-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWQ+OVvWKLVE983p5qu3ZBgyjkOix7ZO+HO2sEq7Lt276Fj1B/Q566RLqmHVWJQN wPyf8wt7UVGsBJwRnGej3Q== 0000225030-96-000011.txt : 19960501 0000225030-96-000011.hdr.sgml : 19960501 ACCESSION NUMBER: 0000225030-96-000011 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960429 EFFECTIVENESS DATE: 19960429 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFL CIO HOUSING INVESTMENT TRUST CENTRAL INDEX KEY: 0000225030 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 526220193 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-78066 FILM NUMBER: 96553235 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03493 FILM NUMBER: 96552912 BUSINESS ADDRESS: STREET 1: 1717 K STREET NW STREET 2: STE 707 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2023318055 MAIL ADDRESS: STREET 1: 1717 K ST NW SUITE 707 CITY: WASHINGTON STATE: DC ZIP: 20006 485BPOS 1 As filed with the Securities and Exchange Commission on April 29, 1996 Registration No. 2-78066 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM N-1A Registration Statement Under The Securities Act of 1933 Pre-Effective Amendment No. Post-Effective Amendment No. 24 [X] and/or Registration Statement Under The Investment Company Act of 1940 Amendment No. 27 [X] ------------------------------------- Registrant's Name, Address and Telephone Number: American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust 1717 K Street, N.W. Suite 707 Washington, D.C. 20006 (202) 331-8055 Name and Address of Agent for Service: Kenneth G. Lore Swidler & Berlin, Chartered 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 Approximate Date of Proposed Public Offering: Public Offering Commenced February 9, 1983 ------------------------------- It is proposed that this filing will become effective: [X] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485 Rule 24f-2(a)(1) Declaration: An indefinite number of Units of Beneficial Interest of the Registrant are being registered by this Registration Statement pursuant to Rule 24f-2 under the Investment Company Act of 1940. Registrant's most recent Rule 24f-2 Notice was filed on February 26, 1996 and registration fees totalling $43,446.98 were paid. Future Rule 24f-2 Notices will be filed and further filing fees paid as prescribed in Rule 24f-2. AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST Registration Statement on Form N-1A CROSS REFERENCE SHEET N-1A Item No. Location - ------------- --------- PART A: PROSPECTUS Item 1. Cover Page Cover Page Item 2. Synopsis Prospectus Summary Item 3. Condensed Financial Condensed Financial Information Information Item 4. General Description of Prospectus Summary; Registrant History and Purpose; Investment Objective and Policies Investment Restrictions Risk Factors Item 5. Management of the Fund Prospectus Summary; Management; Investment Adviser Item 5A. Management's Discussion Trust Performance of Fund Performance Item 6. Capital Stock and Other Prospectus Summary; Securities Incidents of Ownership of Units Securities Offered; Tax Status Item 7. Purchase of Securities Prospectus Summary; Being Offered Securities Offered; Sales Activities Item 8. Redemption or Repurchase Prospectus Summary; Redemption Item 9. Legal Proceedings Pendency of Legal Proceedings PART B: STATEMENT OF ADDITIONAL INFORMATION N-1A Item No. Location - -------------- -------- Item 10. Cover Page Cover Page Item 11. Table of Contents Table of Contents Item 12. General Information and History; Exemptions History from Specific Requirements of the Investment Company Act; Supplementary Information Item 13. Investment Objective and Prospectus Investment Objective and Policies and Policies; Prospectus Investment Restrictions Item 14. Management of the Management of the Trust Registrant Item 15. Control Persons and Principal Holders of Principal Holders of Securities Securities Item 16. Investment Advisory and Management of the Trust; Other Services Investment Adviser; Sales and Distribution Activities; Supplementary Information Item 17. Brokerage Allocation and Prospectus Management; Other Services Investment Adviser Item 18. Capital Stock and Other Admission to the Trust Securities Item 19. Purchase, Redemption and Sales and Distribution Activities; Pricing of Securities Being Admission to the Housing Trust; Offered Prospectus Securities Offered Item 20. Tax Status Prospectus Tax Status Item 21. Underwriters Not Applicable Item 22. Calculation of Not Applicable Performance Data Item 23. Financial Statements Financial Statements PART C: STATEMENT OF OTHER INFORMATION N-1A Item No. Location - ------------- --------- Item 24. Financial Statements and Financial Statements and Exhibits and Exhibits Item 25. Persons Controlled by or Common Control Under Common Control Item 26. Number of Holders of Number of Security Holders Securities Item 27. Indemnification Indemnification Item 28. Business and Other Connections Business and Other Connections of Investment Adviser of Investment Advisor Item 29. Principal Underwriters Not Applicable Item 30. Location of Accounts and Location of Accounts and Records Records Item 31. Management Services Not Applicable Item 32. Undertakings Not Applicable SIGNATURES Signatures AFL-CIO HOUSING INVESTMENT TRUST ------------------- PROSPECTUS ------------------- The investment objective of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust ("Trust") is to provide current income through a program of investment in construction and long-term mortgage loans and mortgage-backed securities carrying competitive market yields. The Trust invests primarily in obligations that are evidenced or secured by mortgage-backed securities, mortgages or other liens on real estate. At least 70 percent of the mortgage loans and mortgage-backed securities in which the Trust invests directly or that back other investments of the Trust are either federally insured or guaranteed or issued or guaranteed by the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). At the same time, the Trust seeks to promote important objectives of the American labor union movement by encouraging the construction of housing and by promoting additional and continuing employment for union members in the construction trades and related industries that provide materials, furnishings, appliances and services related to housing construction. The Trust proposes to achieve these union objectives by limiting investments secured by mortgaged real estate involving new construction or rehabilitation work to those in which such new construction or rehabilitation work is done by union labor. Real estate securing Trust investments will include single-family dwellings, multi-family projects, intermediate care facilities and nursing homes. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus sets forth concisely the information about the Trust that a prospective investor ought to know before investing. Investors should read and retain this Prospectus for future reference. A Statement of Additional Information about the Trust has been filed with the Securities and Exchange Commission ("SEC") and is available upon request without charge from Trust headquarters. The Statement of Additional Information, including the Trust's audited financial statements for the year ended December 31, 1995, is incorporated by reference in this Prospectus. The date of this Prospectus is April 29, 1996. The date of the Statement of Additional Information is April 29, 1996. TABLE OF CONTENTS Page Prospectus Summary.................................................... 1 Condensed Financial Information........................................ 6 History and Purpose.................................................... 7 Investment Objective and Policies...................................... 8 Investment Restrictions................................................ 23 Risk Factors........................................................... 25 Management............................................................. 34 Trust Performance...................................................... 35 Investment Adviser..................................................... 38 Incidents of Ownership of Units........................................ 39 Securities Offered..................................................... 41 Sales Activities....................................................... 45 Redemption............................................................. 46 Tax Status............................................................. 47 Pendency of Legal Proceedings.......................................... 47 NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THIS OFFERING, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THESE SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. PROSPECTUS SUMMARY The summary information below should be read in conjunction with the detailed information appearing elsewhere in this Prospectus. ISSUER The Trust is a common law trust created under the laws of the District of Columbia and sponsored by the American Federation of Labor and Congress of Industrial Organizations ("AFL-CIO"). The terms of the Trust are set forth in the Declaration of Trust as amended to date ("Declaration of Trust"). See "HISTORY AND PURPOSE." The Trust is governed by a Board of Trustees, consisting of 11 Trustees who are officers of the AFL-CIO or its member unions ("Union Trustees"); 8 Trustees who are (i) officers or management employees of one or more organizations contributing directly or indirectly through contractors to an Eligible Pension Plan (as defined below), or officers or management employees of such a Plan, or (ii) with respect to not more than 2 of such Trustees, an officer, director or trustee of an organization connected in whole or in part with the housing industry, or an elected or appointed official of the federal or any state or local government or an agency or instrumentality thereof ("Management Trustees"); and one Trustee who is neither an officer, trustee or employee of any organization that participates in the Trust ("Chairman"). The number of Management Trustees may not exceed the number of Union Trustees except in case a Trustee dies or resigns before the expiration of his or her term. See "MANAGEMENT." ELIGIBLE INVESTORS Units of beneficial interest ("Units") in the Trust are offered, without charge of any sales load or commission, only to organizations which exist for the purpose of dealing with employees regarding terms and conditions of employment, as well as any employee benefit plan or other organization affiliated with or sponsored by such an organization ("Labor Organizations") and to pension plans constituting qualified trusts under Section 401(a) of the Internal Revenue Code of 1986, as amended ("IRC") that have beneficiaries who are union members ("Eligible Pension Plans"). See "SECURITIES OFFERED" for more complete definitions. Eligible Labor Organizations include 79 national and international unions and 660 state and local central bodies directly affiliated with the AFL-CIO, the great number of local unions and state and local central bodies affiliated directly with those national and international unions, and other labor organizations. SECURITIES OFFERED Units representing interests in the Trust are offered at the Net Asset Value per Unit as of the last business day of each month ("Valuation Date") following receipt of a purchase order. A minimum initial investment of $50,000 is required. See "SECURITIES OFFERED." Securities may be issued for whole or fractional Units. Units are not transferable and are not assignable. The Trust is an open-end company but securities are redeemable in whole or fractional Units as of monthly Valuation Dates with at least 15 days prior written notice. See "REDEMPTION." Each Unit will be valued at its pro rata share of the Net Asset Value of the Trust as of the close of business on the last business day of each month. The Trust does not issue certificates evidencing ownership of Units. Units are issued and redeemed by bookkeeping entry and without physical delivery of securities. INVESTMENT OBJECTIVE The Trust's investment objective is to provide current income through investment in construction and long-term mortgage loans and mortgage-backed securities carrying competitive market yields. The Trust invests primarily in obligations that are evidenced or secured by mortgage-backed securities, mortgages or liens on real estate. At least 70% of the mortgage loans and mortgage-backed securities in which the Trust invests or that back other investments of the Trust are either federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac. Although principal and interest (base interest in the case of contingent interest mortgage loans) payments are guaranteed, the market value of such mortgage loans and securities is not guaranteed and will fluctuate. One purpose of these investments is to encourage construction of housing and thereby facilitate additional and continuing employment for union members in the construction trades and related industries. In addition, to promote its objective of encouraging union construction, the Trust may enter into pre-construction loan commitments. See "INVESTMENT OBJECTIVE AND POLICIES--Pre-construction Commitments." The Trust has been established to promote important objectives of the American labor union movement. The Trust may invest up to 100% of its assets in construction and long-term loans insured or guaranteed by the Federal Housing Administration ("FHA"), the Department of Veterans Affairs ("VA") and the Government National Mortgage Association ("Ginnie Mae") and securities that are secured by securities and/or mortgage loans issued or insured, as applicable, by FHA, VA and Ginnie Mae if the securities are rated in one of the two highest rating categories (that is, AAA or AA) of a nationally recognized rating agency. The Trust may invest up to 100% of its assets in obligations that are issued or guaranteed by Fannie Mae or Freddie Mac (including Fannie Mae mortgage-backed securities and Freddie Mac participation certificates) and in securities backed by Fannie Mae or Freddie Mac if the securities are rated in one of the two highest rating categories (that is, AAA or AA) of a nationally recognized rating agency (such obligations and securities are sometimes hereinafter referred to collectively as "Fannie Mae and Freddie Mac Investments"). Trust investments may include federal government-related, Fannie Mae, and Freddie Mac contingent interest mortgage loans. See "INVESTMENT OBJECTIVE AND POLICIES -- Contingent Interest Mortgage Loans" and "INVESTMENT OBJECTIVE AND POLICIES -- Pass-Through and Pay-Through Securities." Trust investments also may include federally insured or guaranteed mortgages or securities backed thereby and Fannie Mae and Freddie Mac Investments that include a right to require early repayment under certain circumstances. See "INVESTMENT OBJECTIVE AND POLICIES--Early Repayment Loans." The Trust may invest up to 30% of its assets in certain privately collateralized obligations and in certain qualified state and local government-related investments. See "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized Investments; State and Local Government-Related Investments." Although the Trust's Declaration of Trust authorizes the Trust to invest in a range of investments (as described above), historically the Trust has concentrated its investments in FHA-, VA- and Ginnie Mae-insured or guaranteed construction loans and in Fannie Mae and Freddie Mac investments. At December 31, 1995, such investments represented 94.5% of the Trust's total investment portfolio. The Management of the Trust intends to maximize Trust investments in such assets to the extent market conditions permit, consistent with the overall objectives of the Trust. However, there can be no assurance that this historic concentration of investments will be maintained. Pending investment in such loans and securities, assets of the Trust are held in various instruments, including United States Government issues, federal agency issues, mutual funds that invest in such securities, commercial paper, collateral loans and warehousing agreements and instruments which are liquid but which may or may not be secured by real estate or by federal guarantees or insurance. See "INVESTMENT OBJECTIVE AND POLICIES--Temporary Investments." A portion of such instruments may be managed by Wellington Management Company, an investment advisor that has been retained by the Trust to manage short-term Trust assets. See "INVESTMENT ADVISER." RISK FACTORS The Net Asset Value of each Unit will reflect the market value of the Trust's portfolio of investments. The current market value of the Trust's portfolio will fluctuate, primarily in response to changing interest rates. Generally, the market value of Trust mortgage loans, mortgage securities and other assets will fall below the principal amount of such assets at times when market interest rates rise above the interest rates on such investments. Participants who redeem Units in such circumstances will suffer the resulting loss in value of Trust assets. The Trust generally anticipates holding its mortgage investments to maturity, but mortgage investments may be sold to the extent necessary to satisfy requests for redemption, if cash is needed to fund outstanding loan commitment funding obligations, or at other times if necessary or appropriate to further the objectives of the Trust. The Trust retains the flexibility to sell all or any portion of its assets if circumstances (e.g., changed market conditions) suggest the prudence of that course. Although registered investment companies generally must value their assets and accept redemption requests daily, the Trust is permitted to value its assets and accept redemption requests no more often than quarterly, by virtue of an exemptive order received from the SEC. The Trust's Board of Trustees has implemented monthly valuations of the Trust's assets, which enables the Trust to redeem Units on a monthly, rather than quarterly, basis. Consistent with the Trust's exemptive order and its redemption procedures (see "REDEMPTION"), the Trust will invest at least 90% of the value of its assets in investments that are readily marketable and convertible into cash within 120 days without a discount from their market value (see "INVESTMENT RESTRICTIONS"). It is possible, however--due to changes in interest rates, the performance of specific properties, or general economic conditions since the monthly Valuation Date preceding a request for redemption--for the market value of an investment at the time of its liquidation to be less than its market value as of the monthly Valuation Date preceding a request for redemption. Most of the Trust's assets could be disposed of in a timeframe sufficient to meet monthly redemptions. In the event the Trust were to receive redemption requests with respect to a particular monthly Valuation Date in an amount that exceeds the amoun t of assets that the Trust could liquidate at market value prior to the applicable redemption date, the Trust would not be able to satisfy such redemption requests without liquidating certain of its assets at a discount from their market value. If such circumstances were to occur, the Trust would be unable to satisfy at least some of the redemption requests on a timely basis because the Trust would not liquidate assets at a discount from their market value. Therefore, in anticipating the availability of funds based on a redemption of Units, investors should be prepared for the possibility of a delay in the satisfaction of a monthly redemption request. Such a delay would not, however, extend more than 120 days beyond the monthly Valuation Date following the Trust's receipt of the redemption request (except to the extent it were necessary to liquidate that portion of the Trust's portfolio (up to 10%) not required to be invested in assets that are readily marketable and convertible into cash within 120 days without a discount from their market value). See "REDEMPTION." The Trust has never failed to satisfy any redemption request on a timely basis. Other risk factors relating to an investment in Units include: the possible reduction in yield caused by prepayments, a limited resale market for certain types of loans, inflation, defaults on loans, changes in ratings, lack of diversification and real estate-related risks for certain investments that are neither federally insured or guaranteed nor issued or guaranteed by Fannie Mae or Freddie Mac. For a discussion of these items, see "RISK FACTORS." INVESTMENT MANAGEMENT The Trust's Chief Executive Officer, assisted by the Financial Manager, Director of Investor Relations and the General Counsel, is responsible for the day to day administration of the Trust, including the selection of investments, other than certain short-term investments, and communication with existing and potential investors. For the fiscal year ended December 31, 1995, the Trust's personnel expenses (salaries and benefits) for all Trust officers and staff members totalled $3,118,496. See "MANAGEMENT." Set forth below is certain information regarding fund operating expenses in tabular format: Annual Fund Operating Expenses (as a percentage of average net assets) 12b-1 Fees .04% Other Expenses .47% Total Fund Operating Expenses .51% EXAMPLE 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period: $5.36 $16.08 $26.80 $53.60 The purpose of the foregoing table is to assist the investor in understanding the various costs and expenses that an investor in the Trust will bear directly or indirectly. The Trust does not charge a sales load or redemption fee on the purchase or redemption of its Units. For a more complete description of the various costs and expenses listed above, see "MANAGEMENT" and "SALES ACTIVITIES." The foregoing example should not be considered a representation of past or future expenses. Actual expenses may be greater or lesser than those shown. REDEMPTION The Trust will redeem Units after receipt of a written request for redemption. Redemptions will be made without any charge, at the Net Asset Value of each Unit, determined as of the next Valuation Date following the request. The Trust will accept a request for redemption only if received 15 days or more before the Valuation Date as of which the Net Asset Value is to be determined. It usually takes from 7 to 10 business days to calculate the Trust's Net Asset Value after a Valuation Date. Cash payment upon redemption will be made within 7 days after the Net Asset Value has been determined. See "REDEMPTION." REGISTERED INVESTMENT COMPANY The Trust has registered as an investment company under the Investment Company Act of 1940, as amended ("Investment Company Act"), and accordingly is subject to the regulatory authority of the SEC. The Trust has been exempted from certain investor protection provisions of the Investment Company Act. See "EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT" in the Statement of Additional Information. The SEC has not "approved" or "disapproved" the Units issued by the Trust or passed upon the accuracy of this Prospectus. INVESTMENT ADVISER Except with respect to certain short-term assets, the Trust operates without an investment adviser. Except with respect to such short-term assets, investment decisions are the responsibility of the Trust's Chief Executive Officer and its Financial Manager subject to the supervision and control of the Board of Trustees. Certain short-term assets are managed by Wellington Management Company, a registered investment adviser. See "INVESTMENT ADVISER." Sales of Units are effected only by representatives of the Trust. See "SALES ACTIVITIES." CONDENSED FINANCIAL INFORMATION The following information regarding per unit income and capital changes is presented here for the fiscal years ended September 30, 1986 and 1987, the 3 month period ended December 31, 1987, and the years ended December 31, 1988, 1989, 1990, 1991, 1992, 1993, 1994 and 1995. The condensed financial information has been derived from financial statements audited by KPMG Peat Marwick, the Trust's independent certified public accountants, and should be read in conjunction with the financial statements and the notes thereto. The financial statements as of December 31, 1995, and for each of the years in the 2 year period then ended, and the selected per share data and ratios for the years ended December 31, 1995, 1994, 1993, 1992, 1991, 1990 and 1989, together with the auditors' report thereon, are included in the Statement of Additional Information. The following data is presented for each unit outstanding throughout each period. [Financial information is set forth on the following pages 6-A through 6-C.]
Financial Highlights (amounts in thousands) - ------------------------------------------------------------------------------ Year Ended Year Ended Three Months Ended September 30, 1986 September 30, 1987 December 31, 1987 - ------------------------------------------------------------------------------ Net asset value, Beginning of Period 1,011.97 1,064.08 991.28 Net Investment Income 98.55 96.65 25.00 Net Gains (losses) on investments - realized and unrealized 52.11 (72.80) 17.60 Dividends (from net investment income) (98.55) (96.65) (25.00) Distributions (from capital gains) ---- ---- ---- Net Asset Value, End of Period 1,064.08 991.28 1,008.88 Total Gross Return 16.01% 2.78% 4.46%
Ratios/Supplemental Data - ------------------------------------------------------------------------------ Year Ended Year Ended Three Months Ended September 30, 1986 September 30, 1987 December 31, 1987 - ------------------------------------------------------------------------------ Net Assets, End of Period 151,269,180 186,666,594 201,924,231 Ratio of Expenses to Average Net Assets 0.8% 0.7% 0.7% Ratio of Net Income to Average Net Assets 9.2% 8.9% 9.8% Portfolio Turnover Rate 26.0% 12.0% 6.2%
Includes income distributed for the semi-annual periods ended March 31 and September 30 of each year through 1987, and June 30 and December 31 for 1988; and for the quarterly periods ended March 31, June 30, September 30, and December 31, 1989, 1990, 1991, 1992, 1993, 1994 and 1995. Average net assets were computed on the net asset value at the end of each quarter. Investments were valued quarterly through September 30, 1987. Percentages are annualized. - ------------------ Primarily as a result of fluctuations in market interest rates, the net unrealized gains (losses) on investments fluctuate from month to month. Return on investment calculated on a market value basis would consist of both net investment income and net realized and unrealized gains (losses) on investments. 6-A
Financial Highlights (amounts in thousands) - ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 1988 1989 1990 1991 - ------------------------------------------------------------------------------ Net Asset Value, Beginning of Period 1,008.88 994.27 1,056.29 1,054.91 Net Investment Income 99.12 100.22 96.89 91.99 Net Gains (losses) on investments - realized and unrealized (14.61) 62.02 (1.38) 51.99 Dividends (from net investment income) (99.12) (100.22) (96.89) (91.99) Distributions (from capital gains) --- --- --- --- Net Asset Value, End of Period 994.27 1,056.29 1,054.91 1,106.90 Total Gross Return 9.15% 17.65% 10.25% 14.90%
Ratios/Supplemental Data - ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 1988 1989 1990 1991 - ------------------------------------------------------------------------------ Net Assets, End of Period 227,570,708 284,723,220 366,147,338 528,731,177 Ratio of Expenses to Average Net Assets 0.6% 0.6% 0.6% 0.6% Ratio of Net Income to Average Net Assets 9.7% 9.7% 9.3% 8.4% Portfolio Turnover Rate 7.0% 8.6% 2.3% 9.5% Includes income distributed for the semi-annual periods ended March 31 and September 30 of each year through 1987, and June 30 and December 31 for 1988; and for the quarterly periods ended March 31, June 30, September 30, and December 31, 1989, 1990, 1991, 1992, 1993, 1994 and 1995. - ---------- Primarily as a result of fluctuations in market interest rates, the net unrealized gains (losses) on investments fluctuate from month to month. Return on investment calculated on a market value basis would consist of both net investment income and net realized and unrealized gains (losses) on investments. 6-B
Financial Highlights (amounts in thousands) - ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 1992 1993 1994 1995 - ------------------------------------------------------------------------------ Net Asset Value, Beginning of Period 1,106.90 1,086.40 1,102.58 991.40 Net Investment Income 81.54 85.93 81.66 81.12 Net Gains (Losses) on investments - realized and unrealized (20.50) 16.18 (111.18) 107.13 Dividends (from net investment income) (81.54) (83.64) (81.66) (80.77) Undistributed Investment Income --- --- --- (.35) Distributions (from capital gains) --- (2.29) --- --- Net Asset Value, End of Period 1,086.40 1,102.58 991.40 1,098.53 Total Gross Return 6.25% 10.17% (2.15%) 20.11%
Ratios/Supplemental Data - ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 19924> 1993 1994 1995 - ------------------------------------------------------------------------------ Net Assets, End of Period 661,940,825 845,793,592 935,264,189 1,166,893,471 Ratio of Expenses to Average Net Assets 0.5% 0.5% 0.5% 0.5% Ratio of Net Income to Average Net Assets 7.4% 7.5% 7.8% 7.6% Portfolio Turnover Rate 22.1% 24.2% 27.5% 31.2%
Includes income distributed for the semi-annual periods ended March 31 and September 30 of each year through 1987, and June 30 and December 31 for 1988; and for the quarterly periods ended March 31, June 30, September 30, and December 31, 1989, 1990, 1991, 1992, 1993, 1994 and 1995. Beginning as of May 21, 1992, the Trust engaged Wellington Management Company to furnish investment advisory services concerning certain short- term, liquid assets in the Trust's portfolio. See "INVESTMENT ADVISER." - ------- Primarily as a result of fluctuations in market interest rates, the net unrealized gains (losses) on investments fluctuate from month to month. Return on investment calculated on a market value basis would consist of both net investment income and net realized and unrealized gains (losses) on investments. 6-C HISTORY AND PURPOSE The Trust is a common law trust created under the laws of the District of Columbia pursuant to a Declaration of Trust originally executed September 19, 1981. The Trust is an open-end management company with a portfolio that may be either diversified or nondiversified, as it changes from time to time. The Trust has been established under the sponsorship of the AFL-CIO as an instrumentality of the United States labor union movement. The Trust acquired all the assets of the AFL-CIO Mortgage Investment Trust ("Mortgage Trust") in exchange for Units of the Trust on the basis of relative net asset values as of September 30, 1984. The exchange was approved by order of the SEC dated October 1, 1984. Trust Units received in the exchange were distributed on a pro rata basis to Mortgage Trust participants as of September 30, 1984 and the Mortgage Trust was thereupon liquidated. The Trust is a non-tax-exempt investment company operated without profit to the Trust or the AFL-CIO for funds controlled by or of interest to unions that may wish to place a portion of their assets in mortgage investments. The Trust pays expenses of trust administration but, except with respect to certain short-term assets (see "INVESTMENT ADVISER"), no investment advisor earns a profit of the sort normally taken by an investment adviser for a commercial investment company; instead the Trust distributes all net earnings on investment to Participants (as defined below). See "MANAGEMENT." The Trust increases the amount of financing available for housing and other construction projects. It thereby creates job opportunities for union labor in the construction trades and related industries and stimulates the production of housing. The Labor Organizations and Eligible Pension Plans for which the Trust is designed ("Participants") are institutional-type investors that are interested in a long-term income investment program. Units are sold without charge of any sales load or commission. Units are nonassignable and nontransferable. The minimum initial investment by any Participant is $50,000. Each Unit is valued at its pro rata share of the Net Asset Value of the Trust as of the close of business on the last business day of each month ("Valuation Date"). The Trust is an open-end investment company but Units are redeemable as of each Valuation Date with at least 15 days prior written notice. Any order to purchase or request for redemption of Units made between Valuation Dates is honored as of the next Valuation Date. See "REDEMPTION." The Trust distributes net income quarterly. See "INCIDENTS OF OWNERSHIP OF UNITS." INVESTMENT OBJECTIVE AND POLICIES GENERAL The Trust concentrates its investments in the real estate industry. For purposes of the Investment Company Act, "concentration" means more than twenty-five percent of asset value in any one industry.) The Trust invests primarily in mortgage loans and mortgage-backed securities that are secured by mortgages or liens on real estate, at least 70% of which mortgages or mortgage-backed securities acquired by the Trust or backing securities acquired by the Trust will be federally insured or guaranteed or guaranteed by Fannie Mae or Freddie Mac with respect to the payment of principal and interest, or issued by Fannie Mae or Freddie Mac. These are fundamental policies and may not be changed without the approval of the holders of a majority of the Trust's outstanding Units. The investment objective of the Trust is to earn current income through investment in construction and long-term mortgage loans and mortgage-backed securities secured by mortgages or other liens upon real estate, or by other mortgage-backed securities. The Trust will limit investments secured by mortgaged real estate involving new construction or rehabilitation work to those in which such new construction or rehabilitation work is done by union labor. The Trust will acquire only mortgages and mortgage-backed and other investments with yields competitive with those then generally prevailing on similar investments having comparable terms and conditions taking into account differences in risk including those resulting from differences in properties, borrowers and loan terms. Under existing federal housing programs, the federally insured or guaranteed mortgage loans eligible for direct purchase by the Trust are first or second mortgage loans insured by the Department of Housing and Urban Development ("HUD") acting by and through the FHA to finance the purchase and ownership of completed single-family dwellings and, in some circumstances, the construction or renovation of single-family dwellings, or to provide construction and/or permanent financing for multi-family housing projects and certain health care facilities, including hospitals, intermediate care facilities and nursing homes. These mortgage loans have maturities that range from 10 to 40 years from project completion and commencement of principal repayments. The Trust may also purchase mortgage loans guaranteed by the VA to finance the purchase of single-family dwellings. Obligations of FHA are backed by the General Insurance Fund established pursuant to the National Housing Act of 1934, as amended. Obligations of the VA are backed by the Loan Guaranty Revolving Fund. The Trust may also purchase notes or other obligations guaranteed under Section 108 of the Housing and Community Development Act of 1974, as amended ("Section 108"). Under Section 108 HUD is authorized to guaranty notes or other obligations issued by eligible public entities; the proceeds from the sale of the notes are used by such public entities for eligible community development and economic development activities, including rehabilitation of privately owned or publicly owned housing. The Trust may purchase such notes in cases where the proceeds will be used to finance the construction or rehabilitation of housing, and may invest in mortgage loans for the construction or rehabilitation of housing if such mortgage loans are guaranteed under Section 108. Section 108-guaranteed notes have terms not exceeding 20 years and bear interest rates that are generally slightly higher than rates on Treasury obligations of comparable maturity. Under Section 108, the timely payment of all principal of and interest on the guaranteed note is guaranteed by the full faith and credit of the United States. Federally guaranteed mortgage-backed certificates also are eligible for purchase by the Trust. Such certificates are issued by Ginnie Mae, a mortgage banker or other lender and carry the right to receive principal and interest payments related to payments of principal and interest under one or more identified mortgages. Full and timely payment under these mortgage-backed securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the United States. These Ginnie Mae securities are readily marketable, generally at publicly quoted prices. Such Ginnie Mae securities bear interest at rates ranging from 0.25% to 0.5% less than the whole loans backing such securities, reflecting the cost of the Ginnie Mae guarantee and servicing of the mortgages in the pool. Other investments that the Trust is authorized to make are Fannie Mae and Freddie Mac Investments, contingent interest mortgage loans, early repayment loans, pass-through and pay-through securities, construction loans secured by a bank letter of credit or other guarantee, state and local government-related investments and pre-construction commitments, in each case as described below and subject to the restrictions noted below. Certain of the Trust's authorized investments are tied to specified ratings by one or more nationally recognized statistical rating agencies. A description of Standard & Poor's Corporation ("Standard & Poor's") rating categories is included as Appendix A to the Statement of Additional Information. The rating categories of other nationally recognized statistical rating agencies are similar to those of Standard & Poor's. THE NATIONAL PARTNERSHIP FOR COMMUNITY INVESTMENT In 1993, the Trust initiated a 5 year investment initiative called The National Partnership for Community Investment ("National Partnership"). Pursuant to this initiative, the Trust expects to invest significant funds in mortgage loans and securities secured by properties located in approximately 30 major metropolitan areas and regions throughout the country. It is contemplated that an aggregate investment of approximately $500 million will be made in qualified investments over this five year period by the Trust. Through the end of 1995, the Trust committed over $406 Million in 44 National Partnership communities, assisting in the financing of over 9,700 housing units. One potential benefit to the Trust from the National Partnership initiative is expected to be larger and more diversified investment opportunities. The National Partnership initiative is also expected to benefit the nation's urban areas and create employment opportunities for union members. Each investment made by the Trust through the National Partnership program must meet the underwriting criteria established in its Declaration of Trust, and may be insured or guaranteed by the FHA, the VA, Ginnie Mae, Fannie Mae or Freddie Mac. While the investments will be consistent with the Trust's present Declaration of Trust, the National Partnership initiative will help target investments within the selected metropolitan areas, located in all regions of the country. The Trust believes this targeting will enable it to originate investments more expeditiously and at lower cost with borrowers who will better understand the Trust's investment criteria and origination and underwriting procedures. The Trust hopes to secure the involvement and assistance of local and state housing groups, labor organizations and the United States Departments of Labor and Housing and Urban Development in achieving its objectives under the National Partnership initiative. FANNIE MAE AND FREDDIE MAC INVESTMENTS The Trust may invest up to 100% of its total assets in Fannie Mae and Freddie Mac Investments, which consist of (i) obligations issued or guaranteed by Fannie Mae or Freddie Mac, including Fannie Mae mortgage-backed securities and Freddie Mac participation certificates backed by pooled conventional mortgages and (ii) securities that are backed by Fannie Mae or Freddie Mac and are, at the time of their acquisition by the Trust, rated in one of the two highest categories by at least one nationally recognized statistical rating agency. The backing referred to in clause (ii) may take the form of Fannie Mae mortgage-backed securities and Freddie Mac participation certificates. Fannie Mae and Freddie Mac are federally chartered corporations engaged principally in providing a secondary market for mortgage obligations. Neither Fannie Mae mortgage-backed securities nor Freddie Mac participation certificates, nor any other Fannie Mae or Freddie Mac Investments, are federally insured or guaranteed. The mortgages backing any Fannie Mae and Freddie Mac mortgage-related investments in which the Trust invests will meet Fannie Mae or Freddie Mac standards, as applicable, will, when the Trust commits to acquire them, carry competitive market yields and will be secured by real estate, on which any buildings, structures and improvements to be built or rehabilitated will be built or rehabilitated with union labor. As a result of a significant decrease in the availability of FHA-insured multi-family mortgage loans, Ginnie Mae-guaranteed securities backed by multi-family mortgage loans, and other multi-family projects, the Trust has, since 1991, increased investments in single-family Fannie Mae and Freddie Mac mortgage-backed securities. In these investments, the Trust enters into commitments with mortgage banking firms, banks and other financial institutions ("Issuers") to purchase mortgage-backed securities secured by mortgage loans financing the purchase of newly-constructed single-family homes that are union-built and meet certain eligibility criteria. The securities which are purchased by the Trust under this program are single-family mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac. The securities are generally required to be delivered to the Trust within 60 days after all of the qualified mortgage loans backing a given issue of securities have been closed. The interest rate and discount points for each mortgage loan backing an issue of securities is generally established under one of two alternate methods. Under the first and most frequently used mechanism, the Trust and each Issuer agree weekly, based on a survey of current market conditions, on an interest rate and discount point schedule which is used to determine the maximum interest rate and maximum discount points on each mortgage loan for which the Issuer issues a loan commitment during the applicable week. Under the second mechanism, the Trust and each Issuer agree to use the interest rates and discount points publicly quoted for securities of the type to be purchased by the Trust at the time the loan applications for the underlying mortgage loans are accepted plus the applicable servicing and guarantee fees with respect to the related securities. Depending upon the terms and conditions of the loan, the Trust will lock the interest rate for a period of time in advance of the loan closing. Typically, the interest rate lock will be for a period of no more than 18 months. The number of points that the Trust charges for the interest rate lock varies depending upon the length of the lock-in period. The interest rates and discount points may be reduced by the mortgagor prior to the closing of the underlying mortgage loan if market interest rates have declined from the commitment date. The Trust has concluded that the slight reduction in yield on the securities backed by mortgage loans whose interest rates and discount points are reduced in this way is largely offset by savings on transactions fees that would have been incurred in purchasing comparable securities from broker-dealers in the secondary market (which securities also would not necessarily have financed union-built single family homes). Almost all of the single family Fannie Mae and Freddie Mac mortgage-backed securities purchased by the Trust to date have been backed by fixed rate mortgage loans, although the Trust has the authority to acquire single family Fannie Mae and Freddie Mac securities which are backed by adjustable rate mortgage loans. The Trust anticipates that in the future some portion of the single family Fannie Mae and Freddie Mac securities it purchases may be backed by adjustable rate mortgage loans. There are a wide variety of adjustable rate mortgage loans which may be used to back the single family Fannie Mae and Freddie Mac securities. These range from loans on which the interest rate is adjusted periodically (with adjustments occurring from every 6 months to annually to each 3 or 5 years) based upon a specified market index at the time of each adjustment to loans which carry a fixed interest rate for a specified period of time (e.g., 3 or 5 years in the case of Freddie Mac securities or 5 or 7 years in the case of Fannie Mae securities) after which the interest rate on the loan is adjusted annually based on a specified market index. There are specified limits on the maximum amount of each upward or downward adjustment in the interest rate on these mortgage loans and caps on the maximum aggregate adjustment in the interest rate, either up or down, over the life of each loan. These limits and caps vary based on the frequency with which the adjustments are made and by loan type. Some types of the adjustable rate mortgage loans which may back single family Fannie Mae and Freddie Mac securities also have provisions under which they may be converted into fixed rate mortgage loans at the option of the mortgagor at specified times. Under the single family Fannie Mae and Freddie Mac securities backed by adjustable rate mortgage loans, Fannie Mae or Freddie Mac, as applicable, guarantees the timely payment of interest, based upon the interest rates borne by the underlying mortgage loans, as the same are adjusted from time to time, less applicable servicing and guaranty fees. CONTINGENT INTEREST MORTGAGE LOANS The Trust is authorized to make or invest in federal government-related, Fannie Mae or Freddie Mac contingent interest mortgage loans. A contingent interest mortgage loan of this type is a mortgage loan on a rental project which provides for repayment of principal and base interest at a fixed rate which is insured or guaranteed by the federal government or an agency thereof, or is guaranteed by Fannie Mae or Freddie Mac, and also includes separate contractual provisions obligating the borrower to pay additional interest based entirely on net or gross cash flow and/or net or gross proceeds upon sale, refinancing or disposition of the project. This additional interest is not insured or guaranteed, and is sometimes referred to as "contingent interest." Agreements for such contingent interest mortgage loans would be negotiated on a project-by-project basis. Accordingly, the precise formula for calculating the amount of contingent interest payments would vary depending on several factors, including the projected cash flow from the project, the base interest rate and financial resources of the borrower, and other factors which the Trust deems relevant. Receipt of contingent interest is affected by the amount of appreciation and rental income and expenses of a project. Generally, if there is insufficient cash flow or appreciation, no contingent interest is due or payable. Contingent interest mortgage loans generally require the lender to accept a lower base interest rate than it otherwise would have been able to negotiate in return for the right to receive as additional interest a portion of cash flow and/or proceeds from the sale or refinancing of the project. The Trust is permitted to make a contingent interest mortgage loan in return for a base interest rate which is up to 2% per annum lower than the rate which it would otherwise be willing to accept (i.e., in the absence of the contingent interest feature). Although all principal and base interest would remain insured by FHA, or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac, as the case may be, this structure may result in a reduction of current income (particularly during construction and rent-up) in the hope of greater returns in future years based on the project's economic performance. As noted above, such amounts of contingent interest are neither federally guaranteed or insured nor guaranteed by Fannie Mae or Freddie Mac. See "RISK FACTORS--Defaults on Loans." EARLY REPAYMENT LOANS The Trust also may invest in federally insured or guaranteed mortgages or securities backed thereby and in Fannie Mae and Freddie Mac Investments that include a right to require the borrower to repay a mortgage loan prior to the regular maturity date of the mortgage loan after an initial period during which the loan cannot be called. This authorization affords the Trust additional flexibility to make loans of shorter duration. Such loans may be more attractive to borrowers since the rate of interest on shorter term loans may be lower and may be more attractive to the Trust because it involves a commitment of funds for a shorter term. In the case of such "early repayment" loans that are federally insured or guaranteed, while all principal and base interest would continue to be insured or guaranteed by FHA, VA or Ginnie Mae, the balloon repayment obligation would not be secured by the mortgaged real property or by any government insurance or guarantee. It is anticipated that such obligation instead would be secured by a security interest in the ownership interests of the principals of the borrower or other security as negotiated by the Trust and the borrower or principals. Since the obligation to repay the loan prior to its stated maturity would not be included in the note and mortgage, the Trust would not be entitled to foreclose on the mortgaged property or obtain insurance proceeds in the event of non-compliance with a demand for repayment at such earlier date. The Trust expects that if it is unable to enforce its right to early repayment, it would continue to hold the mortgage loan or the securities backed by such mortgage loan, the principal and interest of which would remain federally insured or guaranteed. In such event, a loss could be incurred because the Trust would have required a higher rate for a mortgage or mortgage-backed security that was not accompanied by the right to demand repayment at an earlier date. The risk described in this paragraph does not apply to "early repayment" loans, or securities backed thereby, that are guaranteed by Fannie Mae or Freddie Mac. This is because such loans and securities are guaranteed at the stated early maturity. PASS-THROUGH AND PAY-THROUGH SECURITIES The Trust also is authorized to invest in mortgage-backed pass-through or pay-through securities if the securities are rated in one of the two highest rating categories of a national rating agency, such as Standard and Poor's or Moody's Investors Service ("Moody's"), and also backed by mortgage investments in which the Trust is otherwise authorized to invest. Mortgage-backed pass-through or pay-through securities are securities which may be issued by privately owned corporations or public issuers and secured by mortgages or mortgage-related instruments such as FHA-insured or VA-guaranteed loans, Ginnie Mae securities or securities which are guaranteed by Fannie Mae or Freddie Mac, and provide certain characteristics and features that federally insured loans or guaranteed certificates do not. Although payment of the principal of, and interest on, such mortgage-backed securities may be secured by Ginnie Mae securities, FHA-insured loans, VA-guaranteed loans or securities which are guaranteed by Fannie Mae or Freddie Mac, such mortgage-backed pass-through or pay-through securities represent obligations solely of the issuer and may not themselves be guaranteed or insured by any governmental entity or instrumentality. Although the Trust will purchase only mortgage-backed pass-through and pay-through securities that have been rated in one of the two highest rating categories by a nationally recognized statistical rating agency, there is no assurance that any rating on securities purchased by the Trust will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating would be likely to signify an increase in the risk to the Trust associated with the related securities and would be likely to result in a reduction in the value of the related securities. The Trust is not required to dispose of securities the rating for which has been revised below the second highest rating category or withdrawn. PRIVATELY COLLATERALIZED INVESTMENTS; STATE AND LOCAL GOVERNMENT-RELATED INVESTMENTS The Trust is authorized to invest up to thirty percent of its total assets in the following two categories of investments. 1. Privately Collateralized Investments ------------------------------------ The Trust may invest in construction loans, or securities backed by construction loans, if the loans are collateralized by (a) a letter of credit in favor of the Trust issued by a depository institution rated in category "B" or higher by Thomson Bankwatch, Inc. ("Thomson Bankwatch") on terms and conditions acceptable to the Trust, or (b) another form of guaranty issued by an entity with a short-term (12 months or less) rating at the time of issuance of the guaranty of at least "A-1" from Standard & Poor's or "P-1" from Moody's with respect to a guaranty with a duration of 12 months or less, or with a long-term (more than 12 months) rating in one of the two highest rating categories of at least one nationally recognized statistical rating agency with respect to a guaranty with a duration of more than 12 months. Thomson Bankwatch is a proprietary credit ratings and consulting service. A rating of "B" is the third highest of nine rating categories. A bank rated in category "B" is characterized as follows: "A strong company with a solid financial record and well received by its natural money markets. Some minor weaknesses may exist, but any deviation from the company's historical performance levels should be both limited and short-lived. The likelihood of a problem developing is small, yet slightly greater than for a higher-rated company." As of April 6, 1995 there were 114 banks in the United States rated in category "B" or higher by Thomson Bankwatch. A description of all Thomson Bankwatch rating categories is included as Appendix B to the Trust's Statement of Additional Information. There is no assurance that the rating of the issuer of any letter of credit or other form of guaranty which collateralizes a construction loan investment acquired by the Trust will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency if, in the rating agency's judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating would be likely to signify an increase in the risk to the Trust associated with the related investment and would be likely to result in a reduction in the value of the related obligation. The Trust is not required to dispose of privately collateralized construction investments if the rating of the issuer of the related letter of credit or guaranty is downgraded or withdrawn, except to the extent required by certain investment restrictions. See "INVESTMENT RESTRICTIONS"; "RISK FACTORS--Investment Restrictions." Notwithstanding any of the above, such a downward revision or withdrawal of a rating would not have any impact upon the flow of income from the project to the Trust. If the issuer of any letter of credit or other form of guaranty which secures a privately collateralized construction investment fails or is unable to meet its obligations under such letter of credit or other guaranty, the Trust would be subject to the same real estate-related risks and uncertainties that apply to real estate investments generally, which could have a material adverse effect on the value and performance of the investments, except to the extent that the Trust has obtained other forms of credit enhancement or has taken other steps to secure its interests in the project. See "RISK FACTORS - -- Real Estate-Related Risks." The Trust intends to enter into a Memorandum of Understanding with approximately 4 or 5 major banks with respect to privately collateralized construction loan investments. It is anticipated that the Memorandum of Understanding with each bank will provide as follows: The Trust and the bank will cooperate with each other in marketing efforts with respect to new construction and substantial rehabilitation and permanent mortgage loan financing on multifamily rental and cooperative housing projects and single family developments located within a specified market region. The construction loan will be secured by a letter of credit issued by the bank or another form of guaranty issued by the bank or another entity acceptable to the Trust. The making of the Trust loan is also conditioned on the delivery of a commitment from (a) Fannie Mae to issue mortgage-backed securities secured by the permanent loan, (b) another source acceptable to the Trust to provide credit enhancement for the permanent loan on terms acceptable to the Trust, or (c) a commitment for a take-out of the construction loan from an entity, and on terms, acceptable to the Trust. 2. State and Local Government-Related Obligations ---------------------------------------------- The Trust may invest in the types of state and local government-related obligations described below. (a) Full Faith and Credit. The Trust may invest in construction or permanent loans, or securities backed by construction or permanent loans, or interests in such loans or securities, if such loans or securities are supported by a full faith and credit guaranty of a state or local government or agency or instrumentality thereof that has general taxing authority, without regard to the credit rating of such entity or the obligations acquired. If the state or local government or agency or instrumentality which provided such guaranty fails or is unable to meet its obligations thereunder, the Trust would be subject to the same real estate-related risks and uncertainties that apply to real estate investments generally, which could have a material adverse effect on the value and performance of the investments. See, "RISK FACTORS -- Real Estate-Related Risks." (b) "Top Tier" Agencies. The Trust may invest in construction or permanent loans, or securities backed by construction or permanent loans, or interests in such loans or securities, provided that such loans or securities are issued (with or without recourse) or guaranteed, as the case may be, by a state or local housing finance agency designated "top tier" by Standard & Poor's (or designated comparably by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) at the time of acquisition by the Trust; and are (i) with full recourse (directly or by way of guaranty or indemnity) to such agency's general credit and assets, or (ii) secured by recourse to such assets of the agency or by such third party credit enhancement as to provide, in the judgment of management, protection comparable to a pledge of the agency's general credit, or (iii) backed by the "moral obligation" of the state in which such agency is located in the form of the state's commitment to replenish any insufficiencies in the funds pledged to debt service on the obligations. Although the agency must be rated "top tier" by Standard & Poor's, there is no requirement that the obligations to be acquired by the Trust be rated or ratable at all, as long as the agency is a top tier agency at the time an obligation is acquired by the Trust. Standard & Poor's has informally indicated to the Trust that the only relevance a top tier designation would have on the rating of particular obligations issued by such an agency is that Standard & Poor's would, under certain circumstances, increase the rating of such obligations from the level they would otherwise be entitled to receive by one-half a level within an existing rating category. So, for example, an issue that might otherwise be entitled to an A rating could get an A+ rating if the agency was top tier (or an AA- rating could be raised to an AA rating). However, an A+ rating would not be increased to AA- because it would take the rating into another rating category (that is, from single-A to double-A). Before designating a housing agency as top tier, Standard & Poor's must favorably evaluate a number of criteria, including the agency's general track record, unrestricted fund balances, administrative capabilities, investment policy, internal controls, portfolio quality and the sponsoring state's commitment to housing. For a more complete description of the guidelines used by Standard & Poor's, see Appendix C to the Statement of Additional Information. There can be no assurance that any such rating of any agency would continue for any given period of time after the Trust acquires such an obligation, or that it would not be revised downward or withdrawn entirely by the rating entity if, in its judgment, circumstances so warrant. A downgrade in or withdrawal of the rating of an agency would signify an increase in the risk that the obligations issued or guaranteed by that agency would not be paid in accordance with their terms and would be likely to result in a reduction in the value of the related obligations, except to the extent that the Trust has obtained other forms of credit enhancement or has taken other steps to secure its interests in the project. The Trust is not required to dispose of the obligations issued or guaranteed by an agency which loses its top tier rating, except to the extent required by certain investment restrictions. See "INVESTMENT RESTRICTIONS;" "RISK FACTORS--Investment Restrictions." With respect to any obligation issued or guaranteed by a top tier agency, the Trust expects that it will be secured either by the recourse obligation of the issuer (or its guarantee) or by other collateral security, in addition to having the benefit (directly or indirectly) of a lien on the underlying real estate. Management of the Trust intends to undertake transactions with top tier agencies under the foregoing authority selectively, and only after having made its own independent evaluation and investigation with respect to the experience, credit history, and underwriting expertise of the agencies issuing the obligations to be acquired. The Trust therefore believes that the direct obligation or other collateral security provided by the top tier issuer will be a significant factor in helping to assure the safety and soundness of the investment to the Trust. If such recourse or other collateral security which the Trust receives in conjunction with an investment issued by a top tier agency proves insufficient to ensure full and timely performance of the obligations of the issuer under the terms of the investment, the Trust (or an agent or nominee on its behalf) will have recourse to a lien on the underlying real property securing the projects financed. If the Trust is required to enforce its rights to the underlying real property because its recourse to the issuer or the other collateral security is insufficient, the Trust will be subject to the same real estate-related risks and uncertainties that apply to real estate investments generally, which could have a material adverse effect on the value and performance of the investments. For a description of these potential risks, see "RISK FACTORS -- Real Estate-Related Risks" below. (c) State Insurance Funds/Programs. The Trust may invest in construction and permanent loans, or securities backed by construction or permanent loans, or interests in such loans or securities, if no less than the first 75% of such investment is supported by a guaranty of a state-related agency under a state insurance or guarantee program with a record of creditworthiness, as evidenced by a rating of the agency or the obligations issued or guaranteed by such agency, of at least "A-" by Standard & Poor's, Fitch Investors Services Inc. ("Fitch"), or Duff & Phelps Inc. ("Duff & Phelps") or at least "A3" by Moody's at the time of the acquisition of such investment by the Trust. There can be no assurance that any such rating would continue for any given period of time after the insurance or guaranty is issued, or that it would not be revised downward or withdrawn entirely by the rating entity if, in its judgment, circumstances so warrant. A downgrade in or withdrawal of the rating would signify an increase in the risk to the Trust associated with the related investments, and would be likely to result in a reduction in the value of the related obligations. The Trust is not required to dispose of these investments if the rating of an agency or the obligations issued or guaranteed by such agency is downgraded or withdrawn. There is no requirement that obligations acquired under this category be rated or ratable. If the state-related agency providing the guaranty for obligations acquired under this investment authority failed or is unable to meet its obligations thereunder, or if the guaranty was insufficient to cover all losses in the event of a default on a construction or permanent loan in which the Trust invests or which backs securities in which the Trust invests, the Trust would be subject to the same real estate-related risks and uncertainties that apply to real estate investments generally, which could have a material adverse effect on the value and performance of the investments. See, "RISK FACTORS--Real Estate-Related Risks." (d) State and Local Government Encouraged Projects Meeting Specified Underwriting Criteria. The Trust is permitted to invest in construction or permanent loans, or securities backed by construction or permanent loans, that have evidence of support by a state or local government or an agency or instrumentality thereof (evidenced by at least the adoption of a resolution by the governing body or other applicable governmental agency in support of the related project), provided that all of the following criteria are satisfied: (i) the loan-to-value ratio of the project shall not exceed 50%, the "value" for such purposes to be determined on the basis of an independent appraisal by a licensed appraiser acceptable to the Trust, except that a loan-to-value ratio of up to 65% shall be permitted if mortgage insurance in an amount that will cover all first losses down to a 50% loan-to-value level has been provided by a private mortgage insurance company rated at least "A-" by Standard & Poor's, Fitch or Duff & Phelps or at least "A3" by Moody's or approved and accepted by Fannie Mae or Freddie Mac for insurance of the type of obligation to be acquired by the Trust; (ii) the state or local government or agency or instrumentality thereof or a foundation exempt from federal income tax under IRC Section 501(c) must have, in the aggregate, a financial participation in the project of at least $15,000 (present value) per unit for a period at least equal to the outstanding term of the Trust's investment, such financial interest to be in the form of subordinate financing, an interest rate write-down, a donation of land, some other form of insurance or guarantee or some other similar contribution within guidelines adopted by the Executive Committee of the Trust; (iii) the sponsor of the project must have a demonstrably successful record of developing or managing low-income housing projects, in accordance with guidelines developed by the Trust; (iv) the underwriter and servicer of the mortgage loan for the project must have been approved by the Trust; (v) the construction of the project must be supervised on a regular basis by agents or employees of the state or local government or agency or instrumentality thereof, or tax-exempt foundation; and (vi) the minimum debt service coverage for the project must be at least 1.15 to 1, based upon projections of future income and expenses satisfactory to the Trust. There is no requirement that the obligations acquired by the Trust be rated or ratable. The investments in this category are subject to real-estate related risks which could have a material adverse effect on the value and performance of the obligations. See "RISK FACTORS--Real Estate-Related Risks." (e) Collateralized Loans. The Trust may invest in construction (but not permanent) loans made by a state or local government or an agency or instrumentality thereof, or by another party so long as the related project is sponsored by a state or local government or an agency or instrumentality thereof, to the extent that such loans are fully collateralized or secured in a manner satisfactory to the Trust by: (i) cash placed in trust or in escrow by a state or local government or agency or instrumentality thereof with an independent third party satisfactory to the Trust on terms and conditions satisfactory to the Trust; or (ii) a letter of credit in favor of the Trust established by or at the direction of a state or local government, or an agency or instrumentality thereof, with a depository institution rated in category "B" or higher by Thomson Bankwatch, on terms and conditions acceptable to the Trust; or (iii) some other form of guaranty issued by an entity with a short-term (twelve months or less) rating at the time of issuance of the guaranty of at least "A-1" from Standard & Poor's or "P-1" from Moody's with respect to a guaranty with a duration of 12 months or less, or with a long-term (more than 12 months) rating in one of the two highest rating categories by at least one nationally recognized statistical rating agency with respect to a guaranty with a duration of more than twelve months. Obligations acquired by the Trust under this category are not required to be rated or ratable. There is no assurance that the rating of the issuer of any letter of credit or other form of guaranty which collateralizes this type of construction loan investment acquired by the Trust will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency if, in the rating agency's judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating would signify an increase in the risk to the Trust associated with the related investment and would be likely to result in a reduction in the value of the related obligation. The Trust is not required to dispose of its investments in collateralized loans if the rating of the issuer of the related letter of credit or guaranty is downgraded or withdrawn. If the issuer of any letter of credit or other form of guaranty which secures this type of collateralized construction loan investment fails to meet its obligations under such letter of credit or other guaranty, the Trust will be subject to the same real estate-related risks and uncertainties that apply to real estate investments generally, which could have a material adverse effect on the value and performance of the investments. See, "RISK FACTORS--Real Estate-Related Risks". In evaluating investments in all categories of state and local government-related obligations described above, the Trust staff will consider, among other factors: (i) the experience, past performance, credit rating, competence and managerial and marketing ability of prospective project developers; (ii) the geographic area; (iii) the location, construction quality, condition and design of the project; (iv) the projected loan-to-appraised value ratio and underlying assumptions on which such projections are based; (v) the current and projected cash flow; (vi) the potential for capital appreciation; (vii) the occupancy, supply of and demand for properties of similar type in the vicinity; (viii) the prospects for liquidity through sale, financing or refinancing of the project; and (ix) such other factors as become relevant in the course of the evaluation process. In evaluating such underwriting criteria, the Trust may retain consultants to assist them in evaluating state and local government investment opportunities. See "INVESTMENT OBJECTIVE AND POLICIES -- Retention of Technical Consultants." In determining whether to invest in a state or local government-related mortgage loan or security, the Trust is not limited to investments which have been rated in any particular category by a nationally recognized statistical rating organization. Although such a rating provides no assurance of repayment and is subject to revision or withdrawal at any time by the assigning rating agency, ratings do provide the prospective investor with some indication that the proposed structure and revenue analysis satisfy the rating agency's internal criteria for the respective rating. The Trust will seek to minimize the risk of loss in this connection by investing only in instruments satisfying other criteria, as outlined above. The Trust believes that the foregoing state and local government-related investments provide the Trust with considerable flexibility in creating investment opportunities for the Trust. In addition to the issues outlined above, the investments can involve certain risks not present with other authorized investments. Without requirements for ratings or access to taxing power, the credit determinations with respect to the proposed state and local government-related investments could be more difficult to make, and their credit quality could be lower than that of other investments the Trust is permitted to make. The state and local government-related investments may also be less liquid than most other investments authorized for the Trust. However, the state and local government-related investments, together with all other Trust investments, would be subject to the SEC's requirement that at least 90% of the value of the Trust's assets be invested in investments that are readily marketable and convertible into cash within 120 days without a discount from their market value. See "INVESTMENT RESTRICTIONS;" "RISK FACTORS--Redemption." To the extent that state and local government-related investments are not rated or may not be readily traded in existing markets, the valuation of these are likely to be less precise than those of the Trust's other investments. PRE-CONSTRUCTION COMMITMENTS The Trust may enter into pre-construction commitments to provide long-term financing upon satisfactory completion of a specified project. Such commitments, commonly known as permanent loan commitments, are often a precondition to the ability of a developer to obtain a construction loan. The Trust may receive good-faith deposits for such financing commitments, but such deposits are not expected to be a major source of Trust income. In contrast to a company hoping to earn a standby commitment fee without investment, the Trust will make loan commitments with the purpose and ability to acquire the mortgage or mortgage-related investment. Because complete funding of construction and long-term mortgage loans requires up to three years after making a loan commitment, the Trust estimates the amount of funds it expects to have available for investment from principal payments and prepayments on existing loans, dividend reinvestment and sales of additional Units to new or existing Participants. Loan commitments are made after considering reasonable projections of available funds. At times, the Trust's short-term cash balances may be less than its outstanding loan commitments. This commitment policy reduces the amount of assets the Trust would otherwise invest in lower yielding, short-term investments. The Trust maintains highly liquid government securities in a segregated account which, in addition to short-term liquid assets, and amounts projected to be available, is at least equal to outstanding loan commitments. If, however, a substantial amount of the funds projected to be available are not in fact received, the Trust would either borrow funds pursuant to lines of credit previously established with commercial banks (in accordance with applicable asset coverage requirements) or sell long-term assets to raise the cash necessary to fund the loan commitments. FORWARD COMMITMENTS The majority of Trust investments are made pursuant to forward commitments, in which the Trust agrees to purchase investments in or backed by mortgage loans that have not yet been originated. This type of transaction requires the Trust to commit funds for future purchases of such investments at rates which are set at the time of the commitment. With respect to multi-family mortgage loans, the Trust sets fixed rates for future delivery. With respect to single-family mortgage loans, the Trust generally sets either (i) a fixed rate or (ii) a maximum rate that may be adjusted by the mortgagor prior to the closing of the mortgage loan if market interest rates decline. In the event market interest rates decline, it may be difficult for the Trust to get delivery of the single- and multi-family mortgage loans that back the Trust's investments. The Trust generally imposes penalties equal to the commitment fee on the mortgage loan (generally 1/2 to 1 point) where delivery on a forward commitment is not fulfilled. The Trust also has begun including mandatory-delivery clauses in its forward commitments on certain obligations secured by mortgages on multi-family projects. Notwithstanding such penalties and clauses referred to above, there is no guarantee that the obligations committed to will be delivered to the Trust. TEMPORARY INVESTMENTS The Trust will invest funds temporarily in liquid assets until they can be placed in investments meeting Trust investment objectives. Such liquid assets are limited by the Declaration of Trust to: United States Treasury issues; federal agency issues; commercial bank time certificates of deposit and savings bank deposits in domestic banks insured by the Federal Deposit Insurance Corporation (through the Bank Insurance Fund); domestic savings association deposits insured by the Federal Deposit Insurance Corporation (through the Savings Association Insurance Fund); bankers acceptances (drafts or bills of exchange accepted by a bank or trust company that guarantees payment thereof); commercial paper rated as category A-1 or P-1 by Standard & Poor's or Moody's; collateral loans and warehousing agreements (temporary assignments of mortgage notes or mortgage-backed securities) secured by mortgages on FHA-insured or VA-guaranteed single-family dwellings or FHA-insured multi-family projects or by mortgage-backed pass-through or pay through securities guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac; and interests (including repurchase agreements, that is, purchase of securities accompanied by an agreement to resell the securities at a later date) in United States Government securities pledged by a bank or other borrower to secure short-term loans from the Trust. The Trust also may invest funds temporarily in registered investment companies investing predominantly in United States Treasury issues or federal agency issues. Investments in other registered investment companies are restricted as follows: (1) Such securities acquired by the Trust shall not exceed 3% of the total outstanding voting stock of any investment company; (2) The total value of such securities acquired by the Trust in any one investment company shall not exceed 5% of the Trust's total assets; and (3) The total value of such securities acquired by the Trust in all investment companies shall not exceed 10% of the Trust's total assets. RETENTION OF TECHNICAL CONSULTANTS The majority of the construction and long-term mortgage loans and mortgage-backed securities in which the Trust invests have been underwritten to meet the requirements of HUD, Fannie Mae or Freddie Mac, or have been underwritten by state or local housing finance authorities based on specified qualifying loan to value standards. In evaluating certain investments, however, the Trust may retain consultants to provide site inspections, appraisal reviews, environmental analyses, property management reviews, and such other statistical and factual information as the Trust may deem useful to its evaluation and investment decision-making. Such consultants would provide such analysis on a case-by-case basis and only with respect to occasional transactions in specific proposals. It is anticipated that any such consultants would be compensated either on an hourly basis or for a set fee for evaluating each specific proposal. OTHER POLICIES If it is feasible and profitable, the Trust may directly service some of its long-term loans. Generally, however, long-term mortgage loans and construction loans in which the Trust proposes to invest, whether or not they are originated by the Trust, will ordinarily be serviced by mortgage banks or other mortgage servicing institutions, such as savings and loan institutions or commercial banks, located throughout the United States. Such institutions are generally compensated for their services at rates that vary from one-twentieth to three-quarters of one percent (.05%-.75%) per annum, calculated monthly, on the then current outstanding principal balance in the case of long-term first mortgage loans, and at rates of 1% per annum or more of the total loan commitment in the case of construction loans. The Trust is empowered to invest in loans for projects anywhere in the United States. The Trust will invest only in loans which provide yields competitive with those then generally prevailing in the market taking into consideration all factors relevant to an appropriate evaluation of risk and return and the overall objectives of the Trust. Among loans of comparable yield, the Trust will, if possible, invest in projects in geographic areas in which Participants or their members are located. While the Trust does not buy mortgage loans or securities backed by mortgage loans for purposes other than investment, the Trust will from time to time buy or sell mortgage loans in order to prevent fluctuations in the weighted average maturity of its portfolio or to maintain a desireable level of portfolio diversification. Moreover, the Trust remains free to dispose of construction and long-term loan investments at any time to meet objectives of the Trust, generally on the basis of changed circumstances or market conditions. The short-term liquid assets in which the Trust may temporarily invest are subject to a very high turnover rate. Fees associated with the purchase, sale or redemption of such liquid assets are nominal. See "INVESTMENT ADVISER." INVESTMENT RESTRICTIONS The Trust operates under the following restrictions and policies relating to investment of its assets and activities. The Trust will not: (1) concentrate its investments in any industry except the real estate industry as set forth above; (2) permit less than seventy percent of the mortgages and mortgage-backed securities acquired by the Trust or backing securities acquired by the Trust to be federally insured or guaranteed or guaranteed by Fannie Mae or Freddie Mac with respect to the payment of principal and interest (base interest in the case of contingent interest mortgage loans) or issued by Fannie Mae or Freddie Mac; or (3) originate or purchase any loan secured by a mortgage for a project involving new construction or rehabilitation unless the buildings, structures, or other improvements to be built on the real estate subject to such mortgage will be built or rehabilitated by union labor. The foregoing policies are fundamental to the Trust and may not be changed without the approval of the holders of a majority of the Trust's outstanding Units. In addition, the Trust will not: (1) issue senior securities, except in accordance with clause (9) below; (2) purchase securities on margin (but the Trust may obtain such short-term credits as may be necessary for the clearance of transactions); (3) sell any securities short; (4) write put and call options; (5) underwrite the securities of other issuers except that the Trust may resell to other financing institutions all or a portion of the interests in loans acquired by the Trust in transactions exempt from registration under the Securities Act of 1933, as amended; (6) purchase or sell real estate (other than real estate mortgage loans and construction loans) except for real estate acquired through the foreclosure of mortgage loans and construction loans held by the Trust; (7) purchase or sell commodities or commodities futures contracts; (8) lend any assets of the Trust except as set forth above; (9) borrow money from banks unless immediately after such borrowing there is an asset coverage of at least 300 percent of all borrowings of the Trust. Not more than fifty percent of the value of the Trust's assets will be used as security for such borrowings. This borrowing provision is not for investment leverage, but primarily to facilitate management of the portfolio by enabling the Trust to meet redemption requests and to make advances on existing construction loans and to meet outstanding Trust commitment obligations (and, on occasion, to make income distributions) when available Trust cash is insufficient for such purposes and the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. Interest paid by the Trust on borrowed funds will decrease the amount of Trust assets available for investment; (10) invest in commodities, commodity contracts, oil, gas or other mineral leases, or arbitrage transactions; or (11) invest more than 10% of the value of the Trust's assets in securities that are not readily marketable and convertible into cash within 120 days without a discount from their market value. One effect of the restriction described in clause (11) above is to prohibit the Trust from investing more than ten percent of the value of its assets in investments that do not satisfy the liquidity requirement even though they may otherwise be permitted under the Trust's Declaration of Trust. RISK FACTORS RELIANCE ON MANAGEMENT -- UNSPECIFIED INVESTMENTS The Trustees and officers of the Trust will invest the Trust's assets as deemed prudent by the Trustees. See "INVESTMENT OBJECTIVE AND POLICIES," and "MANAGEMENT." Investors in the Trust will not have any specific information with which to evaluate future investments of the Trust in advance of the Trust's investment or commitment to invest. Given present uncertainties concerning the future status of FHA and HUD, there can be no assurance that the Trust will be successful in acquiring investments that meet the business objectives and investment objectives and policies of the Trust. FLUCTUATING INTEREST RATES While the Trust retains the freedom to sell all or any portion of its assets if circumstances (e.g., changed market conditions) suggest the prudence of that course, it will manage its assets with the expectation that despite major temporary fluctuations in interest rates from time to time, return on assets over a long term will be satisfactory. Nevertheless, the market value of Trust mortgage loans and mortgage-backed securities and the resulting net asset value of the Trust portfolio will fluctuate with short-term changes in interest rates. When market interest rates rise, the net asset value of the Trust will decline; Participants who redeem Units in such circumstances will suffer the resulting loss in value of Trust assets. Conversely, in certain periods of declining interest rates, mortgage investments held by the Trust will increase in market value but may be prepaid by the various borrowers or other obligors so that anticipated yields on such investments may not be realized. Scheduled payments of principal and any prepayments will be reinvested at prevailing interest rates, which may be less than the rate of interest for the loans or securities on which such payments are made. In addition, to the extent the Trust purchases mortgage loans, mortgage-backed securities or other investments at a premium (i.e., an amount in excess of the principal amount of the asset purchased), partial prepayments of principal would reduce the yield to the Trust and, in the event of complete prepayment, the Trust would be unable to recover or recoup the premium. REDEMPTION The Trust generally anticipates holding its mortgage investments to maturity, but mortgage investments may be sold to the extent necessary to satisfy requests for redemption, if cash is needed to fund outstanding loan commitment funding obligations, or at other times if necessary to further the objectives of the Trust. Although registered investment companies generally must value their assets and accept redemption requests daily, the Trust is permitted to value its assets and accept redemption requests no more often than quarterly, by virtue of an exemptive order received from the SEC. The Trust's Board of Trustees has implemented monthly valuations of the Trust's assets, which enables the Trust to redeem Units on a monthly, rather than quarterly, basis. Consistent with the Trust's exemptive order and its redemption procedures (see "REDEMPTION"), the Trust will invest at least 90% of the value of its assets in investments that are readily marketable and convertible into cash within 120 days without a discount from their market value (see "INVESTMENT RESTRICTIONS"). It is possible, however--due to changes in interest rates, the performance of specific properties, or general economic conditions since the monthly Valuation Date preceding a request for redemption--for the market value of an investment at the time of its liquidation to be less than its market value as of the monthly Valuation Date preceding a request for redemption. Most of the Trust's assets could be disposed of in a timeframe sufficient to meet monthly redemptions. In the event the Trust were to receive redemption requests with respect to a particular monthly Valuation Date in an amount that exceeds the amount of assets that the Trust could liquidate at market value prior to the applicable redemption date, the Trust would not be able to satisfy such redemption requests without liquidating certain of its assets at a discount from their market value. If such circumstances were to occur, the Trust would be unable to satisfy at least some of the redemption requests on a timely basis because the Trust would not liquidate assets at a discount from their market value. Therefore, in anticipating the availability of funds based on a redemption of Units, investors should be prepared for the possibility of a delay in the satisfaction of a monthly redemption request. Such a delay would not, however, extend more than 120 days beyond the monthly Valuation Date following the Trust's receipt of the redemption request (except to the extent it were necessary to liquidate that portion (up to 10%) of the Trust's portfolio not required to be invested in assets that are readily marketable and convertible into cash within one hundred twenty days without a discount from their market value). See "REDEMPTION." Redemption is the only means available to the holder of a Unit wishing to liquidate its interest in the Trust, as the Units may not be transferred, assigned, pledged or otherwise encumbered. See "INCIDENTS OF OWNERSHIP OF UNITS." The Trust has never failed to satisfy any redemption request on a timely basis. LIMITED RESALE MARKET FOR CERTAIN TYPES OF LOANS The Trust normally anticipates holding the majority of its loans to maturity. However, if for any reason the Trust were required to sell such loans quickly, it may, on occasion, be able to dispose of them only at a discount from their market value. These constraints relate principally to loans that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac. Under the Trust's Declaration of Trust, such loans may not exceed more than 30% of the Trust's portfolio. Moreover, to the extent such loans are considered illiquid for purposes of the Investment Company Act (see "INVESTMENT RESTRICTIONS"), they will be treated as such by the Trust. A number of factors constrain the marketability of long-term loans that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac. Administrative loan servicing requirements and costs and other factors restrict the resale market for single-family mortgage loans to some extent. The large denominations of loans for multi-family projects restrict the number of buyers interested in them. In the case of any long-term loan, the market is apt to be more limited than for loans of shorter maturity. Required liquidation of long-term loans in an unfavorable market could result in significant losses from face value. The market for construction loans is affected by the uncertainties inherent in building construction. If a loan is sold during the construction period, the purchaser customarily will seek assurances as to the status of construction, the nature of the permanent loan commitment and other matters relating to the underlying project. These and other factors may cause delays in the event a decision is made to sell a construction loan. INFLATION Loans in which the Trust invests generally do not include any provision giving the lender the right to require repayment of principal in advance of maturity except in the case of default. The rate of inflation in the national economy may from time to time be such that prevailing interest rates exceed the rates earned on the loans in the Trust's portfolio. Such circumstances could diminish the value of the Trust's assets, although continued sales of Units will tend to mitigate such diminution. DEFAULTS ON LOANS The Trust may experience certain losses in the event of default on its mortgage investments. This is true even for federally insured or guaranteed loans. Losses on federally insured or guaranteed loans can occur as a result of: (i) the requirement in some cases that the holder of a mortgage in default generally pay an assignment fee of 1% when receiving an insurance settlement; (ii) the requirement in some cases that the holder of the mortgage obtain title to the property, through foreclosure or otherwise, in order to obtain an insurance settlement; (iii) the fact that federal agencies can, in some cases, settle insurance obligations by payment in debentures rather than in cash; (iv) possible offsets of insurance proceeds against amounts held by the Trust or mortgage banker; (v) loss of certain interest payments upon default that are not covered by certain FHA insurance programs; (vi) costs of foreclosure and related costs; and (vii) other reasons. For VA-guaranteed loans not included in Ginnie Mae pools, it is possible that the amount of the loss will exceed VA's maximum loss exposure under its guaranty. If this were to occur, the Trust would bear the portion of the loss not covered by VA's guaranty. The Trust may invest in certain mortgages or securities which, in addition to principal and base interest insured or guaranteed by FHA, VA or Ginnie Mae, or guaranteed by Fannie Mae or Freddie Mac, include separate uninsured obligations. These investments may consist of (i) federal government-related, Fannie Mae and Freddie Mac contingent interest mortgage loans which include separate contractual provisions obligating the borrower to pay additional interest based entirely on net or gross cash flow and/or net or gross proceeds upon sale, refinancing or disposition of the project (the contingent interest); and (ii) mortgage loans that include a right to require the borrower to repay a mortgage loan prior to the regular maturity date of the insured mortgage loan. See "INVESTMENT OBJECTIVE AND POLICIES." Contingent interest obligations in excess of principal and base interest are not secured by the mortgaged real property, by any government insurance or guarantee, or by any obligation of Fannie Mae or Freddie Mac. Moreover, in the event of a default under the mortgage loan which results in a claim under the federal government's insurance or guarantee, or against Fannie Mae or Freddie Mac's obligation, the right to receive the contingent interest would either be assigned to the federal government agency, Fannie Mae or Freddie Mac, as the case may be, or would terminate. In addition, the obligation of the principals of a project owner to pay contingent interest is generally not a personal obligation of such parties. There can be no assurance that any project owner or principals thereof will have sufficient financial resources to pay any contingent interest that may be owing. The Trust expects that it will attempt to secure a contingent interest obligation by obtaining, where possible, a subordinate mortgage and/or a security interest in the ownership interest of the principals of the borrower or other security. State usury laws establish restrictions, in certain circumstances, on the maximum rate of interest that may be charged and impose penalties on the making of usurious loans, including monetary penalties, forfeiture of interest and unenforceability of the debt. Although the Trust does not intend to make or invest in mortgage loans charging contingent interest rates in excess of those permitted by law, there is a risk that interest on contingent interest mortgage loans could be found to exceed legal limits as a result of uncertainties in determining the maximum legal rate of interest in certain jurisdictions, especially with respect to contingent interest. To address this risk, in circumstances where the Trust invests in contingent interest mortgage loans, the Trust intends to obtain (i) an opinion of counsel from the jurisdiction in which the mortgaged property is located stating that, in the opinion of counsel, the rate of contingent interest does not and will not exceed the maximum rate of interest allowed by law and/or (ii) a special endorsement to the title insurance policy insuring the Trust against penalties that may arise from the charging of interest in excess of the maximum rate of interest allowed by law. If the Trust obtains a subordinate mortgage or other security for any obligations to secure the payment of contingent interest, there can be no assurance that such subordinate mortgage or other security will provide meaningful protection to the Trust with respect to any payments due, because rights under such subordinate mortgage or other security to the related project and the revenues therefrom will be subordinate to the rights of the first priority lien holder. The Trust's ability to collect contingent interest in excess of insured base interest will be dependent also on the economic performance of the project and will be subject to the risks inherent in investing in real estate. The economic performance of a project may be affected by a number of factors, including occupancy levels, defaults by tenants in the payment of rent, increases in project operating expenses and acts of God, such as earthquakes and floods. With respect to federally insured or guaranteed mortgage loans that include a right to require the borrower to repay the indebtedness prior to the regular maturity date of a mortgage loan, the balloon repayment obligation would not be secured by the federally insured note or mortgage or by any government insurance or guarantee. It is anticipated instead that such obligation would be secured by a security interest in the ownership interests of the principals of the borrower or other security, including, where obtainable, a subordinate mortgage. Because the obligation to repay the loan prior to its stated maturity would not be included in the federally insured or guaranteed note and mortgage, the Trust would not be entitled to obtain insurance proceeds in the event of non-compliance with a demand for repayment at such earlier date. If the Trust has obtained a subordinate mortgage to secure the early repayment of the mortgage loan, the Trust would be able, subject to compliance with certain conditions, foreclose on the mortgaged property, and obtain title (either directly or through an agent or nominee) to the underlying real property subject to the federally insured first mortgage. However, even if the Trust obtains a subordinate mortgage or other security, there can be no assurance that such subordinate mortgage or other security will provide meaningful protection to the Trust with respect to the early repayment of the loan, because rights under such subordinate mortgage or other security to the related project and the revenues therefrom will be subordinate to the rights of the holder of the first mortgage. The Trust expects that if it is unable to enforce its right to early repayment, it would continue to hold the mortgage loan or the securities backed by such mortgage loan, the principal and interest of which would remain federally insured or guaranteed. In such event, a loss could be incurred because the Trust would have required a higher rate for a mortgage or mortgage-backed security that was not accompanied by the right to demand repayment at an earlier date. The risk described in this paragraph does not apply to "early repayment" loans, or securities backed thereby, that are guaranteed by Fannie Mae or Freddie Mac, because such loans and securities are guaranteed at the stated early maturity. In addition, not all loans or mortgage-related assets in which the Trust may invest are federally insured or guaranteed, or guaranteed by Fannie Mae or Freddie Mac; mortgage investments which are not so insured or guaranteed will be subject to all the risks inherent in investing in real estate. See "INVESTMENT OBJECTIVE AND POLICIES; RISK FACTORS -- Real Estate-Related Risks." RATINGS There can be no assurance that a rating that exists when a Trust investment is made will continue for any given period of time, or that it would not be revised downward or withdrawn entirely by the rating entity if, in its judgment, circumstances so warrant. A downgrade in the rating or withdrawal of the rating would signify an increase in the risk of default on the mortgage investment and would be likely to result in a reduction in the value of the investment. LACK OF DIVERSIFICATION The Investment Company Act defines a "diversified company" as an investment company that maintains at least seventy-five percent of the value of its total assets in, among other investments, securities of any one issuer limited to an amount not greater in value than 5% of the value of the company's total assets. In this connection, the Declaration of Trust does not specify the proportion of the Trust's assets that may be committed to each of the several types of investments the Trust may make. The Trust plans to follow a policy of investing no more than 15% of the value of its total assets in any single mortgage or construction loan as of the time of investment. Given the foregoing definition of a diversified company, the Trust's ability to lend up to 15% of its total assets in a single mortgage or construction loan under this policy may from time to time result in the Trust's investment portfolio shifting from nondiversified to diversified and back again, without prior investor approval. This shift is contrary to Section 13(a)(1) of the Investment Company Act, absent prior security holder approval. However, the Trust has obtained from the SEC an exemption from this requirement insofar as the exemption might be necessary for the Trust to conduct its investment practices as described above. To the extent the Trust operates as a nondiversified company, the risk of loss on its investment portfolio will be increased. See "EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT" in the Statement of Additional Information. The terms "diversified" and "nondiversified" as used herein are not intended to describe the geographical locations or concentrations of mortgaged properties in the Trust's portfolio. Such properties are spread throughout the United States and it is the Trust's intention to maintain such geographical diversity. INVESTMENT RESTRICTIONS Because of certain legal restrictions, the Trust may not invest more than 10% of the value of the Trust's assets in securities or investments that are not readily marketable and convertible into cash within 120 days without a discount from their market value. As of December 31, 1995, 1.1% of the Trust's net assets were in this category. See "INVESTMENT RESTRICTIONS." Circumstances may arise where the aggregate of such restricted investments held by the Trust temporarily exceeds the 10% limitation. For example, the rating of the issuer of a letter of credit or guarantee related to a privately collateralized investment held by the Trust, or the rating of a state agency guaranteeing obligations held by the Trust, may be downgraded or withdrawn, which could in turn result in the investments being not readily marketable or not convertible into cash within 120 days without a discount from their market value. To the extent that the total amount of such securities or investments exceeds 10% of the value of the Trust's assets, such securities must be liquidated by the Trust even if the market requires that they be liquidated at a price that reflects a substantial discount from their market value. REAL ESTATE-RELATED RISKS Certain authorized investments that (i) are neither federally insured or guaranteed nor issued or guaranteed by Fannie Mae or Freddie Mac or (ii) provide for contingent interest (see "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized investments; State and Local Government Related Investments.") will be subject to one or more real estate-related risks described below. Construction Risks. Due to the lack of federal insurance or guarantees, some proposed investments may involve potential construction risks. The construction period is an extremely risky phase of any project development for a variety of reasons. For example, it is sometimes difficult accurately to estimate prior to the commencement of construction the total costs of construction and related carrying costs that will be required in order to complete a project and to pay operating expenses, leasing costs and debt service until the project reaches sustaining occupancy. In addition, the construction period may be subject to unforeseeable delays and difficulties which may adversely affect the project and the related construction loan. The total development costs of a project and its scheduled completion date are subject to change as construction and operation of a project progresses. During all stages of development and construction, a developer is subject to extensive environmental, building, land use, zoning and other statutes and regulations administered by various federal, state, county and local authorities. Such statutory and regulatory requirements (and any changes in such requirements during construction) may result in increased costs, delays in construction and/or an inability to complete a project on schedule and in accordance with development plans. For example, changes in environmental or other laws may impose or increase restrictions on the use or operation of a project, may increase certain expenses of a project or may necessitate potentially expensive changes in the physical configuration of the property. Changes in federal tax laws may make investment in real estate less attractive economically and thereby adversely affect real estate values. Other factors that may result in increased costs, delays in construction and/or an inability to complete a project on schedule and in accordance with development plans include, without limitation, cost increases or shortages in, or the unavailability when needed of, materials, labor and/or services, construction or labor disputes, delays in construction caused by adverse weather, casualty and other factors, poor management, delays, unanticipated costs and difficulties in obtaining lease-up of a project and other unforeseen occurrences. Such cost overruns and delays may adversely affect the developer's ability to complete the construction of a project, as well as the economic viability of a project. Although the project and the sponsor will be carefully reviewed and underwritten, there is no assurance that a developer will have the resources available to fund the total construction and marketing costs of a project or will be able to secure secondary or alternative financing of cost overruns or unanticipated costs. In the event that construction loan proceeds and other funds available to a borrower are insufficient to pay all such costs, the project may not reach completion, satisfy any requirements for permanent financing and/or reach sustaining occupancy, in which event the borrower is unlikely to be able to repay the loan. There is no assurance that a developer will be able to complete the construction or lease-up of a project as required. Delays may result from a variety of causes, including, without limitation, the factors discussed above, despite the developer's contractual obligations as to completion and lease-up. Any failure to complete the construction or lease-up of a project on schedule and in accordance with development plans may result in loss of rental income, loss of permanent financing (if the Trust is providing only construction financing) or other financial assistance for the project. Market conditions also may change between the time at which a commitment is issued or the construction loan is made and the completion of a project, rendering the project economically unfeasible or anticipated rents unattainable. In the event that any of the foregoing or other difficulties occur during the construction period, the Trust may not receive the repayment on a timely basis of all amounts advanced under a construction loan. Risks Affecting the Operation of Projects and Repayment of Permanent Loans. A borrower's ability to make required payments on any mortgage loan after the completion of construction of a project will be affected by a variety of factors. These include, but are not limited to, the achievement and maintenance of a sufficient level of occupancy, sound management of the project, timely receipt of rental income, increases in rents to cover increases in operating expenses (including taxes, utility rates and maintenance costs), and the costs of required repairs resulting from reasonable wear and tear and casualties and changes in applicable laws and governmental regulations. In addition, the continued feasibility of each project may depend in part upon general and local economic factors, the supply and demand for rental housing in the area in which the project is located, competition from other rental housing projects, rent controls and profit controls. There are no assurances that a project owner will be able to achieve and maintain sufficient rental income in order to pay all operating expenses and maintenance and repair costs of a project and the debt service on the related mortgage loan on a timely basis. In the event that a project owner is unable to pay all such costs, expenses and debt service, a default on the related mortgage loan is likely to occur. Environmental and Litigation Risks. Certain states impose a statutory lien for associated costs on property that is the subject of a cleanup action by the state on account of hazardous wastes or hazardous substances released or disposed of on the property. Such a lien generally will have priority over all subsequent liens on the property and, in certain states, will have priority over prior recorded liens, including the lien of a mortgage. In addition, under federal environmental law and possibly under state law in a number of states, a secured party which takes a deed in lieu of foreclosure or acquires a mortgaged property at a foreclosure sale may be liable for the costs of cleaning up a contaminated site. Such costs could be substantial. The imposition of such costs on a project owner may adversely affect such owner's ability to pay the debt service on a mortgage loan. It is unclear whether such costs would be imposed on a secured lender such as the Trust in the event that it did not actually acquire title to the project. In the event that title to a project securing a mortgage loan to the Trust was acquired by the Trust and cleanup costs were incurred in respect of the project (or such cleanup costs were imposed upon the Trust as a secured lender even if it did not acquire title to the project), the Trust could realize a loss. Any project owner may be vulnerable to potential litigation arising from public or private disputes about the conduct of its business or the operation of its project. A project owner may become involved in disputes or litigation, during construction or in the course of continuing operations, as to violations of federal, state or local laws, property tax valuations and assessments, rent or profit controls, the terms of lease agreements with tenants or any other contract or agreement as to which it is a party or will become a party in the course of its business operations. There is no assurance that litigation arising from such disputes will be resolved in favor of the project owner and the existence of such a dispute or an unfavorable resolution of such a dispute could adversely affect the ability of a project owner to pay the debt service on its mortgage loan. Foreclosure Risks. In cases in which the Trust invests directly in mortgage loans, it is anticipated that the mortgage loan will be secured by a deed of trust or mortgage, depending upon the prevailing practice in the state in which the subject property is located. Foreclosure of a deed of trust may be accomplished by a non-judicial trustee's sale under a specific provision in the deed of trust which authorizes the trustee to sell the property upon any default by the borrower under the terms of the note or deed of trust. Foreclosure of a mortgage generally is accomplished by judicial action. The action is initiated by the service of legal pleadings upon all parties having an interest in the real property. Delays in completion of the foreclosure occasionally may result from difficulties in locating necessary party defendants. The borrower may seek bankruptcy protection in an attempt to delay or avert a foreclosure and/or assert other defenses to the proceedings. Any bankruptcy filing will, and the assertion of other defenses may, significantly delay the proceedings and increase the expenses incurred by the lender in prosecuting the proceedings, and could result in a reduction of the secured debt in the event of a "cramdown" by a bankruptcy court. Depending upon market conditions, the net proceeds of the sale of the property after foreclosure, fix-up, and selling expenses may be less than the Trust's investment. In some states, after foreclosure and sale, the borrower and foreclosed junior lienholders are given a statutory period in which to redeem the property from the foreclosure sale. In some states, redemption may occur only upon payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property. Consequently, the practical effect of the redemption right is often to force the lender to retain the property and pay the expenses of ownership until the redemption period has run. MANAGEMENT Under the terms of the Declaration of Trust, the power to exercise a controlling influence over the management and policies of the Trust is vested exclusively in the Board of Trustees. The Declaration of Trust provides that the Board may have up to 25 Trustees. Up to 12 of the Trustees may be Union Trustees, up to 12 of the Trustees may be Management Trustees, and one Trustee is to be the Chairman. As of April 1, 1996, the Board of Trustees consisted of the Chairman, 11 Union Trustees and 8 Management Trustees. The number of Management Trustees may not exceed the number of Union Trustees except in the event a Trustee dies or resigns before expiration of his term. The Board of Trustees has overall responsibility for the management of the Trust. Between meetings of the full Board, the Executive Committee of the Board of Trustees, currently consisting of the Chairman, one Union Trustee and one Management Trustee, acts for the Board in managing Trust affairs. When the Executive Committee is not in session, the Chief Executive Officer is responsible for Trust management. The Declaration of Trust divides the Union and Management Trustees into 3 Classes. Each Class is required to have, insofar as the pool of Trustees permits, an equal number of Union and Management Trustees. The term of each Class expires at the third annual meeting following its election. At each annual meeting, the Participants will elect a Chairman to serve until the next annual meeting and such number of Trustees as is necessary to fill vacancies in the Class whose terms expire as of that meeting and any Trustee appointed to complete the remainder of a term. The current Trustees and officers of the Trust and their principal occupations are described in the Statement of Additional Information under "MANAGEMENT OF THE TRUST." The Trust pays the Chairman $10,000 per year. The Trust pays Management Trustees $500 per day for participation in Board of Trustee meetings and committee meetings. The Trust pays no remuneration to any Union Trustee. Individual Trustees are reimbursed for out-of-pocket expenses of attending Trustee and committee meetings. The Trust employs the Chief Executive Officer as a salaried employee pursuant to an employment agreement with him. For the fiscal year ended December 31, 1995, the Trust's personnel expenses (salaries and benefits) for all Trust officers and staff members totaled $3,118,496. The Trust has no independent investment adviser, except with respect to certain short-term assets. See "INVESTMENT ADVISER." Investment decisions are made by the Chief Executive Officer and the Financial Manager of the Trust under the general supervision of the Executive Committee and, ultimately, the Board of Trustees. Since both the Chief Executive Officer and the Financial Manager are officers of the Trust and neither is engaged in the business of providing securities investment advice to others, neither the Chief Executive Officer nor the Financial Manager has registered or plans to register as an investment adviser under the Investment Advisers Act. The Trust has no independent transfer agent or dividend paying agent. Issuance and redemption of Units and distribution of interest income are the responsibility of the Chief Executive Officer and his staff. The Chief Executive Officer and the Financial Manager plan to acquire the Trust's mortgage investments from, in participation with, or with the assistance of FHA- and VA-approved mortgage banking firms, Fannie Mae- and Freddie Mac-approved seller/servicers, depository institutions, and other lenders approved by management, located throughout the United States believed to be in a position to know the standing of local builders and other borrowers and the merit of the building projects considered for investment. The Chief Executive Officer and the Financial Manager each has broad discretion regarding the mortgage banking firms and institutions through which the Trust deals. Construction loans and first mortgage loans are acquired from mortgage banking firms or other lenders on a net price basis without commissions, although the Trust will typically pay the mortgage banker or depository institution involved an ongoing loan servicing fee in connection with whole mortgage loans and participations therein, in each case ranging from .07% to .75% of the amount involved in the transaction. The Trust does not ordinarily engage brokers to effectuate transactions in mortgage loans or securities. It is customary for brokers for construction and long-term real estate loans to be engaged by the mortgage borrower or the mortgage banker without expense to mortgage investors such as the Trust. Transactions in short-term liquid assets are customarily effectuated on a net price basis without commission. During the year ended December 31, 1995, the Trust's expenses totaled $5,363,285 (0.51% of average net assets). The Trust does not expect to incur a material amount of extraordinary expense during the current fiscal year. TRUST PERFORMANCE The factors that materially influenced the Trust's performance during its most recently completed fiscal year are discussed in the Trust's 1995 annual report to shareholders, currently on file with the SEC. The following graph illustrates the net and gross account value of $50,000 invested in the Trust on January 1, 1986 at the end of each of the past ten years, compared to the account value of $50,000 invested on the same date at total rate of return of the Salomon Brothers Broad Bond Index, Salomon Brothers Mortgages Index and the U.S. Treasury Bill Index. Trust's Annualized Total Gross Returns One year ended Five years ended Ten years ended December 31, 1995 December 31, 1995 December 31, 1995 20.11% 9.59% 10.10% PAST PERFORMANCE OF AN INVESTMENT IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
COMPARATIVE RATES OF RETURN 1986 - 1995 - ------------------------------------------------------------------------------ TOTAL VALUE OF INVESTMENT FOR YEAR ENDING 1986 1987 1988 1989 1990 - ------------------------------------------------------------------------------ AFL-CIO Housing Investment Trust Total Gross Rate of Return $ 66,736.72 69,267.64 75,619.49 88,963.45 98,084.91 AFL-CIO Housing Investment Trust Total Net Rate of Return $ 65,758.53 67,801.23 73,645.41 86,202.67 94,538.37 Salomon Brothers Broad Bond - Total Gross Rate of Return $ 70,628.25 72,464.58 78,261.75 89,531.44 97,678.80 Salomon Brothers Mortgages - Total Gross Rate of Return $ 71,271.90 74,194.05 80,723.12 92,993.04 103,129.28 U.S. Treasury Bill - Total Gross Rate of Return $ 56,761.70 59,713.31 63,355.82 68,297.57 73,215.00
COMPARATIVE RATES OF RETURN 1986 - 1995 (continued) - ------------------------------------------------------------------------------ TOTAL VALUE OF INVESTMENT FOR YEAR ENDING 1991 1992 1993 1994 1995 - ------------------------------------------------------------------------------ AFL-CIO Housing Investment Trust Total Gross Rate of Return $112,700.72 119,749.86 131,928.13 129,085.47 155,045.37 AFL-CIO Housing Investment Trust Total Net Rate of Return $108,052.95 114,277.09 125,329.18 121,948.59 145,801.70 Salomon Brothers Broad Bond - Total Gross Rate of Return $113,307.41 121,918.78 133,988.74 130,103.06 154,302.23 Salomon Brothers Mortgages - Total Gross Rate of Return $119,217.45 128,039.54 137,002.31 135,084.27 157,778.43 U.S. Treasury Bill - Total Gross Rate of Return $ 77,022.18 79,486.89 81,633.04 84,571.82 88,715.84
INVESTMENT ADVISER Beginning as of May 21, 1992, the Trust engaged Wellington Management Company ("Wellington Management") to furnish investment advisory services concerning certain of the short-term, liquid assets in the Trust's portfolio designated by the Trust from time to time (the "Short-Term Assets"). As of December 31, 1995, the value of all short term assets eligible for management by Wellington Management was $50,942,437 which represented 4.4% of the Trust's total net assets at that date. Wellington Management, a Massachusetts general partnership, is a registered investment adviser with principal offices located at 75 State Street, Boston, Massachusetts 02109. Its Managing Partners are Robert W. Doran, Duncan M. McFarland and John R. Ryan. Wellington Management is a professional investment counseling firm that provides investment services to investment companies, employee benefit plans, endowment funds, foundations, and other institutions and individuals. As of December 31, 1995, Wellington Management held investment management authority over approximately $109.2 billion of assets, including $15.4 billion of cash and cash-equivalent assets. Wellington Management and its predecessor organizations have provided investment advisory services to investment companies since 1933 and to investment counseling clients since 1960. Pursuant to the terms of its contract with the Trust, which was renewed in May 1995 for a period of one year, Wellington Management manages the investment and reinvestment of the Short-Term Assets; continuously reviews, supervises, and administers the investment program of the Trust with respect to the Short-Term Assets; determines in its discretion the securities to be purchased, retained, and sold (and implements those decisions); and renders regular reports to the Trust's officers and Trustees with all statistical information and reports reasonably required by them, including all information required under Section 15(c) of the Investment Company Act. Wellington Management must discharge these and its other duties subject to the oversight of the officers and Trustees of the Trust and in compliance with the Trust's policies, as well as with applicable laws and regulations. Wellington Management is authorized to arrange for the execution of portfolio transactions by selecting brokers or dealers that will execute the transactions, and is directed to use its best efforts to obtain the best net results, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm involved. Wellington Management may in its discretion purchase and sell portfolio securities through brokers who provide it or the Trust with research, analysis, advice and similar services, and Wellington Management may pay to these brokers, in return for research and analysis, a higher commission than may be charged by other brokers, provided that Wellington Management determines in good faith that such commission is reasonable in terms either of that particular transaction or of the overall responsibility of Wellington Management, that the total commission paid by the Trust will be reasonable in relation to the benefits to the Trust over the long term, and that the total commission paid by the Trust is consistent with commissions paid in comparable transactions. In selecting a broker for each specific transaction, Wellington Management will use its best judgment to choose the broker most capable of providing the brokerage services necessary to obtain the best available price and most favorable execution. The full range and quality of brokerage services available will be considered in making these determinations. Wellington Management will make periodic evaluations of the quality of these brokerage services as provided by various firms and measure these services against its own standards of execution. Brokerage services will be obtained only from those firms which meet its standards, maintain a reasonable capital position, and can be expected to reliably and continuously supply these services. In compensation for the investment advisory services provided by Wellington Management, the Trust will pay Wellington Management on a quarterly basis a fee at the annual rate of 0.125% of the market value of the Short-Term Assets based on the average monthly market value of the first $100 million, and at the annual rate of 0.100% of the market value of the Short-Term Assets based on the average monthly market value in excess of $100 million. In fiscal 1995, the Trust incurred total investment advisory fees of $50,285, which represented .005% of the Trust's average net assets for such period. INCIDENTS OF OWNERSHIP OF UNITS Beneficial interests of the Trust are divided into Units representing equal portions of Trust assets. Rights arising from ownership of Units are set forth in the Declaration of Trust. The Declaration of Trust can be amended by vote of a majority of Trustees without any requirements of a vote by holders of Units. However, the Declaration of Trust provides that, notwithstanding anything to the contrary contained in the Declaration of Trust or any amendment thereto, no part of the Trust that equitably belongs to any investor (other than such part as is required to pay the expenses of the Trust) is to be used for any purpose other than the exclusive benefit of the investors. In addition, fundamental investment policies may not be changed without the approval of holders of a majority of the Trust's outstanding Units. Each Unit carries the right to vote to elect a Class of Trustees, to ratify selection of the auditors for the Trust, and to approve changes in investment policy. Each Unit entitles the holder thereof to participate pro rata with all other Units in the distribution of assets in any liquidation of the Trust. No preemptive rights attach to Units; the Trust has the right to sell or exchange Units without offering the same to the holders of the then outstanding Units. The overwhelming majority of jurisdictions in the United States recognize a trust, such as the Trust, as a separate legal entity, wholly distinct from its beneficiaries. In those jurisdictions, the beneficiaries of a trust, such as the Participants in the Trust, are not liable for the debts or other obligations of the trust. A few jurisdictions, particularly Texas and Kansas, do not recognize so-called "business trusts" as separate legal entities and hold the beneficiaries of such trusts personally liable for actions of the business trusts. The Trust nevertheless does not expect to exclude otherwise eligible investors in Kansas and Texas and other such jurisdictions from investing in Units. The Declaration of Trust requires that every written undertaking contain a provision stating that such undertaking is not binding upon any investor personally and that any person, firm, corporation or association dealing with the Trustees shall be limited to satisfying any obligation, liability, or covenant of the Trustees out of the Trust property and not out of the personal property of any investor. Counsel for the Trust is of the opinion that in the overwhelming majority of jurisdictions, no personal liability will attach to the holders of Units on any undertaking containing such a provision. However, in those jurisdictions that refuse to recognize the separate status of trusts such as the Trust, Participants could be held personally liable for claims against the Trust. These claims could include contract claims where the provision referred to above is omitted from the undertaking, tort claims, tax claims and certain other statutory liabilities. If such liability were ever imposed upon Participants, they would be liable only to the extent that Trust assets and insurance were not adequate to satisfy the claims. Units are not transferable and are not assignable. No holder of a Unit has the authority to pledge the Unit as collateral for any loan. The Trust does not issue certificates to evidence ownership of Units. In lieu thereof, Units are issued and redeemed by bookkeeping entry and without physical delivery of any securities. The Trust, at the end of each calendar quarter, makes pro rata distributions of net income earned during the preceding three-month period. Such distributions are made in cash. Pursuant to an Internal Revenue Service ruling received by the Trust, a Participant may authorize the Trust automatically to reinvest any dividends to which the Participant is entitled in the Trust in exchange for a corresponding amount of Units, calculated at the Net Asset Value as of the end of the calendar quarter. The Trust may be terminated at any time by the Trustees after notice in writing to all Participants. Any inquiries or expressions of interest concerning sales transactions should be referred to the Director of Investor Relations at Trust headquarters, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006. SECURITIES OFFERED ELIGIBLE INVESTORS Only "Labor Organizations" and "Eligible Pension Plans" are eligible to own Units. A Labor Organization means any organization of any kind, any agency, employee representation committee, group, association, or plan in which employees participate directly or through affiliated organizations, and which exists for the purpose, in whole or in part, of dealing directly or through affiliated organizations with employers concerning terms or conditions of employment and any employee benefit plan of such an organization, or any other organization which is, in the discretion of the Board of Trustees, affiliated with or sponsored by such an organization. An Eligible Pension Plan is a pension plan constituting a qualified trust under IRC Section 401(a) that has beneficiaries who are represented by a Labor Organization and the management of which has the discretionary right to invest funds of beneficiaries without the direct intervention or control of those beneficiaries. VALUATION The price of Units is based on Net Asset Value as of the monthly Valuation Date following receipt of a purchase order by dividing the value of the Trust's portfolio plus any cash and other assets (including interest and dividends accrued but not collected) less all liabilities (including accrued expenses but excluding capital and surplus) as of that Valuation Date by the number of Units then outstanding. Admission to or withdrawal from the Trust is permitted in whole or fractional Units as of monthly Valuation Dates. A request for purchase of Units must be received by the Trust before the Valuation Date as of which it is to be issued. A minimum initial investment of $50,000 is required. A request for purchase of Units must be accompanied by cash or by a subscription agreement providing for a cash escrow of the amount to be invested as of the forthcoming Valuation Date. Forms of subscription agreements with banks providing for a cash escrow pursuant to which escrowed amounts will be held in interest-bearing form are available from the Trust. There is no sales charge or commission payable in connection with the purchase of Units or the escrow. Trust investments that regularly trade in a secondary market are valued by the Trust principally by reference to available bid and ask quotations. When the secondary market for the securities, mortgage loans and construction loans in which the Trust invests is not sufficiently active to permit ready ascertainment of a market price for any particular asset in the Trust's portfolio, the Trust's securities, mortgage loans and construction loans and other portfolio assets are valued in good faith after consideration of other factors affecting remarketability and comparable market yield pricing. The Trust has retained a third-party consultant which, in consultation with Trust management, has developed a valuation methodology for certain securities in the Trust's portfolio that have a less active secondary market. The Trust may from time to time retain additional outside consultants to assist the Trust's staff in establishing values in accordance with such procedures. A summary of the current valuation methodology used by the Trust with respect to various categories of investments is as follows: SHORT-TERM INVESTMENTS consisting of repurchase agreements, commercial paper, bankers acceptances, money market accounts, investment trusts, other investments and warehousing loans, which mature less than sixty days from the Valuation Date are valued at amortized cost. Short-term investments which mature more than sixty days from the Valuation Date are valued at the last reported sales price on the last business day of the month or the mean between the reported bid and ask price if there was no sale. Short-term investments maturing more than sixty days from the Valuation Date for which there are no quoted market prices are valued to reflect current market yields for securities with comparable terms and interest rates. LONG-TERM INVESTMENTS consisting of mortgage-backed securities, permanent mortgages, construction loans and participation certificates are valued using published prices or dealer bids, supported by the present value of projected cash flow, discounted using market-based discount and prepayment rates developed individually for each security. The market-based discount rate is composed of the sum of a risk-free yield (i.e., a U.S. Treasury Note with a weighted average life comparable to the security being valued) and adjusted for an appropriate risk premium. The risk premium reflects actual premiums in the marketplace over the yield on U.S. Treasury securities of a comparable risk and maturity to the security being valued. On loans for which the Trust finances the construction and permanent mortgage, a value is determined based upon the total amount of the commitment for the term of the construction loan plus the permanent mortgage loan. For construction only loans, the outstanding principal balance of the loan is used to approximate value, assuming no decline in credit quality. CONTINGENT INTEREST LOANS. Contingent interest mortgage loans bear a base rate of interest at a rate below the market rate for non-contingent interest mortgage loans prevailing at the time the loan was made in return for the right to receive as additional interest a portion of (i) net cash flow from operations and/or (ii) proceeds from the sale or refinancing of the related project. In general, the interest in the early years is lower than would be the case for non-contingent interest mortgage loans, but increases in later years as net operating cash flow increases and/or upon receipt of proceeds of a sale or refinancing, and is added to the base interest. The Trust, as holder of the contingent interest loan, is entitled to receive additional interest in excess of the base interest rate. Because the amount of any proceeds from net cash flow cannot be determined in advance, and the amount of any proceeds from a sale or refinancing cannot be determined before a sale or refinancing actually occurs, it is not possible to value the contingent interest feature with precision. The values of non-contingent mortgage loans are affected primarily by changes in interest rates and secondarily by the performance of the underlying property. With regard to contingent interest mortgage loans, however, the performance of the underlying property becomes a more important determinant of value. Contingent interest mortgage loans generally are accounted for by an estimate of the underlying property's value in those circumstances where no exchange market exists. It is possible that the exchange value that would take place between a willing buyer and a willing seller could differ from the estimated value, and that the difference could be significant. The estimated value is determined by an appraisal method that discounts the expected cash flows of the underlying property. During the initial years the mortgage is carried at outstanding principal amounts plus accrued interest (assuming no inherent credit problems with the underlying property). In later years, as the property matures, the Trust may record appreciation or depreciation in the value of the investment based on whether the performance of the underlying property exceeds or falls short of expectations. As long as the underlying property is projected to generate net operating cash flow above the base rate, the amount of the projected contingent interest obligation is accruable by the Trust throughout the term of the mortgage. In no event, however, will the carrying value of the underlying property exceed its appraised value at any one reporting date. Determining the value of underlying properties necessarily requires assumptions and estimates about future events and cash flows of the properties. It is the intent of the Trust to engage a qualified MAI appraiser to perform the appraisal of underlying property every five years and to place into effect appropriate procedures to assess the relevance of individual appraisals so that they may be updated annually by the Trust. Privately collateralized investments; state and local government-related investments. - ------------------------------------------------------------------------------ (1) Public ratings. Obligations which carry a public rating from one or more nationally recognized rating agencies are valued to reflect current market yields as determined by giving effect to the average of quotes obtained from dealers in such obligations for securities of comparable quality, interest rates and maturities. (2) No public rating with recourse to issuer and/or with credit enhancement. Obligations which do not carry a public rating but are with recourse to the issuer and/or have the benefit of credit enhancement are valued to reflect current market yields as determined by giving effect to the average of quotes obtained from dealers in such obligations for securities of comparable yield and term to maturity and of a quality which, in the determination of the Trust, is most nearly comparable to obligations in any one or more of the following categories: (a) obligations which carry a private rating upon which the Trust is entitled to rely shall be valued against securities having comparable public or private ratings; (b) obligations which are guaranteed or otherwise secured by the general credit or moral obligation of a state or local government or an agency or instrumentality thereof shall be compared to other publicly sold obligations of the particular state or local government or agency or instrumentality thereof carrying comparable guarantees or security arrangements; (c) obligations with respect to which no other publicly sold obligations issued or guaranteed or otherwise secured by a particular state or local government or agency or instrumentality thereof are available (for purposes of determining comparable quality) will be valued as if they were comparable in quality to the lowest rated "investment grade" obligations of the particular issuer with respect to which comparable quotes are available, and if the only obligations of such issuer with respect to which comparable quotes are available are of a grade higher than the lowest rated investment grade, the Trust will make an appropriate discount from quotes on such obligations to reflect a reduction to the lowest rated investment grade; or (d) obligations with respect to which no publicly sold securities of comparable quality are found in accordance with the foregoing guidelines will be valued by management on the basis of the particular facts and circumstances of the case based on investments that are comparable with respect to terms, quality and yield. The averaging of quotes from dealers may be supplemented by application of the following valuation criteria when, in the opinion of management, the application of such supplemental criteria is warranted or desirable: (i) discounting of expected future cash flows; (ii) assessing the nature of the issuer or the entity providing credit enhancement, as applicable, risks it is subject to, historical patterns of revenue assessment and collection; (iii) assessing tangible book value and financial condition of the issuer or the entity providing credit enhancement, as applicable; (iv) assessing revenue history of the issuer or the entity providing credit enhancement, as applicable. Obligations with respect to which a notice of redemption has been issued will be valued on the basis of their current market yield and yield to maturity, if the Trust has no reason to believe that payment on the obligations will not be made at the call date. Any obligations (i) which are in default or (ii) with respect to which one or more underlying assets are in default and there is no mortgage insurance or other credit enhancement available to assure full and timely payment will be valued by management based upon the particular facts and circumstances of the case. (3) No public rating without recourse to issuer and without credit enhancement. Obligations which do not carry a public rating, are without recourse to the issuer, and are without credit enhancement will be valued by management on the basis of the particular facts and circumstances of the case based on investments that are comparable with respect to terms, quality and yield. General. In addition to the valuation methods described above, all investments are reviewed and appropriate adjustments are made to reflect the effect of income (collected or accrued), realized and unrealized gains and losses, expenses and any material impairments in value arising from the specific conditions of investment (e.g., mortgage in default). SALES ACTIVITIES The Trust conducts sales and distribution activities for Units that are directed to certain pension plans. These activities, which are conducted by and under the direction of the Director of Investor Relations, include solicitations in person or by mail or telephone, as well as responding to inquiries concerning the Trust's offering of Units, and the ministerial and clerical work of effecting sales of Units. All inquiries concerning the Trust's offering of Units should be directed to AFL-CIO Housing Investment Trust, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006, Attention: Director of Investor Relations, (202) 331-8055. Expenses of sales and distribution of Units are paid by the Trust pursuant to a Plan for Distribution adopted pursuant to SEC Rule 12b-1 under the Investment Company Act. The budget for the sales and distribution activities authorized by the Participants was $475,000 in 1995 and is $500,000 in 1996. Such sales and distribution expenses for the year ended December 31, 1995 were $465,765, which represented approximately .04 percent of $1,166,893,471 in net Trust assets as of December 31, 1995. No material increase in the budgeted rate of sales and distribution expense will be made without Participant approval. See "SALES AND DISTRIBUTION ACTIVITIES" in the Statement of Additional Information for a more detailed discussion of sales and distribution. The Plan for Distribution will continue in effect until April 30, 1997, unless earlier terminated by vote of a majority of the Trust's outstanding Units or by a majority of disinterested Trustees. Any change in the Plan for Distribution that would materially increase the amount of distribution expense borne by the Trust requires Participants' approval; any other material change requires approval by the Trustees, including a majority of the disinterested Trustees. The Plan for Distribution may continue in effect for successive one-year periods, provided that each continuance is specifically approved: (a) by a vote of the majority of the Trust's Units or by the Trustees; and (b) by the vote of a majority of the Trustees who are disinterested and who have no direct or indirect financial interest in the Plan for Distribution or any related agreements. For additional information regarding the Plan for Distribution, see "SALES AND DISTRIBUTION ACTIVITIES" in the Statement of Additional Information. In general, SEC Rule 12b-1, with which the Trust will comply, requires that a Plan for Distribution be approved in a specified manner by the holders of voting securities and Trustees, that quarterly reports of distribution expenses be made to the Trustees, and that the plan be terminable upon specified conditions. REDEMPTION A request for redemption of Units will be honored if it is in writing and received 15 days or more before the Valuation Date on which the Units are to be redeemed. Securities may be redeemed in whole or fractional Units. Payment in satisfaction of duly tendered requests for redemption will be made as soon as practicable and, in any event, within 7 business days after the Net Asset Value of the Trust is ascertained for the Valuation Date as of which redemption is effected. It usually takes 7 to 10 business days to calculate the Trust's Net Asset Value after a Valuation Date. Upon the agreement of the redeeming Participant, the Trust may tender securities or mortgages or other Trust assets in partial or full satisfaction of a duly tendered request for redemption. Such securities, mortgages or other assets will be treated for redemption purposes as the cash equivalent of their value on the Valuation Date on which redemption is effected. A Participant receiving such assets may incur expenses in disposing of such assets for cash. Section 22(c) of the Investment Company Act and SEC Rule 22c-1 thereunder provide that no registered investment company issuing a redeemable security and no principal underwriter of such company shall sell or redeem any such security except at a price based on the current net asset value of such security that is next computed after receipt of a tender of such security for redemption or of an order to purchase such security. Section 22(e) provides that no registered investment company shall postpone the date of payment upon redemption of a redeemable security in accordance with its terms for more than seven days after the tender of such security for redemption except in certain limited circumstances. The Trust's redemption policies do not conform to the foregoing requirements. The Trust has obtained exemption from generally applicable redemption requirements on the grounds that the interests of its Participants will make investment and redemption other than on a quarterly basis unnecessary and that daily valuation of the Trust portfolio of mortgage loans would be unduly burdensome. The Board of Trustees has implemented monthly valuations of the Trust's assets, which enables the Trust to sell and redeem Units on a monthly, rather than quarterly, basis. See "RISK FACTORS--Redemption." TAX STATUS The Trust has filed its tax returns as a regulated investment company under Subchapter M of the Internal Revenue Code and intends to operate in a manner which qualifies for treatment as a regulated investment company. If the Trust so qualifies and distributes all of its taxable income to Participants, it will not be subject to federal income tax. Participants will be required to report their proportionate share of such income for income tax purposes, but Participants not subject to tax on their income will not be required to pay tax on amounts distributed to them. The Trust will inform Participants annually of the amounts and nature of such income. PENDENCY OF LEGAL PROCEEDINGS The Trust is not involved in any material legal proceedings and is not aware of any legal proceedings against it contemplated by any governmental authorities. PART B. STATEMENT OF ADDITIONAL INFORMATION AFL-CIO HOUSING INVESTMENT TRUST 1717 K Street, N.W. Suite 707 Washington, D.C. 20006 (202) 331-8055 STATEMENT OF ADDITIONAL INFORMATION ----------------------------------- This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust ("Trust") Prospectus, dated April 29, 1996, which may be obtained without charge from Trust headquarters. The date of this Statement of Additional Information is April 29, 1996. TABLE OF CONTENTS Page History............................................................... 1 Exemptions from Specific Requirements of the Investment Company Act......................................................... 1 Nondiversification.............................................. 1 Redemption Restrictions......................................... 2 Investment Objective and Policies..................................... 2 Management of the Trust............................................... 3 Principal Holders of Securities....................................... 13 Investment Adviser.................................................... 13 Sales and Distribution Activities..................................... 15 Admission to the Trust................................................ 17 Supplementary Information............................................. 18 Custodian....................................................... 18 Auditors........................................................ 18 Reports......................................................... 18 Legal Matters................................................... 18 Financial Statements.................................................. 18 Appendix A............................................................ A-1 Appendix B............................................................ B-1 Appendix C............................................................ C-1 HISTORY The American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust ("Trust") is a common law trust created under the laws of the District of Columbia pursuant to a Declaration of Trust originally executed September 19, 1981. The name of the Trust was changed from "AFL-CIO Pooled Investment Trust" on May 27, 1982. The Trust has been established under the sponsorship of the AFL-CIO as an instrumentality of the United States labor union movement. EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT On April 21, 1982 the Trust obtained from the Securities and Exchange Commission ("SEC") an order under Section 6(c) of the Investment Company Act of 1940, as amended ("Investment Company Act") exempting the Trust from certain requirements of that Act (SEC Release No. 12387). The following is a brief summary of certain of these exemptions. NONDIVERSIFICATION The Investment Company Act provides that no registered investment company shall change its subclassification from diversified to nondiversified without the shareholders' authorization. Under Section 5(b) of the Act, a "diversified company" is: [A] management company which meets the following requirements: At least 75 percentum of the value of its total assets is represented by cash and cash items (including receivables), Government securities, securities of other investment companies and other securities for the purposes of this calculation limited in respect to any one issuer to an amount not greater in value than 5 percentum of the value of the total assets of such management company and to not more than 10 percentum of the outstanding voting securities of such issuer. A "nondiversified company" means any management company other than a diversified company. The Trust will seek to remain as diversified as practicable. Because, however, the mortgages in which it proposes to invest are often offered in large denominations, the Trust may shift from time to time from diversified to nondiversified status. The Trust has obtained an exemption from the requirement of a shareholder vote before shifting its diversification status. The terms "diversified" and "non-diversified" as used herein are not intended to describe the geographical locations or concentrations of mortgaged properties represented in the Trust's portfolio. Such properties are spread throughout the United States and it is the Trust's intention to maintain such geographical diversity. REDEMPTION RESTRICTIONS Section 22(c) of the Investment Company Act and SEC Rule 22c-1 thereunder provide that no registered investment company issuing a redeemable security and no principal underwriter of such company shall sell or redeem any such security except at a price based on the current net asset value of such security that is next computed after receipt of a tender of such security for redemption or of an order to purchase such security. Section 22(e) provides that no registered investment company shall postpone the date of payment upon redemption of a redeemable security in accordance with its terms for more than seven days after the tender of such security for redemption except in certain limited circumstances. The Trust's redemption policies do not conform to the foregoing requirements. See "REDEMPTION" in the Prospectus. The Trust has obtained exemption from generally applicable redemption requirements on the grounds that the interests of its Participants will make investment and redemption other than on a quarterly basis unnecessary and that daily valuation of the Trust portfolio of mortgage loans would be unduly burdensome. Effective October 1, 1987, the Board of Trustees authorized investments and redemptions on a monthly basis instead of a quarterly basis. INVESTMENT OBJECTIVE AND POLICIES A description of the Trust's investment objective and policies is set forth in the Trust's Prospectus under "INVESTMENT OBJECTIVE AND POLICIES." Certain of the Trust's authorized investments are tied to ratings at various levels by one or more nationally recognized statistical rating agencies. A description of Standard & Poor's rating categories for long-term debt and short-term debt are attached as Appendix A to this Statement of Additional Information. The rating categories of other nationally recognized statistical rating agencies are similar to those of Standard & Poor's. Similarly, certain of the Trust's authorized investments relate to depository institutions rated in category "B" or higher by Thomson Bankwatch, Inc. See "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized Investments; State and Local Government-Related Investments in the Prospectus. A description of the rating categories of Thomson Bankwatch, Inc. is attached as Appendix B to this Statement of Additional Information. The following information is included to augment the discussion of "top tier" agencies under "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized Investments; State and Local Government-Related Investments" in the Prospectus. The Trust is allowed to invest in construction or permanent loans, or securities backed by construction or permanent loans, or interests in such loans or securities, provided that such loans or securities are issued or guaranteed, as the case may be, by a state or local housing finance agency designated "top tier" by Standard & Poor's (or designated comparably by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) at the time of acquisition by the Trust. Before designating a housing agency as top tier, Standard & Poor's must favorably evaluate a number of criteria, including the agency's general track record, unrestricted fund balances, administrative capabilities, investment policy, internal controls, portfolio quality and the sponsoring state's commitment to housing. A more complete description of the guidelines used by Standard & Poor's is attached to this Statement of Additional Information as Appendix C. MANAGEMENT OF THE TRUST The current Trustees and officers of the Trust and their principal occupations are as follows: Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - --------------------- --------------- ------------------------ Richard Ravitch Chairman Formerly President and 350 Park Avenue Chief Executive Officer, 18th Floor Player Relations Committee New York, New York of Major League Baseball; age 62 formerly Chairman, Aquarius Management Corporation (limited profit housing project management); formerly Chairman and Chief Executive Officer, Bowery Savings Bank Arthur A. Coia* Union Trustee General President, Laborers' 905 16th Street, N.W. International Union of Washington, D.C. 20006 North America age 53 Robert A. Georgine* Union Trustee President, Building and 815 16th Street, N.W. Construction Trades Washington, D.C. 20006 Department, AFL-CIO age 63 Francis X. Hanley Union Trustee General President (formerly 1125 17th Street, N.W. General Secretary-Treasurer Washington, D.C. 20036 International Union of age 65 Operating Engineers Frank Hurt* Union Trustee President, Bakery, 10401 Connecticut Avenue Confectionery & Tobacco Kensington, MD 20895 Workers International Union age 57 John T. Joyce* Union Trustee President, Bricklayers & 815 15th Street, N.W. Allied Craftsmen Internationl Washington, D.C. 20005 Union Sigurd Lucassen* Union Trustee General President 101 Constitution Ave., N.W. (formerly First General Washington, D.C. 20001 Vice-President), United age 68 Brotherhood of Carpenters and Joiners of America Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - --------------------- --------------- ------------------------ Gerald W. McEntee* Union Trustee International President, 1625 L Street, N.W. American Federation of Washington, D.C. 20036 State, County and Municipal age 61 Employees, AFL-CIO A.L. Monroe* Union Trustee General President, 1750 New York Ave., N.W. International Brotherhood of Washington, D.C. 20006 Painters and Allied Trades age 62 Jack F. Moore* Union Trustee Secretary (formerly Vice 1125 15th Street, N.W. President), International Washington, D.C. 20005 Brotherhood of Electrical age 69 Workers John J. Sweeney* Union Trustee President, AFL-CIO; 2050 K Street, N.W. formerly International Washington, D.C. 20006 President, Service age 62 Employees International Union Richard L. Trumka* Union Trustee Secretary-Treasurer, 815 16th Street, N.W. AFL-CIO, formerly Washington, D.C. 20006 President, Mine Workers age 46 of America, United Terrence R. Duvernay Management Trustee Public Finance division, 4740 Guilford Forest Dr. Legg Mason; formerly Atlanta, GA 30331 Deputy Secretary of U.S. age 53 Department of Housing and Urban Development; formerly Executive Director of Georgia Housing and Finance Authority and Michigan State Housing Development Authority Alfred J. Fleischer Management Trustee Chairman, Fleischer-Seeger 5725 Manchester Avenue Construction Corporation; St. Louis, MO 63110 formerly a Direction of the age 75 National Corporation for Housing Partnerships of Washington, D.C. Catherine Baker Knoll Management Trustee Treasurer, Commonwealth of Finance Building Pennsylvania Room 129 Harrisburg, PA 17120 age 65 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - --------------------- --------------- ------------------------ H.D. LaVere Management Trustee President, Michigan 1100 Owendale Avenue Carpentry, Inc. (residential Suite K building contractor); Labor Troy, Michigan 48083-1914 Relations Director, Michigan age 67 Carpentry Contractors Association George Miller Management Trustee Executive Vice President, 1550 Spring Road Mason Contractors Association Suite 320 of America Oakbrook Terrace, IL 60521 age 72 Marlyn J. Spear Management Trustee Investment Coordinator, The 500 Elm Grove Road Building Trades United Room 300 Pension Trust Fund Elm Grove, WI 53122-0530 age 43 Tony Stanley Management Trustee Executive Vice President and 25250 Rockside Road Director, TransCon Builders, Bedford Heights, OH 44146 Inc. (building construction) age 62 Patricia F. Wiegert Management Trustee Retirement Administrator, 1355 Willow Way Contra Costa County Suite 221 Employee's Retirement Concord, CA 94520 Association age 49 Stephen F. Coyle* Chief Executive Formerly Director of the 1717 K Street, N.W. Officer Boston Redevelopment Suite 707 Authority Washington, D.C. 20006 age 50 William C. Tutt* Financial Manager Financial Manager, AFL-CIO 1717 K Street, N.W. Housing Investment Trust Suite 707 Washington, D.C. 20006 age 55 Michael M. Arnold* Director of Investor Director of Investor 1717 K Street, N.W. Relations Relations, AFL-CIO Housing Suite 707 Investment Trust Washington, D.C. 20006 age 56 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - --------------------- --------------- ------------------------ Helen R. Kanovsky General Counsel Formerly Executive Vice 1717 K Street, N.W. President and General Counsel Suite 707 GE Capital Asset Management Washington, D.C. 20006 Corporation; formerly Vice age 45 President, Skyline Financial Services Corporation Union Trustees Hanley, Lucassen, McEntee and Trumka and Management Trustees Miller, Knoll and LaVere are "Class I" Trustees, whose terms expire at the 1996 Annual Meeting of Participants. Union Trustees Georgine, Joyce and Moore and Management Trustees Fleischer and Spear are "Class II" Trustees whose terms expire at the 1997 Annual Meeting of Trustees. Union Trustees Coia, Hurt, Monroe and Sweeney and Management Trustees Duvernay, Stanley and Wiegert are "Class III" Trustees whose terms expire at the 1998 Annual Meeting of Participants. Trustee Ravitch is the Chairman (a non-classified trustee) with a one-year term expiring at the 1996 Annual Meeting of Participants. Those Trustees and officers whose names are marked with an asterisk (*) may be considered to be "interested persons" within the meaning of Section 2(19) of the Investment Company Act although the Trust does not concede that such is the case. Each of these Trustees and officers is an officer or employee of the AFL-CIO, a Labor Organization (as that term is defined in the Trust's Declaration of Trust) that is a member of the AFL-CIO, or the Trust. The Executive Committee of the Trust is composed of the Chairman, Richard Ravitch (Chairman of the Executive Committee), Union Trustee John J. Sweeney and Management Trustee Tony Stanley (Vice Chairman of the Executive Committee). The Executive Committee has all the authority of the Board of Trustees when the Board is not in session, except to the extent that such authority is limited by law. The Executive Committee also serves as Nominating Committee with authority to identify potential new members of the Board of Trustees. Until September 30, 1990, the Trust and the AFL-CIO were parties to a Personnel Contract pursuant to which the AFL-CIO was obligated to furnish the Trust certain personnel (approved by the Trust) to act as Financial Manager, Director of Investor Relations and staff. The fee paid by the Trust to the AFL-CIO was the AFL-CIO's actual cost incurred in providing the personnel to the Trust, and was payable quarterly. Pursuant to the Personnel Contract, the AFL-CIO made available to the Trust the services of William C. Tutt as Financial Manager, Michael M. Arnold as Director of Investor Relations, and an administrative staff numbering nine persons. In addition, the Trust employed two staff members who were not subject to the Personnel Contract. Effective October 1, 1990, all such persons became employed directly by the Trust. Since February 1, 1992, Stephen Coyle has served as Chief Executive Officer of the Trust. Mr. Coyle, age 50, served as Director of the Boston Redevelopment Authority from July 1984 to January 1992. Prior to that, he served as Chief Executive Officer of John Carl Warnecke & Associates in San Francisco, a national firm for architecture and urban design. From 1977 through 1980, Mr. Coyle served the Federal Government in Washington, D.C. as Deputy Under Secretary of the United States Department of Health and Human Services and Executive Assistant to the Secretary of the United States Department of Housing and Urban Development. Mr. Coyle earned his Bachelor's degree from Brandeis University (Waltham), his Master's degree from the Harvard Kennedy School of Government, and a law degree from Stanford Law School. The Trustees have selected Mr. Tutt to be Financial Manager of the Trust. Mr. Tutt is 55 years old. He attended Southeastern University in Washington, D.C. for three years. Mr. Tutt was first employed by the AFL-CIO in 1961 and he has worked at the AFL-CIO for 32 years in bookkeeping, accounting and financial positions. He became assistant to John E. Evans, the former Chief Executive Officer and Financial Manager of the Mortgage Investment Trust, in 1970. From July 1974 until October 1976 Mr. Tutt served as Acting Financial Manager of the Mortgage Investment Trust, and in October 1976 he was appointed Financial Manager. In that position he had full responsibility for management and operations of the Mortgage Investment Trust subject to the general direction and control of the Executive Committee and Board of Trustees of the Mortgage Investment Trust. The Trustees have selected Mr. Arnold to be Director of Investor Relations. Mr. Arnold is 56 years old. He joined the Trust in April 1985 after being employed by the AFL-CIO Human Resources Development Institute (HRDI) since 1969. During his tenure with HRDI, he held the positions of area representative, regional director, assistant director and executive director. As executive director during the six years prior to being employed by the Trust, he was responsible for overall administration and fiscal affairs and the general supervision of staff located at the national office in Washington, D.C. and in field offices in 59 major metropolitan areas of the country. During this period, Mr. Arnold had extensive experience in working with officers and staff of international, state and local labor organizations. In 1967-68, Mr. Arnold was manpower coordinator and labor liaison officer with the Dallas Community Action Agency. He is a 37-year member and former local union officer of the International Union of Bricklayers and Allied Craftsmen, and is also a licensed real estate broker. The Trustees have selected Ms. Kanovsky to be General Counsel. Ms. Kanovsky is 45 years old. She joined the Trust in 1995 after serving as Executive Vice President and General Counsel of GE Capital Asset Management Corporation (GECAMC) from October 1990 to December 1995. Prior to GECAMC, from 1986 to 1990, Ms. Kanovsky served as Litigation Counsel (December 1986 - June 1988) and Executive Vice President and General Counsel (June 1988 - October 1990) of Skyline Financial Services Corporation. Ms. Kanovsky earned her Bachelor of Arts degree from Cornell University and her Juris Doctor degree from Harvard Law School. Mr. Tutt, Mr. Arnold, Ms. Kanovsky and their staff are responsible, under the supervision of the Chief Executive Officer, for the day-to-day administration and operation of the Trust, including the selection of mortgage and other investments (with the exception of certain short-term assets--see "Investment Adviser") and communication with existing and potential investors. The following table sets forth the aggregate remuneration, including any deferred compensation, which was paid during 1995 to each executive officer of the Trust and to all executive officers and trustees of the Trust as a group:
1995 COMPENSATION TABLE NAME OF PERSON, AGGREGATE PENSION ESTIMATED TOTAL POSITION COMPENSATION OR RETIREMENT ANNUAL COMPENSATION FROM TRUST BENEFITS BENEFITS FROM FUND ACCRUED AS UPON AND FUND PART OF TRUST RETIREMENT COMPLEX PAID EXPENSES TO DIRECTORS - ------------------------------------------------------------------------------ Stephen Coyle Chief Executive $167,886.71 $46,953.41 can not be --- Officer determined William C. Tutt Financial Manager $126,877.52 $22,367.07 $79,708.75 --- Michael M. Arnold Director of $ 88,722.36 $22,367.07 $32,733.73 --- Investor Relations Helen R. Kanovsky General Counsel $ 80,201.95 $21,516.52 not yet vested --- Richard Ravitch, Chairman $ 20,000.00 0.00 0.00 20,000.00 Arthur A. Coia*, Union Trustee $ 0.00 $ 0.00 0.00 $ 0.00 Thomas R. Donahue*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Terence R. Duvernay, Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Alfred J. Fleischer, Management Trustee $ 1,000.00 $ 0.00 $ 0.00 $1,000.00 Robert A. Georgine*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Francis X. Hanley*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Frank Hurt*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 John T. Joyce*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Joseph Lane Kirkland*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Catherine Baker Knoll, Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 H.D. LaVere, Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Sigurd Lucassen*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Gerald McEntee*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 George Miller, Management Trustee $ 2,000.00 $ 0.00 $ 0.00 $ 2,000.00 Jack F. Moore*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 A.L. Monroe*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Anthony R. Presutto Management Trustee $ 1,000.00 $ 0.00 $ 0.00 $ 1,000.00 Marlyn J. Spear, Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Tony Stanley, Management Trustee $ 3,500.00 $ 0.00 $ 0.00 $ 3,500.00 John Sweeney*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Richard Trumka*, Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00 Patricia F. Wiegeart*, Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
- --------------------- Compensation figures represent 100% of each executive officer's compensation for time devoted to Trust matters. Approximately 31% of Mr. Coyle's time, 0% of Mr. Tutt's time, 30% of Mr. Arnold's time and 33% of Ms. Kanovsky's time was devoted to matters relating to the AFL-CIO Building Investment Trust ("BIT"), which is not a registered 1940 Act company. Mr. Coyle receives compensation from BIT in addition to the amount set forth above. Includes compensation on from the Trust and all other registered 1940 Act companies that have a common investment advisor with the Trust, or an investment advisor that is an affiliated person of the Trust's investment advisor. Aggregate Compensation includes $46,953.41 of deferred compensation in 1995, including $45,133.41 deferred in lieu of participation in the Retirement Plan and $1,820.00 deferred under the 401(k) Plan. The total amount of compensation deferred by Mr. Coyle in previous years in lieu of participation in the Retirement Plan, including interest, is $107,166.83, and the total amount deferred under the 401(k) Plan, including interest and Trust matching, is $5,036.66. Aggregate Compensation includes $9,240.00 of deferred compensation in 1995 under the 401(k) Plan. The total amount of compensation deferred by Mr. Tutt in previous years under the 401(k) Plan, including interest and Trust matching, is $88,456.71. Aggregate Compensation includes $9,240.00 of deferred compensation in 1995 under the 401(k) Plan. The total amount of compensation deferred by Mr. Arnold in previous years under the 401(k) Plan, including interest and Trust matching, is $138,723.91. Aggregate Compensation includes $1,040.00 of deferred compensation in 1995 under the 401(k) Plan. The total amount of compensation deferred by Ms. Kanovsky in previous years under the 401(k) Plan, including interest and Trust matching, is $1,877.93. After leaving their positions as President and Secretary-Treasurer of the AFL-CIO in 1995, former Union Trustees Kirkland and Donahue resigned from the Board. Prior to October 1, 1990, the Trust had not established or adopted any bonus, profit sharing, pension, retirement, stock purchase, or other compensation or incentive plans for its officers and employees. However, personnel provided by the AFL-CIO pursuant to the Personnel Contract discussed above participated in the AFL-CIO Deferred Compensation Plan and Trust (the "401(k) Plan"), a defined contribution plan, and were subject to the AFL-CIO Staff Retirement Plan ("Retirement Plan"), a defined benefit plan. Any amounts contributed by the AFL-CIO on behalf of such personnel pursuant to the Retirement Plan were reimbursed by the Trust pursuant to the Personnel Contract in the manner described above. The Trust adopted the Retirement Plan for all of its employees except the Chief Executive Officer effective as of October 1, 1990, with past service credit given to commencement of employment in February 1990 for one member of the administrative staff who was not subject to the Personnel Contract discussed above. Effective October 1, 1990, the Trust adopted the 401(k) Plan for all of its employees including the Chief Executive Officer. THE RETIREMENT PLAN Under the Retirement Plan, contributions are based on an eligible employee's base salary. In general, rates are determined actuarially every other year. As of June 30, 1995, contributions were 17.5 percent of an eligible employee's base salary. During fiscal year 1995, the base salaries of Messrs. Tutt and Arnold were both $120,435 and Ms. Kanovsky's was $115,700. The Retirement Plan is open to employees of the AFL-CIO and other participating employers approved by the Retirement Plan's board of trustees that make contributions to the Retirement Plan on their behalf. Such employees become members of the Retirement Plan on their first day of employment that they are scheduled to work at least 1,000 hours during the next 12 consecutive months. The Retirement Plan provides a normal retirement pension to eligible employees for life, beginning at age 65. The amount of this pension depends on salary and years of credited service at retirement. Eligible employees will receive 2.80 percent of the average of their highest three years' earnings ("Final Average Salary") for each year of credited service up to 25 years, and 0.5 percent of their Final Average Salary of each year of credited service over 25 years. Eligible employees must have at least five years of service to retire and receive a monthly pension. Eligible employees generally earn credited service toward their pension for each year that they work for a participating employer. An eligible employee also can receive full benefits after reaching age 55, if his or her age plus his or her years of service equals 80 or more. It is also possible for an employee who meets the combination of 80 requirement to retire after age 50, but in such event benefits would be reduced 4 percent for each year or portion thereof that the employee is less than 55 years old. Set forth below is a table showing estimated annual benefits payable upon retirement in specified compensation and years of service classifications. As of the date hereof, Mr. Tutt, Mr. Arnold and Ms. Kanovsky have approximately 35, 11 and 1 credited years of service, respectively, under the Retirement Plan. Years of Service ---------------- Final Average Salary 15 20 25 30 35 $ 50,000 $21,000 $28,000 $35,000 $36,250 $37,500 70,000 29,400 39,200 49,000 50,750 52,500 100,000 42,000 56,000 70,000 72,500 75,000 2.80 percent per year up to 25 years. 0.5 percent per year for years over 25 years. Benefits listed in the table are not subject to any deduction for Social Security benefits or other offset amounts. THE 401(K) PLAN Under the 401(k) Plan, an eligible employee may agree with the Trust to set aside up to 10 percent of his or her base salary (that is, base weekly pay exclusive of bonuses, lump-sum payments, or over-time pay), up to a maximum of $9,500 in 1996. In 1996, the Trust will match dollar-for-dollar the first $1,150 contributed. The amount set aside by an eligible employee and the amount of the Trust's matching contribution, if any, will be deposited in a trust account in the employee's name. An employee of the Trust is eligible to participate (i) if the employee is a full-time employee, or (ii) if the employee is a temporary employee who has been credited with 1,000 hours of service for any year beginning with the date, or any subsequent anniversary date, of the employee's commencement of employment with the Trust. When a participating employee terminates his or her employment, retires, or becomes disabled, the employee will be able to receive as a lump sum payment the salary reduction amounts that were contributed to the Trust on the employee's behalf, the additional amounts that the Trust contributed to the trust account on the employee's behalf, plus income (less the employee's allocated share of expenses) earned on these contributions. If the employee continues to work for the Trust, the employee cannot withdraw these amounts unless the employee has reached the age of 59 1/2 or has a financial hardship. A financial hardship is one that is of such magnitude that it would impair the employee's financial security. The employee will be required to present evidence of the financial hardship and upon submission of such evidence may be entitled to withdraw an amount, up to the balance in the employee's account, to meet the immediate financial need. The amount in an employee's account must be distributed to the employee within 60 days following the later of (i) the calendar quarter in which the employee reaches age 70 1/2 or (ii) the calendar quarter in which the employee terminates employment with the Trust. Additionally, these amounts must be distributed no later than 60 days following the year in which the latest of the following occurs: (i) the employee's attainment of age 65; (ii) the tenth anniversary of the employee's participation in the 401(k) Plan; or (iii) termination of the employee's employment. A participating employee may borrow from his or her account subject to certain prescribed limitations. The following table sets forth the amounts paid or distributed pursuant to the 401(k) Plan in 1995 to the executive officers listed in the Remuneration Table above, the amounts deferred and accrued pursuant to the 401(k) Plan for the accounts of such individuals during 1995, the distribution or unconditional vesting of which are not subject to future events, and the amount of Trust matching contributions in 1995.
- ------------------------------------------------------------------------------ Name of Individual Amount Paid Amount Deferred Trust Matching or Number of Group or Distributed in 1995 Contributions in 1995 - ------------------------------------------------------------------------------ Stephen F. Coyle $0.00 $ 1,820.00 $1,050.00 William C. Tutt $0.00 $ 9,240.00 $1,050.00 Michael M. Arnold $0.00 $ 9,240.00 $1,050.00 Helen R. Kanovsky $0.00 $ 1,040.00 $1,040.00 All Executive Officers as a group (4 persons) $0.00 $21,340.00 $4,190.00
PRINCIPAL HOLDERS OF SECURITIES The following table sets forth the beneficial ownership information as of April 1, 1996 with respect to each Labor Organization and Eligible Pension Plan (as those terms are defined in the Trust's Declaration of Trust) known to the Trust to be the beneficial owner of more than 5 percent (that is more than 55,817.8382 units) of the Trust's 1,116,356.7632 outstanding Units of Participation. Because only Labor Organizations and Eligible Pension Plans are eligible to own Units of Participation in the Trust, no Units of Participation are owned by any Trustee or officer individually. Each beneficial owner set forth below is also the record owner of the Units specified. Percent Name and Address Number of Units of Class - ---------------- --------------- --------- California Public Employees' Retirement System (Lincoln Plaza 400 P Street, Suite 2220 Sacramento, CA 96814) 65,399.8217 units 5.8583% Ohio Public Employees' Retirement System (227 East Town Street Columbus, OH 43215) 67,165.5901 units 6.0165% INVESTMENT ADVISER Beginning as of May 21, 1992, the Trust engaged Wellington Management Company ("Wellington Management") to furnish investment advisory services concerning certain of the short-term, liquid assets in the Trust's portfolio designated by the Trust from time to time (the "Short-Term Assets"). As of December 31, 1995, the value of all short-term assets eligible for management by Wellington Management was $50,942,437, which represented 4.4% of the Trust's total net assets at that date. Wellington Management, a Massachusetts general partnership, is a registered investment adviser with principal offices located at 75 State Street, Boston, Massachusetts 02109. Its Managing Partners are Robert W. Doran, Duncan M. McFarland and John R. Ryan. Wellington Management is a professional investment counseling firm that provides investment services to investment companies, employee benefit plans, endowment funds, foundations, and other institutions and individuals. As of December 31, 1995, Wellington Management held investment management authority over approximately $109.2 billion of assets, including $15.4 billion of cash and cash-equivalent assets. Wellington Management and its predecessor organizations have provided investment advisory services to investment companies since 1933 and to investment counseling clients since 1960. Pursuant to the terms of its contract with the Trust, which was renewed in May 1995, Wellington Management manages the investment and reinvestment of the Short-Term Assets; continuously reviews, supervises and administers the investment program of the Trust with respect to the Short-Term Assets; determines in its discretion the securities to be purchased, retained and sold (and implements those decisions); renders regular reports to the Trust's officers and Trustees concerning its discharge of the foregoing responsibilities, including causing to be provided to the Trust's officers within 2 business days after each Valuation Date market prices as of the Valuation Date of Short-Term Assets that mature more than 60 days after the Valuation Date; develops and produces portfolio analysis reports; monitors portfolio investment characteristics; analyzes portfolio performance and provides to the Trust's officers within 10 business days after each calendar month end a report regarding such performance for such month; provides analysis on markets and instruments; provides investment overview and economic outlook forecasts; provides information and comment on various relevant regulatory and legal issues; attends meetings of the Trust's Executive Committee and Trustees as reasonably requested; and supplies the Trust's officers and Trustees with all statistical information and reports reasonably required by them, including all information required under Section 15(c) of the Investment Company Act. Wellington Management must discharge these and its other duties subject to the oversight of the officers and Trustees of the Trust and in compliance with the Trust's policies, as well as with applicable laws and regulations. Wellington Management renders all of the services described above at its own expense, and provides the office space, furnishings and equipment, and personnel required by it to perform those services for the compensation described below. Wellington Management is authorized to arrange for the execution of portfolio transactions by selecting brokers or dealers that will execute the transactions, and is directed to use its best efforts to obtain the best net results, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm involved. Wellington Management may in its discretion purchase and sell portfolio securities through brokers who provide it or the Trust with research, analysis, advice and similar services, and Wellington Management may pay to these brokers, in return for research and analysis, a higher commission than may be charged by other brokers, provided that Wellington Management determines in good faith that such commission is reasonable in terms either of that particular transaction or of the overall responsibility of Wellington Management, that the total commission paid by the Trust will be reasonable in relation to the benefits to the Trust over the long term, and that the total commission paid by the Trust is consistent with commissions paid in comparable transactions. In selecting a broker for each specific transaction, Wellington Management will use its best judgment to choose the broker most capable of providing the brokerage services necessary to obtain the best available price and most favorable execution. The full range and quality of brokerage services available will be considered in making these determinations. For example, brokers may be selected on the basis of the quality of such brokerage services related to the requirements of the specific transaction such as the following; capable floor brokers or traders, competent block trading coverage, good communications, ability to position, use of automation, research contracts, arbitrage skills, administrative ability, or provision of market information relating to the security. Wellington Management will make periodic evaluations of the quality of these brokerage services as provided by various firms and measure these services against its own standards of execution. Brokerage services will be obtained only from those firms which meet its standards, maintain a reasonable capital position, and can be expected to reliably and continuously supply these services. On occasions when Wellington Management deems the purchase or sale of a security to be in the best interest of the Trust as well as other clients, Wellington Management, to the extent permitted by applicable laws and regulations, may, but is under no obligation to, aggregate the securities to be so purchased or sold in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by Wellington Management in the manner it considers to be the most equitable and consistent with its fiduciary obligations. In compensation for the investment advisory services provided by Wellington Management, the Trust will pay Wellington Management on a quarterly basis a fee at the annual rate of 0.125% of the market value of the Short-Term Assets based on the average monthly market value of the first $100 million, and at the annual rate of 0.100% of the market value of the Short-Term Assets based on the average monthly market value in excess of $100 million. In fiscal 1995, the Trust incurred total investment advisory fees of $50,285, which represented .005% of the Trust's average net assets for such period. During its last three fiscal years, the Trust incurred total investment advisory fees of $159,250. SALES AND DISTRIBUTION ACTIVITIES The Director of Investor Relations of the Trust, operating out of the Trust headquarters in the District of Columbia, conducts, and is responsible for other Trust staff members who conduct, sales and distribution activities for the Trust. Sales and distribution activities are directed to certain pension plans and include solicitations in person or by mail or telephone as well as responding to inquiries concerning the Trust's offering of Units, and the ministerial and clerical work of effecting sales of Units. Expenses of sales and distribution of Units in this manner are paid by the Trust pursuant to a Plan for Distribution adopted by the Trustees and the Participants pursuant to SEC Rule 12b-1 under the Investment Company Act. Sales and distribution expenses, including printing of the prospectus and travel costs, for the year ended December 31, 1995 were $465,765, which represents approximately .04 percent of the $1,166,893,471 in net Trust assets as of December 31, 1995. In 1995, the Board of Trustees approved a budget of $475,000 per year for the Plan for Distribution from which non-material increases may be made by the Board. At its 1995 fall meeting, the Board of Trustees approved a budget of $500,000 for the Plan of Distribution in 1996. No material increase in the budget for the Plan for Distribution will be made without Participant approval. Under the Plan for Distribution approved by Participants and Trustees, including all disinterested Trustees, the Trust may finance any activity that is primarily intended to result in the sale of the Trust's Units, subject to the limitations set forth above, including but not limited to advertising and other expenses relating to selling efforts, printing of prospectuses and reports for other than existing Participants, and preparation and distribution of advertising material and sales literature. Each expenditure must be specifically approved in advance by the Chief Executive Officer or the Financial Manager of the Trust, who will provide at least quarterly to the Trustees a written report setting forth amounts expended and the purposes for which the expenditures were made. In approving the Plan for Distribution in accordance with the requirements of Rule 12b-1 under the Investment Company Act, the Trustees (including the disinterested Trustees, none of whom have any direct or indirect financial interest in the Plan for Distribution or any related agreements) considered various factors and determined that there is a reasonable likelihood that the Plan for Distribution will benefit the Trust and its Participants because a relatively constant flow of funds into the Trust, even at times when asset values are relatively high, will tend to offset the effect of possible liquidation effected to obtain cash for redemptions from the Trust when asset values are relatively low. The Plan for Distribution will continue in effect until April 30, 1997, unless earlier terminated by vote of a majority of the Trust's outstanding Units or by a majority of disinterested Trustees. Any change in the Plan for Distribution that would materially increase the amount of distribution expense borne by the In general, SEC Rule 12b-1, with which the Trust will comply, requires that such a plan be approved in a specified manner by the holder of voting securities and Trustees, that quarterly reports of distribution expenses be made to the Trustees, and that the plan be terminable upon specified conditions. Trust requires Participants' approval; any other material change requires approval by the Trustees, including a majority of the disinterested Trustees. The Plan for Distribution may continue in effect for successive one-year periods, provided that each continuance is specifically approved: (a) by a vote of the majority of the Trust's Units or by the Trustees; and (b) by the vote of a majority of the Trustees who are disinterested and who have no direct or indirect financial interest in the Plan for Distribution or any related agreements. Any agreements relating to the Plan for Distribution will be terminable upon assignment or upon 60 days written notice without payment of any penalty by vote of a majority of Trustees who are not interested persons. Of the $465,765 of sales and distribution expenses incurred for the year ended December 31, 1995, the following amounts were expended on each of the categories listed below. All such amounts were paid in cash. Year Ended Category December 31, 1995 -------- ------------------ Printing and mailing of prospectuses to other than current security holders................. $ 7,508 Compensation to sales personnel (salaries plus fringe benefits)........................ $ 276,444 Other (includes travel and meeting expenses, office supplies, consulting fees and expenses and printing and mailing of sales literature)........................... $ 181,813 TOTAL............................................. $ 465,765 No interested person of the Trust or any disinterested Trustee had any direct or indirect financial interest in the operation of the Plan for Distribution or related agreement during the year ended December 31, 1995, with the possible exception of Director of Investor Relations Arnold who, if he were determined to be an interested person of the Trust, would have such an interest because part of his compensation is covered by the Plan. ADMISSION TO THE TRUST Only Labor Organizations and Eligible Pension Plans are eligible to own Units. See "SECURITIES OFFERED" in the Prospectus for a discussion of eligible persons. The price of Units is based on Net Asset Value. Net Asset Value for a particular purchase will be determined as of each Valuation Date following receipt of the purchase order by dividing the value of the Trust's portfolio plus any cash and other assets (including interest and dividends accrued but not collected) less all liabilities (including accrued expenses but excluding capital and surplus), by the number of Units outstanding as of that Valuation Date. Admission to the Trust is permitted in whole or fractional Units as of monthly Valuation Dates. A request for purchase of Units must be received by the Trust before the Valuation Date as of which they are to be issued. A minimum initial purchase of $50,000 is required. A request for purchase of Units must be accompanied by cash or by a subscription agreement providing for a cash escrow of the amount to be invested as of the forthcoming Valuation Date. See "SECURITIES OFFERED" in the Prospectus for a discussion of the valuation methods used by the Trust in determining the market price of its portfolio assets. SUPPLEMENTARY INFORMATION CUSTODIAN NationsBank Trust, 1501 Pennsylvania Avenue, N.W., Washington, D.C. acts as a bank custodian of Trust portfolio securities pursuant to a safekeeping agreement dated December 21, 1988, as amended. For providing such safekeeping services, the Bank charges the Trust an annual fee of $4,000 plus a $10 transaction charge for each asset accepted or released. The Bank also serves as custodian for the Trust's short-term account, pursuant to an amendment to the safekeeping agreement dated May 21, 1991. Pursuant to this amendment, the Bank charges the Trust an annual fee of $1,800 per year plus a $20 transaction charge. AUDITORS KPMG Peat Marwick, L.L.P., 2001 M Street, N.W., Washington, D.C., was approved by the Participants at the 1995 Annual Meeting of Participants as the independent certified public accountants for the Trust for the period ending December 31, 1996. KPMG Peat Marwick, L.L.P. audits the financial statements of the Trust at the conclusion of each fiscal year, prepares applicable tax returns for the Trust, and counsels the officers of the Trust with respect to accounting and taxation matters from time to time. REPORTS In accordance with SEC requirements under the Investment Company Act, the Trust will distribute periodic financial statements to Participants and will file periodic reports with the SEC. Financial statements distributed to Participants will include unaudited semi-annual statements and audited annual statements. Copies of all reports filed with the SEC will be made available for inspection by Participants at Trust headquarters in Washington, D.C. LEGAL MATTERS Certain legal matters in connection with the offering of Units were reviewed for the Trust by Swidler & Berlin, Chartered, 3000 K Street, N.W., Washington, D.C. 20007. (Prior to August 31, 1995, the attorneys acting as the Trust's counsel with respect to such legal matters practiced at the firm of Brownstein Zeidman and Lore, A Professional Corporation, but effective August 31, 1995 such attorneys have moved their practice to the firm of Swidler & Berlin, Chartered.) FINANCIAL STATEMENTS Reference is hereby made to the Financial Statements of the AFL-CIO Housing Investment Trust filed with the Securities and Exchange Commission on March 11, 1996, which are incorporated herein by reference. APPENDIX A STANDARD & POOR'S DEBT RATING DEFINITIONS Excerpted from Standard & Poor's "Credit Week", April 18, 1994, page 15. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ A Standard & Poor's corporate or municipal debt rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers, or lessees. The debt rating is not a recommendation to purchase, sell, or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. The ratings are based, in varying degrees, on the following considerations: 1. Likelihood of default-capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; 2. Nature of and provisions of the obligation; 3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. INVESTMENT GRADE AAA -- Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA -- Debt rated 'AA' has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A -- Debt rated 'A' has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. SPECULATIVE GRADE Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. 'BB' indicates the least degree of speculation and 'CCC' the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. BB -- Debt rated 'BB' has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The 'BB' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BBB-' rating. B -- Debt rated 'B' has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The 'B' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-' rating. CCC-- Debt rated 'CCC' has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The 'CCC' rating category is also used for debt subordinated to senior debt that is assigned an actual or implied 'B' or 'B-' rating. CC -- The rating 'CC' typically is applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC' rating. C -- The rating 'C' typically is applied to debt subordinated to senior debt that is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. CI -- The rating 'CI' is reserved for income bonds on which no interest is being paid. D -- Debt rated 'D' is in payment default. The 'D' rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or Minus (-): The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. c -- The letter 'c' indicates that the holder's option to tender the security for purchase may be canceled under certain prestated conditions enumerated in the tender option documents. L -- The letter 'L' indicates the rating pertains to the principal amount of those bonds to the extent that the underlying deposit collateral is federally insured and interest is adequately collateralized. In the case of certificates of deposit, the letter 'L' indicates that the deposit, combined with other deposits being held in the same right and capacity, will be honored for principal and accrued pre-default interest up to the federal insurance limits within 30 days after closing of the insured institution or, in the event that the deposit is assumed by a successor insured institution, upon maturity. p -- The letter 'p' indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk. * Continuance of the rating is contingent upon S&P's receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. N.R. -- Not rated. Debt Obligations of Issuers outside the U.S. and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties. APPENDIX B THOMSON BANKWATCH RATING CHARACTERISTICS - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ A Company possesses an exceptionally strong balance sheet and earnings record, translating into an excellent reputation and very good access to its natural money markets. If weakness or vulnerability exists in any aspect of the company's business, it is entirely mitigated by the strengths of the organization. A/B Company is financially very solid with a favorable track record and no readily apparent weakness. Its overall risk profile, while low, is not quite as favorable as for companies in the highest rating category. B A strong company with a solid financial record and well received by its natural money markets. Some minor weaknesses may exist but any deviation from the company's historical performance levels should be both limited and short-lived. The likelihood of a problem developing is small, yet slightly greater than for a higher-rated company. B/C Company is clearly viewed as a good credit. While some shortcomings are apparent, they are not serious and/or are quite manageable in the short- term. C Company is inherently a sound credit with no serious deficiencies, but financials reveal at least one fundamental area of concern that prevents a higher rating. Company may recently have experienced a period of difficulty, but those pressures should not be long-term in nature. The company's ability to absorb a surprise, however, is less than that for organizations with better operating records. C/D While still considered an acceptable credit, the company has some meaningful deficiencies. Its ability to deal with further deterioration is less than that for better-rated companies. D Company's financials suggest obvious weaknesses, most likely created by asset quality considerations and/or a poorly structured balance sheet. A meaningful level of uncertainty and vulnerability exists going forward. The ability to address further unexpected problems must be questioned. D/E Company has areas of major weakness which may include funding and/or liquidity difficulties. A high degree of uncertainty exists as the company's ability to absorb incremental problems. E Very serious problems exist for the company, creating doubt as to its continued viability without some form of outside assistance - regulatory or otherwise. APPENDIX C STANDARD & POOR'S STATE AGENCY RATINGS Excerpted from Standard & Poor's "Credit Review", February 7, 1994, pages 59-61. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ State housing finance agencies (HFAs) represent an important presence in the municipal bond market, with over $80 billion of debt outstanding. These agencies have a 10 to 20-year history of debt issuance and have funded over one million loans for first-time buyers of single-family homes and over 900,000 units of rental housing. Many agencies have built up a considerable level of expertise in all areas of finance, development, and portfolio management. In addition, because of their prudent and conservative approach and many successful years of bond issuance, many HFAs have built up significant fund balances either in their own general funds or under various bond resolutions. S&P's assessment of the managerial, administrative and financial resources of agencies is an integral part of the bond rating. Managerial and administrative capabilities are evaluated based upon meetings with the agency at its offices, at which time the team of S&P analysts focuses on all systems and procedures applicable to the bonds being rated. The specific areas of focus are detailed in the attachment entitled "Checklist for Good Management." The assessment of these capabilities is important because in addition to their role as issuer, many agencies lend support to their bond programs depending on their ability to: - Perform the role of master servicer and directly service loan portfolios; - Manage investment portfolio to provide ongoing credit quality and meet liquidity needs; - Directly provide primary mortgage insurance and portfolio loss coverage, or participate in risk sharing programs; and - Generate bond cash flows at the time of the rating, and at critical junctures of bond administration, such as prior to extension of acquisition periods, exercising open flow of funds, recycling of prepayments to make new loans and non-pro rata redemptions. In addition to S&P's recognition of an agency's ability to perform these responsibilities, additional flexibility in bond programs is often permitted. For example, with regard to [certain housing bonds], S&P uses a blended rating approach in determining the appropriate ratings of credit enhancement providers, depending upon the level of investments the magnitude, duration and purpose of the credit support, and such factors as the agency's cash flow strength and portfolio performance. Agencies can also receive flexibility in investment maturity standards, if they can substantiate their ability to provide liquidity as needed. In the area of cash flow standards, agencies who act as master servicer for their programs and demonstrate a strong track record of good portfolio performance and monitoring, can reduce the lag in receipt of mortgage payments on `AA' rated transactions from 60 to 30 days. Other reserves can be reduced as agency financial strength and track records dictate. GENERAL OBLIGATION RATINGS. State HFAs may also be assigned their own general obligation ratings. Although several agencies' debt incorporates a general obligation pledge, the rating on that debt has traditionally addressed the credit strength of the primary security for the bonds, such as the mortgage portfolio, reserves and investments. When an agency has been afforded its own general obligation rating, the rating on the bonds reflects the overall financial strength of the agency first. TOP TIER STATUS. Top tier status was developed by S&P in 1986 to recognize agencies with superior managerial and administrative strength who also showed the willingness and the ability to lend financial support to their bond programs. The top tier designation affords agencies increased flexibility and can result in higher ratings than would be attainable based solely on the credit strength of the bonds being rated. To date, 12 state HFAs have been designated top tier. Local housing finance agencies are also eligible, as evidenced by the recent addition of New York City Housing Development Corporation, to the list of Top Tier agencies. The seven guidelines for Top Tier status are as follows: Years Issuing Bonds. S&P looks at the years of experience in active management of the entire agency in the tax-exempt bond area. Continuity of management and the agency's ability to resolve difficult situations in the face of changing legislatures, changing governors and changing economic cycles over the past 10 to 15 years are evaluated. S&P also focuses on the track records of the agency, on its programs and overall operations and any lapses in years issuing bonds. Unrestricted Fund Balance. S&P will examine two levels: the overall percentage of total unrestricted funds to total debt, and the percentage of liquid unrestricted funds to total mortgages outstanding. As guidelines, the percentages should be in the range of total unencumbered fund balances equal to 4% of outstanding bonds, of which a minimum of 2% of outstanding mortgages is liquid (i.e. with maturities of 18 months or less). This 4% ratio cannot include money pledged to risk share programs, self-insurance funds, multifamily coinsurance, letter of credit reimbursement obligations or any other programs where the agency is taking on additional risk, that is not covered by indentured monies. S&P reviews these ratios annually and factors in all upcoming risks on issues anticipated for the coming year. Further, these unencumbered fund balances should be stable over several fiscal years. Surpluses under specific resolutions are eligible to be counted among agency fund balances as long as they can be made available as needed. S&P will examine whether the funds to be considered unrestricted are tangible assets available for any general agency use. Outstanding debt should include short-term obligations and overall debt may be reduced, for calculation purposes, if it is considered to have S&P's lowest degree of risk or highest ratings. Administrative Capabilities. In general, S&P will evaluate the degree of portfolio oversight and computerization of the agency's entire operations. Established procedures should be in effect requiring periodic reports to senior staff as well as the board of directors. In addition, an agency should be able to substantiate its ability to assume servicing of a given portfolio, if necessary, without delays. Parallel monitoring, including access to (or duplicates) of actual loan documents, indicate the agency's level of preparedness. An ideal situation is when an agency maintains parallel systems with the servicer and can track the loans individually themselves, on a daily basis instead of relying solely on servicer's reports. Periodic reviews of the performance of the entire portfolio should be designed to address problems at an early stage of development. Investment Policy. S&P will focus on the investment of unrestricted fund balances and other funds being counted to meet financial standards for top tier, including procedures for making investment decisions and monitoring the investment portfolio. Written investment guidelines are considered essential to good management. Investment standards should meet S&P's standards at the `A' rating level. It is viewed positively when an agency is on line with the trustee, which enables them to have immediate access to all investment decisions as parallel computer systems are maintained. Internal Controls and Financial Management. On a regular basis, S&P will evaluate the agency's ability to produce audited financial reports, including balance sheets, revenue and expenditure statements, changes in fund balances, and changes in financial position. Interim statements need not be audited or include notes to financials, but should be prepared on the same basis as audited statements. An agency's accounting and/or financial control area, as indicated on an organizational chart, will be evaluated as a separate department. Long-term financial planning and the ability to deliver annual cash flow projections on bond programs is considered favorably. Portfolio Quality. The performance of an agency's single-family portfolio is evaluated in comparison to the national and respective state averages based on Mortgage Bankers Association (MBA) statistics, and compared to the performance of other state agency portfolios. Other appropriate measures may be used and the relative risk, including any available offsetting coverage, will be considered. All loan portfolios, whether under rated or unrated programs, will be assessed according to S&P's single-family mortgage loan criteria, as detailed in [S&P's Credit Review, February 7, 1994]. Multifamily portfolios will be addresses according to S&P's multifamily criteria. Good portfolio performance and close monitoring as outlined in the "Checklist for Good Management" are earmarks of a top tier agency. Most agencies do experience portfolio problems from time to time due to economic and market downturns. This would not preclude an agency from being designated top tier as long as they demonstrate strong portfolio oversight and the ability to turn around problem situations. State Support. S&P will examine any agency's legislative mandate and review the degree to which a state interacts with the agency's programs and purpose. S&P looks for a positive relationship where the state is working with the housing agency to address the state's housing needs. Top tier agencies should be able to demonstrate strong state support for its programs. Past appropriations or expected future appropriations would be considered evidence of state government support. As mentioned previously, S&P is especially concerned about potential threats to agency fund balances. S&P should be notified immediately of any such event. S&P's general obligation group will assist in evaluating the degree of state involvement and financial control of its housing finance agency. As part of the top tier review, S&P may meet with members of state government, as well as the agency's board, to better understand the interaction among the agency, state governments and its board. PART C: STATEMENT OF OTHER INFORMATION AFL-CIO HOUSING INVESTMENT TRUST 1717 K Street, N.W. Suite 707 Washington, D.C. 20006 (202) 331-8055 STATEMENT OF OTHER INFORMATION This Statement of Other Information is not a prospectus. It should be read in conjunction with the AFL-CIO Housing Investment Trust ("Trust") Prospectus, dated April 29,1996, which may be obtained without charge from Trust headquarters. The date of this Statement of Other Information is April 29, 1996. TABLE OF CONTENTS Page ---- Financial Statements and Exhibits..................................... 1 Persons Controlled by or Under Common Control with Registrant...................................... 6 Business and Other Connections of Investment Advisor.................. 6 Number of Holders of Securities....................................... 6 Indemnification....................................................... 7 Location of Accounts and Records...................................... 7 Signatures............................................................ 8 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements The following financial statements pertaining to the year ended December 31, 1995 are included in Part B of this Registration Statement (the Statement of Additional Information): (i) Statement of Assets and Liabilities (ii) Schedule of Investments (iii) Statement of Operations (iv) Statement of Changes in Net Assets (v) Notes to Financial Statements (vi) Supplemental Information -- Selected Per Share Data and Ratios (vii) Report of KPMG Peat Marwick, independent auditors (b) Exhibits: (1) Copies of the charter as now in effect; Declaration of Trust as amended through April 25, 1994: incorporated by reference to Part C, Item 24(b)(1) [Exhibit 1] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 20) and the Investment Company Act of 1940 (Amendment No. 23), Registration No. 2-78066, as filed with the SEC on June 6, 1994. (2) Copies of the existing by-laws or instruments corresponding thereto; Rules and Regulations as amended through March 15, 1990: incorporated by reference to Part C, Item 24(b)(2) [Exhibit(2)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933(Post-Effective Amendment No. 13)and the Investment Company Act of 1940 (Amendment No. 16), Registration No. 2-78066, as filed with the SEC on April 30, 1990. (3) Copies of any voting trust agreement with respect to more than 5 percent of any class of equity securities of the Registrant; (Not applicable) (4) Specimens or copies of each security issued by the Trust, including copies of all constituent instruments, defining the rights of the holders of such securities, and copies of each security being registered; (Not applicable) (5) Copies of all investment advisory contracts relating to the management of the assets of the Trust; Investment Advisory Agreement dated May 21, 1992 with Wellington Management Company: incorporated by reference to Part C, Item 24(b)(5), [Exhibit (5)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective amendment No. 17) and the Investment Company Act of 1940 (Amendment No. 20), Registration No. 2-78066, as filed with the SEC on June 24, 1992. (6) Copies of each underwriting or distribution contract between the Trust and a principal underwriter, and specimens or copies of all agreements between principal underwriters and dealers; (Not applicable) (7) Copies of all bonus, profit sharing, pension, or other similar contracts or arrangements wholly or partly for the benefit of directors or officers of the Trust in their capacity as such; if any such plan is not set forth in a formal document, furnish a reasonably detailed description thereof; (a) Summary of AFL-CIO Staff Retirement Plan dated July 1985 and amendments thereto in effect as of January 30, 1989: incorporated by reference to Part C, Item 24(b)(7)(b) [Exhibit 7(b)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (b) AFL-CIO Deferred Compensation Plan and Trust, as restated and amended through August 1, 1988: incorporated by reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (8) Copies of all custodian agreements and depository contracts under Section 17(f) of the Investment Company Act, with respect to securities and similar investments of the Trust, including the schedule of remuneration; Custody Agreement with American Security Bank dated October 18, 1983, as amended through December 21, 1988: incorporated by reference to Part C, Item 24(b)(8) [Exhibit (8)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 12) and the Investment Company Act of 1940 (Amendment No. 15), Registration No. 2-78066, as filed with the SEC on April 28, 1989. Custodian Agreement with Security Trust Company, N.A. dated May 21, 1991: incorporated by reference to Part C, Item 24(b)(8) [Exhibit (8)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post Effective Amendment No. 16) and the Investment Company Act of 1940 (Amendment No. 19), Registration No. 2-78066, as filed with the SEC on April 22, 1992. (9) Copies of all other material contracts not made in the ordinary course of business which are to be performed in whole or in part at or after the date of filing the Registration Statement; (Not applicable) (10) An opinion and consent of counsel as to the legality of the securities being registered, indicating whether they will when sold be legally issued, fully paid, and non-assessable; Opinion letter and written consent of Swidler & Berlin, Chartered, dated April 25, 1996, is included as Exhibit (10) to this Registration Statement incorporated by reference to Part C, Item 24(b)(10)[Exhibit (10)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (11) Copies of any other opinions, appraisals, or rulings, and consents to the use thereof relied on in the preparation of this Registration Statement and required by Section 7 of the 1933 Act; Consent of KPMG Peat Marwick, L.L.P. dated April 23, 1996 is included as Exhibit (11) to this Registration Statement: incorporated by reference to Part C, Item 24(b)(11)[Exhibit (11)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (12) All financial statements omitted from Item 23 of Part B; (Not applicable) (13) Copies of any agreements or understandings made in consideration for providing the initial capital between or among the Trust, the underwriter, adviser, promoter, or initial stockholders and written assurances from promoters or initial stockholders that their purchases were made for investment purposes without any present intention of redeeming or reselling; (Agreements for Advances, executed September 24, 1981, September 25, 1981, October 19, 1981 and April 16, 1982, previously submitted, have expired.) (14) Copies of the model plan used in the establishment of any retirement plan in conjunction with which the Trust offers its securities, any instructions thereto, and any other documents making up the model plan. Such form(s) should disclose the costs and fees charged in connection therewith; (Not applicable) (15) Copies of any plan entered into by the Trust pursuant to Rule 12b-1 under the Investment Company Act, which describes all material aspects of the financing of distribution of the Trust's shares, and any agreements with any person relating to implementation of such plan; Plan for Distribution as amended through December 14, 1995: incorporated by reference to Part C, Item 24(b)(15) included as Exhibit (15) of this Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 (which need not be audited); (Not applicable) (17) Financial Data Schedule: incorporated by reference to Part C, Item 24(b)(17) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post- Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (18) Other Exhibits: (a) Powers of Attorney for Trustees Kirkland, Moore, Lucassen and Sweeney: incorporated by reference to Part C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 12) and the Investment Company Act of 1940 (Amendment No. 15), Registration No. 2-78066, as filed with the SEC on April 28, 1989. (b) Powers of Attorney for Trustees Donahue, Georgine, Hanley, McEntee, Clack, Miller and Stanley: incorporated by reference to Part C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 13) and the Investment Company Act of 1940 (Amendment No. 16), Registration No. 2-78066, as filed with the SEC on April 30, 1990. (c) Power of Attorney for Trustee LaVere: incorporated by reference to Part C, Item 24(b)(17)(a) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (d) Powers of Attorney for Trustees Ravitch and Fleischer: incorporated by reference to Part C, Item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 16) and the Investment Company Act of 1940 (Amendment No. 19), Registration Statement No. 2-78066, as filed with the SEC on April 22, 1992. (e) Powers of Attorney for Trustees Joyce, Hurt, Coia and Knoll: incorporated by reference to Part C, item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 18) and the Investment Company Act of 1940 (Amendment No. 21), Registration Statement No. 2-78066, as filed with the SEC on April 30, 1993. (f) Powers of Attorney for Trustees Monroe, Presutto, Spear and Wiegert: incorporated by reference to Part C, item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 23) and the Investment Company Act of 1940 (Amendment No. 26), Registration No. 2-78066, as filed with the SEC on June 6, 1995. (g) Power of Attorney for Trustee Duvernay: included as item 24(b)(18)(d) [Exhibit 18] to this Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT See "History and Purpose" in Part A of this Registration Statement. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Wellington Management Company ("Wellington Management") is an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The list required by this Item 28 of officers and partners of Wellington Management, together with information as to any business profession, vocation or employment of substantial nature engaged in by such officers and partners during the past two years, is incorporated herein by reference to Schedules A and D of Form ADV filed by Wellington Management pursuant to the Advisers Act (SEC File No. 801-15908). NUMBER OF HOLDERS OF SECURITIES The number of record holders of Units of Participation of the Trust as of April 1, 1996 is shown in the following table. No other securities were outstanding as of that date. Number of Record Title of Class Holders - -------------- ----------------- Units of Participation 389 INDEMNIFICATION Pursuant to Section 4.8 of the Trust's Declaration of Trust (see Exhibit (1) under "Financial Statements and Exhibits" above), each Trustee and officer and each former Trustee and officer shall be indemnified against fines, judgments, amounts paid in settlement and expenses, including attorney's fees, actually and reasonably incurred in connection with any pending or threatened criminal action, civil suit or administrative or investigative proceeding (any "matter") against him or her arising by reason of the fact that he or she is or was a Trustee or officer of the Trust, or by reason of actions taken by him or her as such Trustee or officer, if it is found that his or her liability does not result from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office ("disabling conduct"). The finding that liability does not arise from disabling conduct may be made in a final decision by a court or other body before which the matter giving rise to the expense or liability was brought or, in the absence of such a decision, by (a) the vote of a majority of a quorum of Trustees who are neither "interested persons" of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940 nor parties to such matter ("disinterested non-party trustees") or (b) an independent legal counsel in a written opinion. Expenses of the kind eligible for indemnification may be paid as incurred by a Trustee or officer in advance of final disposition of a matter upon receipt of an undertaking by the recipient to repay such amount unless it is ultimately determined that he is entitled to indemnification hereunder if (a) the indemnity provides security for his or her undertaking, (b) the Trust is insured for losses arising by reason of any lawful advances or (c) a majority of a quorum of disinterested non-party Trustees or independent legal counsel (in a written opinion) determines, based on a review of readily available facts, that there is reason to believe that the indemnitee ultimately will be found entitled to indemnification. Section 4.8 is intended to provide indemnification to Trustees and officers to the full extent permitted by law and is to be construed and enforced to that extent. LOCATION OF ACCOUNTS AND RECORDS All accounts, books, and other documents required to be maintained by Section 31(a) of the Investment Company Act and Rules 31a-1 to 31a-3 thereunder are maintained in the possession of the Chief Executive Officer of the Trust, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940 the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Washington, District of Columbia on the 26th day of April, 1996. This amendment to the registration statement meets all the requirements for effectiveness in paragraph (b) of Rule 485, Regulation C under the Securities Act of 1933. AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST By: /s/ Stephen F. Coyle -------------------------------- Stephen F. Coyle Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated: /s/Richard Ravitch* Chairman April 26, 1996 Richard Ravitch /s/Robert A. Georgine* Union Trustee April 26, 1996 Robert A. Georgine /s/Francis X. Hanley* Union Trustee April 26, 1996 Francis X. Hanley /s/Sigurd Lucassen* Union Trustee April 26, 1996 Sigurd Lucassen /s/Gerald W. McEntee* Union Trustee April 26, 1996 Gerald W. McEntee /s/Jack F. Moore* Union Trustee April 26, 1996 Jack F. Moore /s/John Sweeney* Union Trustee April 26, 1996 John Sweeney /s/H.D. LaVere* Management Trustee April 26, 1996 H.D. LaVere /s/George Miller* Management Trustee April 26, 1996 George Miller /s/Tony Stanley* Management Trustee April 26, 1996 Tony Stanley /s/Alfred J. Fleischer* Management Trustee April 26, 1996 Alfred J. Fleischer /s/John T. Joyce* Union Trustee April 26, 1996 John T. Joyce /s/Frank Hurt* Union Trustee April 26, 1996 Frank Hurt /s/Arthur A. Coia* Union Trustee April 26, 1996 Arthur A. Coia /s/Catherine Baker Knoll* Management Trustee April 26, 1996 Catherine Baker Knoll /s/A. L. Monroe* Union Trustee April 26, 1996 A. L. Monroe /s/Terrence R. Duvernay* Management Trustee April 26, 1996 Terrence R. Duvernay /s/Marlyn J. Spear* Management Trustee April 26, 1996 Marlyn J. Spear /s/Patricia F. Wiegert* Management Trustee April 26, 1996 Patricia F. Wiegert Union Trustee April 26, 1996 Richard L. Trumka /s/Stephen Coyle Chief Executive April 26, 1996 Stephen Coyle Officer (Principal Executive Officer) /s/William C. Tutt Financial Manager April 26, 1996 William C. Tutt (Principal Financial and Accounting Officer Note: Original Powers of Attorney authorizing William C. Tutt and Michael M. Arnold, or either of them acting singly, to sign all amendments to the Registration Statement as attorney for the above listed trustees have been filed previously as Exhibit (17) or (18), as applicable. April 26, 1996 *By:/s/ William C. Tutt ---------------------------- William C. Tutt EX-5 2 As filed with the Securities and Exchange Commission on April 29, 1996 Registration No. 2-78066 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ EXHIBITS to FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 24 AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 27 ---------------------------- American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust (Exact Name of Registrant as Specified in Charter) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ INDEX TO EXHIBITS Sequentially Numbered Page Exhibit - ------------ ------- (1) Copies of the charter as now in effect; Declaration of Trust as amended through April 25, 1994: incorporated by reference to Part C, Item 24(b)(1) [Exhibit 1] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 20) and the Investment Company Act of 1940 (Amendment No. 23), Registration No. 2-78066, as filed with the SEC on June 6, 1994. (2) Copies of the existing by-laws or instruments corresponding thereto; Rules and Regulations as amended through March 15, 1990: incorporated by reference to Part C, Item 24(b)(2) [Exhibit(2)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933(Post-Effective Amendment No. 13)and the Investment Company Act of 1940 (Amendment No. 16), Registration No. 2-78066, as filed with the SEC on April 30, 1990. (3) Copies of any voting trust agreement with respect to more than 5 percent of any class of equity securities of the Registrant; (Not applicable) (4) Specimens or copies of each security issued by the Trust, including copies of all constituent instruments, defining the rights of the holders of such securities, and copies of each security being registered; (Not applicable) (5) Copies of all investment advisory contracts relating to the management of the assets of the Trust; Investment Advisory Agreement dated May 21, 1992 with Wellington Management Company: incorporated by reference to Part C, Item 24(b)(5), [Exhibit (5)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective amendment No. 17) and the Investment Company Act of 1940 (Amendment No. 20), Registration No. 2-78066, as filed with the SEC on June 24, 1992. Sequentially Numbered Page Exhibit - ------------ ------- (6) Copies of each underwriting or distribution contract between the Trust and a principal underwriter, and specimens or copies of all agreements between principal underwriters and dealers; (Not applicable) (7) Copies of all bonus, profit sharing, pension, or other similar contracts or arrangements wholly or partly for the benefit of directors or officers of the Trust in their capacity as such; if any such plan is not set forth in a formal document, furnish a reasonably detailed description thereof; (a) Summary of AFL-CIO Staff Retirement Plan dated July 1985 and amendments thereto in effect as of January 30, 1989: incorporated by reference to Part C, Item 24(b)(7)(b) [Exhibit 7(b)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (b) AFL-CIO Deferred Compensation Plan and Trust, as restated and amended through August 1, 1988: incorporated by reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (8) Copies of all custodian agreements and depository contracts under Section 17(f) of the Investment Company Act, with respect to securities and similar investments of the Trust, including the schedule of remuneration; Custody Agreement with American Security Bank dated October 18, 1983, as amended through December 21, 1988: incorporated by reference to Part C, Item 24(b)(8) [Exhibit (8)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 12) and the Investment Company Act of 1940 (Amendment No. 15), Registration No. 2-78066, as filed with the SEC on April 28, 1989. Sequentially Numbered Page Exhibit - ------------ ------- Custodian Agreement with Security Trust Company, N.A. dated May 21, 1991: incorporated by reference to Part C, Item 24(b)(8) [Exhibit (8)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post Effective Amendment No. 16) and the Investment Company Act of 1940 (Amendment No. 19), Registration No. 2-78066, as filed with the SEC on April 22, 1992. (9) Copies of all other material contracts not made in the ordinary course of business which are to be performed in whole or in part at or after the date of filing the Registration Statement; (Not applicable) (10) An opinion and consent of counsel as to the legality of the securities being registered, indicating whether they will when sold be legally issued, fully paid, and non-assessable; Opinion letter and written consent of Swidler & Berlin, Chartered, dated April 25, 1996, is included as Exhibit (10) to this Registration Statement incorporated by reference to Part C, Item 24(b)(10)[Exhibit (10)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (11) Copies of any other opinions, appraisals, or rulings, and consents to the use thereof relied on in the preparation of this Registration Statement and required by Section 7 of the 1933 Act; Consent of KPMG Peat Marwick, L.L.P. dated April 23, 1996 is included as Exhibit (11) to this Registration Statement: incorporated by reference to Part C, Item 24(b)(11)[Exhibit (11)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (12) All financial statements omitted from Item 23 of Part B; (Not applicable) Sequentially Numbered Page Exhibit - ------------ ------- (13) Copies of any agreements or understandings made in consideration for providing the initial capital between or among the Trust, the underwriter, adviser, promoter, or initial stockholders and written assurances from promoters or initial stockholders that their purchases were made for investment purposes without any present intention of redeeming or reselling; (Agreements for Advances, executed September 24, 1981, September 25, 1981, October 19, 1981 and April 16, 1982, previously submitted, have expired.) (14) Copies of the model plan used in the establishment of any retirement plan in conjunction with which the Trust offers its securities, any instructions thereto, and any other documents making up the model plan. Such form(s) should disclose the costs and fees charged in connection therewith; (Not applicable) (15) Copies of any plan entered into by the Trust pursuant to Rule 12b-1 under the Investment Company Act, which describes all material aspects of the financing of distribution of the Trust's shares, and any agreements with any person relating to implementation of such plan; Plan for Distribution as amended through December 14, 1995: incorporated by reference to Part C, Item 24(b)(15) included as Exhibit (15) of this Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (16) Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 (which need not be audited); (Not applicable) Sequentially Numbered Page Exhibit - ------------ ------- (17) Financial Data Schedule: incorporated by reference to Part C, Item 24(b)(17) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post- Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. (18) Other Exhibits: (a) Powers of Attorney for Trustees Kirkland, Moore, Lucassen and Sweeney: incorporated by reference to Part C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 12) and the Investment Company Act of 1940 (Amendment No. 15), Registration No. 2-78066, as filed with the SEC on April 28, 1989. (b) Powers of Attorney for Trustees Donahue, Georgine, Hanley, McEntee, Clack, Miller and Stanley: incorporated by reference to Part C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 13) and the Investment Company Act of 1940 (Amendment No. 16), Registration No. 2-78066, as filed with the SEC on April 30, 1990. (c) Power of Attorney for Trustee LaVere: incorporated by reference to Part C, Item 24(b)(17)(a) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 14) and the Investment Company Act of 1940 (Amendment No. 17), Registration No. 2-78066, as filed with the SEC on March 25, 1991. (d) Powers of Attorney for Trustees Ravitch and Fleischer: incorporated by reference to Part C, Item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 16) and the Investment Company Act of 1940 (Amendment No. 19), Registration Statement No. 2-78066, as filed with the SEC on April 22, 1992. Sequentially Numbered Page Exhibit - ------------ ------- (e) Powers of Attorney for Trustees Joyce, Hurt, Coia and Knoll: incorporated by reference to Part C, item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 18) and the Investment Company Act of 1940 (Amendment No. 21), Registration Statement No. 2-78066, as filed with the SEC on April 30, 1993. (f) Powers of Attorney for Trustees Monroe, Presutto, Spear and Wiegert: incorporated by reference to Part C, item 24(b)(17)(d) [Exhibit (17)] of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 23) and the Investment Company Act of 1940 (Amendment No. 26), Registration No. 2-78066, as filed with the SEC on June 6, 1995. (g) Power of Attorney for Trustee Duvernay: included as item 24(b)(18)(d) [Exhibit 18] to this Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 24) and the Investment Company Act of 1940 (Amendment No. 27), Registration No. 2-78066, as filed with the SEC on April 29, 1996. EXHIBIT 10 SWIDLER & BERLIN, CHARTERED 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 April 25, 1996 AFL-CIO Housing Investment Trust 1717 K Street, N.W. Suite 707 Washington, D.C. 20006 Re: AFL-CIO Housing Investment Trust, Units of Beneficial Interest Ladies and Gentlemen: You have requested our opinion with respect to the legality of the securities being registered pursuant to the Registration Statement on Form N-1A (Registration No. 2-78066), Post-Effective Amendment No. 24 under the Securities Act of 1933 and Amendment No. 27 under the Investment Company Act of 1940 ("Registration Statement"). At your request, this opinion is being furnished as an exhibit to, and we consent to the filing of it with, the Registration Statement. In rendering this opinion, we have reviewed the Declaration of Trust of the AFL-CIO Housing Investment Trust ("Trust") and applicable judicial decisions interpreting the laws of the District of Columbia with respect to common law business trusts. We have also reviewed the prospectus, statement of additional information and statement of other information included in the Registration Statement. We assume, for purposes of this opinion, that Units of Beneficial Interest in the Trust ("Units") will be issued at a price equal to the net asset value per Unit, as described in the Registration Statement and as determined as of monthly valuation dates and in accordance with the procedures approved by the Board of Trustees pursuant to Section 2(a)(41) under the Investment Company Act of 1940, as amended. Based upon the foregoing and upon such other investigation as we have deemed necessary, we are of the opinion that, when offered and sold in accordance with the Declaration of Trust and in the manner described in the Registration Statement, the Units being registered under the Registration Statement will when sold be legally issued, fully paid and non-assessable, except that owners or holders of such Units may be liable for debts and other obligations of the Trust in those states, such as, among others, Texas and Kansas, that do not recognize so-called "business trusts" as separate legal entities and hold beneficiaries of such trusts personally liable for actions thereof. Very truly yours, SWIDLER & BERLIN, CHARTERED /s/ SWIDLER & BERLIN, CHARTERED EX-23 3 EXHIBIT 11 KPMG Peat Marwick LLP Certified Public Accountants 2001 M Street, N.W. Washington, D.C. 20036 Telephone 202-467-3000 Telex 440477 PMMDCUI Telecopier 202-223-2199 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- Trustees of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust: We hereby consent to the use in this Registration Statement No. 2-78066 (Form N-1A, Post-effective Amendment No. 24 under The Securities Act of 1933, and Amendment No. 27 under The Investment Company Act of 1940) of our report included herein dated January 26, 1996, relating to the financial statements of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust for the year ended December 31, 1995, and to the reference to our Firm under the heading "Condensed Financial Information" in the Prospectus and "Auditors" in the Statement of Additional Information. /s/ KPMG Peat Marwick LLP Washington, D.C. April 23, 1996 EX-99 4 12B1 PLAN EXHIBIT 15 PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 OF THE AFL-CIO HOUSING INVESTMENT TRUST WHEREAS, the AFL-CIO Housing Investment Trust (the "Trust") operates as an open-end investment company registered under the Investment Company Act of 1940, as amended, (the "Act") and accordingly is subject to the regulatory authority of the Securities and Exchange Commission ("SEC"); WHEREAS, the Trust offers Units of Participation ("Units") to labor organizations and eligible pension plans at a price based on the net asset value per unit of the monthly valuation date following receipt of an order to purchase units; WHEREAS, Rule 12b-1 permits registered investment companies to bear certain expenses associated with the distribution of their shares; WHEREAS, the Trust intends to act as distributor of the Units and desires to adopt a plan of distribution (the "Plan") pursuant to Rule 12b-1 under the Act and the Board of Trustees of the Trust ("Trustees") has determined that a Plan to pay expenses involved in distributing units of the Trust and the servicing or maintenance of accounts is beneficial to the Trust and its participants. NOW THEREFORE, the Trustees hereby adopt the following Plan on behalf of the Trust in accordance with Rule 12b-1 of the Act. 1. Payment of Expenses. The Trust may pay for Distribution Expenses (as defined herein), as determined from time to time by the Trustees, in an amount up to $500,000 or 0.05% of its average monthly net assets on an annualized basis each fiscal year, whichever is greater. 2. Distribution Expenses. For purposes hereof, "Distribution Expenses" shall include all expenses which are incurred in connection with the offer and sale of Units, and all related service and distribution activities which may consist of, but are not limited to: advertising, telephone charges, office expenses, salaries; the printing of prospectuses, statements of additional information and reports for other than existing Trust participants; and the preparation and distribution of advertising materials and sales literature, and the allocable indirect expenses of the Trust relating to distribution. 3. Reports to the Board of Trustees. At least quarterly in each year that the Plan remains in effect, the Trust shall prepare and furnish to the Trustees, and the Trustees shall review, a written report of the amounts expended and the purpose for which such expenditures were made. 4. Approval of the Plan. This Plan shall become effective immediately upon approval of the Plan by the vote of: (a) a majority of the Trust's outstanding units, and (b) a majority of the Trustees and a majority of the Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the Act and who have no direct or indirect financial interest in the operation of the Plan or any agreements related to the Plan ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan. 5. Term. This Plan shall remain in effect for one year from the date of its effectiveness and may continue thereafter only if the Plan is approved at least annually by a majority of the Trustees and a majority of the Independent 6. Termination. The Plan can be terminated at any time by vote of a majority of the disinterested Trustees or by vote of a majority of the outstanding Units of the Trust on not more than 60 days written notice to any other party to the Plan. 7. Amendments. (a) Any material amendment to the Plan must be approved by a vote of a majority of the Trustees and a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on such amendment to the Plan. (b) This Plan may not be amended to increase materially the amount of Distribution Expense borne by the Trust without a majority vote of the Trust's outstanding Units. 8. Nomination of Trustees. While this Plan is in effect, the selection and nomination of the Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. 9. Treatment of expenses. It is the opinion of the Board of Trustees that the following expenses are not intended primarily to result in the sale of Units issued by the Trust: (a) the costs associated with the preparation, printing and mailing of proxy materials, all required reports and notices to participants and reports of Units held, irrespective of whether such reports or notices contain or are accompanied by material intended to result in the sale of Units; (b) costs of providing participant services; (c) costs of responding to telephone or mail inquiries of participants or prospective participants; or (d) any legal, accounting or other professional fees and expenses. EX-24 5 EXHIBIT 17 POWER OF ATTORNEY The undersigned Trustee of the AFL-CIO Housing Investment Trust ("Housing Trust") hereby constitutes and appoints William C. Tutt and Michael M. Arnold and each of them, either of whom may act without the joinder of the other, as his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign in his behalf, individually and in his capacity as a Trustee of the Housing Trust, all amendments to the Registration Statement on Securities and Exchange Commission Form N-1, Form N-1A or otherwise, executed after the date of this Power of Attorney, which amendments may make such changes and additions to the Registration Statement as the attorney(s)-in-fact may deem necessary or appropriate, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. /s/ Terrence R. Duvernay Date: 6/15/95 EX-27 6
6 U.S. DOLLARS JAN-01-1995 YEAR DEC-31-1995 DEC-31-1995 1 1,112,194,484 1,159,401,686 9,916,445 965,131 743,284 1,171,076,546 0 0 4,133,075 4,133,075 0 0 1,062,234 943,378 350,464 0 (844,004) 0 47,207,204 1,166,893,471 0 86,189,435 106,890 5,363,285 80,933,040 269,303 105,054,153 186,256,496 0 80,582,576 0 0 57,062 2,337 64,132 118,857 0 0 0 0 50,000 0 5,363,000 1,059,177,000 991.40 81.12 107.13 80.77 0 0 1098.53 .5 0 0
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