The request shall be made in a time and manner determined by the Committee, shall not be for a greater amount than the lesser of (i) the amount required to meet the financial hardship, or (ii) the amount of his Account, and shall be subject to approval by the Committee.

(b)For Purposes of this Section 5.03, financial hardship shall include:

(i)sudden and unexpected illness or accident of the Member or his dependents, resulting in severe financial hardship to the Member;

(ii)loss of the Member’s personal property due to a casualty;

(iii)any other extraordinary and unforeseeable circumstances of the Member arising as a result of events beyond the control of the Member and approved by the Committee if such circumstances would result in a present or impending critical financial need which the Member is unable to satisfy with funds reasonably available from other sources.

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5.04Death Benefit

In the event a Member dies in service or after terminating service but prior to receiving his entire Account balance, any balance remaining in his Account shall be paid in one lump sum payment to his Beneficiary as soon as practicable after the Valuation Date coincident with or next following his date of death.

5.05Designation of Beneficiary

(a)Each Member of the Plan may file with the Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. The Member may, from time to time, revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Member’s death, and in no event shall it be effective as a date prior to such receipt.

(b)If no such Beneficiary designation is in effect at the time of a Member’s death, or if no designated Beneficiary survives the Member, or if, in the opinion of the Committee, such designation conflicts with applicable law, the Member’s estate shall be deemed to have been designated his Beneficiary and shall be paid the amount, if any, payable under the Plan upon the Member’s death. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may pay such amount into

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any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Bank therefor.

5.06Status of Accounts Pending Distribution

Pending distribution, a terminated Member’s Account shall continue to be credited with earnings and losses as provided in Article IV. The former Member shall be entitled to change his investment election under Section 4.03(b) to the same extent as if he were a Member of the Plan.

5.07Installments and Withdrawals Pro-Rata

In the event of an installment payment or hardship withdrawal, such payment or withdrawal shall be made on a pro-rata basis based on the portion of the Member’s existing applicable Account balance which is subject to different measures of investment performance.

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ARTICLE VI. SUBACCOUNTS

6.01Qualification for Post-Secondary Education Subaccount

An Employee may request that the Committee establish a Post-Secondary Education Subaccount for the Provision of the costs and expenses of providing post-secondary education for any person who is a Qualifying Student by duly completing, executing, and filing with the Committee such request on an appropriate form designated by the Committee. The Committee may condition its approval of any Post-Secondary Education Subaccount upon such evidence to the Committee as the Committee may deem appropriate. A separate Post-Secondary Education Subaccount shall be established for each Qualifying Student approved by the Committee. Each Post-Secondary Education Subaccount the Committee approves for an Employee shall be established as of the start of the calendar year following the calendar year during which the Committee’s approval occurs; provided however, that in the event the Committee’s approval for a Post-Secondary Education Subaccount occurs after December 14 of a calendar year, then such Post-Secondary Education Subaccount shall be established as of the start of the second calendar year following the calendar year during which such Committee approval occurred. The portion of an Employee’s Account not credited to one or more of his or her Post-Secondary Education Subaccounts is the Employee’s Retirement Subaccount.

6.02Treatment of Subaccounts

Except as provided in the following provisions of this Article 6, each Subaccount of an Employee shall be treated as a separate Account under the Plan.

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6.03Modification of Plan Provisions Applying to Subaccounts

(a)Respecting Article III of the Plan Involving Payments to the Plan. The overall limits on the maximum amounts of elective and incentive compensation contribution additions under Section 3.04 and 3.05 shall apply with respect to all of the Employee’s Subaccounts as if all such Subaccounts were a single Account under the Plan. A Member may designate the total amount and allocation of elective contribution additions, incentive compensation contribution additions, and matching contribution additions among his Subaccounts by completing, executing, and filing with the Committee the appropriate form designated by the Committee by December 15 of the calendar year before the calendar year in which the change is to be effective. However, no contribution additions may be allocated to a Post-Secondary Education Subaccount following the date designated for distribution of such Subaccount under paragraph (b) below. In the event a Member evidences severe financial hardship for a year, then all Deferrals to all of the Member’s Subaccount’s shall be stopped.

(b)Respecting Article V of the Plan Involving Distribution and Withdrawals to Members. The distribution event date for each of the Employee’s Post-Secondary Education Subaccount shall be any distribution event date irrevocably specified by the Employee that is no less than three years following the date the first amount is actually credited to that Post Secondary Education Subaccount, upon daily completing, executing, and filing with the Committee the appropriate form designated by the Committee no later than the time such Post-Secondary Education Subaccount is established, provided, however, that notwithstanding the distribution date elected by the Member, in no event may payment

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under this paragraph (b) commence later than the date payments comments under Section 5.01. No later than the establishment of a Post-Secondary Education Subaccount by an Employee for a Qualifying Student, the Employee shall also irrevocably designate for such Subaccount on such form a semi-annual installment form of payment for a period that is not less than eight semi-annual installments and no more than 12 semi-annual installments. Separate elections under the foregoing provisions of this Section 6.03(b) will be made for each Post-Secondary Education Subaccount established for an Employee. No withdrawals before the distribution event date may be made from any Post-Secondary Education Subaccount except as provided in Section 5.03. In the event an Employee fails to designate either the timing or form of distribution of any Post-Secondary Education Subaccount established for the Employee, then any amounts that are or would have been allocated to such Subaccount shall be credited instead to the Member’s Account or Retirement Subaccount, as the case may be. All of an Employee’s Subaccounts shall be treated as a single Account under the Plan for purposes of any death benefit payable under the Plan.

6.04Special Rules for Post-Secondary Education Subaccounts

A Member may elect to dissolve any Post-Secondary Education Subaccount be elected to establish for a Qualifying Student and to transfer the balance of that Subaccount in multiples of 10 percent of such balance to his other Subaccounts, or 100 percent of such balance to his Account, as the case may be, duly completing, executing, and filing with the Committee an appropriate form designated by the Committee; provided

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however, that for an election to dissolve a Post-Secondary Education Subaccount to be effective, a full calendar year must pass between the calendar year during which the Member duly makes to dissolution election and the calendar year during which distribution of any portion of such Post-Secondary Education Subaccount is first to become payable; and provided further that in the absence of such elective allocation of the balance of the Post-Secondary Education Subaccount upon its dissolution, that balance shall be transferred in its entirety to the Employee’s Account or Retirement Subaccount, as the case may be. In no other event may transfers be made among the Member’s Subaccounts.

6.05Special One-Time Election

Notwithstanding the provisions of Sections 6.01 and 6.03, a Member on August 1, 2000, whose distribution date in effect under Section 5.01 is on or after January 1, 2002, may elect during the 45 day period commencing on August 1, 2000 to establish one or more Post-Secondary Education Subaccounts effective as of October 1, 2000, and to specify the percentage of the remaining elective contribution additions, for the 2000 Plan Year to be allocated to such Subaccount(s). In addition, such Member may elect during the 45-day election period to transfer all or a portion of his then existing Account balance attributable to elective contribution additions, incentive compensation contribution additions and matching contribution additions to such Post-Secondary Education Subaccount(s). Commencing October 1, 2000, only subsequent contributions may be allocated to a Post-Secondary Education Subaccount in accordance with the provisions of Section 6.01 and 6.03.

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ARTICLE VII. SOURCE OF PAYMENTS

7.01All payments of benefits under the Plan shall be paid from, and shall only be a general claim upon, the general assets of the Bank, notwithstanding that the Bank, in its discretion, may establish a bookkeeping reserve or a grantor trust (as such term is used in Code Sections 671 through 677) to reflect or to aid it in meeting its obligations under the Plan with reflect to any Member or prospective Member or beneficiary. No benefit whatever provided by the Plan shall be payable from the assets of the Thrift Plan.

7.02No Member shall have any right, title or interest whatever in or to any investments which the Bank may make or any specific assets which the Bank may reserve to aid it in meeting its obligations under the Plan. To the extend that any person acquires a right to receive payments from the Bank under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Bank.

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ARTICLE VIII. ADMINISTRATION OF THE PLAN

8.01The Committee shall have general authority over and responsibility for the administration and interpretation of the Plan. The Committee shall have full power and discretionary authority to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and any trust refereed to in Article VII, and the calculation of the amounts of benefits payable thereunder, and to review claims for benefits under the Plan. Unless arbitrary or capricious, the Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder shall be binding and conclusive on all persons for all purposes.

8.02If the Committee deems it advisable, it shall arrange for the engagement of legal counsel and certified public accountants (who may be counsel or accountants for the Bank), and other consultants, and make use of agents and clerical or other personnel, for purposes of the Plan. The Committee may rely upon the written opinions of such counsel, accountants and consultants, and upon any information supplied by the Thrift Plan for purposes of Sections 3.01, 3.02 and 3.03 of the Plan, and delegate to any agent or to any sub-committee or Committee member its authority to perform any act hereunder, including without limitations those matters involving the exercise of discretion; provided, however, that such delegation shall be subject to revocation at any time at the discretion of the Committee. The Committee shall report to the Board of Directors, or to a committee designated by the Board, at such intervals as shall be specified by the Board of such designated committee, with regard to the matters for which it is responsible under the Plan.

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8.03No Committee member shall be entitled to act on or decide any matters relating solely to such member or any of his rights or benefits under the Plan.

8.04The Committee member shall be reimbursed for any reasonable expenses incurred in connection with his services as a Committee member. No bond or other security bond be required of the Committee or any member thereof in any jurisdiction.

8.05All Claims for benefits under the Plan shall be submitted in writing to the Chairman of the Committee. Written notice of the decision on each such claim shall be furnished with reasonable promptness to the Member or his Beneficiary (the claimant). The claimant may request a review by the Committee of any decision denying the claim in whole or in part. Such request shall be made in writing and filed with the Committee within 30 days of such denial. A request for review shall contain all additional information which the claimant wishes the Committee to consider. The Committee may hold any hearing or conduct any independent investigation which it deems desirable to render its decision, and the decision on review shall be made as soon as feasible after the Committee’s receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant. For all purposes under the Plan, such decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding and conclusive on all interested persons as to all matters relating to the Plan.

8.06All expenses incurred by the Committee in its administration of the Plan shall be paid by the Bank.

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ARTICLE IX. AMENDMENT AND TERMINATION

9.01The Board of Directors may amend, suspend or terminate, in whole or in part, the Plan without the consent of the Committee, any Member, beneficiary or other person, except that no amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any Member, Beneficiary or other person to benefits under the Plan which have accrued prior to the date of such action, as determined by the amendment or take any other action which may be necessary or appropriate to facilitate the administration, management and interpretation of the Plan or to conform the Plan thereto, provided any such amendment or action does not have a material effect on the then currently estimated cost to the Bank of maintaining the Plan.

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ARTICLE X. GENERAL PROVISIONS

10.01The Plan shall be binding upon and inure to the benefit of the Bank and its successors, and assigns and the Members, and the successors, assigns, designees and estates of the Members. The Plan shall also be binding upon and inure to the benefit of any successor bank or organization succeeding to substantially all of the assets and business of the Bank, but nothing in the Plan shall preclude the Bank from merging or consolidating into or with, or transferring all or substantially all of its assets to, another bank which assumes the Plan and all obligations of the Bank hereunder. The Bank agrees that it will make appropriate provision for the preservation of Members’ rights under the Plan in any agreement or plan which it may enter into to effect any such merger, consolidation, reorganization or transfer of assets. In such a merger, consolidation, reorganization, or transfer of assets and assumption of Plan obligations of the Bank, the term Bank shall refer to such other bank and the Plan shall continue in full force and effect.

10.02Neither the Plan nor any action taken thereunder shall be construed an giving to a Member the right to be retained in the employ of the Bank or as affecting the right of the Bank to dismiss any Member from its employ.

10.03The Bank shall withhold or cause to be withheld from all benefits payable under the Plan all federal, state, local or other taxes required by applicable law to be withheld with respect to such payments.

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10.04No right or interest of a Member under the Plan may be assigned, sold, encumbered, transferred or otherwise disposed of and any attempted disposition of such right or interest shall be null and void. Further, no right or interest of a Member may be reached by any creditor of the Member.

10.05If the Committee shall find that any person to whom any amount is or was payable under the Plan is unable to care for his affairs because of illness or accident or because he is a minor, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee is so inclined, be paid to such person’s spouse, child or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of the Plan and the Bank therefor.

10.06All elections, designations, requests, notices, instructions, and other communications from a Members, beneficiary or other person to the Committee required or permitted under the Plan shall be in such formats is prescribed from time to time by the Committee and shall be mailed by first class mail or delivered to such locations shall be specified by the Committee and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

10.07The benefits payable under the Plan shall be in addition to all other benefits provided for employees of the Bank and shall not be deemed salary or other compensation by the Bank for

29

the purpose of computing benefits to which he may be entitled under any other plan or arrangement of the Bank.

10.08No Committee member shall be personally liable by reason for any instrument executed by him or on his behalf, or action taken by him, in his capacity as a Committee member nor for any mistake of judgment made in good faith. The Bank shall indemnify and hold harmless the Plan and each Committee member and each employee, officer or director of the Bank or the Plan, to whom any duty, power, function or action in respect of the Plan may be delegated or assigned, or from whom any information is requested for Plan purposes, against any cost or expense (including fees of legal counsel) and liability (including any sum paid in settlement of a claim or in legal action with the approval of the Bank) arising out of anything done or omitted to be done in connection with the Plan, unless arising out of such person’s fraud or bad faith.

10.09As used in the Plan, the masculine gender shall be deemed to refer to the feminine, and the singular person shall be deemed to refer to the plural, whenever appropriate.

10.10The captions preceding the Sections of the Plan have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan.

10.11The Plan shall be continued according to the laws of the State of Massachusetts in effect from time to time.

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IN WITNESS WHEREOF, THE FEDERAL HOME LOAN BANK OF BOSTON has caused this restatement of the Plan to be executed effective as of                                 .

THE FEDERAL HOME LOAN BANK
OF BOSTON

By

Date

Attest:

31

EX-10.4

Exhibit 10.4

PRUDENTIAL CENTER

I N D E X  T O L E A S E

FROM

BP 111 HUNTINGTON AVE LLC

TO

FEDERAL HOME LOAN BANK OF BOSTON

ARTICLE NUMBER	CAPTION
I	BASIC LEASE PROVISIONS AND ENUMERATION OF EXHIBITS
II	PREMISES, EXPANSION OPTION AND RIGHT OF FIRST OFFER
III	LEASE TERM AND EXTENSION OPTIONS
IV	CONSTRUCTION
V	ANNUAL FIXED RENT AND ELECTRICITY AND SPECIAL ALLOWANCES
VI	TAXES AND OPERATING EXPENSES
VII	LANDLORD’S REPAIRS AND SERVICES
VIII	TENANT’S REPAIRS
IX	ALTERATIONS
X	PARKING
XI	CERTAIN TENANT COVENANTS
XII	ASSIGNMENT AND SUBLETTING

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XIII	INDEMNITY AND COMMERCIAL GENERAL LIABILITY INSURANCE
XIV	FIRE, CASUALTY AND TAKING
XV	DEFAULT
XVI	MISCELLANEOUS PROVISIONS
	Section 16.1	Waiver
	Section 16.2	Cumulative Remedies
	Section 16.3	Quiet Enjoyment
	Section 16.4	Surrender
	Section 16.5	Brokerage
	Section 16.6	Invalidity of Particular Provisions
	Section 16.7	Provisions Binding, Etc.
	Section 16.8	Recording
	Section 16.9	Notices and Time for Action
	Section 16.10	When Lease Becomes Binding
	Section 16.11	Paragraph Headings
	Section 16.12	Rights of Mortgagee
	Section 16.13	Rights of Ground Lessor
	Section 16.14	Notice to Mortgagee and Ground Lessor
	Section 16.15	Assignment of Rents
	Section 16.16	Status Report and Financial Statements
	Section 16.17	Self-Help
	Section 16.18	Holding Over
	Section 16.19	Entry by Landlord
	Section 16.20	Tenant’s Payments
	Section 16.21	Late Payment
	Section 16.22	Counterparts
	Section 16.23	Entire Agreement
	Section 16.24	Landlord Liability
	Section 16.25	No Partnership
	Section 16.26	Security Deposit
	Section 16.27	Governing Law
	Section 16.28	Signage
	Section 16.29	Antenna Area
	Section 16.30	Rules and Regulations

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PRUDENTIAL CENTER

THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the Tenant are the parties hereinafter named, and which relates to space in the building to be known as 111 Huntington Avenue, Boston, Massachusetts.

The parties to this instrument hereby agree with each other as follows:

ARTICLE I
BASIC LEASE PROVISIONS AND ENUMERATIONS OF EXHIBITS

1.1INTRODUCTION. The following sets forth the basic data and identifying Exhibits elsewhere hereinafter referred to in this Lease, and, where appropriate, constitute definitions of the terms hereinafter listed.

1.2	BASIC DATA.
	Date:	June 21, 2000
	Landlord:	BP 111 Huntington Ave LLC
	Present Mailing Address of Landlord:	c/o Boston Properties Limited Partnership Prudential Center 800 Boylston Street Boston, Massachusetts 02199
	Landlord’s Construction Representative:	John Camera
	Tenant:	Federal Home Loan Bank of Boston, a Federal instrumentality
	Present Mailing Address of Tenant:	One Financial Center Boston, Massachusetts 02111
	Tenant’s Construction Representative:	Carol Whaley

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Term or Lease Term: (sometimes called the “Original Lease Term”)	One hundred thirty-two (132) calendar months (plus the partial month, if any, immediately following the Commencement Date), unless extended or sooner terminated as hereinafter provided.
Extension Options:	Two (2) periods of five (5) years each as provided in and on the terms set forth in Section 3.2 hereof.
Lease Year:	A period of twelve (12) consecutive calendar months, commencing on the first day of January in each year, except that the first Lease Year of the Lease Term hereof shall be the period commencing on the Commencement Date and ending on the succeeding December 31, and the last Lease Year of the Lease Term hereof shall be the period commencing on January 1 of the calendar year in which the Lease Term ends, and ending with the date on which the Lease Term ends.
Commencement Date:	As defined in Section 3.1 hereof.
Premises:	The entirety of the 24th and 25th floors of the Building, and an area on the 23rd floor of the Building, in accordance with the floor plans annexed hereto as Exhibit D and incorporated herein by reference, as further defined and limited in Section 2.1 hereof.
Rentable Floor Area of the Premises:	Approximately 60,774 square feet
Annual Fixed Rent:	(I)  During Lease Year 1: At the annual rate of $2,582,652.00 (i.e., the sum of 1,925,320,00, being the product of (i) $40,00 and (ii) 48,133 square feet of Rentable Floor Area of the Premises, plus (y) $657,332.00, being the product of (i) $52.00 and (ii) 12,641 square feel of Rentable Floor Area of the Premises).

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Term or Lease Term: (sometimes called the “Original Lease Term”)	One hundred thirty-two (132) calendar months (plus the partial month, if any, immediately following the Commencement Date), unless extended or sooner terminated as hereinafter provided.
Extension Options:	Two (2) periods of five (5) years each as provided in and on the terms set forth in Section 3.2 hereof.
Lease Year:	A period of twelve (12) consecutive calendar months, commencing on the first day of January in each year, except that the first Lease Year of the Lease Term hereof shall be the period commencing on the Commencement Date and ending on the succeeding December 31, and the last Lease Year of the Lease Term hereof shall be the period commencing on January 1 of the calendar year in which the Lease Term ends, and ending with the date on which the Lease Term ends.
Commencement Date:	As defined in Section 3.1 hereof.
Premises:	The entirety of the 24th and 25th floors of the Building, and an area on the 23rd floor of the Building, in accordance with the floor plans annexed hereto as Exhibit D and incorporated herein by reference, as further defined and limited in Section 2.1 hereof.
Rentable Floor Area of the Premises:	Approximately 60,774 square feet
Annual Fixed Rent:	(I)   During Lease Year 1: At the annual rate of $2,582,652 (i.e., the sum of (x) 1,925,320,00, being the product of (i) $40.00 and (ii) 48,133 square feet of Rentable Floor Area of the Premises, plus (y) $657,332.00, being the product of (i) $52.00 and (ii) 12,641 square feet of Rentable Floor Area of the Premises).

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	(II)  During Lease Years 2-5: At the annual rate of $3,160,248.00, being the product of (i) $52.00 and (ii) the Rentable Area Floor Area of the Premises (hereinabove defined in this Section 1.2).
	(III)  During the remainder of the Original Lease Term: At the annual rate of $3,464,118.00, being the product of (i) $57.00 and (ii) the Rentable Floor Area of the Premises (hereinabove defined in this Section 1.2).
Tenant Electricity:	See Exhibit F.
Additional Rent:	All charges and other sums payable by Tenant as set forth in this Lease, in addition to Annual Fixed Rent.
Initial Minimum Limits of Tenant’s Commercial General Liability Insurance:	$3,000,000 combined single limit per occurrence on a per location basis.
Total Rentable Floor Area of the Building:	931,585 square feet.
Total Rentable Floor Area of the Office Portion of the Building:	867,352 square feet
Total Rentable Floor Area of the Retail Portion of the Building:	64,233 square feet
Overlease:	A certain amended and restated lease and easement agreement between BP Prucenter Acquisition LLC (with its successors and assigns, “Overlandlord”) as landlord and Landlord as tenant.
Overlease Premises:	The premises demised to Landlord under the Overlease as described on Exhibit I.

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Building:	For the purposes of this Lease, the Building shall mean the building and other improvements on the Overlease Premises commonly known as 111 Huntington Avenue located in the Prudential Center (as hereinafter defined), as the same may be altered, expanded, reduced or otherwise changed by Landlord from time to time.
Retail Portion of the Building:	All of the space in the Building available, from time to time, for lease and occupancy by retail and other non-office tenants.
Office Portion of the Building:	The Building, other than the Retail Portion of the Building.
Prudential Center:	For purposes of this Lease, the Prudential Center shall mean the land described on Exhibit A and the buildings, garages and other improvements thereon, commonly known as Prudential Center, as the same may be altered, expanded, reduced or otherwise changed from time to time.
PruOwner:	Each owner of record or tenant under a ground lease, from time to time, of all or any portion of the Prudential Center.
Permitted Use:	General office use, including banking operations (non-retail), a trading desk and an employee cafeteria (not open to the general public) and activities incidental to non-retail banking operations.
Broker:	Meredith &Grew
Security Deposit:	None

1.3ENUMERATION OF EXHIBITS. The following Exhibits attached hereto are a part of this Lease, are incorporated herein by reference, and are to be treated as a part of this Lease for all purposes. Undertakings contained in such Exhibits are agreements on the part of Landlord and Tenant, as the case may be, to perform the

4

obligations stated therein to be performed by Landlord and Tenant, as and where stipulated therein.

Exhibit A	—	Legal Description of the Prudential Center.
Exhibit B-1	—	Tenant Plan and Working Drawing Requirements
Exhibit B-2	—	Base Building Specifications
Exhibit C	—	Landlord’s Services.
Exhibit D	—	Floor Plan.
Exhibit E	—	Form of Commencement Date Agreement.
Exhibit F	—	Memorandum Re: Procedure for Adjustment of Electricity Costs.
Exhibit G	—	Broker Determination of Fair Market Rental Value.
Exhibit H	—	List of Mortgagees.
Exhibit I	—	Parking Plan.

ARTICLE II
PREMISES

2.1DEMISE AND LEASE OF PREMISES. Landlord hereby demises and leases to Tenant, and Tenant hereby hires and accepts from Landlord, the Premises in the Building, excluding exterior faces of exterior walls, the common stairways and stairwells, elevators and elevator walls, mechanical rooms, electric and telephone closets, janitor closets, and pipes, ducts, shafts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building, and if the Premises includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobbies and toilets located on such floor.

2.2TENANT’S EXPANSION OPTION. On the conditions (which conditions Landlord may waive by written notice to Tenant) that at the time that Tenant gives Landlord the Expansion Notice, as hereinafter defined, (i) there exists no “Event of Default” (defined in Section 15.1), (ii) Tenant occupies at least 50% of the Rentable Floor Area of the Premises (the “Occupancy Condition”), and (iii) this Lease is still in full force and effect, Tenant shall have the option to lease the balance of the 23^rd floor of the Building containing 12,108 square feet of Rentable Floor Area (“Expansion Area”).

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A.Exercise of Rights to Expansion Area. Tenant may exercise its option to lease the Expansion Area by giving written notice (“Exercise Notice”) to Landlord on or before the Notice Date, as defined in Subparagraph C of this Section 2.2. If Tenant fails timely to give such notice, Tenant shall have no further right to lease such Expansion Area, time being of the essence of this Section 2.2. Upon the timely giving of such notice, Landlord shall lease and demise to Tenant, and Tenant shall hire and take from Landlord, such Expansion Area, without the need for further act or deed by either party, for the term and upon all of the same terms and conditions of this Lease, except as hereinafter set forth.

B.Expiration Date of Leases in Expansion Area. Landlord hereby agrees that if the Expansion Area, or any portion thereof, is occupied by another tenant(s) during the Expiration Period, as hereinafter defined, the expiration date of the lease of such tenant(s) shall occur before the end of the Expiration Period. As used herein, the Expiration Period shall mean the twelve month period commencing as of the fifth (5^th) anniversary of the initial Commencement Date and ending as of the day immediately preceding the sixth (6^th) anniversary of said Commencement Date. Landlord shall advise Tenant, upon written request made from time to time during the Term, of the expiration date of the lease of any tenant of the Expansion Area.

C.Notice Date. The Notice Date in respect of the Expansion Area shall be the date fifteen (15) months prior to the first day of the Expiration Period.

D.Lease Provisions Applying to Expansion Area. The leasing to Tenant of the Expansion Area shall be upon all the same terms and conditions of the Lease except as follows:

(1)Commencement Date

(i)If no tenant is occupying the Expansion Area during the Expiration Period, then the Commencement Date in respect of the Expansion Area shall be the first day of the Expiration Period.

(ii)Otherwise, the Commencement Date in respect of each portion of the Expansion Area shall be the later of (i) the expiration date of the lease of the tenant occupying such portion of the Expansion Area, and (ii) the date that such tenant vacates such portion of the Expansion Area.

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(2)Annual Fixed Rent

The Annual Fixed Rent payable in respect of the Expansion Area shall be based upon the Fair Market Rental Value of the Expansion Area, as of the Commencement Date in respect of the Expansion Area based upon the use of the Expansion Area as first-class office space in comparable first-class office buildings within the City of Boston. No later than sixty (60) days prior to the Notice Date Tenant may request that Landlord designate the Annual Fixed Rent payable in respect of the Expansion Area, and Landlord shall designate the Annual Fixed Rent payable in respect of the Expansion Area within thirty (30) days thereafter but Landlord shall not be required to make such designation more than 60 days prior to the Notice Date. If Tenant disagrees with Landlord’s determination of the Fair Market Rental Value applicable to the Expansion Area, Tenant shall have the right, in the Exercise Notice, to make a request to Landlord for a broker determination of such Fair Market Rental Value, which broker determination shall be made in the manner set forth in Exhibit G.

(3)Operating Expenses

The provisions of Article VI shall be applied to the Expansion Area separately from the remainder of the Premises, and shall be modified as follows:

Operating Expenses Allocable to the Expansion Area shall be equal to the same proportion of the Operating Expenses for the Building (as defined in Section 6.2, including, without limitation the paragraph titled “Gross-Up Provision”) as the Rentable Floor Area of the Expansion Area bears to the Total Rentable Floor Area of the Office Portion of the Building.

Base Operating Expenses in respect of the Expansion Area shall be equal to the actual amount of Operating Expenses Allocable to the Expansion Area for the calendar year immediately preceding the calendar year in which the Commencement Date in respect of the Expansion Area occurs.

(4)Condition of Expansion Area

The Expansion Area shall be delivered by Landlord and accepted by Tenant “as-is”, in its then (i.e., as of the Commencement Date in respect of the Expansion Area), state of construction, finish and decoration, without any obligation on the part of Landlord to prepare or construct the Expansion Area for Tenant’s occupancy, or to provide any contribution to Tenant in respect of the Expansion Area. Without limiting

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the foregoing, Landlord shall have no obligation to remove or alter existing multi-tenant corridors in the Expansion Area.

E.Notwithstanding the fact that Tenant’s exercise of the above-described expansion option shall be self-executing, as aforesaid, the parties hereby agree promptly to execute a lease amendment reflecting the addition of the Expansion Area. The execution of such lease amendment shall not be deemed to waive any of the conditions to Tenant’s exercise of the herein expansion option, unless otherwise specifically provided in such lease amendment.

2.3RIGHT OF FIRST OFFER. Provided that at the time any portion of the First Offer Space, as hereinafter defined, first becomes available for reletting (i) no “Event of Default” (as defined in Section 15.1) of Tenant exists, (ii) Tenant is satisfying the Occupancy Condition, and (iii) the Lease is still in full force and effect, Landlord agrees not to enter into a lease or leases to relet the First Offer Space or any portion thereof without first giving to Tenant an opportunity to lease such space as hereinafter set forth. For the purposes hereof, the “First Offer Space” shall be defined as any separately demised space on Floors 22, 23 and 26 of the Building which becomes available for reletting, as hereinafter defined. When any portion of such First Offer Space becomes available for reletting, as hereinafter defined, Landlord shall notify Tenant (“Landlord’s First Notice”) of the availability of such space and the business terms upon which Landlord is willing to so lease such space (the “Business Terms”). For the purposes hereof, First Offer Space shall be deemed “available for reletting” when Landlord determines that the then current tenant of such First Offer Space will vacate such First Offer Space and when Landlord intends to offer such First Offer Space for lease. The parties acknowledge that, as of the Date of this Lease, none of the First Offer Space is leased. Therefore, no portion of the First Offer Space shall be deemed “available for reletting” until each such First Offer Space has been leased to a third party and thereafter Landlord determines that such third party tenant of such First Offer Space will vacate such First Offer Space If Tenant wishes to exercise Tenant’s right of first offer with respect to such First Offer Space on the Business Terms set forth in Landlord’s First Notice, Tenant shall do so, if at all, by giving Landlord notice (“Tenant’s Acceptance Notice”) of Tenant’s desire to enter into an amendment to this Lease to incorporate the entire amount of such First Offer Space into the Premises demised under the Lease (Tenant having no right to lease less than the entire amount of such First Offer Space offered to Tenant) on such Business Terms on or before the date twenty (20) days after Tenant’s receipt of Landlord’s First Notice. If Tenant shall timely give Tenant’s Acceptance Notice, the same shall automatically constitute an amendment to this Lease and an agreement to enter into appropriate documentation of such amendment within thirty (30) days after Tenant’s Acceptance Notice, however, the failure of the parties to execute such documentation shall not negate the exercise of Tenant’s right hereunder and the leasing of such additional space shall

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be upon the terms set forth in this Lease except as otherwise provided in Landlord’s First Notice, If Tenant shall not advise Landlord that it is interested in leasing the First Offer Space so offered within twenty (20) days after Tenant’s receipt of Landlord’s First Notice or if Tenant shall not send Tenant’s Acceptance Notice within the applicable time period set forth above after Tenant’s receipt of the Business Terms, time being of the essence, Landlord shall be free at any time within six (6) months after Landlord’s First Notice to enter into a lease of such space (but not less than or more than such space) with another prospective tenant upon terms which are not less than 95% of the average of the effective rent (i.e. taking into account any rent and other economic concessions and tenant improvement allowances offered by Landlord) set forth in Landlord’s notice to Tenant of the Business Terms; provided that (i) Landlord shall reoffer such First Offer Space to Tenant in accordance with and subject to the terms of this Section 2.3 prior to leasing such First Offer Space or any portion thereof (a) if such terms are less than 95% of the average of effective rent set forth in Landlord’s notice, as aforesaid, (b) if such lease is to be entered into more than six (6) months after Landlord’s First Notice, (c) if Landlord offers to lease such First Offer Space in smaller or larger increments than set forth in Landlord’s First Notice, or (d) if Landlord offers to the tenant leasing such First Offer Space expansion rights or rights of first offer which are materially different than those set forth in Landlord’s First Notice; (ii) Tenant shall have only ten (10) business days to give Tenant’s Acceptance Notice with respect to any such reoffer of such First Offer Space, except that if the sole reason that Landlord reoffers such First Offer Space to Tenant is based upon differences in the expansion rights or rights of first offer, then Tenant shall have only three (3) business days to give Tenant’s Acceptance Notice.

The terms of this Section 2.3 shall continue to apply to the First Offer Space which Tenant elects not to lease following its receipt of a Landlord’s First Notice with respect thereto, provided that with respect to First Offer Space, Landlord will not be obligated under this Section 2.3 to offer such First Offer Space to Tenant again until after the tenancy (including any extension options or renewal) of the next tenant of such area.

2.4APPURTENANT RIGHTS AND RESERVATIONS. Subject to Landlord’s or Overlandlord’s or any other PruOwner’s right to change or alter any of the following in its discretion as herein provided, Tenant shall have, as appurtenant to the Premises, the non-exclusive right to use in common with others, but not in a manner or extent that would materially interfere with the normal operation and use of the Building as a multi-tenant office building and subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord or Overlandlord or any other PruOwner of which Tenant is given notice: (a) the common lobbies, corridors, stairways, and elevators of the Building, and the pipes, ducts, shafts, conduits, wires and appurtenant meters and equipment

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serving the Premises in common with others, (b) the loading areas serving the Building and the common walkways and driveways necessary for access to the Building, (c) if the Premises include less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobby of such floor and (d) the plazas and other common areas of the Prudential Center as Landlord or Overlandlord, or any other PruOwner as the case may be, makes the same available from time to time; and no other appurtenant rights and easements. Notwithstanding anything to the contrary herein, Landlord has no obligation to allow any particular telecommunication service provider to have access to the Building or to the Premises, but Landlord shall not be unreasonable in denying such access; however Landlord shall not deny access to the particular telecommunications service providers who are providing service to Tenant’s trading desk or in connection with Tenant’s banking operations. If Landlord permits such access, Landlord may condition such access upon the payment to Landlord by the service provider of fees assessed by Landlord in its reasonable discretion to defray Landlord’s expenses associated therewith. Landlord shall assess such fees at the standard rate for the Building.

Landlord reserves for the benefit of it and of Overlandlord and of any other PruOwner the right from time to time, without unreasonable interference with Tenant’s use: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or the Building, and (b) to alter or relocate any other common facility, provided that substitutions are substantially equivalent or better, provided that any such alteration shall not materially reduce the Rentable Floor Area of the Premises. Installations, replacements and relocations referred to in clause (a) above shall be located so far as practicable in the central core area of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. Except in the case of emergencies, Landlord agrees to use all reasonable efforts to give, or cause Overlandlord or such PruOwner to give, Tenant reasonable advance notice of any of the foregoing activities which require work in the Premises.

Landlord reserves and excepts for its benefit and the benefit of Overlandlord and any other PruOwner all rights of ownership and use in all respects outside the Premises, including without limitation, the Building and all other structures and improvements and plazas and common areas in the Prudential Center, except that at all times during the term of this Lease Tenant shall have a reasonable means of access from a public street to the Premises. Without limitation of the foregoing reservation of rights by Landlord, it is understood that in its sole discretion Landlord or Overlandlord or any other PruOwner, as the case may be, shall have the right to change and rearrange the plazas and other common areas, to change, relocate and eliminate facilities therein, to erect new buildings thereon, to permit the use of or lease all or part thereof for exhibitions and displays and to sell, lease

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or dedicate all or part thereof to public use; and further that Landlord or Overlandlord or any other PruOwner, as the case may be, shall have the right to make changes in, additions to and eliminations from the Building and other structures and improvements in the Prudential Center, the Premises excepted, but the costs thereof shall not be included in Operating Expenses hereinafter defined; provided however that Tenant, its employees, agents, clients, customers, and invitees shall at all times have reasonable access to the Building and Premises, Landlord is not under any obligation to permit individuals without proper building identification to enter the Building after 6:00 p.m.

ARTICLE III
LEASE TERM

3.1TERM. The Term of this Lease shall be the period specified in Section 1.2 hereof as the “Lease Term”, unless sooner terminated. If Section 1.2 provides for a fixed Commencement Date, then the Commencement Date of the Lease Term hereof shall be such date. Otherwise, the Lease Term hereof shall commence on, and the Commencement Date shall be, the first to occur of:

(a)The day on which the Premises are delivered by Landlord to Tenant; or

(b)The date upon which Tenant commences beneficial use of the Premises.

In the case where the Landlord is to perform work to the Premises as provided in Article IV, the Premises shall be considered delivered by the Landlord to the Tenant on the day when the Premises are substantially complete, as defined in Section 4.1 hereof.

As soon as may be convenient alter the Commencement Date has been determined, Landlord and Tenant agree to join with each other in the execution, in the form of Exhibit E hereto, of a written Commencement Date Agreement in which the Commencement Date and specified Lease Term of this Lease shall be stated. If Tenant shall fail to execute such Agreement, the Commencement Date and Lease Term shall be as reasonably determined by Landlord in accordance with the terms of this Lease.

3.2EXTENSION OPTIONS.

(A)Exercise of Option. On the conditions (which conditions Landlord may waive by written notice to Tenant) that at the time of exercise of the herein described options to extend (i) there exists no “Event of Default” (defined in Section 15.1), and (ii) this Lease is still in full force and effect, Tenant shall have the right, by giving written notice (“Extension Notice”) to Landlord on or before the date (“Notice Date”) fifteen (15) months prior to the expiration of the Term of

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this Lease (as it may have been previously extended) to extend the Term hereof upon all the same terms, conditions, covenants and agreements herein contained (except for the Annual Fixed Rent which shall be equal to ninety-five percent (95%) of the Fair Market Rental Value as determined in accordance with clause (B) hereof and except that there shall be no further option to extend beyond the options set forth herein) for two (2) periods of five (5) years each as hereinafter set forth. Each option period is sometimes herein referred to as the “Extended Term.” Notwithstanding the foregoing, the Base Operating Expenses, as defined in Section 6.2 (including, without limitation, the paragraph thereof titled “Gross Up Provision”) shall be equal to the actual amount of Operating Expenses for the calendar year immediately preceding the calendar year in which the applicable Extended Term commences. Notwithstanding any implication to the contrary Landlord has no obligation to make any additional payment to Tenant in respect of any construction allowance or the like or to perform any work to the Premises as a result of the exercise by Tenant of any such option.

(B)Determination of Fair Market Rental Value. “Fair Market Rental Value” shall be determined based on the use of the Premises as first class office space utilizing properties of a similar character in comparable first-class office buildings within the City of Boston (“Landlord’s Determination”)., No later than sixty days prior to the Notice Date Tenant may request that Landlord designate the Annual Fixed Rent payable in respect of the Expansion Area, and Landlord shall designate the Annual Fixed Rent payable during the Extended Term in question (“Landlord’s Determination”) within thirty (30) days thereafter but Landlord shall not be required to make such designation more than seventeen (17) months prior to the commencement of the Extended Term in question. The Annual Fixed Rent shall be equal to 95% of the Fair Market Rental Value. If Tenant disagrees with Landlord’s Determination, then Tenant shall have the right, in the Extension Notice, to make a request to Landlord for a broker determination (the “Broker Determination”) of the Fair Market Rental Value for such Extended Term, which Broker Determination shall be made in the manner set forth in Exhibit G. If Tenant fails timely to request the Broker Determination, then the Term of the Lease shall be extended for the applicable Extended Term and the Annual Fixed Rent for such Extended Term shall be equal to the Landlord’s Determination.

(C)Confirmation of Exercise. Upon the giving of notice by Tenant to Landlord exercising Tenant’s applicable option to extend the Lease Term in accordance with the provisions of Section 3.2 (A) above, then this Lease and the Lease Term hereof shall automatically be deemed extended, for the applicable Extended Term, without the necessity for the execution of any additional documents, except that Landlord and Tenant agree to enter into an instrument in writing setting forth the Annual Fixed Rent for the applicable Extended Term as determined in the relevant manner set forth in this Section 3.2; and in such event all references herein to the Lease Term or the Term of this Lease shall be

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construed as referring to the Lease Term, as so extended, unless the context clearly otherwise requires, and except that there shall be no further option to extend the Lease Term, beyond the options set forth herein. Notwithstanding anything contained herein to the contrary, in no event shall Tenant have the right to exercise more than one extension option at a time and, further, Tenant shall not have the right to exercise its second extension option unless it has duly exercised its first extension option.

ARTICLE IV
CONSTRUCTION

4.0LANDLORD’S WORK.

In accordance with its plans and specifications, Landlord shall construct the portions of the Building in which the Premises are located and the common areas and facilities providing access thereto, and the same shall be deemed substantially completed upon certification thereof by Landlord’s architect. Such construction work (“Shell Work”) to be performed by Landlord to the Premises is limited to the building shell (as defined by Landlord) and does not include the finish of Premises to be performed as hereinafter provided in this Section 4.0. Attached hereto as Exhibit B-2 is a description of the Shell Work which is subject to such changes as the Landlord may make from time to time during the pendency of the construction of the Shell Work, provided that the same docs not materially change the concept of the Building (the “Base Building Plans”).

(A)Landlord, at Landlord’s sole cost and expense, shall perform the Shell Work and the work for the preparation of the Premises for Tenant’s occupancy (“Tenant Improvement Work”) described on Tenant’s final approved plans. The Shell Work and the Tenant Improvement Work are sometimes referred to collectively as “Landlord’s Work”. Subject to delays due to governmental regulation, unusual scarcity of or inability to obtain labor or materials, labor difficulties, casualty or other causes reasonably beyond Landlord’s control (collectively “Landlord’s Force Majeure”) or attributable to Tenant’s action or inaction, Landlord shall use reasonable speed and diligence in the construction of the Landlord’s Work so as to have the same completed on or before January 1, 2002, but Tenant shall have no claim against Landlord for failure so to complete construction of Landlord’s Work, except as expressly set forth in Section 4.1.

(B)The “Substantial Completion Date” shall be defined as the date on which: (i) the Tenant Improvement Work is substantially complete as certified by Landlord’s architect, other than Punch List Items, as hereinafter defined, (ii) Landlord has obtained a certificate of occupancy permitting Tenant to legally occupy the Premises (except that if Tenant engages its own contractors to perform any portion of the work to be performed in the initial preparation of the Premises,

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Landlord shall, subject to the provisions of Section 4.4 hereof, be relieved of its responsibility for obtaining such certificate of occupancy to the extent that Landlord’s failure to obtain such certificate of occupancy is based upon any aspect of the work performed by Tenant’s contractors), and (iii) the Shell Work has been substantially completed as certified by Landlord’s architect.

(C)If the Substantial Completion Date is delayed by virtue of a Tenant Delay, as hereinafter defined, the provisions of Section 4.0 F shall apply.

(D)“Punch List Items” shall be defined as those items of work and adjustment of equipment and fixtures in the Premises, the incompleteness of which do not cause material interference with Tenant’s use of the Premises, the Garage, and access to each, and which can be completed after Tenant commences its occupancy of the Premises without causing material interference with Tenant’s use of the Premises, the Garage, and access to each. The Punch List Items shall be set forth in a so-called punch list prepared and signed by Tenant and Landlord (provided, however, that Landlord shall give Tenant reasonable advance notice of the time when Landlord intends to walk through the Premises and compile the punch list, and if Tenant does not accompany Landlord on such walk-through, Tenant shall be bound by the punch list compiled by Landlord). The Landlord shall use diligent efforts to complete, as soon as conditions practically permit, all Punch List Items, and Tenant shall cooperate with Landlord in providing access during the performance as may be required to complete such work in a normal manner. Notwithstanding the foregoing, after Tenant opens for business in the Premises, the completion of all Punch List Items, other than work which does not materially interfere with Tenant’s use of the Premises or the Garage, or access thereto, will be performed after the Building’s business hours, to the extent reasonably possible.

(E)Shell Work shall not be deemed substantially complete until the following work has been completed:

(i)all portions of the Shell Work necessary to achieve substantial completion of the Tenant Improvement Work;

(ii)the exterior of the Building shall be substantially completed and completely enclosed, including windows;

(iii)the items remaining undone in the Building, and the work necessary to complete them, shall be of such nature as will not materially interfere with Tenant’s use and occupancy of the Premises or any part thereof as a first-class business office;

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(iv)the Building lobbies (and the lobby corridors which enable Tenant to access the elevator bank serving Tenant’s Premises) shall be substantially completed and access/egress shall be materially unobstructed from the Huntington Avenue entrance to the elevator banks serving the Premises. All such areas shall be free of scaffolding and construction materials;

(v)the exterior of the Building and those sidewalks of the Building which access the lobby and elevators shall be substantially free of hoists, sidewalk bridges and construction equipment and materials insofar as the same would in any manner affect access to the Premises; and

(vi)at least four (4) elevators (with finished passenger cabs) in Tenant’s elevator bank and at least one (1) elevator (with a finished passenger cab) serving the Garage shall be available for Tenant’s use.

Any portion of the Shell Work which is not completed on or before the Commencement Date shall be completed as soon as conditions practically permit. Each party shall take necessary reasonable measures to the end that each party’s contractors shall cooperate in all ways with the other party’s contractors to avoid any delay to the work being performed by each party’s contractors or conflict in any other way with the performance of each party’s work.

(F)A “Tenant Delay” shall be defined as any delay in the performance of Landlord’s Work to the extent that such delay is:

(i)caused by Tenant’s failure to timely comply with the Plans and Construction Schedule set forth in Exhibit B-4 except where due to Landlord’s delay; or

(ii)due to special work (i.e., long-lead items (as evidenced by advice from the suppliers, contractors or the like) of which Landlord advises Tenant in writing at the time that Landlord approves Tenant’s plans); or

(iii)due to changes, alterations or additions required or made by Tenant in the layout or finish of the Premises or any part thereof after Landlord approves Tenant’s plans; or

(iv)caused by delay and/or default on the part of Tenant or its contractors including, without limitation, the entities furnishing communications, data processing or other service or equipment, except to the extent caused by Landlord’s failure to comply with its obligations under Section 4.4 (ii) hereof.

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With respect to any Tenant Delay under this clause (iv), no period of time prior to the date that Landlord notifies Tenant of a Tenant Delay shall be considered to be a Tenant Delay.

(v)caused by Tenant or Tenant’s Representatives, as hereinafter defined, taking any action or failing to take any action which Tenant is required to take.

If Landlord has complied, as appropriate, with its obligations under Sections 4.2 and 4.3 as of the Authorization to Proceed Date and Tenant fails to give Landlord a written and unconditional authorization to proceed with the Tenant Improvement Work on or before the Authorization to Proceed Date set forth on Exhibit B-4, then each day between the Authorization to Proceed Date and the date that Tenant gives Landlord such authorization to proceed shall be deemed to be a day that Landlord is delayed as the result of a Tenant Delay, provided that the number of days of Tenant Delay pursuant to this sentence shall not exceed the number of days which Substantial Completion Date occurs after January 1, 2002. Except as set forth in the immediately preceding sentence, Tenant shall not be responsible for any delays in Landlord’s Work, including the Tenant Improvement Work, except to the extent that Landlord is delayed solely as the result of a Tenant Delay. Furthermore, if Tenant delivers full construction documents to Landlord on or before the Plans Date, as set forth in Exhibit B-4, then Tenant’s failure to deliver schematic plans on or before the Initial Plans Submission Date, or failure to deliver design development plans on or before the Interim Plans Submission Date, both as set forth in Exhibit B-4, shall not be considered a Tenant Delay.

In the event of a Tenant Delay(s), Tenant shall pay to Landlord, on the last day of the month in question (but the first such payment shall not be due until the date on which the Substantial Completion Date would have occurred but for Tenant Delays), as rent, on a monthly basis in arrears, an amount (“Tenant Delay Payment”) equal to the Annual Fixed Rent which would have been payable to Landlord during the length of any Tenant Delays.

4.1TENANT’S TERMINATION RIGHTS AND REMEDIES BASED ON DELAYS IN LANDLORD’S WORK.

(A)Abandonment of Construction. If Landlord abandons construction of the Building for a period in excess of ninety (90) days (which period shall be extended automatically for such periods of time as Landlord is prevented from proceeding therewith by reason of Landlord’s Force Majeure as defined in Section 4.0) (“Abandonment Trigger Period”), Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant’s desire to do so within the time period between the Abandonment Trigger Period and the date when Landlord resumes construction of the Building; and, if Tenant timely gives such notice, the Term of the Lease shall cease and come to an end thirty (30) days after Landlord’s

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receipt of such notice from Tenant without further liability or obligation on the part of either party unless, on or before the end of such thirty (30) day period, Landlord resumes construction of the Building; and such right of termination shall be Tenant’s sole and exclusive remedy for Landlord’s abandonment of construction of the Building.

(B)Failure to Achieve Milestones, (i) If Landlord fails to commence construction of the mid-rise elevators in the Building by November 1, 2000 (which date shall be extended automatically for such periods of time as Landlord is prevented from proceeding therewith by reason of Landlord’s Force Majeure or by reason of Tenant Delay) Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant’s desire to do so before Landlord has commenced construction of the mid-rise elevators; and, if Tenant timely gives such notice, the Term of the Lease shall cease and come to an end thirty (30) days after Landlord’s receipt of such notice from Tenant without further liability or obligation on the part of either party unless, on or before the end of such thirty (30) days, Landlord commences construction of the mid-rise elevators; and such right of termination shall be Tenant’s sole and exclusive remedy for Landlord’s failure to commence construction of the mid-rise elevators, (ii) if Landlord fails to commence construction of the high-rise elevators in the Building by March 1, 2001 (which date shall be extended automatically for such periods of time as Landlord has been prevented from proceeding therewith by reason of Landlord’s Force Majeure or by reason of Tenant Delay) Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant’s desire to do so before Landlord has commenced construction of the high-rise elevators; and, if Tenant timely gives such notice, the Term of the Lease shall cease and come to an end thirty (30) days after Landlord’s receipt of such notice from Tenant without further liability or obligation on the part of either party unless, on or before the end of such thirty (30) days, Landlord has commenced construction of the high-rise elevators; and such right of termination shall be Tenant’s sole and exclusive remedy for Landlord’s failure to commence construction of the high-rise elevators; or (iii) if Landlord fails to commence construction of the Tenant Improvement Work by November 1, 2001 (which date shall be extended automatically for such periods of time as Landlord is prevented from proceeding therewith by reason of Tenant Delay) then Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant’s desire to do so before the commencement of such construction; and, if Tenant timely gives such notice, the Term of the Lease shall cease and come to an end thirty (30) days after Landlord’s receipt of such notice from Tenant without further liability or obligation on the part of either party unless, on or before the end of such thirty (30) day period, Landlord commences such construction; provided, that, except where the date for such commencement is delayed by Tenant Delay beyond December 15, 2001 the termination shall take effect not later than December 15, 2001 or the date of receipt by Landlord of Tenant’s notice, whichever shall occur last. Such right of

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termination shall be Tenant’s sole and exclusive remedy for Landlord’s failure to commence construction of the Tenant Improvement Work.

For the purposes of this subparagraph (iii) the construction of the Tenant Improvement Work shall be considered to be commenced upon commencement of installation of Tenant mechanical systems in the Premises.

(C)Failure to Achieve Substantial Completion. If the Substantial Completion Date shall not have occurred on or before October 1, 2002 (“Outside Completion Date”) (which date shall be extended for any act or failure to act of Tenant which interferes with Landlord’s Work, without limiting Landlord’s other rights on account thereof), Tenant shall have the right to terminate this Lease by giving notice to Landlord of Tenant’s desire to do so before such completion and within the time period from the Outside Completion Date (as so extended) until the date which is thirty (30) days subsequent to the Outside Completion Date (as so extended); and, upon the giving of such notice, the Term of this Lease shall cease and come to an end without further liability or obligation on the part of either party unless, within thirty (30) days after receipt of such notice, the Substantial Completion Date occurs. Each day of Tenant Delay shall be deemed conclusively to cause an equivalent day of delay by Landlord in substantially completing Landlord’s Work, and thereby automatically extend for each such equivalent day of delay the date of the Outside Completion Date. Such right of termination shall be Tenant’s sole and exclusive remedy for Landlord’s failure to complete Landlord’s Work.

(D)Landlord’s Termination Rights for Force Majeure and Tenant Delay. If the Substantial Completion Date has not occurred by December 1, 2002 due to Landlord’s Force Majeure as defined in Section 4.0 or one or more Tenant Delays, then Landlord, without limiting Landlord’s other rights on account thereof, shall have the right to terminate this Lease by giving notice to Tenant of Landlord’s desire to do so; and, upon the giving of such notice, the Term of this Lease shall cease and come to an end without further liability or obligation on the part of either party.

4.2PLANS

(A)Planning Process. Tenant shall, promptly after this Lease is executed by Tenant and Landlord and delivered, submit to Landlord for Landlord’s approval an initial set of plans (“Initial Plans”), progress plans from time to time (“Interim Plans”) and a full set of construction drawings (“Final Plans”) for Tenant Improvement Work (collectively “the Plans”).  Tenant’s architect therefor is Design Management Corporation. The Plans shall contain at least the information required by, and shall conform to the requirements of, Exhibit B-2. Landlord’s approval of the Initial Plans and the Interim Plans (and the Final Plans, provided

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that the Final Plans are consistent with the Initial Plans and the Interim Plans and contain at least the information required by, and conform to the requirements of, said Exhibit B-2), shall not be unreasonably withheld, conditioned or delayed and shall comply with the requirements to avoid aesthetic or other conflicts with the design and function of the balance of the Building. Landlord’s approval is solely given for the benefit of Landlord under this Section 4.2 and neither Tenant nor any third party shall have the right to rely upon Landlord’s approval of Tenant’s plans for any other purpose whatsoever. Without limiting the foregoing, Tenant shall be responsible for all elements of the design of Tenant’s plans (including, without limitation, compliance with law, functionality of design, the structural integrity of the design, the configuration of the Premises and the placement of Tenant’s furniture, appliances and equipment), and Landlord’s approval of Tenant’s plans shall in no event relieve Tenant of the responsibility for such design. Landlord agrees to respond to any Initial Plans within thirty days (30) of receipt thereof and to Interim Plans and the Final Plans within fourteen (14) days of receipt thereof. If Landlord fails to timely respond then for each day of such failure, there shall be a corresponding day for day delay in the time periods under Exhibit B-4 to the extent applicable. If Landlord disapproves of any Plans, then Tenant shall, within ten (10) days of receipt of such disapproval, have the Plans revised by its architect to incorporate all reasonable objections and conditions presented by Landlord and resubmitted to Landlord (provided, however, that Tenant shall have fourteen (14) days to resubmit the Plans in the case a major redesign is required as the result of such disapproval). Such process shall be followed until the Plans shall have been approved by the Landlord without objection or condition. Landlord shall respond to the resubmission of any Plans by Tenant within five (5) days of Landlord’s receipt thereof (or fourteen (14) days in the case of a major redesign). Tenant shall prepare the Plans within the time frames set forth in the Plans and Construction Schedule attached hereto as
Exhibit B-4. If no time period is specified in Exhibit B-4 or elsewhere in this Article IV for any action which must be taken by Tenant in connection with the approval of the Plans or the performance of the Tenant Improvement Work, Tenant shall be required to take such action within ten (10) business days after Tenant receives a written request to take such action. Time is of the essence of Tenant’s obligation to prepare the Plans in accordance with Plans and Construction Schedule, except to the extent that Tenant is delayed by Landlord’s failure to act in a timely manner in accordance with this Paragraph (A).

4.3PERFORMANCE OF LANDLORD’S WORK; COST OF TENANT IMPROVEMENT WORK AND OF LANDLORD’S BASE BUILDING WORK

(A)Landlord shall engage a contractor (“General Contractor”) as the general contractor to perform the Landlord’s Work under a contract (the “TI Contract”). Landlord shall use J.P. Moriarty (“Moriarty”) as the General Contractor but may

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use another entity as the General Contractor if Moriarty is not the general contractor for the Building.

(B)In determining the cost of the Tenant Improvement Work to be paid by Tenant (if any) pursuant to Paragraph (H) of this Section 4.3, any savings accruing to the Landlord under the TI Contract shall reduce the cost of the Tenant Improvement Work to be paid by Tenant. The General Contractor shall be required to submit separate certificates for payment under the TI Contract from the certificates for payment which it submits to Landlord in connection with the Shell Work.

(C)Landlord shall receive no construction management fee in connection with the performance of the Tenant Improvement Work.

(D)Following Landlord’s approval of the Final Plans, Landlord shall cause the General Contractor to obtain at least three (3) subcontractor bids for each trade in connection with the Tenant Improvement Work. Tenant shall have the right to propose one subcontractor for each trade for the Tenant Improvement Work and to consult with Landlord and the General Contractor regarding the preparation of the bid packages.  All subcontractors shall be subject to Landlord’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord’s General Contractor may bid on portions of the Tenant Improvement Work that would be performed by a subcontractor, such as rough carpentry. Landlord shall prepare an analysis of such bids and recommendations for Tenant’s review. Landlord and Tenant shall prequalify each subcontractor for each trade on the bid list. The bid packages shall require bids to identify all long lead items and to specify delivery dates therefor. Landlord’s General Contractor under the direction of Landlord will solicit the bids from the subcontractors and administer the bid solicitation process consistent with the time periods provided for in Exhibit B-4. Upon the conclusion of the bid solicitation process, Landlord will provide Tenant with a copy of the bids received from the subcontractors, including an analysis of such bids and recommendations for Tenant’s review, and meet with Tenant to determine which of the subcontractors shall be awarded the subcontract for each major trade within the Tenant Improvement Work. Tenant shall reasonably cooperate with Landlord’s efforts to expedite the bid process. After Landlord’s receipt of bids for the Tenant Improvement Work, Tenant shall have the right, in accordance with the Plans and Construction Schedule set forth on Exhibit B-4, to select the subcontractor in each trade from the prequalified list for the Tenant Improvement Work.

(E)Cost Proposal. Landlord shall advise Tenant of preliminary price estimates (including breakdowns by trade) as promptly as possible but in any event within the following time periods: (i) ten (10) business days after Landlord’s receipt of the Initial Plans, (ii) fifteen (15) business days after

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Landlord’s receipt of the Interim Plans, and (iii) within twenty (20) business days after Landlord’s receipt of the Final Plans, After Landlord and Tenant meet to evaluate the results of the bid solicitation process, Landlord shall calculate and furnish to Tenant a “Cost Proposal” which shall constitute the aggregate of (i) the amounts payable under the subcontracts selected (and, subject to Section 4.3D above, where the General Contractor is performing work that would be performed by a subcontractor, the cost of such work) in the bid process and to be let upon approval of the Cost Proposal, broken down by trade (“Direct Costs”), and (ii) the amount of the General Contractor’s fee and general conditions based on the Direct Costs. The components of the Cost Proposal shall (subject to Change Orders) be fixed at the rates set forth therein.

(F)Tenant Approval of Cost Proposal; Redesign Period. Tenant shall approve or reject the Cost Proposal in writing to Landlord on or before the later to occur of (i) ten business days after being furnished the same, or (ii) the Authorization to Proceed Date set forth on Exhibit B-4. If Tenant fails to give Landlord notice approving of the Cost Proposal within the period required under the preceding sentence, Tenant shall be deemed to have rejected the Cost Proposal. If Tenant rejects or is deemed to have rejected the Cost Proposal, (i) no Tenant Improvement Work will commence until a Cost Proposal, has been approved by Tenant, and (ii) within fifteen (15) business days after the expiration of Tenant’s response period under the first sentence of this Section 4.3F, Tenant shall make such revisions to the Final Plans as Tenant desires to make to change the cost of the Tenant Improvement Work and resubmit the same to Landlord for approval pursuant to the process set forth in Section 4.2 above. In such event, Landlord shall direct Landlord’s contractor to re-price the Tenant Improvement Work based upon the revised Final Plans and shall submit a revised Cost Proposal to Tenant within ten (10) business days (or twenty-one (21) business days in the case of a major redesign) after receipt of revised Final Plans. Tenant shall give Landlord written notice accepting or rejecting the revised Cost Proposal on or before the later of (x) five (5) business days after Tenant’s receipt thereof or (y) the Authorization to Proceed Date, and failure to give such notice within such period shall be deemed a rejection thereof.  In any event, the cost of any change in or cancellation of any long lead time items after the Long Lead Time Release Date (as set forth on Exhibit B-4) shall be Tenant’s responsibility; and Tenant’s failure, on or before the Authorization to Proceed Date, to approve a Cost Proposal acceptable to Landlord and to authorize, in writing, Landlord to commence the performance of the Tenant Improvement Work shall be deemed to be a Tenant Delay, except to the extent that such failure is based upon Landlord’s failure to timely satisfy its obligations under either Section 4.2A or Section 4.3F.

(G)Change Orders. Tenant shall have the right, in accordance herewith, to submit for Landlord’s approval (which shall not be unreasonably withheld) change proposals subsequent to Landlord’s approval of the Final Plans and

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Tenant’s approval of the Cost Proposal (each, a “Change Order”), Landlord agrees to respond to any such change proposal (which response shall include any information necessary for Tenant to evaluate such change order) within such time as is reasonably necessary (taking into consideration the information contained in such change proposal) after the submission thereof by Tenant, advising Tenant of any anticipated costs (“Change Order Costs”) associated with such change proposal, as well as an estimate of any delay which would likely result in the completion of the Tenant Improvement Work if a Change Order is made pursuant thereto. Tenant shall have the right to then approve or withdraw such change proposal within five (5) business days after receipt of such information. If Tenant approves such change proposal and a Change Order is made, then the Change Order Costs associated with the approved change order shall be deemed additions to the Cost Proposal.

(H)Landlord’s Shell Work shall, subject to Paragraph B of Section 4.2, be performed by Landlord at Landlord’s expense. In addition, in the event that the cost of Landlord’s Shell Work is increased as the result of any Tenant Delays, Tenant shall, within thirty (30) days of billing therefor, pay to Landlord, as Additional Rent, the cost of any such increase. Landlord shall give notice to Tenant that Landlord anticipates that a Tenant Delay will increase the cost of Landlord’s Shell Work as soon as reasonably possible after Landlord has identified that such delay will cause such increase even though the amount of such increase has not been identified.

(I)The Tenant Improvement Work shall, subject to the Special Allowance (as defined in Section 5.3), if applicable, be performed by Landlord at Tenant’s sole cost and expense. If the cost of the Tenant Improvement Work exceeds the Special Allowance, if applicable, then Tenant shall pay to Landlord the amount of such excess. No payments on account of the Tenant Improvement Work shall be due from Tenant until the Special Allowance has first been exhausted. Any payments due from Tenant on account of the Tenant Improvement Work shall be due and payable, as Additional Rent, within thirty (30) days of billing therefor. Landlord may bill Tenant for such excess costs on a monthly basis as Landlord incurs such costs after Landlord has exhausted the Special Allowance.

(J)Tenant acknowledges and agrees that Tenant’s Representatives shall have full power and authority to act on behalf of Tenant and any action taken by Tenant’s Representatives shall be fully binding upon Tenant.

4.4HOLDOVER DAMAGES. If Landlord shall have failed substantially to complete the work in the Premises described in the Plans on or before February 1, 2002 (which date shall be extended automatically for such periods of time as Landlord is prevented from proceeding with or completing the same by reason of any act or failure to act of Tenant which interferes with Landlord’s construction of

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the Premises, without limiting Landlord’s other rights on account thereof), Landlord shall, in the manner hereinafter set forth, reimburse Tenant up to $641,773.32 (“Landlord’s Holdover Payment”) towards Tenant’s Holdover Damages, as hereinafter defined, incurred by Tenant during the period (“Holdover Period”) from February 1, 2002 until the Commencement Date. For the purposes hereof, “Tenant’s Holdover Damages” shall be equal to the Holdover Premium, as hereinafter defined, payable by Tenant to its Existing Landlord, as hereinafter defined, during the Holdover Period. For the purposes hereof, the “Holdover Premium” shall mean, subject to the following limitation, all amounts payable by Tenant to the Existing Landlord on account of rent, use or occupancy of Tenant’s Existing Premises at One Financial Center, Boston, MA (“Existing Premises”) during the Holdover Period, less the amount of rent which would have been payable by Tenant to the Existing Landlord for the Holdover Period had the rent payable during the Holdover Period equaled the amount of rent and other charges payable by Tenant under its existing lease dated 11/8/84, as amended (“Existing Lease”) by and between Dewey Square Tower Associates, as landlord (“Existing Landlord”) and Tenant, as tenant, in effect immediately preceding the termination of the Existing Lease; provided, however, that the Holdover Premium shall not exceed the sum of the square footage of the Existing Premises in which Tenant holds over during the Holdover Period multiplied by $.0548 per diem per square foot of holdover. Tenant may invoice Landlord for landlord’s Holdover Payment monthly as the same is incurred by Tenant and Landlord shall pay the Landlord’s Holdover Payment to Tenant within thirty (30) days after receipt of an invoice therefor provided that no default of Tenant, beyond the expiration of applicable notice and/or cure periods, then exists. Such payment of Tenant’s Holdover Damages up to Landlord’s Holdover Payment shall be Tenant’s sole and exclusive remedy for Landlord’s failure so to complete such work within such time. Each day of Tenant Delay shall be deemed conclusively to cause an equivalent day of delay by Landlord in substantially completing the work to be done by Landlord pursuant to Section 4.1, and thereby automatically extend for each such equivalent day of delay the date of the Outside Completion Date.

4.5QUALITY AND PERFORMANCE OF WORK. All construction work required or permitted by this Lease shall be done in a good and workmanlike manner and in compliance with all applicable laws, ordinances, rules, regulations, statutes, bylaws, court decisions, and orders and requirements of all public authorities (“Legal Requirements”) and all Insurance Requirements (as defined in Section 9.1 hereof). All of Tenant’s work shall be coordinated with any work being performed by or for Landlord and in such manner as to maintain harmonious labor relations. Each party may inspect the work of the other at reasonable times and shall promptly give notice of observed defects. Each party authorizes the other to rely in connection with design and construction upon approval and other actions on the party’s behalf by any Construction Representative of the party named in Section 1.2 or any person hereafter designated in substitution or addition by notice

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to the party relying. Except to the extent to which Tenant shall have given Landlord notice of respects in which Landlord has not performed Landlord’s construction obligations under this Article IV no later than eleven months after the Commencement Date Tenant shall be deemed conclusively to have approved Landlord’s construction and shall have no claim that Landlord has failed to perform any of Landlord’s obligations under this Article IV. Landlord agrees to correct or repair at its expense items which are then incomplete or do not conform to the work contemplated under the Plans and as to which, in either case, Tenant shall have given notice to Landlord, as aforesaid.

ARTICLE V
ANNUAL FIXED RENT AND ELECTRICITY AND SPECIAL ALLOWANCES

5.1FIXED RENT. Tenant agrees to pay to Landlord, or as directed by Landlord at such place as Landlord shall from time to time designate by notice (1) on the Commencement Date, and thereafter monthly, in advance, on the first day of each and every calendar month during the Original Lease Term, a sum equal to one-twelfth (1/12) of the Annual Fixed Rent specified in Section 1.2 and (2) on the first day of each and every calendar month during each Extended Term (if exercised), a sum equal to one-twelfth of the Annual Fixed Rent as determined in Section 3.2 for the applicable Extended Term. Until notice of some other designation is given, Annual Fixed Rent and all other charges for which provision is herein made shall be paid by remittance to or to the order of BOSTON PROPERTIES LIMITED PARTNERSHIP, Agents at P.O. Box 3557, Boston, Massachusetts 02241-3557, and all remittances received by BOSTON PROPERTIES LIMITED PARTNERSHIP, as Agents as aforesaid, or by any subsequently designated recipient, shall be treated as a payment to Landlord.

Annual Fixed Rent for any partial month shall be paid by Tenant to Landlord at such rate on a pro data basis, and, if the Commencement Date shall be other than the first day of a calendar month, the first payment of Annual Fixed Rent which Tenant shall make to Landlord shall be a payment equal to a proportionate part of such monthly Annual Fixed Rent for the partial month from the Commencement Date to the first day of the succeeding calendar month.

Additional Rent payable by Tenant on a monthly basis, as elsewhere provided in this Lease, likewise shall be prorated, and the first payment on account thereof shall be determined in similar fashion and shall commence on the Commencement Date and other provisions of this Lease calling for monthly payments shall be read as incorporating this undertaking by Tenant.

The Annual Fixed Rent and all other charges for which provision is made in this Lease shall be paid by Tenant to Landlord without setoff, deduction or abatement.

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5.2ALLOCATION OF ELECTRICITY CHARGES. Landlord shall reallocate the cost of electricity to tenants of the Building (including, but not limited to, Tenant herein) in accordance with the procedure contained in Exhibit F, and Tenant shall pay for electricity as provided in said Exhibit F.

5.3SPECIAL ALLOWANCE. Landlord shall provide Tenant with a special allowance (“Special Allowance”) in the amount of Three Million Thirty Eight Thousand Seven Hundred and 00/100 ($3,038,700.00) Dollars (i.e., $50.00 per square foot of Rentable Floor Area of the Premises) to be applied against the costs of the Tenant Improvement Work (the “Tenant Costs”). In the event that the Tenant Costs are less than the Special Allowance, Tenant shall be entitled to use up to $607,740.00 of the Special Allowance (i.e., $10.00 per square foot of Rentable Floor Area of the Premises) toward costs incurred by Tenant in connection with installing cabling in the Premises, towards furniture to be used in the Premises, and towards moving expenses (the “Move-In Allowance”). Landlord shall reimburse such costs within thirty (30) days of Landlord’s receipt of approved invoices from Tenant evidencing such costs. Any Allowance remaining shall, at Landlord’s election, be paid to Tenant as a cash payment or be applied as a credit against Annual Fixed Rent and Additional Rent owed by Tenant under this Lease. Landlord shall not be entitled to deduct from the Special Allowance any construction management fee for Landlord’s oversight of the Landlord Work.

5.4PLANS ALLOWANCE. Landlord shall contribute up to One Hundred Eighty- Two Thousand Three Hundred Twenty-Two and 00/100 ($ 182,322.00) Dollars (i.e., $3.00 per square foot of Rentable Area of the Premises) (“Plans Allowance”) towards the costs incurred by Tenant in preparing the Plans. Landlord shall pay the Plans Allowance to Tenant’s architect within thirty (30) days of receipt of approved invoices from Tenant evidencing such costs. Tenant shall not be entitled to any unused portion of the Plans Allowance.

5.5MOVING ALLOWANCE. Landlord shall contribute up to One Hundred Twenty One Thousand Five Hundred Forty Eight and 00/100 ($121,548.00) Dollars (i.e., $2.00 per square foot of Rentable Floor Area of the Premises) (“Moving Allowance”) towards the costs incurred by Tenant in moving to the Premises. Landlord shall pay the Moving Allowance to Tenant’s moving company within thirty (30) days of receipt of approved invoices from Tenant evidencing such costs. Tenant shall not be entitled to any unused portion of the Moving Allowance.

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ARTICLE VI
TAXES AND OPERATING EXPENSES

6.1DEFINITIONS. With reference to the real estate taxes and Operating Expenses referred to in this Article VI, it is agreed that terms used herein are defined as follows:

(a)“Tax Year” means the 12-month period beginning July 1 each year during the Lease Term or if the appropriate Governmental tax fiscal period shall begin on any date other than July 1, such other date.

(b)Omitted.

(c)“Landlord’s Tax Expenses” with respect to any Tax Year means the aggregate “real estate taxes” (hereinafter defined) with respect to that Tax Year, reduced by any net abatement receipts with respect to that Tax Year; provided, however, that if in any Tax Year an abatement has been obtained on account of vacancies in the Building, or if the real estate taxes had initially been assessed in an amount to reflect such vacancies then Landlord’s Tax Expenses shall be determined to be an amount equal to the taxes which would normally be expected to have been assessed had occupancy been ninety-five percent (95%) as of the reference date or period on which or in relation to which such assessment was made. For this purpose, taxes on properties comparable to the Building may be used as a reference if such properties were occupied at ninety-five percent (95%) more or less during the relevant period.

(d)“Real estate taxes” means all taxes and special assessments of every kind and nature and user fees and other like fees assessed by any Governmental authority on, or, subject to the provisions of this paragraph (d) allocable to, (i) the Building, (ii) the Overlease Premises, or (iii) the land, open areas, public areas and amenities, plazas, common areas and other non-leasable areas of the Prudential Center (for the purposes of this subsection (d) ”Tax Common Areas”), which the Landlord shall be obligated to pay under the Overlease or because of or in connection with the ownership, leasing or operation of the Building or Overlease Premises and reasonable expenses of any proceedings for abatement of taxes. The Overlease provides that: (i) if the Overlease Premises are separately assessed from other portions of the Prudential Center for real estate tax purposes, then real estate taxes shall mean such taxes as so separately assessed together with the share allocable to the Overlease Premises of real estate taxes on the Tax Common Areas as determined in accordance with the Overlease; and (ii) if the Overlease Premises are not so separately assessed, the Overlease provides a mechanism for the allocation of the real estate taxes to be paid by Landlord under the Overlease in respect of the Building, the Overlease Premises and the Tax Common Areas. In either case, the real estate taxes allocable to the Garage shall be excluded from such real estate taxes for

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the purposes of this Lease, and if the portions of the Garage within the Overlease Premises are not separately assessed for real estate taxes from the remainder of the Overlease Premises, then the real estate taxes allocable to the Garage to be so excluded shall be determined in accordance with the terms of the Overlease and such determination shall be binding on Tenant. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest other than penalty interest payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Lease Term the present system of ad valorem taxation of real property shall be changed so that in lieu of, or in addition to, the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Building or Overlease Premises, or a Federal, State, County, Municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the Prudential Center is located) measured by or based, in whole or in part, upon any such gross, rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term “real estate taxes” but only to the extent that the same would be payable if the Building, were the only property of Landlord. For the purposes of this Lease, real estate taxes shall include any payment in lieu of taxes or any payments made under Chapter 121A of the Massachusetts General Laws or any similar law. The parties acknowledge that Landlord is presently negotiating with the Tax Assessor of the City of Boston so that, as of the Commencement Date, the Tax Assessor shall, with respect to each fiscal/tax period issue a single real estate tax bill which will include all real estate taxes imposed by the City of Boston relating to both the Building and the Overlease Premises, and Landlord shall hereafter use reasonable and diligent efforts to achieve the same. However, to the extent that the Building is not separately assessed for real estate tax purposes, but is assessed as part of a larger parcel, then the Landlord shall make a reasonable allocation as to the amount of the real estate taxes (i.e. so far as such taxes are imposed on the land of the Prudential Center and the open areas, public areas and amenities, plazas, common areas and other non-leasable areas of the Prudential Center) that shall be allocated to the Building for the purposes of determination of the Tenant’s share of increases in real estate taxes under this Lease.

6.2OPERATING COSTS DEFINED. “Operating Expenses Allocable to the Premises” means the same proportion of the Operating Expenses for the Building

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(as hereinafter defined) as Rentable Floor Area of the Premises bears to 95% of the Total Rentable Floor Area of the Office Portion of the Building. “Base Operating Expenses Allocable to the Premises” means the product of $15.00 multiplied by the Rentable Floor Area of the Building. “Operating Expenses for the Building” means the cost of operation of the Building and the Building’s share of the cost of operating other areas of the Prudential Center as more specifically provided below in this Section 6.2, including those incurred in discharging the obligations under Section 7.2 and 7.3 and also includes Landlord’s Tax Expenses (as hereinbefore defined); however there shall be excluded from the Operating Expenses for the Building the cost of operation of the Garage and Operating Expenses Allocable to the Retail Portion of the Building, as hereinafter defined. In addition, such costs shall exclude payments of debt service and any other mortgage charges, brokerage commissions, salaries of executives and owners not directly employed in the management or operation of the Building, the general overhead and administrative expenses of the home office of Landlord or Landlord’s managing agent or of Overlandlord or Overlandlord’s managing agent, and costs of special services rendered to tenants (including Tenant) for which a separate charge is made, but shall include, without limitation:

(a)compensation, wages and all fringe benefits, workmen’s compensation insurance premiums and payroll taxes paid to, for or with respect to all persons for their services in the operating, maintaining, managing, insuring or cleaning of the Building or, as allocated under clause (i) below, the Operating Common Areas;

(b)payments under service contracts with independent contractors for operating, maintaining or cleaning of the Building or, as allocated under clause (i) below, the Operating Common Areas;

(c)steam, water, sewer, gas, oil, electricity and telephone charges (excluding such utility charges separately chargeable to tenants for additional or separate services and electricity charges paid by Tenant in the manner set forth in Section 5.2) and costs of maintaining letters of credit or other security as may be required by utility companies as a condition of providing such services;

(d)cost of maintenance, cleaning and repairs and replacements(other than repairs reimbursed from contractors under guarantees);

(e)cost of snow removal and care of landscaping;

(f)cost of building and cleaning supplies and equipment;

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(g)premiums for insurance carried with respect to the Building or, as allocated under clause (i) below, the Operating Common Areas (including, without limitation, liability insurance, insurance against loss in case of fire or casualty and of monthly installments of Annual Fixed Rent and any Additional Rent which may be due under this Lease and other leases of space in the Building for not more than twelve (12) months in the case of both Annual Fixed Rent and Additional Rent and, if there be any first mortgage on the Building, including such insurance as may be required by the holder of such first mortgage);

(h)management fees at reasonable rates consistent with the type of occupancy and the services rendered;

(i)the cost of operating, maintaining, cleaning and insuring the open areas, public areas and amenities, plazas, common areas, common facilities and other non-leasable areas of the Prudential Center that are used in common by tenants of the Prudential Center (“Operating Common Areas”) and other Mixed Use Common Area Maintenance Costs, as defined in the Overlease, under the Overlease incurred by Overlandlord, Landlord or any other PruOwner and allocated to the Building or Overlease Premises under the Overlease, and any shuttle buses for the use by tenants of the Building either alone or in common with tenants of other buildings in the Prudential Center (but see subparagraph (v) below for limitations on the inclusion of subsidies for amenities). For the purposes of this Section 6.2, the Operating Common Areas of the Prudential Center shall not include the Arcades and Exterior Common Areas, as defined in the Overlease, the lobbies within any building now or hereafter located at the Prudential Center or the Garage;

(j)depreciation for capital improvements (x) to reduce Operating Expenses if Landlord reasonably shall have determined that the annual reduction in Operating Expenses shall exceed depreciation therefor or (y) to comply with Legal Requirements (plus, in the case of both (x) and (y), an interest factor, reasonably determined by Landlord, as being the interest rate then charged for long term mortgages by institutional lenders on like properties within the general locality in which the Building is located), and in the case of both (x) and (y) depreciation shall be determined by dividing the original cost of such capital expenditure by the number of years of useful life of the capital item acquired, which useful life shall be determined reasonably by Landlord in accordance with generally accepted accounting principles and practices in effect at the time of acquisition of the capital item; provided, however, if Landlord reasonably concludes on the basis of engineering estimates that a particular capital expenditure will effect savings in other Operating Expenses, including, without limitation, energy

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related costs, and that such projected savings will, on an annual basis (“Projected Annual Savings”), exceed the annual depreciation therefor, then and in such event the amount of depreciation for such capital expenditure shall be increased to an amount equal to the Projected Annual Savings; and in such circumstance, the increased depreciation (in the amount of the Projected Annual Savings) shall be made for such period of time as it would take to fully amortize the cost of the item in question, together with interest thereon at the interest rate as aforesaid in equal monthly payments, each in the amount of l/l2th of the Projected Annual Savings, with such payment to be applied first to interest and the balance to principal (such depreciation being hereinafter referred to as the “Permitted Depreciation”);

(k)Landlord’s Tax Expenses, as defined in Section 6.l(c) (the parties hereby acknowledging that Landlord’s Tax Expenses for each calendar year shall include the actual amount of Landlord’s Tax Expenses for the Tax Periods included in such calendar year); and

(I)all other reasonable and necessary expenses paid in connection with the operating, cleaning and maintenance of the Building, Overlease Premises, or as allocated under clause (i) above, the Operating Common Areas and properly chargeable against income.

Notwithstanding the foregoing, the following shall be excluded from Operating Expenses for the Building:

(i)The costs of the initial construction of the Building, and any repair costs in connection with latent defects in the Building (including any failure of the Building to comply with laws which are in effect as of the Commencement Date which are incurred by Landlord prior to the fifth (5^th) anniversary of said Commencement Date and repair costs in connection with other buildings in the Prudential Center and any costs of a capital nature incurred before such fifth (5^th) anniversary date except where required to comply with law enacted subsequent to the Commencement Date;

(ii)All capital expenditures and depreciation, except as otherwise explicitly provided in this Section 6.2;

(iii)Leasing fees or commissions, advertising and promotional expenses, legal fees, the cost of tenant improvements, build out allowances, moving expenses, assumption of rent under existing leases and other concessions incurred in connection with leasing space in the Building or in Prudential Center;

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(iv)Interest on indebtedness, debt amortization, ground rent, and refinancing costs for any mortgage or ground lease of the Building or the Prudential Center, provided however, that the foregoing shall not exclude the inclusion of the amortization and interest permitted to be included in Operating Expenses on account of capital improvements under Section 6.2(j) above;

(v)Legal, auditing, consulting and professional fees and other costs, (other than those legal, auditing, consulting and professional fees and other costs incurred in connection with the normal and routine maintenance and operation of the Building and/or the Operating Common Areas of Prudential Center), including, without limitation, those: (i) paid or incurred in connection with financings, refinancings or sales of any Landlord’s interest in the Building or the Prudential Center, (ii) relating to specific disputes with tenants, and (iii) relating to any special reporting required by securities laws

(vi)Costs incurred in performing work or furnishing services for any tenant (including Tenant), whether at such tenant’s or Landlord’s expense, to the extent that such work or services is in excess of any work or service that Landlord is obligated to furnish to Tenant at Landlord’s expense (e.g., if Landlord agrees to provide extra cleaning to another tenant, the cost thereof would be excluded since Landlord is not obligated to furnish extra cleaning to Tenant);

(vii)The cost of any item or service to the extent reimbursed or reimbursable to Landlord by insurance required to be maintained under the Lease, by any tenant, or by any third party, such as the cost of supplying electricity for plugs and lights in a tenant’s premises;

(viii)The cost of repairs or replacements incurred by reason of fire or other casualty or condemnation other than costs not in excess of a reasonable deductible on any insurance maintained by Landlord which provides a recovery for such repair or replacement;

(ix)Insurance premiums to the extent any tenant causes Landlord’s existing insurance premiums to increase or requires Landlord to purchase additional insurance because of such tenant’s use of the Building for other than office purposes;

(x)Any advertising, promotional or marketing expenses for the Buildings or the Prudential Center;

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(xi)The cost of any service or materials provided by any party related to Landlord, to the extent such costs exceed the reasonable cost for such service or materials absent such relationship in buildings similar to the Building in the vicinity of the Building;

(xii)Payments for rented equipment, the cost of which equipment would constitute a capital expenditure if the equipment were purchased to the extent that such payments exceed the amount which could have been included in Operating Expenses had Landlord purchased such equipment rather than leasing such equipment;

(xiii)Penalties, damages, and interest for late payment or violations of any obligations of Landlord, including, without limitation, taxes, insurance, equipment leases and other past due amounts;

(xiv)Contributions to charitable organizations;

(xv)Costs incurred in removing the property of former tenants or other occupants of the Building;

(xvi)The cost of testing, remediation or removal of “Hazardous Materials” (as defined in Section 11.2) in the Building or on the Prudential Center required by “Hazardous Materials Laws” (as defined in Section 11.2), provided however, that with respect to the testing, remediation or removal of any material or substance which, as of the Commencement Date, was not considered, as a matter of law, to be a Hazardous Material, but which is subsequently determined to be a Hazardous Material as a matter of law, the costs thereof shall be included in Operating Expenses, subject, however, to Section 6.2(j) to the extent that such cost is treated as a capital expenditure.

(xvii)The cost of acquiring, installing, moving or restoring objects of art;

(xviii)Wages, salaries, or other compensation paid to any executive employees above the grade of general manager at the Prudential Center, except that if any such employee performs a service which would have been performed by an outside consultant, the compensation paid to such employee for performing such service shall be included in Operating Expenses, to the extent only that the cost of such service does not exceed competitive cost of such service had such service been rendered by an outside consultant;

(xix)Operating Costs for the Garage, the retail portions of the Prudential Center (other than as expressly provided above), or any building now or hereafter

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located at the Prudential Center (other than the Building and the Operating Common Areas of the Prudential Center, as set forth above);

(xx)The net (i.e. net of the reasonable costs of collection) amount recovered by Landlord under any warranty or service agreement from any contractor or service provider shall be credited against Operating Costs;

(xxi)       The cost of installation of, space preparation for, and rent applicable to any amenities of the Prudential Center (the parties hereby agreeing that this clause (xxi) shall not be deemed to exclude the coat of subsidizing the operation of those amenities of the Prudential Center that are not businesses, a health club being an example of such an amenity);

(xxii)Cost or expenses due to the willful misconduct or gross negligence of Landlord;

(xxiii)Bad debt expenses;

(xxiv)     Payments to any affiliate of Tenant which exceed the amount which would have been paid had the service been provided by, a non-affiliated party;

(xxv)General corporate overhead expenses and general administrative expenses; or

(xxvi)Cost of correcting violation of laws currently in effect.

Gross-Up Provision. Notwithstanding the foregoing, in determining the amount of Operating Expenses for the Building for any calendar year or portion thereof falling within the Lease Term, or the Base Operating Expenses applicable to any Expansion Area, if less than ninety-five percent (95%) of the Rentable Area of the Building shall have been occupied by tenants at any time during the period in question, then, at Landlord’s election, Operating Expenses (excluding Landlord’s Tax Expenses) which vary according to occupancy for such period shall be adjusted to equal the amount that such Operating Expenses would have been for such period had occupancy been ninety-five percent (95%) throughout such period.

“Operating Expenses Allocable to the Retail Portion of the Building” means:

(a)all costs related to the operation, cleaning and maintenance of the Retail Portion of the Building, including, without limitation:

(i)compensation, wages and all fringe benefits, workmen’s compensation insurance premiums and payroll taxes paid

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to, for or with respect to all persons for their services in the Operating, maintaining or cleaning of the Retail Portion of the Building,

(ii)payments under service contracts with independent contractors for the operating, maintaining or cleaning of the Retail Portion of the Building,

(iii)steam, chilled water, water, sewer, gas, oil, electricity, telephone and other utility charges (excluding utility charges separately chargeable to tenants for additional or separate services and electricity charges paid by Tenant in the manner set forth in Section 5.2) for the Retail Portion of the Building and costs of maintaining letters of credit or other security as may be required by utility companies as a condition of providing such services,

(iv)cost of maintenance, cleaning and repairs and replacements for the Retail Portion of the Building (other than repairs reimbursed from contractors under, guarantees),

(v)cost of rubbish removal for the Retail Portion of the Building, including without limitation, the cost of maintaining dumpsters and compactors,

(vi)the Permitted Depreciation for the Retail Portion of the Building,

(vii)cost of cleaning supplies and equipment,

(viii)the arcade common area maintenance costs under the Overlease, and

(ix)all other reasonable and necessary direct expenses paid in connection with the operating, cleaning and maintenance of the Retail Portion of the Building and properly chargeable against income; plus

(b)the same proportion of the following costs (which costs (x) are not otherwise included in subparagraph (a) above and (2) are not incurred for the exclusive benefit of the Office Portion of the Building) as the Total Rentable Floor Area of the Retail Portion of the Building bears to the Total Rentable Floor Area of the Building:

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(i)cost of snow removal and care of landscaping,

(ii)premiums for insurance carried with respect to the Building or the Prudential Center (including, without limitation, liability insurance, insurance against loss in case of fire or casualty and of monthly installments of Annual Fixed Rent and any Additional Rent which may be due under this Lease and other leases of space in the Building for not more than twelve months in the case of both Annual Fixed Rent and Additional Rent and, if there be any first mortgage on the Building, including such insurance as may be required by the holder of such first mortgage),

(iii)the cost of operation of the open areas, public areas and amenities, plazas, common areas, facilities and other non-leasable areas of the Prudential Center and other mixed use common area maintenance costs under the Overlease incurred by Overlandlord, Landlord or any other PruOwner and allocated to the Building or Overlease Premises under the Overlease,

(iv)the Permitted Depreciation,

(v)management fees at reasonable rates consistent with the type of occupancy and the services rendered, and

(vi)steam, chilled water, water, sewer, gas, oil, electricity, telephone and other utility charges (excluding utility charges separately chargeable to tenants for additional or separate services and electricity charges paid by Tenant in the manner set forth in Section 5.2) for the Building and costs of maintaining letters of credit or other security as may be required by utility companies as a condition of providing such services.

6.3TENANT’S ESCALATION PAYMENTS. (A) If with respect to any calendar year falling within the Lease Term, or fraction of a calendar year falling within the Lease Term at the beginning or end thereof, the Operating Expenses Allocable to the Premises (as defined in Section 6.2) for a full calendar year exceed Base Operating Expenses Allocable to the Premises (as defined in Section 6.2) or for any such fraction of a calendar year exceed the corresponding fraction of Base Operating Expenses Allocable to the Premises (such amount being hereinafter referred to as the “Operating Cost Excess”), then Tenant shall pay to Landlord, as

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Additional Rent, on or before the thirtieth (30th) day following receipt by Tenant of the statement referred to below in this Section 6.3, the amount of such excess.

(B)Payments by Tenant on account of the Operating Cost Excess shall be made monthly at the time and in the fashion herein provided for the payment of Annual Fixed Rent. The amount so to be paid to Landlord shall be an amount from time to time reasonably estimated by Landlord to be sufficient to cover, in the aggregate, a sum equal to the Operating Cost Excess for each calendar year during the Lease Term.

(C)No later than one hundred twenty (120) days after the end of the first calendar year or fraction thereof ending December 31 and of each succeeding calendar year during the Lease Term or fraction thereof at the end of the Lease Term, Landlord shall render Tenant a statement in reasonable detail and according to usual accounting practices certified by a representative of Landlord, showing for the preceding calendar year or fraction thereof, as the case may be, the Operating Expenses for the Building and the Operating Expenses Allocable to the Premises. Said statement to be rendered to Tenant also shall show for the preceding year or fraction thereof, as the case may be, the amounts already paid by Tenant on account of Operating Cost Excess and the amount of Operating Cost Excess remaining due from, or overpaid by, Tenant for the year or other period covered by the statement.

If such statement shows a balance remaining due to Landlord, Tenant shall pay same to Landlord on or before the thirtieth (30th) day following receipt by Tenant of said statement. Any balance shown as due to Tenant shall be credited against Annual Fixed Rent next due, or refunded to Tenant if the Lease Term has then expired and Tenant has no further obligation to Landlord.

Any payment by Tenant for the Operating Cost Excess shall not be deemed to waive any rights of Tenant to claim that the amount thereof was not determined in accordance with the provisions of this Lease.

(D)Subject to the provisions of this paragraph, Tenant shall have the right, at Tenant’s cost and expense, to examine all documentation and calculations prepared in the determination of Operating Cost Excess:

1.Such documentation and calculation shall be made available to Tenant at the offices where Landlord keeps such records during normal business hours within a reasonable time after Landlord receives a written request from Tenant to make such examination.

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2.Tenant shall have the right to make such examination no more than once in respect of any period for which Landlord has given Tenant a statement of the actual amount of Operating Expenses.

3.Any request for examination in respect of any calendar year may be made no more than one (1) year after Landlord advises Tenant of the actual amount of Operating Expenses in respect of such calendar year and provides to Tenant the year-end statement required under Paragraph C of this Section 6.3, provided however, if such examination results in a determination that Tenant was overcharged with respect to a calendar year, then Tenant shall have the right to review Landlord’s books as to the erroneous items for the two calendar years immediately prior to the calendar year in question, and if such examination results in a determination that Landlord committed a fraud with respect to a calendar year, then Tenant shall have the right to review Landlord’s hooks for the three (3) calendar years immediately prior to the calendar year in question. If such examination results in the determination that Tenant was overcharged with respect to a calendar year by more than five percent (5%), then Landlord shall reimburse Tenant for the reasonable cost of such examination, not to exceed $2,000,00.

4.Such examination may be made only by an independent certified public accounting firm or other hourly consultant approved by Landlord, which approval shall not be unreasonably withheld. Without limiting Landlord’s approval rights, Landlord may withhold its approval of any examiner of Tenant who is being paid by Tenant on a contingent fee basis.

5.As a condition to performing any such examination, Tenant and its examiners shall be required to execute and deliver to Landlord an agreement, in form reasonably acceptable to Landlord, agreeing to keep confidential any information which it discovers about Landlord or the Building in connection with such examination, provided however, that Tenant shall be permitted to share such information with each of its permitted subtenants so long as such subtenants execute and deliver to Landlord similar confidentiality agreements. Without limiting the foregoing, if Tenant uses any examiner which is other than a nationally recognized accounting firm, Tenant’s examiner shall be required to agree that it will not represent any other tenant in the Building or in other buildings located in the Prudential Center which is owned by Landlord or an affiliate of Landlord in connection with reviewing operating expenses for such tenant.

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ARTICLE VII
LANDLORD’S REPAIRS AND SERVICES

7.1STRUCTURAL REPAIRS. Except for (a) normal and reasonable wear and use and (b) damage caused by fire or casualty and by eminent domain, Landlord shall, throughout the Lease Term, at Landlord’s sole cost and expense, keep and maintain, or cause to be kept and maintained, in good order, condition and repair the following portions of the Building: the structural portions of the roof, the exterior and load bearing walls, the foundation, the structural columns and floor slabs and other structural elements of the Building; provided however, that Tenant shall pay to Landlord, as Additional Rent, the cost of any and all such repairs which may be required as a result of repairs, alterations, or installations made by Tenant or any subtenant, assignee, licensee or concessionaire of Tenant or any agent, servant, employee or contractor of any of them or to the extent of any loss, destruction or damage caused by the negligence or willful misconduct of Tenant, any assignee or subtenant or any agent, servant, employee, customer, visitor or contractor of any of them.

7.2OTHER REPAIRS TO BE MADE BY LANDLORD. Except for (a) normal and reasonable wear and use and (b) damage caused by fire or casualty and by eminent domain, and except as otherwise provided in this Lease, and subject to provisions for reimbursement by Tenant as contained in Section 6.3, Landlord agrees to keep and maintain, or cause to be kept and maintained, in good order, condition and repair the common areas and facilities of the Building, including heating, ventilating, air conditioning, plumbing and other Building systems equipment servicing the Premises, except that Landlord shall in no event be responsible to Tenant for (a) the condition of glass in and about the Premises (other than for glass in exterior walls for which Landlord shall be responsible unless the damage thereto is attributable to Tenant’s negligence or misuse, in which event the responsibility therefor shall be Tenant’s), or (b) any condition in the Premises or the Building caused by any act or neglect of Tenant or any agent, employee, contractor, assignee, subtenant, licensee, concessionaire or invitee of Tenant. Without limitation, Landlord shall not be responsible to make any improvements or repairs to the Building or the Premises other than as expressly provided in Section 7.1 or in this Section 7.2, unless expressly otherwise provided in this Lease.

7.3SERVICES TO BE PROVIDED BY LANDLORD. In addition, and except as otherwise provided in this Lease and subject to provisions for reimbursement by Tenant as contained in Section 6.3 and Tenant’s responsibilities in regard to electricity as provided in Section 5.2, Landlord agrees to furnish services, utilities, facilities and supplies as set forth in Exhibit C hereto equal in quality comparable to those customarily provided by landlords in high quality buildings in Boston. In addition, Landlord agrees to furnish, at Tenant’s expense, reasonable additional

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Building operation services which are usual and customary in similar buildings in Boston, and such additional special services as may be mutually agreed upon by Landlord and Tenant, upon reasonable and equitable rates from time to time established by Landlord.

7.4NO DAMAGE. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises for any purposes in this Lease authorized, or for repairing the Premises or any portion of the Building or Prudential Center however the necessity may occur. In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord’s part, by reason of any cause reasonably beyond Landlord’s control, including, without limitation, strike, lockout, breakdown, accident, order or regulation of or by any Governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any cause due to any act or neglect of Tenant or Tenant’s servants, agents, employees, licensees or any person claiming by, through or under Tenant, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in this Lease, shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant’s favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises.

Landlord reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed; provided, however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to eliminate the cause thereof. Except in case of emergency repairs, Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof.

7.5Rent Abatement. Notwithstanding anything to the contrary inthis Lease contained, if due to (i) any repairs, alterations, replacements, or improvements made by Landlord, (ii) Landlord’s failure to make any repairs, alterations, or improvements required to be made by Landlord hereunder, or to provide any service required to be provided by Landlord hereunder, (iii) failure of electric supply caused by Landlord, or (iv) the presence of any Hazardous Materials not introduced or caused by Tenant or anyone for whom Tenant is legally responsible, any portion of the Premises is so adversely affected thereby so that for the Premises Untenantability Cure Period, as hereinafter defined, the continued operation in the ordinary course of Tenant’s business is materially adversely affected, then, provided that Tenant ceases to use the affected portion of the

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Premises during the entirety of the Premises Untenantability Cure Period by reason of such adverse effect, and that such adverse effect and Landlord’s inability to cure such condition is not caused by the fault or neglect of Tenant or Tenant’s agents, employees or contractors, Annual Fixed Rent and Operating Cost Excess shall thereafter be abated in proportion to such adverse effect and its impact on the continued operation in the ordinary course of Tenant’s business until the day such condition is completely corrected. For the purposes hereof, the “Premises Untenantability Cure Period” shall be defined as five (5) consecutive business days after Landlord’s receipt of written notice from Tenant of the condition causing such adverse effect in the Premises, provided however, that the Premises Untenantability Cure Period shall be ten (10) consecutive business days after Landlord’s receipt of written notice from Tenant of such condition causing such adverse effect in the Premises if either the condition was caused by causes beyond Landlord’s control or Landlord is unable to cure such condition as the result of causes beyond Landlord’s control. The provisions of this clause (C) shall not apply in the event of such adverse effect caused by fire or other casualty, or taking (see Article XIV).

7.6LANDLORD’S INSURANCE. Landlord shall maintain fire and extended coverage insurance on the Building with commercially responsible insurers and such other insurance as is required under any mortgage. Such insurance shall cover the Tenant Improvement Work to the extent of the Special Allowance under Section 5.3.

ARTICLE VIII
TENANT’S REPAIRS

8.1TENANT’S REPAIRS AND MAINTENANCE. Tenant covenants and agrees that, from and after the date that possession of the Premises is delivered to Tenant and until the end of the Lease Term, Tenant will keep neat and clean and maintain in good order, condition and repair the Premises and every part thereof, excepting only for those repairs for which Landlord is responsible under the terms of Article VII of this Lease and damage by fire or casualty and as a consequence of the exercise of the power of eminent domain. Tenant shall not permit or commit any waste, and Tenant shall be responsible for the cost of repairs which may be made necessary by reason of damages to common areas in the Building or Prudential Center by Tenant, Tenant’s agents, employees, contractors, sublessees, licensees, concessionaires or invitees. Tenant shall maintain all its equipment, furniture and furnishings in good order and repair.

If repairs are required to be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch after such demand, Landlord may (but shall not be required to do so)

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make or cause such repairs to be made and shall not be responsible to Tenant for any loss or damage that may accrue to Tenant’s stock or business by reason thereof. If Landlord makes or causes such repairs to be made, Tenant agrees that Tenant will forthwith on demand, pay to Landlord as Additional Rent the cost thereof together with interest thereon at the rate specified in Section 16.21, and if Tenant shall default in such payment, Landlord shall have the remedies provided for non-payment of rent or other charges payable hereunder.

ARTICLE IX
ALTERATIONS

9.1LANDLORD’S APPROVAL. Tenant covenants and agrees not to make alterations, additions or improvements to the Premises, whether before or during the Lease Term, except in accordance with plans and specifications therefor first approved by Landlord in writing, which approval shall not be unreasonably withheld or delayed. However, Landlord’s determination of matters relating to aesthetic issues relating to alterations, additions or improvements which are visible outside the Premises shall be in Landlord’s sole discretion. Without limiting such standard, Landlord shall not be deemed unreasonable:

(a)for withholding approval of any alterations, additions or improvements which (i) in Landlord’s opinion might affect any structural or exterior element of the Building, any area or element outside of the Premises or any facility or base building mechanical system serving any area of the Building outside of the Premises, or (ii) involve or affect the exterior design, size, height or other exterior dimensions of the Building, or (iii) enlarge the Rentable Floor Area of the Premises, or (iv) are inconsistent, in Landlord’s judgment, with alterations satisfying Landlord’s standards for new alterations in the Building.

(b)for making its approval conditional on Tenant’s agreement to restore the Premises to its condition prior to such alteration, addition, or improvement at the expiration or earlier termination of the Lease Term.

Landlord’s review and approval of any such plans and specifications or under Section 4.1 and consent to perform work described therein shall not be deemed an agreement by Landlord that such plans, specifications and work conform with applicable Legal Requirements and requirements of insurers of the Building (herein called “Insurance Requirements”) nor deemed a waiver of Tenant’s obligations under this Lease with respect to applicable Legal Requirements and Insurance Requirements nor impose any liability or obligation upon Landlord with respect to the completeness, design sufficiency or compliance of such plans, specifications and work with applicable Legal Requirements and Insurance Requirements.

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9.1.1CERTAIN ALTERATIONS. Notwithstanding the terms of Section 9.1, Tenant shall have the right, without obtaining the prior consent of Landlord, but upon at least five (5) business days’ prior written notice to Landlord, to make alterations, additions or improvements to the Premises where:

(i)the same are within the interior of the Premises within the Building, and do not affect the exterior of the Premises and the Building;

(ii)the same do not affect the roof, any structural element of the Building, the mechanical, electrical, plumbing, heating, ventilating, air-conditioning and fire protection systems of the Building;

(iii)the cost of any individual alteration, addition or improvement shall not exceed $100,000.00 in each instance; and

(iv)Tenant shall comply with the provisions of this Lease and if such work increases the cost of insurance or taxes or of services, Tenant shall pay for any such increase in cost.

9.2CONFORMITY OF WORK. Tenant covenants and agrees that any alterations, additions, improvements or installations made by it to or upon the Premises shall be done in a good and workmanlike manner and in compliance with all applicable Legal Requirements and Insurance Requirements now or hereafter in force, that materials of first and otherwise good quality shall be employed therein, that the structure of the Building shall not be endangered or impaired thereby and that the Premises shall not be diminished in value thereby.

9.3PERFORMANCE OF WORK, GOVERNMENTAL PERMITS AND INSURANCE. All of Tenant’s alterations and additions and installation of furnishings shall be coordinated with any work being performed by or for Landlord and in such manner as to maintain harmonious labor relations and not to damage the Building or Prudential Center or interfere with Building construction or operation and, except for installation of furnishings, shall be performed by Landlord’s general contractor or by contractors or workmen first approved by Landlord. Except for work by Landlord’s general contractor, Tenant shall procure all necessary governmental permits before making any repairs, alterations, other improvements or installations. Tenant agrees to save harmless and indemnify Landlord from any and all injury, loss, claims or damage to any person or property occasioned by or arising out of the doing of any such work whether the same be performed prior to or during the Term of this Lease. At Landlord’s election, Tenant shall cause its contractor to maintain a payment and performance bond in such amount and with such companies as Landlord shall reasonably

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approve. In addition, Tenant shall cause each contractor to carry workmen’s compensation insurance in statutory amounts covering the employees of all contractors and subcontractors, and commercial general liability insurance or comprehensive general liability insurance with a broad form comprehensive liability endorsement with such limits as Landlord may require reasonably from time to time during the Term of this Lease, but in no event less than the minimum amount of commercial general liability insurance or comprehensive general liability insurance Tenant is required to maintain as set forth in Section 1.2 hereof and as the same may be modified as provided in Section 13.2 hereof (all such insurance to be written in companies approved reasonably by Landlord and insuring Landlord, Landlord’s managing agent and Tenant as additional insureds as well as contractors) and to deliver to Landlord certificates of all such insurance.

9.4LIENS. Tenant covenants and agrees to pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees or contractors, and not to cause or permit any liens for labor or materials performed or furnished in connection therewith to attach to the Premises or the Building or the Prudential Center and immediately to discharge any such liens which may so attach.

9.5NATURE OF ALTERATIONS. All work, construction, repairs, alterations, other improvements or installations made to or upon the Premises (including, but not limited to, the construction performed by Landlord under Article IV), shall become part of the Premises and shall become the property of Landlord and remain upon and be surrendered with the Premises as a part thereof upon the expiration or earlier termination of the Lease Term, except as follows:

(a)All trade fixtures whether by law deemed to be a part of the realty or not, installed at any time or times by Tenant or any person claiming under Tenant shall remain the property of Tenant or persons claiming under Tenant and may be removed by Tenant or any person claiming under Tenant at any time or times during the Lease Term or any occupancy by Tenant thereafter and shall be removed by Tenant at the expiration or earlier termination of the Lease Term if so requested by Landlord. Tenant shall repair any damage to the Premises occasioned by the removal by Tenant or any person claiming under Tenant of any such property from the Premises.

(b)At the expiration or earlier termination of the Lease Term, unless otherwise agreed in writing by Landlord, Tenant shall remove any wiring for Tenant’s computer, telephone and other communication systems and equipment which is located in any risers or conduits (but not any such wiring located within the Premises) and, at Landlord’s election, any alterations, additions and improvements made with Landlord’s consent during the Lease Term which would be unusually expensive to demolish

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or remove. If Tenant has an interior staircase installed within the Premises then Tenant shall at the expiration or earlier termination of the Lease Term remove such interior staircase and close up the openings and restore all damage, all in accordance with plans and specifications prepared by the Tenant and approved by the Landlord, such approval not to be unreasonably withheld, delayed or conditioned, unless no later than thirty (30) days prior to such expiration or earlier termination date, Landlord informs Tenant that such staircase is not to be removed, in which case such staircase shall not be removed and shall remain in place. If Tenant has the obligation to remove the staircase and has not removed the same by the expiration or earlier termination date, then Landlord may remove the same at Tenant’s cost and Tenant shall pay to Landlord the costs incurred by Landlord in effecting such removal promptly upon billing therefor.  Landlord agrees to make such election at the time Landlord approves Tenant’s plans for such alterations, additions or improvements (or at the time Tenant gives Landlord plans and specifications for work performed pursuant to Section 9.1.1) if Tenant requests in writing that Landlord make such election at the time that Tenant requests Landlord’s approval (or at the time that Tenant gives Landlord plans and specifications as aforesaid) and Tenant cites the relevant Lease Section to which such request applies. Upon such removal Tenant shall restore the Premises to their condition prior to such alterations, additions and improvements and repair any damage occasioned by such removal and restoration.

(c)If Tenant shall make any alterations, additions or improvements to the Premises for which Landlord’s approval is required under Section 9.1 without obtaining such approval, then at Landlord’s request at any time during the Lease Term, and at any event at the expiration or earlier termination of the Lease Term, Tenant shall remove such alterations, additions and improvements and restore the Premises to their condition prior to same and repair any damage occasioned by such removal and restoration. Nothing herein shall be deemed to be a consent to Tenant to make any such alterations, additions or improvements, the provisions of Section 9.1 being applicable to any such work.

9.6INCREASES IN TAXES. Tenant shall pay, as Additional Rent, one hundred percent (100%) of any increase in real estate taxes on the Building which shall, at any time after the Commencement Date, result from alterations, additions or improvements to the Premises made by Tenant if the taxing authority specifically determines such increase results from such alterations, additions or improvements made by Tenant.

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9.7EARLY ENTRY. Landlord hereby grants to Tenant a license to enter the Premises prior to the Substantial Completion Date in order to perform such installation or work to the Premises as Tenant shall require and as shall be permitted by the terms of this Lease; provided, however, that (i) no such entry shall be made until Landlord has determined that such entry may made be made in a safe manner dependent upon the status of completion of the Building, (ii) no such entry or work shall delay Landlord in the performance of its work in the Building or Premises and any such delay shall be a “Tenant Delay”, and Landlord may revoke such license if any such delay shall occur or be threatened, and (iii) any such access or work shall be at Tenant’s sole risk and, prior to making any such access, Tenant shall deliver to Landlord certificates for the insurance required under this Lease. All of the terms and conditions of this Lease, except for the payment of rent and other charges, shall apply during such period of early access.

ARTICLE X
PARKING

10.1PARKING PRIVILEGES. Commencing on the Commencement Date, Landlord shall provide to Tenant monthly parking privileges in the portion of the Prudential Center Garage designated for the Building (the “Garage”) of one (1) pass for each 2,000 Rentable Square Feet of Premises leased by Tenant (including any premises demised to Tenant pursuant to Tenant’s expansion and/or right of first offer rights as set forth in Sections 2.2 and 2.3 hereof) for the parking of motor vehicles in unreserved stalls in the Garage by Tenant’s employees (“Unreserved Passes”). In addition, commencing on the Commencement Date, Landlord shall provide to Tenant monthly parking privileges of two (2) passes for the parking of motor vehicles in reserved spaces in the Garage by Tenant’s employees (“Reserved Spaces”), which reserved spaces will be located in one of the areas shown hatched on Exhibit I.

10.2PARKING CHARGES. With respect to the Unreserved Spaces, Tenant shall pay for such parking privileges at the prevailing monthly rates from time to time charged by the operator or operators of the Garage, for unreserved spaces whether or not such operator is an affiliate of Landlord. With respect to the Reserved Spaces, Tenant shall pay for such parking privileges at the prevailing monthly rates from time to time charged by the operator or operators of the Garage for reserved spaces, whether or not such operator is an affiliate of Landlord.

10.3GARAGE OPERATION. Unless otherwise determined by Landlord or Overlandlord or the operator of the Garage (the “Garage Operator”), the Garage is to be operated on a self-parking basis, and Tenant shall be obligated to park and remove its own automobiles, and, other than in connection with the Reserved Passes, Tenant’s parking shall be on an unreserved basis, Tenant having the right

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to park in any available stalls. Tenant’s access and use privileges with respect to the Garage shall be in accordance with regulations of uniform applicability to the users of the Garage from time to time established by the Landlord, Overlandlord or the Garage Operator. Tenant shall receive one (1) identification sticker or pass and one (1) magnetic card so-called, or other suitable device providing access to the Garage, for each parking privilege paid for by Tenant. Tenant shall supply Landlord with an identification roster listing, for each identification sticker or pass, the name of the employee and the make, color and registration number of the vehicle to which it has been assigned, and shall provide a revised roster to Landlord monthly indicating changes thereto. Any automobile found parked in the Garage during normal business hours without appropriate identification will be subject to being towed at said automobile owner’s expense. The parking privileges granted herein are non-transferable (other than to a permitted assignee or subtenant pursuant to the applicable provisions of Article XII hereof). Landlord or Overlandlord or the Garage Operator may institute a so-called valet parking program for the Garage, and in such event Tenant shall cooperate in all respects with such program. Landlord reserves for itself and Overlandlord and any other PruOwner the right to alter the Garage as it sees fit and in such case to change the Garage including the reduction in area of the same, Tenant acknowledging that in connection with the potential expansion of buildings in the Prudential Center or the addition of other buildings thereto, it may be necessary to make significant changes to the Garage which may result in the reduction of the amount of parking available in the Garage and the change of location of such parking or may change the access to or egress from the Garage, all of which Landlord, Overlandlord or any other PruOwner may perform in its sole and exclusive discretion, without limitation to its other rights in respect thereof. Notwithstanding the foregoing, in no event shall the number of Tenant’s Reserved Passes or Unreserved Passes be reduced during the Term.

10.4LIMITATIONS. Tenant agrees that it and all persons claiming by, through and under it, shall at all times abide by all reasonable rules and regulations promulgated by Landlord, Overlandlord or the Garage Operator with respect to the use of the Garage, but such rules and regulations shall not be inconsistent with this Lease. Except to the extent of gross negligence or willful acts, neither the Landlord nor Overlandlord nor Garage Operator assumes any responsibility whatsoever for loss or damage due to fire or theft or otherwise to any automobile or to any personal property therein, however caused, and Tenant agrees, upon request from the Landlord, from time to time, to notify its officers, employees and agents then using any of the parking privileges provided for herein, of such limitation of liability. Tenant further acknowledges and agrees that a license only is hereby granted, and no bailment is intended or shall be created.

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ARTICLE XI
CERTAIN TENANT COVENANTS

Tenant covenants during the Lease Term and for such further time as Tenant occupies any part of the Premises:

11.1To pay when due all Annual Fixed Rent and Additional Rent and all charges for utility services rendered to the Premises and service inspections therefor except as otherwise provided in Exhibit C and, as further Additional Rent, all charges for additional and special services rendered pursuant to Section 7.3.

11.2To use and occupy the Premises for the Permitted Use only, and not to injure or deface the Premises or the Building or Prudential Center and not to permit in the Premises any auction sale, or flammable fluids or chemicals, or nuisance, or the emission from the Premises of any objectionable noise or odor and not to use or devote the Premises or any part thereof for any purpose other than the Permitted Use, nor any use thereof which is inconsistent with the maintenance of the Building as an office building of the first-class in the quality of its maintenance, use and occupancy, or which is improper, offensive, contrary to law or ordinance or liable to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building. Further, (i) Tenant shall not, nor shall Tenant permit its employees, invitees, agents, independent contractors, contractors, assignees or subtenants to, keep, maintain, store or dispose of (into the sewage or waste disposal system or otherwise except for standard office and cleaning supplies stored, handled and disposed of in accordance with all applicable laws) or engage in any activity which might produce or generate any substance which is or may hereafter be classified as a hazardous material, waste or substance (collectively “Hazardous Materials”), under federal, state or local laws, rules and regulations, including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and regulations promulgated under any of the foregoing, as such laws, rules and regulations may be amended from time to time (collectively “Hazardous Materials Laws”), (ii) Tenant shall immediately notify Landlord of any incident in, on or about the Premises, the Building or the Prudential Center that would require the filing of a notice under any Hazardous Materials Laws, (iii) Tenant shall comply and shall cause its employees, invitees, agents, independent contractors, contractors, assignees and subtenants to comply with each of the foregoing and (iv) Landlord shall have the right to make such inspections (including testing) as Landlord shall elect from time to time to determine that Tenant is complying with the foregoing.

Landlord shall indemnify Tenant and hold it harmless against any claims, damages, losses or liabilities (including reasonable attorneys’ and expert

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consultants’ fees) arising in the event that Landlord, Landlord’s agents, employees or contractors release Hazardous Materials onto the Building or the Prudential Center; provided however, the foregoing indemnity shall not apply to: (i) any material or substance existing on the Prudential Center as of the Execution Date of this Lease which, as of the Date of this Lease, was not considered, as a matter of law, to be a Hazardous Material, but which is subsequently determined to be a Hazardous Material as a matter of law or (ii) any material or substance released or installed or placed on the Prudential Center after the Execution Date of this Lease which, as of the date of such release, installation or placement, was not considered, as a matter of law, to be a Hazardous Material but which is later determined, as a matter of law, to be a Hazardous Material. In addition, if Hazardous Materials are discovered in the Building or the Premises which are not caused by Tenant, its employees, invitees, agents, independent contractors, contractors, assignees or subtenants, then Landlord shall, if and as required by law, assess, remediate or remove the same, or cause the same to be assessed, remediated or removed.

11.3Not to obstruct in any manner any portion of the Building not hereby leased or any portion thereof or of the Prudential Center used by Tenant in common with others; not without prior consent of Landlord to permit the painting or placing of any signs, curtains, blinds, shades, awnings, aerials or flagpoles, or the like, visible from outside the Premises; and to comply with all Rules and Regulations (as set forth in Section 16.30) now or hereafter made by Landlord or Overlandlord, of which Tenant has been given notice, for the care and use of the Building and the Prudential Center and their facilities and approaches, but neither Landlord nor Overlandlord shall be liable to Tenant for the failure of other occupants of the Building to conform to such rules and regulations.

11.4To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant’s Permitted Use.

11.5Not to place a load upon any floor in the Premises exceeding an average rate of 70 pounds of live load (including partitions) per square foot of floor area, except where the floor has been shored up by Tenant in accordance with plans and specifications approved by Landlord, and notwithstanding such approval or shoring up, Tenant shall remain responsible for any damage to the Premises or Building caused by any overloading; and not to move any safe, vault or other heavy equipment in, about or out of the Premises except in such manner and at

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such time as Landlord shall in each instance authorize. Tenant’s business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant’s expense in settings sufficient to absorb and prevent vibration or noise that may be transmitted to the Building structure or to any other space in the Building.

11.6To pay promptly when due all taxes which may be imposed upon personal property (including, without limitation, fixtures and equipment) in the Premises to whomever assessed.

11.7To pay, as Additional Rent, all reasonable costs, counsel and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease or in connection with any bankruptcy case involving Tenant or any guarantor.

11.8Not to do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein, which shall increase the rate of insurance on the Premises or on the Building above the standard rate applicable to premises being occupied for the use to which Tenant has agreed to devote the Premises; and Tenant further agrees that, in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom, which shall be due and payable as Additional Rent hereunder.

11.9To comply with all applicable Legal Requirements now or hereafter in force which shall impose a duty on Landlord or Tenant relating to or as a result of the use or occupancy of the Premises other than for general office purposes; provided that Tenant shall not be required to make any alterations or additions to the structure, roof, exterior and load bearing walls, foundation, structural floor slabs and other structural elements of the Building unless the same are required by such Legal Requirements as a result of or in connection with Tenant’s use or occupancy of the Premises beyond normal use of space of this kind. If Tenant receives notice of any violation of law, ordinance, order or regulation applicable to the Premises, it shall give prompt notice thereof to Landlord. Tenant shall promptly pay all fines, penalties and damages that may arise out of or be imposed because of its failure to comply with the provisions of this Section 11.9. Landlord, subject to inclusion of the cost of compliance as Operating Costs to the extent permitted by the provisions of Section 6.2 of this Lease, shall comply with (i) all Laws which relate to the structure of the Building, unless the need for such compliance arises from Tenant’s particular use of the Premises or any alterations made by Tenant, and (ii) all other Laws applicable to the Building, or the use and occupancy thereof, other than those Laws for which Tenant is responsible pursuant to this Section 11.9 or, with respect to another tenant’s premises, for which such tenant is responsible pursuant to the provisions of its lease with Landlord.

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11.10The word “Prudential” alone or in any combination other than “Prudential Center” shall not be used by the Tenant for any purpose whatsoever. Tenant shall not use the words “Prudential Center” other than as part of the business address of Tenant and then only in such manner as will not appear to be part of Tenant’s name. Tenant shall not use the words “Prudential Center” in any manner which is undignified, confusing, detrimental or misleading in Landlord’s opinion and shall give no greater prominence to the words “Prudential Center” than to any other part of the business address of Tenant and shall give less prominence to the words “Prudential Center” than to Tenant’s name. The Tenant shall not utilize signage or advertising which contains (a) any description of the Prudential Center or the description of the location of the Premises other than “Prudential Center”, “at Prudential Center”, or an official street address such as “Boylston Street” or “Huntington Avenue” or a regional locator such as “Boston” or “Back Bay” and (b) any name of a building, space or area within the Prudential Center other than “Prudential Tower” if Tenant is located within the Prudential Tower in order to describe the location of the Premises.

In order to reduce peak-hour trip generation of employees at the Prudential Center, the Landlord encourages all employers at the Prudential Center to adopt flexible work schedules for its employees. The Landlord encourages all employers at the Prudential Center to participate in the Corporate Pass Program of the Massachusetts Bay Transit Authority which is designed to encourage the use of mass transit by persons working in Boston. As of June 1988, one hundred and twenty-five greater Boston companies provided subsidies for the purchase by their employees of monthly transit passes through this program with subsidies ranging from 10% to 100% of the cost of the transit pass. The provision of transit pass subsidies may also offer certain benefits to employers under tax law. The Landlord encourages all employers at the Prudential Center to participate in this program and to inform their employees of the benefits of using monthly transit passes.

ARTICLE XII
ASSIGNMENT AND SUBLETTING

12.1RESTRICTIONS ON TRANSFER. Except as otherwise expressly provided herein, Tenant covenants and agrees that it shall not assign, mortgage, pledge, hypothecate or otherwise transfer this Lease and/or Tenant’s interest in this Lease or sublet (which term, without limitation, shall include granting of concessions, licenses or the like) the whole or any part of the Premises. Any assignment, mortgage, pledge, hypothecation, transfer or subletting not expressly permitted in or consented to by Landlord under this Article XII shall be void, ab initio; shall be of no force and effect; and shall confer no rights on or in favor of third parties. In

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addition, Landlord shall be entitled to seek specific performance of, and other equitable relief with respect to, the provisions hereof.

12.2EXCEPTIONS. Notwithstanding the foregoing provisions of Section 12.1 above and the provisions of Section 12.4 below, but subject to the provisions of Sections 12.5, 12.6 and 12.7 below, Tenant shall have the right to assign this Lease or to sublet the Premises (in whole or in part) to any parent or subsidiary corporation of Tenant or to any controlling corporation of Tenant or to any corporation controlled by Tenant or to any corporation under common control with Tenant (such parent or subsidiary corporation or corporation under common control with Tenant being hereinafter called a “Tenant Affiliate”) or to any corporation, limited liability partnership or limited liability company or other entity into which Tenant may be converted or with which it may merge, or to any entity purchasing or leasing all or substantially all of Tenant’s assets, provided that the entity to which this Lease is so assigned or which so sublets the Premises has a net worth (e.g. assets on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) equal to (or more than) the net worth of the Tenant immediately before such transaction. If any Tenant Affiliate to which this Lease is assigned or the Premises sublet (in whole or in part) shall cease to be such a Tenant Affiliate, and if such cessation was contemplated at the time of the assignment or subletting, such cessation shall be considered an assignment or subletting requiring Landlord’s consent.

12.3LANDLORD’S TERMINATION RIGHT. Notwithstanding the provisions of Section 12.1 above, in the event Tenant desires to assign this Lease or to sublet the whole or any part of the Premises, Tenant shall notify Landlord thereof in writing and Landlord shall have the right at its sole option, to be exercised within thirty (30) days after receipt of Tenant’s notice, to terminate this Lease (provided however, that if Tenant proposes to sublet less than the entire Premises and/or such proposed subletting is for less than the balance of the Term, Landlord shall have the right to terminate the Lease only with respect to the portion of the Premises proposed to be sublet and for the term of the proposed subletting) as of a date specified in a notice to Tenant, which date shall not be earlier than sixty (60) days nor later than one hundred and twenty (120) days after Landlord’s notice to Tenant; provided, however, that upon the termination date as set forth in Landlord’s notice, all obligations relating to the period after such termination date (but not those relating to the period before such termination date) shall cease and promptly upon being billed therefor by Landlord, Tenant shall make final payment of all Annual Fixed Rent and Additional Rent due from Tenant through the termination date. In the event that Landlord shall not exercise its termination rights as aforesaid, or shall fail to give any or timely notice pursuant to this Section the provisions of Sections 12.4-12.7 shall be applicable. This Section 12.3 shall not be applicable to an assignment or sublease pursuant to Section 12.2.

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12.4CONSENT OF LANDLORD. Notwithstanding the provisions of Section 12.1 above, but subject to the provisions of this Section 12.4 and the provisions of Sections 12.5, 12.6 and 12.7 below, in the event that Landlord shall not have exercised the termination right as set forth in Section 12.3, or shall have failed to give any or timely notice under Section 12.3, then for a period of one hundred fifty (150) days (i) after the receipt of Landlord’s notice stating that Landlord does not elect the termination right, or (ii) after the expiration of the thirty (30) day period referred to in Section 12.3 in the event Landlord shall not give any or timely notice under Section 12.3, as the case may be, Tenant shall have the right to assign this Lease or sublet the whole or any part of the Premises in accordance with Tenant’s notice to Landlord given as provided in Section 12.5 provided that, in each instance, Tenant first obtains the express prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Without limiting the foregoing standard, Landlord shall not be deemed to be unreasonably withholding its consent to such a proposed assignment or subleasing if:

(a)the proposed assignee or subtenant is a tenant in the Building or elsewhere in the Prudential Center or is (or within the previous sixty (60) days has been) in active negotiation with Landlord or Landlord’s affiliate for premises in the Building or elsewhere in the Prudential Center (and at Tenant’s written request Landlord shall furnish Tenant with a list of such entities with which Landlord or its affiliate is (or within 60 days has been) in active negotiation) or is not of a character consistent with the operation of a first class office building (by way of example Landlord shall not be deemed to be unreasonably withholding its consent to an assignment or subleasing to any governmental or quasi-governmental agency). Notwithstanding the following, Landlord will not withhold its consent solely because the proposed subtenant or assignee is an occupant of the Building or elsewhere in the Prudential Center, if Landlord or Landlord’s affiliate does not have space available for lease in the Building or elsewhere in the Prudential Center that is comparable to the space Tenant desires to sublet or assign. For purposes hereof, Landlord or such affiliate shall be deemed to have comparable space if it has space available on any floor of the Building or elsewhere in the Prudential Center that is approximately the same size as the space Tenant desires to sublet or assign within six (6) months of the proposed commencement of the proposed sublease or assignment, or

(b)the proposed assignee or subtenant is not of good character and reputation, or

(c)the proposed assignee or subtenant does not possess adequate financial capability to perform the Tenant obligations as and when due or required, or

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(d)the assignee or subtenant proposes to use the Premises (or part thereof) for a purpose other than the purpose for which the Premises may be used as stated in Section 1.2 hereof, or

(e)the character of the business to be conducted or the proposed use of the Premises by the proposed subtenant or assignee shall (i) be likely to increase Operating Expenses for the Building beyond that which Landlord now incurs for use by Tenant; (ii) be likely to increase the burden on elevators or other Building systems or equipment over the burden prior to such proposed subletting or assignment; or (iii) violate or be likely to violate any provisions or restrictions contained herein relating to the use or occupancy of the Premises, or

(f)there shall be existing an Event of Default (defined in Section 15.1).

12.5TENANT’S NOTICE. Tenant shall give Landlord prior notice of any proposed sublease or assignment, and said notice shall specify the provisions of the proposed assignment or subletting, including (a) the name and address of the proposed assignee or subtenant, (b) in the case of a proposed assignment or subletting pursuant to Section 12.4, such information as to the proposed assignee’s or proposed subtenant’s net worth and financial capability and standing as may reasonably be required for Landlord to make the determination referred to in Section 12.4 above (provided, however, that Landlord shall hold such information confidential having the right to release same to its officers, accountants, attorneys and mortgage lenders on a confidential basis), (c) all of the terms and provisions upon which the proposed assignment or subletting is to be made, (d) in the case of a proposed assignment or subletting pursuant to Section 12.4, all other information necessary to make the determination referred to in Section 12.4 above and (e) in the case of a proposed assignment or subletting pursuant to Section 12.2 above, such information as may be reasonably required by Landlord to determine that such proposed assignment or subletting complies with the requirements of said Section 12.2.

If Landlord shall consent to the proposed assignment or subletting, as the case may be, then, in such event, Tenant may thereafter sublease the whole or any part of the Premises or assign pursuant to Tenant’s notice, as given hereunder; provided, however, that if such assignment or sublease shall not be executed and delivered to Landlord within one hundred fifty (150) days after the date of Landlord’s consent, the consent shall be deemed null and void and the provisions of Section 12.3 shall be applicable.

12.6PROFIT ON SUBLEASING OR ASSIGNMENT. In addition, in the case of any assignment or subleasing as to which Landlord may consent (other than an

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assignment or subletting permitted under Section 12.2 hereof) such consent shall be upon the express and further condition, covenant and agreement, and Tenant hereby covenants and agrees that, in addition to the Annual Fixed Rent, Additional Rent and other charges to be paid pursuant to this Lease, fifty percent (50%) of the “Assignment/Sublease Profits” (hereinafter defined), if any shall be paid to Landlord.

The “Assignment/Sublease Profits” shall be the excess, if any, of (a) the “Assignment/Sublease Net Revenues” as hereinafter defined over (b) the Annual Fixed Rent, Additional Rent and other charges provided in this Lease (provided, however, that for the purpose of calculating the Assignment/Sublease Profits in the case of a sublease, appropriate proportions in the applicable Annual Fixed Rent, Additional Rent and other charges under this Lease shall be made based on the percentage of the Premises subleased and on the terms of the sublease). The “Assignment/Sublease Net Revenues” shall be the fixed rent, additional rent and all other charges and sums payable either initially or over the term of the sublease or assignment plus all other profits and increases to be derived by Tenant as a result of such subletting or assignment, less the reasonable costs of Tenant incurred in such subleasing or assignment (the definition of which shall include but not necessarily be limited to rent concessions, brokerage commissions and alteration allowances) amortized over the term of the sublease or assignment.

All payments of the Assignment/Sublease Profits due Landlord shall be made within ten (10) days of receipt of same by Tenant.

12.7ADDITIONAL CONDITIONS. (A) It shall be a condition of the validity of any assignment or subletting permitted under Section 12.2 above, or consented to under Section 12.4 above, that both Tenant and the assignee or sublessee agree directly with Landlord in a separate written instrument reasonably satisfactory to Landlord which contains terms and provisions reasonably required by Landlord, including, without limitation, the agreement of the assignee or sublessee to be bound by all the obligations of the Tenant hereunder, including, without limitation, the obligation to pay the Annual Fixed Rent, Additional Rent, and other amounts provided for under this Lease (but in the case of a partial subletting pursuant to Section 12.2, such subtenant shall agree on a pro rata basis to be so bound) including the provisions of Sections 12.1 through 12.7 hereof, but such assignment or subletting shall not relieve the Tenant named herein of any of the obligations of the Tenant hereunder, Tenant shall remain fully and primarily liable therefor and the liability of Tenant and such assignee (or subtenant, as the case may be) shall be joint and several. Further, and notwithstanding the foregoing, the provisions hereof shall not constitute a recognition of the assignment or the assignee thereunder or the sublease or the subtenant thereunder, as the case may be, and at Landlord’s option, upon the termination of the Lease, the assignment or sublease shall be terminated.

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(B)As Additional Rent, Tenant shall reimburse Landlord promptly for reasonable out of pocket legal and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting.

(C)If this Lease be assigned, Landlord may upon prior notice to Tenant, at any time and from time to time, collect Annual Fixed Rent, Additional Rent, and other charges from the assignee and apply the net amount collected to the Annual Fixed Rent, Additional Rent and other charges herein reserved, but no such assignment or collection shall be deemed a waiver of this covenant, or a waiver of the provisions of Sections 12.1 through 12.6 hereof, or the acceptance of the assignee as a tenant or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained, the Tenant herein named to remain primarily liable under this Lease.

(D)If the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may upon prior notice to Tenant, at any time after an Event of Default hereunder and from time to time thereafter while such Event of Default remains uncured, collect all of the rent and other charges due under such sublease from the sublessee or occupant and apply the net amount collected to the Annual Fixed Rent, Additional Rent and other charges herein reserved, but no such subletting, occupancy or collection shall be deemed a waiver of this covenant, or a waiver of the provisions of Sections 12.1 through 12.6 hereof, or the acceptance of the sublessee or occupant as a tenant or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained, the Tenant herein named to remain primarily liable under this Lease.

(E)No assignment or subletting under any of the provisions of Sections 12.2 or 12.4 shall in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or subletting.

ARTICLE XIII
INDEMNITY AND COMMERCIAL GENERAL LIABILITY INSURANCE

13.1TENANT’S INDEMNITY. To the maximum extent this agreement may be made effective according to law and except as expressly provided in Section 13.1.1, Tenant agrees to indemnify and save harmless Landlord and Overlandlord from and against all claims of whatever nature arising from or claimed to have arisen from any breach of this Lease by Tenant or any act, omission or negligence of Tenant, or Tenant’s contractors, licensees, invitees, agents, servants, independent contractors or employees; any accident, injury or damage whatsoever caused to any person, or to the property of any person, occurring in or about the Premises after the date that possession of the Premises is first delivered to Tenant and until the end of the Lease Term and thereafter, provided that during any such period

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after the Lease Term Tenant or anyone acting by, through or under Tenant is in occupancy of the Premises or any portion thereof; or any accident, injury or damage occurring outside the Premises but within the Building, the Garage or on the Prudential Center, where such accident, injury or damage results, or is claimed to have resulted, from an act, omission or negligence on the part of Tenant or Tenant’s contractors, licensees, invitees, agents, servants, independent contractors or employees.

This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof.

13.1.1.LANDLORD’S INDEMNITY. Subject to the limitations on Landlord’s liability set forth in this Lease, Landlord agrees to indemnify, defend and save harmless Tenant from and against any claim arising from any accident, injury or damage occurring in the Premises, in the Building or on the Prudential Center after the date that possession of the Premises is first delivered to Tenant and until the expiration or earlier termination of the Lease Term, to the extent that such accident, injury or damage results from any act, omission or negligence of Landlord or Landlord’s agents, employees or contractors.

Subject to the limitations on Landlord’s liability set forth in this Lease, this indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof.

13.2COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant agrees to maintain in full force from the date upon which Tenant first enters the Premises for any reason, throughout the Lease Term of this Lease, and thereafter, so long as Tenant is in occupancy of any part of the Premises, a policy of commercial general liability or comprehensive general liability insurance written on an occurrence basis with a broad form comprehensive liability endorsement under which Landlord and Landlord’s managing agent and Overlandlord and Overlandlord’s managing agent (and such other persons as are in privity of estate with Landlord and Landlord’s managing agent as may be set out in notice from time to time) and Tenant are named as insureds, and under which the insurer agrees to indemnify and hold Overlandlord, Landlord and Landlord’s managing agent, and those in privity of estate with Overlandlord, Landlord and Landlord’s managing agent, harmless from and against all cost, expense and/or liability arising out of or based upon any and all claims, accidents, injuries and damages mentioned in Section 13.1 of this Article XIII., in the broadest form of such coverage from time to time available in the jurisdiction in which the Premises are located. Each such policy shall be non-cancelable and non-amendable with respect to Overlandlord, Landlord and Overlandlord’s and Landlord’s said

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designees without thirty (30) days’ prior notice to Landlord, and a duplicate original or certificate thereof shall be delivered to Landlord. As of the Commencement Date hereof, the minimum limits of liability of such insurance shall be as specified in Section 1.2 and from time to time during the Lease Term for such higher limits, if any, as are carried customarily in the Greater Boston Area with respect to similar properties, provided, however, that in no event shall such limits be increased more frequently than once every five (5) years or during the first five years of the term hereof. All insurance required to be maintained by Tenant pursuant to this Lease shall be maintained with responsible companies qualified to do business, and in good standing, in the Commonwealth of Massachusetts and which have a rating of at least “A-” and are within a financial size category of not less than “Class VIII” in the most current Best’s Key Rating Guide or such similar rating as may be reasonably selected by Landlord if such Guide is no longer published.

13.3TENANT’S PROPERTY INSURANCE. Tenant, at Tenant’s expense, shall maintain at all times during the Term of the Lease insurance against loss or damage covered by the so-called “all risk” type insurance coverage with respect to Tenant’s fixtures, equipment, goods, wares and merchandise, tenant improvements made by or paid for by Tenant, and other property of Tenant (collectively “Tenant’s Property”). Such insurance shall be in an amount at least equal to the full replacement cost of Tenant’s Property.

13.4NON-SUBROGATION. Any insurance carried by either party with respect to the Premises or property therein or occurrences thereon shall, if it can be so written without additional premium or with an additional premium which the other party agrees to pay, include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occurrence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance to the extent of the indemnification received thereunder. This waiver of rights by Tenant shall apply to, and be for the benefit of, Landlord’s managing agent.

13.5TENANT’S RISK. To the maximum extent that this agreement may be made effective according to law, Tenant agrees to use and occupy the Premises and to use such other portions of the Building, the Garage or the Prudential Center as Tenant is herein given the right to use at Tenant’s own risk; and neither Landlord nor Overlandlord shall have any responsibility or liability for any loss of or damage to fixtures or other personal property of Tenant, unless, subject to Section 13.4 hereof, such damage or loss is due to the negligence or willful misconduct of Overlandlord, Landlord or either of their agents, employees or contractors, in which case Landlord or Overlandlord, as the case may be, shall bear loss or damage only to “ordinary office property” (as hereinafter defined). For the

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purpose of this Section 13.5, “ordinary office property” shall mean merchandise, furniture, and other tangible personal property of the kind and quantity which may customarily be expected to be found within comparable business offices in the City of Boston, and excluding any unusually valuable or exotic property, works of art, and the like.

ARTICLE XIV
FIRE, CASUALTY AND TAKING

14.1REPAIR OF DAMAGE CAUSED BY CASUALTY. Unless the Lease is terminated pursuant to the provisions of this Article XIV, if any portion of the Premises, the Garage or the means of access thereto or egress therefrom, or covered access to Boylston Street shall be damaged by fire or other casualty, Landlord shall proceed with diligence, subject to the then applicable statutes, building codes, zoning ordinances and regulations of any governmental authority, and at the expense of Landlord, but only to the extent of the proceeds that are available from the insurance Landlord is required to carry under this Lease or would have been available if such insurance were obtained, to repair or cause to be repaired such damage, including any damaged portion of the Tenant Improvement Work, provided however, that all repairs to and replacements of Tenant’s property and any other alterations, additions or improvements of Tenant (except for the Tenant Improvement Work) shall be made by and at the expense of Tenant. If the Premises or any part thereof shall have been rendered unfit for use and occupation hereunder by reason of such damage, the Annual Fixed Rent, Additional Rent and other charges or a just and proportionate part thereof, according to the nature and extent to which the Premises shall have been so rendered unfit, shall be suspended or abated until the Premises (except as to the property which is to be repaired by or at the expense of Tenant) shall have been restored as nearly as practicably may be to the condition in which they were in immediately prior to such fire or other casualty. Landlord shall not be liable for delays in the making of any such repairs nor shall Landlord be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting from delays in repairing such damage.

14.2LANDLORD’S TERMINATION RIGHTS.

If, after the Commencement Date, all or any portion of the Building is damaged by fire or other casualty (i) at any time by an occurrence which is not covered by the insurance Landlord is required to obtain under this Lease and the cost to repair such damage exceeds five percent (5%) of the then fair market value of the Building immediately before such casualty, or (ii) Landlord elects to demolish the Building (whether or not Landlord elects to demolish the Huntington Arcade) and terminate the leases for substantially all of the space in the Building, or (iii) at any

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time during the last eighteen (18) months of the term taking into account any extension option term which has not lapsed unexercised, if Landlord reasonably estimates that the time to repair such damage would exceed six (6) months or (iv) such fire or casualty requires such substantial alteration or reconstruction of the Building that the damage cannot, in the ordinary course, reasonably be expected to be repaired within twelve (12) months from the date of such fire or casualty as reasonably determined by Landlord and Landlord terminates the leases for substantially all of the space in the Building, then, in any such events, this Lease and the Term hereof may be terminated at the election of Landlord by a notice in writing of its election so to terminate which shall be given by Landlord to Tenant within sixty (60) days following such fire or other casualty, the effective termination date of which shall be not less than thirty (30) days alter the day on which such termination notice is received by Tenant.

14.3TENANT’S TERMINATION RIGHTS.

(A)If any portion of the Premises or any portion of the Building shall be damaged or destroyed by fire or other casualty to the extent that the operation of Tenant’s business in the Premises in the normal course is materially adversely affected, then, within sixty (60) days of such fire or other casualty, Landlord shall submit to Tenant a reasonable engineering estimate as to the estimated length of time to complete such repairs together with a statement of whether or not Landlord will receive sufficient proceeds from insurance to repair such damage. If the time period (“Estimated Restoration Period”) set forth in such estimate shall exceed ten (10) months from the date of such casualty or if Landlord advises Tenant in such notice that Landlord will not receive sufficient proceeds from insurance to repair such damage, Tenant may elect, by a notice sent within sixty (60) days after notice of such estimate is sent to Tenant, to terminate this Lease. If such estimate shall fall within the ten (10) month limit and if Landlord advises Tenant in such notice that Landlord will receive sufficient proceeds from insurance to repair such damage, Tenant shall have no such right to terminate pursuant to this Paragraph (A).

(B)In the event that the Premises or the Building are damaged by fire or other casualty to the extent that the operation of Tenant’s business in the Premises in the normal course is materially adversely affected and the Lease is not terminated by either Landlord or Tenant pursuant to Section 14.2 or Paragraph (A) of this Section 14.3, and if Landlord shall fail to substantially complete said repairs or restoration on or before the date (“Restoration Deadline Date”) which is the greater of: (1) the end of the Estimated Restoration Period and (2) ten (10) months after the date of such fire or other casualty (which ten (10) month period shall be automatically extended for up to an additional two (2) months for such periods of time as Landlord is prevented from proceeding with or completing the same by reason of matters beyond Landlord’s reasonable control) for any reason

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other than Tenant’s fault, Tenant may terminate this Lease by giving Landlord written notice as follows:

(i)Said notice shall be given after the Restoration Deadline Date.

(ii)Said notice shall set forth an effective date which is not earlier than thirty (30) days after Landlord receives said notice.

(iii)If said repairs or restoration are substantially complete on or before the date thirty (30) days (which thirty-(30)-day period shall be extended by the length of any delays caused by Tenant or Tenant’s contractors) after Landlord receives such notice, said notice shall have no further force and effect.

(d)If said repairs or restoration are not substantially complete on or before the date thirty (30) days (which thirty-(30)-day period shall be extended by the length of any delays caused by Tenant or Tenant’s contractors) after Landlord receives such notice, the Lease shall terminate as of said effective date.

14.4GENERAL PROVISIONS RELATING TO ANY CASUALTY TERMINATION. In the event of any termination under this Article XIV, this Lease and the Term hereof shall expire as of such effective termination date as though that were the termination date of the Lease and the Annual Fixed Rent, Additional Rent and other charges payable under this Lease shall be apportioned as of such date.

14.5RIGHTS OF TERMINATION FOR TAKING. If the Building, the Garage, or such portion thereof or access thereto as to render the balance (if reconstructed to the maximum extent practicable in the circumstances) unsuitable or inadequate for Tenant’s purposes, shall be taken by condemnation or right of eminent domain, Landlord or Tenant shall have the right to terminate this Lease by notice to the other of its desire to do so, provided that such notice is given not later than thirty (30) days after Tenant has been deprived of possession. If either party shall give such notice, then this Lease shall terminate as of the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.

Further, if so much of the Building, the Garage, or access to either shall be so taken that continued operation of the Building would be uneconomic, Landlord shall have the right to terminate this Lease by giving notice to Tenant of Landlord’s desire to do so not later than thirty (30) days after Tenant has been deprived of possession of the Premises (or such portion thereof as may be taken). If Landlord shall give such notice, then this Lease shall terminate as of the date of

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such notice with the same force and effect as if such date were the date originally established as the expiration date hereof.

Should any part of the Premises be so taken or condemned during the Lease Term hereof, and should this Lease not be terminated in accordance with the foregoing provisions, and the holder of any mortgage which includes the Premises as part of the mortgaged premises or any ground lessor of any ground lease which includes the Premises as part of the demised premises allows the net condemnation proceeds to be applied to the restoration of the Building, Landlord agrees that after the determination of the net amount of condemnation proceeds available to Landlord, Landlord shall use due diligence to put what may remain of the Premises into proper condition for use and occupation as nearly like the condition of the Premises prior to such taking as shall be practicable (excluding Tenant’s Property). Notwithstanding the foregoing, Landlord shall not be obligated to expend for such repair and restoration any amount in excess of the net condemnation proceeds made available to it.

If the Premises shall be affected by any exercise of the power of eminent domain and neither Landlord nor Tenant shall terminate this Lease as provided above, then the Annual Fixed Rent, Additional Rent and other charges due under the Lease shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant; and in case of a taking which permanently reduces the Rentable Floor Area of the Premises, a just proportion of the Annual Fixed Rent, Additional Rent and other charges due under the Lease shall be abated for the remainder of the Lease Term.

14.6AWARD. Except as otherwise provided in this Section 14.6, Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Building, the Prudential Center, and the Garage and the leasehold interest hereby created, and compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, as aforesaid, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord, all rights to such damages or compensation.

However, nothing contained herein shall be construed to prevent Tenant from prosecuting in any such proceedings a claim for its trade fixtures so taken or relocation, moving and other dislocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority.

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ARTICLE XV
DEFAULT

15.1TENANTS DEFAULT. This Lease and the term of this Lease are subject to the limitation that Tenant shall be in default if, at any time during the Lease Term, any one or more of the following events (herein called an “Event of Default” a “default of Tenant” or similar reference) shall occur and not be cured prior to the expiration of the grace period (if any) herein provided, as follows:

(a)Tenant shall fail to pay any installment of the Annual Fixed Rent, or any Additional Rent or any other monetary amount due under this Lease on or before the date on which the same becomes due and payable, and such failure continues for ten (10) days after notice from Landlord thereof; or

(b)Landlord having rightfully given the notice specified in (a) above to Tenant twice in any twelve (12) month period, Tenant shall fail thereafter to pay the Annual Fixed Rent, Additional Rent or any other monetary amount due under this Lease on or before the date on which the same becomes due and payable; or

(c)Tenant shall fail to perform or observe some term or condition of this Lease which, because of its character, would immediately jeopardize Landlord’s interest (such as, but without limitation, failure to maintain general liability insurance, or the employment of labor and contractors within the Premises which interfere with Landlord’s work, in violation of Section 4.3 or Section 9.3), and such failure continues for five (5) days after notice from Landlord to Tenant thereof; or

(d)Tenant shall fail to perform or observe any other requirement, term, covenant or condition of this Lease (not hereinabove in this Section 15.1 specifically referred to) on the part of Tenant to be performed or observed and such failure shall continue for thirty (30) days after notice thereof from Landlord to Tenant, or if said default shall reasonably require longer than thirty (30) days to cure, if Tenant shall fail to commence to cure said default within thirty (30) days after notice thereof and/or fail to continuously prosecute the curing of the same to completion with due diligence; or

(e)The estate hereby created shall be taken on execution or by other process of law; or

(f)Tenant shall make an assignment or trust mortgage arrangement, so-called, for the benefit of its creditors; or

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(g)Tenant shall judicially be declared bankrupt or insolvent according to law; or

(h)a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer is appointed to take charge of all or any substantial part of Tenant’s property by a court of competent jurisdiction; or

(i)any petition shall be filed against Tenant in any court, whether or not pursuant to any statute of the United States or of any State, in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceeding, and such proceedings shall not be fully and finally dismissed within sixty (60) days after the institution of the same; or

(j)Tenant shall file any petition in any court, whether or not pursuant to any statute of the United States or any State, in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceeding; or

(k)Tenant otherwise abandons or vacates the Premises.

15.2TERMINATION; RE-ENTRY. Upon the happening of any one or more of the aforementioned Events of Default (notwithstanding any license of a former breach of covenant or waiver of the benefit hereof or consent in a former instance), Landlord or Landlord’s agents or servants may give to Tenant a notice (hereinafter called “notice of termination”) terminating this Lease on a date specified in such notice of termination (which shall be not less than five (5) days after the date of the mailing of such notice of termination), and this Lease and the Lease Term, as well as any and all of the right, title and interest of the Tenant hereunder, shall wholly cease and expire on the date set forth in such notice of termination (Tenant hereby waiving any rights of redemption) in the same manner and with the same force and effect as if such date were the date originally specified herein for the expiration of the Lease Term, and Tenant shall then quit and surrender the Premises to Landlord.

In addition or as an alternative to the giving of such notice of termination, Landlord or Landlord’s agents or servants may, by any suitable action or proceeding at law, immediately or at any time thereafter re-enter the Premises and remove therefrom Tenant, its agents, employees, servants, licensees, and any subtenants and other persons, and all or any of its or their property therefrom, and repossess and enjoy the Premises, together with all additions, alterations and improvements thereto; but, in any event under this Section 15.2, Tenant shall remain liable as hereinafter provided.

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The words “re-enter” and “re-entry” as used throughout this Article XV are not restricted to their technical legal meanings.

15.3CONTINUED LIABILITY; RE-LETTING. If this Lease is terminated or if Landlord shall re-enter the Premises as aforesaid, or in the event of the termination of this Lease, or of re- entry, by or under any proceeding or action or any provision of law by reason of an Event of Default hereunder on the part of Tenant, Tenant covenants and agrees forthwith to pay and be liable for, on the days originally fixed herein for the payment thereof, amounts equal to the several installments of Annual Fixed Rent, all Additional Rent and other charges reserved as they would, under the terms of this Lease, become due if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or for a period less than the remainder of the Lease Term, or for the whole thereof, but, in the event the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent and other charges received by Landlord in reletting, after deduction of all reasonable expenses incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees and the like), and in collecting the rent in connection therewith, in the following manner:

Amounts received by Landlord after reletting shall first be applied against such Landlord’s expenses, until the same are recovered, and until such recovery, Tenant shall pay, as of each day when a payment would fall due under this Lease, the amount which Tenant is obligated to pay under the terms of this Lease (Tenant’s liability prior to any such reletting and such recovery not in any way to be diminished as a result of the fact that such reletting might be for a rent higher than the rent provided for in this Lease); when and if such expenses have been completely recovered, the amounts received from reletting by Landlord as have not previously been applied shall be credited against Tenant’s obligations as of each day when a payment would fall due under this Lease, and only the net amount thereof shall be payable by Tenant. Further, Tenant shall not be entitled to any credit of any kind for any period after the date when the term of this Lease is scheduled to expire according to its terms.

15.4LIQUIDATED DAMAGES. Landlord may elect, as an alternative, to have Tenant pay liquidated damages, which election may be made by notice given to Tenant at any time after the termination of this Lease under Section 15.2, above, and whether or not Landlord shall have collected any damages as hereinbefore provided in this Article XV, and in lieu of all other such damages beyond the date of such notice. Upon such notice, Tenant shall promptly pay to Landlord, as liquidated damages, in addition to any damages collected or due from Tenant from any period prior to such notice and all expenses which Landlord may have incurred with respect to the collection of such damages, such a sum as at the time of such notice represents the amount of the excess, if any, of (a) the discounted

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present value, at a discount rate of 6%, of the Annual Fixed Rent, Additional Rent and other charges which would have been payable by Tenant under this Lease for the remainder of the Lease Term if the Lease terms had been fully complied with by Tenant, over and above (b) the discounted present value, at a discount rate of 6%, of the Annual Fixed Rent, Additional Rent and other charges that would be received by Landlord if the Premises were re- leased at the time of such notice for the remainder of the Lease Term at the fair market value (including provisions regarding periodic increases in Annual Fixed Rent if such are applicable) prevailing at the time of such notice as reasonably determined by Landlord.

For the purposes of this Article, if Landlord elects to require Tenant to pay liquidated damages in accordance with this Section 15.4, the total rent shall be computed by assuming the Tax Excess under Section 6.2 and the Operating Cost Excess under Section 7.5 to be the same as were payable for the twelve (12) calendar months (or if less than twelve (12) calendar months have been elapsed since the date hereof, the partial year) immediately preceding such termination of re-entry.

Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceeds in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.

15.5WAIVER OF REDEMPTION. Tenant, for itself and any and all persons claiming through or under Tenant, including its creditors, upon the termination of this Lease and of the term of this Lease in accordance with the terms hereof, or in the event of entry of judgment for the recovery of the possession of the Premises in any action or proceeding, or if Landlord shall enter the Premises by process of law or otherwise, hereby waives any right of redemption provided or permitted by any statute, law or decision now or hereafter in force, and does hereby waive, surrender and give up all rights or privileges which it or they may or might have under and by reason of any present or future law or decision, to redeem the Premises or for a continuation of this Lease for the term of this Lease hereby demised after having been dispossessed or ejected therefrom by process of law, or otherwise.

15.6LANDLORD’S DEFAULT; TENANTS’S SELF-HELP. If a Landlord Default, as hereinafter defined, shall occur, Tenant may, without the need of Landlord’s consent, if Landlord fails to cure such Landlord Default within the Landlord Cure Period, as hereinafter defined, perform the same for the account of Landlord. Landlord shall, within thirty (30) days of demand therefor, reimburse Tenant the sums so paid by Tenant in curing such Landlord Default, together with interest on

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such sums at the rate per annum set forth in Section 16.17 hereof from the date of demand until the date of payment. However, in no event shall Tenant have the right to offset against, withhold or deduct from Annual Fixed Rent or Additional Rent payable under this Lease for any reason relating to this Section 15.6. For the purposes of this Section 15.6, a “Landlord Default” shall be defined as a failure by Landlord to perform Landlord’s obligation to clean the Premises pursuant to Exhibit C and/or to perform any of Landlord’s service, maintenance or repair obligations under the Lease, excluding those maintenance and repair obligations, the cure or performance of which would adversely affect any other tenant in the Building or the Prudential Center (e.g., without limitation, Tenant shall have no right to perform any maintenance or repairs to any common areas or facilities of the Prudential Center). For the purposes of this Section 15.6, the “Landlord Cure Period” shall be defined as follows:

(1)In the event of an emergency threatening life or property, or Tenant’s interest in this Lease, three (3) days after receipt by Landlord of written notice from Tenant of such default. Notwithstanding the foregoing, in the event that Landlord has commenced to cure such Landlord Default within said three (3) day period, and so long as Landlord thereafter diligently prosecutes such cure to completion, the three (3) day period shall be extended to such period of time as Landlord reasonably requires to cure such default;

(2)In the event of any other Land lord Default, thirty (30) days after receipt by Landlord of written notice from Tenant of such Landlord Default. Notwithstanding the foregoing, in the event that Landlord has commenced to cure such Landlord Default within said thirty (30) day period, and so long as Landlord thereafter diligently prosecutes such cure to completion, the thirty (30) day period shall be extended to such period of time as Landlord reasonably requires to cure such default.

ARTICLE XVI
MISCELLANEOUS PROVISIONS

16.1WAIVER. Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of its rights hereunder.

Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a

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waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord’s or Tenant’s consent or approval to or of any subsequent similar act by the other.

No payment by Tenant, or acceptance by Landlord, of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. Further, the acceptance by Landlord of Annual Fixed Rent, Additional Rent or any other charges paid by Tenant under this Lease shall not be or be deemed to be a waiver by Landlord of any default by Tenant, whether or not Landlord knows of such default, except for such defaults as to which such payment relates.

16.2CUMULATIVE REMEDIES. Except as expressly provided in this Lease, the specific remedies to which Landlord and Tenant may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress which they may be lawfully entitled to seek in case of any breach or threatened breach of any provisions of this Lease. In addition to the other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to seek specific performance of any such covenants, conditions or provisions, provided, however, that the foregoing shall not be construed as a confession of judgment by Tenant.

16.3QUIET ENJOYMENT. This Lease is subject and subordinate to all matters of record including, without limitation, the Overlease. Landlord agrees that, upon Tenant’s paying the Annual Fixed Rent, Additional Rent and other charges herein reserved, and performing and observing the covenants, conditions and agreements hereof upon the part of Tenant to be performed and observed, Tenant shall and may peaceably hold and enjoy the Premises during the term of this Lease, without interruption or disturbance from Landlord or persons claiming through or under Landlord, subject, however, to the terms of this Lease. This covenant shall be construed as running with the land to and against subsequent owners and successors in interest, and is not, nor shall it operate or be construed as, a personal covenant of Landlord, except to the extent of the Landlord’s interest in the Premises, and this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and upon such subsequent owners or successors in interest of Landlord’s interest under this Lease, including ground or master lessees, to the extent of their respective interests, as and when they shall acquire same and then only for so long as they shall retain such interest.

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16.4SURRENDER. (A) No act or thing done by Landlord during the Lease Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept such surrender shall be valid, unless in writing signed by Landlord. No employee of Landlord or of Landlord’s agents shall have any power to accept the keys of the Premises as an acceptance of a surrender of the Premises prior to the termination of this Lease; provided, however, that the foregoing shall not apply to the delivery of keys to Landlord or its agents in its (or their) capacity as managing agent or for purpose of emergency access. In any event, however, the delivery of keys to any employee of Landlord or of Landlord’s agents shall not operate as a termination of the Lease or a surrender of the Premises.

(B)Upon the expiration or earlier termination of the Lease Term, Tenant shall surrender the Premises to Landlord in the condition as required by Sections 8.1 and 9.5, first removing all goods and effects of Tenant and completing such other removals as may be permitted or required pursuant to Section 9.5.

16.5BROKERAGE. Tenant warrants and represents that Tenant has not dealt with any broker in connection with the consummation of this Lease other than the broker, person or firm designated in Section 1.2 hereof; and in the event any claim is made against the Landlord relative to dealings with brokers other than the broker designated in Section 1.2 hereof, Tenant shall defend the claim against Landlord with counsel of Landlord’s selection and save harmless and indemnify Landlord on account of loss, cost or damage which may arise by reason of such claim. Landlord agrees that it shall be solely responsible for the payment of brokerage commissions to the broker, person or firm designated in Section 1.2 hereof.

Landlord warrants and represents that Landlord has not dealt with any broker in connection with the consummation of this Lease other than the broker, person or firm designated in Section 1.2 hereof; and in the event any claim is made against the Tenant relative to Landlord’s dealings with brokers other than the broker designated in Section 1.2 hereof, Landlord shall defend the claim against Tenant with counsel of Tenant’s selection and save harmless and indemnify Tenant on account of loss, cost or damage which may arise by reason of such claim.

16.6INVALIDITY OF PARTICULAR PROVISIONS. Ifany term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

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16.7PROVISIONS BINDING, ETC. The obligations of this Lease shall run with the land, and except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and assigns. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant, but has reference only to those instances in which Landlord may have later given consent to a particular assignment as required by the provisions of Article XII hereof.

16.8RECORDING. Each of Landlord and Tenant agree not to record the within Lease, but each party hereto agrees, on the request of the other, to execute a so- called Notice of Lease or short form lease in form recordable and complying with applicable law and reasonably satisfactory to Landlord’s and Tenant’s attorneys. In no event shall such document set forth the rent or other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease, and is not intended to vary the terms and conditions of this Lease.

16.9NOTICES AND TIME FOR ACTION. Whenever, by the terms of this Lease, notice shall or may be given either to Landlord or to Tenant, such notices shall be in writing and shall be sent by hand, registered or certified mail, or by overnight or other commercial courier which obtains a receipt for delivery, postage or delivery charges, as the case may be, prepaid as follows:

If intended for Landlord, addressed to Landlord at the address set forth on the first page of this Lease (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice).

If intended for Tenant, addressed to Tenant at the address set forth on the first page of this Lease except that from and after the Commencement Date the address of Tenant shall be the Premises with a copy to Schnader, Harrison, Goldstein & Manello, 265 Franklin Street, Boston, Massachusetts 02110-3192, Attn: Andrew M. Pearlstein, Esq. (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice).

Except as otherwise provided herein, all such notices shall be effective when received; provided, that (i) if receipt is refused, notice shall be effective upon the first occasion that such receipt is refused or (ii) if the notice is unable to be

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delivered due to a change of address of which no notice was given, notice shall be effective upon the date such delivery was attempted.

Where provision is made for the attention of an individual or department, the notice shall be effective only if the wrapper in which such notice is sent is addressed to the attention of such individual or department.

Any notice given by an attorney on behalf of Landlord or by Landlord’s managing agent shall be considered as given by Landlord and shall be fully effective.

Time is of the essence with respect to any and all notices and periods for giving of notice or taking any action thereto under this Lease.

16.10WHEN LEASE BECOMES BINDING. Employees or agents of Landlord have no authority to make or agree to make a lease or any other agreement or undertaking in connection herewith. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof.

16.11PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease.

16.12RIGHTS OF MORTGAGEE. This Lease shall be subject and subordinate to any mortgage now or hereafter on the Overlease Premises or the Building, or both, or any part thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof and all substitutions therefor, provided that, unless such mortgage provides by its terms that it is subordinate to this Lease, Landlord shall cause the holder of such mortgage to agree, by a written instrument in the customary form of such mortgagee, with such commercially reasonable changes as Tenant and such mortgagee agree upon, to recognize the right of Tenant to use and occupy the Premises upon the payment of rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant’s obligations hereunder. In confirmation of such subordination and recognition, Tenant shall execute and deliver promptly such instruments of subordination as such mortgagee may reasonably request, subject to the delivery by such mortgagee of the recognition agreement described in the immediately preceding sentence. In

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the event that any mortgagee or its respective successor in title shall succeed to the interest of Landlord, then this Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to such mortgagee or successor and to recognize such mortgagee or successor as its landlord. If any holder of a mortgage which includes the Premises, executed and recorded prior to the Date of this Lease, shall so elect, this Lease, and the rights of Tenant hereunder, shall be superior in right to the rights of such holder, with the same force and effect as if this Lease had been executed, delivered and recorded, or a statutory Notice hereof recorded, prior to the execution, delivery and recording of any such mortgage. The election of any such holder shall become effective upon either notice from such holder to Tenant in the same fashion as notices from Landlord to Tenant are to be given hereunder or by the recording in the appropriate registry or recorder’s office of an instrument in which such holder subordinates its rights under such mortgage to this Lease. Reference is hereby made to a certain Subordination of Mortgage and Security Agreement dated September 24, 1999 and recorded with the Suffolk County Registry of Deeds at Book 24257, Page 258 whereby the mortgage granted by the landlord under the Overlease has been subordinated to the Overlease.

16.13RIGHTS OF GROUND LESSOR. If Landlord’s interest, in property (whether land only or land and buildings) which includes the Premises is acquired by another party and simultaneously leased back to Landlord herein, the holder of the ground lessor’s interest in such lease shall enter into a recognition agreement with Tenant simultaneously with the sale and leaseback, wherein the ground lessor will agree to recognize the right of Tenant to use and occupy the Premises upon the payment of Annual Fixed Rent, Additional Rent and other charges payable by Tenant under this Lease and the performance by Tenant of Tenant’s obligations hereunder, and wherein Tenant shall agree to attorn to such ground lessor as its Landlord and to perform and observe all of the tenant obligations hereunder, in the event such ground lessor succeeds to the interest of Landlord hereunder under such ground lease.

16.14NOTICE TO MORTGAGEE AND GROUND LESSOR. After receiving notice from any person, firm or other entity that it holds a mortgage which includes the Premises as part of the mortgaged premises, or that it is the ground lessor under a lease with Landlord as ground lessee, which includes the Premises as a part of the leased premises (including the Overlease), no notice from Tenant to Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor at the address as specified in said notice (as it may from time to time be changed), and the curing of any of Landlord’s defaults by such holder or ground lessor within a reasonable time after such notice (including a reasonable time to obtain possession of the premises if the mortgagee or ground lessor elects to do so) shall be treated as performance by Landlord. For the purposes of this Section 16.14, the term “mortgage” includes a mortgage on a leasehold interest of

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Landlord (but not one on Tenant’s leasehold interest). If any mortgage is listed on Exhibit H then the same shall constitute notice from the holder of such mortgage for the purposes of this Section 16.14.

16.15ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of Landlord’s interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or ground lease on property which includes the Premises, Tenant agrees:

(a)That the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage, or the ground lessor, shall never be treated as an assumption by such holder or ground lessor of any of the obligations of Landlord hereunder, unless such holder, or ground lessor, shall, by notice sent to Tenant, specifically otherwise elect; and

(b)That, except as aforesaid, such holder or ground lessor shall be treated as having assumed Landlord’s obligations hereunder only upon foreclosure of such holder’s mortgage and the taking of possession of the Premises, or, in the case of a ground lessor, the assumption of Landlord’s position hereunder by such ground lessor. In no event shall the acquisition of title to the Building and the land on which the same is located by a purchaser which, simultaneously therewith, leases the entire Building or such land back to the seller thereof be treated as an assumption, by operation of law or otherwise, of Landlord’s obligations hereunder, but Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord’s obligations hereunder. In any such event, this Lease shall be subject and subordinate to the lease to such purchaser provided that such purchaser-lessor agrees to recognize the right of Tenant to use and occupy the Premises upon the payment of rent and all other charges payable by Tenant under this Lease and the performance by Tenant of Tenant’s obligations under this Lease. For all purposes, such seller-lessee, and its successors in title, shall be the landlord hereunder unless and until Landlord’s position shall have been assumed by such purchaser-lessor. In addition, (i) no rent payable under this Lease or under any sublease made by Tenant may be based in whole or in part on the income or profits derived from the Premises or any subleased premises except for percentage rent based on gross (not net) receipts or sales; (ii) if any lender succeeds to the Landlord’s interests under this Lease and is advised by its counsel that all or any portion of the rent payable under this Lease is or may be deemed to be unrelated business income within the meaning of the Internal Revenue Code of the 1986, as amended, or the regulations issued thereunder, such lender may elect to amend unilaterally the calculation of rents under this Lease so that none of the rents payable to lender under this Lease will constitute unrelated business income,

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provided that such amendment will not increase the Tenant’s payment obligations or other liability under this Lease or reduce the Landlord’s obligations under this Lease; and (iii) if such lender requests, Tenant will be obligated to execute any document lender may deem necessary to effect the amendment of this Lease in accordance with the foregoing subsection (ii). Further, no Annual Fixed Rent or Additional Rent may be paid by Tenant more than thirty (30) days in advance except with such lender’s prior written consent, and any such payment without such consent shall not be binding on lender.

16.16STATUS REPORT AND FINANCIAL STATEMENTS. Recognizing that Landlord may find it necessary to establish to third parties, such as accountants, banks, potential or existing mortgagees, potential purchasers or the like, the then current status of performance hereunder, Tenant, within ten (10) days after the request of Landlord made from time to time, will furnish to Landlord, or any existing or potential holder of any mortgage encumbering the Premises, the Building or the Prudential Center, or any potential purchaser of the Premises, the Building, or the Prudential Center (each an “Interested Party”) a statement of the status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. In addition, Tenant shall deliver to Landlord, or any Interested Party designated by Landlord, financial statements of Tenant, and any guarantor of Tenant’s obligations under this Lease, as reasonably requested by Landlord including, but not limited to, financial statements for the past three (3) years, provided that (i) in no event shall Landlord request such statements more often than one (1) time per calendar year, and (ii) such statements shall be requested by Landlord only in connection with a sale or financing of the Building or Landlord’s interest in the Overlease. Such financial statements shall be treated as confidential and may be disclosed only (i) as required by court order, (ii) to prospective purchasers and lenders and to financial advisors, investment bankers, lawyers and accountants, (iii) as may be required by Legal Requirements, or (iv) in connection with litigation between the parties. Any such status statement or financial statement delivered by Tenant pursuant to this Section 16.16 may be relied upon by any Interested Party. Any such status statement or financial statement delivered by Tenant pursuant to this Section 16.16 may be relied upon by any Interested Party.

16.17SELF-HELP. If Tenant shall at any time fail to make any payment or perform any act which Tenant is obligated to make or perform under this Lease and (except in the case of emergency) if the same continues unpaid or unperformed beyond applicable grace periods, then Landlord may, but shall not be obligated so to do, after ten (10) days’ notice to and demand upon Tenant, or without notice to or demand upon Tenant in the case of any emergency, and without waiving, or releasing Tenant from, any obligations of Tenant in this Lease contained, make

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such payment or perform such act which Tenant is obligated to perform under this Lease in such manner and to such extent as may be reasonably necessary, and, in exercising any such rights, pay any costs and expenses, employ counsel and incur and pay reasonable attorneys’ fees. All sums so paid by Landlord and all reasonable and necessary costs and expenses of Landlord incidental thereto, together with interest thereon at the annual rate equal to the sum of (a) the Base Rate from time to time announced by BankBoston, N.A. or its successor as its Base Rate and (b) two percent (2%) (but in no event greater than the maximum rate permitted by applicable law), from the date of the making of such expenditures by Landlord, shall be deemed to be Additional Rent and, except as otherwise in this Lease expressly provided, shall be payable to the Landlord on demand, and if not promptly paid shall be added to any rent then due or thereafter becoming due under this Lease, and Tenant covenants to pay any such sum or sums with interest as aforesaid, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the non-payment thereof by Tenant as in the case of default by Tenant in the payment of Annual Fixed Rent.

16.18HOLDING OVER. Any holding over by Tenant after the expiration of the Term of this Lease shall be treated as a tenancy at sufferance and shall be on the terms and conditions as set forth in this Lease, as far as applicable except that Tenant shall pay as a use and occupancy charge an amount equal to the greater of (x) the Annual Fixed Rent and charges for electricity and Operating Expenses, calculated (on a daily basis) at the highest rate payable under the terms of this Lease (the “Holdover Multiplied Expenses”), multiplied by 150%, plus 100% of all Additional Rent not included in the Holdover Multiplied Expenses, or (y) the fair market rental value of the Premises, in each case for the period measured from the day on which Tenant’s hold-over commences and terminating on the day on which Tenant vacates the Premises. Notwithstanding the foregoing, if such holding over continues for more than sixty (60) days, effective as of the sixty-first (61st) day, holdover rent shall increase to the greater of (x) 200% of the Holdover Multiplied Expenses due for the period immediately preceding such holding over, plus 100% of all Additional Rent not included in the Holdover Multiplied Expenses, or (y) the fair market rental value of the Premises. In addition, if Tenant holds over for sixty (60) days or more, Tenant shall save Landlord, its agents and employees harmless and will exonerate, defend and indemnify Landlord, its agents and employees from and against any and all damages (including, without limitation, reasonable attorneys’ fees) which Landlord may actually suffer by reason of any holdover by Tenant following such 60-day period (“Holdover Damages”). Nothing in the foregoing nor any other term or provision of this Lease shall be deemed to permit Tenant to retain possession of the Premises or hold over in the Premises after the expiration or earlier termination of the Lease Term. All property which remains in the Building or the Premises (i) after the expiration of this Lease or (ii) for more than ten (10) days after the early

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termination of this Lease shall, in either case, be conclusively deemed to be abandoned and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, then Landlord may receive the proceeds of such sale and apply the same, at its option against the expenses of the sale, the cost of moving and storage, any arrears of rent or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under this Lease and at law and in equity.

16.19ENTRY BY LANDLORD. Landlord, and its duly authorized representatives, shall, upon reasonable prior notice (except in the case of emergency), have the right to enter the Premises at all reasonable times (except at any time in the case of emergency) for the purposes of inspecting the condition of same and making such repairs, alterations, additions or improvements thereto as may be necessary if Tenant fails to do so as required hereunder (but the Landlord shall have no duty whatsoever to make any such inspections, repairs, alterations, additions or improvements except as otherwise provided in Sections 4.1, 4.3, 7.1 and 7.2), and, upon reasonable advance notice to Tenant, to show the Premises to prospective tenants during the twelve (12) months preceding expiration of the term of this Lease as it may have been extended and at any reasonable time during the Lease Term to show the Premises to prospective purchasers and mortgagees. Landlord acknowledges that because of the nature of the Tenant’s operation, certain limited areas of the Premises require special security arrangements, and in that regard, the Landlord and its agents shall not make entry into such areas unless accompanied by a representative of Tenant provided that: (i) Landlord and its agents may make such entry in the case of an emergency or where such a representative is not provided by Tenant after timely notice and (ii) Landlord shall not be required to abide by the special security provisions unless Tenant shall have notified Landlord in writing as to the special areas. Upon reasonable advance notice to Landlord, Tenant may change the location of such areas.

16.20TENANT’S PAYMENTS. Each and every payment and expenditure, other than Annual Fixed Rent, shall be deemed to be Additional Rent hereunder, whether or not the provisions requiring payment of such amounts specifically so state, and shall be payable, unless otherwise provided in this Lease, within ten (10) days after written demand by Landlord, and in the case of the non-payment of any such amount, Landlord shall have, in addition to all of its other rights and remedies, all the rights and remedies available to Landlord hereunder or by law in the case of non-payment of Annual Fixed Rent. Unless expressly otherwise provided in this Lease, the performance and observance by Tenant of all the terms, covenants and conditions of this Lease to be performed and observed by Tenant shall be at Tenant’s sole cost and expense. If Tenant has not objected to any statement of Additional Rent which is rendered by Landlord to Tenant within ninety (90) days after Landlord has rendered the same to Tenant, then the same shall be deemed to

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be a final account between Landlord and Tenant not subject to any further dispute. In the event that Tenant shall seek Landlord’s consent or approval under this Lease, then Tenant shall reimburse Landlord, upon demand, as Additional Rent, for all reasonable costs and expenses, including legal and architectural costs and expenses, incurred by Landlord in processing such request, whether or not such consent or approval shall be given.

16.21LATE PAYMENT. If any payment or installment of Annual Fixed Rent or Additional Rent or other amount due hereunder is not paid within ten (10) days after the date (the “Due Date”) on which the same first becomes payable under this Lease, the amount of such payment or installment shall bear interest from the Due Date through and including the date such payment or installment is received by Landlord, at a rate equal to the lesser of (i) the rate announced by Fleet National Bank (or its successor) from time to time as its prime or base rate (or if such rate is no longer available, a comparable rate reasonably selected by Landlord), plus two percent (2%), or (ii) the maximum applicable legal rate, if any. Such interest shall be deemed Additional Rent and shall be paid by Tenant to Landlord upon demand.

16.22COUNTERPARTS. This Lease may be executed in several counterparts, each of which shall be deemed an original, and such counterparts shall constitute but one and the same instrument.

16.23ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the parties hereto, Landlord’s managing agent and their respective affiliates with respect to the subject matter hereof and thereof and supersedes all prior dealings between them with respect to such subject matter, and there are no verbal or collateral understandings, agreements, representations or warranties not expressly set forth in this Lease. No subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant, unless reduced to writing and signed by the party or parties to be charged therewith.

16.24LANDLORD LIABILITY. Tenant shall neither assert nor seek to enforce any claim for breach of this Lease against any of Landlord’s assets other than Landlord’s interest in the Building, and the uncollected rents, issues and profits therein, and, subject to the rights of any mortgagee of Landlord and of Landlord to use such proceeds or awards for reconstruction, the insurance proceeds and taking awards therefor, Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord under this Lease, it being specifically agreed that neither Landlord, nor any successor holder of Landlord’s interest hereunder, nor any beneficiary of any Trust of which any person from time to time holding Landlord’s interest is Trustee, nor any such Trustee, nor any member, manager, partner, director or stockholder nor Landlord’s managing agent shall ever be personally liable for any such liability. This paragraph shall not limit any right

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that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord’s successors-in-interest, or to take any other action which shall not involve the personal liability of Landlord, or of any successor holder of Landlord’s interest hereunder, or of any beneficiary of any trust of which any person from time to time holding Landlord’s interest is Trustee, or of any such Trustee, or of any manager, member, partner, director or stockholder of Landlord or of Landlord’s managing agent, to respond in monetary damages from Landlord’s assets other than Landlord’s interest in said Building, as aforesaid. In no event shall Landlord ever be liable for any indirect or consequential damages or loss of profits or the like. In the event that Landlord shall be determined to have wrongfully withheld any consent or approval under this Lease, the sole recourse and remedy of the Tenant in respect thereof shall be to specifically enforce Landlord’s obligation to grant such consent or approval, and in no event shall the Landlord be responsible for any damages of whatever nature in respect of its failure to give such consent or approval nor shall the same otherwise affect the obligations of the Tenant under this Lease or act as any termination of this Lease. Tenant shall not be liable for any indirect or consequential damages or loss of profits or the like except as set forth in Section 16.18 in the case where Tenant holds over in the Premises after the expiration or earlier termination of this Lease, as the case may be.

16.25NO PARTNERSHIP. The relationship of the parties hereto is that of landlord and tenant and no partnership, joint venture or participation is hereby created.

16.26SECURITY DEPOSIT. Intentionally omitted.

16.27GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the law of The Commonwealth of Massachusetts, as the same may from time to time exist.

16.28SIGNAGE.

(A)Landlord shall provide building standard signage in the standard graphics for the Building listing Tenant’s names and the names of Tenant’s “key” employees on the primary directory(ies) for the Building. If the building directory is an electronic directory there shall be no limit on the number of names of Tenant’s key employees which may be listed, but if it is not an electronic directory, then the number of employees listed will not exceed twenty-five. The initial listing of Tenant’s name and the names of Tenant’s “key” employees shall be at Landlord’s expense. Any changes or additions to such
directory(ies) shall be at Tenant’s cost and expense.

(B)If Landlord elects to erect a monument sign in the lobby area or inside the galleria/arcade of the Building, without having any obligation to do so, Tenant

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shall have the right, at Tenant’s cost and expense, to include Tenant’s name on such monument sign in building standard graphics.

16.29ANTENNA AREA. Tenant shall have the right to use the Antenna Area, as hereinafter defined, to install one (1) satellite dish antenna (“Antenna”) for a period commencing as of the date that Tenant installs the Antenna, as hereinafter defined, in the Antenna Area (“Commencement Date in respect of the Antenna Area”) and terminating as of the last day of the Term, as such Term may be extended. The “Antenna Area” shall be an area on the roof of the Building designated by Landlord or, at Landlord’s election, an area on the roof of the Prudential Tower building designated by Landlord.

(A)The Annual Fixed Rent in respect of the Antenna Area shall be the Fair Market Rental Value of the Antenna Area as of the Commencement Date in respect of the Antenna Area based upon comparable satellite dish antennas on roofs of other buildings in the Prudential Center as determined by Landlord in Landlord’s reasonable discretion.

(B)Tenant shall have no obligation to pay Operating Expense Excess in respect of the Antenna Area.

(C)Landlord shall have no obligation to provide any services to the Antenna Area.

(D)Tenant shall have no right to make any changes, alterations, signs, decoration, or other improvements (which changes, alterations, signs, decoration or other improvements, together with the Antenna, are hereby collectively referred to as “Rooftop Installations”) to the Antenna Area or to the Antenna without Landlord’s prior written consent, which consent Landlord may hold it its sole discretion.

(E)Tenant shall have no right of access to the roof of the Building unless Tenant has given Landlord reasonable advance notice and unless Tenant’s representatives are accompanied by a representative of Landlord. Landlord shall provide Tenant with 24-hour access to the Antenna Area, subject to Landlord’s reasonable security procedures and restrictions based on emergency conditions and to other causes beyond Landlord’s reasonable control. Tenant shall give Landlord reasonable advance written notice of the need for access to the Antenna Area (except that such notice may be oral in an emergency), and Landlord must be present during any entry by Tenant onto the Antenna Area. Each notice for access shall be in the form of a work order referencing the lease and describing, as applicable, the date access is needed, the name of the contractor or other personnel requiring access, the name of the supervisor authorizing the access/work, the areas to which access is required, the Building common elements to be impacted (risers,

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electrical rooms, etc.) and the description of new equipment or other Rooftop Installations to be installed and evidence of Landlord’s approval thereof. In the event of an emergency, such notice shall follow within five (5) days after access to the Antenna Area.

(F)At the expiration or prior termination of Tenant’s right to use the Antenna Area, Tenant shall remove all Installations (including, without limitation, the Antenna) from the Antenna Area.

(G)Tenant shall be responsible for maintaining the Rooftop Installations and for the cost of repairing any damage to the roof of the Building caused by the installation, operation or removal of any Rooftop Installations. Tenant shall operate the Rooftop Installations in a manner which shall not interfere with other equipment on the Building or on other buildings in the Prudential Center.

(H)Tenant shall have no right to sublet the Antenna Area.

(I)No other person, firm or entity (including, without limitation, other tenants, licensees or occupants of the Building) shall have the right to benefit from the services provided by the Antenna other than Tenant.

(J)In the event that Landlord performs repairs to or replacement of the roof, Tenant shall, at Tenant’s cost, remove the Antenna until such time as Landlord has completed such repairs or replacements. Tenant recognizes that there may be an interference with Tenant’s use of the Antenna in connection with such work. Landlord shall use reasonable efforts to complete such work as promptly as possible and to perform such work in a manner which will minimize or, if reasonably possible, eliminate any interruption in Tenant’s use of the Antenna.

(K)Any services required by Tenant in connection with Tenant’s use of the Antenna Area or the Antenna shall be installed by Tenant, at Tenant’s expense, subject to Landlord’s prior approval.

(L)To the maximum extent permitted by law, all Rooftop Installations in the Antenna Area shall be at the sole risk of Tenant, and Landlord shall have no liability to Tenant in the event that any Rooftop Installations are damaged for any reason.

(M)Tenant shall take the Antenna Area “as-is” in the condition in which the Antenna Area is in as of the Commencement Date in respect of the Antenna Area.

(N)Tenant shall comply with all applicable Legal Requirements and Insurance Requirements in Tenant’s use of the Antenna Area and the Antenna.

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(O)Landlord shall have the right, upon thirty (30) days notice to Tenant, to require Tenant to relocate the Antenna Area to another area (“Relocated Rooftop Area”) on the roof of the Building (or the Prudential Tower, at Landlord’s election) suitable for the use of the Rooftop Installations. In such event, Tenant shall at Landlord’s cost and expense, on or before the thirtieth (30^th) day after Landlord gives such notice, relocate all of its Rooftop Installations from the Antenna Area to the Relocation Rooftop Area.

(P)In addition to complying with the applicable construction provisions of the Lease, Tenant shall not install or operate Rooftop Installations in any portion of the Antenna Area until (x) Tenant shall have obtained Landlord’s prior written approval of Tenant’s plans and specifications for the placement and installation of the Rooftop Installations in the Antenna Area (including, without limitation, as to size and aesthetics of such Rooftop Installations and the architectural compatibility and relationship between such Rooftop Installations and the general area of the Building and neighboring buildings), and (y) Tenant shall have obtained and delivered to Landlord copies of all required governmental and quasi-governmental permits, approvals, licenses and authorizations necessary for the lawful installation, operation and maintenance of the Rooftop Installations. The parties hereby acknowledge and agree, by way of illustration and not limitation, that Landlord shall have the right to withhold its approval of Tenant’s plans and specifications hereunder, and shall not be deemed to be unreasonable in doing so, if Tenant’s intended placement or method of installation or operation of the Rooftop Installations (i) may subject other licensees, tenants or occupants of the building, or other surrounding or neighboring landowners or their occupants, to signal interference, Tenant hereby acknowledging that a shield may be required in order to prevent such interference, tenant hereby acknowledging that a shield may be required in order to prevent such interference, (ii) does not minimize to the fullest extent practicable the obstruction of the views from the windows of the Building that are adjacent to the Rooftop Installations, if any, (iii) does not complement (in Landlord’s sole judgment, which shall not, however, require Tenant to insure unreasonable expense) the design and finish of the Building, (iv) may damage the structural integrity of the Building or the roof thereof, or (v) may constitute a violation of any consent, approval, permit or authorization necessary for the lawful installation of the Rooftop Installations.

(Q)In addition to the indemnification provisions set forth in the Lease which shall be applicable to the Antenna Area, Tenant shall, to the maximum extent permitted by law, indemnify, defend, and hold Landlord, its agents, contractors and employees harmless from any and all claims, losses, demands, actions or causes or actions suffered by any person, firm, corporation, or other entity arising from Tenant’s use of the Antenna Area.

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(R)Landlord shall have the right to designate or identify the Rooftop Installations with or by a lease or license number (or other marking) and to place such number (or marking) on or near such Rooftop Installations.

(S)Tenant recognizes that Landlord may wish to (and Landlord hereby reserves the right to) install a central Building system (the “Central Building System”) capable of, among other things, providing Tenant with the type of service (to be) provided by Tenant’s Rooftop Installations. If Landlord elects to install the Central Building System, (i) tenant shall, upon Landlord’s request and at Tenant’s expense, remove its Rooftop Installations and other Alterations (including any existing cabling) from the Building and repair any damage caused their installation or removal, (ii) Tenant may, at Tenant’s expense and subject to the provisions of this Lease (including, without limitation, subparagraph P hereof), have access to and use (and tie into) the Central Building System for the uses permitted hereunder, and (ii) commencing upon Tenant’s use of the Central Building System and continuing thereafter throughout the term, the Annual Fixed Rent payable hereunder shall be adjusted to be that which is reasonably designated by Landlord from time to time based upon Landlord’s determination of the fair market value of the access rights to the Central Building System granted herein.

16.30RULES AND REGULATIONS. Tenant will faithfully observe and comply with the reasonable rules and regulations as Landlord (or, as to the common areas and facilities of the Prudential Center, any PruOwner) hereafter at any time or from time to time may make and for which Landlord provides at least five (5) business days’ prior notice in writing to Tenant (referred to collectively herein as “Rules and Regulations”), which in the reasonable judgment of Landlord shall be necessary for the reputation, safety, care or appearance of the Building and/or the Prudential Center, or the preservation of good order therein, or the operation or maintenance of the Building and/or the Prudential Center, or the equipment thereof, or the comfort of tenants or others in the Prudential Center, provided, however, that in the case of any conflict between the provisions of this Lease and any such Rules and Regulations, the provisions of this Lease shall control, and provided further that nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease as against any other tenant and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, contractors, visitors, invitees or licensees. All Rules and Regulations shall be of general applicability to, and non-discriminatory applied against, all office tenants in the Building. Landlord initially has designated the common areas of the Building as non-smoking, and Landlord shall prohibit smoking in the 23^rd floor so long as any portion of the same is occupied by Tenant.

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EXECUTED as a sealed instrument in two or more counterparts by persons or officers hereunto duly authorized on the Date set forth in Section 1.2 above.

WITNESS:		LANDLORD:
		BP	111 Huntington Ave LLC
		By:	Boston Properties Limited Partnership, a Delaware limited partnership
			Its: Member
			By:			Boston Properties, Inc.,
						a Delaware corporation
			Its:			General Partner
							/s/ David R. Barrett
			Name:				David R. Barrett
			Its:				Senior Vice President
							Hereunto duly authorized
		TENANT:
ATTEST:		FEDERAL HOME LOAN BANK OF
		BOSTON, a Federal instrumentality
By	/s/ Gerard J. Champagne		By	/s/ Carol Whaley
Name	GERARD J. CHAMPAGNE		Name		Carol Whaley
Title	SECRETARY		Title	FIRST VICE PRESIDENT)
				HEREUNTO DULY AUTHORIZED
			By
			Name
			Title	TREASURER (OR ASSISTANT
				TREASURER)
				HEREUNTO DULY AUTHORIZED
				(CORPORATE SEAL)

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EX-10.5

EXHIBIT 10.5

MORTGAGE PARTNERSHIP FINANCE^®
INVESTMENT AND SERVICES AGREEMENT

(Participation Program Contribution)

This MORTGAGE PARTNERSHIP FINANCE (“MPF^®”)Investment and Services Agreement (the “Agreement”) is entered into as of the 20^th day of April, 2000, and is executed by the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”), a corporation organized and existing under the laws of the United States of America, having its principal office at One Financial Center, 20^th Floor, Boston, Massachusetts 02111 and the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF Provider”), a corporation organized and existing under the laws of the United States of America, having its principal office at 111 East Wacker Drive, Suite 800, Chicago, Illinois 60601.

RECITALS:

WHEREAS, the MPF Provider and Boston Bank are Federal Home Loan Banks (“FHLBs”) established under the authority of the Federal Home Loan Bank Act, 12 U.S.C. § 1421 et seq., to carry out a housing finance mission which includes supporting mortgage finance in a safe and sound manner;

WHEREAS, in support of its housing finance mission, the MPF Provider has developed the MPF Program, a financial services product whereby the MPF Provider funds residential mortgage loans (“Loans”) through its members acting as agents of the MPF Provider, or whereby the MPF Provider purchases Loans from its members, pursuant to separate Participating Financial Institution Agreements (“PFI Agreements”) with each participating member;

WHEREAS, the Boston Bank wishes to provide its members access to the MPF Program, and is therefore willing (i) to fund Loans through its members acting as its agents pursuant to the MPF Program, (ii) to purchase Loans from its members pursuant to the MPF Program, and (iii) to have the MPF Provider operate and maintain the MPF Program for the benefit of the Boston Bank, in addition to the MPF Provider and any other FHLBs that are or may participate in the MPF Program; and

WHEREAS, the MPF Provider is willing (i) to make the MPF Program available to those Boston Bank members designated by the Boston Bank, and (ii) to operate and maintain the MPF Program for the benefit of the Boston Bank as well as itself and other FHLB participants in the MPF Program, subject to the terms and conditions set forth in this Agreement; and

WHEREAS, the parties contemplate entering into a participation pooling arrangement with other FHLBs whereby each FHLB that joins in the arrangement will contribute participation interests in MPF assets to a pool and in return will receive an interest in the total pool of participation interests; such arrangement is expected to supplement rather than supersede this Agreement.

NOW THEREFORE, in consideration of the foregoing recitals, for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged and the mutual covenants and conditions herein contained, the parties hereto hereby agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

As used herein, the following terms shall have the following respective meanings:

“Administrative Costs” shall mean any and all liabilities, costs, expenses and disbursements which may be incurred or paid by the Boston Bank or the MPF Provider under or in the management of any PFI Agreement, Master Commitment, the Guides, any Loan or any Loan Documents, or any amendment, modification, supplement, restatement or waiver of any thereof, or in any action taken to collect the liabilities created under or in connection with any PFI Agreement, Master Commitment, the Guides, or any Loan or Loan Documents or to enforce or protect any collateral for such liabilities, for which no previous reimbursement has been made by or on behalf of the applicable Borrower or PFI, except those which one of the parties has specifically agreed to bear without reimbursement from the other party.

“Agency Loan” shall mean a Loan that is originated by a member of a FHLB as agent for that FHLB under the MPF Program and funded by that FHLB, and which is therefore owned by such FHLB from origination and is never owned by the member.

“Borrower” shall mean the obligor or obligors under any Loan.

“Business Day” shall mean any day that the MPF Provider is open for business.

“Clearing Account” shall mean the Boston Bank’s deposit account or accounts at the MPF Provider, pursuant to the MPF Provider standard agreement for such account(s) from time to time, for the clearing of debits and credits between the MPF Provider and the Boston Bank.

“Closed Loan” shall mean a Loan that was owned by a PFI prior to the sale of the Loan to a FHLB under the MPF Program.

“Custodian” shall mean, at any time, the custodian  to whom the MPF Provider delegates its duties and obligations under the MPF Program to hold the Loan Documents pertaining to the Program Loans.

“Customized Enhancement” shall mean a technical enhancement to the MPF Program system made at the request of an MPF Bank that solely benefits such MPF Bank.

“DDA Account” shall mean a transactional account with an MPF Bank or the MPF Provider.

“Default Rate” shall mean a rate equal to the then current 10 year U.S. Treasury note rate.

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“Designated Delivery Commitment” shall mean each Delivery Commitment entered into by the Boston Bank on any Business Day after it has given a Liquidity Option Notice to the MPF Provider.

“FHLB Guide” shall mean the Guide for the MPF Banks published by the MPF Provider detailing policy and procedures among the MPF Banks for their participation in the MPF Program, as the same may be amended  after consultation with the MPF Banks from time to time, which FHLB Guide is hereby incorporated by reference into this Agreement.

“Guides” shall mean, collectively, the Origination Guide and the Servicing Guide promulgated by the MPF Provider for the MPF Program, as the MPF Provider may revise them from time to time.

“Liquidity Option MPF Participation Agreement” shall mean that certain agreement referenced in Section 5.10.2.

“Liquidity Option Notice” shall mean a notice to MPF Provider that the Boston Bank elects to participate to the MPF Provider a 100% participation interest in the Program Loans funded or purchased under any and all Delivery Commitments issued by the Boston Bank for the balance of the Business Day, and pursuant to which notice the MPF Provider shall acquire a 100% participation in such Program Loans; such Delivery Commitments will be issued in the Boston Bank’s name and the Program Loans funded or purchased thereunder will be 100% participated to the MPF Provider pursuant to the terms of the Liquidity Option MPF Participation Agreement.

“Loan” shall mean a residential loan made by a member bank to a Borrower that is evidenced by a promissory note and secured by a mortgage lien, deed of trust, security deed or other security instrument.

“Loan Documents” shall mean, for any Loan, the note, the mortgage or other security documents executed and delivered by the applicable Borrower and all other documents evidencing or securing such Loan, as the same may be amended, supplemented, modified or restated from time to time.

“Loan Recoveries” shall mean all payments and any other sums received with respect to a Program Loan, including, but not limited to, from the disposition of any collateral for such loan. Notwithstanding the foregoing, Loan Recoveries shall not include any amounts due to the seller of a Closed Loan for payment or sums due prior to the date of the purchase of such Closed Loan by the MPF Bank.

“Note” for any Loan shall mean the promissory note from the Borrower evidencing such Loan.

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“Master Commitment” shall mean an agreement between an MPF Bank and its PFI pursuant to which the PFI agrees to originate Agency Loans for or sell Closed Loans  to such MPF Bank, credit enhance and service such Loans thereafter, in accordance with the Guides.

“Master Servicer” shall mean, at any time, the entity to which the MPF Provider delegates its duties and obligations under the MPF Program as the master servicer of  the Program Loans.

“MPF Banks” shall mean the Boston Bank and any other FHLB that has entered into an agreement with the MPF Provider to offer the MPF Program to their members.

“MPF Program” shall mean the MORTGAGE PARTNERSHIP FINANCE^® Program of the MPF Provider, which is based upon the Guides, the PFI Agreements and the Master Commitments.

“Participation Share” shall mean the MPF Provider’s pro rata participation interest in the Program Loans the Boston Bank funds or purchases under the MPF Program (which is in addition to any participation interest granted to the MPF Provider pursuant to the Liquidity Option MPF Participation Agreement).

“PFI” shall mean a member of the MPF Bank  that is a “participating financial institution” that elects to participate in the MPF Program by executing a PFI Agreement with the MPF Bank.

“Program Contribution” shall have the meaning set forth in Section 2.2.(a).

“Program Loans” shall mean Agency Loans funded or Closed Loans purchased under the MPF Program.

“Servicer” shall have the meaning set forth in the PFI Agreement.

“Termination Event” shall mean any of the following:  (a) a court of competent jurisdiction determines that the FHLBs do not have the authority to offer the MPF Program; (b) the Federal Housing Finance Board orders or otherwise causes the MPF Banks to stop offering the MPF Program; (c) legislation is enacted which withdraws the FHLBs’ authority to offer the MPF Program; or (d) the MPF Program is conclusively determined to violate consumer or other federal or relevant state laws or otherwise does not comply with applicable law in a manner that materially affects the structure or processes of the MPF Program.

“Transaction Services Fee” shall mean, at any time, the fee charged by the MPF Provider to the MPF Banks for operational support provided by the MPF Provider in connection with Program Loans owned by such MPF Banks.

Other terms used herein shall be defined as set forth in this Agreement.  Any capitalized term used herein, which is not so defined, shall have the meaning ascribed to such term in the Guides.  The singular shall include the plural as the context may require.

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ARTICLE II
TERM AND INVESTMENT SHARES

2.1.Term of Agreement.  Unless terminated earlier as provided in Section 7.2.2, the initial term of this Agreement shall be three (3) years ending on the third anniversary of the date of this Agreement and thereafter, this Agreement shall continue in force until terminated by either party giving the other ninety (90) days written notice.  Notwithstanding the foregoing, the obligations of the parties shall continue with respect to all Program Loans funded or purchased under this Agreement prior to the expiration of the initial term or any extended term, or prior to any termination pursuant to Article VII hereof.  Upon the termination of this Agreement for any reason, the Boston Bank agrees to use its best efforts to promptly return to the MPF Provider all marketing and operational materials previously provided by the MPF Provider unless other mutually acceptable arrangements have been made.

2.2.Program Contribution; Participation Share.  (a) A Program Contribution in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) is required for a FHLB to participate in the MPF Program, such Program Contribution being payable in installments as follows: (i) One Million Dollars ($1,000,000) upon the execution of a Services Agreement and (ii) Five Hundred Thousand Dollars ($500,000) upon the earlier to occur of (y) One Billion Dollars ($1,000,000,000) in Program Loans being funded or purchased under such Services Agreement or (z) the third anniversary of the execution of such Services Agreement.

(b)  In lieu of paying the Program Contribution and the Transaction Services Fee, the Boston Bank hereby agrees to grant the MPF Provider a Participation Share in the amount of a fifty percent (50%) interest in the first Five Hundred Million Dollars ($500,000,000) of Boston Bank Program Loans, and the MPF Provider agrees to acquire such Participation Share.

2.3.Option to Change Participation Share. After the earlier to occur of (i) the cumulative amount of assets transferred as a Participation Share equaling Two Hundred Fifty Million Dollars ($250,000,000), or (ii) the second anniversary of the date of this Agreement, the Boston Bank shall have the right to change the percentage of the MPF Provider’s Participation Share upon giving the MPF Provider thirty (30) days written notice, thereafter each Master Commitment executed with the  Boston Bank PFIs shall be subject to the Participation Share at the investment percentage specified in such notice (which may be zero). Subject to the provisions of Section 2.5., the MPF Provider will continue to provide operational support services for all Program Loans.

2.4.Transaction Services Fee.  Unless exempted under the provisions of Sections 2.2. or 2.5., the Boston Bank shall pay a monthly Transaction Services Fee in accordance with the schedule listed in Appendix A, to the MPF Provider as compensation for the transaction processing services to be provided to the Boston Bank, all payments to be made by the MPF Provider debiting the Boston Bank’s Clearing Account.  The Transaction Services Fee shall be calculated each month by multiplying (x) one-twelfth of the applicable annual rate by (y) the aggregate outstanding balance of the Boston Bank’s non-exempted Program Loans at the end of

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the previous month as reported by the Master Servicer.  The rates shown in Appendix A are annual rates. The rates shown in Appendix A may be adjusted annually to reflect any increases in the fees charged to the MPF Provider by the Custodian or Master Servicer.

2.5Participation Share in Lieu of Transaction Services Fee.  If the Boston Bank elects to change the Participation Share under Section 2.3, as long as the MPF Provider’s Participation Share in the Program Loans funded or purchased under Master Commitments executed after the notice period required in Section 2.3, equals or exceeds twenty-five percent (25 %), the MPF Provider will not charge the Boston Bank a Transaction Services Fee for such Program Loans, provided, however, that the MPF Provider may elect on sixty (60) days prior written notice to the Boston Bank to cease accepting a Participation Share in the Program Loans and instead to charge the Boston Bank the then applicable Transaction Services Fee for providing support services under this Agreement.

ARTICLE III
MARKETING TO BOSTON BANK PFIs

3.1.Designation of Boston Bank PFIs. The Boston Bank may market the MPF Program directly to its members or the Boston Bank may allow the MPF Provider’s MPF Marketing staff to make or participate in marketing and sales calls to those members designated by the Boston Bank.

3.2.Operational Training. From time to time the MPF Provider will provide training for those Boston Bank employees who will have responsibility for completing and administering PFI Agreements and Master Commitments in conjunction with the MPF Provider.  The training shall take place at the offices of the MPF Provider, unless the parties agree otherwise. The dates for such training shall be scheduled by mutual agreement.  The Boston Bank shall be responsible for selecting employees with adequate knowledge of the Boston Bank’s operations and systems, as well as residential mortgage originations and servicing.  The Boston Bank shall pay all travel and related expenses of its employees in connection with their attending training, and of the MPF Provider’s employees in connection with their providing training, if such training is provided at a location other than the MPF Provider’s offices.

3.3.Press Releases and Media Relations.  (a)  The MPF Provider agrees that during the term of this Agreement, it will provide the Boston Bank advance notice of all press releases and written communications with the media, concerning the Boston Bank’s or Boston Bank PFIs’ involvement with the MPF Program, and that it will not release or publish such items without the Boston Bank’s prior consent; provided however, that failure of the Boston Bank to respond to the notice of a communication by the close of the following Business Day after receipt shall be deemed to be consent to its publication.

(b)The Boston Bank agrees that during the term of this Agreement, it will provide the MPF Provider advance notice of all press releases and written communications with the media, concerning the MPF Program, and that it will not release or publish such items without the MPF

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Provider’s prior consent; provided however, that failure of the MPF Provider to respond to the notice of a communication by the close of the following Business Day after receipt shall be deemed to be consent to its publication.

ARTICLE IV
OPERATIONAL SYSTEMS

4.1.Loan Funding and Reporting Systems.  The MPF Provider shall work with the Boston Bank to develop an appropriate interface or method for receiving or sending data transmissions and reports to or from the MPF Provider.  Data regarding the Boston Bank PFIs and the Program Loans serviced by its PFIs will be processed on the same system the MPF Provider uses to process its own MPF Program data.  However, in connection with Agency Loans, the Boston Bank will be the undisclosed or disclosed principal in whose name Agency Loans will be funded.  Therefore, disclosures made to or by PFIs shall refer to the Boston Bank as the funding party notwithstanding the MPF Provider’s concurrent investment in its Participation Share of each Loan.

4.2.Program Enhancements.   The MPF Provider shall hold periodic meetings to discuss possible changes and enhancements to the MPF Program system and to prioritize the scheduling of any such enhancements.  Such meetings will be open to all FHLBs participating in the MPF Program, which wish to attend in person or telephonically.

4.3.Y2K Compliance. The MPF Provider represents and warrants to the Boston Bank that (i) the software used by the MPF Provider in providing ancillary support services with respect to the Program Loans being administered under the MPF  Program (the “Servicing Software”) will operate prior to, during and after December 31, 1999 without error relating to date data, including without limitation, date data which represents different centuries or more than one century, (ii) the Servicing Software will not operate abnormally or provide invalid or incorrect results as a result of date data representing different centuries or more than one century, (iii) the Servicing Software is designed to ensure year 2000 capability, including without limitation, date data recognition, calculations which accommodate same century and multi-century formulas and data values, and date data interface values that reflect the century, (iv) the Servicing Software will accurately and correctly manage and manipulate data involving dates, including single century formulas and multi-century formulas, and will not cause an abnormally functioning or ending scenario within the application or generate incorrect values or invalid results involving such dates, and (v) the Servicing Software will accurately process date/time data from, into and between the twentieth and twenty-first centuries, and the years 1999 and 2000, and will accurately perform leap year calculations during and for the twentieth and twenty-first century, including the leap year 2000.  Notwithstanding any other provision in this Agreement to the contrary, the MPF Provider’s liability under this Section 4.3. shall be limited to direct compensatory damages and in no event shall the MPF Provider be liable under this Section 4.3. for consequential or punitive damages (except for willful misconduct or gross negligence on the part of the MPF Provider).

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ARTICLE V
PARTICIPATION IN MPF PROGRAM

5.1.Services of the Custodian. (a) The MPF Provider shall act as the custodian for the Boston Bank with respect to all Loans funded or purchased by the Boston Bank pursuant to the MPF Program.  The MPF Provider may discharge this duty by entering into a custody agreement (a “Custody Agreement”) with Norwest Bank Minnesota, N.A. or any other entity which the MPF Provider deems qualified to act as the Custodian. Notwithstanding the MPF Provider’s delegation of its custodial obligations to the Custodian, the MPF Provider shall have direct and primary responsibility to the Boston Bank for the performance of the duties of the Custodian under the Custody Agreement.

(b)The MPF Provider shall perform or cause to be performed the following custodial duties for the Boston Bank’s Program Loans, which shall be done in compliance with the provisions of the PFI Agreements and the incorporated Guides:

(i)To hold the Loan Documents and any other documents or papers relating to a Loan deposited with the Custodian as an agent for and bailee of the Boston Bank;

(ii)To review the documents received with respect to a Loan to confirm whether they comply with the MPF Program requirements;

(iii)To provide exception reports and status reports regarding Loan Documents as provided for in the FHLB Guide;

(iv)Upon the payment in full or the purchase by a PFI of a Loan, or as needed for servicing or foreclosure purposes, to release the Loan Documents to the Servicer or notify the Servicer that the Loan Documents are no longer held by the Custodian; and

(v)To maintain or cause the Custodian to maintain customary fidelity and other insurance in connection with the performance of its obligations under the Custody Agreement.

(c)In the event that the Custodian fails to produce a Loan Document when requested by the Servicer, and provided that (i) the Custodian previously acknowledged in writing that it had possession of such Loan Document, (ii) such Loan Document is not outstanding pursuant to a prior request for release from the Servicer, and (iii) such Loan Document was held by the Custodian on behalf of the Boston Bank (a “Custodial Delivery Failure”), then the MPF Provider shall, with respect to any missing Loan Document, furnish or cause the Custodian to furnish a lost Loan Document affidavit in a form reasonably satisfactory to the Boston Bank and to indemnify (such indemnification to survive any termination of the Custody Agreement) the Boston Bank and the Servicer, and their respective designees, harmless against any and all direct liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements, including reasonable attorneys’ fees, that may be imposed on, incurred by, or asserted against it or them in any way relating to or arising out of such Custodial Delivery Failure, provided that neither the MPF Provider nor the Custodian shall be liable for consequential damages.

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(d)The MPF Provider shall forward from the Custodian, or cause the Custodian to deliver to the Boston Bank, such reports applicable to the Boston Bank’s Program Loans regarding Loan Documents received and the status of requests for missing loan files or missing documents as required to be provided in the FHLB Guide. The Custodian shall acknowledge that its holds the Loan Documents pertaining to Loans owned or held by the Boston Bank which come into its possession for the benefit of the Boston Bank, and shall dispose of the same only in accordance with instructions furnished by the MPF Provider on behalf of the Boston Bank. The Custodian shall not, however, be required to verify the validity, sufficiency or genuineness of any Loan Document.

5.2.Services of the Master Servicer. (a)   The MPF Provider shall act as the Master Servicer for the Boston Bank with respect to all Loans funded or purchased by the Boston Bank pursuant to the MPF Program.  The MPF Provider may discharge this duty by entering into a master servicing agreement (a “Master Servicing Agreement”) with Norwest Bank Minnesota, N.A. or any other entity which the MPF Provider deems qualified to act as the Master Servicer. The MPF Provider shall have direct and primary responsibility to the Boston Bank for the performance of the duties of the Master Servicer under the Master Servicing Agreement.

(b)The MPF Provider shall perform or cause to be performed the following master servicing duties, which shall be done in compliance with the provisions of the PFI Agreements, the Guides, and the Servicing Agreements:

(i)To supervise, monitor and oversee the servicing of the Loans and the performance of each Servicer of its services, duties and obligations under the Servicing Guide;

(ii)To receive and review all reports and data that are provided and are deliverable under the Servicing Guide by each Servicer:

(iii)To collect information, reconcile such information with each Servicer, and submit reports pertaining to the Loans and any funds due with respect thereto, to the Boston Bank as provided for in the FHLB Guide;

(iv)To recommend to the Boston Bank corrective action to be taken relative to any Servicer that fails to comply with the terms and conditions of the Servicing Guide with respect to defaulted Loans or the property encumbered as security for Loans;

(v)To notify the Boston Bank in the event a Servicer has materially or consistently defaulted under the Servicing Agreement or Servicing Guide and to advise the Boston Bank of its recommended response to the default, and to assist the Boston Bank in working with such Servicer to cure any such defaults expeditiously;

(vi)To maintain or cause the Master Servicer to maintain customary fidelity and other insurance in connection with the performance of the obligations under the Master Servicing Agreement;

(vii)To make its books and records relating to the services performed under the Master Servicing Agreement or those of the Master Servicer accessible for

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inspection and copying by the supervisory agents and examiners of the Federal Housing Finance Board and by the Boston Bank at any time during normal business hours.

Notwithstanding the MPF Provider’s delegation of master servicing obligations to the Master Servicer pursuant to the Master Servicing Agreement, the MPF Provider shall not be relieved from its master servicing obligations hereunder, and the MPF Provider shall remain obligated and primarily liable to the Boston Bank for the master servicing of the Loans in accordance with the provisions of this Agreement, provided, however, that the MPF Provider’s liability arising from or related to its master servicing obligations under this Section 5.2 shall be limited to solely liability resulting from the MPF Provider’s or Master Servicer’s negligence or willful misconduct.

5.3.Acknowledgements. The MPF Provider shall provide copies of the Custodian’s and Master Servicer’s acknowledgments that the Boston Bank is an intended third party beneficiary of the agreements between the Custodian and the MPF Provider and between the Master Servicer and the MPF Provider, respectively.

5.4.Approval of Boston Bank PFIs. The MPF Provider and the Boston Bank shall jointly determine the first fifteen (15) Boston Bank members through which Loans will be originated or from which Loans will be purchased pursuant to the MPF Program. Thereafter, the Boston Bank shall continue to supply the MPF Provider a copy of each member’s PFI application, or portion thereof as specified in the FHLB Guide, prior to approving any of its members as a PFI.  If the MPF Provider objects to the approval of any member as an Originator and/or Servicer within the time period provided in the FHLB Guide, then the parties agree to have the suitability of the Boston Bank member reviewed by KPMG Peat Marwick LLP or such other third party agreed to by the parties, and they both agree to abide by the determination of such auditor to either approve or deny the application of such member to become a Boston Bank PFI.  The costs of such review and recommendation shall be paid by the Boston Bank unless the parties agree otherwise.  The Boston Bank shall enter into a PFI Agreement in the form provided by the MPF Provider with each such member in order for its member to be deemed a “PFI” under this Agreement. The Boston Bank shall use the most current form of PFI Agreement as supplied to it by the MPF Provider when executing a PFI Agreement with a member.

5.5.Creditworthiness of PFIs.  Because the financial condition of a PFI may impact the quality of its servicing, the Boston Bank shall supply information as requested by the MPF Provider for evaluating the creditworthiness of each Boston Bank PFI to provide the credit enhancement required of such PFI under the MPF Program, consistent with applicable law and regulation. The Boston Bank shall promptly inform the MPF Provider or any participant in the Program Loans, of any material adverse changes in the financial condition of any Boston Bank PFIs of which it becomes aware. The Boston Bank understands and acknowledges that the performance of each PFI is a risk incident to originating or purchasing Loans pursuant to the MPF Program, and that the profitability of such investments is contingent, in part, on the creditworthiness of the PFIs.

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5.6.Training of Boston Bank PFIs.  If requested in writing by the Boston Bank, the MPF Provider shall train the personnel of the PFIs to enable them to participate in the MPF Program as Originators (defined in the Guides), sellers and Servicers in accordance with the Guides.  The costs and expenses of MPF Provider’s personnel shall be paid for by the Boston Bank for any training supplied by the MPF Provider. All PFI training materials shall be supplied by or approved by the MPF Provider.

5.7.MPF Program Materials.  Any MPF Bank may submit requests for revisions to the PFI Agreements, the Guides and other MPF Program documents at any time.  The MPF Provider may revise the form of the PFI Agreements, the Guides or any other MPF Program document at any time, provided that the effective date of changes to the Guides may be delayed to allow appropriate time for the MPF Bank and/or the PFIs to make changes to their systems.  The MPF Provider shall send revisions to the Guides directly to the Boston Bank PFIs.

5.8.Support of Boston Bank PFIs. The MPF Provider shall be responsible for providing operational support to all MPF Banks’ participating members by establishing an MPF Program Service Center (“Service Center”) that can be reached by means of toll-free telephone and facsimile numbers and will be staffed by MPF Provider personnel during such hours as may be agreed to by the parties from time to time. The MPF Provider shall ensure that the Service Center is adequately staffed to fully service the Boston Bank PFIs in a commercially reasonable manner and with no less service than the MPF Provider is providing to its own participating members. The MPF Provider shall  provide the data transmissions and reports as required by the FHLB Guide.

5.9.Execution of Master Commitments. The Boston Bank will establish the Spread Account/First Loss Account percentage, the Maximum Credit Enhancement Amount and the credit enhancement fee for each Master Commitment in accordance with the FHLB Guide, and notify the MPF Provider of the same.  The Service Center’s personnel will be responsible for entering each Master Commitment into the MPF Program system. All Participation Shares or any other participation interest shall be set for each Master Commitment and may not be changed for that Master Commitment once Program Loans have been funded or purchased thereunder, with the exception of interests created under Designated Delivery Commitments.

5.10.Delivery Commitments; Pricing.

5.10.1. Pricing of Loans.  Pursuant to the delegation of pricing authority established by the Federal Housing Finance Board in Resolution No. 99-50, dated October 4, 1999, the Boston Bank has elected to utilize the pricing methodology developed by the MPF Provider, provided that such methodology shall not be modified without prior notice to the Boston Bank.  Thus, the MPF Provider shall be responsible for the calculation and publication of the prices applicable to both Agency Loans and Closed Loans.

5.10.2.  Delivery Commitments. (a) As provided in the Guides, the MPF Provider’s Service Center will publish Rate and Fee Schedules for Agency Loans and

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Closed Loans not purchased in bulk transactions. Rate and Fee Schedules for Closed Loans purchased in bulk transactions may be calculated by the MPF Provider separately for each Delivery Commitment. Rate and Fee Schedules are subject to change as provided for in the Guides. The Boston Bank PFIs will contact the Service Center to obtain and fill Delivery Commitments. The Service Center will provide reports and loan data transmissions concerning all Delivery Commitment activities of the Boston Bank PFIs to the Boston Bank at the times and in the manner provided in the FHLB Guide.  The funding and purchasing of Program Loans will be processed through a PFI’s DDA Account with the Boston Bank. The Service Center shall compute any Pairoff Fees that are owed to the Boston Bank by any PFI and will report these amounts to the Boston Bank. The Boston Bank shall be responsible for collecting Pairoff Fees from its PFIs and disbursing the same to itself and its participants (including the MPF Provider), as applicable.

(b)(i)At any time when outstanding Program Loans funded or purchased pursuant to this Agreement (regardless of the issuance of any participation interests therein) are less than One Billion Dollars ($1,000,000,000), the Boston Bank shall have the right to identify Designated Delivery Commitments by giving a Liquidity Option Notice to the MPF Provider.  Pursuant to the issuance of such Liquidity Option Notice, the MPF Provider hereby agrees to acquire a 100% participation in the Program Loans funded or purchased under any Delivery Commitments requested by the Boston Bank’s PFIs, such Delivery Commitments shall be issued as Designated Delivery Commitments.

(ii)If outstanding Program Loans funded or purchased pursuant to this Agreement (regardless of the issuance of any participation interests therein) equal or exceed One Billion Dollars ($1,000,000,000), the MPF Provider may, at its sole discretion either accept in writing a Liquidity Option Notice from the Boston Bank and acquire a 100% participation in such Designated Delivery Commitments, or advise the Boston Bank that it elects to treat the Liquidity Option Notice as the Boston Bank’s election not to issue any Delivery Commitments for the remainder of that Business Day.  In such later case, the MPF Provider shall cancel all prices published on behalf of the Boston Bank until the next Business Day.

(iii)Any Liquidity Option Notice must be given to the MPF Provider as provided for in the FHLB Guide. The MPF Provider’s 100% participation in the Program Loans funded or purchased under Designated Delivery Commitments shall be pursuant to a Liquidity Option MPF Participation Agreement, which shall be in a form mutually acceptable to the parties.

5.11.Quality Control and Loss Mitigation.  The MPF Provider will perform the same level of quality control review and loss mitigation oversight for the Boston Bank’s Program Loans as it performs for its own Loans and will communicate the results of its quality control activities and loss mitigation oversight promptly to the persons designated by the Boston Bank to receive such reports. Consistent with applicable law and regulation, the Boston Bank agrees to

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provide information to the MPF Provider for monitoring the PFIs’ origination and servicing activities. The Boston Bank agrees to administer its PFI Agreements in accordance with their terms, including the Guides and all incorporated documents.  The Boston Bank hereby acknowledges that the MPF Provider, as the drafter of the MPF Program documents, can provide a definitive interpretation of such documents in the event of conflict with a PFI over their meaning. The obligation of the Boston Bank to manage the PFIs’ origination and servicing activities with respect to Program Loans shall survive termination of this Agreement.

5.12.Transactional Relationships.

5.12.1.  Maintenance of Accounts at the MPF Provider.  The Boston Bank will establish and maintain the Clearing Account with the MPF Provider.

5.12.2.  Funding of Payment Obligations. The MPF Provider agrees to fund its share of all Program Loans through the Boston Bank’s Clearing Account with the MPF Provider which obligation shall be fulfilled by its funding the Clearing Account with same day funds from time to time in amounts sufficient to cover its contractual obligations. The MPF Provider hereby consents to the Boston Bank withdrawing funds from the Clearing Account from time to time to satisfy the MPF Provider’s obligations to fund its share of Program Loans and any other obligation under this Agreement. The Boston Bank hereby consents to the MPF Provider withdrawing funds from the Clearing Account from time to time to satisfy the Boston Bank’s obligations to pay any fees and any other obligation under this Agreement.

5.12.3.  Interest on Clearing Account.  The MPF Provider will credit to the Boston Bank’s Clearing Account interest on the outstanding balance thereof from time to time at the rate of interest paid by the MPF Provider to all MPF Banks under the MPF Program, as the same is published in the FHLB Guide from time to time (the “MPF Bank Rate”).  Until such time as the MPF Bank Rate is published in the FHLB Guide, the MPF Bank Rate, for any day, shall be equal to the MPF Provider’s Fed Funds Rate for that day less 5 basis points (0.05%). For purposes of this Agreement, the term “Fed Funds Rate” shall mean, for any day, a rate equal to the weighted average rate the MPF Provider earns on its overnight investments in the federal funds market, determined as of the close of business for that day. In the event that any withdrawal from the Boston Bank’s Clearing Account shall cause the balance in such account to become negative, such deficit shall be deemed a loan from  the MPF Provider to the Boston Bank, payable upon demand and bearing interest at a the rate charged by the MPF Provider to all MPF Banks under the MPF Program, as the same is published in the FHLB Guide from time to time (the “MPF Bank Default Rate”). Until such time as the MPF Bank Default Rate is published in the FHLB Guide, the MPF Bank Default Rate, for any day, shall be equal to the MPF Bank Rate for that day plus 200 basis points (2.0%).

5.13.Relationship of the Parties; Restrictions on Transfers. (a) The MPF Provider or its designee will hold the Loan Documents pertaining to the Boston Bank Program Loans in the

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same manner as it holds Loan Documents pertaining to its own Program Loans.  The Boston Bank will receive and hold all receipts and collections with respect to the Program Loans funded through or purchased from the Boston Bank PFIs, for the benefit of itself, the MPF Provider and any other participants who may invest therein, in accordance with their respective interests in the Loans.  Except to the extent of its obligations under Section 5.1, the MPF Provider shall have no fiduciary duty to the Boston Bank.  Except to the extent of its obligations under Sections 6.4.1. and 7.3., the Boston Bank shall have no fiduciary duty to the MPF Provider.  The Boston Bank and the MPF Provider agree that their respective decisions to invest in their respective shares of the Program Loans to be funded or purchased under each Master Commitment shall be independent credit decisions.

(b)Notwithstanding the foregoing, the Boston Bank agrees that it will not sell or transfer any of its interests in Program Loans or its rights under this Agreement, or any portion of any thereof, except (i) to another FHLB, (ii) to an institutional third party investor approved of in writing by the MPF Provider, which approval shall not be unreasonably withheld, or (iii) to the PFIs providing the credit enhancement for such Program Loans, provided, however, servicing must be provided by a PFI or an MPF Program approved Servicer, and the Boston Bank shall continue to monitor the creditworthiness of  its PFIs and, when appropriate to protect the interests of the holders of the Program Loans, demand and hold collateral to secure any of its PFIs’ obligations under their respective PFI Agreements.  The MPF Provider will continue to provide reports defined by Master Commitment.

5.14.Memo Spread Account/First Loss Account Allocations. The MPF Provider and the Boston Bank shall each maintain their own respective loan loss reserves with respect to the Program Loans.  The Spread Account/First Loss Account for each Master Commitment (which is an off balance sheet contingent liability) will be allocated between the parties based upon their pro rata interests in such Master Commitment.

5.15.Rescission of Payments.  If all or part of any payment of Loan Recoveries or other amounts paid to the Boston Bank is rescinded or must otherwise be returned for any reason and if the Boston Bank has paid to the MPF Provider its pro rata share thereof, then the MPF Provider shall pay to the Boston Bank an amount equal to the MPF Provider’s pro rata share of the amount which was rescinded or which must be so returned by the Boston Bank in accordance with the requirements of the FHLB Guide.  The MPF Provider shall also pay to the Boston Bank any interest on such Loan Recoveries which was also rescinded or must be returned.

ARTICLE VI
REPRESENTATIONS AND COVENANTS

6.1.Participation Share and Management of Assets.

6.1.1.  Participation Share. Notwithstanding the Boston Bank obligations under Delivery Commitments to fund Agency Loans, the MPF Provider will become vested in its Participation Share in each such Agency Loan concurrent with the funding of said

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loan, and without the need for further documentation, upon the deposit by the MPF Provider of its Participation Share to the Boston Bank’s Clearing Account.  Upon purchase of each Closed Loan by the Boston Bank and the deposit by the MPF Provider of its Participation Share of such Closed Loan to the Boston Bank’s Clearing Account, the MPF Provider shall, without the need for further documentation, become vested in its Participation Share of such Closed Loan.

6.1.2.  Management of Assets. The PFIs are obligated under the terms of the PFI Agreements to perform all customary servicing functions, including loss mitigation and property disposition, with respect to the Program Loans.  The Boston Bank shall have the responsibility to protect its Program Loans by enforcing the terms of the PFI Agreement and PFIs compliance with the Guides, on behalf of itself and the MPF Provider. Except for funds received from the MPF Provider, if the Boston Bank shall in any manner receive any Loan Recoveries or property in connection with any such Loan, including but not limited to payments from PFIs or the proceeds of collateral pledged by PFIs to secure their respective obligations under PFI Agreements, the Boston Bank shall transfer to the MPF Provider its pro rata share of all such receipts as provided in the FHLB Guide.

6.1.3.  Sharing in the Assets.  The Boston Bank and MPF Provider shall be entitled to their respective pro rata shares of all principal, interest and other recoveries received relative to each of the Boston Bank Program Loans subject to their respective pro rata obligations with respect to the (i) the credit enhancement fees payable under the applicable PFI Agreement, (ii) Realized Losses defined in the applicable PFI Agreement, (iii) Agent Fees under the PFI Agreement and all other costs and expenses incurred or payable for the management of the asset, with respect to such Loan or the PFI Agreement to which such Loan relates, and (iv) Administrative Costs in connection with such dispositions that are in excess of the Spread Account/First Loss Account and the Credit Enhancement provided by the  PFI.

6.2.Risk of Loss.  (a) The Boston Bank assumes all risk of loss in connection with retaining its share of each Boston Program Loan, and its execution of each PFI Agreement and each Master Commitment except for any losses arising directly from the negligence or willful misconduct of the MPF Provider in its provision of services pursuant to this Agreement or breach of its fiduciary duties; provided, however, that such assumption of risk is not intended to waive or release the liability of any person who is not a party to this Agreement.  The Boston Bank acknowledges that it is familiar with the Guides and the FHLB Guide and the operation of the MPF Program as described therein.

(b)The MPF Provider assumes all risk of loss in connection with the investment in its Participation Share of each Boston Bank Program Loan, except for any losses arising directly from the negligence or willful misconduct of the Boston Bank in the performance of its obligations under this Agreement or breach of its fiduciary duties; provided, however, that such assumption of risk is not intended to waive or release the liability of any person who is not a party to this Agreement.

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6.3.Loan Recoveries.

6.3.1.  Application of Loan Recoveries.  All Loan Recoveries received in connection with each Loan shall be applied as provided in the Loan Documents if specific provision is made therefor, or otherwise in the following order of priority:

(a)to the payment of all Administrative Costs, if any;

(b)to the payment of any amounts payable by the Borrower pursuant to any Loan Document (other than the payment of interest or principal) to protect the interests of the holder of the Loan and to the repayment of any amount permitted to be paid by the lender under the Loan Documents and actually paid by the PFI, the Boston Bank or the MPF Provider (such as past due taxes not paid by Borrower), if any;

(c)to the payment of all interest due and payable on the Note; and

(d)to the payment of principal of the Note.

Notwithstanding any other term or condition in this Agreement, in the event that any party has advanced moneys with respect to items (a) and (b) above, the party that has advanced such fees shall be reimbursed by the other according to its pro rata share of said advances.

6.3.2.  Default by Borrowers or PFIs; Enforcement. (a) The parties are entitled to assume that no Borrower or PFI default or event which, with the giving of notice or lapse of time, or both, would constitute such a default, has occurred and is continuing unless the parties (i) have actual knowledge of such default or event, or (ii) have been notified in writing that such a default or event has occurred.

(b)Under the terms of the PFI Agreement, the PFI shall be responsible for taking whatever action that is appropriate to enforce the rights and remedies accruing on account of such Borrower default. The Boston Bank shall be responsible for taking whatever action that is appropriate to enforce the rights and remedies accruing on account of any PFI default. All related costs and expenses of such enforcement are Administrative Costs and are subject to the terms of Section 6.1.3.

(c)If any Borrower or PFI fails to pay taxes, assessments, insurance premiums or any other charges or expenditures for which such Borrower or PFI is responsible, the Boston Bank may, but shall not be required to, advance the necessary amounts or make such expenditures.

6.4.Boston Bank’s Covenants. The Boston Bank covenants and agrees as follows:

6.4.1.  Collateral for Credit Enhancement  The Boston Bank holds for its, the MPF Provider’s and any other investors’ proportional benefit the proceeds of all collateral

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provided from time to time by each Boston Bank PFI under its PFI Agreement or any other credit agreement, securing performance and payment of the credit enhancement obligations of the PFI under its PFI Agreement. The parties acknowledge that (i) a security interest in a PFI’s assets under the PFI Agreement is obtained by the incorporation by reference into that document of the PFI’s advances and security agreement executed with the Boston Bank (the “Security Agreement”), and (ii) pursuant to the Security Agreement, all collateral subject to the security interest created thereby secures all the obligations of a PFI to the Boston Bank on a pari passu basis, which include the credit enhancement and other obligations arising under the PFI Agreement and any advances made by the Boston Bank or MPF Provider, unless (x) collateral is specifically pledged to secure the PFI’s credit enhancement obligations under the PFI Agreement or some other specific obligation, and (y) the MPF Provider is notified of the specific collateral pledge, in which case, the specifically pledged collateral will first secure the specifically collateralized obligation.

6.4.2. Use of Proprietary Information and Confidentiality.  The Boston Bank has been and may hereafter be furnished with certain materials and information relating to the MPF Program that are confidential and proprietary information of the MPF Provider (collectively, the “Confidential Information”). The Boston Bank agrees (i) to keep the Confidential Information confidential using reasonable means, not less than those used to protect its own proprietary material, (ii) to not disclose the Confidential Information to any one other than (solely in connection with the MPF Program) to its officers or employees who have a need to know its contents to perform their duties for the Boston Bank and to those third party agents who have signed confidentiality agreements protecting the MPF Provider, in form and substance reasonably satisfactory to the MPF Provider, and (iii) upon completion of its use of the Confidential Information or at any time upon the MPF Provider’s request, to promptly return the Confidential Information to the MPF Provider, including all copies made thereof in any format and all notes pertaining to the same.  The Boston Bank further agrees that if it is served with process or any other governmental or regulatory request for the Confidential Information, it will immediately notify the General Counsel of the MPF Provider as provided in the FHLB Guide, prior to complying with such process, order or request, unless prohibited by applicable law, regulation or court order. The term “Confidential Information” does not include information that (a) is or becomes publicly known or enters the public domain; or (b)(i) was available to the Boston Bank prior to its disclosure to the Boston Bank by the MPF Provider or (ii) becomes available to the Boston Bank from a source other than the MPF Provider, provided that such source is not known by the Boston Bank to be subject to another confidentiality agreement with the MPF Provider.

Nothing in this Agreement in intended to limit or prohibit the Boston Bank from developing or participating in a program or offering a product that resembles or competes with the MPF Program except to the extent that Confidential Information may not be used by the Boston Bank or anyone receiving Confidential Information from the Boston Bank to develop or assist in the development of any program or product that resembles or

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competes with the MPF Program and that the use of Confidential Information is subject to the terms of this Section 6.4.2

6.4.3.Use of Intellectual Property. The MPF Provider hereby licenses to the Boston Bank the limited right to use the trademarks “MORTGAGE PARTNERSHIP FINANCE” and “MPF” (individually, a “Mark” and together, the “Marks”) subject to the following terms and conditions:

(i)The term of this license shall be the same as this Agreement. Upon termination of this license, all rights in and to the Marks shall automatically revert to the MPF Provider.

(ii)When using either of the Marks in any external communications, including letters, agreements, program descriptions and marketing materials, the Boston Bank agrees to adhere to the standards governing the use of the Marks set forth in the FHLB Guide.

(iii)The MPF Provider reserves the right to inspect or monitor the use of the Marks and the services provided in connection with the Marks to assure compliance with this Agreement and the FHLB Guide.

(iv)The Boston Bank hereby recognizes the value of the goodwill associated with the Marks and acknowledges that all rights in and to the Marks belong exclusively to the MPF Provider and that the Marks may have acquired secondary meaning in the mind of the public.  The Boston Bank agrees, during the term of this Agreement and thereafter, never to attack or assist any one else in attacking the rights of the MPF Provider in the Marks or the validity of the license of the Marks being granted herein.

6.5.Authorization and Enforceability Representations. Each of the parties hereby represents to the other party hereto that (i) all necessary corporate and other action has been taken to authorize it to execute, and to perform its obligations under, this Agreement, and (ii) all necessary regulatory approvals to engage in the MPF Program have been obtained and (iii) this Agreement is the legal, valid and binding obligation of such party, enforceable against it.

6.6.MPF Provider Representations and Warranties.  In addition to the above representations, the MPF Provider represents to the Boston Bank and warrants that the MPF Program is fully compliant with all state and federal laws, including consumer laws, and federal banking regulatory rules and regulations, except for any ruling arising in Texas Savings & Community Bankers Assoc., et al. v. Federal Housing Finance Board, Case No. A 97 CA 421SS (W. Dist. Texas).  Further, the MPF Provider represents to the Boston Bank and warrants that all copyrights, trademarks, service marks, patents and other intellectual property rights used in the MPF Program do not infringe upon the rights of any third parties.

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6.7.Boston Bank’s Indemnification Obligation. The Boston Bank acknowledges that the ability to participate in the MPF Program will be based upon its representations and warranties set forth above, and the Boston Bank agrees to indemnify, defend and hold harmless the MPF Provider, its affiliates and each stockholder, director, officer, employee and agent, if any, thereof from and against any and all loss, damage, liability or expense, including (without limitation) costs and attorneys’ fees and expenses, to which it may be put or which it may incur by reason of, or in connection with, any misrepresentation made by the Boston Bank in this Agreement, or any breach by Boston Bank of its warranties set forth in this Agreement.  The Boston Bank’s indemnification under this section does not include any loss, damage, liability or expense arising out of any litigation challenging the authority of the MPF Provider to engage in the MPF Program, including Texas Savings & Community Bankers Assoc., et al. v. Federal Housing Finance Board, Case No. A 97 CA 421SS (W. Dist. Texas).

6.8.MPF Provider’s Indemnification Obligation.  The MPF Provider agrees to indemnify, defend and hold harmless the Boston Bank, its affiliates and each stockholder, director, officer, employee and agent, if any, thereof from and against any and all loss, damage, liability or expense, including (without limitation) costs and attorney’s fees and expenses, to which it may be put or which it may incur by reason of, or in connection with, any misrepresentation made by the MPF Provider in this Agreement, or any breach by MPF Provider of its warranties set forth in this Agreement.  The indemnification under this section does not include any loss, damage, liability or expense arising out of any litigation challenging the authority of the MPF Provider to engage in the MPF Program, including Texas Savings & Community Bankers Assoc., et al. v. Federal Housing Finance Board, Case No. A 97 CA 421SS (W. Dist. Texas).

6.9.Review of Accounting Books and Records.  From time to time upon reasonable advance request, either party shall be entitled to review, at its cost, the accounting books and records of the other party with respect to the Boston Bank’s participation in the MPF Program. Both parties agree and acknowledge that the other party need not provide copies of or information pertaining to confidential bank examiner’s reports.

ARTICLE VII
TERMINATION

7.1.Events of Default.  It shall be an Event of Default under this Agreement if either party fails to perform its obligations or breaches any of its covenants under this Agreement and such failure to perform or breach is not cured (i) within sixty (60) days from the date the non-breaching party gives written notice of such default, if the default is capable of being cured within such time limit, or (ii) within a reasonable time after notice if the cure is commenced within the sixty (60) day period and diligently pursued thereafter.

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7.2.Termination and Other Remedies.

7.2.1.  Remedies for the Boston Bank’s Default.  Without limiting the effect of Section 6.7, upon the occurrence of an Event of Default caused by the Boston Bank, (i) the Boston Bank shall, at the option of the MPF Provider, cease issuing new Master Commitments under the MPF Program, provided that all other provisions of this Agreement shall remain in full force and effect for the Boston Bank’s outstanding Program Loans (including Program Loans funded or purchased under existing Master Commitments), and (ii) the Boston Bank shall pay to the MPF Provider an amount equal to the MPF Provider’s actual and direct damages arising from the Event of Default, but the Boston Bank shall have no responsibility for any consequential or punitive damages.

7.2.2.  Remedies for the MPF Provider’s Default or for a Termination Event.  Without limiting the effect of Section 6.8., upon the occurrence of an Event of Default caused by the MPF Provider or a Termination Event, (i) the Boston Bank shall have the right to cease issuing new Master Commitments, provided that all other provisions of this Agreement shall remain in full force and effect for the Boston Bank’s outstanding Program Loans (including Program Loans funded or purchased under existing Master Commitments) except (ii) the Transaction Services Fee for support services provided by the MPF Provider shall be at a rate equal to the lesser of (a) the rate described in Section 2.4., or (b) the MPF Provider’s costs of providing such services to the Boston Bank, subject however, to the provisions of Sections 5.11, 6.7. and 7.3., and (iii) the MPF Provider shall pay to the Boston Bank an amount equal to the Boston Bank’s actual and direct damages arising from the Event of Default, but the MPF Provider shall have no responsibility for any consequential or punitive damages.  For purposes of this Section 7.2.2., the MPF Provider’s costs in providing support services shall be calculated on a pro rata basis for all Loans in the MPF Program rather than on a marginal basis, and shall include all costs and expenses incurred in improving the MPF System, whether or not such charges are considered capital improvements or chargeable over more than one accounting period.

7.3.Obligations Regarding PFIs; Support for Program Loans. (a) The Boston Bank’s covenant to monitor the credit and collateral of PFIs set forth in Section 6.4. and the Boston Bank’s obligations set forth in this Section 7.3. shall apply and shall survive the expiration or termination of this Agreement as well as the sale of the Program Loans by the Boston Bank.

(b)The Boston Bank hereby acknowledges that the MPF Provider has the need to have the credit enhancement obligations of any PFI relating to Program Loans in which the MPF Provider has an interest secured if the creditworthiness of the PFI should become impaired. The Boston Bank agrees to notify the MPF Provider of any material adverse changes in the financial condition of those PFIs who provide credit enhancements for any Program Loans in which the MPF Provider has an interest, and to share relevant credit assessments and information on those PFIs with the MPF Provider.

(c)The Boston Bank agrees to call and hold for the benefit of the MPF Provider and any other participants collateral as may be necessary to secure the obligations of the Boston Bank PFIs under their respective PFI Agreements to maintain the value of such PFI obligations.

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7.4.Costs of Enforcement. Each party agrees to bear its own share of any and all liabilities, costs, expenses and disbursements (including, without limitation, reasonable attorneys’ fees and other legal expenses) incurred by it in any effort to collect any amounts payable hereunder to it by the other party.

7.5.Exculpation of Parties. Neither party nor any of its shareholders, directors, officers, employees or agents shall be liable to the other for any obligation, undertaking, act or judgment of any Borrower, any PFI, any guarantor or any other person, or be bound to ascertain or inquire as to the performance or observance by any PFI of any provision of any PFI Agreement, Master Commitment, the Guides, any Loan or any of the Loan Documents.

ARTICLE VIII
MISCELLANEOUS

8.1.Notices.  Whenever notice is required under this Agreement or by applicable law, it must be given as described in this section, unless otherwise expressly provided in this Agreement.  All demands, notices and communications under this Agreement shall be in writing (except as expressly provided in Section 8.2. below) and shall be (i) delivered in person, (ii) sent by certified United States mail, postage prepaid, return receipt requested, (iii) sent by facsimile transmission, or (iv) sent through a nationally recognized overnight delivery service, addressed at the applicable party’s address, delivery fee prepaid.  Any such notice shall be deemed delivered upon the earlier of actual receipt and, in the case of notice by United States mail, three Business Days after deposit with the United States post office, and in the case of notice by overnight courier, the Business Day immediately following the date so deposited with the overnight delivery service.

8.2.The Guides and Other Documents.  Copies of the Guides, including (without limitation) any amendments or supplements, or of any changes or pronouncements with respect thereto, shall be provided from time to time by the MPF Provider, at its option, either (a) by regular mail or otherwise, or (b) electronically to the Boston Bank.

8.3.Addresses.  For purposes of this Agreement, the address, telephone and facsimile numbers for the Boston Bank and the electronic transmission information for the Boston Bank are as set forth below its signature to this Agreement.  For purposes of this Agreement, the address, telephone and facsimile numbers for the MPF Provider and the electronic transmission information for the MPF Provider are as set forth in the FHLB Guide. Any such change must be given in writing and given in accordance with the provisions of Section 8.1 or as published in the FHLB Guide from time to time, but shall be effective only upon actual receipt.

8.4.Effect of Agreement.  The MPF Provider will have no obligation or responsibility to the Boston Bank except as specifically stated herein. This Agreement constitutes the entire agreement among the parties, and no representation, promise, inducement or statement of intent

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has been made by the MPF Provider to the Boston Bank which is not embodied in this Agreement and the incorporated FHLB Guide.

8.5.Execution in Counterparts; Facsimile Execution Permitted.  This Agreement may be executed in any number of counterparts and by the parties hereto on separate counterparts, each of which, when so executed and delivered, shall be deemed an original and all of which, taken together, shall constitute but one and the same Agreement.  The parties further agree that this Agreement and signature pages thereof may be transmitted between them by facsimile machine and that counterpart facsimile copies are included in the Agreement.  The parties intend that faxed signatures may constitute original signatures and that a faxed signature page containing the signature (original or faxed) of all parties is binding on the parties.

8.6.Governing Law.  This Agreement shall be a contract made under, and governed in every respect by, the internal laws (and not the conflicts law) of the State of Illinois and applicable federal law.

8.7.Severability of Provisions.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

8.8.Successors and Assigns.  Subject to the terms of Section 5.13., this Agreement shall be binding upon and inure to the benefit of the MPF Provider and the Boston Bank and their respective successors and permitted assigns. Nothing contained in this Agreement shall limit the right of the MPF Provider to transfer participation interests in its Participation Share in Program Loans that were funded or purchased under PFI Agreements with the Boston Bank.

8.9.Waivers and Amendments. No delay on the part of the either party in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by one party of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy.  No amendment to, modification or waiver of, or consent with respect to, any provision of this Agreement shall be effective unless in writing and executed and delivered by the MPF Provider and the Boston Bank.

8.10.References to Sections, Exhibits and Agreement; Captions.  Unless otherwise indicated either expressly or by context, any reference in this Agreement to a “Section” or “Exhibit” shall be deemed to refer to a Section of or Exhibit to this Agreement.  All references herein to this “Agreement” shall, as of any time after the date hereof, be deemed to include all amendments hereto which have been made prior to such time in accordance with Section 8.9.  Article and Section captions used in this Agreement are for convenience only, and shall not affect the construction of this Agreement.

8.11.Specific Performance.  The parties hereto recognize and agree that it may be impossible to measure in money the damages which will accrue to any party hereto or its successors or assigns by reason of a failure to perform any of the obligations arising under this

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Agreement.  Therefore, if a party or its successors or assigns shall institute any action or proceeding to enforce any provision hereof, any party against whom such action or proceeding is brought hereby agrees that specific performance may be sought and obtained for any breach of this Agreement, without the necessity of providing actual damages.

8.12.Mediation of Disputes; Jurisdiction and Venue.  (a)  Neither the Boston Bank nor the MPF Provider shall institute a proceeding before any tribunal to resolve any controversy or claim arising out of or relating to the Agreement, or the breach, termination or invalidity thereof (a “Dispute”), before such party has sought to resolve the dispute through mediation.  If the parties do not promptly agree on a mediator, either party may request the then Chairman of the Board of the Federal Housing Finance Board to appoint a mediator.  All mediation proceedings under the Agreement shall be held in Washington, D.C. or such other location as the parties may agree upon.  If the mediator is unable to facilitate a settlement of the Dispute within a reasonable time, as determined by the mediator, the mediator shall issue a written statement to the parties to that effect and the complaining party may then pursue any other remedy available to it at law or in equity.  The fees and expenses of the mediator shall be paid by the party initiating mediation, unless the parties agree otherwise.

(b)The Boston Bank hereby consents to the exercise of jurisdiction over its person and its property by any court of competent jurisdiction situated in the State of Illinois (whether it be a court of the State of Illinois or a court of the United States of America situated in Illinois) for the enforcement of this Agreement or in any other controversy, dispute or question arising hereunder, and the Boston Bank hereby waives any and all personal or other rights to object to such jurisdiction for such purposes.  The Boston Bank, for itself and its successors and assigns, hereby waives any objection which it may have to the laying of venue of any such action, suit or proceeding in any such court; provided, that the provisions of this paragraph shall not be deemed to preclude any other appropriate forum.  If such litigation is commenced at any time, the parties agree that service of process may be made, and personal jurisdiction over either party obtained, by service of a copy of the summons, complaint and other pleadings required to commence such litigation by United States certified or registered mail, return receipt requested, addressed to such party at its address for notices as provided in this Agreement.  The Boston Bank and MPF Provider waive all claims of lack of effectiveness or error by reason of any such service.

IN WITNESS WHEREOF, each of  the MPF Provider and the Boston Bank has caused this Agreement to be executed by its duly authorized officers, as of the date first above written.

MPF PROVIDER:
FEDERAL HOME LOAN BANK OF CHICAGO
By:	/s/ Kenneth L. Gould
Title:		Executive Vice President

23

BOSTON BANK:
FEDERAL HOME LOAN BANK OF BOSTON
By:	/s/ Michael L. Wilson
Title:		Senior Executive Vice President
Address:			One Financial Center, 20th Floor
			Boston, Massachusetts 02111
Attention:
Facsimile No.: (      )
Electronic Transmission:

24

APPENDIX A

Boston Bank’s Aggregate Loan Balance	Transaction Services Fee Tiered Annual % Rate		Cumulative Annual % Rate
First $100 Million	0.25	%	0.250	%
>$100 Million to $500 Million	0.17	%	0.186	%
>$500 Million to $1 Billion	0.13	%	0.158	%
>$1 Billion to $2 Billion	0.12	%	0.139	%
>$2 Billion to $4 Billion	0.11	%	0.125	%
>$4 Billion to $10 Billion	0.10	%	0.110	%
More than $10 Billion	0.10	%

25

EX-10.5.1

EXHIBIT 10.5.1

FIRST AMENDMENT TO

MORTGAGE PARTNERSHIP FINANCE^®

INVESTMENT AND SERVICES AGREEMENT

THIS FIRST AMENDMENT TO INVESTMENT AND SERVICES AGREEMENT (the “Amendment”) is made as of the 7th day of September, 2000, between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”).

RECITALS:

WHEREAS, the Boston Bank and the MPF Provider have previously entered into that certain MORTGAGE PARTNERSHIP FINANCE Investment and Services Agreement dated as of April 20, 2000 (the “Agreement”) pursuant to which the parties agreed, among other things, to make the MORTGAGE PARTNERSHIP FINANCE Program available to members of the Boston Bank; and

WHEREAS, the parties desire to amend the Agreement to modify the Participation Share provision, to reduce to zero the MPF Provider’s Participation Share in the first One Billion Dollars of Program Loans sold to the Boston Bank under the Fleet MC (hereinafter defined), and to set the MPF Provider’s Participation Share to 25% of any Program Loans sold under the Fleet MC in excess of One Billion Dollars.  Any capitalized terms not defined in this Amendment shall have the meaning assigned to them in the Agreement.

NOW THEREFORE,  in consideration of the foregoing recitals and the covenants contained herein and in the Agreement, the parties here agree as follows:

1.The Agreement is hereby amended with respect to the Fleet MC and SCRC MC, only by deleting Section 2.2 (b) in its entirety and substituting the following in its place:

(b)  In lieu of paying the Program Contribution, the Boston Bank hereby agrees to grant the MPF Provider a Participation Share in the amount of a fifty percent (50%) interest in the Program Loans purchased by the Boston Bank under that certain Master Commitment issued for an amount up to One Billion Two Hundred Million Dollars, dated August 22, 2000, to Second Charter Reinsurance Company (the “SCRC MC”), and the MPF Provider agrees to acquire such Participation Share and that no Transaction Services Fee is payable with respect to such Program Loans, provided, however, that if less than Five Hundred Million Dollars of Program Loans are acquired under the SCRC MC, then the Boston Bank agrees to grant the MPF Provider a Participation Share in the amount of a fifty percent (50%) interest in Program Loans acquired under one or more Master Commitments that in the aggregate, equal the difference between Five Hundred Million Dollars and the actual amount of Program Loans purchased by the Boston Bank under the SCRC MC, and the MPF Provider agrees to acquire such Participation Share and that no Transaction Services Fee is payable with respect to such Program Loans.  Without limiting the foregoing, the Boston Bank and the MPF Provider agree that the MPF Provider’s Participation Share with respect to the first One Billion Dollars of Program Loans purchased by the Boston Bank under the Fleet MC shall be zero but the Boston Bank hereby agrees to grant the MPF Provider a Participation Share in the amount of a

twenty-five percent (25%) interest any Program Loans purchased by the Boston Bank under the Fleet MC in excess of One Billion Dollars, and the MPF Provider agrees to acquire such Participation Share and that no Transaction Services Fee is payable with respect to such Program Loans.  The MPF Provider further acknowledges and agrees that its obligation to acquire the Participation Share described in the preceding sentence shall not be limited by or conditioned upon any requirement that the Boston Bank purchase any additional Program Loans of a type other than original MPF for FHA insured/VA guaranteed Loans.

2.The Agreement is hereby amended with respect the Fleet MC only, and not with respect to any other Master Commitments, by exempting the first One Billion Dollars of Program Loans purchased by the Boston Bank under the Fleet MC from the provisions of Section 2.4 of the Agreement.

3.The Agreement is hereby amended by adding the following definition to Article I:

“Fleet MC” shall mean that certain Master Commitment the Boston Bank entered into with Fleet National Bank, dated August 24, 2000, in an amount up to Two Billion Dollars.

4.Except for the foregoing amendment, the Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK OF CHICAGO	FEDERAL HOME LOAN BANK OF BOSTON
By:	By:
Kenneth L. Gould	Michael L. Wilson
Executive Vice President	Executive Vice President & COO

2

EX-10.5.2

EXHIBIT 10.5.2

SECOND AMENDMENT TO
MORTGAGE PARTNERSHIP FINANCE^®
INVESTMENT AND SERVICES AGREEMENT

THIS SECOND AMENDMENT TO INVESTMENT AND SERVICES AGREEMENT (the “Amendment”) is made as of the         day of May, 2001, between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”).

RECITALS:

WHEREAS, the Boston Bank and the MPF Provider have previously entered into that certain MORTGAGE PARTNERSHIP FINANCE Investment and Services Agreement dated as of April 20, 2000, amended by First Amendment dated  September 7, 2000 (together, the “Agreement”) pursuant to which the parties agreed, among other things, to make the MORTGAGE PARTNERSHIP FINANCE (“MPF”) Program available to members of the Boston Bank; and

WHEREAS, the parties desire to amend the Agreement to modify the Participation Share provision, to reduce to zero the MPF Provider’s Participation Share in the Program Loans sold to the Boston Bank under the Shorted MCs (hereinafter defined), and to increase by a corresponding amount the MPF Provider’s Participation Share in the Program Loans sold under the Increased MCs (hereinafter defined).  Any capitalized terms not defined in this Amendment shall have the meaning assigned to them in the Agreement.

NOW THEREFORE,  in consideration of the foregoing recitals and the covenants contained herein and in the Agreement, the parties here agree as follows:

1.             The Agreement is hereby amended with respect to the Shorted MCs and Increased MCs, but not with respect to any other Master Commitments, by amending Sections 2.3 and 2.5 so that the Shorted MCs shall be excluded from the grant by the Boston Bank of a Participation Share to the MPF Provider, and the MPF Provider shall waive its rights (i) to receive a Participation Share in the Shorted MCs and (ii) to be paid a Transaction Services Fee with respect to the Program Loans delivered under the Shorted MCs.

2.             From Time to time, the Boston Bank anticipates executing various Master Commitments that do not conform to the established MPF Product requirements (each, a “Shorted MC” and collectively, the “Shorted MCs”). Shorted MCs shall be identified by using the “Master Commitment Participation Form” in the form of Exhibit A attached hereto. The MPF Provider is willing to consent to such non-conforming Shorted MCs provided that (i) its Participation Share therein be reduced to zero and  (ii) the Boston Bank grant increased Participation Shares in other Master Commitments to make up for the amount of the Participation Share that would otherwise have been granted to the MPF Provider with respect to the Shorted MCs had the MPF Provider received the amount of the Participation Share it is entitled to receive under Sections 2.2 and 2.5 of the Agreement (such. amount  referred to herein as the “Forgone Participation Amount”).

3.             Commencing with the third month following the first delivery of Program Loans under the first Shorted MC, and each 90 days thereafter, until the final amount of Program Loans

delivered under the Shorted MCs has been determined, the MPF Provider shall determine the aggregate Forgone Participation Amount, and the Boston Bank shall deliver a notice or direction increasing the MPF Provider’s Participation Share of existing Master Commitments and/or new Master Commitments (each, an “Increased MC” and collectively, the “Increased MCs”) which increased aggregate amount of  the Participation Shares are estimated to equal, when the Shorted MCs and Increased MCs have been filled, the aggregate Forgone Participation Amount. Increased MCs shall be identified by using the “Master Commitment Participation Form” in the form of Exhibit A attached hereto.

4.             The parties acknowledge that adjustments of the percentage of the Participation Share to reflect the Forgone Participation Amount will be an ongoing process given that participation percentages must be set from time to time before the parties can know the amount of Program Loans that will actually be delivered under the Shorted MCs and/or the Increased MCs. The parties agree to use good faith making periodic adjustments to the Participation Share granted under the Increased MCs so as to come as close as possible each quarter to putting the parties in the same relative position that they would have been, in terms of aggregate interests in Boston Bank Program Loans, had they followed the provisions of Sections 2.2 and 2.5 of the Agreement. The MPF Provider shall provide a written reconciliation upon request of the Boston Bank.

5.             Except for the foregoing amendment, the Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK OF CHICAGO		FEDERAL HOME LOAN BANK OF BOSTON
By:	/s/ KENNETH L. GOULD	By:	/s/ MICHAEL L. WILSON
Kenneth L. Gould		Michael L. Wilson
Executive Vice President		Executive Vice President & COO

2

EXHIBIT A

Master Commitment Participation Form
(for Shorted MC or Increased MC subject to the Second Boston Amendment)

MPF Bank - Owner: Federal Home Loan Bank of Boston

PFI Name:

PFI Number:

Master Commitment Number:

Master Commitment Participation allocation:

MPF Bank:		Authorized Signature:	Date:
By signing below the Federal Home Loan Bank of Boston agrees that the Master Commitment referenced in this Participation Form is subject to the terms of the Second Amendment to Investment and Services Agreement between the Federal Home Loan Bank of Boston and the Federal Home Loan Bank of Chicago (the “Second Boston Amendment”).
Boston:	%
Atlanta:	%
Chicago:	%
Cincinnati:	%
Dallas:	%
Des Moines:	%
Indianapolis:	%
New York:	%
Pittsburgh:	%
Topeka:	%
San Francisco:	%
Seattle:	%

By signing below the MPF Provider agrees that the Master Commitment referenced in this Participation Form is subject to the terms of the Second Boston Amendment.

MPF Provider Acknowledgment:
Name	Date

3

EX-10.5.3

EXHIBIT 10.5.3

THIRD AMENDMENT TO
MORTGAGE PARTNERSHIP FINANCE^®
INVESTMENT AND SERVICES AGREEMENT

THIS THIRD AMENDMENT to INVESTMENT AND SERVICES AGREEMENT (“Third Amendment”) is made as of the           day of March 18, 2003, between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”).

RECITALS:

WHEREAS, the Boston Bank and the MPF Provider have previously entered into that certain MORTGAGE PARTNERSHIP FINANCE Investment and Services Agreement dated as of April 20, 2000, amended by First and Second Amendments dated September 7, 2000 and May 18, 2001, a Custody Amendment dated November 14, 2001, and a Custody Amendment dated December 31, 2002 (together, the “I&S Agreement”) pursuant to which the parties agreed, among other things, to make the MORTGAGE PARTNERSHIP FINANCE (“MPF”) Program available to members of the Boston Bank; and

WHEREAS, the Boston Bank and the MPF Provider wish to modify the terms of the I&S Agreement regarding the amount of the Transaction Services Fee to be paid by the Boston Bank and to extend the term of the I&S Agreement in the manner set forth below.

NOW THEREFORE, in consideration of the foregoing recitals and the covenants contained herein, the parties here agree as follows:

1.  The I&S Agreement is hereby modified by deleting the first sentence of Section 2.1 Term of Agreement and substituting the following therefor: “Unless terminated earlier as provided in Section 7.2.2, the initial term of this Agreement shall be four (4) years ending on the fourth anniversary of the date of this Agreement and thereafter, this Agreement shall continue in force until terminated by either party giving the other party ninety (90) days written notice.”

2.  Section 2.4 of the I&S Agreement is hereby amended so that no Transaction Services Fee shall become due or payable under the I&S Agreement through December 31, 2003.

3.   Except for the terms of this Third Amendment, the I&S Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Third Amendment to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK OF CHICAGO		FEDERAL HOME LOAN BANK OF BOSTON
By:	/s/ Kenneth L. Gould	By:	/s/ M. Susan Elliott
	Executive Vice President
		Name:			M. Susan Elliott
		Title:		Executive Vice President

“MORTGAGE PARTNERSHIP FINANCE” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.

EX-10.5.4

EXHIBIT 10.5.4

FOURTH AMENDMENT TO
MORTGAGE PARTNERSHIP FINANCE^®
INVESTMENT AND SERVICES AGREEMENT

THIS FOURTH AMENDMENT TO MORTGAGE PARTNERSHIP FINANCE INVESTMENT AND SERVICES AGREEMENT (the “Amendment”) is made as of the 21^st day of January, 2004, between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”).

RECITALS:

WHEREAS, the Boston Bank and the MPF Provider have previously entered into that certain MORTGAGE PARTNERSHIP FINANCE Investment and Services Agreement dated as of April 20, 2000, amended by First Amendment dated September 7, 2000,a Second Amendment dated May 18, 2001, Custody Amendments dated November 14, 2001 and December 31, 2002, and a Third Amendment dated March 18, 2003 (together, the “Agreement”) pursuant to which the parties agreed, among other things, to make the MORTGAGE PARTNERSHIP FINANCE Program available to members of the Boston Bank; and

WHEREAS, the Agreement currently prohibits changing the participation interests in any Master Commitment once Program Loans have been delivered under such Master Commitment; and

WHEREAS, the parties desire to amend the Agreement to extend the term, to allow the Boston Bank’s retained interest and the MPF Provider’s Participation Share in the Program Loans to vary for different Delivery Commitments within a Master Commitment and also to change the method for assessing, and the rate for, the Services Transaction Fee.

NOW THEREFORE, in consideration of the foregoing recitals and the covenants contained herein and in the Agreement, the parties here agree as follows:

1.The Agreement is hereby modified by deleting the first sentence of Section 2.1 Term of Agreement and substituting the following in its place:

Unless terminated earlier as provided in Section 7.2.2, the initial term of this Agreement shall be six (6) years ending on the sixth anniversary of the date of this Agreement and thereafter, this Agreement shall continue in force until terminated by either party giving the other party ninety (90) days written notice.

2.Section 2.3 of the Agreement is hereby deleted in its entirety and the following substituted in its place:

2.3Option to Change Participation Share.  Commencing January 1, 2004, the Boston Bank shall have the right to change the percentage of the MPF Provider’s Participation Share in Program Loans to be acquired by the Boston Bank under a Master Commitment by giving the MPF Provider prior

written notice in the form of the Direction described in Section 5.9 (as amended) to be effective on the date specified in such Direction (“Effective Date”).  Subject to the provisions of Sections 2.4. and 2.5., the MPF Provider will continue to provide operational support services for all Program Loans.

3.Section 2.4 of the Agreement is hereby deleted in its entirety and the following substituted in its place:

2.4.  Transaction Services Fee.

(a)Commencing in February, 2004, the Boston Bank shall pay a monthly Transaction Services Fee to the MPF Provider as compensation for the transaction processing services to be provided to the Boston Bank, all payments to be made by the MPF Provider debiting the Boston Bank’s Clearing Account.

(b)The Transaction Services Fee shall be calculated each month by multiplying (x) one-twelfth of the applicable annual rate by (y) the aggregate outstanding balance of the Boston Bank’s retained interest in the Covered Loans at the end of the previous month as reported by the Master Servicer.  The annual rate for the Transaction Services Fee applicable to a Covered Loan shall apply for the life of the loan.

(c)The annual rate applicable to Covered Loans acquired by the Boston Bank in 2004 and 2005 is 5 basis points (0.05%).

(d)For calendar year 2006 and subsequent years, the MPF Provider shall, on or before June 30, 2005, and each June 30 thereafter, inform the Boston Bank in writing of the annual rate for the Transaction Services Fee applicable to the Covered Loans that will be acquired by the Boston Bank during the next succeeding calendar year.

(e)It is understood that Program Loans purchased by the Boston Bank before January 1, 2004 will not be subject to a Transaction Services Fee for the life of such Program Loans.

(f)Notwithstanding clauses (c) and (d) above, if at any time the MPF Provider shall charge a lower Transaction Services Fee to any other Federal Home Loan Bank on the basis of volume discounts or otherwise, such lower fee shall be extended to the Boston Bank on the same terms and conditions.

4.Section 2.5 of the Agreement is hereby deleted in its entirety and the following substituted in its place:

2.5.Covered Loans.   The Program Loans funded or purchased by the Boston Bank after January 1, 2004, (“Covered Loans”) will be subject to the Transaction Services Fee as provided in Section 2.4 of this Agreement, excluding, however, those Program Loans that the parties agree in writing to exempt from being subject to the Transaction Services Fee.

5.Section 5.9 of the Agreement is hereby amended by deleting the last sentence thereof in its entirety and substituting the following in its place:

2

All Participation Shares or any other participation interest shall be set for each Master Commitment when activated on the MPF Provider system, and may be changed thereafter (i) by the Boston Bank’s delivery to the MPF Provider of a Direction in the form attached hereto as Appendix A (as amended), directing the MPF Provider to change participation interests in the specified Master Commitment(s) for Delivery Commitments issued after the Effective Date of such Direction, or (ii) by the issuance of Designated Delivery Commitments. Any Direction which increases the MPF Provider’s Participation Share must be accepted in writing by the MPF Provider, and any Direction which changes the interest of any other MPF Bank, must be signed by such other MPF Bank as well as the Boston Bank.

6.Appendix A to the Agreement is hereby amended by deleting it in its entirety and by substituting in its place Exhibit A attached to this Amendment.

7.Any capitalized terms not defined in this Amendment shall have the meaning assigned to them in the Agreement. Except for the foregoing amendments, the Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK OF CHICAGO		FEDERAL HOME LOAN BANK OF BOSTON
By:	/s/ Thomas D. Sheehan	By:	/s/ Michael L. Wilson
Thomas D. Sheehan
Senior Vice President		Name:			Michael L. Wilson
		Title:		Senior Executive Vice President

3

EXHIBIT A TO FIRST AMENDMENT
APPENDIX A
DIRECTION

Date:	Master Commitment No.
Effective Date:	PFI Name:

To:  FEDERAL HOME LOAN BANK OF CHICAGO, as MPF Provider

Pursuant to Section 2.3 of the Investment and Services Agreement, as amended, the Federal Home Loan Bank of Boston (“Boston Bank”) hereby directs the MPF Provider to enter the Participation Share of the MPF Provider and the pro rata percentage participation interest(s) (“Specified Interest(s)”) of the Federal Home Loan Bank(s) (“MPF Bank(s)”) named below, in the following percentage(s) set across from their respective names, with respect to the Program Loans to be funded or purchased under Delivery Commitments issued after the above Effective Date under the above referenced Master Commitment (“Subsequent DCs”), into the MPF Program origination system:

Federal Home Loan Bank:	Specified Interest:/Participation Share
Federal Home Loan Bank of Boston
Federal Home Loan Bank of Chicago
Percentage Total:	100%

This Direction constitutes the order of the Boston Bank and the MPF Bank(s) signing below to the MPF Provider to treat the MPF Provider’s Participation Share and the MPF Bank(s)’ Specified Interest(s) as the parties respective pro rata interest in the Program Loans funded or purchased under Subsequent DCs for the purposes of (i) debiting and crediting the Boston Bank’s and MPF Bank(s)’ respective Clearing Accounts with the MPF Provider, (ii) providing MPF Program reports and (iii) providing services under the I&S Agreement with respect to the subject Program Loans. Further, the MPF Bank(s) hereby authorizes the MPF Provider to send general ledger entries to its/their respective general ledger by means of electronic file reports to reflect the MPF Banks’ respective Specified Interests in the Program Loans funded or purchased under the Master Commitment.

FEDERAL HOME LOAN BANK OF BOSTON		FEDERAL HOME LOAN BANK OF CHICAGO
By:	[SPECIMEN]	By:	[SPECIMEN]
Title:		Title:
FEDERAL HOME LOAN BANK		FEDERAL HOME LOAN BANK
OF		OF
By:	[SPECIMEN]	By:	[SPECIMEN]
Title:		Title:

MORTGAGE PARTNERSHIP FINANCE^® and MPR^® are registered trademarks of the Federal Home Loan Bank of Chicago.

4

EX-10.5.5

EXHIBIT 10.5.5

CUSTODY AMENDMENT
FOR
SECOND CHARTER REINSURANCE COMPANY
MORTGAGE PARTNERSHIP FINANCE^®
INVESTMENT AND SERVICES AGREEMENT
[Affiliated Third Party Custodian]

THIS CUSTODY AMENDMENT (this “Custody Amendment”) for SECOND CHARTER REINSURANCE COMPANY to INVESTMENT AND SERVICES AGREEMENT is made as of the 31st day of December, 2001, between the FEDERAL HOME LOAN BANK OF CHICAGO (the “MPF^® Provider”) and the FEDERAL HOME LOAN BANK OF BOSTON (the “Boston Bank”).

RECITALS:

WHEREAS, the Boston Bank and the MPF Provider have previously entered into that certain MORTGAGE PARTNERSHIP FINANCE Investment and Services Agreement dated as of April 20, 2000, amended by First and Second Amendments dated September 7, 2000 and May 18, 2001, and a Custody Amendment dated November 14, 2001 (together, the “I&S Agreement”) pursuant to which the parties agreed, among other things, to make the MORTGAGE PARTNERSHIP FINANCE (“MPF”) Program available to members of the Boston Bank; and

WHEREAS, the MPF Provider is the Custodian for the Boston Bank under the terms of the I&S Agreement and has engaged a vendor to perform its duties thereunder, which vendor is named as the MPF Program Custodian (“MPF Custodian”) in the Guides; and

WHEREAS, Second Charter Reinsurance Company (the “Subject PFI”), a member of the Boston Bank and a participating financial institution in the MPF Program, has requested the Boston Bank to permit Treasury Bank, N.A. (the “Custodian”) to serve as custodian for the Collateral Files for those Mortgages (the “Collateral Files”) which the Subject PFI will deliver to or service for the Boston Bank (the “Subject Mortgages”) pursuant to the terms of the MPF Participating Financial Institution Agreement dated July 27, 2000 between the Subject PFI and the Boston Bank, as amended (the “Subject PFI Agreement”), and the Boston Bank is willing to grant such permission (the “Consent”) if approved by the MPF Provider; and

WHEREAS, the MPF Provider is (i) willing to approve the Subject PFI’s request, and (ii) willing to engage the Custodian as a vendor pursuant to a Custody Agreement (the “Custody Agreement”) to perform the MPF Provider’s obligations as Custodian for the Collateral Files, subject to the terms and conditions of this Custody Amendment. Any capitalized terms used but not defined in this Custody Amendment shall have the meaning assigned to them in the I&S Agreement or the Subject PFI Agreement, as applicable.

NOW THEREFORE,  in consideration of the foregoing recitals and the covenants contained herein, the parties here agree as follows:

1.The MPF Provider shall approve the Subject PFI’s request for Treasury Bank, N.A. to serve as Custodian for the Collateral Files provided that the Boston Bank and the Subject PFI amend the Subject PFI Agreement to provide that a breach by the Custodian of the Custody Agreement shall constitute a breach by the Subject PFI of the Subject PFI Agreement, and that the obligations of the Custodian under the Custody Agreement shall be secured in the same manner as all PFI obligations arising under the Subject PFI Agreement.

2.If the Boston Bank determines for any reason that the Custodian should not continue to serve as an approved MPF custodian, the Boston Bank may request that the Custodian’s custodial duties be terminated, but in any event will provide the MPF Provider with relevant information.  The MPF Provider will terminate the Custody Agreement upon review of such information.  In the event the Custody Agreement is terminated by the MPF Provider solely because of the request of the Boston Bank, the Boston Bank will reimburse the MPF Provider for any actual out-of-pocket costs which the MPF Provider may incur as a result of such termination for which the MPF Provider is not made whole by the Custodian.

3.The Boston Bank agrees that, should a custody default as determined by the MPF Provider occur with respect to the Subject Mortgages due to a breach of the Custodian’s obligations under the Custody Agreement, the Boston Bank shall first enforce the terms of the Subject PFI Agreement with respect to such breach of the Custody Agreement. The Boston Bank shall pursue such enforcement efforts in the same manner and with the same diligence

as it would exercise for any obligation of the Subject PFI to the Boston Bank.  Although the Boston Bank is not required to exhaust all available remedies, its enforcement effort should include the most appropriate of the full range of remedies available under the Subject PFI Agreement which include, without limitation, realizing upon collateral pledged by the Subject PFI. The Boston Bank shall look to the MPF Provider for indemnification with respect to a default by the Custodian, and the MPF Provider shall remain liable under the I&S Agreement (as amended by this Custody Agreement) for such indemnification, only after the Boston Bank is unable, with reasonable diligence, to be made whole by the Subject PFI under the terms of the Subject PFI Agreement and the Subject PFI’s Advances Agreement referenced therein.

4.If the Custody Agreement is terminated or the Custodian is removed for any reason, upon the transfer of all Collateral Files to a successor custodian to the MPF Provider’s satisfaction, (i) the terms and conditions set forth this Custody Amendment, including the enforcement of the Subject PFI Agreement upon a custody default as provided in Paragraph 3 hereof, shall automatically terminate and shall cease to apply to any party hereto or to any custody defaults by any successor custodian; and (ii) the indemnification provisions of the I&S Agreement shall continue to be in full force and effect and unamended as if this Custody Amendment had never been executed by the parties.

5.The MPF Provider agrees that it will not object to the review and inspection by the Boston Bank of the Collateral Files and the Custodian’s custodial files or custodial operations with respect to the Mortgages.

6.Except for the terms of this Custody Amendment, the I&S Agreement remains unmodified and in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Custody Amendment to be executed by their duly authorized officers as of the date first above written.

FEDERAL HOME LOAN BANK OF CHICAGO			FEDERAL HOME LOAN BANK OF BOSTON
By:	/s/ Thomas D. Sheehan		By:	/s/ Paul T. Pouliot
		Thomas D. Sheehan
		Senior Vice President	Name:			Paul T. Pouliot
			Title:		First Vice President

“MORTGAGE PARTNERSHIP FINANCE” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.

2

EX-12

EXHIBIT 12

Federal Home Loan Bank of Boston

Computation of Ratio of Earnings to Fixed Charges

(dollars in thousands)

	Three Months Ended March 31,				Year Ended December 31,
	2005		2004		2004		2003		2002		2001		2000
Earnings
Income before assessments	$	36,224	$	37,231	$	121,994	$	124,628	$	103,173	$	156,236	$	199,235
Fixed charges	341,319		228,463		964,484		1,020,447		1,212,801		1,734,195		2,084,660
Income before assessments and fixed charges	377,543		265,694		1,086,478		1,145,075		1,315,974		1,890,431		2,283,895
Fixed Charges
Interest expense	341,015		228,156		963,299		1,019,216		1,211,715		1,733,509		2,083,994
1/3 of net rent expense (1)	304		307		1,185		1,231		1,086		686		666
Total fixed charges	$	341,319	$	228,463	$	964,484	$	1,020,447	$	1,212,801	$	1,734,195	$	2,084,660
Ratio of earnings to fixed charges	1.11		1.16		1.13		1.12		1.09		1.09		1.10

(1) Represents an estimated interest factor.

1