-----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, KL7ziXpugi+0PfuGMtOgeCzx6jMRkzv0jfdYXBYz4tbFbLNFpOGY4F3xgZVfIZBb PN6LOHbJIZM/+PbG34jg4g== 0001026777-01-500017.txt : 20010517 0001026777-01-500017.hdr.sgml : 20010517 ACCESSION NUMBER: 0001026777-01-500017 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20010427 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: SEC FILE NUMBER: 002-78066 FILM NUMBER: 1614553 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03493 FILM NUMBER: 1614554 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 N-1A 1 aflmain.txt AFL-CIO HOUSING INVESTMENT TRUST [LOGO] PROSPECTUS The principal goal of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust (the "Trust") is to generate current income, consistent with the preservation of capital over time, by investing in mortgage-backed securities and other mortgage-backed obligations, construction and longterm mortgage loans and secured bridge loans which carry competitive market yields. Other important goals of the Trust are to encourage the construction of housing and promote employment for union members in the construction trades and related industries. 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 information about the Trust that you should know before investing. You should read and retain this Prospectus for future reference. The date of this Prospectus is April 27, 2001 TABLE OF CONTENTS PAGE THE TRUST - SUMMARY WHAT ARE THE TRUST'S GOALS?............................... 1 WHAT ARE THE TRUST'S MAIN INVESTMENT STRATEGIES?.......... 1 WHAT ARE THE MAIN RISKS OF INVESTING IN THE TRUST?........ 2 WHO SHOULD INVEST IN THE TRUST?........................... 3 TRUST PERFORMANCE......................................... 3 FEES AND EXPENSES OF THE TRUST............................ 4 INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES, RELATED RISKS AND DEFAULT HISTORY INVESTMENT OBJECTIVES..................................... 5 PERMISSIBLE INVESTMENTS AND PRINCIPAL INVESTMENT STRATEGIES 6 PRINCIPAL INVESTMENT RISKS............................... 10 FINANCIAL HIGHLIGHTS.............................. ...... 13 MANAGEMENT'S DISCUSSION OF THE TRUST'S PERFORMANCE....... 14 BUYING AND SELLING UNITS IN THE TRUST ELIGIBLE INVESTORS....................................... 16 PURCHASING UNITS......................................... 16 SELLING OR REDEEMING UNITS............................... 17 DISTRIBUTION CHARGES (RULE 12B-1 FEES)................... 17 MANAGEMENT AND STRUCTURE MANAGEMENT............................................... 18 TRUST STRUCTURE.......................................... 19 GENERAL INFORMATION DISTRIBUTIONS AND TAXES.................................. 19 TO LEARN MORE............................................ 20 STATEMENT OF ADDITIONAL INFORMATION....................... 20 PARTICIPANT REPORT......................................... 20 FOR MORE INFORMATION...................................... 20 THE TRUST - SUMMARY The American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust (the "Trust") is an open-end investment company, commonly called a mutual fund. This section of the Prospectus gives you a brief summary of the Trust's investment goals, strategies and primary risks, as well as performance and fee information. More detailed information about the Trust follows this summary and is also contained in the Trust's Statement of Additional Information (the "SAI"). WHAT ARE THE TRUST'S GOALS? The Trust's primary investment goal is to generate current income, consistent with the preservation of capital over time, by investing in mortgage-backed securities and other mortgage-backed obligations, construction and long-term mortgage loans and secured bridge loans (collectively, "Mortgage Investments") which carry competitive market yields. Other important goals of the Trust are to encourage the construction of housing and to facilitate employment for union members in the construction trades and related industries. As a result, the Trust will invest in Mortgage Investments which are secured (directly or indirectly) by new construction projects or projects being rehabilitated only if the construction or rehabilitation work is to be performed by union labor. WHAT ARE THE TRUST'S MAIN INVESTMENT STRATEGIES? At least 70% of the mortgagebacked securities and mortgage loans in which the Trust invests or that back the Trust's investments are either federally insured or guaranteed or are issued or guaranteed by Fannie Mae or Freddie Mac. Up to 30% of the assets of the Trust may be invested in a wide variety of other Mortgage Investments, including privately collateralized investments, state and local government-related investments and secured bridge loans. The types of Mortgage Investments in which the Trust invests are described in more detail below under the heading "INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS." Real estate securing the Trust's investments includes multifamily housing projects, single-family housing and health care facilities, including hospitals, intermediate care facilities and nursing homes. The Trust also uses other strategies to mitigate risk and enhance the value of its portfolio. These strategies include managing the duration of the portfolio within a range comparable to that of the Lehman Aggregate Bond Index and negotiating prepayment restrictions for most of its long-term investments. In selecting Mortgage Investments, the Trust looks for market-rate and affordable housing projects that are economically viable and involve developers, contractors and mortgage bankers with a strong record of success in the real estate industry. The Trust also seeks projects that will enhance local community development efforts and/or have financial or other support from the local or state government, such as tax credits or subsidies that make the housing more affordable. WHAT ARE THE MAIN RISKS OF INVESTING IN THE TRUST? As with any mutual fund, the value of the Trust's investments and units of beneficial interest in the Trust ("Units") may go up or down and you could lose money. The Trust's principal risks are those of investing in mortgage-backed securities and mortgage loans, which include the following types of risks: - Interest Rate Risk: as with any fixed income investment, the market value of the Trust's investments will fall below the principal amount of those investments at times when market interest rates rise above the interest rates on the investments. Participants in the Trust ("Participants") who sell Units at such times may suffer a loss. Rising interest rates may also extend the term of Mortgage Investments beyond the expected time of prepayment, which could in turn increase the portfolio's sensitivity to rising interest rates. - Default Risk: there is a risk that the borrowers under the mortgage loans which secure (directly or indirectly) the Trust's investments may default under their mortgage loans. In the event of such defaults, the Trust may experience a loss on the related investments. Under certain circumstances and to a limited extent this is true even for mortgage loans which are federally insured or guaranteed. The Trust will obtain some type of credit enhancement for almost all of its investments to help protect the Trust against losses from mortgage loan defaults. To the extent that credit enhancement for a Trust investment is provided by a private entity or a state or local housing agency, there is a risk that the credit enhancer will not make the payments it has agreed to make in the event of a mortgage loan default. In addition, if the credit rating of any such credit enhancer is downgraded, the value of investments guaranteed by that credit enhancer may be reduced to less than the principal amount of the investment. - Prepayment Risk: generally, the market value of the Trust's investments will rise above the principal amount of those investments at times when market interest rates fall below the interest rates on the investments. However, at such times, borrowers may prepay the mortgage loans backing the Trust's investments more quickly than expected. This would force the Trust to reinvest the proceeds in other investments bearing lower interest rates. Other risks include the fact that the Trust concentrates its investments in mortgage-backed securities and mortgage-backed loans backed by specific types of housing and health care facilities, rather than investing in securities backed by a broad range of industries. As a result, if securities and loans backed by real estate, particularly housing and health care facilities, are more adversely affected by changing economic conditions than securities backed by assets in other sectors of the economy, then the value of the Trust assets may be adversely affected. Also, there may be a limited resale market for certain types of privately collateralized investments, state and local government-related investments and secured bridge loans. If the resale market is limited, the Trust may experience a loss in the event that it must liquidate investments to meet redemption requests or to meet other obligations of the Trust. Although as of December 31, 2000, 98% of the Trust's long-term investments were federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac, an investment in the Trust is not insured by the federal government, any government agency, Fannie Mae, Freddie Mac or any other firm or entity. For more information about the risks associated with the Trust and the Trust's risk management strategies, see "INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS--PRINCIPAL INVESTMENT RISKS" below. WHO SHOULD INVEST IN THE TRUST? The Trust may be an appropriate investment for eligible labor organizations and eligible pension plans which: - are seeking a fixed income investment with a high degree of security - are looking for an investment with a history of providing highly competitive risk-adjusted returns - desire the portfolio diversification that can be obtained from single-family and multifamily mortgage investments - want to invest in a national mortgage investment program - prefer an investment program with one of the most cost-effective operating structures in the industry - are seeking a long-term investment with monthly liquidity - wish to encourage union employment in housing construction and community revitalization TRUST PERFORMANCE The following bar chart and table show the Trust's annual returns and long-term performance. They provide an indication of the risks of investing in the Trust by showing changes in the Trust's performance from year to year over the past 10 years and by showing how the Trust's average annual returns for one, five and ten years compare to those of various broad-based securities market indices. Past performance does not insure that the Trust will achieve similar results in the future. ANNUAL TOTAL RETURNS 1991 14.30% 1992 5.76% 1993 9.67% 1994 (2.70%) 1995 19.56% 1996 5.12% 1997 10.74% 1998 8.28% 1999 (0.57%) 2000 12.31% During the 10-year period shown in the above bar chart, the highest return for a quarter was 6.38% (quarter ending June 30, 1995) and the lowest return for a quarter was -2.33% (quarter ending March 31, 1994). AVERAGE ANNUAL TOTAL RETURNS (%) (for the periods ending December 31, 2000) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS AFL-CIO Housing Investment Trust 12.31% 7.08% 8.06% Lehman Aggregate Bond Index 11.63% 6.46% 7.96% FEES AND EXPENSES OF THE TRUST Investors pay certain fees and expenses in connection with investing in a mutual fund. The purpose of the following table is to assist you in understanding the various costs and expenses that you may pay if you buy and hold Units in the Trust. The Trust does not charge any sales charge (load) on the purchase of Units, any fee on the sale or redemption of Units or any other exchange fee or account fee. The expenses shown under "Annual Trust Operating Expenses" are based upon those incurred in the fiscal year ended December 31, 2000. ANNUAL TRUST OPERATING EXPENSES (expenses that are deducted from Trust assets) (as a percentage of average net assets) Management Fees 0% (1) Distribution (12b1) Fees .02% Other Expenses .36% (1) Total Trust Operating Expenses .38% (1) The Trust's portfolio is internally managed. The Trust does not pay management fees except to the extent that the Trust pays Wellington Management Company, LLP a fee for managing a portion of the short-term investment portfolio. Since the management fee paid in 2000 was .0023% of the Trust's average net assets, which is less than .01%, this fee is included in other expenses and not shown separately in the table. Example This example is intended to help you compare the cost of investing in the Trust with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Trust for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Trust's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years ------ ------- ------- --------- $38 $120 $210 $478 INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES, RELATED RISKS AND DEFAULT HISTORY Investment Objectives The Trust's primary investment goal is to generate current income, consistent with the preservation of capital over time, by investing in Mortgage Investments which carry competitive market yields. Other important goals of the Trust are to encourage housing and to facilitate employment for union members in the construction trades and related industries. As a result, the Trust will invest in Mortgage Investments which are secured (directly or indirectly) by new construction projects or projects being rehabilitated only if the construction or rehabilitation work is to be performed by union labor. This increases the amount of financing available for housing and other projects and creates job opportunities for union labor in the construction trades and related industries that provide materials, furnishings, appliances and services related to housing construction. Real estate securing the Trust's investments includes multifamily housing projects, single-family housing and health care facilities, including hospitals, intermediate care facilities and nursing homes. PERMISSIBLE INVESTMENTS AND PRINCIPAL INVESTMENT STRATEGIES Permissible Investments The Trust concentrates its investments in the real estate industry. It invests primarily in Mortgage Investments that are directly or indirectly secured by mortgages or liens on real estate. The Trust must invest at least 70% of its assets in Mortgage Investments which are federally insured or guaranteed or which are issued or guaranteed by Fannie Mae or Freddie Mac, directly or indirectly. The policies described in this paragraph are fundamental policies of the Trust and may not be changed without the approval of the holders of a majority of the Trust's outstanding Units. The types of Mortgage Investments in which the Trust will invest are described below. Federally Insured or Guaranteed Mortgage Investments; Fannie Mae/Freddie Mac-Related Mortgage Investments. The Trust must invest a minimum of 70% and may invest up to 100% of its assets in these types of Mortgage Investments. These Mortgage Investments include: - construction and permanent mortgage loans which are insured or guaranteed by the federal government or an agency of the federal government, including the United States Department of Housing and Urban Development ("HUD" or "FHA"), the Department of Veterans Affairs ("VA") and the Government National Mortgage Association ("Ginnie Mae"); - mortgaged-backed securities which are secured by mortgage loans and/or securities which are insured or guaranteed by the federal government or an agency of the federal government and are rated AAA or AA by a nationally recognized rating agency; - loans, securities or other obligations which are issued or guaranteed by Fannie Mae or Freddie Mac (including 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. As of December 2000, each had a senior unsecured debt rating of "AAA" from Standard & Poor's Rating Services, a division of The McGraw Hill Companies, Inc. ("S&P") and a long-term senior unsecured debt rating of "Aaa" from Moody's Investor Service, Inc. ("Moody's"). The United States government does not insure or guarantee Fannie Mae or Freddie Mac obligations; - securities which are backed by Fannie Mae or Freddie Mac and are rated AAA or AA by a nationally recognized rating agency when issued. As of December 31, 2000, these types of Mortgage Investment represented 98% of the Trust's total long-term investment portfolio. The Trust intends to concentrate its investments in these types of Mortgage Investments to the extent that market conditions permit, consistent with the overall objectives of the Trust; however, there is no assurance that this concentration of Mortgage Investments can be maintained. Privately Collateralized Mortgage Investments; State/Local Government Related Investments; Secured Bridge Loans. The Trust may invest up to 30% of its assets in privately collateralized mortgage obligations and state and local government-related investments, including secured bridge loans for low-income housing tax credit projects. Certain of the investments in this category are subject to further caps, expressed as a maximum percentage of the Trust's total portfolio, as set forth below. All of the investments in this category are subject to the requirement that at least 90% of the Trust's assets must be liquid (i.e., that they are readily marketable and convertible into cash within 120 days without a discount from their market value). As of December 31, 2000, these types of investments constituted 2.0% of the Trust's total long-term investment portfolio. To date these types of investments have never represented more than 3.0% of the Trust's total long-term investment portfolio. It is possible, however, that the percentage of the Trust's assets invested in these types of investments could rise above the current level. Investments in this category include the following types of loans (as well as interests in and securities backed by these types of loans): - construction and/or permanent loans which have credit enhancement as required by the Trust's Declaration of Trust from a state or local government (or an agency or instrumentality thereof), including state and local housing finance agencies; - construction and/or permanent loans which are made by a state or local government entity or any other lender, as long as the loan (or securities backed by the loan) is secured by a cash escrow or a letter of credit, insurance or another form of guaranty issued by an entity which meets credit rating requirements imposed by the Trust's Declaration of Trust; - construction and/or permanent loans which have evidence of support from a state or local government (or an agency or instrumentality thereof) and meet underwriting criteria specified in the Trust's Declaration of Trust, including requirements that the loantovalue ratio may not exceed 60% (or 75% if the Trust receives required credit enhancement or the project receives low income housing tax credits), that the state or local government or a tax-exempt foundation must make or facilitate a financial contribution in the project and that the minimum debt service coverage for these projects must be at least 1.15, based upon projections of future income and expenses. The total principal amount of the investments in this category outstanding from time to time may not exceed 4% of the value of all of the Trust's assets; - secured bridge loans for low-income housing tax credit projects where the Trust receives a required form of credit enhancement. The total principal amount of the investments in this category outstanding from time to time may not exceed 5% of the value of all of the Trust's assets. The Trust may also invest in privately collateralized investments or state and local government-related investments which have any combination of the types of credit enhancement required for Trust investments, as long as the total principal portion of the investment is fully collateralized by acceptable forms of credit enhancement. The multiple forms of credit enhancement may be combined either concurrently or sequentially. The Mortgage Investments described in this section are not federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac. In addition, these Mortgage Investments do not have to be rated or ratable, although some of these Mortgage Investments must have credit enhancement which is provided by an entity which has a rating which is equal to or better than a specified level. The Trust's Declaration of Trust contains very detailed and specific criteria for these types of investments. For more information about these types of investments and the criteria which apply to each, see "INVESTMENT OBJECTIVES, POLICIES AND RISKS--PRIVATELY COLLATERALIZED MORTGAGE INVESTMENTS; STATE/LOCAL GOVERNMENT RELATED INVESTMENTS" in the SAI. Principal Investment Strategies The Trust's principal investment strategies are as follows: - The Trust intends to maximize the portion of its long-term portfolio which is invested in investments which are federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac, directly or indirectly, to the extent that market conditions permit, consistent with the overall objectives of the Trust. - At least 90% of the value of the Trust's assets must be invested in investments that are readily marketable and convertible into cash within 120 days without a discount from their market value. - To mitigate interest rate risk, the Trust sells and acquires securities in order to be "market neutral" and does not employ interest rate anticipation strategies. The Trust periodically compares the effective duration of its portfolio to the fixed-income market, as defined as the Lehman Aggregate Bond Index. It is the Trust's policy to maintain the effective duration of the Trust's portfolio within the range of plus or minus one-half year of the effective duration of the Lehman Aggregate Bond Index. For the 5-year period ended on December 31, 2000, the Trust's average annualized portfolio turnover rate was 30.4%, which reflects the implementation of this policy to manage interest rate risk. - It is the policy of the Trust to negotiate prepayment restrictions for its long-term multifamily Mortgage Investments to mitigate prepayment risk. Such prepayment restrictions, also known as "call protection", for the Trust's investments can take the form of prepayment lockouts, prepayment penalties, yield maintenance penalties or a combination of the foregoing. As of December 31, 2000, 97.4% of the Trust's multifamily Mortgage Investments possess some form of call protection, ranging from prepayment lockouts of one month to 15 years from the completion of the related project and prepayment penalties ranging from 0.125% to 5.00% of the amount prepaid As of December 31, 2000, the Trust's portfolio consisted of 61.7% multifamily investments, 35.6% single family investments, 0.7% intermediate-term securities (government sponsored entity agency bonds with maturities ranging from one to five years) and 2.0% cash and cash equivalents. - The majority of the Trust's multifamily Mortgage Investments are made pursuant to forward commitments, in which the Trust agrees to purchase an investment in or backed by mortgage loans that have not yet been made. For multifamily projects and health care facilities, the Trust sets a fixed rate for future delivery. For single-family mortgage loans, the Trust generally sets either a fixed rate or a maximum rate that may be adjusted downward prior to the closing of the mortgage loan if market interest rates decline. In periods of declining interest rates, all of the investments for which the Trust has issued commitments may not be delivered to the Trust. The Trust usually requires a good faith deposit at the time the commitment is issued (generally 1/2 to 4 points) on investments backed by multifamily or health care facilities and retains the deposit if the investment is not delivered to the Trust. Whenever possible, the Trust also includes mandatorydelivery clauses in commitments for investments backed by these facilities and projects. Both mechanisms help assure delivery of the related investments, but there is no guarantee that all investments the Trust commits to purchase will actually be delivered to the Trust. - Pending investment in Mortgage Investments, the Trust's assets are held in various short-term instruments, including United States Treasury issues, repurchase agreements, federal agency issues, mutual funds that invest in such securities, certificates of deposit and other obligations of domestic banks, 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 ("Short-term Investments"). - It is the current policy of the Trust not to invest in interest- only ("IO") and principal-only ("PO") collateralized mortgage obligations. IO and PO investments can be highly volatile and their value can fall dramatically in response to rapid or unexpected changes in the mortgage or interest rate environment. For more information about the Trust's investments, see "INVESTMENT OBJECTIVES, POLICIES AND RISKS" in the SAI. PRINCIPAL INVESTMENT RISKS As with any investment fund, there can be no guarantee that the Trust will meet its goals, or that the Trust's performance will be positive over any period of time. This section contains a summary discussion of the primary risks which can affect the value of an investment in the Trust. Interest Rate Risk The net asset value, or "NAV", of each Unit in the Trust reflects the market value of the Trust's portfolio of Mortgage Investments. The value of the Trust's portfolio, and the resulting NAV of the Units, will fluctuate, primarily in response to changing interest rates. Generally, when market interest rates rise, the NAV will fall and conversely, when market interest rates fall, the NAV will rise. If market interest rates rise above the interest rates on the Trust's Mortgage Investments, the value of the Trust's Mortgage Investments will fall below the principal amount of those investments. Participants who redeem Units at such times may suffer a loss. Duration is a risk measure used to express the price (value) sensitivity of a fixed-income security as it relates to changes in the general level of interest rates. It measures this sensitivity more accurately than maturity because it takes into account the time value of the cash flows generated by the security over its life. Future interest and principal payments are discounted to reflect their present value and then are multiplied by the number of years they will be received to produce a value expressed in years- the duration. Effective duration takes into account call features and prepayment expectations that may shorten or extend a security's life. As a risk mitigation strategy, the Trust periodically buys or sells Mortgage Investments in order to prevent fluctuations in the weighted average maturity of the portfolio, manage the duration of the portfolio and maintain a desirable level of portfolio diversification. However, the value of an investment at the time of its liquidation may be more or less than its value when it was acquired by the Trust. Prepayment Risk When market interest rates fall, the value of the Trust's Mortgage Investments will increase in value, but mortgage-backed securities and mortgage loans, unlike most other fixed-income investments, may be hurt when interest rates fall, because borrowers tend to refinance. The loss of high-yielding mortgage-backed securities and mortgage loans and the reinvestment of proceeds at lower interest rates can: reduce the potential price increase in mortgage-backed securities and mortgage loans in response to falling interest rates; reduce the yield on mortgage-backed securities and mortgage loans; and, cause prices of mortgage-backed securities and mortgage loans to fall below what the investor paid for it, resulting in a capital loss. Any of these developments could cause a decrease in a fund's income and/or share price. As described above, the Trust seeks to negotiate various forms of prepayment restrictions on its long-term Mortgage Investments to mitigate this risk. Default Risks and Default History Most of the Trust's Mortgage Investments are (directly or indirectly) federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac to give the Trust protection against losses on a default. In addition, almost all of the Trust's other Mortgage Investments will have some form of credit enhancement to protect against losses in the event of default. Notwithstanding this, the Trust may experience losses in the event of defaults under the loans which directly or indirectly back the Trust's Mortgage Investments; to a limited extent, this is true even for federally insured or guaranteed loans. If a private entity or a state or local government entity provides credit enhancement for a Mortgage Investment and fails to meet its obligations under the credit enhancement in the event of a default under the underlying mortgage loan, the Trust would be subject to the risks that apply to real estate investments generally with respect to that Mortgage Investment. The very small portion of the Trust's Mortgage Investments which do not have any form of credit enhancement will be subject to all the risks inherent in investing in loans secured by real estate. In the case of securities or loans backed by health care facilities, economic performance may also be affected by state and federal laws and regulations affecting the operation of the underlying facility, as well as state and federal reimbursement programs and delays or reduction in reimbursements. For more information about real estate-related risks and potential losses, see "RISK FACTORS - Real Estate Related Risks" and "RISK FACTORS -- Defaults on Loans" in the SAI. Most of the privately collateralized investments and state and local government-related investments that the Trust may make are expected to have credit enhancement given by an entity which possesses a specified credit rating. Such investments themselves do not have to be rated or ratable. There is no assurance that a rated credit enhancement provider would retain the required rating level for the life of the investment. Instead, as is the case with any rating, the rating could be revised downward or withdrawn entirely at any time by the rating entity which issued it, if the rating agency deemed it appropriate to do so. A rating downgrade or the withdrawal of a rating would indicate an increase in the risk of default by the credit enhancement provider in the event of a default on the related Mortgage Investment and may also result in a reduction in the value of the investment and/or make it illiquid. The Trust is not required to dispose of any Mortgage Investment solely because the rating of any entity providing credit enhancement for such investment has been downgraded or withdrawn. As noted above, the Trust may invest a limited portion of its assets in Mortgage Investments which are not rated or credit-enhanced. A rating does not provide any assurance of repayment and is subject to revision or withdrawal at any time by the rating agency, but ratings do provide a prospective investor with some indication that the proposed structure and revenue analysis for the investment satisfy the rating agency's internal criteria for the applicable rating. Unrated investments may also be less liquid than rated investments. During the five years ended on December 31, 2000, the Trust realized losses of less than .02% of the Trust's average net assets in connection with defaults under certain FHA-insured multifamily mortgage loans. Resale Risk Mortgage Investments which are federally insured or guaranteed or are issued or guaranteed by Fannie Mae or Freddie Mac are very liquid and an active secondary market for such investments exists. There may be a limited resale market for certain of the Trust's privately collateralized investments, state or local government-related investments or secured bridge loans. If the resale market is limited and the Trust had to sell such investments quickly for any reason, the Trust may be able to sell them only at a discount from their market value. However, in the aggregate, privately collateralized investments, state or local government-related investments and secured bridge loans may not exceed more than 30% of the Trust's total assets. As of December 31, 2000, these types of investments constituted only 2% of the Trust's long-term Mortgage Investments and to date these types of investments have never represented more than 3% of the Trust's total long-term investment portfolio. Risks Associated with Secured Bridge Loans Secured bridge loans are somewhat different from any of the other types of investments which the Trust may make because in some cases the secured bridge loan does not constitute a lien on the related project and because the loan is designed to "bridge" the gap between the construction financing for the project and the total costs of the project until the low income housing tax credit investors for the project make their payments into the project as it is constructed or completed. As a result, this type of Mortgage Investment is subject to the real estate related risks that other Mortgage Investments are subject to as well as other risks which are unique to this type of investment. These risks are described in "RISK FACTORS--Defaults on Secured Bridge Loans" in the SAI. However, as described in the SAI under the heading "INVESTMENT OBJECTIVES, POLICIES AND RISKS--PRIVATELY COLLATERALIZED MORTGAGE INVESTMENTS; STATE/LOCAL GOVERNMENT RELATED INVESTMENTS", the Trust will obtain credit enhancement to protect against these risks and this type of investment cannot constitute more than 5% of the total assets of the Trust at any time. Liquidity Risk Certain legal restrictions require the Trust to invest at least 90% of the value of its assets in Mortgage Investments which are readily marketable and convertible into cash within 120 days without a discount from their market value. As a result, not more than 10% of the value of the Trust's assets may be invested in Mortgage Investments which are not readily marketable and convertible into cash within 120 days without a discount from their market value. See, "RISK FACTOR--Investment Restrictions" in the SAI. As of December 31, 2000, 98% of the Trust's assets were liquid and only 2% of the Trust's assets were illiquid. However, to the extent that the total amount of the illiquid Mortgage Investments held by the Trust ever exceeds 10% of the value of the Trust's assets, Mortgage Investments must be liquidated even if they have to be liquidated at a substantial discount from market value. For more information about the risks of an investment in the Trust, please see "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS" in the SAI. FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Trust's financial performance for the past 5 years. Certain information reflects financial results for a single Unit. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Trust (assuming reinvestment of all income and distributions). The information (except the Total Returns) for the years ended December 31, 1997, December 31, 1998, December 31, 1999 and December 31, 2000 was audited by Arthur Andersen LLP. The information for the year ended December 31, 1996 was audited by KPMG, LLP. Arthur Andersen's report, along with the Trust's financial statements, is included in the Annual Report, which is available upon request. Financial Highlights (amounts in thousands) Year Year Year Year Year Ended Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1996 1997 1998 1999 2000 - - - -------------------------------------------------------------------------- Net Asset Value, Beginning of Period $1,098.53 $1,072.98 $1,104.30 $1,114.08 $1,035.72 - - - -------------------------------------------------------------------------- Net Investment Income 79.11 79.06 77.48 71.65 72.83 - - - -------------------------------------------------------------------------- Net Gains (Losses) on investments realized & unrealized (25.90) 31.84 11.15 (77.96) 49.70 - - - -------------------------------------------------------------------------- Dividends (from net investment income) (78.76) (79.10) (77.55) (71.74) (72.83) - - - -------------------------------------------------------------------------- Distributions (from capital gains) - (0.48) (1.30) (0.31) - - - - --------------------------------------------------------------------------- Net Asset Value, End of Period $1,072.98 $1,104.30 $1,114.08 $1,035.72 $1,085.42 - - - --------------------------------------------------------------------------- Total Return 5.12% 10.74% 8.28% (0.57%) 12.31% - - - ---------------------------------------------------------------------------
Ratios/Supplemental Data Year Year Year Year Year Ended Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1996 1997 1998 1999 2000 - - - ----------------------------------------------------------------------------------------------- Net Assets, End of Period $1,383,163,166 $1,671,744,859 $2,023,371,045 $2,149,326,689 $2,477,481,753 - - - ----------------------------------------------------------------------------------------------- Ratio of Expenses to Average Net Assets 0.46% 0.43% 0.39% 0.39% 0.38% - - - ----------------------------------------------------------------------------------------------- Ratio of Net Income to Average Net Assets 7.3% 7.2% 6.8% 6.7% 6.9% - - - ----------------------------------------------------------------------------------------------- Portfolio Turnover Rate 20.3% 15.3% 39.5% 31.7% 25.9% - - - -----------------------------------------------------------------------------------------------
Includes income distributed for the quarterly periods ended March 31, June 30, September 30 and December 31, 1996, and distributed monthly for the years ended December 31, 1997, December 31, 1998 and December 31, 1999. 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. Other Financial Information The following table represents the Trust's financial performance for the past 5 years on a total gross return basis. The total gross returns in the table represent returns prior to the deduction of the Trust's expenses. The gross returns are shown for information purposes only, because the Trust management believes that they provide a useful comparison to the Trust's benchmark index, which is not subject to the deduction of any operating or administrative expenses. Year Year Year Year Year Ended Ended Ended Ended Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 1996 1997 1998 1999 2000 - - - -------------------------------------------------------------------------- Total Gross Return 5.61% 11.22% 8.71% (0.18%) 12.74% - - - -------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION OF THE TRUST'S PERFORMANCE The factors that materially influenced Trust performance during the most recently completed fiscal year are discussed in our 2000 Annual Report to shareholders, currently on file with the Securities and Exchange Commission ("SEC") and available upon request without charge from the Trust. The following line graph and table illustrates the account value of $50,000 (minimum initial investment) invested in the Trust on January 1, 1991 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 Lehman Aggregate Bond Index and the Trust's average annual total returns for one, five and ten years. TOTAL VALUE OF INVESTMENT FOR YEAR ENDING 1991 1992 1993 1994 1995 - - - ----------------------------------------------------------------------------- AFL-CIO Housing Investment Trust 57,147.67 60,439.53 66,284.82 64,496.88 77,112.45 - - - ----------------------------------------------------------------------------- Lehman Aggregate Bond Index 58,001.57 62,294.93 68,368.16 66,374.44 78,636.29 - - - ----------------------------------------------------------------------------- TOTAL VALUE OF INVESTMENT FOR YEAR ENDING 1996 1997 1998 1999 2000 - - - ------------------------------------------------------------------------------ AFL-CIO Housing Investment Trust 81,064.32 89,772.54 97,203.70 96,652.76 108,548.44 - - - ------------------------------------------------------------------------------ Lehman Aggregate Bond Index 81,491.25 89,358.38 97,120.51 96,322.70 107,520.97 - - - ------------------------------------------------------------------------------ TRUST AVERAGE ANNUAL TOTAL RETURNS One-year ended Five years ended Ten years ended Dec. 31, 2000 Dec. 31, 2000 Dec. 31, 2000 -------------- ---------------- ---------------- 12.31% 7.08% 8.06% PAST PERFORMANCE OF AN INVESTMENT IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Risk-adjusted Return The Trust's five-year risk-adjusted performance compared to its benchmark is represented by the coefficient of variation of trailing 12-month returns. The coefficient of variation is used to measure the ratio of risk relative to returns. The ratio is calculated by dividing the standard deviation by the average trailing 12-month returns for the previous five years. Consistent with capital asset pricing theory, in this analysis, risk is represented by the standard deviation, which measures the volatility of monthly returns. The table below shows that the Trust has a lower coefficient of variation and higher average return. Past performance does not mean that the Trust will achieve similar results in the future. Average Trailing 12-Month Return for Coefficient the Five Years Standard of Variation Ended 12/31/00 Deviation - - - ------------------------------------------------------------------------------ AFL-CIO Housing Investment Trust 56.3% 7.25% 4.08% - - - ------------------------------------------------------------------------------ Lehman Aggregate Bond Index 58.2% 6.66% 3.88% - - - ------------------------------------------------------------------------------ BUYING AND SELLING UNITS IN THE TRUST ELIGIBLE INVESTORS Units in the Trust may be purchased only by "Labor Organizations" and "Eligible Pension Plans." A Labor Organization means an organization in which employees participate, directly or through affiliated organizations, and which exists for the purpose, in whole or in part, of dealing with employers concerning terms or conditions of employment. The term "Labor Organization" also includes any employee benefit plan of a Labor Organization and any other organization which is, in the discretion of the Board of Trustees of the Trust, affiliated with or sponsored by such a Labor Organization. As of December 31, 2000, eligible Labor Organizations include 65 national and international unions and 628 state and local central bodies directly affiliated with the AFL-CIO. There are also a great number of local unions and state and local central bodies affiliated directly with those national and international unions and other labor organizations. An Eligible Pension Plan is a pension plan constituting a qualified trust under Section 401(a) of the Internal Revenue Code of 1986, as amended, 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. To inquire about the purchase or sale of Units in the Trust, contact the Trust's Executive Vice President Marketing, Investor and Labor Relations at the address and telephone number on the back cover. PURCHASING UNITS Units in the Trust may be purchased only from the Trust and a minimum initial investment of $50,000 is required. Whole or fractional Units may be purchased. Units may be purchased only on the last business day of each month. Each purchase order will be processed and priced on the last business day of the month in which it is received. You must remit your purchase order and the required payment for your Units by check or wire transfer to the Trust on or before the actual purchase date. The Trust will hold all purchase payments in Short-term Investments until the actual purchase date. A copy of the participation form under which the Trust will hold your purchase payment is available upon request. There is no charge payable in connection with the participation form and all Units are sold without any sales charge (load) or commission. Units are issued and redeemed by bookkeeping entry and without physical delivery of any securities. The Trust has the right to reject any purchase order or suspend or modify the sale of Units. The price of all Units purchased will be equal to their net asset value, or NAV, at the close of business on the date of purchase. The NAV is calculated by dividing the total value of the Trust (the value of all of the Trust's assets minus all of the Trust's liabilities) by the total number of Units outstanding on the date of calculation. The Trust calculates the NAV of the Units only on the last business day of each month. The Trust's Short-term Investments are valued based upon market quotations or, if not readily available, at fair value as determined in good faith under procedures approved by the Board of Trustees. The Trust has retained an independent firm to perform the monthly valuation of all long-term investments. All long-term investments are valued based upon fair value determined in good faith under procedures approved by the Board of Trustees. In addition, each month the Trust reviews the proposed valuations of all investments and makes appropriate adjustments to reflect the effect of income (collected or accrued), realized and unrealized gains and losses, expenses, the existence and quality of any credit enhancement and any material impairments in value arising from the specific facts and circumstances of the investment (e.g., mortgage in default). This process, commonly referred to as "marking to market", helps ensure that the valuation of the assets in the Trust's portfolio accurately reflects current market pricing of each investment, based on its unique characteristics. For more information on the valuation methodology the Trust uses, see "VALUATION OF UNITS" in the SAI. SELLING OR REDEEMING UNITS Although the SEC has given the Trust permission to value its assets and accept redemption requests no more often than quarterly, the Trust currently accepts and satisfies redemption requests as of the last business day of each month. You may not sell or transfer your Units to anyone other than the Trust and you may not pledge your Units. Whole or fractional Units may be redeemed. If you want to sell your Units, you must submit a redemption request to the Trust in writing and the Trust must receive it at least 15 days before the last business day of the month. Redemption requests may be submitted by facsimile. Redemption requests received less than 15 days before the last business day of the month will be satisfied as of the last business day of the following month. The Trust will redeem Units, without charge, at their NAV as of the last business day of the applicable month. It usually takes from 7 to 10 business days to calculate the Trust's NAV after the last business day of the month. The Trust will pay the proceeds of any redemption request by check or wire transfer as soon as practicable after the NAV has been calculated, but no later than 7 business days after the NAV has been calculated. If the redeeming Participant agrees, the Trust may deliver securities, mortgages or other Trust assets in full or partial satisfaction of a redemption request. A Participant which receives such assets may incur expenses in selling or disposing of such assets for cash. DISTRIBUTION CHARGES (RULE 12B-1 FEES) The Trust has adopted a plan under Rule 12b-1 that allows the Trust to pay distribution fees for the sale and distribution of its Units. For the year ended December 31, 2000, these fees were $556,102, representing .02% of the Trust's average net assets. The Trust expects that these fees will not exceed $600,000 for calendar year 2001. These types of fees and expenses primarily include the printing and mailing of prospectuses to other than current Participants, compensation to sales personnel (salaries plus fringe benefits), travel and meeting expenses, office supplies, consulting fees and expenses and expenses for printing and mailing of sales literature. Any change in the plan for distribution that materially increases the amount of distribution expenses paid by the Trust requires the approval of the holders of a majority of the Trust's outstanding Units. Because these fees are paid out of the Trust's assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. MANAGEMENT AND STRUCTURE MANAGEMENT Overall responsibility for the management of the Trust is vested in its Board of Trustees. Up to 12 of the trustees may be officers of the AFL-CIO or its member unions ("Union Trustees"); up to 12 trustees may be (i) officers or management employees of organizations which contribute to an Eligible Pension Plan or officers or management employees of an Eligible Pension Plan and (ii) up to 4 of such trustees may be officers, directors or trustees of housing, finance, or real estate development organizations or federal, state or local government officials (collectively, "Management Trustees"). One trustee, the Chairman, must be an individual who is not an officer, trustee or employee of any organization that participates in the Trust. As of April 27, 2001, the Board of Trustees consisted of the Chairman, 11 Union Trustees and 7 Management Trustees. The number of Management Trustees may not exceed the number of Union Trustees, unless a Union Trustee dies or resigns before the expiration of his or her term. Between meetings of the full Board of Trustees, 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 overseeing Trust affairs. The Chief Executive Officer, the Executive Vice President- Marketing, Investor and Labor Relations, the Executive Vice President - Finance and Administration, the Controller, the General Counsel and the Executive Vice President Investments are responsible for the Trust's day to day administration, including the selection, purchase and sale of Mortgage Investments (other than certain shortterm investments) and communication with existing and potential investors. Some of the Trust's short-term and intermediate-term liquid assets are managed by an investment adviser, Wellington Management Company, LLP, a Massachusetts limited liability partnership ("Wellington Management"). As of December 31, 2000, the value of all short-term and intermediate-term Trust assets managed by Wellington Management was approximately $20.2 million which represented .82% of the Trust's total net assets at that date. Wellington Management is a registered investment adviser and its principal offices are located at 75 State Street, Boston, Massachusetts 02109. Its Managing Partners are Laurie A. Gabriel, Duncan M. McFarland and John R. Ryan. Wellington Management provides investment advisory services to investment companies, employee benefit plans, endowment funds, foundations and other institutions. Wellington Management is responsible for managing the investment and reinvestment of the short-term and intermediate-term assets which it manages for the Trust, including determining which assets shall be purchased, retained and sold and carrying out those decisions. The Trust pays Wellington Management an advisory fee of 0.125% per annum of the market value of the of the Trust's short-term and intermediate-term assets up to $100 million under management by Wellington Management and 0.10% per annum of the market value of the Trust's short-term and intermediate-term assets in excess of $100 million under management by Wellington Management; provided that the annual fee shall in no event be less than $50,000. This fee is payable quarterly, based upon the average monthly market value of the assets under management. The fee paid to Wellington Management for the year ended December 31, 2000, was less than 0.01% of the Trust's average net assets. TRUST STRUCTURE The Trust is organized in the District of Columbia as a common law business trust. The majority of jurisdictions in the United States recognize such a trust as a separate legal entity, wholly distinct from its beneficiaries. In those jurisdictions, the beneficiaries are not liable for the debts or other obligations of a business trust. A few jurisdictions, particularly Texas and Kansas, do not recognize "business trusts" as separate legal entities and hold the beneficiaries of such trusts personally liable for actions of the business trusts. The Trust will not exclude otherwise eligible investors in Kansas and Texas and other such jurisdictions from investing in Units. The Declaration of Trust requires that every written contract that the Trust executes include a provision which states that the contract is not binding upon any Participant personally and that any person or entity dealing with the Trust can look only to Trust property (and not to any Participant) to satisfy any obligation or liability of the Trust under the contract. In most jurisdictions, Participants will have no personal liability under any contract which contains this provision. However, in jurisdictions that do not recognize the separate legal status of a trust such as the Trust, Participants could be held personally liable for claims against the Trust. These claims could include contract claims where the contract does not limit personal liability, tort claims, tax claims and certain other statutory liabilities. If such liability were ever imposed upon Participants, Participants would be liable only to the extent that the Trust's assets and insurance were not adequate to satisfy the claims. GENERAL INFORMATION DISTRIBUTIONS AND TAXES The Trust typically distributes net income monthly and any capital gains at the end of each year. Participants may elect to receive these distributions in cash or have them reinvested in additional Units. The Trust has elected to qualify and intends to remain qualified as a regulated investment company under Subchapter M of the Internal Revenue Code. This relieves the Trust from paying federal income tax on income and net capital gains distributed to Participants. Participation in the Trust is limited to certain Labor Organizations and Eligible Pension Plans which establish to the Trust that they are exempt from federal income taxation. Tax-exempt organizations are subject to tax on unrelated business income. The foregoing is a summary of some of the important federal income tax considerations affecting Participants and is not a complete analysis of all relevant tax considerations, nor is it a complete listing of all potential tax risks involved in purchasing or holding Units. Participants should consult their own tax advisors regarding specific questions of federal, state, local or foreign tax considerations, including the application of the unrelated business income tax. The Trust has not and will not make any determination as to the tax-exempt status of any Participant. AFL-CIO HOUSING INVESTMENT TRUST [LOGO] TO LEARN MORE STATEMENT OF ADDITIONAL INFORMATION A Statement of Additional Information ("SAI") (legally considered to be part of this Prospectus) which includes additional information about the Trust has been filed with the SEC. The SAI, including our audited financial statements for the year ended December 31, 2000, is incorporated by reference in this Prospectus. PARTICIPANT REPORTS Additional information about our investments is available in our annual and semi-annual reports to Participants in the Trust. FOR MORE INFORMATION Both the SAI and our annual and semi-annual reports are available upon request without charge from our headquarters. Please call our Executive Vice President- Marketing, Investor and Labor Relations collect at 202-331-8055 to request the SAI, request our annual or semi-annual report, or request other information about us. Additionally, the Trust's Internet address is www.aflcio-hit.com. You may also obtain this information by writing: Executive Vice President Marketing, Investor and Labor Relations AFL-CIO Housing Investment Trust 1717 K Street, N.W., Suite 707 Washington, D.C. 20036-5331 Information about the Trust (including the SAI) can be reviewed and copied at the SEC Public Reference Room in Washington, D.C. Information on the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other information about the Trust are available on the SEC's Internet site at http://www.sec.gov and copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. Investment Company Act File #811-3493. 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 ----------------------------------- The American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust (the "Trust") is an open-end investment company, commonly called a mutual fund. The principal goal of the Trust is to generate current income, by investing in mortgage-backed securities and other mortgage- backed obligations, construction and long-term mortgage loans and secured bridge loans which carry competitive market yields. Another important goal of the Trust is to encourage the construction of housing and to facilitate employment for union members in the construction trades and related industries. There can be no assurance that the investment goals or objectives of the Trust will be achieved. This Statement of Additional Information is not a Prospectus and should be read in conjunction with the Prospectus of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust ("Trust"), dated April 27, 2001 (the "Prospectus") and the 2000 annual report to Participants, which have been filed with the Securities and Exchange Commission (the "SEC") and can be obtained, without charge, from the Trust by calling collect 202-331-8055, or by writing to the address listed above. This Statement of Additional Information incorporates by reference the Prospectus and the 2000 annual report. The date of this Statement of Additional Information is April 27, 2001. TABLE OF CONTENTS HISTORY......................................................... 1 EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT................................. 1 NONDIVERSIFICATION......................................... 1 REDEMPTION RESTRICTIONS.................................... 2 INVESTMENT OBJECTIVES, POLICIES AND RISKS....................... 2 GENERAL.................................................... 2 FEDERALLY INSURED OR GUARANTEED MORTGAGE INVESTMENTS....... 3 FANNIE MAE AND FREDDIE MAC INVESTMENTS..................... 3 CONTINGENT INTEREST MORTGAGE LOANS......................... 5 EARLY REPAYMENT LOANS...................................... 6 PASS-THROUGH AND PAY-THROUGH SECURITIES.................... 7 PRIVATELY COLLATERALIZED MORTGAGE INVESTMENTS; STATE AND LOCAL GOVERNMENT-RELATED INVESTMENTS............. 7 MORTGAGE INVESTMENTS SUPPORTED BY MORE THAN ONE FORM OF CREDIT ENHANCEMENT............................ 16 PRE-CONSTRUCTION COMMITMENTS.............................. 16 FORWARD COMMITMENTS....................................... 17 TEMPORARY INVESTMENTS..................................... 17 RETENTION OF TECHNICAL CONSULTANTS........................ 18 OTHER POLICIES............................................ 18 INVESTMENT RESTRICTIONS................................... 18 RISK FACTORS.............................................. 20 MANAGEMENT OF THE TRUST........................................ 28 THE RETIREMENT PLAN....................................... 40 THE 401K PLAN............................................. 41 CODE OF ETHICS............................................ 42 PRINCIPAL HOLDERS OF SECURITIES................................ 43 INVESTMENT ADVISER............................................. 43 SALES AND DISTRIBUTION ACTIVITIES.............................. 45 PURCHASING UNITS............................................... 46 REDEMPTION OF UNITS............................................ 47 VALUATION OF UNITS............................................. 48 DISTRIBUTIONS AND TAX ISSUES................................... 51 DISTRIBUTIONS............................................. 51 TAX ISSUES................................................ 51 PERFORMANCE DATA............................................... 52 GENERAL INFORMATION............................................ 53 SECURITIES OFFERED........................................ 53 AUDITORS.................................................. 54 CUSTODIAN................................................. 54 LEGAL MATTERS............................................. 54 REPORTS TO SHAREHOLDERS................................... 54 ADDITIONAL INFORMATION.................................... 54 FINANCIAL STATEMENTS........................................... 54 APPENDIX A - STANDARD & POOR'S DEBT RATING DEFINITIONS......... A-1 APPENDIX B - STANDARD & POOR'S STATE HOUSING FINANCE AGENCIES TOP TIER CRITERIA................................. B-1 APPENDIX C - STANDARD & POOR'S HFA GO DEBT AND STATE HFA ISSUER CREDIT RATING CRITERIA.................... C-1 APPENDIX D - THOMSON BANKWATCH INC. BANK RATING CHARACTERISTICS D-1 01 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 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 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 Securities and Exchange Commission (the "SEC"). The Trust has been exempted from certain investor protection provisions of the Investment Company Act. EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT On April 21, 1982 the Trust obtained from the SEC an order under Section 6(c) of the 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 Investment Company Act, a "diversified company" is: A management company which meets the following requirements: At least 75 per centum 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 of any one issuer to an amount not greater in value than five per centum of the value of the total assets of such management company and to not more than 10 per centum 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. 02 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 these requirements. See "BUYING AND SELLING UNITS IN THE TRUST--Selling or Redeeming Units" in the Prospectus. The Trust has obtained an 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 OBJECTIVES, POLICIES AND RISKS GENERAL The Trust is an open-end, non-diversified investment company, commonly called a mutual fund. The Trust's primary investment goal is to generate current income consistent with the preservation of capital, by investing in mortgage-backed securities secured by mortgages or other liens upon real estate and other mortgage-backed obligations, construction and long-term mortgage loans and secured bridge loans ("Mortgage Investments") which carry competitive market yields. The Trust concentrates its investments in the real estate industry through investing in securities and other obligations backed by residential and multifamily real estate. For purposes of the Investment Company Act, "concentration" means more than twenty-five percent of asset value in any one industry. At least 70% of the mortgage-backed securities or mortgages which are acquired by the Trust or which back Mortgage Investments acquired by the Trust will be federally insured or guaranteed or will be issued or guaranteed by Fannie Mae or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The Trust will acquire Mortgage Investments involving new construction or rehabilitation work only if the new construction or rehabilitation work is to be done by union labor. These are fundamental policies and may not be changed without the approval of the holders of a majority of the Trust's outstanding Units. Other Mortgage Investments that the Trust is authorized to make are contingent interest mortgage loans, early repayment loans, pass-through and pay-through securities, construction and/or permanent mortgage loans secured by a bank letter of credit, insurance or other guaranty, state and local government-related investments, pre-construction commitments and secured bridge loans, in each case as described below and subject to the restrictions noted below. The Trust will acquire only Mortgage 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. 03 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 the debt rating definitions of Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P") is set forth in Appendix A. The debt rating categories of other nationally recognized statistical rating agencies are similar to those of S&P. A description of S&P's State Housing Finance Agencies Top Tier Criteria is set forth in Appendix B and a description of S&P's HFA GO Debt and State HFA Issuer Credit Rating Criteria is set forth in Appendix C. Appendix D contains a description of the rating categories used by Thomson Bankwatch, Inc. ("Thomson Bankwatch"). Thomson Bankwatch is a proprietary credit ratings and consulting service. Please see "Investment Objectives, Principal Strategies and Related Risks" in the Prospectus for a summary of the investment objectives, policies and risks of the Trust. FEDERALLY INSURED OR GUARANTEED MORTGAGE INVESTMENTS The Trust may invest up to 100% of its total assets in Mortgage Investments which are federally insured or guaranteed. 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 Federal Housing Administration (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 multifamily housing projects and certain health care facilities, including hospitals, intermediate care facilities and nursing homes. FHA-insured single-family mortgage loans typically have a 30 year term. FHA-insured multifamily mortgage loans typically 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. The Trust may also purchase federally guaranteed mortgage-backed certificates. Such certificates are issued by a mortgage banker or other lender and carry the right to receive principal and interest payments related 04 to scheduled payments of principal and interest under one or more identified mortgages. Full and timely payment under these mortgage-backed securities is guaranteed by the Government National Mortgage Association ("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 0.50% less than the interest rates on the whole loans backing such securities, reflecting the cost of the Ginnie Mae guaranty and servicing of the mortgages in the pool. 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 and Freddie Mac 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 (collectively, "Fannie Mae and Freddie Mac Investments"). The backing referred to in clause (ii) may take the form of Fannie Mae mortgage-backed securities and Freddie Mac participation certificates. SEE "INVESTMENT OBJECTIVES, POLICIES AND RISKS -- PASS-THROUGH AND PAY-THROUGH SECURITIES." 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 multifamily mortgage loans, Ginnie Mae-guaranteed securities backed by multifamily mortgage loans, and other multifamily projects, the Trust has, since 1991, increased investments in multifamily and single-family Fannie Mae and Freddie Mac mortgage-backed securities. To date, most of these investments have involved the purchase of these securities in the secondary market and the Trust expects to continue the purchase of these securities in the secondary market. However, the Trust also has created investment production programs to facilitate mortgage loans for union employees and municipal employees and the financing of newly constructed union-built single family homes (including condominiums, cooperatives and one to four family units, where permitted in the secondary market). These programs are also expected to generate new securities in which the Trust may invest. Under one of these programs, the Trust has partnered with Countrywide Home Loans, Inc. ("Countrywide"), the largest independent single family mortgage company in the United States, to promote the production of mortgage loans for union members and municipal employees in selected geographic markets. Countrywide will accept and process mortgage loan applications from eligible borrowers, close the mortgage loans, service the mortgage loans and pool the mortgage loans for the purpose of issuing mortgage-backed securities issued by or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae under their standard single family loan securitization programs. Countrywide will give the Trust the right of first 05 refusal to purchase these securities at then-current market prices and yields. It is anticipated that the Trust will be offered the opportunity to purchase these securities prior to the date the securities are to be issued. The Trust has the right to purchase up to $400 million of these securities annually in 2001, 2002 and 2003. The Trust's target is to purchase approximately $50 million of these securities in 2001. However, because this program is currently being implemented, the actual investment by the Trust this year may differ from the Trust's target. In the case of other, single-family investment production programs, the Trust enters into commitments with mortgage banking firms, banks and other financial institutions ("Issuers") to purchase mortgage-backed securities secured by mortgage loans which are either made to union members or municipal employees or to finance 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 these programs are single-family mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. 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 under these programs are typically established under one of two alternate methods. Under the first method, 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 method, the Trust and each Issuer agree to use the interest rates and discount points publicly quoted by the Issuer for the underlying mortgage loans at the time the loan applications for the underlying mortgage loans are accepted as the basis for establishing the price for the related securities. These methods are subject to change if the Trust determines that an alternate method or methods is preferable. 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, mortgage loans to union members and municipal employees for existing housing have lock periods up to sixty days, while the interest rate lock for new construction 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. Most 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 if prevailing interest rates for adjustable rate mortgage loans are more favorable to mortgagors than fixed rates, a larger 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 06 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, 5, 7 or 10 years) after which the interest rate on the loan is adjusted annually based on a specified market index. 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, guaranties 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 or investor 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, refinancing or disposition 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 "INVESTMENT OBJECTIVES, POLICIES AND RISKS -- RISK FACTORS." 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 07 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 be insured or guaranteed by FHA or Ginnie Mae, the balloon repayment obligation would not be secured by the mortgaged real property or by any government insurance or guaranty. 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 or "balloon" loans, or securities backed thereby, that are guaranteed by Fannie Mae or Freddie Mac. This is because payment of such loans and securities are guaranteed at the stated maturity date. PASS-THROUGH AND PAY-THROUGH SECURITIES The Trust is also 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 S&P or Moody's Investors Service ("Moody's"), and also backed by certain Mortgage Investments in which the Trust is otherwise authorized to invest. A description of S&P'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 S&P. Mortgage-backed pass-through or pay-through securities are securities which may be issued by privately owned entities 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 will not themselves be guaranteed or insured by any governmental entity or instrumentality or any other entity. Although the Trust will purchase only mortgage-backed pass-through and pay-through securities, as described above, that have been rated in one of the two highest rating categories by a nationally recognized statistical rating 08 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 pass-through or pay through securities the rating for which has been revised below the second highest rating category or withdrawn except to the extent required by certain investment restrictions. See "INVESTMENT OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Investment Restrictions." PRIVATELY COLLATERALIZED MORTGAGE INVESTMENTS; STATE AND LOCAL GOVERNMENT-RELATED INVESTMENTS The Trust is authorized to invest up to 30% of its total assets in the following three categories of investments. 1. Privately Collateralized Mortgage Investments The Trust may invest in construction and/or permanent mortgage loans, or securities backed by construction and/or permanent mortgage loans or interests in such loans or securities, if the loans are made by a state or local government or an agency or instrumentality thereof, including a state or municipal housing finance agency, or by any other lender acceptable to the Trust and such loans or the securities backed by 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, insurance or other guaranty from a public or private entity satisfactory to the Trust which has a rating (at the time of the Trust's acquisition of the related loan, securities or interests in such loans or securities) which is at least "A" or better from S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust). There is no assurance that the rating of the issuer of any letter of credit, insurance or other form of guaranty which collateralizes a construction and/or permanent 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 investments if the rating of the issuer of the related letter of credit, insurance or guaranty is downgraded or withdrawn, except to the extent required by certain investment restrictions. See, "INVESTMENT OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Investment Restrictions." Notwithstanding any of the above, such a downward revision or withdrawal of a rating would not itself have any impact upon the flow of income from the project to the Trust. If the issuer of any letter of credit, insurance or other form of guaranty which secures a privately collateralized investment fails or is 09 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. See, "INVESTMENT OBJECTIVES, POLICIES AND RISKS-- RISK FACTORS--Real Estate-Related Risks." There is no requirement that any construction and/or permanent investment in this category be rated or ratable. While a rating on an obligation does not provide any assurance of repayment and is subject to revision or withdrawal at any time by the assigning rating agency, such ratings do provide the prospective investor with some indication that the proposed structure and revenue analysis for the obligation satisfy the rating agency's internal criteria for the applicable rating. However, the Trust intends to undertake transactions under this authority selectively, and only after having made its own independent evaluation with respect to the experience, credit history and management expertise of the public or private entity which guarantees the obligations to be acquired. Unrated investments may also be less liquid than rated investments. However, the Mortgage Investments made under this authority, together with all other Trust investments, would be subject to the SEC requirement which requires 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 OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Investment Restrictions. 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 and/or permanent loans, or securities backed by construction and/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. There is no requirement that obligations acquired under this category be rated or ratable. 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, "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Real Estate-Related Risks." (b) "Top Tier" Agencies. The Trust may invest in construction and/or permanent loans, or securities backed by construction and/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 S&P (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, 10 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 S&P, 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. S&P 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 S&P 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, S&P 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 S&P with respect to "top tier" designations is attached to this Statement of Additional Information as Appendix B. 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 OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--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 guaranty) 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 and management 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 11 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, "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Real Estate-Related Risks" below. (c) Agencies Rated "A" or Higher. The Trust is permitted to invest in construction and/or permanent mortgage loans, or securities backed by construction and/or permanent mortgage 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 with a general obligation rating of "A" or better by S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) at the time of the acquisition of the investment by the Trust; and are (i) with full recourse (directly or by way of full indemnity or guaranty) to such agency's general credit and assets or (ii) 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 or similar commitment. Although a state or local agency which issues or guaranties an obligation to be acquired by the Trust must have a general obligation debt rating of "A" or better, there is no requirement that the obligation itself be rated or ratable. There is no rating requirement for states which provide their "moral obligation" for such obligations. As indicated above, the Trust may acquire obligations which are backed by the "moral obligation" of the state in which the agency is located (without regard to the credit rating of such state), in lieu of recourse against the state or local agency. Obligations which are backed by the "moral obligation" of the related state could include loans from the Trust to the agency, securities issued by the agency or loans or participation interests in loans made by the Trust or the agency to the underlying borrower (or securities backed by a loan made by the agency to the borrower). However, these obligations would be secured by the state's "moral obligation," rather than by full recourse against the agency. The state's "moral obligation" could take the form of a commitment to replenish any insufficiencies in the funds pledged to debt service on the investment or a commitment to pay any amounts due on the investment in the event that the revenues from the underlying real property are insufficient to pay all amounts when due. However, the state's "moral obligation" would not be a binding, legal obligation of the state to pay amounts due under the obligations acquired by the Trust and could not be enforced against the state or its general credit and assets. Before rating a housing agency's general obligation debt as "A" or better, S&P has indicated that it must favorably evaluate a number of criteria, including the state's economic base, the agency's legislative mandate and the sponsoring state's commitment to housing programs, the operating performance and management of the agency and earnings quality and financial strength of the agency. A description of the general obligation rating criteria used by S&P is attached to this Statement of Additional Information as Appendix C. As of April, 2001, the following state and municipal housing finance agencies had a general obligation rating of "A" or better from S&P: Alaska, Arkansas, California, Colorado, Florida, Illinois, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York City, Pennsylvania, Rhode Island, Utah, Virginia, West Virginia and Wisconsin. 12 There can be no assurance that the general debt obligation rating of an agency of "A" or better would continue for any given period of time after the Trust acquires an obligation issued or guaranteed by that agency, or that the rating 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 for the investment. The Trust would not be required to dispose of the obligations issued or guaranteed by an agency which loses its general obligation rating of "A" or better, except to the extent required by certain investment restrictions. See "INVESTMENT OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Investment Restrictions." Although the agency which issues or guaranties an obligation in which the Trust invests must have a rating of "A" or better on its general debt obligations, there is no requirement that the obligation itself be rated or ratable. While a rating on an obligation does not provide any assurance of repayment and is subject to revision or withdrawal at any time by the assigning rating agency, such ratings do provide the prospective investor with some indication that the proposed structure and revenue analysis for the obligation satisfy the rating agency's internal criteria for the applicable rating. However, the Trust intends to undertake transactions under this authority selectively, and only after having made its own independent evaluation with respect to the experience, credit history and underwriting and management expertise of the agencies issuing or guaranteeing the obligations to be acquired. Unrated investments may also be less liquid than rated investments. However, the Mortgage Investments made under this authority, together with all other Trust investments, would be subject to the SEC requirement which requires 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. The Trust believes that the direct recourse provided by the agency involved in these investments or the "moral obligation" of the related state will be a significant factor in helping to assure the safety and soundness of the investments to the Trust. However, if such recourse 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 project financed. If the Trust is required to enforce its rights to the underlying real property because its recourse against the issuer 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. See "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS-- Real Estate-Related Risks." (d) State Insurance Funds/Programs. The Trust may invest in construction and/or permanent loans, or securities backed by construction and/or permanent loans, or interests in such loans or securities, if at least the first 75% of such loan or securities is supported under a state insurance or guaranty program by a state-related agency 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 S&P, Fitch Investors Services Inc. ("Fitch"), or Duff & Phelps Inc. ("Duff & Phelps") or at least 13 "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, except to the extent required by certain investment restrictions. See, "INVESTMENT OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS-- Investment Restrictions." 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 or interests 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, "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Real Estate-Related Risks." (e) State and Local Government Encouraged Projects Meeting Specified Underwriting Criteria. The Trust is permitted to invest in construction and/or permanent loans, or securities backed by construction and/or permanent loans or interests in such loans or securities, that have evidence of support by a state or local government or an agency or instrumentality thereof, provided that the total principal amount of the investments in this category outstanding from time to time may not exceed 4% of the value of all of the Trust's assets and that all of the following criteria are satisfied: (i) the loan-to-value ratio of the project may not exceed 60%, 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 75% is permitted if (A) mortgage insurance in an amount that will cover all losses down to a 60% loan-to-value level has been provided by a mortgage insurance provider rated at least "A" or better by S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) or (B) another form of guaranty or credit support of the Trust's investment which will cover all losses down to a 60% loan-to-value level is provided by a guarantor rated A or better by S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) at the time of acquisition by the Trust; or (C) the project receives the benefit of low income housing tax credits pursuant to section 42 of the Internal Revenue Code of 1986, as amended (the "IRC") in accordance with the standards adopted by the Executive Committee; (ii) the state or local government or agency or instrumentality thereof or a foundation exempt from federal income tax under Section 501(c) of the IRC must make or facilitate a financial contribution in the project within guidelines adopted by the Executive Committee of the Trust, such financial contribution to be in the form of subordinate financing, an interest rate write-down, a donation of land, an award of tax credits, grants or other financial subsidy, a form of 14 insurance or guaranty or some other similar contribution within guidelines adopted by the Executive Committee of the Trust; (iii) the development and ownership team 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; and (v) the minimum debt service coverage for the project must be at least 1.15, based upon projections of future income and expenses satisfactory to the Trust. There is no requirement that the obligations acquired by the Trust under this category 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 "INVESTMENT OBJECTIVES, POLICIES AND RISKS--RISK FACTORS--Real Estate-Related Risks." 3. Secured Bridge Loans The Trust is permitted to invest up to 5% of all the Trust's assets in secured bridge loans ("Secured Bridge Loans"), as part of the privately collateralized mortgage investments and state and local government-related obligations in which it may invest up to 30% of its total assets. Secured Bridge Loans are loans related to single-family or multifamily housing developments which are eligible to receive and have allocations or other rights to receive Low Income Housing Tax Credits ("LIHTCs") under IRC Section 42. Borrowers on LIHTC projects are eligible to receive tax credits which may be used dollar-for-dollar to offset federal taxes otherwise due, subject to certain limitations. Sponsors of LIHTC projects frequently sell ownership interests in their projects to investors who want to receive the benefits of the LIHTCs. The LIHTCs are available to owners in proportion to their ownership interests in the development and are provided in substantially equal annual amounts to owners of the development over a ten year period, generally commencing in the year in which the units of each building are available for occupancy. Investors generally agree to pay for their ownership interests in the development (and, consequently, the LIHTCs) in installments over the construction, rent-up and later periods, as negotiated on a case by case basis. The investor generally makes an initial payment upon admission to the ownership entity and pays subsequent installments as various events are achieved, such as lien free completion of construction and achievement of stabilized occupancy for an agreed period of time (usually three to six consecutive months of occupancy at a specified debt service coverage level). Payment obligations are generally evidenced by notes or contractual agreements. Development sponsors generally need the proceeds of the sale of LIHTCs at or before the time construction commences to make up the difference between the construction financing and other sources of funds available and the total development cost of the development. Accordingly, it is customary for sponsors to obtain bridge loan financing at or prior to the closing on the construction loan financing to close this gap; the bridge loan financing is to be repaid from the payments due from the LIHTC investors as the development is constructed and reaches the achievement levels required by the LIHTC investors. Unlike other construction financing, Secured Bridge Loans of the type in which the Trust is permitted to invest are not usually secured by the underlying development. Instead, such Secured Bridge Loans are secured, as 15 described below, primarily by the general credit of the issuer or guarantor and, to a lesser extent, by the LIHTC investors' ownership interests in the development owner. The Trust intends to make Secured Bridge Loans in a way which it believes will minimize the Trust's risks on such loans. The Trust proposes to limit such loans to loans which on the date of the Trust's acquisition or making of the loan are: (a) issued or guaranteed by a state or local housing finance agency designated as "Top Tier" by S&P (or a comparable rating by another nationally recognized statistical rating agent, as determined by the Executive Committee of the Trust) with full recourse to the assets and credit of such agency (or in lieu of such full recourse, secured by such third party credit enhancement which, in the judgment of management of the Trust, provides security comparable to full recourse to the assets and credit of such agency, or (b) issued (with recourse) or guaranteed by a state or local agency which has a long term credit rating of "A" or above by S&P (or a comparable rating by another nationally recognized rating agency approved by the Trust's Executive Committee) for a Secured Bridge Loan with a term of longer than 12 months and at the rating level of A-1 or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Trust's Executive Committee) for a Secured Bridge Loan with a term of less than 12 months; (c) issued (with recourse) or guaranteed by FHA, Ginnie Mae, Fannie Mae, Freddie Mac or another entity with a credit rating of "AA" or above by S&P (or a comparable rating by another nationally recognized rating agency approved by the Trust's Executive Committee) or fully collateralized by obligations issued (with recourse) or guaranteed by FHA, Ginnie Mae, Fannie Mae, Freddie Mac or another entity with a credit rating of "AA" or above by S&P (or a comparable rating by another nationally recognized rating agency approved by the Trust's Executive Committee); or (d) fully collateralized by a letter of credit or other guaranty by a bank or other financial entity with a credit rating of "AA" or above by S&P (or a comparable rating by another nationally recognized rating agency approved by the Trust's Executive Committee) or a bank with a Thompson Bankwatch, Inc. rating of "B" or better. A description of Thompson Bankwatch, Inc. rating categories is included as Appendix D to this Statement of Additional Information. The Trust will invest in Secured Bridge Loans only in cases where the Trust is otherwise committed to invest in the development's construction and/or permanent mortgage loan, except in cases where the development's permanent loan is expected to have an original principal amount which is less than $1 million or is anticipated to be financed primarily on a tax-exempt basis, in which event the Trust may make the Secured Bridge Loan even if the Trust is not committed to make the construction or permanent loan. The credit enhancement mechanisms set forth above may be structured to provide either an assurance that all scheduled payments under the Secured Bridge Loans will be made when due or an assurance only of the ultimate repayment of all amounts due under such loan at maturity or after foreclosure or other liquidation. There is no requirement that the Secured Bridge Loan itself be rated or ratable. 16 The Secured Bridge Loan will be paid down in a manner approved by the Trust as capital contributions are made by the LIHTC investors, although not all of the proceeds of investor payments will be required to reduce the Trust's loan if the Trust so approves. Unlike most other assets in which the Trust invests, Secured Bridge Loans may not be secured by mortgages on real property, are not directly related to payments on first-lien mortgage loans, and are not necessarily insured or guaranteed by the federal government or an entity such as Fannie Mae or Freddie Mac. However, as described above, Secured Bridge Loans will be guaranteed or credit-enhanced by state housing finance agencies, letter-of- credit providers or other mechanisms which are of the same credit quality as those which provide credit enhancement for the privately collateralized mortgage investments and state and local government-related investments in which the Trust may invest up to 30% of its total assets. The borrower's obligation to make principal and interest payments on a Secured Bridge Loan will not be contingent on the borrower's receipt of investor payments. However, the development owner may depend on investor payments to obtain the funds with which to make payments on a Secured Bridge Loan. Payments to the development owner from its investors in turn may be dependent on certain factors relating to completion, rent-up, other matters relating to the LIHTC and otherwise. The Trust expects, however, that its investments will be made on the basis of the credit of the guarantor or issuer as described in (a) through (c) above, and to a lesser extent by the LIHTC investors' ownership interests in the development owner. The Trust's investment criteria have been designed to enhance the likelihood that the Trust will invest only in credit-worthy Secured Bridge Loans. The Trust also believes that any additional risk associated with bridge loans, as compared to the Trust's other authorized investments, will be offset by the higher interest rates payable on Secured Bridge Loans. Presently, the Trust is limited to investing at least 90% of its assets in investments that are readily marketable and convertible into cash within 120 days without a discount from their market value. Secured Bridge Loans may not be liquid investments. The authority to invest in Secured Bridge Loans will not increase the 10% limit on illiquid assets, but it may result in an increase in the proportion of illiquid investments in the Trust's portfolio. 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 OBJECTIVES, POLICIES AND RISKS--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 17 a rating or which have been rated in any particular category by a nationally recognized statistical rating organization. Although 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 OBJECTIVES, POLICIES AND RISKS--INVESTMENT RESTRICTIONS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS--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. MORTGAGE INVESTMENTS SUPPORTED BY MORE THAN ONE FORM OF CREDIT ENHANCEMENT The Trust may also invest in construction and/or permanent loans or securities or obligations backed by construction and/or permanent loans or interests in such loans, securities and obligations which are supported by any combination of two or more of the types of credit enhancement which must support Mortgage Investments in which the Trust is otherwise authorized to invest, as described above, as long as all of the principal component of such loans, or securities or obligations backed by such loans or interests therein are fully collateralized by one or more of such types of credit enhancement. The multiple forms of credit enhancement may be combined either concurrently or sequentially. 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 financing or take-out 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 permanent 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 permanent financing commitments with the purpose and ability to acquire the Mortgage Investment. Because complete funding of construction and long-term mortgage loans requires up to three years after making a financing commitment, the Trust 18 estimates the amount of funds it expects to have available for investment from principal payments and prepayments on existing Mortgage Investments, 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 financing 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 financing 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 financing commitments. FORWARD COMMITMENTS The majority of the Trust's 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 multifamily 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-family and multifamily mortgage loans that back the Trust's investments. The Trust generally imposes penalties (generally 1/2 to 4 points) where delivery on a forward commitment is not fulfilled. Where obtainable, the Trust also includes mandatory-delivery clauses in its forward commitments on certain obligations secured by mortgages on multifamily projects. Notwithstanding such penalties and clauses referred to above, there is no guaranty 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 Mortgage Investments meeting Trust investment objectives. Such liquid assets are limited by the Declaration of Trust to: United States Treasury issues; federal agency issues; government sponsored entities; commercial bank time certificates of deposit and savings bank deposits in banks insured by the Federal Deposit Insurance Corporation (through the Bank Insurance Fund); savings and loan 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 guaranties payment thereof); commercial paper rated as category A-1 or P-1 by S&P 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 homes or FHA-insured multifamily projects; 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. 19 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 the long-term loans in which it invests. Generally, however, the Mortgage Investments 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 (0.05%-0.75%) per annum, calculated monthly, on the then current outstanding principal balance in the case of long-term first mortgage loans, and at rates of 0.125% per annum or more of the total loan commitment in the case of construction loans. The Trust is empowered to invest in Mortgage Investments backed by projects anywhere in the United States. The Trust will invest only in Mortgage Investments 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 Mortgage Investments of comparable yield, the Trust will, if possible, invest in projects in geographic areas in which Participants or their members are located. As a risk mitigation strategy, the Trust will from time to time buy or sell Mortgage Investments in order to prevent fluctuations in the weighted average maturity of its portfolio, to manage the duration of the portfolio or to maintain a desirable level of portfolio diversification. Moreover, the Trust remains free to dispose of Mortgage Investments at any time to meet 20 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 70% of the mortgages and mortgage-backed securities acquired by the Trust or backing Mortgage Investments acquired by the Trust to be federally insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac with respect to the payment of principal and interest; or (3) originate or purchase any Mortgage Investment secured by 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 Mortgage Investments 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% of all borrowings of the Trust. Not more than fifty percent of the value of the Trust's assets will be used as 21 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 construction loans securing Mortgage Investments 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 Mortgage Investments 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 The primary risks in investing in Units of the Trust are summarized in the Prospectus under the caption "INVESTMENT OBJECTIVES, PRINCIPAL STRATEGIES AND RELATED RISKS--PRINCIPAL INVESTMENT RISKS." The following section contains a fuller discussion of the risks associated with investing in Units of the Trust. RELIANCE ON MANAGEMENT -- UNSPECIFIED INVESTMENTS The Trustees and officers of the Trust will invest the Trust's assets as deemed prudent by the Trustees and officers. Investors in the Trust will not have any specific information with which to evaluate future Mortgage Investments of the Trust in advance of the Trust's investment or commitment to invest. There can be no assurance that the Trust will be successful in acquiring Mortgage Investments that meet the investment objectives and policies of the Trust. FLUCTUATING INTEREST RATES The market value of the Trust Mortgage Investments and the resulting net asset value of the Trust portfolio will fluctuate with short-term changes in interest rates. Generally, 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 Mortgage Investments on which such payments are made. In addition, to the extent the Trust purchases Mortgage 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 22 prepayment, the Trust would be unable to recover or recoup the premium. REDEMPTION The Trust will from time to time buy or sell Mortgage Investments in order to prevent fluctuations in the weighted average maturity of its portfolio, to manage the duration of the portfolio or to maintain a desirable level of portfolio diversification. 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 OF UNITS"), 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 OBJECTIVES, POLICIES AND RISKS -- INVESTMENT RESTRICTIONS"). It is possible, however, due to changes in interest rates, the performance of specific properties, or general economic conditions occurring after the close of business at the end of each calendar month (hereinafter "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 time frame 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). 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. The Trust has never failed to satisfy any redemption request on a timely basis. Limited Resale Market for Certain Types of Mortgage Investments. If for any reason the Trust were required to sell Mortgage Investments quickly, it may, on occasion, be able to dispose of them only at a discount from their market value. These constraints relate principally to Mortgage Investments that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac or which are backed by loans or securities 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 Mortgage Investments may not exceed more than 30% of the Trust's portfolio. Moreover, to the extent such Mortgage Investments are considered illiquid for purposes 23 of the Investment Company Act (see "INVESTMENT OBJECTIVES, POLICIES AND RISKS - - - -- INVESTMENT RESTRICTIONS"), they will be treated as such by the Trust. Mortgage Investments which are federally insured or guaranteed or are issued or guaranteed by Fannie Mae or Freddie Mac are very liquid and an active secondary market for such investments exists. Prices for these investments are often publicly quoted. There is no similar secondary market for Mortgage Investments which are not federally insured or guaranteed or which are not issued or guaranteed by Fannie Mae or Freddie Mac or which are backed by loans or securities that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac. A number of factors constrain the marketability of long-term Mortgage Investments that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac or are backed by loans or securities that are not federally insured or guaranteed or not issued or guaranteed by Fannie Mae or Freddie Mac. These include the fact that many of these investments are structured in a "one-off," rather than standardized, manner because they are tailored to the specific needs of the project to be financed. Since these investments are tailored in such a fashion, published quotes do not exist and potential purchasers must be contacted individually. 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 Mortgage Investments for multifamily projects and health care facilities restrict the number of buyers interested in them. In the case of any long-term Mortgage Investment, the market is apt to be more limited than for Mortgage Investments of shorter maturity. Required liquidation of long-term Mortgage Investments in an unfavorable market could result in significant losses from face value. The market for construction period Mortgage Investments is affected by the uncertainties inherent in building construction. If a Mortgage Investment is sold during the construction period, the purchaser customarily will seek assurances as to the status of construction, the nature of the permanent financing 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 construction period Mortgage Investments. INFLATION Loans and other Mortgage Investments in which the Trust invests generally do not include any provision giving the lender or issuer 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 Mortgage Investments 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 Defaults on loans can occur for a variety of reasons, including those described below under the caption "INVESTMENT OBJECTIVES, POLICIES AND RISKS- RISK FACTORS -- Real Estate-Related Risks." The Trust may experience certain losses in the event of default on the loans which directly or indirectly back the Trust's 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 loan in default generally pay an assignment fee of 1% when receiving 24 an insurance settlement; (ii) the requirement in some cases that the holder of the mortgage loan 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; (vii) errors or omissions by the mortgage banker which result in a reduction in the insurance proceeds and (viii) 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 loans 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 OBJECTIVES, POLICIES AND RISKS B CONTINGENT INTEREST LOANS" and "INVESTMENT OBJECTIVES, POLICIES AND RISKS -- EARLY REPAYMENT LOANS." Contingent interest obligations in excess of principal and base interest are not secured by the mortgage loan, by any government insurance or guaranty or by any obligation or guaranty 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 guaranty, or against Fannie Mae or Freddie Mac's obligation or guaranty, 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 due. 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 25 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, in jurisdictions where obtainable, 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 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 and to the revenues of the project will be subordinate to the rights of the first priority lien holder. However, in the majority of these cases, the Trust will be the holder or beneficiary of the first priority lien. 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 guaranty. 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, to 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 the rights under such subordinate mortgage or other security and to the revenues of the project 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 its interests in the mortgage loan or the securities backed by such mortgage loan, the principal and interest of which mortgage loan or securities would remain federally insured or guaranteed. In such event, a loss could be incurred because the Trust would have required a higher rate for an investment in a mortgage loan 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 "balloon" loans, or securities backed thereby, that are guaranteed by Fannie Mae or Freddie Mac, because payments on such loans and securities are guaranteed at the stated maturity date. 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 26 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 OBJECTIVES, POLICIES AND RISKS -- RISK FACTORS--Real Estate-Related Risks." DEFAULTS ON SECURED BRIDGE LOANS If the issuer of any letter of credit or other form of guaranty which secures a Secured Bridge Loan fails or is unable to meet its obligations under such letter of credit or other guaranty, the Trust would be subject to the risk that LIHTC investors may not make required payments on their obligations to the development owner as scheduled and also to certain real estate risks relating to the underlying development. LIHTC investors may not make the payments for reasons relating to the performance of the development, i.e., because the agreed upon circumstances under which the payments would become due do not occur. In addition, however, the LIHTC investors may not make the payments as a result of changes in the financial capacity of the LIHTC investors themselves. In the event that the LIHTC investors do not make required payments, the Trust may be required to enforce the obligations of the LIHTC investors under their notes or other payment agreements with the development owner. Enforcement actions may include foreclosing upon or otherwise acquiring the defaulting LIHTC investors' ownership interests. As the owner of such interests in the development owner, the Trust would be subject to the real estate risks that any development owner would face. Certain of these risks are described below under the caption "INVESTMENT OBJECTIVES, POLICIES AND RISKS -- 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 related 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 a Single Mortgage Investment or Mortgage Investments issued, insured or guaranteed by any firm or entity. The Trust plans to follow a policy of investing no more than 15% of the value of its total assets in any single Mortgage Investment as of the time of investment. Given the foregoing definition of a diversified company, the Trust's ability to invest up to 15% of its total assets in a single Mortgage Investment 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 27 portfolio will be increased. See, "EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT" in this Statement of Additional Information. The terms "diversified" and "nondiversified" as used herein are not intended to describe the geographical locations or concentrations of properties backing the Mortgage Investments 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, 2000, 2% of the Trust's assets were in this category. See, "INVESTMENT OBJECTIVES, POLICIES AND RISKS - - - -- 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, insurance policy or guaranty 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 or investments 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 Most of the Trust's Mortgage Investments are (i) federally insured or guaranteed or are issued or guaranteed by Fannie Mae or Freddie Mac or (ii) backed by securities, obligations or loans which are federally insured or guaranteed or are issued or guaranteed by Fannie Mae or Freddie Mac. In addition, almost all of the Trust's other Mortgage Investments will have some form of credit enhancement to protect against losses in the event of a default. However, to the extent that a Mortgage Investment does not have credit enhancement or if a private entity or a state or local government entity which provides credit enhancement for a Mortgage Investment fails to meet its obligations under the credit enhancement in the event of a default under the underlying mortgage loan, the Trust would be subject to the risks that apply to real estate investments generally with respect to that Mortgage Investment. Some of these risks are described below. 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 28 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 borrower 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 borrower 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, a borrower may not repay all amounts advanced under or with respect to a construction loan on a timely basis. 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 29 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 a 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 or any secured lender acting on behalf of the Trust in the event that the secured lender did not actually acquire title to the project. In the event that title to a project securing a mortgage loan was acquired by the Trust or any lender acting on behalf of 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 or any secured lender acting on behalf of the Trust even if the Trust or such other lender 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. Litigation arising from such disputes could be resolved adversely to 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 in certain jurisdictions 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 30 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 OF THE TRUST Under the terms of the Trust's Declaration of Trust, the Board of Trustees of the Trust has overall responsibility for the management and policies of the Trust. Between meetings of the full Board, the Executive Committee of the Trust acts for the Board in managing the Trust's affairs. The Executive Committee is composed of the Trust's 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. 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 67 formerly Chairman, Aquarius Management Corporation (limited profit housing project management); formerly Chairman and Chief Executive Officer, Bowery Savings Bank 31 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - - - ---------------------- --------------- ------------------------ Linda Chavez-Thompson Union Trustee Executive Vice President, 815 16th Street, N.W. AFL-CIO; formerly Inter- Washington, D.C. 20006 national Vice President, Age 56 American Federation of State, County and Municipal Employees John J. Flynn Union Trustee President, International 815 15th Street, N.W. Union of Bricklayers & Allied Washington, D.C. 20006 Craftsworkers; formerly Age 66 President and Secretary- Treasurer, BAC Local 1 Missouri Francis X. Hanley* Union Trustee General President (formerly 1125 17th Street, N.W. General Secretary-Treasurer) Washington, D.C. 20036 International Union of Age 70 Operating Engineers Frank Hurt Union Trustee President, Bakery, 10401 Connecticut Avenue Confectionery & Tobacco Kensington, MD 20895 Workers and Grain Millers Age 62 International Union Martin J. Maddaloni Union Trustee President, United Association 901 Massachusetts Avenue, N.W. of Journeyman and Apprentices Washington, D.C. 20001 of the Plumbing And Pipe Age 61 Fitting Industry of the United States and Canada ("UA"); formerly International Vice President, UA District 2; formerly International Representative, UA; formerly Special Representative, UA Michael E. Monroe Union Trustee General President, 1750 New York Ave., N.W. International Brotherhood of Washington, D.C. 20006 Painters and Allied Trades Age 50 Terence M. O'Sullivan Union Trustee General President, Laborers' 905 16th Street, N.W. International Union of North Washington, D.C. 20006 North America; formerly Age 45 Vice President, Mid-Atlantic Regional Manager and Assistant to the General President, Laborers' International Union of North America Andrew Stern Union Trustee President, Service Employees 1313 L Street, N.W. International Union Washington, D.C. 20005 Age 50 32 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - - - ---------------------- --------------- ------------------------ Edward C. Sullivan Union Trustee President, Building and 815 16th Street, N.W. Construction Trades Washington, D.C. 20006 Department, AFL-CIO; formerly Age 57 General President, International Union of Elevator Constructors John J. Sweeney Union Trustee President, AFL-CIO; 815 16th Street, N.W. Formerly International Washington, D.C. 20006 President, Service Age 66 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 51 of America, United John E. Cullerton Management Trustee Chairman, Central Pension 55 West Van Buren Street Fund of the International Chicago, Illinois 60605 Union of Operating Engineers Age 86 and Consultant to the Hotel Employees and Restaurant Employees International Union; formerly Fund Advisor to Trustees for the Hotel Employees and Restaurant Employees International Union Health, Welfare and Pension Funds Alfred J. Fleischer Management Trustee Chairman, Fleischer-Seeger 5725 Manchester Avenue Construction Corporation; St. Louis, MO 63110 formerly a Director of the Age 80 National Corporation for Housing Partnerships of Washington, D.C. Walter Kardy Management Trustee President, Specialty 9500 Barroll Lane Contractor's Management, Inc. Kensington, MD 20895 Age 73 George Latimer Management Trustee Chief Executive Officer, 547 West Jackson National Equity Fund (a tax Suite 601 credit investment company); Chicago, IL 60661 Professor of Urban Studies, Age 65 Macalster College; Formerly Director, Special Actions Office, HUD 34 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - - - ---------------------- --------------- ------------------------ Marlyn J. Spear Management Trustee Chief Investment Officer, 500 Elm Grove Road Milwaukee and Vicinity Room 300 Building Trades United Elm Grove, WI 53122-0530 Pension Trust Fund; formerly Age 47 Investment Coordinator Tony Stanley Management Trustee Executive Vice President and 25250 Rockside Road Director, TransCon Builders, Bedford Heights, OH 44146 Inc. (building construction) Age 67 Patricia F. Wiegert Management Trustee Retirement Administrator, 1355 Willow Way Contra Costa County Suite 221 Employee's Retirement Concord, CA 94520 Association Age 54 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 55 Michael M. Arnold Executive Vice Formerly Director of Investor 1717 K Street, N.W. President - Relations, AFL-CIO Housing Suite 707 Marketing Investment Trust Washington, D.C. 20006 Age 61 Eileen Fitzgerald Chief Investment Formerly, Acting Adminis- 1717 K Street, N.W. Officer - Single trator and Associate Admin- Suite 707 Family Finance istrator of the Rural Housing Washington, D.C. 20006 Service at the US Department Age 38 of Agriculture John M. Hanley Chief Investment Formerly, Director of 1717 K Street, N.W. Officer - Multi- Mortgage Finance and Invest- Suite 707 Family Finance ment Officer, AFL-CIO Housing Washington, D.C. 20006 Investment Trust Age 34 Helen R. Kanovsky Executive Vice Formerly, Chief of Staff 1717 K Street, N.W. President - for U.S. Senator John F. Suite 707 Finance and Kerry; Formerly General Washington, D.C. 20006 Administration Counsel, AFL-CIO Housing Age 50 Investment Trust David Keto General Counsel Formerly, Director - New 1717 K Street, N.W. President - Program Development, AFL- Suite 707 Finance and CIO Housing Investment Trust; Washington, D.C. 20006 Administration Vice President for Planning, Age 50 New England Aquarium; Under- Secretary, Executive Office of Economic Affairs for Massachusetts 35 Position with Principal Occupation(s) Name, Address, and Age Housing Trust During Past 5 Years - - - ---------------------- --------------- ------------------------ Erica Khatchadourian Controller Formerly, Acting Director 1717 K Street, N.W. President - of Finance, Chief of Staff, Suite 707 Finance and and Director of Operations, Washington, D.C. 20006 Administration AFL-CIO Housing Investment Age 34 Trust Patton H. Roark, Jr. Executive Vice Executive Vice President- 1717 K Street, NW President - Invest- Investments and Portfolio Suite 707 ments; and Manager, AFL-CIO Housing Washington, D.C. 20006 Portfolio Manager Investment Trust Age 34 Union Trustees Hurt, Monroe, O'Sullivan and Sweeney and Management Trustees Stanley and Wiegert are "Class III" Trustees whose terms expire at the 2001 Annual Meeting of Participants. Union Trustees Chavez-Thompson, Hanley, Stern and Trumka and Management Trustees Kardy and Latimer are "Class I" Trustees, whose terms expire at the 2002 Annual Meeting of Participants. Union Trustees Flynn, Maddaloni, and Sullivan and Management Trustees Cullerton, Fleischer and Spear are "Class II" Trustees whose terms expire at the 2003 Annual Meeting of Participants. Trustee Ravitch is the Chairman (a non-classified trustee) with a one-year term expiring at the 2001 Annual Meeting of Participants. Stephen Coyle, age 55, has served as Chief Executive Officer of the Trust since 1992. Mr. Coyle 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, his Master's degree from the Harvard Kennedy School of Government, and a law degree from Stanford Law School. Michael M. Arnold, age 61, has served as Executive Vice President Marketing, Investor and Labor Relations of the Trust since January, 2001. Prior to that Mr. Arnold served as Executive Vice President - Marketing of the Trust from April, 1999 to December, 2000. Mr. Arnold joined the Trust in April 1985 as Director of Investor Relations 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 worked extensively 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 43-year member and former local union officer of the International Union of Bricklayers and Allied Craftsworkers, and is also a licensed real estate broker. 36 Helen R. Kanovsky, age 50, has served as Executive Vice President - Finance and Administration of the Trust since August 1999. Ms. Kanovsky previously served as the General Counsel of the Trust from 1995 until 1998, and re-joined the Trust in August, 1999 after being employed as Chief of Staff for U.S. Senator John F. Kerry in 1998-99. Prior to joining the Trust, Ms. Kanovsky served as Executive Vice President and General Counsel of GE Capital Asset Management Corporation and its predecessor company, Skyline Financial Services Corporation from 1986-1994. She was in private law practice as a partner with Leff & Mason from 1984-1986, and a partner and associate with Dickstein, Shapiro and Morin from 1981-84 and 1976-79. From 1979-81, Ms. Kanovsky served in the federal government as a Special Assistant to the Secretary of Health, Education and Welfare, as Associate Executive Secretary to the Department of Health & Human Services, and as a Special Assistant to the Secretary of Housing and Urban Development. Ms. Kanovsky earned her Bachelor's degree from Cornell University and her Juris Doctor degree from Harvard Law School. Patton H. Roark, Jr., age 34, has served as Executive Vice President Investments since January, 2001 and as Portfolio Manager of the Trust since December 1997. Mr. Roark joined the Trust in 1993 as Assistant Portfolio Manager. Prior to joining the Trust, Mr. Roark was a Senior Auditor, who specialized in mortgage finance and securitization for Price Waterhouse, an international accounting firm, from 1990 to 1993. From 1989 to 1990, Mr. Roark was an internal auditor with the Inspector General's office of the Office of Personnel Management. Mr. Roark is a Chartered Financial Analyst, Certified Public Accountant and Certified Internal Auditor, and earned his Bachelors of Science degree in accounting from Shepherd College. Eileen Fitzgerald, age 38, joined the Trust in March 2000, as Director of Single Family Finance and has served as Chief Investment Officer - Single Family Finance since January, 2001. Prior to joining the Trust, from December 1994 to March 2000, Ms. Fitzgerald served as Acting Administrator, Associate Administrator and Executive Assistant to the Administrator of the Rural Housing Service (RHS), the successor to the Farmers Home Administration, at the Department of Agriculture. At RHS, Ms. Fitzgerald directed and managed all programs and initiated several new partnerships, including the Rural Home Loan Partnership, a program that brings together local lenders, RHS and nonprofit organizations to provide home ownership opportunities, and which grew to 175 partnerships in 5 years. She also oversaw the development and implementation of the Centralized Servicing Center in St. Louis that centralized the servicing of an $18 billion, 600,000 plus single-family loan portfolio from 1200 decentralized offices. Prior to joining RHS, from October 1991 to July 1994, Ms. Fitzgerald worked with the Virginia Center on Rural Developments and from August 1989 to October 1991, she served both the Governor and the Secretary of Housing and Community Development in Maryland. Ms. Fitzgerald was also a Senior Financial Analyst for a New York real estate syndication firm from January 1985 to August 1987. Ms. Fitzgerald earned her Bachelors of Science degree in Finance and Economics from Fordham University and her Masters in Public Affairs from the Woodrow Wilson School of Public and International Affairs at Princeton University. John M. Hanley, age 34, has served as Chief Investment Officer Multifamily Finance of the Trust since January, 2001. Mr. Hanley joined the Trust in 1992 as an Investment Officer and has served as Director of Mortgage Finance from May 1994 to December 2000. Prior to joining the Trust, Mr. Hanley was a Real Estate Loan Officer with Union Labor Life Insurance Company 37 from May 1988 to May 1992, where he invested pension funds in commercial real estate mortgages through an Insurance Company Separate Account. Mr. Hanley earned his Bachelor's degree in Finance from Villanova University and his Masters of Business Administration in Real Estate and Urban Development from American University. David Keto, age 45, has served as the General Counsel of the Trust since January, 2001. Mr. Keto joined the Trust in January 2000 as Director - New Program Development. Prior to joining the Trust, from February 1992 to February 1997, Mr. Keto served in several positions at the Executive Office of Economic Affairs for Massachusetts, including General Counsel and Undersecretary, where he led the development of the state's economic recovery strategy in the early 1990's. He also served as Vice President for Planning at the New England Aquarium from February 1997 to November 1999, with capital planning responsibilities for its $120 million expansion master plan. Mr. Keto also served as Special Counsel to the Boston Redevelopment Authority from 1989 to 1992. Prior to his work with the Boston Redevelopment Authority, Mr. Keto was in private practice as a real estate lawyer at the law firm of Goulston & Storrs in Boston. Erica Khatchadourian, age 34, has served as Controller of the Trust since January, 2001. Ms. Khatchadourian joined the Trust in 1993 as the Budget Manager and in 1996 she was named the Director of Operations. Ms. Khatchadourian was subsequently appointed Chief of Staff in 1997 until named the Acting Director of Finance in April 2000. She has extensive experience in general and personnel management, policy development, and accounting for financial transactions, and is currently responsible for managing the accounting, budget, information systems, human resource and administrative functions of the Trust. Prior to joining the Trust, Ms. Khatchadourian was a Senior Consultant with Price Waterhouse from 1989 to 1993, where she participated in audits and consulting engagements with the Federal Housing Administration, the Government National Mortgage Association, and the Department of Housing and Urban Development. Ms. Khatchadourian earned her Bachelor of Accountancy from The George Washington University, and she is a Certified Public Accountant through the Commonwealth of Pennsylvania. Mr. Arnold, Ms. Fitzgerald, Mr. Hanley, Ms. Kanovsky, Mr. Keto, Ms. Khatchadourian and Mr. Roark 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, which was paid during 2000 to each executive officer of the Trust and to all executive officers and Trustees of the Trust as a group*: 38 PENSION ESTIMATED TOTAL OR RETIREMENT ANNUAL COMPENSATION AGGREGATE BENEFITS BENEFITS FROM TRUST COMPENSATION ACCRUED AS UPON PAID TO NAME OF PERSON, FROM TRUST PART OF TRUST RETIREMENT DIRECTORS POSITION ($) EXPENSES ($) ($) ($) - - - ------------------------------------------------------------------------------ Stephen Coyle Chief Executive Cannot be Officer $195,043 $91,686 determined Not applicable Michael M. Arnold Executive Vice President, Marketing, Investor and Labor Relations $131,652 $21,712 --- Not applicable - - - ----------------------- *The following individuals, each of whom was appointed an executive officer of the Trust as of January, 2001, were not executive officers of the Trust in 2000: Eileen Fitzgerald, Chief Investment Officer - Single Family Finance; John M. Hanley, Chief Investment Officer - Multifamily Finance; David Keto, General Counsel; and Erica Khatchadourian, Controller. Compensation figures represent 100% of each executive officer's compensation for time devoted to Trust matters. Approximately 25% of Mr. Coyle's time, 38% of Mr. Arnold's time, 42% of Ms. Kanovsky's time, 0% of Mr. Roark's time and 0% of Mr. Thompson's time was devoted to matters relating to the AFL-CIO Building Investment Trust ("BIT"). Pursaunt to his employment agreement, Mr. Coyle received direct compensation from BIT Corporation (now known as Investment Trust Corporation) in addition to the amount set forth above. The estimated annual benefits payable upon retirement to the executive officers of the Trust, other than Mr. Coyle who does participate in the Retirement Plan, are determined primarily by average final compensation and years of service. Mr. Thompson withdrew from the Retirement Plan in 2000. See "THE RETIREMENT PLAN". Includes compensation 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 $9,100 of deferred compensation in 2000 under the 401(k) Plan, and excludes compensation deferred in lieu of participation in the Retirement Plan and interest thereon. Pension or Retirement Benefits as Part of Trust Fund Expenses includes $1,500 of matching funds accrued under the 401(k) Plan and $93,001 of deferred compensation in lieu of participation in the Retirement Plan. The total amount deferred by Mr. Coyle through December 31, 2000 in lieu of participation in the Retirement Plan, including interest, is $508,728 and the total amount deferred under the 401(k) Plan through December 31, 2000, including interest and Trust matching, is $44,033. Aggregate Compensation includes $10,000 of deferred compensation in 1999 under the 401(k) Plan, and excludes amounts contributed to the Retirement Plan on Mr. Arnold's behalf. Pension or Retirement Benefits as Part of Trust Fund Expenses includes $1,450 of matching funds accrued under the 401(k) Plan and $24,803 contributed to the Retirement Plan in 1999. The total amount deferred by Mr. Arnold as of December 31, 1999 under the 401(k) Plan, including interest and Trust matching, is $437,117. 39 PENSION ESTIMATED TOTAL OR RETIREMENT ANNUAL COMPENSATION AGGREGATE BENEFITS BENEFITS FROM TRUST COMPENSATION ACCRUED AS UPON PAID TO NAME OF PERSON, FROM TRUST PART OF TRUST RETIREMENT DIRECTORS POSITION ($) EXPENSES ($) ($) ($) - - - ------------------------------------------------------------------------------ Helen R. Kanovsky Executive Vice President Finance and Administration $103,076 $19,350 --- Not applicable Patton H. Roark, Jr. Executive Vice President Investments and Portfolio Manager $143,745 $16,946 --- Not applicable Harry Thompson Former Controller (resigned effective April, 2000) $61,504 $6,178 --- Not applicable Richard Ravitch, Chairman $10,000 0 0 $10,000 Linda Chavez- Thompson, Union Trustee 0 0 0 0 John J. Flynn Union Trustee 0 0 0 0 Francis X. Hanley, Union Trustee 0 0 0 0 Edwin D. Hill Union Trustee 0 0 0 0 - - - ----------------------- Aggregate Compensation includes $10,500 of deferred compensation in 2000 under the 401(k) Plan, and excludes amounts contributed to the Retirement Plan on Ms. Kanovsky's behalf. Pension or Retirement Benefits as Part of Trust Fund Expenses includes $1,500 of matching funds accrued under the 401(k) Plan and $18,480 contributed to the Retirement Plan in 2000. The total amount deferred by Ms. Kanovsky as of December 31, 2000 under the 401(k) Plan, including interest and Trust matching, is $8,061. Aggregate Compensation includes $4,420 of deferred compensation in 2000 under the 401(k) Plan, and excludes amounts contributed to the Retirement Plan on Mr. Roark's behalf. Pension or Retirement Benefits as Part of Trust Fund Expenses includes $1,500 of matching funds accrued under the 401(k) Plan and $15,446 contributed to the Retirement Plan in 2000. The total amount deferred by Mr. Roark as of December 31, 2000 under the 401(k) Plan, including interest and Trust matching, is $27,789. Mr. Roark served as Portfolio Manager of the Trust in 2000, and was also appointed Executive Vice President - Investments in January, 2001. 40 PENSION ESTIMATED TOTAL OR RETIREMENT ANNUAL COMPENSATION AGGREGATE BENEFITS BENEFITS FROM TRUST COMPENSATION ACCRUED AS UPON PAID TO NAME OF PERSON, FROM TRUST PART OF TRUST RETIREMENT DIRECTORS POSITION ($) EXPENSES ($) ($) ($) - - - ------------------------------------------------------------------------------ Frank Hurt, Union Trustee 0 0 0 0 Martin J. Maddaloni, Union Trustee 0 0 0 0 Michael E. Monroe, Union Trustee 0 0 0 0 Terence M. O'Sullivan Union Trustee 0 0 0 0 Andrew Stern, Union Trustee 0 0 0 0 Edward C. Sullivan Union Trustee 0 0 0 0 John Sweeney, Union Trustee 0 0 0 0 Richard Trumka, Union Trustee 0 0 0 0 John Cullerton, Management Trustee 0 0 0 0 Terrence R. Duvernay, Management Trustee 0 0 0 0 Alfred J. Fleischer, Management Trustee $2,000 0 0 $2,000 Walter Kardy, Management Trustee 0 0 0 0 George Latimer, Management Trustee $2,000 0 0 $2,000 41 PENSION ESTIMATED TOTAL OR RETIREMENT ANNUAL COMPENSATION AGGREGATE BENEFITS BENEFITS FROM TRUST COMPENSATION ACCRUED AS UPON PAID TO NAME OF PERSON, FROM TRUST PART OF TRUST RETIREMENT DIRECTORS POSITION ($) EXPENSES ($) ($) ($) - - - ------------------------------------------------------------------------------ Marlyn J. Spear, Management Trustee $1,000 0 0 $1,000 Tony Stanley, Management Trustee $3,000 0 0 $3,000 Patricia F. Wiegert, Management Trustee 0 0 0 0 All Directors and Officers as a Group* (26 persons) $676,121 $159,887 $162,326 $18,000 *In addition, the Trust has an additional 36 employees who received compensation in excess of $60,000 from the Trust during 2000. 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. Personnel (other than the Chief Executive Officer) were provided pursuant to a Personnel Contract between the Trust and the AFL-CIO, whereby the Trust reimbursed the AFL-CIO for the AFL-CIO's costs of employing the personnel. While the Personnel Contract was in effect, the personnel participated in the AFL-CIO Deferred Compensation 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. The Trust adopted the Retirement Plan for all of its employees except for its Chief Executive Officer, effective as of October 1, 1990. Also, effective October 1, 1990, the Trust adopted the 401(k) Plan described below for all of its employees including its Chief Executive Officer (and subsequent Chief Executive Officers). 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. The Retirement Plan was funded by employer contributions at rates of approximately 12.2% of eligible employees' base salaries during the twelve months ended December 31, 2000. During 2000, the annual base salaries of Mr. Arnold, Ms. Kanovsky, Mr. Roark and Mr. Thompson were $173,819, $151,473, $127,320 and $130,645, respectively. 42 The Retirement Plan is open to employees of the AFL-CIO and other participating employers that are approved by the Retirement Plan's board of trustees and 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 3.00 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 can also 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. Arnold, Ms. Kanovsky, Mr. Roark, Ms. Fitzgerald, Mr. Hanley, Mr. Keto, Ms. Khatchadourian and have approximately 17, 4, 8,1,9,1 and 8 credited years of service, respectively, under the Retirement Plan. Years of Service ---------------- Final Average Salary 15 20 25 30 35 - - - ------------------- ------ ------ ------ ------- ------- $ 100,000 $ 45,000 $ 60,000 $ 75,000 $ 77,500 $ 40,000 150,000 67,500 90,000 112,500 116,250 120,000 170,000 76,500 102,000 127,500 131,750 136,000 - - - ------------------- The Internal Revenue Code limits the permissable benefit payments that may be paid under the Retirement Plan. Consequently, the amounts of retirement benefits that actually may be paid to individual employees may be significantly lower than as shown, depending on several factors, including, but not limited to, the employee's years of service, level of compensation, and actual year of retirement. 3.00 percent per year up to 25 years. 0.5 percent per year over 25 years. 43 THE 401(K) PLAN Under the 401(k) Plan, an eligible employee may agree with the Trust to set aside up to 15 percent of his or her total compensation, up to a maximum of $10,500 in 2001. In 2001, the Trust will match dollar-for-dollar the first $1,550 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. Every employee of the Trust is eligible to participate in the 401(k) Plan provided such employee has reached the age of 21 and is not a nonresident alien. 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 account 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 a financial hardship. A financial hardship is an immediate and heavy financial need for which the employee has no other available resources, and includes medical expenses, the purchase of a primary residence, the payment of tuition and related educational fees and the need to prevent eviction from, or foreclosure of the mortgage of, the employee's primary residence. 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 in one lump sum or in periodic installments beginning the April 1 of the year following the year in which the employee reaches age 70 1/2. Additionally, these amounts must be distributed within a reasonable time following the termination of the 401(k) Plan or the termination of the employee's employment. An employee will be entitled to receive a distribution of the amounts in their account upon the employee's attainment of age 65. 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 2000 to the executive officers listed in the Compensation Table above, and the amounts deferred and accrued pursuant to the 44 401(k) Plan for the accounts of such individuals during 2000, the distribution or unconditional vesting of which are not subject to future events.* Amount Paid or Amount Employer Name of Individual Distributed ($) Deferred ($) Matching ($) ------------------ ---------------- -------------- ------------ Stephen Coyle $0 $ 9,100 $1,500 Michael M. Arnold $0 $10,500 $1,500 Helen R. Kanovsky $0 $10,500 $1,500 Patton H. Roark, Jr. $0 $ 4,420 $1,500 Harry W. Thompson $141,074** $ 2,925 $1,500 ------------- ---------- -------- All executive officers as a group (6 persons) $141,074 $37,445 $7,500 ============= ========== ======== CODE OF ETHICS The Board of Trustees of the Fund has adopted a Code of Ethics. In addition, the Investment Adviser has adopted a Code of Ethics (the "Codes"). The Codes apply to the personal trading activities of "access persons" (generally, persons that have access to the Trust's investment program). They require that Access Persons report their securities holdings and transactions to the Trust or the Investment Adviser, as applicable, and that such persons obtain pre-clearance from the Trust or the Investment Adviser, as applicable, for certain transactions. They permit Access Persons to invest in securities, including, under certain circumstances, securities that may be purchased or held by the Trust. The Codes are included as exhibits to this registration statement and have been filed with the SEC. - - - ----------------------- * The following individuals, each of whom was appointed an executive officer of the Trust as of January, 2001, were not executive officers of the Trust in 2000: Eileen Fitzgerald, Chief Investment Officer - Single Family Finance; John M. Hanley, Chief Investment Officer - Multifamily Finance; David Keto, General Counsel; and Erica Khatchadourian, Controller. ** Amount represents the rollover of Mr. Thompson's account balance to another qualified plan. 45 PRINCIPAL HOLDERS OF SECURITIES The following table sets forth the beneficial ownership information as of March 31, 2001 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 115,792.7799 Units) of the Trust's 2,315,855.5973 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 of the Trust individually. The beneficial owner set forth below is also the record owner of the Units specified. Name and Address Number of Units Percent of Class - - - -------------------------- ---------------- ---------------- Central Pension Fund of the International Union of Operating Engineers 415 Chesapeake Street, N.W. Washington, D.C. 20016 119,194.5781 Units 5.15% INVESTMENT ADVISER The Trust's only independent investment advisor is Wellington Management Company, LLP ("Wellington Management"). The Trust engaged Wellington Management in May, 1992 to furnish investment advisory services with respect to certain of the short-term, liquid assets in the Trust's portfolio designated by the Trust from time to time. The Trust's Investment Advisory Agreement with Wellington Management was extended for a period of two years by a vote of the Participants at the Trust's Annual Meeting in May, 1997 and amended to include investment advisory services concerning certain of the intermediate-term, liquid assets in the Trust's portfolio designated by the Trust from time to time and certain other portfolio analysis services. On April 11, 2001, a majority of disinterested Trustees approved the Trust renewing its Amended and Restated Investment Advisory Agreement with Wellington Management dated May 22, 2000. The Amended and Restated Investment Advisory Agreement may be continued for additional one year periods, so long as such an extension is approved by a majority of the disinterested Trustees or by the vote of the majority of the Trust's Participants. As of December 31, 2000, the value of all short-term and intermediate-term assets managed by Wellington Management was approximately $20.2 million, which represented .82% of the Trust's total net assets at that date. Wellington Management is a Massachusetts limited liability partnership and a registered investment adviser. Its principal offices are located at 75 State Street, Boston, Massachusetts 02109. Its Managing Partners are Laurie A. Gabriel, 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. As of March 31, 2001, Wellington Management held investment management authority over approximately $273 billion of assets, including $31.8 billion of cash and cash-equivalent assets. Wellington Management and its predecessor organizations have provided investment advisory services to investment companies since 1928. 46 Under the Amended and Restated Investment Advisory Agreement, Wellington Management provides investment advisory services concerning certain of the short-term and intermediate-term, liquid assets in the Trust's portfolio (the "Short/Intermediate Term Assets"). Wellington Management manages the investment and reinvestment of the Short/Intermediate Term Assets; continuously reviews, supervises and administers the investment program of the Short/Intermediate Term Assets; determines 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 providing to the Trust's officers within 2 business days after the last business day of each month (each, a "Valuation Date") market prices as of the Valuation Date of Short/Intermediate Term Assets that mature more than 60 days after the Valuation Date; 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; supplies the Trust's officers and Trustees with statistical information and reports; and provides the Trust with certain portfolio analysis functions and reports including analysis and reports which may assist the Trust in determining the allocation of assets within the Short/Intermediate Term Assets. Wellington Management discharges 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. Wellington Management renders all of the services described above 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 has agreed to 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 47 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. Wellington Management has agreed that 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, to the extent permitted by applicable laws and regulations, Wellington Management 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. Under the terms of the Amended and Restated Investment Advisory Agreement, Wellington Management is compensated monthly at the annual rate of 0.125% of the market value of the Trust's short-term and intermediate-term assets up to $100 million under management by Wellington Management, and 0.10% per annum of the market value of the Trust's short-term and intermediate-term assets in excess of $100 million under management by Wellington Management; provided that the annual fee shall in no event be less than $50,000. During the year ended December 31, 2000, the Trust incurred total investment advisory fees of $57,732 which represented .0023% of the Trust's average net assets for such period. During its last three fiscal years, the Trust incurred total investment advisory fees of $301,725. SALES AND DISTRIBUTION ACTIVITIES The Executive Vice President Marketing, Investor and Labor Relations of the Trust, operating out of the Trust offices in the District of Columbia, conducts, and manages the 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, 2000 were $556,102 which represents approximately .022% of the $2,477,481,753 in net Trust assets as of December 31, 2000. At its 2000 fall meeting, the Board of Trustees approved a budget of $600,000 for the Plan of Distribution in 2001 from which non- material increases may be made by the Board. 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 and allocable indirect expenses of the Trust relating to the distribution of Units, subject to the limitations set forth above, including but not limited to advertising, office expenses, salaries and other expenses relating to selling efforts, the printing of prospectuses and reports for other than existing Participants and 48 the preparation and distribution of advertising material and sales literature. Each expenditure must be specifically approved in advance by the Chief Executive Officer or the Executive Vice President Marketing, Investor and Labor Relations 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 December 31, 2001, 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 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 60 days written notice without payment of any penalty by vote of a majority of Trustees who are not interested persons. 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 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. Of the $556,102 of sales and distribution expenses incurred for the year ended December 31, 2000, the following amounts were expended on each of the categories listed below. All such amounts were paid in cash. Category Year Ended December 31, 2000 - - - -------- ---------------------------- Printing and mailing of prospectuses $ 4,749 to other than current security holders $ 4,749 Compensation to sales personnel 354,022 (salaries plus fringe benefits) Other (includes travel and meeting 197,331 expenses, office supplies, consulting fees and expenses and printing and mailing of sales literature) TOTAL $556,102 ----------------- 49 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 agreements during the year ended December 31, 2000 with the possible exception of Executive Vice President - Marketing, Investor and Labor 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. PURCHASING UNITS Only Labor Organizations and Eligible Pension Plans are eligible to own Units. A Labor Organization means an 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. The price of Units is based on Net Asset Value or NAV. 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. Whole or fractional Units may be purchased 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 participation form providing for a cash escrow of the amount to be invested as of the forthcoming Valuation Date. See "VALUATION OF UNITS" in this Statement of Additional Information for a discussion of the valuation methods used by the Trust in determining the market price of its portfolio assets. Forms of participation forms 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. For additional information about purchasing Units, please see "BUYING AND SELLING UNITS IN THE TRUST -- PURCHASING UNITS" in the Prospectus. REDEMPTION OF UNITS 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 by check or wire transfer as soon as practicable after the Net Asset Value of the Trust is ascertained for the Valuation Date as of which redemption is 50 effected, but in any event no later than seven business days after the Net Asset Value has been calculated. 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 an 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's portfolio 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. There may be times when a Participant may experience a delay in selling Units. This could happen if the Trust receives more redemption requests in a month than it can satisfy by liquidating assets at their market value. The Trust will not liquidate assets at a discount from their market value in order to satisfy redemption requests. This delay would not exceed 120 days beyond the last business day of the month following the Trust's timely receipt of the redemption request, unless the Trust were forced to liquidate the portion of the Trust's portfolio (up to 10%) which may be invested in assets that cannot be sold within 120 days without a discount from market value. The Trust has never failed to satisfy any redemption request on a timely basis. For additional information about selling or redeeming Units, please see "BUYING AND SELLING UNITS IN THE TRUST--SELLING OR REDEEMING UNITS" in the Prospectus. VALUATION OF UNITS The price of Units is based on Net Asset Value as of each monthly Valuation Date, which is determined 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. Valuations of the Trust's short-term assets are prepared by the Trust. The Trust has retained an independent third-party valuation firm to perform the monthly valuation of all long-term investments. A summary of the current valuation methodology used by the third-party valuation firm, in consultation 51 with our management, with respect to various categories of investments is as follows: SHORT-TERM INVESTMENTS Short-term investments consisting of repurchase agreements, commercial paper, bankers acceptances, investment trusts, other investments and warehousing loans, which mature less than sixty days from the Valuation Date are valued at amortized cost which approximates value. 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 Long-term investments consisting of mortgage-backed securities, permanent mortgages, construction loans, participation certificates and other mortgage- backed obligations are valued using published prices, dealer bids or cash flow models discounted using market-based discount and prepayment rates, developed for each investment category. The market-based discount rate is composed of a risk-free yield (i.e., a U.S. Treasury Note), adjusted for an appropriate risk premium. The risk premium reflects actual premiums in the marketplace over the yield on U.S. Treasury securities of comparable risk and maturity to the investment being valued as adjusted for other market considerations. On loans for which the Trust finances the construction and permanent mortgage, 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 underlying 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 operating or gross cash flow from operations and/or (ii) proceeds from the sale, refinancing or disposition 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 or gross cash flow increases and/or proceeds of a sale or refinancing are received, and the contingent interest payable in connection therewith is added to the base interest. The Trust, as holder of the contingent interest loan or of an interest therein or of a obligation secured thereby, is entitled to receive the 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 interest 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. 52 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 investment 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, we 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 at a level which would produce interest above the base rate, the amount of the projected contingent interest obligation is accruable by us throughout the term of the investment. In no event, however, will the carrying value of the underlying property exceed its appraised value at any reporting date. Determining the value of underlying properties necessarily requires assumptions and estimates about future events and cash flows of the properties. The Trust intends 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 the Trust may update them annually. PRIVATELY COLLATERALIZED MORTGAGE 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 from a private or public entity 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 our determination, is most nearly comparable to obligations in any one or more of the following categories: (a) obligations which carry a private rating upon which we are 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 guaranties 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 53 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, we will make an appropriate discount from quotes on such obligations to reflect a reduction to the lowest rated investment grade; or (d) obligations which have credit enhancement provided through a letter of credit, insurance or another form of guaranty provided by a private entity will be valued against other publicly sold obligations having comparable quality credit enhancement. (e) 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, and 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 we have 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. 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). 54 DISTRIBUTIONS AND TAX ISSUES DISTRIBUTIONS The Trust, at the end of each calendar month, makes pro rata distributions of net income earned during the preceding month. 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 month. TAX ISSUES The Prospectus contains information about the federal income tax considerations applicable to the Trust and certain federal income tax consequences of ownership of Units. Certain supplementary information is presented below. The Trust has elected to qualify and intends to remain qualified as a regulated investment company under Subchapter M of the Internal Revenue Code. This relieves the Trust (but not Participants) from paying federal income tax on income which is distributed to Participants and permits net capital gains of the Trust (i.e., the excess of net capital gains from the sale of assets held for more than 12 months over net short-term and long-term capital losses) to be treated as capital gains of the Participants, regardless of how long Participants have held their Units in the Trust. Qualification as a regulated investment company requires, among other things, that (a) at least 90% of the Trust's annual gross income (without reduction for losses from the sale or other disposition of securities) be derived from interest, dividends, payments with respect to securities and loans, and gains from the sale or other disposition of securities, loans or interests therein or foreign currencies, or other income derived with respect to its business of investing in such securities or currencies; (b) the Trust diversify its holdings so that, at the end of each quarter of the taxable year (i) at least 50% of the market value of the Trust's assets is represented by cash, U.S. Government securities and other securities limited in respect of any one issuer to an amount not greater than 5% of the market value of the Trust's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities); and (c) the Trust distribute to Participants at least 90% of its net taxable investment income (including short-term capital gains) other than long-term capital gains and 90% of its net tax exempt interest income in each year. The Trust would be subject to a 4% non-deductible excise tax on certain amounts if they are not distributed (or not treated as having been distributed) on a timely basis in accordance with a calendar year distribution requirement. The Trust intends to distribute to Participants each year an amount sufficient to avoid the imposition of such excise tax. The Trust may purchase debt securities that contain original issue discount. Original issue discount that accrues in a taxable year is treated as income earned by the Trust and is subject to the distribution requirements of the Internal Revenue Code. Because the original issue discount earned by the Trust in a taxable year may not be represented by cash, the Trust may have to dispose of other securities and use the proceeds to make distributions to 55 satisfy the Internal Revenue Code's distribution requirements. Debt securities acquired by the Trust also may be subject to the market discount rules. PERFORMANCE DATA The Trust may periodically include its average annual total return and other total return data in advertisements or information furnished to present or prospective Participants. Total return figures are based on the Trust's historical performance and are not intended to indicate future performance. Average annual total return is determined for Trust Units in accordance with formulas specified by the SEC. Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses. The Trust's total return may be expressed either as a percentage or as a dollar amount in order to illustrate such total return on a hypothetical investment in the Trust at the beginning of each specified period. The Trust also may quote annual, average annual and annualized total return and aggregate total return performance data for various periods. Such data will be computed as described above, except that as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted. Additionally, the Trust may quote gross rates of return, which do not include the deduction of administrative expenses. The gross rates of return are shown for comparison purposes only and do not reflect what an investor would earn on their investment in the Trust. On occasion, the Trust may compare its performance to that of the Lehman Aggregate Bond Index or other industry indices or data. When comparing its performance to a market index, the Trust may refer to various statistical measures derived from the historic performance of the Trust and the index, such as standard deviation and coefficient of correlation. As with other performance data, performance comparisons should not be considered indicative of the Trust's relative performance for any future period. The Trust's total return will vary depending on market conditions, the investments comprising the Trust's portfolio, the Trust's operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Trust will fluctuate and a Participant's Units, when redeemed, may be worth more or less than their original cost. 56 GENERAL INFORMATION SECURITIES OFFERED 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 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 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. In most 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. 57 The Trust may be terminated at any time by the Trustees after notice in writing to all Participants. The Trust's Declaration of Trust may be amended or altered at any time by the Trustees. Any inquiries or expressions of interest concerning sales transactions should be referred to the Executive Vice President - Marketing, Investor and Labor Relations at Trust headquarters, 1717 K Street, N.W., Suite 707, Washington, D.C. 20036. AUDITORS Arthur Andersen LLP, 8000 Towers Crescent Drive, Vienna, VA 22182, was approved by the Participants at the 2000 Annual Meeting of Participants as the independent certified public accountants for the Trust for the period ending December 31, 2000. Arthur Andersen LLP 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, taxation and general business matters from time to time. CUSTODIAN Bankers Trust Company, New York, New York acts as a bank custodian of Trust investment securities pursuant to a safekeeping agreement dated February 1, 1998, as amended. For providing such safekeeping services, the Bank shall charge the Trust an annual fee of $75,000 in 2001, $80,000 in 2002, and $85,000 in 2003. LEGAL MATTERS Certain legal matters in connection with the offering of Units were reviewed for the Trust by Swidler Berlin Shereff Friedman, LLP, 3000 K Street, N.W., Suite 300, Washington, D.C. 20007. REPORTS TO SHAREHOLDERS The Trust sends to all Participants at least semi-annually reports showing the Trust's portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to Participants each year. After the end of each year, Participants will receive Federal income tax information regarding capital gains distributions. ADDITIONAL INFORMATION The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Trust has filed with the SEC, Washington, D.C., under the Securities Act of 1933, as amended and the Investment Company Act of 1940, as amended, to which reference is hereby made. 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 5, 2001 as part of the Trust's Annual Report to Participants, which are incorporated herein by reference. APPENDIX A STANDARD & POOR'S DEBT RATING DEFINITIONS (Excerpted from Standard & Poor's "Public Finance Criteria," April 2000, pages 6-8,at the Web site: www.standardandpoors.com/ratings). A Standard & Poor's issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch as it does not comment as to market price or suitability for a particular investor. Issue credit ratings are based on current information furnished by the obligors or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any credit rating and may, on occasion, rely on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances. Issue credit ratings can be either long term or short term. Short-term ratings are generally assigned to those obligations considered short term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days -- including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result is a dual rating, in which the short-term ratings address the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings. LONG-TERM ISSUE CREDIT RATINGS Issue credit ratings are based in varying degrees, on the following considerations: 1. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; 2. Nature of and provisions of the obligation; and 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. The issue credit ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. 'AAA' An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. A-1 'AA' An obligation rated 'AA' differs from the highest-rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. 'A' An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. 'BBB' An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB,' 'B,' 'CCC,' 'CC,' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. 'BB' An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. 'B' An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. 'CCC' An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. 'CC' An obligation rated 'CC' is currently highly vulnerable to nonpayment. 'C' A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. 'D' An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's 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 for the taking of a similar action if payments on an obligation are jeopardized. A-2 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. 'p' The letter 'p' indicates that the rating is provisional. A provisional rating assumes the successful completion of the project financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful, 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. 'L' The letter 'L' indicates that 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 'L' indicates that the deposit, combined with other deposits being held in the same right and capacity, will be honored for principal and predefault interest up to 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. 'r' The 'r' subscript highlights derivative, hybrid, and certain other obligations that Standard & Poor's believes may experience high volatility or high variability in expected returns as a result of noncredit risks. Examples of such obligations are securities with principal or interest return indexed to equities, commodities, or currencies; certain swaps and options; and interest-only and principal-only mortgage securities. The absence of an 'r' symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. 'c' The 'c' subscript is used to provide additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer is reduced below an investment-grade level and/or the issuer's bonds are deemed taxable. N.R. Not rated. Local Currency and Foreign Currency Risks Country risk considerations are a standard part of Standard & Poor's analysis for credit ratings on an issuer or issue. Currency repayment is a key factor in this analysis. An obligor's capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government's own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer. A-3 APPENDIX B STATE HOUSING FINANCE AGENCIES (Excerpted from Standard & Poor's "Public Finance Criteria," April 2000, pages 253-254, at the Web site: www.standardandpoors.com/ratings). State housing finance agencies ("HFAs") represent an important presence in the municipal bond market, with over $70 billion of debt outstanding. Agencies generally have long histories of debt issuance and have funded over 1.7 million mortgage loans for low-to-moderate income buyers of single-family homes and 850,000 units of rental housing. Many agencies have built up a considerable level of expertise in all areas of finance, development, and portfolio management. Because of their prudent and conservative approach and many successful years of bond issuance, many HFAs have built up significant fund balances in their own general funds or under various bond resolutions. Standard & Poor's has given varying levels of credit support to an HFA's managerial and financial resources, particularly if an agency has a proven track record in these areas. For example, an HFA may benefit from Standard & Poor's blended rating methodology for investments rated below the bond rating. To determine if an HFA is eligible for this flexibility, Standard & Poor's considers: - Issuer's managerial and financial support, - Magnitude and duration of exposure to lower-rated credit, - Purpose of investment or credit support, and - Portfolio performance and cash flow strength of the bond program. The financial community has long recognized the value added from a state HFA's managerial and financial expertise supporting its bonds. Standard & Poor's top-tier designation formally recognizes superior agencies in this regard. The ICR takes this assessment further for any HFA that desires a formal evaluation of its capabilities. The ICR is an evaluation of an issuer's ability to meet all of its general obligations (GOs) and does not apply to any specific debt obligation. Rated state HFAs use their ICRs to lend support to financings that may not be ratable based on the underlying collateral. In addition, the ICR provides HFAs with financial flexibility, for endeavors such as real estate risk, construction risk, credit enhancement for bond issues, and self-insurance funds. External evaluators, such as U.S. government agencies, credit enhancers, and government-sponsored enterprises, also look to GO ratings, the ICR, and top-tier evaluations as ways to assess the overall credit quality of an agency. Standard & Poor's believes that most state HFAs have the capacity to receive an investment-grade ICR. Standard & Poor's uses a comprehensive analysis to evaluate the ability of an agency's capital base to absorb loan losses. This analysis ultimately determines if the agency and its assets are of sufficient quality and liquidity to support the GO rating, ICR, or the top-tier designation. TOP TIER CRITERIA The top-tier designation is Standard & Poor's recognition of an agency's history of superior portfolio management and underwriting, depth of financial B-1 resources, and prudent investment policies. Standard & Poor's expects top-tier agencies to meet the financial thresholds and have the highest level of performance in the categories described below: Years issuing bonds. Standard & Poor's looks at the 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 a 10-to-15-year period. Unrestricted fund balances. Top-tier agencies are expected to maintain unrestricted assets (leverage ratio) equal to at least 4% of total debt with an amount at least equal to 2% of mortgages held in liquid assets (liquidity ratio). The HFA's willingness and ability to access these funds to support rated debt are analyzed carefully. Administrative capabilities. Standard & Poor's evaluates all systems and procedures affecting the credit quality of the agency's debt, including servicer reviews, as well as the agency's ability to handle servicing on its own, portfolio oversight, claims filing, foreclosure, and REO. Investment policy. Standard & Poor's focuses on the investment of all funds, including restricted and unrestricted fund balances, as well as funds held under various bond programs. Closely examined are the agency's derivative position and the reasons for investing in these instruments. Internal controls/financial management. The agency's ability to generate all financial reports internally and to produce disclosure reports and cash flows on each bond program annually is evaluated. Portfolio quality. Standard & Poor's evaluates the performance of an agency's single-family loan portfolio in comparison with the national and state averages compiled by the Mortgage Bankers Association (MBA). The status of each pool of loans is reviewed, including loan to value ratios, delinquency trends, losses and gains on the sale of REO properties or claims settlement, and performance and credit quality of insurance providers. On the multifamily loan side, Standard & Poor's reviews project occupancy levels, debt service coverage ratios, and status of workouts and defaults. State support. Standard & Poor's looks for a historical and ongoing positive relationship with state government and strong support of the agency's programs. B-2 APPENDIX C STANDARD & POOR'S HFA GO DEBT AND STATE HFA ISSUER CREDIT RATING CRITERIA (Excerpted from Standard & Poor's "Public Finance Criteria," April 2000, pages 254-258, at the Web site: www.standardandpoors.com/ratings). HFA GO DEBT HFAs traditionally have issued mortgage revenue bonds ("MRBs") backed by mortgage loan collateral, with additional security of the agency's general obligation ("GO") pledge and/or the state's moral obligation pledge. However, agencies may issue housing bonds rated based on the agency's GO pledge. Standard & Poor's rating criteria permit housing issuers to leverage their unrestricted resources by issuing MRBs backed by the GO pledge in addition to the mortgage collateral (secured HFA GO debt). They also can use those resources by issuing unsecured HFA GO debt similar to corporate debentures (unsecured HFA GO debt). The HFA GO pledge is a highly viable security for bondholders, since the pledge essentially consists of the unrestricted assets available to an agency. Because of this characteristic, the issue rating is typically based on the agency's Issuer Credit Rating ("ICR") instead of the quality or quantity of the pledged assets, if any. Agencies that do not have GO debt outstanding or do not plan on issuing debt backed by their GO pledge may still maintain an ICR, a top-tier designation, or both. HFA GO DEBT RESERVE LEVELS Liquidity and credit reserves are not generally required to be pledged to bond issues that are secured by and rated based on an HFA's GO pledge. In certain situations, such as variable-rate demand obligations, pledged liquidity reserves may be required for the rating. This reserve ensures that the agency will not be forced to liquidate an investment under adverse market conditions to pay debt service or honor tenders. To ensure that the agency is reserving for the assets financed by the bonds, Standard & Poor's reserves through its capital adequacy calculations for the agency (see below). The reserve calculations use "notched down" credit and liquidity loan loss amounts for financed mortgage loans or, in the case of debentures, maximum annual debt service on the bonds. All assumed reserve amounts are subtracted from the agency's actual unrestricted equity reserves. This reserve methodology allows issuers to leverage their GO pledge through assumed future earnings while also ensuring a measured amount of available coverage. STATE HFA ICR CRITERIA Standard & Poor's analytical approach to assessing an ICR for a state HFA takes market, as well as agency-specific, risks into account, particularly when evaluating how an agency generates revenues and what factors could adversely affect its ability to service its GO debt. ICRs may be assigned as short-term ratings, long-term ratings, or both, depending on the financing needs of the issuer. In assigning HFA ICRs, Standard & Poor's assesses the stability and level of agency capital available to absorb loan losses, as well as the quality and liquidity of its assets. ICRs entail a review of the elements of the top-tier criteria, as well as a more in-depth assessment of capital adequacy, C-1 management, and the agency's relationship with state government. Economic factors endemic to the state in which the agency operates also are considered in light of the agency's financial position and the loan portfolio. One might expect Standard & Poor's analysis of a state HFA to be analogous to its analysis of a financial institution, such as a commercial thrift. However, the institutions are quite different. Thrifts experienced wide mismatches between the maturities of assets and liabilities, which led to substantial losses in the 1980s. They also registered losses, reflecting severe asset quality problems. In addition, thrifts have depositors and make lending decisions based on profit and dividends for shareholders. Unlike thrifts, state HFAs have the luxury of matching the maturities of their assets and liabilities by issuing tax-exempt debt, thereby minimizing their interest-rate exposure. Agency assets consist primarily of mortgage loans for single-family homeownership and rental housing for low- and moderate-income individuals and families. The relatively low tax-exempt interest rates and access to federal, state, and local housing assistance programs provide the necessary subsidy to create high-quality, below-market-rate loans. In addition, state HFAs serve the public and, therefore, are answerable to state legislatures. The public nature of state HFAs makes the autonomy of their management and security of general fund balances an important credit consideration. An ICR brings with it the added burden of better disclosure and more uniform accounting practices. For example, an HFA commercial paper rating, which is based on the ICR, requires a minimum of quarterly reporting to Standard & Poor's to maintain the outstanding ratings. Therefore, state HFAs must be mindful of the additional responsibility an ICR confers and how that responsibility may affect their housing programs. Standard & Poor's evaluates the capacity and willingness of state HFAs to repay GO debt by examining six basic analytical areas: - State economy; - Legislative mandate; - Management; - Asset quality; - Earnings quality, and capital adequacy; and - Debt levels. ECONOMY The state's economic base is a critical element in determining how the housing market will perform and has a direct impact on the agency's asset quality and overall financial performance. The general characteristics and strengths of an agency are assessed relative to local and national economic factors. This includes evaluating the impact of changes in demand for housing, the impact of changing regulatory and legislative environment for low- and moderate-income housing, and the state's dependence on specific industries and how that may affect the agency's mortgage portfolio. The key economic factor in Standard & Poor's analysis is the demand for the state's housing stock. This is directly affected by the employment base in the region and the desirability of the area to current and potential employers and residents. Therefore, factors to be considered include: C-2 - Composition by employment sector -- manufacturing, trade, construction, services, government, and agriculture; - Concentration in major employers or reliance on particular industries; Employer commitment to the state -- importance of state facilities and employees to the overall strategy of the employers, business development plans, age of plant, and industry prospects; - Employment trends and quality of the local labor force; and Regional economic patterns to assess relative gains in employment and income growth. LEGISLATIVE MANDATE The importance that a state government places on housing -- homeownership and rental -- can be a significant rating factor. Standard & Poor's needs to be assured that the long-term viability of the agency has the full support of the governor and state legislature. Security of agency fund balances and continued management autonomy are essential. However, in many instances, much of the initial funding for the agencies may have been provided by the state, and key members of the agencies may have been appointed by the governor or the legislature. Unlike commercial banks, mortgage finance corporations, and S&Ls, state HFAs face political pressures. Therefore, Standard & Poor's prefers to see operations insulated from the political process. The key to this analysis is the ability to identify detractors of the authority, if there are any, and find bipartisan support for the authority's programs. This can be demonstrated by a history of legislative approvals of annual budgets, special programs, additional funding, housing legislation, and so forth. Also, the autonomy of the management team, ideally, should be unaffected by gubernatorial and legislative elections. The agency also should anticipate the housing needs of the legislatures' constituents and continue to develop programs to address them. MANAGEMENT Standard & Poor's initially assesses the operating performance of the state HFA under consideration, focusing on organization, philosophy, strategies, and administrative procedures. The agency should have a long track record so that Standard & Poor's can assess the continuity of management and the agency's ability to resolve difficult situations over its operating history. Also evaluated are the agency's administrative capabilities as to degree of portfolio oversight, loan servicing capability, planning procedures, and computerization. This analysis incorporates Standard & Poor's top-tier criteria for internal controls and administrative capabilities. Next, financial management is considered through historical financial performance, as well as the experience and qualifications of financial personnel and overall management. Major aspects of financial management that are considered include the structure of debt, knowledge of and response to interest-rate movements, management of cash and other assets, and financial reporting. Although some aspects of financial management, such as cash flow generation, may be contracted out, effective management includes active review and oversight of all financial operations. Reliance on financial advisers without a strong knowledge of the intricacies of financing techniques is viewed negatively. C-3 Standard & Poor's looks at the methodology used by management in evaluating interest-rate risk, its tolerance for such risk, and the degree to which it measures and reacts to interest-rate changes. Interest rates directly affect the competitiveness of the agency's product -- mortgages. The ability to issue tax-exempt debt allows an agency to finance mortgages to first-time home buyers at rates below the conventional market. Therefore, the spread between tax-exempt and taxable bond yields directly affects the agency's ability to provide below-market mortgage rates. A state HFA's accounting quality, both historical and current, also is reviewed. This includes the quality of external auditor's opinion, use of generally accepted accounting principles, the impact of accounting for mergers and acquisitions, asset and liability valuations, recognition of income, pension liabilities, and accounting for asset sales and hedge transactions. KEY FINANCIAL RATIOS The following are some of the ratios Standard & Poor's uses in analyzing the financial performance and earnings quality of state HFAs. While many other ratios may be incorporated on a case-by-case basis, these ratios provide a benchmark for comparison among other state HFAs. PROFITABILITY RATIOS Return on average assets is the most comprehensive measure of an agency's performance. However, when evaluating return on assets, it is necessary to examine both the amount and quality of the reported earnings. Net interest income margin measures the most important source of quality earnings-net interest income. The ratio is affected by the volume and type of earning assets, as well as the cost of funds. Key to continued profitability is an agency's ability to manage its net interest margin. LEVERAGE RATIOS Adjusted unrestricted assets to total debt, adjusted unrestricted assets to total GO debt, total equity to total assets and total equity and reserves to total loans measure an agency's capital base available to promote investor confidence and absorb operating deficiencies. GO debt to total debt (GO debt exposure ratio) measures the extent to which an agency has leveraged its GO pledge. It is a good indicator of the potential dispersion of an agency's unrestricted assets to support GO debt. LIQUIDITY RATIOS Total loans to total assets and total investments to total assets measure an agency's ability to access funds for short-term demands. ASSET QUALITY RATIOS Nonperforming assets to total loans, net charge-offs to nonperforming assets, loan-loss reserves to loans, and loan-loss reserves to nonperforming assets measure the diversity and quality of an agency's portfolio of earning assets. Net charge-offs are an indication of the actual loss experience of the mortgage portfolio, while loan-loss reserves should be adequate to absorb those losses. In light of the fact that HFAs cannot levy taxes or raise user fees, the assessment of asset quality, in tandem with earnings quality, is of paramount importance in determining an appropriate ICR. Indeed, asset quality C-4 and earnings indicators indicate the potential resources available to support the HFA's GO pledge. This is important even for HFAs that have no GO debt outstanding. Many HFAs have built up considerable equity under general funds and under bond indentures through historical asset performance beyond structuring assumptions used at the time of debt issuance. Many agencies have significant control of these assets under general and limited obligation resolutions. In order to determine the likelihood of asset accumulation over time and the likelihood of availability, Standard & Poor's evaluates the quality of the agency's mortgage collateral, focusing on portfolio size, dwelling type, loan types, payment characteristics, mortgage insurance and guarantees, loan underwriting criteria, and location. The agency's loan portfolio performance is measured against comparable state agency and MBA delinquency statistics to determine relevant performance. Also, historical losses are measured to determine the affect on fund balances. Standard & Poor's also evaluates the quality of the agency's investment portfolio. In many instances, investments make up a significant portion of an agency's asset base. In general, Standard & Poor's analysis focuses on the investment of fund balances, restricted and unrestricted, as well as bond funds. The analyst reviews the amount of funds being invested, who manages the money, how daily investment decisions are made, and what type of guidelines are in place. The agency's investments should meet Standard & Poor's standard permitted investment guidelines and be rated as high as the agency's ICR. Principal protection and liquidity should be the primary goals of a state HFA's investment policy. In August 1994, Standard & Poor's added its 'r' symbol to certain highly volatile derivatives and hybrid securities to alert investors that these instruments may experience dramatic fluctuations in value because of market rather than credit factors. Standard & Poor's traditional debt ratings address credit risk, which is the ability of the issuer to pay debt service on time and in full. The 'r' symbol addresses noncredit risks, such as market, liquidity, and structural risks. Investments with such noncredit risks are inverse floaters, range floaters, dual index floaters, riskier CMO tranches, and derivatives tied to equity and commodity prices. These 'r' subscripted investments are not considered qualified investments for state HFA programs. Standard & Poor's is concerned with how a state HFA manages its interest-rate risk. In some instances, derivative products may be appropriate under certain circumstances. Certain derivatives can add significant leverage to an issuer's portfolio and make the portfolio highly sensitive to changing interest rates. Most state HFAs understand that reverse repurchase agreements and security lending programs can add leverage, especially if they borrow short through reverse repurchase agreements and invest in long-term securities. However, several derivative securities have imbedded leverage that may not be apparent to the investor. Examples of such products are POs, IOs, inverse floaters, Z-bonds, and Sub PACs bonds. An agency with a large percentage of volatile derivative securities would prompt a review. Standard & Poor's might lower the agency's ICR if the issue or issuer's liquidity is weak or is unable to withstand portfolio losses due to rise in interest rates. Prudent investment policies of state HFAs specify the types of derivatives allowed for bond and general funds. In general, Standard & Poor's considers how municipal issuers are managing their assets. Since derivative positions can change instantaneously, it is impossible to monitor their exposure on an ongoing basis. Therefore, as a rating agency, Standard & Poor's must feel comfortable that a municipal issuer, such as a state HFA, has specific guidelines and systems in place to C-5 manage its exposure to derivative products and interest-rate volatility. Prudent investment policies of state HFAs should specify the types of derivatives allowed for bond and general funds. Also, if the HFA board permits derivatives, the appropriate systems should be in place to monitor and manage the risks associated with derivatives. Also, it is important that state HFAs have checks and balances in place to ensure that the investment guidelines and policies are being followed. Examples of minimum checks and balances include board or committee oversight, frequent marking to market; and an independent third-party audit of the portfolio. Also, if an HFA invests in intergovernmental pools, the boards of the pools also can further the goal of principal protection and liquidity by using the same guidelines outlined for state HFA bond and general funds. Standard & Poor's does not prohibit unrated LGIP as a bond or general fund investment. However, such a public rating on the investment fund would provide the initial and ongoing disclosure information that Standard & Poor's reviews in the normal course of issuing the associated rating. In general, Standard & Poor's would view investment funds with money-market ratings in 'AAAm' categories from Standard & Poor's Managed Fund Group as having the safety and liquidity characteristics to become a qualified investment. EARNINGS QUALITY, FINANCIAL STRENGTH, AND CAPITAL ADEQUACY The ability of an HFA to generate strong and consistent financial revenues is vital to the support of its GO debt. Although most of an agency's revenues are restricted under bond resolutions, most agencies have considerable flexibility with their general funds and for interfund asset transfers and residual liens under secured bond resolutions. In order to gauge earnings quality, financial performance for the past five years is reviewed, with emphasis placed on any notable fluctuations. A premium is placed on consistency of performance. However, one bad year is not necessarily a negative factor, unless it signifies the beginning of a permanent shift. Standard & Poor's uses income statement analysis to evaluate revenue sources, cost controls, and profitability in tandem with a balance sheet analysis of liquidity, capitalization, and asset quality as discussed above. Both approaches require further evaluation of an agency's cash accumulation levels, types of investments, interfund borrowing, historical use of debt, loan loss reserves, REO, net charge-offs, equity, and quality of unrestricted fund balances. In addition, Standard & Poor's reviews the most recent budgets of the state HFA, relying on the aforementioned income statement and balance sheet analysis. While financial performance and asset quality are important, these measures must be viewed in conjunction with the other rating factors -- the economy, management, debt levels, and the agency's relationship with the state. Standard & Poor's gauges capital adequacy in conjunction with earnings quality in determining an HFA's ICR. There are three principal ratios that Standard & Poor's uses to measure an HFA's capital adequacy: - Adjusted unrestricted assets to total debt outstanding (leverage ratio); - Adjusted unrestricted assets to total GO debt outstanding (GO leverage ratio); and - GO debt exposure (GO debt to total debt outstanding). C-6 Adjustments are made by Standard & Poor's to an agency's unrestricted assets based on the level of reserves needed to support GO debt and surpluses available from secured bond resolutions that are available for transfer to the agency's general fund. The "adjusted" unrestricted assets position is then divided by total debt and GO debt (rating dependent) in order to gauge the level of assets available all bondholders and GO bondholders. GO debt exposure is indicative of an agency's willingness or need to leverage its GO pledge. The ratio is a good measure of the potential dispersion of an agency's unrestricted assets in the event a call to the agency is required for debt service on GO debt. The ratio is derived by dividing GO debt (rating dependent) by total agency debt outstanding. Exposure is classified as low (0%-24%), low-to-moderate (25%-49%), moderate-to-high (50%-74%), and high (75%-100%). The GO debt exposure ratio is used as a companion ratio to the two leverage ratios. For agencies that have low or nonexistent GO debt exposure, Standard & Poor's assumes a prudent level of increased issuance in order to provide the agency with future flexibility under its housing programs. For agencies with GO debt, the GO debt exposure ratio is increasingly important principally because of the imbedded reserve leverage inherent to HFA GO debt structures. Standard & Poor's is concerned with an increasing GO debt exposure ratio in conjunction with a deterioration in unrestricted assets, as measured by the leverage ratios and the GO debt leverage ratio. Ultimately, any prolonged and significant increase in risk (GO debt exposure) without an attendant decrease in leverage may be cause for a downgrade of the agency's ICR and associated debt issues. Conversely, declining GO debt exposure and decreasing leverage (increased leverage ratios) bode well for improved credit quality over the longer term. DEBT LEVELS The structural characteristics and type of debt obligations that an HFA issues impact the reasonableness of an agency's earnings quality and capital adequacy measures. Because HFAs are generally highly leveraged entities, an agency's GO debt philosophy -- as it relates to the other five ICR rating factors -- is a crucial determinant of credit quality. If an HFA serves as a conduit and issues limited or special obligation bonds backed only by mortgages, risk associated with debt repayment is unlikely to pose risk to the HFA's unrestricted assets. Similarly, if an agency issues GO debt that is not rated based on the agency's credit, this structure also would indicate that risk to the agency is minimal. However, in cases where an agency has GO debt that relies on the agency for ultimate credit support, risk to the agency is potentially increased. Risk increases since debt rated based on an HFA's GO pledge indicates that bondholders may have to rely on the HFA's unrestricted funds for full and timely debt repayment at the issuer's rating level. Standard & Poor's refers to this risk as GO debt exposure. This exposure may be quantified through the GO debt exposure ratio as discussed above. C-7 APPENDIX D 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. PART C: OTHER INFORMATION ITEM 23. EXHIBITS: Sequentially Numbered Exhibit (a) Copies of the charter as now in effect: Declaration of Trust as amended through May 18, 2000, filed as Exhibit 1 to this Registration Statement. (b) Copies of the existing by-laws or instruments corresponding thereto: Rules and Regulations as amended through March 15, 1990 is filed as Exhibit 2 to this Registration Statement. (c) Instruments defining Rights of Security Holders: Reference is made to Articles V and VI of the Registrant's Declaration of Trust, as amended, filed as Exhibit 1 to this Registration Statement and to Article II of the Registrant's Rules and Regulations, as amended, filed as Exhibit 2 to this Registration Statement. (d) Copies of all investment advisory contracts relating to the management of the assets of the Trust: Amended and Restated Investment Advisory Agreement dated May 22, 2000 with Wellington Management Company, LLP. Incorporated by reference to the same document filed as Exhibit 5 to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 33 and the Investment Company Act of 1940 (Amendment No.36), Registration No.2-78066, as filed with the SEC on May 31, 2000. (e) 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) (f) 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: (1) Summary of AFL-CIO Staff Retirement Plan dated November, 1999, filed as Exhibit 3 to this Registration Statement (2) AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. Incorporated by reference to the same document filed as Exhibit 7(c) of the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 (Post-Effective Amendment No. 25) and the Investment Company Act of 1940 (Amendment No. 28), Registration No. 2-78066, as filed with the SEC on April 30, 1997. (2)(a) First Amendment dated November 1, 1999 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996 is filed as Exhibit 4 to this Registration Statement. (2)(b) Second Amendment dated February 15, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996 is filed as Exhibit 5 to this Registration Statement. (2)(c) Third Amendment dated April 7, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996 is filed as Exhibit 6 to this Registration Statement. (2)(d) Fourth Amendment dated June 23, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996 is filed as Exhibit 7 to this Registration Statement. (2)(e) Fifth Amendment dated September 26, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996 is filed as Exhibit 8 to this Registration Statement. (g) 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: (1) Master Custodian Agreement with Bankers Trust Company dated February 1, 1998. Incorporated by reference to the same document filed as Exhibit 8 to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 30) and the Investment Company Act of 1940 (Amendment No.33), Registration No.2-78066, as filed with the SEC on March 5, 1999. (1)(a) Amendment to the Fee Schedule dated December, 2000 of the Master Custodian Agreement with Bankers Trust Company dated February 1, 1998 is filed as Exhibit 9 to this Registration Statement. (h) 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) (i) 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 Shereff Friedman, LLP, dated April 27, 2001, filed as Exhibit 10 to this Registration Statement. (j) 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 Arthur Andersen LLP dated April 27, 2001, filed as Exhibit 11 to this Registration Statement. (k) All financial statements omitted from Item 22 of Part B: (Not applicable) (l) 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.) (m) 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 7, 1999. Incorporated by reference to the same document filed as Exhibit 15 to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 32 and the Investment Company Act of 1940 (Amendment No.35), Registration No.2-78066, as filed with the SEC on May 1, 2000. (n) Copies of any plan entered into by the Trust pursuant to Rule 18f-3, any agreements with any person relating to implementation of such plan, and any amendment to the plan or an agreement. (not applicable) (o) Reserved (p) Copies of any code of ethics adopted under Rule 17j-1 and currently applicable to the Fund (including codes of its investment advisers) (1) The Trust Code of Ethics, filed as Exhibit 12 to this Registration Statement. (2) The Wellington Management Company, LLP Code of Ethics, filed as Exhibit 13 to this Registration Statement. (q) Other Exhibits: (1) Powers of Attorney for Trustees Sweeney, Georgine, Fleischer, Joyce, Chavez-Thompson, Kardy, Latimer, Stanley, Hanley, Hurt, Spear, Ravitch, Cullerton, Maddaloni, Monroe, Stern, Trumka and Wiegert were previously filed as Exhibit 18(a) to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 32 and the Investment Company Act of 1940 (Amendment No.35), Registration No.2-78066, as filed with the SEC on May 1, 2000. (2) Powers of Attorney for Trustees Flynn, O'Sullivan and Sullivan were previously filed as Exhibit 18(c) to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 33 and the Investment Company Act of 1940 (Amendment No.36), Registration No.2-78066, as filed with the SEC on May 30, 2000. (3) Powers of Attorney for Executive Officers Coyle, Arnold, Kanovsky and Roark were previously filed as Exhibit 18(b) to the Trust's Registration Statement on Form N-1A under the Securities Act of 1933 Post-Effective Amendment No. 32 and the Investment Company Act of 1940 (Amendment No. 35), Registration No. 2-78066, as filed with the SEC on May 1, 2000. (4) Powers of Attorney for Executive Officers Fitzgerald, Hanley, Keto and Khatchadourian, filed as Exhibit 14 to this Registration Statement. (5) List of Officers and Partners of Wellington Management Company, LLP, together with any business profession, vocation or employment of substantial nature engaged in by such Officers and Partners during the past two fiscal years, as filed as Exhibit 15 to this Registration Statement. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. None. ITEM 25. INDEMNIFICATION. Pursuant to Section 4.8 of the Trust's Declaration of Trust (see Exhibit (1) under "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. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. Wellington Management Company, LLP ("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 26 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 filed as Exhibit 15 to this Registration Statement. ITEM 27. PRINCIPAL UNDERWRITERS. None. ITEM 28. 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. ITEM 29. MANAGEMENT SERVICES. None. ITEM 30. UNDERTAKINGS. None. 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 27th day of April, 2001. AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST By: * -------------------------------- Stephen 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 indicated on the 27th day of April, 2001: * Chairman ---------------- Richard Ravitch * Union Trustee --------------------- Linda Chavez-Thompson * Management Trustee ---------------- John E. Cullerton * Union Trustee ------------------- Edward C. Sullivan * Union Trustee ------------------ Francis X. Hanley * Union Trustee ----------------- Frank Hurt * Union Trustee ------------------- John J. Flynn * Union Trustee ------------------- Martin J. Maddaloni * Union Trustee -------------------- Michael E. Monroe * Union Trustee -------------------- Terence M. O'Sullivan * Union Trustee --------------------- Andrew Stern * Union Trustee --------------------- John Sweeney * Union Trustee --------------------- Richard L. Trumka * Management Trustee ---------------------- Alfred J. Fleischer * Management Trustee ---------------------- Walter Kardy * Management Trustee ----------------------- George Latimer * Management Trustee ------------------------ Tony Stanley * Management Trustee ----------------------- Marlyn J. Spear * Management Trustee ------------------------- Patricia F. Wiegert * Chief Executive ------------------------ Officer (Principal Stephen Coyle Executive Officer) * Executive Vice President - ------------------------ Marketing Michael M. Arnold * Chief Investment Officer - ------------------------ Multifamily Finance John Hanley * Chief Investment Officer - ------------------------ Single Family Finance Eileen Fitzgerald * Executive Vice President - -------------------------- Finance and Administration Helen R. Kanovsky * General Counsel -------------------------- David Keto * Controller -------------------------- Erica Khatchadourian * Executive Vice President - Investments; -------------------------- and Portfolio Manager Patton H. Roark, Jr. * Helen R. Kanovsky, by signing her name hereto, signs this document on behalf of each of the persons so indicated above pursuant to powers of attorney duly executed by such person and either previously filed with the SEC or filed herewith as Exhibit 14. /s/ Helen R. Kanovsky --------------------------------- Helen R. Kanovsky INDEX TO EXHIBITS Sequentially Numbered Exhibit 1. Declaration of Trust as amended through May 18, 2000. 2. Rules and Regulations as amended through March 15, 1990. 3. Summary of AFL-CIO Staff Retirement Plan dated November, 1999. 4. First Amendment dated November 1, 1999 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. 5. Second Amendment dated February 15, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. 6. Third Amendment dated April 7, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. 7. Fourth Amendment dated June 23, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. 8. Fifth Amendment dated September 26, 2000 to the AFL-CIO Housing Investment Trust 401(k) Retirement Plan, effective as of October 1, 1996. 9. Amendment to the Fee Schedule dated December, 2000 of the Master Custodian Agreement with Bankers Trust Company dated February 1, 1998. 10. Opinion letter and written consent of Swidler Berlin Shereff Friedman, LLP, dated April 27, 2001. 11. Consent of Arthur Andersen LLP dated April 27, 2001. 12. The Trust Code of Ethics. 13. The Wellington Management Company, LLP Code of Ethics. 14. Powers of Attorney for Executive Officers Fitzgerald, Hanley, Keto and Khatchadourian. 15. List of Officers and Partners of Wellington Management Company, LLP, together with any business profession, vocation or employment of substantial nature engaged in by such Officers and Partners during the past two fiscal years. EX-99.ACHARTER 2 charter.txt DECLARATION OF TRUST AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST DECLARATION OF TRUST (as amended and restated through May 18, 2000) DECLARATION OF TRUST made in Washington, D.C. by the original signatories to this instrument (who, together with their successors in office, are hereinafter called "Trustees"). WHEREAS, by Declaration of Trust made September 19, 1981, there was created a trust (the "Trust") as a step in the organization of a new pooled investment fund to be created under the auspices of the American Federation of Labor -- Congress of Industrial Organizations ("AFL-CIO"); and WHEREAS, the Trustees have amended the Declaration of Trust from time to time to create an investment fund by naming the Trust the "American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust" and by restating the Declaration of Trust in its entirety as set forth herein; and WHEREAS, certain subscriptions to Units in the Trust hereby created have been and will be received from the participants whose interests are hereinafter described, NOW, THEREFORE, the Trustees declare that they will hold all such contributions that they have acquired or will acquire as Trustees, together with the proceeds thereof, in trust, in the manner and subject to the provisions hereof, for the benefit of any and all contributors to the corpus of the Trust (hereinafter collectively called "Participants"). ARTICLE I Purposes -------- Section 1.1. The purpose of this Trust shall be to earn a fair and secure rate of return for its Participants by investing the pooled contributions of all Participants principally in (a) long-term federally insured or guaranteed real estate mortgage and construction loans and certificates representing interests in one or more such loans and (b) obligations issued or guaranteed by Federal National Mortgage Association ("Fannie Mae") or Federal Home Loan Mortgage Corporation ("Freddie Mac") and obligations backed by such real estate mortgages and construction loans. All buildings, structures and other improvements that are to be built or rehabilitated on mortgaged real estate or exchanged for such Trust investments must be built or rehabilitated by union labor except as otherwise expressly provided in Section 3.3. The Trust may make investments that are not federally insured or guaranteed only as and to the extent provided in Section 3.3 hereof. 02 ARTICLE II Name and Trustees ----------------- Section 2.1. The Trust shall be named "The American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust". The Trustees shall manage the Trust property, execute all instruments in writing, and do all other things relating to the Trust. Every duly authorized instrument executed in the name of the Trust shall have the same effect as if executed in the name of the Trustees. Section 2.2. There shall be up to twenty-five voting Trustees and such non-voting members of the Board of Trustees as provided by Section 2.10 hereof. Section 2.3. (a) Up to twelve of the Trustees (hereinafter the "Union Trustees") shall be officers or employees of the AFL-CIO or an AFL-CIO member union; (b) up to twelve of the Trustees (hereinafter the "Management Trustees") shall be (i) officers or management employees of one or more organizations contributing directly or indirectly through contractors to an Eligible Pension Plan as defined in Section 5.2 hereof, or officers or management employees of such an Eligible Pension Plan, or (ii) with respect to not more than four of the Management Trustees, an officer, director, or trustee of an organization connected in whole or in part with the housing, finance, or real estate development industries, or an elected or appointed official of the federal or any state or local government or an agency or instrumentality thereof; and (c) one Trustee (hereinafter the "Chairman") shall be an individual who is neither an officer, trustee, or employee of any organization that is a Participant in the Trust. The number of Management Trustees shall not exceed the number of Union Trustees except as the result of a vacancy during an unexpired term caused by death or resignation. Section 2.4. The Union and Management Trustees shall be divided into up to three classes ("Classes") in respect to term of office, provided that no new Class shall be established if any existing Class has less than five Trustees. No Class shall have more than eight Trustees. Each Class shall have, insofar as the population of Trustees permits, an equal number of Union and Management Trustees and, upon the appointment of one or more new Trustees, the Trustees shall alter Class assignments as required to comply with the provisions of this sentence. The term of the first Class of Trustees shall expire at the first annual meeting of Participants, the term of the second Class shall expire at the second annual meeting of Participants, and the term of the third Class shall expire at the third annual meeting of Participants. After the expiration of the initial terms as set forth above, the term of each Class of Trustee shall expire at the third annual meeting following its election. At each annual meeting, the Participants shall elect a Chairman to serve until the next annual meeting and such number of Trustees as necessary to fill vacancies in the Class of Trustees whose terms expire as of such meeting. Each Trustee shall serve until his successor shall be elected and shall qualify. Section 2.5. A Trustee shall be an individual at least twenty-one years of age who is not under legal disability and who shall have in writing accepted his or her appointment and agreed to be bound by the terms of this Declaration of Trust. The Trustees, in their capacity as Trustees, shall not be required to devote their entire time to the business and affairs of the Trust. 03 Section 2.6. All Trustees shall serve their full terms unless they resign or die. Any Trustee can resign at any time by giving written notice to the other Trustees, to take effect upon receipt of the notice or such later date as the notice specifies. Section 2.7. Upon the death or resignation of any Union Trustee, the remaining Union Trustees shall appoint by a majority vote a replacement to serve out the remainder of the term (with the Chairman, if any, voting only in case of a tie). Upon the death or resignation of any Management Trustee, the remaining Management Trustees shall appoint by majority vote a replacement to serve out the remainder of the term (with the Chairman, if any, voting only in case of a tie). Upon the death or resignation of the Chairman, the Union and Management Trustees together shall appoint by majority vote a replacement to serve out the remainder of the term. Section 2.8. The death or resignation of one or more Trustees shall not annul the Trust or revoke any existing agency created pursuant to the terms of this Declaration of Trust. Whenever a Trustee's position becomes vacant because of the Trustee's death or resignation the other Trustees shall have all of the powers specified in this Declaration of Trust until such vacancy is filled. Section 2.9. The Chairman, Management Trustees and non-voting members may be compensated for their services as provided by the Board of Trustees. No Union Trustee shall receive any compensation or fee for his services as Trustee. Trustees and non-voting members shall be reimbursed for expenses of attending meetings of the Board of Trustees and committees thereof. Section 2.10. The Chief Executive Officer, upon his or her retirement or resignation, may be appointed by the Executive Committee, subject to approval by the Board of Trustees, as a non-voting member of the Board of Trustees, with the right to attend meetings and participate in discussions, for an initial term not to exceed five years. ARTICLE III Powers ------ Section 3.1. The Trustees shall have power to do all things proper or desirable in order to carry out, promote, or advance the purpose of the Trust even though such things are not specifically mentioned in this Declaration of Trust. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. Section 3.2. The Trustees shall have without further authorization, full, exclusive, and absolute power, control, and authority over the Trust property and over the business of the Trust to the same extent as if the Trustees were the sole owners of the Trust property and business in their own right, subject to such delegation as may be permitted in this Declaration of Trust. The enumeration of any specific powers or authority herein shall not be construed as limiting the aforesaid powers or authority or any specific power or authority. In construing the provisions of this Declaration of Trust the presumption shall be in favor of a grant of power to the Trustees. Section 3.3. The Trustees shall have each of the following specific powers and authority in the administration of the Trust, to be executed in 04 their sole discretion exercised in accordance with their fiduciary duties under the Investment Company Act of 1940, as amended ("Investment Company Act"): (a) To invest in construction and/or long-term mortgage loans or mortgage-backed securities that are guaranteed or insured by the federal government or an agency thereof or interests in such mortgage loans or securities; and (b) To invest in securities that are secured by securities and/or mortgage loans of the type described in paragraph (a) above and that are rated in one of the two highest rating categories by at least one nationally recognized statistical rating agency; and (c) To invest in (i) obligations issued or guaranteed by Fannie Mae or Freddie Mac, or (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 rating categories by at least one nationally recognized statistical rating agency; and (d) To invest up to 30 percent of the value of all of the Trust's assets in any of the following: (i) Construction and/or permanent loans, or securities backed by construction and/or permanent loans, or interests in such loans or securities, provided that: (A) 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; or (B) 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 S&P (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; or 05 (C) such loans or securities are supported by a guaranty of at least the first 75 percent of the principal amount of such loans or securities under a state insurance or guarantee program by a state-related agency 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 S&P, Fitch Investors Services Inc. ("Fitch") or Duff & Phelps Inc. ("Duff & Phelps") or at least "A3" by Moody's at the time of their acquisition by the Trust; or (D) such loans or securities are issued or guaranteed, as the case may be, by a state or local housing finance agency with a general obligation rating of "A" or better by S&P (or a comparable rating 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) 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 or similar commitment; or (E) such loans are made by a state or local government or an agency or instrumentality thereof, including a state or municipal housing finance agency, and such loans or the securities backed by 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, insurance or other guaranty from an entity satisfactory to the Trust which has a rating (at the time of the Trust's acquisition of the related loan, securities or interests in such loans or securities) which is at least "A" or better from S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust); or (F) such loans are made by any lender acceptable to the Trust and such loans or the securities backed by 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, insurance or other guaranty from an entity satisfactory to the Trust which has a rating (at the time of the Trust's acquisition of the related loan, securities or interests in such loans or securities) which is at least "A" or better from S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust). (ii) Construction and/or permanent loans, or securities backed by construction and/or permanent loans or interests in such loans or securities, that have evidence of support by a state or local government or an agency or instrumentality thereof, provided that the total principal amount of investments made under this section outstanding from time to time shall not exceed 4 percent of the value of all of the Trust's assets and all of the following criteria are satisfied: (A) the loan-to-value ratio of the project shall not exceed 60 percent, 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 75 percent shall be permitted if (1) mortgage insurance in an amount which will cover all losses down to a 60 percent loan-to-value level has been provided by a mortgage insurance provider rated at least "A" or better by S&P (or a comparable rating by another nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust); or (2) another form of guaranty or credit support of the Trust's investment which will cover all losses down to a 60 percent loan-to-value level and which is provided by a guarantor rated "A" or better by S&P (or a comparable rating by another 07 nationally recognized statistical rating agency, as determined by the Executive Committee of the Trust) at the time of acquisition by the Trust; or (3) the project receives the benefits of low income housing tax credits pursuant to section 42 of the Internal Revenue Code, as amended, in accordance with the standards adopted by the Executive Committee; (B) the state or local government or agency or instrumentality thereof or a foundation exempt from federal income tax under Section 501(c) of the Internal Revenue Code of 1986, as amended, must make or facilitate a financial contribution in the project within guidelines adopted by the Executive Committee of the Trust, such financial contribution to be in the form of subordinate financing, an interest rate write-down, a donation of land, an award of tax credits, grants or other financial subsidy, a form of insurance or guarantee or some other similar contribution all within guidelines adopted by the Executive Committee of the Trust; (C) the development and ownership team of the project must have a demonstrably successful record of developing or managing low-income housing projects, in accordance with guidelines to be developed by the Trust; (D) the underwriter and servicer of the mortgage loan for the project must have been approved by the Trust; and (E) the minimum debt service coverage for the project must be at least 1.15, based upon projections of future income and expenses satisfactory to the Trust. (iii) Bridge loans made to the owners of single family or multifamily housing developments which are eligible to receive and have allocations or other rights to receive Low Income Housing Tax Credits under Section 42 of the Internal Revenue Code of 1986, as amended, or interests in such loans, provided that all of the following criteria are satisfied: (A) at the time of the Trust's acquisition of such investment, such investment must be: (I) are issued or guaranteed by a state or local housing finance agency designated "top tier" by S&P (or designated comparably by another nationally recognized 08 statistical rating agency, as determined by the Executive Committee of the Trust) with full recourse to the assets and credit of such agency (or in lieu of such full recourse, secured by such third party credit enhancement as to provide, in the judgment of management, security comparable to full recourse to the assets and credit of such agency); or (II) issued (with recourse) or guaranteed by a state or local agency which has a long term credit rating of "A" or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Executive Committee of the Trust) for a bridge loan with a term of longer than 12 months and a short- term rating of A-1 or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Executive Committee of the Trust) for a bridge loan with a term of less than 12 months; (III) issued (with recourse) or guaranteed by FHA, GNMA, Fannie Mae, Freddie Mac or another entity with a credit rating of "AA" or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Executive Committee of the Trust) or fully collateralized by obligations issued (with recourse) or guaranteed by FHA, GNMA, Fannie Mae or Freddie Mac or another entity with a credit rating of "AA" or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Executive Committee of the Trust); or (IV) fully collateralized by a letter of credit or other guaranty by a bank or other financial entity with a credit rating of "AA" or better by S&P (or a comparable rating by another nationally recognized rating agency approved by the Executive Committee of the Trust) or a bank rated in category 09 "B" or higher by Thomson Bankwatch; (B) at the time of the Trust's acquisition of such investment, the Trust is committed to invest in the construction and/or permanent loan for the related development, unless the permanent loan for the development is anticipated to have an original principal balance which is less than $1 million or is anticipated to be financed primarily on a tax-exempt basis; and (C) not more than 5% of the Trust's assets may at any time be invested in bridge loans (or interests in bridge loans) acquired pursuant to this Section 3.3(d)(v); and (e) To invest in mortgage loans, or securities or obligations backed by mortgage loans, described in paragraph (a) or paragraph (c) of this Section 3.3 that include provisions: (i) Requiring the borrower to pay, in addition to all payments of principal and base interest insured or guaranteed by the federal government, an agency thereof, or by Fannie Mae or Freddie Mac, additional interest based on net or gross cash flow and/or net or gross proceeds upon the sale, refinancing or disposition of the mortgaged real estate properties which is not guaranteed or insured, or (ii) Requiring the borrower to pay the principal balance of the mortgage loan in full prior to its scheduled maturity. In negotiating investments with participating features or rights to demand early repayment, the Trust may accept a base interest rate of up to 2 percent per annum lower than the rate which it would otherwise be willing to receive in the absence of such features; and (f) To invest in construction and/or permanent loans, or securities or obligations backed by construction and/or permanent loans which are supported, either concurrently or sequentially, by any combination of two or more of the types of credit enhancement described in paragraphs (a) through (d) of this section, as long as all of the principal component of such loans or securities or obligations backed by such loans are fully collateralized by one or more of the different types of the credit enhancement described in paragraphs (a) through (d) of this section; provided, however, that the principal portion of any investment made pursuant to this paragraph which is secured by one of the types of credit enhancement described in paragraph (d) of this section shall be subject to the 30 percent limitation set forth in paragraph (d) of this section; and 10 (g) If necessary or desirable to facilitate any investment by the Trust permitted under paragraphs (a) through (f) of this section, to deposit the purchase price for the loan, securities, interests in loans or other obligations to be acquired by the Trust in an escrow account which is structured and secured in a manner acceptable to the Trust and consistent with the provisions of the Investment Company Act of 1940, as amended, until the purchase price is disbursed, either in a lump sum or over time, to fund the Trust's purchase of such investment, provided that (i) all monies in such escrow must be invested, as fully and as continuously as practical, in instruments in which the Trust is permitted to invest under paragraph (m) of this section or (ii) all monies in such escrow must be secured or supported by one or more of the different types of credit enhancement described in paragraphs (a) through (d) of this section; and (h) To sell any asset held by the Trust; and (i) To renew or extend (or to participate in the renewal or extension of) any mortgage construction loan; and (j) To borrow from any bank, provided that immediately after such borrowing there is an asset coverage of at least 300 percent of all borrowings of the Trust and provided further that in the event that such asset coverage shall at any time fall below 300 percent the Trust shall within three days thereafter (not including Sundays and holidays) reduce the amount of its borrowings to an extent that the asset coverage of such borrowings shall be at least 300 percent; and (k) To manage, administer, operate, lease for any number of years, or sell any real estate acquired by reason of foreclosure by the Trust and to hold such property in the name of the Trust or its nominees; and (l) To take title to real estate in lieu of its foreclosure sale; and (m) To invest money held pending investment in mortgages or construction loans in any of the following instruments: (i) United States Treasury issues; (ii) Federal agency issues; (iii) Commercial bank time certificates of deposit of banks whose accounts are insured by the Federal Deposit Insurance Corporation through its Bank Insurance Fund ("BIF"); (iv) Savings bank deposits (insured by the Federal Deposit Insurance Corporation through BIF); (v) Savings and loan association deposits (insured by the Federal Deposit Insurance Corporation through its Savings Association Insurance Fund); 11 (vi) Bankers acceptances; (vii) Commercial paper rated as category A-1 or P-1 by S&P or Moody's; (viii) Collateral loans (including warehousing agreements) secured by Federal Housing Administration or Veterans Administration guaranteed single-family or multi-family mortgages; (ix) Interests (including repurchase agreements) in U.S. Government securities pledged by a bank or other borrower to secure short-term loans from the Trust; and (x) Securities issued by an investment company registered under the Investment Company Act that invests predominantly in United States Treasury issues or Federal agency issues; and (n) To employ suitable counsel; and (o) To employ banks or trust companies to act as depositories or agents; and (p) To engage in and to prosecute, compound, compromise, abandon, or adjust by arbitration or otherwise any actions, suits, proceedings, disputes, claims, or demands relating to the Trust property to pay any debts, claims, or expenses incurred in connection therewith, including those of litigation, upon any evidence that the Trustees may deem sufficient (these powers to apply whether or not the Trust is named as a party or any of the Trustees are named individually); and (q) To form corporations, partnerships, or trusts upon such terms and conditions as the Trustees deem advisable; and (r) To purchase, sell, and hold legal title to any securities or other property including Certificates of Interest in the Trust upon such terms and conditions as the Trustees deem advisable; and (s) To purchase, lease, or rent suitable offices for the transaction of the business of the Trust; and (t) To appoint, employ, or contract with any person or persons as the Trustees deem necessary or desirable for the transaction of the business of the Trust, including any person who, under the supervision of the Trustees and consistent with the Trustees' ultimate responsibility to supervise the affairs of the Trust, may, among other things: (i) Administer the day-to-day operations of the Trust; (ii) Serve as the Trust's adviser and consultant in connection with policy decisions made by the Trustees; 12 (iii) Furnish reports to the Trustees and provide research, economic, and statistical data to the Trustees; and (iv) Act as accountants, correspondents, technical advisers, attorneys, brokers, underwriters, fiduciaries, escrow agents, depositories, insurers or insurance agents, transfer agents, or registrars for Units, or in any other capacity deemed necessary or desirable by the Trustees; and (u) To purchase, maintain and pay for entirely out of Trust property insurance policies insuring any person who is or was a Trustee, officer, employee, or agent of the Trust or who is or was serving at the request of the Trust as a director, officer, employee or agent of another person individually against any claim or liability of any nature asserted against him or incurred by him in any such capacity, or arising out of his status as such, whether or not the Trust would otherwise have the power to indemnify such person against such liability; and (v) To execute and deliver as Trustees hereunder any and all deeds, leases, mortgages, conveyances, contracts, waivers, releases, and other instruments in writing necessary or proper for the accomplishment of the purposes of the Trust; and (w) To pay out of the funds of the Trust property any and all taxes or liens imposed upon or against the Trust property or any part thereof, or imposed upon any of the Trustees herein, individually or jointly, by reason of the Trust property, or of the business conducted by the Trustees under the terms of this Declaration of Trust; and (x) To issue, purchase, or sell Units in the Trust either for cash or for property whenever and in such amounts as the Trustees deem desirable, but subject to the limitations specified below; and (y) To make distributions of net income to Participants, in the manner specified below; and (z) To determine whether money or other assets received by the Trust shall be charged to income or capital or allocated between income and capital; and (aa) To determine conclusively the value of any of the Trust property and of any services, securities, assets, or other consideration hereafter acquired by the Trust, and to revalue Trust property; and (bb) To make, adopt, amend, and repeal such rules and regulations (not inconsistent with the terms of this Declaration of Trust) as the Trustees deem necessary or desirable for the management of the Trust and for the government of themselves, their officers, agents, employees, and representatives; and 13 (cc) To issue new Units of the Trust in exchange for assets of the AFL-CIO Mortgage Investment Trust ("Mortgage Trust") on the basis of relative net asset values, provided that: the Board of Trustees of the Trust (including a majority of the Trustees who are not interested persons of either the Trust or the Mortgage Trust) find that the exchange is in the best interests of the Trust and that the interests of existing Participants in the Trust will not be diluted as a result of its effecting the transactions; and provided further that the United States Securities and Exchange Commission ("SEC") issues an Order of Exemption under Section 17 of the Investment Company Act, having found that: (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned; (2) the proposed transaction is consistent with the policy of the Trust and the Mortgage Trust as recited in their registration statements and reports filed with the SEC under the Investment Company Act; and (3) the proposed transaction is consistent with the general purposes of the Investment Company Act. ARTICLE IV Operations ---------- Section 4.1. The principal office of the Trust shall be in Washington, D.C., unless changed to another location by a majority vote of the Trustees. The Trust may have such other office or places of business as the Trustees determine necessary or expedient. Section 4.2. The Chairman shall be the chairman of the Board of Trustees. The Trustees may select from among themselves an Executive Committee (chaired by the Chairman) to whom the Trustees may delegate appropriate power to carry on the business of the Trust. The Trustees may elect or appoint, from among their number or otherwise, or may authorize the Chairman to appoint, such other officers or agents to perform functions on behalf of the Trustees as the Trustees or Chairman deemed advisable. Section 4.3. The Trustees shall meet at the Chairman's request or as specified in rules and regulations of the Trustees, but in no event less than once each year. Action by the Trustees may also be taken by them in writing. A quorum for doing business shall be a majority of the Trustees entitled to vote, but never less than three. Section 4.4. The Trustees may authorize one or more of their number to sign, execute, acknowledge, and deliver any note, deed, certificate, or other instrument in the name of, and in behalf of, the Trust, and upon such authorization such signature, acknowledgment, or delivery shall have full force and effect as the act of all of the Trustees. The receipt of the Trustees, or any of them, or any of the officers or agents thereunto authorized, for money or property paid or delivered to them, or any of them, shall be an effectual discharge therefor to the person paying or delivering such money or property. Section 4.5. This Declaration of Trust may be amended or altered by a majority of the Trustees at any time. The Trust may be terminated at any time 14 by the Trustees after notice in writing to all Participants. Upon such termination, the Trust shall carry on no business except for the purpose of winding up its affairs, the Trustees shall return all powers given to them under this Declaration of Trust until the Trust shall have been wound up, and, after paying or adequately providing for the payment of all liabilities, the Trustees shall distribute the Trust property to the Participants according to their respective rights. Section 4.6. A majority of the Trustees may: (a) select or direct the organization of a corporation, association, trust, or other organization to take over the Trust property and carry on the affairs of the Trust; (b) sell, convey, and transfer the Trust property to any such organization in exchange for shares, securities, or beneficial interests therein, and the assumption by such transferee of the liabilities of the Trust; and (c) thereupon terminate the Trust and deliver such shares, securities, or beneficial interest proportionately among the Participants in redemption of their Units. Section 4.7. No Trustee shall be liable for having acted in good faith in any transaction connected with the Trust or the administration of the Trust. The Trustees shall be held harmless in acting upon any instrument, certificate, or paper that they believe to be genuine and to be signed or presented by the proper person or persons. The Trustees shall have no duty to make any investigation or inquiry concerning any statement contained in any such writing. No recourse shall be had at any time upon any note, bond, contract, instrument, certificate, undertaking, obligation, covenant, or agreement (whether oral or written) made, issued, or executed by the Trustees in pursuance of the terms of this Declaration of Trust, or by any officer or agent of the Trustees, against the Trustees or such officer or agent individually by legal or equitable proceeding, except only to compel the proper application or distribution of the Trust property, provided that no Trustee shall be excused from liability for willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office ("disabling conduct"). The Trustees shall not be liable for the proper application of any part of the Trust property, provided that distribution are made in accordance with directions provided in this Declaration of Trust. Nothing contained in this Declaration of Trust shall be construed as giving power to the Trustees to contract any debt or to do anything that will bind any Participant personally. Any person, firm, corporation, or association dealing with the Trustees shall be limited to satisfying any obligation, liability, or covenant with the Trustees only out of the Trust property, and not out of the personal property of any Participant. Section 4.8. The Trust shall indemnify each Trustee and officer and each former Trustee and officer of the Trust against fines, judgments, amounts paid in settlement and expenses, including attorneys' 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 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 nor parties to such matter ("disinterested non-party Trustees") or (b) an independent legal 15 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 indemnitee 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. This Section is intended to provide indemnification to Trustees and officers to the full extent permitted by law and shall be construed and enforced to that extent. Section 4.9. The Trustees and any employee or agent of the Trustees (except a bank or trust company) who handles funds or other property of the Trust shall be bonded for the faithful discharge of his or her duties in such amount and as otherwise required by applicable law. The expenses of such bond shall be paid by the Trust. Section 4.10. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trustees, or be liable for the application of money or property paid, loaned, or delivered. Every note, bond, contract, instrument, certificate, or undertaking, and every other act or thing executed or done by any Trustee in connection with the Trust, shall be conclusively taken to have been executed or done only in his or her capacity as Trustee, and such Trustee shall not be personally liable thereon. Every such note, bond, contract, certificate or undertaking made or issued by the Trustees shall recite that it is executed or made by them not individually, but as Trustees, and that the obligations of any such instrument are not binding upon any of the Trustees individually, but bind only the Trust property, and may contain any further recital that they may deem appropriate, but the omission of such recital shall not operate to bind the Trustees individually. Section 4.11. The Trustees shall be reimbursed from the Trust property for their expenses and disbursements, including expenses for clerks, transfer agents, office hire, and counsel fees, and for all losses and liabilities by them incurred in administering the Trust and for the payment of such expenses, disbursements, losses, and liabilities, the Trustees shall have a lien on the Trust property prior to any rights or interests of the Participants. Section 4.12. This Declaration of Trust shall be construed, regulated, and administered under the laws of the District of Columbia and in the courts of the District of Columbia. ARTICLE V Units and Distributions ----------------------- Section 5.1. The beneficial interests of the Trust shall be divided into equal portions ("Units"). In lieu of issuing certificates to evidence ownership of such Units, the Trustees may establish a book-entry system whereby Units may be issued and redeemed by bookkeeping entry and without physical delivery of the securities. The number of Units shall be fixed from time to time by the Trustees and such number may be increased or reduced by 16 them. Nothing herein shall be deemed a limitation on the rights of the Trustees to issue additional Units ranking with the same rights and privileges as existing Units. The Trustees shall have the right to sell or exchange such additional Units without offering the same to the holders of the then-outstanding Units. Section 5.2. Only Labor Organizations and Eligible Pension Plans as defined in this section shall be eligible to own Units of the Trust or to hold Units in the Trust. 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 grievances, labor disputes, wages, rates of pay, hours or other 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 Section 401(a) of the Internal Revenue Code or any successor statute thereto which 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. Units will not be transferable or assignable. No holder of a Unit will have the authority to pledge its Unit as collateral for any loan. Section 5.3. The Trust shall be administered and invested as a unit and shall be valued at fair values as determined by the Trustees as of the close of business at the end of each calendar month (hereinafter "Valuation Dates"). On the basis of the valuation made on the Valuation Date, the beneficial interest of each Participant shall be adjusted to reflect the effect of income (collected or accrued), realized and unrealized gains and losses, expenses, and all other transactions since the last preceding Valuation Date. Such valuations and adjustments shall be made so as to preserve for each Participant its beneficial interest in the Trust. Section 5.4. The Trustees shall as of each Valuation Date declare dividends of net income earned during each month. Such distributions will be payable after the end of each calendar quarter and will be made in cash, except that on written request of a Participant, distribution can be made in Units of the Trust valued as of the distribution date provided that such automatic reinvestment of income distribution does not subject the Trust to adverse consequences in the opinion of legal counsel for the Trust. Section 5.5. Notwithstanding anything to the contrary contained in this Declaration of Trust or in any amendment thereto, no part of the Trust that equitably belongs to any Participant (other than such part as is required to pay the expenses of the Trust) shall be used for any purpose other than the exclusive benefit of the Participant. Section 5.6. The Trustees shall render from time to time an accounting of the Trust's transactions. A copy of such accounting will be made available to each Participant. No person other than a Participant may require an accounting or bring any action against the Trustees with respect to the Trust or because of any Trustee's actions on behalf of the Trust. Section 5.7. In case of the loss or destruction of any certificate, the Trustees may, under such terms as they deem expedient, issue a new certificate in place of the one so lost. 17 ARTICLE VI Admissions to and Withdrawals from Trust ---------------------------------------- Section 6.1. No admission to or withdrawal from the Trust shall be permitted except in Units. Units shall be issued and redeemed only as of a Valuation Date and may be issued and redeemed in fractions of a Unit. A request for issuance of Units must be received by the Trust before the Valuation Date as of which they are to be issued. A request for redemption of Units must be received by the Trust at least 15 days before the Valuation Date as of which they are to be redeemed. No issue of Units will be made to any new Participant having a value of less than Fifty Thousand Dollars ($50,000). Any request for redemption of Units made between Valuation Dates will be considered as having been made 15 days before the next ensuing Valuation Date and will be honored only as of such date. Section 6.2. Payment in satisfaction of a duly tendered request for redemption shall be made as soon as practicable and in any event within seven days after the net asset value of the Trust is ascertained for the Valuation Date as of which redemption is effected. Section 6.3. Upon the agreement of the redeeming Participant, the Trust may give securities and/or mortgages or other Trust assets in partial or full satisfaction of a duly tendered request for redemption. Such securities and/or mortgages will be treated for redemption purposes as being the cash equivalent of their value of the Valuation Date before the date on which redemption was requested. EX-99.BBYLAWS 3 bylaws.txt RULES AND REGULATIONS AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST RULES AND REGULATIONS --------------------- (as amended and restated through March 15, 1990) These Rules and Regulations (hereinafter "Rules") are made and adopted pursuant to Section 3.3(aa) of the Restated Declaration of Trust establishing the AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST (the "Trust"). ARTICLE I --------- Definitions ----------- Section 1.1. Definitions. The following words and terms capitalized ------------ in these Rules shall have the following meaning or meanings: (a) "Declaration" shall mean the Restated Declaration of Trust ----------- dated as of February 1, 1982, as amended from time to time. (b) "Certificates of Participation" shall mean the documents ----------------------------- issued by the Trust to evidence Units of Beneficial Interest owned by Participants. (c) "Trustees" shall mean the signatories to the Declaration so -------- long as they shall continue in office in accordance with the terms hereof, and all other persons who at the time in question have been duly elected or appointed and have qualified as trustees and are then in office. The terms "Union Trustee", "Management Trustee" and "Chairman" shall have the meanings set forth in Section 2.3 of the Declaration. (d) "Units" shall mean the portions of beneficial interest in ----- the Trust owned by Participants and evidenced by Certificates of Participation. ARTICLE II ---------- Participants Meetings --------------------- Section 2.1. Annual Meetings. Annual Meetings of the Participants ---------------- shall be held, commencing not later than one year after the effective date of the first public offering of Units at such place within or without the District of Columbia on such day and at such time as the Trustees shall designate. The holders of a majority or outstanding Units present in person of by proxy shall constitute a quorum at any annual or special meeting. Section 2.2. Special Meeting. Special Meetings of the Participants --------------- may be called at any time by a majority of the Trustees and shall be called by any Trustee upon written request of Participants holding in the aggregate not less than 10% of the outstanding Units, such request specifying the purpose or purposes for which such meeting is to be called. Any such meeting shall be held within or without the District of Columbia on such day and at such time as the Trustees shall designate. Section 2.3. Notice of Meetings. Notice of all meetings of the ------------------- Participants, stating the time, place and purposes of the meeting, shall be given by the Trustees by mail to each Participant at its registered address, mailed at least 10 days and not more than 60 days before the meeting. Only the business stated in the notice of the meeting shall be considered at such meeting. Any adjourned meeting may be held as adjourned without further notice. Section 2.4. Record Date for Meetings. The Participants who are ------------------------ entitled to notice of and to vote at any meeting, or to participate in any distribution, or to be treated as Participants for the purpose of any other action are those registered as Participants on the books of the Trust on the date that notice of such meeting is mailed or delivered to Participants or on the day immediately following the Valuation Date immediately preceding such meeting, distribution or transaction, whichever date is earlier. Section 2.5. Action Without a Meeting. Any action required or ------------------------- permitted to be taken at an Annual Meeting or Special Meeting of Participants may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by each of the Participants at the time of the meeting. Consents may be on separate counterparts. A certificate of the Financial Manager as to the receipt of such consents, and the genuineness of the signatures thereto, and the effective date of the action shall be filed with the minutes of Participants meetings. Section 2.6. Proxies, etc. At any meeting of Participants, any ------------- Participant entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Financial Manager, or with such other officer or agent of the Trust as the Financial Manager may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. Only Participants of record shall be entitled to vote. Each Unit shall be entitled to one vote. A proxy purporting to be executed by or on behalf of a Participant shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. Section 2.7. Chairman. The Chairman shall act as chairman at all -------- meetings of the Participants. In his absence, the Trustee or Trustees present at each meeting may elect a temporary chairman for the meeting, who may be one of themselves. Section 2.8. Inspectors of Election. In advance of any meeting of ------------------------ Participants, the Trustees may appoint Inspectors of Election to act at the meeting or any adjournment thereof. If Inspectors of Election are not so appointed, the chairman, if any, of the meeting of Participants may, and on the request of any Participant or his proxy shall, appoint Inspectors of Election of the meeting. The number of Inspectors shall be either one or three. If appointed at the meeting on the request of one or more Participants or proxies, a majority of Units present shall determine whether one or three Inspectors are to be appointed, but failure to allow such determination by the Participants shall not affect the validity of the appointment of Inspectors of Election. In case any person appointed as Inspector fails to appear or fails or refuses to act, the vacancy may be filed by appointment made by the Trustees in advance of the convening of the meeting or at the meeting by the person acting as chairman. The Inspectors of Election shall determine the number of Units outstanding, the Units represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, shall receive votes, ballots or consents, shall hear and determine all challenges and questions in any way arising in connection with the right to vote, shall count and tabulate all votes or consents, determine the results, and do such other acts as may be proper to conduct the election or vote with fairness to all Participants. If there are three Inspectors of Election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. On request of the chairman, if any, of the meeting, or of any Participant or his proxy, the Inspectors of Election shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any facts found them. Section 2.9. Records at Participant Meetings. At each meeting of the -------------------------------- Participants there shall be open for inspection the minutes of the last previous Annual or Special Meeting of Participants and a list of the Participants, certified to be true and correct by the Financial Manager or other proper agent of the Trust, entitled to notice of and to vote at the meeting. Such list of Participants shall contain the name of each Participant in alphabetical order, the address of each such Participant and the number of Units owned by such Participant. ARTICLE III ----------- Trustees -------- Section 3.1. Annual and Regular Meetings. The Trustees shall hold an ---------------------------- annual meeting for the transaction of such business as may come before such meeting as soon as practicable after the Annual Meeting of Participants if the Chairman deems it advisable. Regular meetings of the Trustees may be held without call or notice at such place or places and times as the Trustees may be resolution provide from time to time. Section 3.2 Special Meetings. Special meetings of the Trustees shall ----------------- be held upon the call of the Chairman, or any two Trustees, at such time, on such day, and at such place, as shall be designated in the notice of the meeting. Section 3.3 Notice. Notice of a meeting shall be given by mail or by ------- telegram (which term shall include a cablegram) or delivered personally. If notice is given by mail, it shall be mailed not later than 48 hours preceding the meeting and if given by telegram or personally, such telegram shall be sent or delivery made not later than 48 hours preceding the meeting. Notice by telephone shall constitute personal delivery for these purposes. Notice of a meeting of Trustees may be waived before or after any meeting by signed written waiver. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Trustees need be stated in the notice or waiver of notice of such meeting, and no notice need be given of action proposed to be taken by unanimous written consent. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Section 3.4. Chairman; Records. The Chairman, if any, shall act as ----------------- chairman at all meetings of the Trustees; in the absence of the Chairman, the Trustees present shall elect one of their number to act as temporary chairman. The results of all actions taken at a meeting of the Trustees, or by unanimous written consent of the Trustees, shall be recorded by the Financial Manager. Section 3.5. Quorum and Voting. A majority of the Trustees in office ------------------ at any given time shall constitute a quorum for a meeting of Trustees at that time. The Trustees shall act by majority vote. The Chairman shall vote only to break a tie vote by the other Trustees present at any given meeting. Section 3.6. Action Without Meeting. Any action required or ----------------------- permitted to be taken at any meeting of the Trustees may be taken without a meeting of the Trustees if a consent in writing, setting forth such action, is signed by each Trustee entitled to vote on such action. Consents may be on separate counterparts. A certificate of the Chairman or the Financial Manager as to the receipt of such consents, the genuineness of the signatures thereto, and the effective date of the action shall be filed with the minutes of the proceedings of the Trustees. Section 3.7. Presence by Conference Call. A Trustee may participate ---------------------------- in a meeting of Trustees by means of a conference telephone call or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at the meeting. ARTICLE IV ---------- Executive Committee ------------------- Section 4.1. Composition of Executive Committee. The Board of ----------------------------------- Trustees by resolution adopted by a majority of the whole Board, may designate from among its members an Executive Committee, which shall consist of two or more members of the Board appointed by the Board. The designation of such Committee and the delegation thereto of authority shall not operate to receive the Board of Trustees or any member thereof, of any responsibility imposed by law. The members of the Executive Committee shall hold office for terms specified by the Board or, if no terms are specified, until their successors are appointed. Section 4.2 Authority of the Executive Committee. The Executive ------------------------------------- Committee, when the Board of Trustees is not in session, shall have and may exercise all of the authority of the Board of Trustees except to the extent that such authority is limited by law or the resolution designating the Committee. Section 4.3. Meetings of the Executive Committee. Meetings of the ------------------------------------ Executive Committee may be held without notice at such times and places as the Committee may fix from time to time by resolution. Minutes of the proceedings of the Executive Committee shall be kept and signed by the Financial Manager and shall be reported to the Board of Trustees for its information at the next meeting thereof. Section 4.4 Quorum. Two of the three members of the Executive ------ Committee in office at any given time shall constitute a quorum for a meeting of the Executive Committee at that time, provided that action at or as a result of such a meeting that is important in the opinion of any member of the Executive Committee shall be taken only with the approval of all members of the Executive Committee in office at that time. Section 4.5 Chairman and Vice Chairman. There shall be a Chairman --------------------------- and a Vice Chairman of the Executive Committee elected by the members of that Committee to serve until a successor is elected. The Chairman of the Executive Committee shall preside at meetings of the Executive Committee, and the Vice Chairman shall preside in the absence of the Chairman. Section 4.6 Action Without a Meeting. Any action required or ------------------------- permitted to be taken by the Executive Committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by each of the members of the Executive Committee. Consents may be on separate counterparts. A certificate of the Financial Manager as to the receipt of such consents, and the genuineness of the signatures thereto, and the effective date of the action shall be filed with the minutes of the Executive Committee. Section 4.7 Presence by Conference Call. A member of the Executive ---------------------------- Committee may participate in a meeting of the Executive Committee by means of a conference telephone call or similar communications equipment by means of which all persons participating in a meeting can hear each other at the same time, and participation by such means shall constitute presence in person at the meeting. ARTICLE V --------- Officers -------- Section 5.1 Officers of the Trust. The officers of the Trust shall ---------------------- consist of a Chairman, a Chief Executive Officer, a Financial Manager, a Director of Investor Relations and such other officers or assistant officers, as may be elected by the Trustees. The Chairman shall be a Trustee, but no other officer of the Trust need be a Trustee. Section 5.2 Election and Tenure. At the initial organization meeting -------------------- and thereafter at each annual meeting of the Trustees, the Trustees shall elect the Chief Executive Officer, Financial Manager, Director of Investor Relations and such other officers as the Trustees shall deem necessary or appropriate in order to carry out the business of the Trust. Such officers shall hold office until the next annual meeting of the Trustees or until their successors have been duly elected and qualified. The Trustees may fill any vacancy in office or add any additional officers at any time. Section 5.3 Removal of Officers. Any officer may be removed at any -------------------- time, with or without cause, by action of a majority of the Trustees. This provision shall not prevent the making of a contract of employment for a definite term with any officer and shall have no effect upon any cause of action which any officer may have as a result of removal in breach of a contract of employment. Any officer may resign at any time by notice in writing signed by such officer and delivered or mailed to the Chairman or Chief Executive Officer and such resignation shall take effect immediately upon receipt by the Chairman or Chief Executive Officer or at a later date according to the terms of such notice in writing. Section 5.4 Bonds and Surety. Any officer may be required by the ----------------- Trustees to be bonded by the faithful performance of his duties in such amount and with such sureties as the Trustees may determine. Section 5.5 Chairman. The Chairman shall, if present, preside at all --------- meetings of the Participants and of the Trustees and shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Trustees. Section 5.6. Chief Executive Officer. Subject to such supervisory ----------------------- power, if any, as may be given by the Trustees to the Chairman, the Chief Executive Officer shall be the Chief Executive Officer of the Trust and, subject to the control of the Trustees, shall have general supervision, directional control of the business of the Trust and of its employees. Subject to direction of the Trustees, the Chairman and the Chief Executive Officer shall have power in the name and on behalf of the Trust to execute any and all loan documents, contracts, agreement, deeds, mortgages, and other instruments in writing, and to employ and discharge employees and agents of the Trust. Unless otherwise directed by the Trustees, the Chief Executive Officer shall have full authority and power on behalf of all of the Trustees, to attend and to act and to vote, on behalf of the Trust at any meetings of business organizations in which the Trust holds an interest, or to confer such powers upon any other persons, by executing any proxies duly authorizing such persons. The Chief Executive Officer shall keep the minutes of all meetings of, and record all votes of, Participants, Trustees and the Executive Committee, if any. He shall be custodian of the seal of the Trust, if any, and he (and any other person so authorized by the Trustees) may affix the seal or, if permitted a facsimile thereof, to any instrument executed by the Trust and may attest the seal and the signature or signatures of the officer or officers executing such instrument on behalf of the Trust. The Chief Executive Officer shall further have the general supervision of the monies, funds, securities, notes receivable and other valuable papers and document of the Trust. He may endorse for deposit or collection all notes, checks and other instruments payable to the Trust or to its order. He may deposit all funds of the Trust in such depositories as the Trustees shall designate. He shall be responsible for such disbursement of the funds of the Trust as may be ordered by the Trustees. He shall assure accurate account of the books of the Trust's transactions which shall be the property of the Trust, and which together with all other property of the Trust in his possession, shall be subject at all times to the inspection and control of the Trustees. He shall have such other duties and authorities as the Trustees shall from time to time determine. Section 5.7. Financial Manager. The Financial Manager shall have the ------------------ day-to-day supervision of the monies, funds, securities, notes receivable and other valuable papers and documents of the Trust. He may endorse for deposit or collection all notes, checks and other instruments payable to the Trust or to its order. He shall deposit all funds of the Trust in such depositories as the Trustees shall designate. He shall be responsible for such disbursement of the funds of the Trust as may be ordered by the Trustees. He shall keep accurate account of the books of the Trust's transactions which shall be the property of the Trust, and which together with all other property of the Trust in his possession, shall be subject at all times to the inspection and control of the Trustees. Unless the Trustees shall otherwise determine, the Financial Manager shall be the principal accounting officer of the Trust and shall also be the principal financial officer of the Trust. The Financial Manger shall be Acting Chief Executive Officer at any time when no Chief Executive Officer has been designated by the Trust or having been designated has for any reason ceased to act as Chief Executive Officer. He shall have such other duties and authorities as the Trustees shall from time to time determine. Section 5.8 Director of Investor Relations. The Director of Investor ------------------------------- Relations shall have the responsibility for fostering good will for the Trust with Participants and with Eligible Pension Plans and Labor Organizations. He shall be responsible for making offers and sales of Units to eligible investors, through presentations and speeches and otherwise. The Director of Investor Relations shall also be the liaison between the Trust and unions affiliated with the AFL-CIO in connection with projects in which the Trust participates or may participate. He shall have such other duties and authorities as the Trustees shall from time to time determine. Section 5.9 Other Officers and Duties. The Trustees may elect such -------------------------- other officers and assistant officers as they shall from time to time determine to be necessary or desirable in order to conduct the business of the Trust. Assistant officers shall act generally in the absence of the officer whom they assist and shall assist that officer in the duties of his office. Each officer, employee and agent of the Trust shall have such other duties and authority as any be conferred upon him by the Trustees or delegated to him by the Chief Executive Officer. ARTICLE VI ---------- Miscellaneous ------------- Section 6.1. Depositories. The funds of the Trust shall be deposited ------------- in such depositories as the Trustees shall designate and shall be drawn out on checks, drafts or other orders signed by such officer, officers, agent or agents, as the Trustees may from time to time authorize. Section 6.2 Signatures. All contracts and other instruments shall be ----------- executed on behalf of the Trust by such officer, officers, agent or agents, as provided in these Rules or as the Trustee may from time to time by resolution provide. Section 6.3 Seal. The seal of the Trust, if any, may be affixed to ----- any document, and the seal and its attestation may be lithographed, engraved or otherwise printed on any document with the same force and effect as if it has been imprinted and attested manually. ARTICLE VII ----------- Amendment of Rules ------------------ Section 7.1. Amendment and Repeal of Rules. In accordance with Section 3.3(aa) of the Declaration, the Trustees shall have the power to alter, amend or repeal the Rules or adopt new Rules at any time. Action by the Trustees with respect to the Rules shall be taken by an affirmative vote of a majority of the Trustees present at a meeting of Trustees. The Trustees shall in no event adopt Rules which are in conflict with the Declaration, and any apparent inconsistency shall be construed in favor of the related provisions in the Declaration. EX-99.8O&DBENEFTS 4 retire.txt A SUMMARY OF YOUR BENEFITS UNDER THE AFL-CIO STAFF RETIREMENT PLAN November, 1999 Dear Participant: We are pleased to provide you with this booklet, which summarizes the AFL-CIO Staff Retirement Plan as amended through July 1, 1999. It describes the main features of your plan. This plan has been amended and improved from time to time. This booklet includes changes negotiated through recent collective bargaining agreements as well as a number of changes made by the Trustees to comply with new IRS rules and regulations. This booklet gives answers to the questions most frequently asked by participants and beneficiaries about the provisions of the retirement plan. We suggest that you read this booklet carefully to become familiar with your rights under the plan. Share it with your spouse. The Controller's Office of the AFL-CIO will be happy to answer any questions you may have about your retirement plan. This booklet is not a substitute for the official plan document. If there are differences between the information contained in this summary and the provisions of the plan document, then the provisions of the plan document will control. You may request a copy of the AFL-CIO STAFF RETIREMENT PLAN AND TRUST AGREEMENT from the Controller's Office. Sincerely, Board of Trustees AFL-CIO Staff Retirement Plan Board of Trustees: John Sweeney Charles Adkins Chairman 815 16th Street, NW 815 16th Street, NW Washington, DC 20006 Washington, DC 20006 (202) 637-5000 (202) 637-5000 Richard Trumka Verlow Haddon Secretary-Treasurer 110 W 13thStreet 815 16th Street, NW Helena, MT 59601 Washington, DC 20006 (406) 442-1708 (202) 637-5000 Linda Chavez-Thompson Bonnie Oakes 815 16th Street, NW 815 16th Street, NW Washington, DC 20006 Washington, DC 20006 (202) 637-5000 (202) 637-5000 For Information contact: Administrative Manager AFL-CIO Staff Retirement Plan 815 16th Street, NW Washington, DC 20006 (202) 637-5253 Auditor Thomas Havey, LLP Consultant and Actuary The Segal Company AFL-CIO Staff Retirement Plan List of Participating Employers as of Date of Entry (if after Plan November, 1999 Establishment in 1964) * AFL-CIO Plan Establishment * AFL-CIO Employees Federal Credit Union Plan Establishment * Building and Construction Trades Plan Establishment Department * Building Investment Trust (BIT Corp.) July 1, 1998 * Center to Protect Workers' Rights July 1, 1992 * Central Indiana Labor Council July 1, 1993 * Connecticut State AFL-CIO July 1, 1989 * Food and Allied Service Trades Plan Establishment Department * George Meany Center for Labor Studies Plan Establishment * Hawaii State AFL-CIO July 1, 1993 * Housing Investment Trust July 1, 1990 * International Labor Communications Plan Establishment Association * Lawyers Coordinating Committee July 1, 1990 * Maritime Trades Department Plan Establishment * Missouri State AFL-CIO Plan Establishment * National Air Traffic Controllers July 1, 1998 Association * Pennsylvania State AFL-CIO July 1, 1997 * Professional Employees Department Plan Establishment * Transportation Trades Department, AFL- July 1, 1991 CIO * Union Label and Service Trades Plan Establishment Department * Union Privilege Benefit Programs July 1, 1990 * Working for America Institute July 1, 1996 (previously Human Resources Development Institute) * Wyoming State AFL-CIO July 1, 1990 Plan participants include former employees of the following organizations: * Industrial Union Department * Labor Institute of Public Affairs * Public Employees Department Table of Contents Highlights of Your Retirement Plan 1 Examples of Annual Pension Amounts 3 Participation and Service 4 Joining the Plan 4 How Your Service Counts 5 Service After Your Employer Jointed the Plan 5 Service Before Your Employer Joined the Plan 8 Pension Benefits At Retirement 9 Final Average Salary 9 Normal Retirement Pension 10 Rule of 80 Pension (or 55-80 Pension) Requirements 12 Early Retirement Pension 13 Rule of 80 Early Retirement Pension (or 50-80 Pension) 14 Benefit Options At Retirement 16 A Comparison of Options at Retirement 19 Benefits For Your Survivors If You Die Before Retirement 21 Benefits If You Are Disabled 24 Benefits If You Leave Employment Before You Retire 26 Withdrawal Benefit 26 Deferred Vested Pension 27 Plan Features Affected by Termination 28 Other Benefit Features 29 Pension Supplement for Medicare 29 Working After Retirement 29 Individual Accounts for Employees Before 1966 30 Part Time Employment 31 Applying For Benefits 33 Application Process 33 Mandatory Commencement at Age 70-1/2 34 Benefit Adjustments for Delayed Retirement 34 Benefit Limitations 35 Right to Appeal 35 General Plan and Employer Information 37 In Case of Plan Termination 41 Employee Rights Under ERISA 42 - - - ---------------------------------- HIGHLIGHTS OF YOUR RETIREMENT PLAN Type of Plan This is a "defined benefit pension plan." That means you earn a monthly pension to be paid at retirement for your lifetime. There is no account balance to be paid to you at retirement. The higher your salary and the more years of service you have at retirement, the higher your pension amount will be. Participating Employers In addition to the AFL-CIO, certain of its Departments, Institutes, State Federations, Central Labor Councils and affiliated International Unions (listed on page 38) participate in this Plan. Service in the plan with any of these employers usually counts toward your pension. Trust Protection The assets that finance the pensions are held in a Trust Fund. They are invested by Trustees separate and apart from the assets of any employer. The annual contribution rates for employers are set by the Trustees, based on actuarial advice and government standards, to properly finance the benefits that are promised. Plan Funding Current benefits are financed completely by the employers. Prior to 1966, employee contributions were required. Benefits financed by employee contributions have special guarantees under the plan (see page 30). Service There are three types of service earned under the Plan: Vesting, Eligibility and Benefit Service. Vesting service provides you the right to a benefit. Eligibility service determines when you meet the requirements to retire. Benefit Service determines the amount of your benefit. All three types of service are described in detail on page 5. 1 Vesting You become vested after 3 years of Vesting Service. Once you become vested in your pension benefit, your benefit is guaranteed, even if you leave employment. If you leave with 3 years of Vesting Service, but less than 10 years of Benefit Service, you may elect to be paid your accumulated pension value following termination of employment (see page 26). Otherwise, you may start your pension when you reach retirement age. The Pension Package This pension is in addition to Social Security and any other pension plan sponsored by your employer. Your monthly pension will also be increased by the monthly premium charged to you and your spouse for Medicare Part B protection, provided you retired directly from active employment (see page 29). Retirement Age An unreduced benefit is available at age 65 after 3 years of Vesting Service or thereafter. If you retire directly from active employment, an unreduced benefit is available on or after age 55, if your age plus years of Eligibility Service add up to 80 or more (see page 12). A benefit reduced for early retirement is available at age 60 after 10 years of Eligibility Service. If you retire directly from active employment, a benefit reduced for early retirement is available on or after age 50 if your age plus Eligibility Service add up to 80 or more (see page 14). If you leave employment after your age plus years of Eligibility Service add up to 80 or more, an unreduced pension is available on or after age 55. Disability If you become permanently disabled while employed at any age after 3 years of Vesting Service, an unreduced benefit is available. Your benefit may be increased in some cases if you do not qualify for a Social Security Disability Pension (see page 24). 2 Retirement Options Pensions may be paid for your lifetime alone, the lifetimes of you and your spouse, or otherwise designed to provide for a beneficiary (see page 16). Death Before Retirement Once you have 3 years of Vesting Service, a surviving spouse pension will be paid should you die before retirement. After 10 years of Benefit Service, or at age 50, you may increase this spouse protection (or protect dependent children) by electing Optional Survivor Protection. This higher coverage is paid for by a small reduction in your pension amount (see page 21). Pension Amounts The pension formula is based on your Benefit Service and your highest consecutive 3-year average salary (see below). Service is generally earned for any month in which you receive compensation from a participating employer (see page 5). - - - ---------------------------------- Examples of Annual Pension Amounts (Examples do not show reductions for Early Retirement, Options at Retirement, or Optional Survivor Protection.) - - - ----------------------------------------------------------------------------- If Your The Plan Provides At These Final 3-Year Average Salary Years of This Percent of Levels, Your Annual Pension Would Be: Benefit Service Your Final Are: Average Salary: $35,000 $50,000 $65,000 - - - ----------------------------------------------------------------------------- 5 15.0% $5,250 $7,500 $9,750 10 30.0% 10,500 15,000 19,500 15 45.0% 15,750 22,500 29,250 20 60.0% 21,000 30,000 39,000 25 75.0% 26,250 37,500 48,750 30 77.5% 27,125 38,750 50,375 35 80.0% 28,000 40,000 52,000 40 82.5% 28,875 41.250 53,625 - - - ----------------------------------------------------------------------------- The balance of this booklet explains each of the basic provisions highlighted here in greater detail.
3 - - - ------------------------- PARTICIPATION AND SERVICE - - - ---------------- Joining the Plan General Rule If you are a full time employee, you become a participant from your date of hire, or from the date your employer joined this plan, if later. "Full time" means you are scheduled to work at least 1,000 hours in the next consecutive 12 months. Part-Time Employees If you are a "part-time" employee meaning your are scheduled to work less than 25 hours per week and you actually do work 1,000 hours in a 12-month period (counted from your date of hire ) you become a participant retroactive to the beginning of that 12-month period. Exceptions to the Rule The following persons are not eligible to participate in this plan: * Employees excluded by a collective bargaining agreement with their employer and in the employer's participation agreement with this plan; * Employees who are elected officers of an employer or who are not residents of the United States, if excluded in the employer's participation agreement with this plan; and * The Chief Executive Officer of the Housing Investment Trust. Your employer or the Plan Administrator will be able to tell you if any of these exceptions apply to your or to answer any questions about participation. 4 - - - ----------------------- HOW YOUR SERVICE COUNTS Once you become a participant, your employment covered by the plan counts in three important ways: for vesting, eligibility, and benefits. * Vesting Service provides you the right to a benefit at normal retirement age, generally at age 65. You are guaranteed the right to a pension at normal retirement age after you have earned 36 months (3 years) of Vesting Service. This right continues, even if you terminate your employment with a participating employer after that point. Once you have three years of Vesting Service, you also gain coverage for disability benefits should you become disabled while employed, surviving spouse benefits should you die, and withdrawal benefits should you terminate employment. * Eligibility Service determines whether you meet the requirements to retire before normal retirement age. * Benefit Service is used to determine the amount of your benefit in the benefit formula. It is the period considered for the calculation of your highest three years of Final Average Salary. Once you have ten years of Benefit Service, you no longer can apply for withdrawal benefits should you terminate employment. - - - ------------------------------------------- Service After Your Employer Joined the Plan For most participants, your employer was in this plan when you were hired. The dates of entry are shown on the employer listing at the front of this booklet. Service rules after your employer joined the plan are the same for the three types of service. The General Rule is that you earn one month of Vesting Service, Eligibility Service and Benefit Service for any month in which you receive compensation from a participating employer for the performance of duties. 5 There are a few exceptions to the General Rule: * If, while working for the same employer, you move from a category of employment covered by this plan to a category of employment excluded from this plan (or vice versa), you may still earn Vesting Service for the employment that was excluded, but not Eligibility Service or Benefit Service. * If you have a break in employment, you may receive Vesting Service for some or all of your entire break in certain circumstances, but not Eligibility Service or Benefit Service. Breaks in Service If you leave employment with a participating employer before you are vested, but return to the same or another participating employer before a 5-year break in service has occurred, your Vesting Service, Eligibility Service and Benefit Service rendered before and after the break will be added together. In addition, if you return within 12 months from your termination, Vesting Service will be continuous (as if you had no break). If you leave before you are vested and have a break in service of 5 or more years, all of your Vesting Service, Eligibility Service and Benefit Service are lost. Should you later become employed by a participating employer, your Vesting Service will be restored, however, you will start earning Eligibility Service and Benefit Service from the date of your re- employment. Special circumstances may prevent your from having a break in service. For instance, there are special rules for the following situations: * Paternity or maternity absences; * Other leaves of absence; and * Military Service. You should bring any of these circumstances to the attention of the Plan Administrator. 6 Leaves of Absence You will receive Vesting Service, Eligibility Service and Benefit Service while on an approved leave of absence for which you are receiving compensation. If the leave is unpaid, the following rules apply: * You will receive Vesting Service, Eligibility Service and Benefit Service for up to 12 months from the date you last received compensation. * If the leave is for maternity or paternity reasons, the second 12- month period from the date you last received compensation cannot cause a Break in Service, even though no service is earned. * If you return to work within 12 months of the end of a paid leave of absence, or 12 months from the end of an unpaid leave period as described above, you will receive Vesting Service for those months. Military Service Military service may be counted as Vesting Service, Eligibility Service, and Benefit Service if you left employment covered by this plan to enter the Armed Forces of the United States, and applied for reemployment with the same employer soon after the military service ended. You must tell the Plan Administrator about your military service for it to be considered. 7 - - - -------------------------------------------- Service Before Your Employer Joined the Plan Service with an employer before your employer joined this plan is counted only if: * The prior service was continuous (if there was a 5-year gap in employment, service before the gap may not count); * You were employed by the employer when the employer joined this plan; and * When entering the plan, your employer provided that this service was to be covered by the plan. Employers have made different service arrangements when entering the plan, including in some cases only granting prior service after several years of employer participation in the plan. There may be no service awarded prior to entering the plan, or one or more of the three types of service may be awarded for some period of prior employment. The employer listing at the front of this booklet indicates employers that have joined the Plan since its establishment. Your employer or the Plan Administrator can answer any questions about your service. 8 - - - ------------------------------ PENSION BENEFITS AT RETIREMENT Pension benefits are calculated using: * Your Benefit Service (as explained in the previous Section), and * Your Final Average Salary. In addition, your age when you retire usually determines whether there will be a reduction in your pension amount for early retirement because the plan will be expected to provide benefits for a longer period of time. - - - -------------------- Final Average Salary Defined Final Average Salary means the average annual salary you were paid during your highest consecutive 36 months (3 years) of service with any participating employer. ("Consecutive" means consecutive only in terms of how compensation has been reported to the plan. For example, an unpaid leave of absence or any gaps when changing from one participating employer to another generally would be ignored.) Salary Defined Salary includes your base pay, plus salary deferrals, if any, to your employer's Deferred Compensation (401(k)) Plan or Section 125 Plan (dependent care or medical expense plans). Salary does not include overtime, allowances, bonuses, or special lump sum payments. The IRS also imposes an annual maximum on salary that can be counted by the plan, which is adjusted each year. This annual limit is $160,000 for 1999 and has been increased to $170,000 for 2000. If you would like updated information on this limit, please call the Plan Administrator. Changing from a full-time to part-time status on a permanent basis may affect how your Final Average Salary is determined (see page 31). 9 - - - ------------------------- Normal Retirement Pension Requirements You are eligible for a Normal Retirement Pension if you apply and meet the following requirements: * You are at least age 65, and * You have at least 3 years of Vesting Service Credit Normal Retirement Formula If you are retiring directly from active employment, the pension formula is: 3.0% times your years of Benefit Service up to 25, plus 0.5% times your years of Benefit Service over 25, times your Final Average Salary. Benefit service is calculated by the month, and the result of the pension calculation is divided by 12 to provide your monthly benefit. Example 1 Age = 65 Benefit Service = 20 years, 3 months (20.25 years) Final Average Salary = $37,500 Normal Retirement Calculation: 3.00% x 20.25 years = 60.75% 60.75% x $37,5000 = $22,781 Conversion to Monthly Benefit: $22,781 ------- = $1,898 12 In this example, the Normal Retirement Pension is $1,898 a month for life, a subject to any adjustment for optional payment form that you have elected. - - - --------------------- 1 If you left employment before April 1, 1998, see page 28. 10 Example 2 Age = 65 Benefit Service = 37 years, 2 months (37.17 years) Final Average Salary = $55,000 Normal Retirement Calculation: 3.00% x 25 years = 75.00% 0.50% x 12.17 years = 6.09% ------ 81.09% 81.09% x $55,000 = $44,596 Conversion to Monthly Benefit: $44,596 ------- = $3,716 12 In this example, the Normal Retirement Pension is $3,716 a month for life, subject to any adjustment for optional payment form that you have elected. Note that the pension amounts calculated in the above examples are based upon a pension in the form of a life annuity for the life of the participant. If a Participant's benefit is payable in a Husband and Wife Option (described on page 17), i.e., the Participant's spouse continues to get payments if he or she survives the Participant, the monthly pension benefit to which the Participant would be entitled would be reduced actuarially to take into account this additional benefit. 11 - - - -------------------------------------------------- Rule of 80 Pension (or 55-80 Pension) Requirements You are eligible for a Rule of 80 Pension if you apply and meet the following requirements: * You reach age 55 but are not yet 65, and * The sum of your age plus your years of Eligibility Service equals at least 80. To qualify for the Rule of 80 Pension, your age and Eligibility Service must total 80 before termination of employment occurs. Examples of Rule of 80 - - - -------------------------------------------------------------------- Age Eligibility Service Total - - - -------------------------------------------------------------------- 64, 2 months + 15 years, 10 months = 80 62, 0 months + 18 years, 0 months = 80 59, 6 months + 20 years, 6 months = 80 58, 0 months + 22 years, 0 months = 80 55, 1 month + 24 years, 11 months = 80 - - - -------------------------------------------------------------------- Rule of 80 Pension Formula The Rule of 80 Pension is calculated the same way as the Normal Retirement Pension. There is no reduction for retirement before age 65 if you meet the Rule of 80. 12 - - - ------------------------ Early Retirement Pension Requirements You are eligible for an Early Retirement Pension if you apply and meet the following requirements: * You reach age 60 but are not yet 65, and * You have at least 10 years of Eligibility Service. Early Retirement Formula An Early Retirement Pension is calculated the same way as the Normal Retirement Pension, but the amount will be reduced by 0.6% for each month your retirement date precedes your 65th birthday. This reduction is to compensate for the longer period of time you are expected to be receiving benefits. Examples of Early Retirement Reductions - - - ----------------------------------------------------------------------------- Age at Retirement Months Early Reduction - - - ----------------------------------------------------------------------------- 64 12 x 0.6% = 7.2% 63 24 x 0.6% = 14.4% 62 36 x 0.6% = 21.6% 61 48 x 0.6% = 28.8% 60 60 x 0.6% = 36.0% - - - ---------------------------------------------------------------------------- Example Age = 63 years, 6 months (18 months before age 65) Benefit Service = 14 years, 9 months (14.75 years) Final Average Salary = $45,250 Normal Retirement Calculation: 3.00% x 14.75 years = 44.25% 44.25% x $45,250 = $20,023 Early Retirement Reduction: Early reduction = 0.6% x 18 months = 10.8% reduction $20,023 x 10.80% reduction = $2,162 $20,023 - $2,162 = $17,860 13 Conversion to Monthly Benefit: $17,860 ------ = $1,488 12 In this example, the Early Retirement Pension is $1,488 a month for life (when expressed in straight-life annuity form), subject to any adjustment for optional payment form that you have elected. - - - ------------------------------------------------------ Rule of 80 Early Retirement Pension (or 50-80 Pension) Requirements You are eligible for a Rule of 80 Early Retirement Pension if you apply and meet the following requirements: * You reach age 50 but are not yet 55, and * The sum of your age plus your years of Eligibility Service equals at least 80. To qualify for the Rule of 80 Early Retirement Pension, your age and Eligibility Service must total 80 before termination of employment occurs. Examples of Rule of 80 - - - --------------------------------------------------------------- Age Eligibility Service Total - - - --------------------------------------------------------------- 54 + 26 years = 80 52 + 28 years = 80 50 + 30 years = 80 - - - --------------------------------------------------------------- Rule of 80 Early Retirement Formula The Rule of 80 Early Retirement Pension is calculated the same way as the Normal Retirement Pension, but the amount will be reduced by 4/12 of 1% for each month your retirement date precedes your 55th birthday. 14 Examples of Early Retirement Reductions - - - --------------------------------------------------------------- Age at Retirement Months Early Reduction - - - --------------------------------------------------------------- 54 12 x 4/12% = 4% 53 24 x 4/12% = 8% 52 36 x 4/12% = 12% 51 48 x 4/12% = 16% 50 60 x 4/12% = 20% - - - --------------------------------------------------------------- Example Age = 52 years, 4 months (32 months before age 55) Benefit Service = 28 Final Average Salary = $34,575 Normal Retirement Calculation: 3.00% x 25 years = 75.00% 0.50% x 3 years = 1.50% ------ 76.50% 76.50% x $34,575 = $26,449 Early Retirement Reduction: Early reduction = 32 months x 4/12% = 10.67% $26,449 x 10.67% = $2,822 $26,449 - $2,822 = $23,627 Conversion to Monthly Benefit: $23,627 ------ = $1,968 12 In this example, the Rule of 80 Early Retirement Pension is $1,968 a month for life, subject to any adjustment for optional payment form that you have elected. 15 - - - ----------------------------- BENEFIT OPTIONS AT RETIREMENT The previous Section explains how benefits are calculated. The monthly amount is paid for your lifetime. Based on a person's expected lifetime, the plan can take the same overall actuarial value and pay your benefit in another form called an "optional payment form" or an "option". One of these optional forms is required by law to be used for married couples, unless both persons agree otherwise. All options are available for all types of pensions (normal, early, disability, Rule of 80, and deferred). Once your benefits commence, you cannot change the form of payment that is elected. Options for Single Participants The available options for a participant who is not married at the time of retirement are: * A monthly payment for your lifetime, often called a Straight Life Annuity. This benefit will be paid unless you elect otherwise. * A Lump Sum to Beneficiary Option. This option reduces the amount of your Straight Life Annuity by 6%, but provides a lump sum payment to your beneficiary when you die. The lump sum amount is explained on page 20. Options for Married Participants The available options for a participant who is married at the time of retirement are: * A monthly payment for your lifetime, often called a Straight Life Annuity. * A Lump Sum to Beneficiary Option. This option reduces the amount of your Straight Life Annuity by 6%, put provides a lump sum payment to your beneficiary when you die. The lump sum amount is explained on page 20. 16 * A 50% Husband and Wife Option. Your pension amount is reduced by 6% for your lifetime. When you die, half (50%) of the pension amount you were receiving continues for the lifetime of your spouse. This option will be paid unless you and your spouse elect otherwise. * A 50% Pop-Up Husband and Wife Option. Your pension amount is reduced by 8% for your lifetime. If your spouse lives longer than you do, this option works the same as the 50% Husband and Wife Option. If your spouse dies before you do, your pension is restored (pops-up) to the amount as if you had elected a Straight Life Annuity. * A 100% Husband and Wife Option. In this case, a greater reduction is taken during your lifetime, but the full amount (100%) of the pension amount you were receiving will continue to your spouse upon your death. The reduction is explained on page 19. Married employees should note that the Pension Supplement for Medicare, explained on page 29, will only be paid to a surviving spouse if the spouse is entitled to a surviving spouse pension. Only the last 3 of the 5 choices above meet this requirement. Small Benefit If the actuarial lump sum value of the monthly benefit to be paid to you or your spouse is worth $5,000 or less, the total benefit will be paid as a lump sum. Special Rules for All Husband and Wife Options Both partners must be alive and legally married when the pension starts; * The partner that you are legally married to when the pension starts is the one who will receive surviving spouse benefits (if elected); 17 * A divorce after the pension starts does not change the benefits for either partner; * You do not have to be married one year when you elect the option, but you must be married at least one year before the retiree dies for the surviving spouse benefit to be paid. If not, the difference between the option payment and a Straight Life Annuity payment during the term of your retirement will be paid to your estate. Notice Requirements for All Options When you apply for retirement, the plan must advise you in writing of your options and how their election would affect your benefit. Once the benefit has commenced, the option you have chosen cannot be changed. Spouse Consent Your spouse must consent in writing to your election of any option other than the 50% or 100% Husband and Wife Option. The waiver form must be witnessed by a notary public, and signed no more than 90 days prior to the effective date of your pension. If you elect the Lump Sum to Beneficiary Option and name a beneficiary other than your spouse, your spouse must know who your beneficiary will be and consent to your naming and changing your beneficiary. If your spouse cannot be located at other special circumstances exist, contact the Plan Administrator. Former Spouse Rights This plan must comply with formal court orders called Qualified Domestic Relations Orders. These assign specific spouse rights under this plan to your former spouse or to another "alternate payee" following a divorce. You will be advised if the plan receives an order affecting your benefit. This Plan has specific written procedures for dealing with orders that purport to be Qualified Domestic Relations Orders. For a copy of those procedures, contact the Plan Administrator. 18 - - - ------------------------------------- A Comparison of Options at Retirement Benefits are paid as shown under the various options for a plan participant who qualifies for a benefit at age 62 of $1,000 per month with a spouse of the same age: - - - --------------------------------------------------------------------------- 50% 50% Husband 100% Lump Sum Straight Husband and Wife Husband to Life and Wife Pop-Up and Wife Beneficiary Annuity Option Option Option Option - - - ---------------------------------------------------------------------------- Pension to Participant $1,000 $940 $920 $810 $940 Pension to Participant If 1,000 940 1,000 810 940 Spouse Dies First Pension to Spouse If Participant -0- 470 460 810 -0- Dies First Lump Sum to Beneficiary Upon -0- -0- -0- -0- 18,800 Death of Participant - - - ----------------------------------------------------------------------------
Reduction for 100% Husband and Wife Option Your pension amount is reduced if this option is elected. The amount of reduction depends on the difference in age between you and your spouse. The reduction will be at least 14%. Examples are as follows: - - - ---------------------------------------------------------------------------- Age of Spouse in Relation to Age of Percent Employee Retiring Reduction - - - ---------------------------------------------------------------------------- 5 years younger 22.0% 2 years younger 20.2% Same age 19.0% 2 years older 17.8% 5 years older 16.0% - - - ---------------------------------------------------------------------------- 19 In the table of comparisons shown above, the husband and wife are the same age, so the reduction is 19.0% or $190: $1,000 - $190 = $810 Lump Sum to Beneficiary Option Amounts The amount paid upon your death to your beneficiary depends on the age when you retired and the type of pension. The factors shown below for sample ages will be multiplied by the monthly pension benefit you are receiving just prior to your death (including any retiree increases that may occur). - - - -------------------------------------------------------------------------- Factors for Lump Sum Payment - - - -------------------------------------------------------------------------- Age at Retirement Non-Disability Retirements Disability Retirements - - - -------------------------------------------------------------------------- 45 N/A 22 53 36 14 56 30 12 59 24 10 62 20 10 65 17 N/A - - - -------------------------------------------------------------------------- In the table of comparisons shown earlier, retirement occurred at age 62 on a non-disability retirement. The factor is 20, so the monthly pension amount ($940) is multiplied as follows: $940 x 20 = $18,800 Beneficiary Designation for Lump Sum Option You may name any person as a beneficiary, subject to your spouse's consent, if married. (See page 30). You may change your beneficiary after your pension has begun at any time (subject to your spouse's consent, if married). If your beneficiary is not alive at your death, payment is made to your estate. 20 - - - ----------------------------------- BENEFITS FOR YOUR SURVIVORS IF YOU DIE BEFORE RETIREMENT Survivor protection is provided in one of two different ways: * Under Automatic Spouse Protection, your spouse will receive a surviving spouse pension if you die before retirement after earning 3 or more years of Vesting Service. * If you have elected Optional Survivor Protection, benefits are larger, may start sooner, and can be extended to minor children if you have no spouse. The cost for Optional Survivor Protection is reflected as a reduction in your pension amount if you live until retirement, or in the pension amount paid to your survivors. Spouse Defined For either level of protection, an eligible spouse is one who has been married to you for at least one year at your death. Notice of Eligibility Coverage for Automatic Spouse Protection applies as soon as you earn 3 years of Vesting Service. No special notice is provided to you by the Plan. When you earn 10 years of Benefit Service or reach age 50 with 3 years of Vesting Service, the Plan will send you a notice explaining Optional Survivor Protection and how to elect it. The balance of this Section provides general information on the two different forms of protection. You may contact the Plan Administrator at any time for complete details. Who Needs Optional Survivor Protection Optional Survivor Protection should be considered particularly when your spouse is not employed, is not accumulating a separate pension, or income would be critical to raise minor children. Obviously each person's financial situation can be different, and this booklet cannot address all of the issues that might be involved in your decision. 21 Election Opportunities You may elect Optional Survivor Protection when first eligible or at any time thereafter. If not elected at the first opportunity, coverage for the first twelve months is limited to accidental death and not illness. If you gain a new dependent by marriage, birth or adoption, you always have a "first opportunity" to elect coverage. Once elected, Optional Survivor Protection can only be dropped when employment changes or any of your eligible survivors change. When Survivor Benefits Commence After Death The commencement date of benefits can vary greatly for the two levels of protection. With the Automatic Spouse Protection, the surviving spouse pension commences when you would have reached retirement age, based on age and service at your death. With the Optional Survivor Protection, benefits start immediately for 24 months, continue as long as there are minor children under the age of 19, and are paid to your spouse for life when you would have reached age 50. Minor children include unmarried dependent natural or adopted children under the age of 19. Survivor Protection Benefits Compared The dollar amount of the surviving spouse pension is also much different for the two levels of protection. Automatic Spouse Protection provides survivor benefits under the 50% Husband and Wife Option, adjusted for any early retirement reduction that might apply. The Optional Survivor Protection provides survivor benefits under the 100% Husband and Wife Option, with no reduction for early retirement. 22 Comparison of Annual Survivor Benefits At Earliest Date Payable For the following comparisons we have assumed that the spouse is three years younger than the participant. Circumstances at Death Automatic Spouse Optional Survivor Protection Protection - - - ----------------------------------------------------------------------------- Age/Benefit Svc/FAS1 Benefit Payable Benefit Payable - - - ----------------------------------------------------------------------------- 35/10 years/$35,000 $3,158 After 25 yrs. $8,315 Immediately3 45/20 years/$50,000 $9,024 After 15 yrs. $23,228 Immediately3 55/30 years/$65,000 $23,676 Immediately $37,422 Immediately2 - - - ----------------------------------------------------------------------------- - - - ----------------------------- 1 Final 3-year Average Salary 2 Payable immediately for spouse's lifetime 3 Payable immediately for 24 months or while there are minor children under age 19, then for the spouse's lifetime when you have reached age 50. Pension Reduction The reduction in benefit for Optional Survivor Protection varies by age and the length of time coverage is in place. Examples are 1/4 of 1% for 5 years of coverage at ages 25-29, and 2.5% for 5 years of coverage at ages 60-64. 23 - - - ---------------------------- BENEFITS IF YOU ARE DISABLED A Disability Pension is provided for employees who become permanently disabled while employed. Eligibility If your employment ends because of permanent and total disability, you are under age 65, and you have earned 3 or more years of Vesting Service, you are eligible for a Disability Pension. Disability Defined A permanent and total disability is a physical or mental condition that prevents your from performing your job, or working in any gainful employment including self-employment for which you are suited because of your education, training or experience. You may continue to receive a Disability Pension during periods of rehabilitation or limited employment compatible with your disability. Trustee Approval The Plan Trustees will be the final judges of your disability and eligibility for a Disability Pension. The Trustees may require an examination by a physician of their choice for initial approval or continuing approval of a Disability Pension. Disability Pension Amounts Your Disability Pension is calculated like a Normal Retirement Pension (see page 10). The pension will be based on your Benefit Service and Final Average Salary at the date of disability. There is no reduction for early retirement, no matter what your age when you become disabled. If you are not eligible for a Social Security Disability benefit and do not have at least 25 years of Benefit Service, your Disability Pension will be increased to the smaller of the following amounts: * A recalculated pension as if you did have 25 years of Benefit Service, or 24 * Your pension plus the Social Security Disability benefit you would have received if you had qualified for the Social Security Benefit. If you later qualify for a Social Security Disability benefit, your disability benefits will be recalculated to remove the higher adjusted amount described above. This recalculation will also occur when you reach your Social Security Normal Retirement Age. Commencement Date Your Disability Pension will commence as of the first day of the month following the end of employment due to disability which also follows the month you submitted an application. The Pension Supplement for Medicare will commence upon application, as soon as you are covered by Medicare Part B (see page 29). Recovery from Disability Should you recover and return to covered employment, your Disability Pension will cease. You will continue to earn service toward a future retirement benefit. If you return to covered employment or take any other employment, your Disability Pension will cease as of the end of the month you became employed. The Trustees will provide notice to your employer if they determine that you have recovered. If the Trustees receive knowledge that you have rejected an offer of employment without good cause, your Disability Pension will cease on the last day of the month in which the offer was refused. 25 - - - -------------------------------- BENEFITS IF YOU LEAVE EMPLOYMENT BEFORE YOU RETIRE You continue to be entitled to benefits from this plan at retirement age if you separate from employment after earning 3 or more years of Vesting Service. You may arrange for accelerated payment if you have less than 10 years of Benefit Service, or you may wait and apply for a Deferred Vested Pension at retirement age. You should advise the plan of your address every 2 years to make sure you continue to receive plan information. - - - ------------------ Withdrawal Benefit Requirements If you have 3 years of Vesting Service, but less than 10 years of Benefit Service, you may apply for a Withdrawal Benefit at any time before age 65. This is generally a lump sum distribution of your entire benefit. You and your spouse will not have any future rights to any benefits from this plan if you receive a Withdrawal Benefit. This distribution would be subject to taxation unless properly "rolled over" into an Individual Retirement Account (IRA) or another qualified retirement plan. Spouse Consent Your spouse must consent to the Withdrawal Benefit if the lump sum value is greater than $5,000. Amount of Withdrawal Benefit The lump sum value of the Withdrawal Benefit will be the larger of the following two amounts: * 3% of salary from 1966 (or the date your employer joined this Plan, if later) until separation of employment, with 3.5% interest compounded each year employed and until payment, or * The actuarial present value of your Deferred Vested Pension payable at age 65, as of the date of payment. 26 If the Withdrawal Benefit is greater than $5,000, you may also choose to convert the lump sum into a monthly lifetime annuity commencing when elected. This must be paid in the form of a 50% Husband and Wife Option if you are married, unless you and your spouse elect otherwise. Re-employment after Payment of a Withdrawal Benefit Should you again become covered by this Plan, you will be immediately vested for benefits earned from that date forward. You may repay any Withdrawal Benefit plus interest for the period the money was not in the Plan. If you repay the required amount, the appropriate years of prior Eligibility Service and Benefit Service will be restored. Repayments can be made in installments over as much as 5 years, if desired. - - - ----------------------- Deferred Vested Pension Requirements If you are not eligible for immediate benefits or choose to delay the commencement of your pension, you may apply for a Deferred Vested Pension at the appropriate time. The Deferred Vested Pension at age 65 is calculated like the Normal Retirement Pension (see page 10), based on the plan provisions in effect when you left covered employment. If you have 10 or more years of Eligibility Service, you may apply for a Deferred Vested Pension at age 60. An early retirement reduction as described on page 13 will be applied for any retirement before age 65. Prior Plan Provisions The Deferred Vested Pension is based on the plan provisions in effect when you last worked. Major changes in the benefit formula are summarized in the following table: 27 - - - ----------------------------------------------------------------------------- Termination of Employment Benefit Formula (based on Benefit Service) - - - ----------------------------------------------------------------------------- April 1, 1998 or thereafter 3.00% per year for 25 years 0.5% per year thereafter February 1, 1994 to March 31, 1998 2.80% per year for 25 years, 0.5% per year thereafter April 1, 1991 to January 31, 1994 2.75% per year for 25 years, 0.5% per year thereafter April 1, 1998 to March 31, 1991 2.70% per year for 25 years, 0.5% per year thereafter April 1, 1983 to March 31, 1988 2.50% per year for 25 years, 0.5% per year thereafter October 1, 1977 to March 31, 1983 2.50% per year for 25 years Prior to October 1, 1997 2.15% per year for 25 years, with Final Average Salary the highest consecutive 60 months - - - ----------------------------------------------------------------------------- - - - ------------------------------------- Plan Features Affected by Termination Rule of 80 Pensions You do not qualify for any Rule of 80 Pensions (see pages 12 and 14) unless your age plus Eligibility Service total 80 or more at the time your employment ends. Disability Protection Disability benefits apply only for disabilities which occur while employed and covered by this plan. Survivor Protection If you are vested, survivor protection continues after you leave covered employment. If you have elected Optional Survivor Protection (see page 21), you may decide to keep the higher level of protection of return to Automatic Spouse Protection. The reduction in benefit for Optional Survivor Protection is higher for terminated employees than it is for active employees, because the benefit on which the reduction is based is no longer increasing. Medicare Benefit The Pension Supplement for Medicare (see page 29) is not paid to deferred vested pensioners or their surviving spouses. 28 - - - ---------------------- OTHER BENEFIT FEATURES - - - ------------------------------- Pension Supplement for Medicare Medicare provides retiree health coverage generally at age 65. Part B of Medicare covers physician charges and requires a monthly premium for you to be covered. This plan adds the current Medicare Part B premium to your monthly pension check, and automatically adjusts the amount as the Part B premium changes. To receive the supplement, you must provide continued evidence of Medicare Part B coverage. Benefits are not paid if these premiums are also being reimbursed from another source. Spouse Coverage The same Medicare Part B premium amount will be added to your monthly pension check when your spouse is old enough and becomes covered. While you are living, this supplement applies regardless of the type of Option chosen (Husband and Wife, Straight Life Annuity, etc.) or whether you marry after retirement. The Pension Supplement for Medicare will continue to be paid after your death to your surviving spouse, but only if your spouse qualifies for a monthly pension. Direct Retirement You and/or your spouse only qualify for the Pension Supplement for Medicare if you are retiring directly from active employment, or die while employed. - - - ------------------------ Working After Retirement If you return to work for any employer participating in this plan after you retire, your pension is suspended. When you retire again, your pension is re-calculated based on your new Final Average Salary, new retirement age and the sum of your Benefit Service before re-employment plus any new Benefit Service you have earned. 29 Your pension for the month you return to work and the month you again retire will be paid proportionally, based on a month of 21 working days and the days you actually worked. If you return to work after age 65, your pension will not be suspended if you work 40 hours or less in a month. Your pension will be recalculated as of the following January 1, each year it is appropriate. - - - --------------------------------------------- Individual Accounts for Employees Before 1966 Prior to 1966, employees were required to contribute to the Pension Plan. These contributions plus interest continue to be accounted for in the current plan. This individual account balance represents a minimum guaranteed payment which the plan will make to you or your beneficiary. It would be applied as follows: * To increase your Withdrawal Benefit or any other total lump distribution until it equals your account balance. * To provide a further payment to your beneficiary. If the pension distributions which have been made to your or your beneficiary do not add up to your account balance, the remaining value will be paid to your beneficiary. * To provide a lump sum death benefit of your account balance to a beneficiary if Automatic Spouse Protection or Optional Survivor Protection does not apply. Beneficiary Designation You can designate any person or persons you want as a beneficiary by filing the appropriate form with the Trustees. You can also specify in what proportions you want benefits paid to your beneficiaries. You also have the right to change your beneficiary and the proportions at any time by submitting a new designation form. If you are married and want to name someone other than your spouse, your spouse must consent to your choice of beneficiary. If you later want to change your beneficiary, you must again obtain your spouse's consent unless the beneficiary is your spouse. 30 In addition, after your death, if your spouse is receiving a survivor pension and there are not other beneficiaries designated by you, your spouse can designate someone to receive any remaining benefit after his or her death. Interest Credited Interest on your individual account balance is credited annually, until the balance is depleted. Interest rates are as follows: 1963 to 1983: 31/2% 1984 to 1987: 5% 1988 and thereafter: a fluctuating interest rate specified by law reflecting the performance of government securities - - - -------------------- Part-Time Employment The Plan covers both full-time and part-time employees. The pension benefit is based on compensation paid over a period of years, so the benefit corresponds to the work status. This method may not work very well, however, if a person permanently switches from full-time to part- time status, or vice versa. After January 1, 1992, if you switch status for a period longer than 3 years, the plan will recognize this by calculating your pension in two parts which are then added together. Your full-time years of Benefit Service will be used with your full-time Final Average Salary. (Full- time years will be counted toward the first 25 years of Benefit Service as much as possible, to maximize your benefit.) Then your part-time years will be used with your part-time Final Average Salary. Full-time is defined to be a work schedule for 25 or more hours a week, and part-time is defined to be less than 25 hours a week. 31 Example Assume an employee works full-time for 20 years, with an average salary for the 3 highest consecutive years of $40,000, and then works part-time for 10 years, with an average salary for the 3 highest consecutive years of $18,000. Normal Retirement Calculation: 20 years x 3.00% x 40,000 = $24,000 5 years x 3.00% x 18,000 = $ 2,700 5 years x 0.50% x 18,000 = $ 450 Total Annual Benefit Conversion to Monthly Benefit: $27,150 ------ = $2,262 per month 12 The calculation of benefits in these circumstances does not in any way change the vesting or eligibility rules for your benefit. 32 - - - --------------------- APPLYING FOR BENEFITS - - - ------------------- Application Process When you wish to receive a benefit under this Plan, notify the Plan Administrator. Because of the mandatory notices that must be given to you, it is best to notify the Plan Administrator about 60 days before your desired retirement date. The Plan Administrator will send you a notice explaining the amount of your benefit as well as the time that payment will begin. The Plan Administrator also will provide you with information about the various pension payment options which may be available to you. The notice will explain exactly how to apply for the benefit you desire. When Benefits Commence Once you become entitled to a benefit, you may receive payment of your benefit after the latest of the following occurs: * You submit a properly completed application; * You have had a 30 day waiting period to review your choices (Note: in some cases, this 30-day period may not apply or can be waived); * Your spouse's consent to the benefit payment is received, if required (Note: the spouse's consent is not valid if it is signed more than 90 days before the payment begins); and * Your compensation for employment has ceased. Monthly benefits commence on the first day of the month after the above requirements are met. Lump sum benefits are paid as promptly as possible after the above requirements are met. If your beneficiary becomes entitled to a benefit after your death, he or she may receive payment after submitting an application, if necessary, and providing a death certificate. 33 - - - ----------------------------------- Mandatory Commencement at Age 70 1/2 You must begin to receive any pension benefits you are entitled to from this Plan by April 1 of the calendar year after you reach age 70 1/2. Payments must begin even if you are still employed. You will be asked to apply for benefits and to elect the form for payment of the pension. If you do not make an election, the plan will assume you are married and will make payments in the form of a 50% Husband and Wife Option. The benefit amount will assume that the husband is three years older than the wife. If you fail to make an election and later provide the plan with the required information, your monthly benefit amount will be adjusted appropriately; however, once the payments have begun, the form of your benefit may not be changed. If you continue to work after age 70 1/2, you will continue to earn additional pension amounts, even while you are receiving pensions payments. Your monthly pension amount will be adjusted each January 1 to reflect any increased benefits you have earned in the previous calendar year. - - - ------------------------------------------ Benefit Adjustments for Delayed Retirement If the commencement of benefits is delayed from the later of the month after your normal retirement age, or the month after you last worked, your benefit either may be actuarially increased to adjust for the delay or you may receive "make up" payments retroactive to the date on which your pension would have stated had payments begun in a timely manner. 34 - - - ------------------- Benefit Limitations This plan must comply with government regulations which limit the maximum benefits that can be paid. These limits are applied to the total benefits from all qualified pension plans sponsored by your employer, although, after December 31, 1999, benefits from defined contribution or 401(k) plans do not have to be combined with this Plan. You will be advised prior to the commencement of your benefit if these limits apply to your benefit. The younger you are at retirement and the larger your salary, the more likely that your benefit may have to be limited. If your benefits are limited by these regulations, the plan provides that your benefit will be indexed in future years as the limitations are increased by the IRS. Eventually, you may be able to receive your full annual benefit. You may wish to contact the Plan Administrator to discuss these limits and now they may or may not affect your benefits from this plan. - - - --------------- Right to Appeal If you file a claim and then receive a decision you disagree with, you have the right to have your claim referred to the Trustees whose names and addresses are listed in the next Section. Either you or your beneficiary may write to the Trustees. You should state the nature of the claim and give any other relevant information. The Trustees will make a decision about your claim. You will be notified in writing of that decision within 60 days. Under special circumstances, the Trustees may notify you that another 60 days is needed to process your claim. If a claim is denied, in whole or in part, the Trustees must tell you in writing: * The specific reasons for the denial. * The exact plan provision(s) on which the decision was based. 35 * What additional material or information is relevant to your case. * What procedure you should follow to get your claim reviewed again. If a claim is denied by the Trustees, you have the right to apply for another review. You must do this, in writing, within 60 days after you receive or were eligible to receive the claim denial notice. Your review application may include any additional information that you wish to supply. After receiving this application, the Trustees will review your claim again. If you wish, you can also review any documents the Plan Administrator has that concern your application, such as copies of the plan or special information relating to your claim. The Trustees must make a final decision on your claim within 60 days after receiving your review request. However, if special circumstances arise and you're notified in writing in advance, the Trustees can make use of a 60-day extension. The final decision must be in writing, clearly stating the reasons for the decision and the provisions of the plan upon which the decision was based. If your claim is still denied, there are additional steps you can take if you believe your claim should be honored (see page 42). 36 - - - ------------------------------------- GENERAL PLAN AND EMPLOYER INFORMATION Name of Plan AFL-CIO Staff Retirement Plan Plan Administrator Trustees of the AFL-CIO Staff Retirement Plan c/o Controller's Office AFL-CIO 815 Sixteenth Street, NW Washington, DC 20006 (202) 637-5253 Plan's Employer Identification Number 52-6044583 Plan Number 001 Board of Trustees John Sweeney Charles Adkins Chairman 815 16th Street, NW 815 16th Street, NW Washington, DC 20006 Washington, DC 20006 Verlow Haddon Richard Trumka 110 W 13th Street Secretary-Treasurer Helena, MT 59601 815 16th Street, NW Washington, DC 20006 Bonnie Oakes 815 16th Street, NW Linda Chavez-Thompson Washington, DC 20006 815 16th Street, NW Washington, DC 20006 37 Agent for Service of Legal Process Plan Administrator at address shown above Plan Year Beginning July 1 and ending June 30 Type of Plan Defined Benefit Pension Plan Funding Medium Benefits are provided through a Trust Fund. The Trustees receive contributions from participating employers, invest assets held in reserve, and pay plan expenses and benefits to participants and beneficiaries. Assets and liabilities of the plan are held separate and apart from the AFL-CIO and from any other employer participating in the plan. Employers and Employer ID Numbers AFL-CIO 53-0228172 815 16th Street, NW Washington, DC 20006 AFL-CIO Employers Federal Credit Union 53-0233491 1750 New York Avenue, NW Washington, DC 20006 Building and Construction Trades Department 53-0025755 815 16th Street, NW Washington, DC 20006 Building Investment Trust (BIT Corp.) 52-2136736 1717 K Street, NW Washington, DC 20006 Center to Protect Workers' Rights 52-1172454 111 Massachusetts Avenue, NW Washington, DC 20001 38 Central Indiana Labor Council 35-1017434 1701 W 18th Street Indianapolis, IN 46202 Connecticut State AFL-CIO 06-0303260 30 Sherman Street West Hartford, CT 06110 Food and Allied Service Trades Department 57-1072221 888 16th Street, NW Washington, DC 20006 George Meany Center for Labor Studies 52-0895834 10000 New Hampshire Avenue Silver Spring, MD 20903 Hawaii State AFL-CIO 99-0035425 320 Ward Avenue, Suite 209 Honolulu, HI 96814 Housing Investment Trust 52-6220193 1717 K Street, NW Washington, DC 20006 International Labor Communications 53-0232074 Association, AFL-CIO/CLC 888 16th Street, NW Washington, DC 20006 Lawyers Coordinating Committee 52-1304063 815 16th Street, NW Washington, DC 20006 Maritime Trades Department 53-0231686 815 16th Street, NW Washington, DC 20006 Missouri AFL-CIO 44-0150375 208 Madison Street Jefferson City, MO 65101 39 National Air Traffic Controllers Association 52-1522639 1150 17th Street, NW, Suite 701 Washington, DC 20036 Pennsylvania State AFL-CIO 23-1575065 230 State Street Harrisburg, PA 17101 Professional Employees Department 52-1107237 888 16th Street, NW Washington, DC 20006 Transportation Trades Department, AFL-CIO 52-1673883 1000 Vermont Avenue, NW, Suite 900 Washington, DC 20005 Union Label and Service Trades Department 53-0025759 888 16th Street, NW Washington, DC 20006 Union Privilege Benefit Programs 52-1457836 1444 Eye Street, NW Washington, DC 20005 Working for America Institute 52-0884503 (previously Human Resources Development Institute) 1101 14th Street, NW, Suite 320 Washington, DC 20005 Wyoming State AFL-CIO 83-0157300 1904 Thomas Avenue Cheyenne, WY 82001 The list of participating employers included in this booklet is current as of the date of publication. A participant or beneficiary may obtain from the Plan Administrator, upon written request, a complete list of the employers participating in the plan, or information about whether a particular employer is participating in the plan, including the address of the participating employer. This information also may be examined at the Plan Administrator's office. 40 - - - --------------------------- In Case of Plan Termination The employers intend to continue the plan and to make the required contributions regularly. Nevertheless, they reserve the right, subject to the provisions of any pertinent collective bargaining agreement, to terminate the plan. To do so, they must notify and get approval from a government agency called the Pension Benefit Guaranty Corporation (PBGC). If the plan is terminated, each of you will be notified as soon as possible. You will be told the amount of pension you will become entitled to, with an explanation of any election which you may have to make. Your benefits are protected as follows: The assets in the Trust Fund will be used to purchase annuities for all benefits accrued to the date of termination, whether those benefits are vested or not. No assets are returned to the employers until provision is made for the purchase of all of these annuities. If there are not enough assets to buy annuities for all accrued benefits, employee contributions will be returned first and then annuities will be purchased in the following order of priority: * Benefits to employees who began receiving benefits three years before the termination. * Other benefits at the level guaranteed by the PBGC. * All other vested benefits. * All accrued benefits which are not yet vested. Benefits under this plan are also guaranteed by the PBGC if the plan terminates. If the plan should end or partially end, the PBGC will cover most vested Normal Retirement Pensions, Early Retirement Pensions and certain Disability and Survivor's Pensions, even if fund assets are not sufficient to provide these benefits. However, the PBGC does not insure all types of pension benefits under covered plans. The amount of benefit protection is subject to certain limitations. 41 The PBGC insures vested benefits a the level in effect on the date the plan ends. However, if the plan has been in effect less than five years before it ends or if benefits have been increased within the five years before the plan ends, the entire amount of the plan's vested pensions or the pension increase may not be covered. In addition, there is a ceiling on the amount of monthly benefits that the PBGC covers. This ceiling is adjusted periodically by the PBGC. For information on the PBGC insurance protection and its limitations, contact the PBGC. Inquiries should be addressed to the Communications and Public Affairs Department of PBGC, Suite 240, 1200 K Street, N.W., Washington, D.C. 20005-4026. The PBGC Office of Communications may also be reached by calling (202) 326-4040. - - - --------------------------- Employee Rights Under ERISA The Employee Retirement Income Security Act (ERISA), passed by Congress in 1974, gives you certain basic rights as a participant in this benefit plan. These rights apply to all plans, including yours. According to law, you are entitled to: * Examine all plan documents without charge at the plan administrator's office. These include insurance contracts, detailed annual reports and plan descriptions. * Get copies of all plan documents and other plan information if you ask for copies in writing. There may be a small charge to cover the cost of reproducing the documents. * Receive a summary of the plan's annual financial reports. The plan administrator by law has to give you a copy of these reports every year. * Obtain a statement telling you whether you have right to receive a benefit at your normal retirement date, and if so, what your benefit would be if you stopped working now. If you don't have a right to a 42 benefit now, the statement will tell you when you will. You have to ask for this statement in writing. The plan must provide this statement free of charge. You have the right to have such a statement once a year. In addition to laying down your rights as plan members, ERISA imposes duties upon the people who are responsible for the administration of your benefits plan. The people who administer your plan are called "fiduciaries," They have a duty to do their job wisely and in the interest of all the members and beneficiaries. No one neither your employer, nor any other person may fire you or in any way discriminate against you to prevent you from obtaining benefits or exercising your rights under ERISA. If your claim for benefits is denied in whole or in part, you have the right to receive a written explanation of the reason for the denial. You have the right to have the Plan Administrator review and reconsider your claim. And, under ERISA, there are steps you can take to enforce these rights. For example, if you ask for material about a plan and you do not receive it within 30 days, you can file suit in a federal court. In such a case, the court may require that the Plan Administrator pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the administrator. Or, if you have a claim for benefits which is denied or ignored, in whole or in part, you may file suite in a state or federal court. If it should happen that the plan fiduciaries misuse the plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor. You may also file suit in a federal court. The court will decide who should pay court costs and legal fees. If the court decides in your favor, it may order the person you have sued to pay these costs and fees. If the court decides against you, it may order you to pay these costs and fees. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the Labor-Management Services Administration, Department of Labor. 43 NOTES 44 EX-99.FBONUSPROFIT 5 retamend.txt AMENDMENTS TO RET PLAN Exhibit 4 AMENDMENT I TO THE AFL-CIO HOUSING INVESTMENT TRUST 401(K) RETIREMENT PLAN THIS AGREEMENT is hereby made and entered into this 1st day of November, 1999 by AFL-CIO Housing Investment Trust (hereby referred to as the "Employer") and Patton H. Roark, Jr., Harry W. Thompson, Ruth P. Walter, Erica Khatchadourian, and Helen R. Kanovsky (hereby referred to as Trustees); WHEREAS, the AFL-CIO Housing Investment Trust 401(k) Retirement Plan was established October 1, 1996, and WHEREAS, the Corporation wishes to make a change in Trustees of the AFL- CIO Housing Investment Trust 401(k) Retirement Plan; IN ACCORDANCE with Article 7.1 Trustee Appointment, Resignation, Removal and Succession, effective immediately, former Trustee, ElChino M. Martin will be replaced by Helen R. Kanovsky. Patton H. Roark, Jr., Harry W. Thompson, Ruth P. Walter, and Erica Khatchadourian will continue in their capacity as Plan Trustees. A majority of the individually named Plan Trustees can communicate instructions on behalf of the Plan and will be considered representing all of the Plan Trustees collectively for such action per Plan Article 7.9(g). IN WITNESS WHEREOF, this Amendment has been executed at Washington, D.C. on this 1st day of November, 1999. AFL-CIO HOUSING INVESTMENT TRUST By: ------------------------------- ATTEST: - - - -------------------------- TRUSTEES: ----------------------------------- Patton H. Roark, Jr. ----------------------------------- Harry W. Thompson ----------------------------------- Ruth P. Walter ----------------------------------- Erica Khatchadourian ------------------------------------ Helen R. Kanovsky Exhibit 5 AMENDMENT II TO THE AFL-CIO HOUSING INVESTMENT TRUST 401(K) RETIREMENT PLAN THIS AGREEMENT is hereby made and entered into this 15th day of February, 2000 by AFL-CIO Housing Investment Trust (hereby referred to as the "Employer") and Patton H. Roark, Jr., Harry W. Thompson, Ruth P. Walter, Erica Khatchadourian, and Helen R. Kanovsky (hereby referred to as Trustees); WHEREAS, the AFL-CIO Housing Investment Trust 401(k) Retirement Plan was established October 1, 1996, and WHEREAS, the Corporation wishes to amend the AFL-CIO Housing Investment Trust 401(k) Retirement Plan relative to Plan loan repayments; THEREFORE, we are amending Plan Section 7.14(h) by deleting the existing paragraph 7.14(h) and replacing it with the following wording: 7.14 (h) Immediate Repayment: A Participant's loan will become immediately due and payable if the Participant fails to make principal and/or loan interest payments for two (2) successive calendar quarters. Also, the Participant's loan will become immediately due and payable upon the Participant's termination of employment with AFL-CIO Housing Investment Trust or Building Investment Trust Corporation. In either event, the Administrator will reduce the Participant's vested aggregate account by the remaining principal and interest of the loan, and such amount will constitute a distributable event to the extent of reduction under the Plan. If the Participant's vested aggregate account is less than the amount due, the Administrator will take whatever steps necessary to collect the balance due. IN WITNESS WHEREOF, this Amendment has been executed at Washington, D.C. on this 15th day of February, 2000. AFL-CIO HOUSING INVESTMENT TRUST By: ------------------------------- ATTEST: - - - -------------------------- TRUSTEES: ----------------------------------- Patton H. Roark, Jr. ----------------------------------- Harry W. Thompson ----------------------------------- Ruth P. Walter ----------------------------------- Erica Khatchadourian ------------------------------------ Helen R. Kanovsky Exhibit 6 AMENDMENT III TO THE AFL-CIO HOUSING INVESTMENT TRUST 401(K) RETIREMENT PLAN THIS AGREEMENT is hereby made and entered into this 7th day of April, 2000 by AFL-CIO Housing Investment Trust (hereby referred to as the "Employer") and Patton H. Roark, Jr., Ruth P. Walter, Erica Khatchadourian, and Helen R. Kanovsky (hereby referred to as Trustees); WHEREAS, the AFL-CIO Housing Investment Trust 401(k) Retirement Plan was established October 1, 1996, and WHEREAS, the Corporation wishes to make a change in Trustees of the AFL- CIO Housing Investment Trust 401(k) Retirement Plan; IN ACCORDANCE with Article 7.1 Trustee Appointment, Resignation, Removal and Succession, Harry W. Thompson is removed as Trustee effective this date with his resignation and will be replaced by Gregory J. Dyson. Patton H. Roark, Jr., Helen R. Kanovsky, Ruth P. Walter, and Erica Khatchadourian will continue in their capacity as Plan Trustees. A majority of the individually named Plan Trustees can communicate instructions on behalf of the Plan and will be considered representing all of the Plan Trustees collectively for such action per Plan Article 7.9(g). IN WITNESS WHEREOF, this Amendment has been executed at Washington, D.C. on this 7th day of April, 2000. AFL-CIO HOUSING INVESTMENT TRUST By: ------------------------------- ATTEST: - - - -------------------------- TRUSTEES: ----------------------------------- Patton H. Roark, Jr. ----------------------------------- Harry W. Thompson ----------------------------------- Ruth P. Walter ----------------------------------- Erica Khatchadourian ------------------------------------ Helen R. Kanovsky Exhibit 7 AMENDMENT IV TO THE AFL-CIO HOUSING INVESTMENT TRUST 401(K) RETIREMENT PLAN THIS AGREEMENT is hereby made and entered into this 23rd day of June, 2000 by AFL-CIO Housing Investment Trust (hereby referred to as the "Employer") and Patton H. Roark, Jr., Ruth P. Walter, Erica Khatchadourian, and Helen R. Kanovsky (hereby referred to as Trustees); WHEREAS, the AFL-CIO Housing Investment Trust 401(k) Retirement Plan was established October 1, 1996, and WHEREAS, the Corporation wishes to make a change in Trustees of the AFL- CIO Housing Investment Trust 401(k) Retirement Plan; IN ACCORDANCE with Article 7.1 Trustee Appointment, Resignation, Removal and Succession, Gregory J. Dyson is removed as Trustee effective this date with his resignation. Patton H. Roark, Jr., Helen R. Kanovsky, Ruth P. Walter, and Erica Khatchadourian will continue in their capacity as Plan Trustees. A majority of the individually named Plan Trustees can communicate instructions on behalf of the Plan and will be considered representing all of the Plan Trustees collectively for such action per Plan Article 7.9(g). IN WITNESS WHEREOF, this Amendment has been executed at Washington, D.C. on this 23rd day of June, 2000. AFL-CIO HOUSING INVESTMENT TRUST By: ------------------------------- ATTEST: - - - -------------------------- TRUSTEES: ----------------------------------- Patton H. Roark, Jr. ----------------------------------- Harry W. Thompson ----------------------------------- Ruth P. Walter ----------------------------------- Erica Khatchadourian ------------------------------------ Helen R. Kanovsky Exhibit 8 AMENDMENT V TO THE AFL-CIO HOUSING INVESTMENT TRUST 401(K) RETIREMENT PLAN THIS AGREEMENT is hereby made and entered into this 26th day of September, 2000 by AFL-CIO Housing Investment Trust (hereby referred to as the "Employer") and Patton H. Roark, Jr., Ruth P. Walter, Erica Khatchadourian, and Helen R. Kanovsky (hereby referred to as Trustees); WHEREAS, the AFL-CIO Housing Investment Trust 401(k) Retirement Plan was established October 1, 1996, and WHEREAS, the Corporation wishes to amend the AFL-CIO Housing Investment Trust 401(k) Retirement Plan relative participant distributions; THEREFORE, we are amending Plan Section 5.6, effective January 1, 2000, by deleting the existing first paragraph of Section 5.6 and replacing it with the following wording: 5.6 Restrictions on Immediate Distributions If the lump sum value of a Participant's benefit exceeds (or at the time of any prior distribution exceeded) $5,000 (or $3,500 for distributions made for Plan Years beginning on or before August 5, 1997), and the benefit is immediately distributable, the benefit may only be distributed with the consent of the Participant in accordance with this Section. That portion of the Participant's Account which is not a Vested Interest will be treated as a Forfeiture. Participant benefit distributions paid pursuant to the consent requirements outlined below will only be made if the entire vested benefit of the Participant is distributed in one transaction. No partial benefit payments will be allowed pursuant to this Plan Section. IN WITNESS WHEREOF, this Amendment has been executed at Washington, D.C. on this 26th day of September, 2000. AFL-CIO HOUSING INVESTMENT TRUST By: ------------------------------- ATTEST: - - - -------------------------- TRUSTEES: ----------------------------------- Patton H. Roark, Jr. ----------------------------------- Harry W. Thompson ----------------------------------- Ruth P. Walter ----------------------------------- Erica Khatchadourian ------------------------------------ Helen R. Kanovsky EX-99.GCUSTAGREEMT 6 bankfee.txt Global Institutional Services Deutsche Bank James F. Shanley, Jr. Bankers Trust Company Vice President 130 Liberty Street Mail Stop-NYC02-2002 New York, NY 10006 Tel: 212-250-6066 Fax: 212-669-0746 November 7, 2000 Ms. Erica Khatchadourian, CPA Chief of Staff AFL-CIO Housing Investment Trust 1717 K Street, NW Suite 707 Washington, DC 20006 Re Master Custody Fee Schedule - - - ------------------------------ Dear Erica: To continue our much-valued relationship with the AFL-CIO Housing Investment Trust we would like to propose a flat fee arrangement guaranteed for each of the next three years as follows: 2001 $75,000 (effective February 1, 2001) 2002 $80,000 (effective February 1, 2002) 2003 $85,000 (effective February 1, 2003) As it has in the past this fee will cover safekeeping, accounting, reporting and associated Master Custody services and assumes that the asset makeup and complexity of the relationship does not change during this period. Nick or I would be happy to answer any questions you might have on the fees or anything else. Should this fee arrangement meet with your approval I would be happy to prepare a fee schedule for execution. Sincerely, /s/ James F. Shanley - - - --------------------------- cc: Nick Papapierro,BT Date: 12/00 ------------------- Agreed to by: /s/ Erica Khatchadourian -------------------------- Name: Erica Khatchadourian -------------------- Title: Controller -------------------- EX-99.ILEGALOPININ 7 opin.txt SBSF OPINION Swidler Berlin Shereff Friedman, LLP 3000 K Street, NW, Suite 300 Washington, D.C. 20007 April 27, 2001 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. 34 under the Securities Act of 1933 and Amendment No. 37 under the Investment Company Act of 1940 (collectively, the "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 giving such permission, we do not admit hereby that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules or regulations of the Securities and Exchange Commission thereunder. 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, /s/ SWIDLER BERLIN SHEREFF FRIEDMAN, LLP EX-99.JOTHEROPININ 8 audcon.txt AUDITOR'S CONSENT CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference in this Form N-1A registration statement of our report dated January 12, 2001, included in the AFL-CIO Housing Investment Trust's Annual Report for the year ended December 31, 2000 and to all references to our firm included in this Form N-1A registration statement. /s/ Arthur Andersen LLP Arthur Andersen LLP April 27, 2001 Vienna, VA EX-99.P1CODEETH 9 ethics.txt TRUST CODE OF ETHICS DRAFT ----- AFL-CIO HOUSING INVESTMENT TRUST CODE OF ETHICS This Code of Ethics ("Code") is adopted pursuant to Rule 17j-1 (the "Rule") promulgated by the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "Act"), by the Board of Trustees (the "Board") of The American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust, a registered open-end management investment company (the "Trust"). Responsibility for enforcement of this Code, monitoring the compliance of Trust employees, officers and Trustees, and reviewing the Code and compliance measures of the Trust's investment advisers will be vested in an officer of the Trust appointed by or at the direction of the Board (the "Compliance Officer"), and such additional persons appointed to assist the Compliance Officer in fulfilling his or her responsibilities hereunder. Statement of General Principles This Code is adopted in recognition of the following principles that govern the personal investment activities of all employees, officers and Trustees of the Trust: * It is their duty at all times to place the interests of the holders of units of the Trust (the "Participants") ahead of their personal interests and to act solely for the benefit of the Participants. * All personal securities transactions must be conducted consistent with this Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility. * Individuals must not take advantage of their positions to benefit themselves at the expense of the Trust or any Participants thereof. 1. General Prohibitions - - - ------------------------ No employee, officer or Trustee of the Trust shall, in connection with the purchase or sale, directly or indirectly, by such person of a security held or to be acquired by the Trust: * Employ any device, scheme or artifice to defraud the Trust; * Make to the Trust any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; * Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Trust; or * Engage in any manipulative practice with respect to the Trust. 2. Defined Terms - - - ----------------- "Access Person" shall include every Trustee and officer of the Trust, and every employee of the Trust (or any company in a control relationship to the Trust) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding, the purchase or sale (including the writing of an option for the purchase or sale) of Covered Securities, including Mortgage Investments, by the Trust, or whose functions relate to the making of any recommendation to the Trust regarding the purchase or sale of Covered Securities. "Beneficial Interest" in an account means that the person may profit or share in the profit from transactions. Without limiting the foregoing, a person has a Beneficial Interest when the securities in the account are held: (i) in his or her name; (ii) in the name of any of his or her immediate family; (iii) in his or her name as trustee for himself or herself or for his or her immediate family; (iv) in a trust which he or she has a Beneficial Interest or is the settlor with a power to revoke; (v) by another person and he or she has a contract or an understanding with such person that the securities held in that person's name are for his or her benefit; (vi) in the form of a right to acquisition of such security through the exercise of warrants, options, rights or conversion rights; (vii) by a partnership of which he or she is a member; (viii) by a corporation which he or she uses as a personal trading medium; (ix) by a holding company which he or she controls; or (x) any other relationship in which a person would have beneficial ownership under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect Beneficial Interest shall apply to all securities which an Access Person has or acquires. "Control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position within such company. "Covered Securities" means securities, as defined by section 2(a)(36) of the Act, other than direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, and shares issued by open-end registered investment companies. "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934. "Investment Personnel" means any employee of the Trust (or of a company in a control relationship to the Trust) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities (as defined by section 2(a)(36) of the Act) by the Trust and any natural person who controls the Trust and who obtains information concerning recommendations made to the Trust regarding the purchase or sale of securities by the Trust. "Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to rule 504, rule 505, or rule 506 under the Securities Act of 1933. "Mortgage Investment" means any Covered Security that may be held by the Trust in accordance with its investment restrictions and policies, including without limitation: (a) construction and permanent mortgage loans that are insured or guaranteed by the federal government or an agency of the federal government, including the United States Department of Housing and Urban Development ("HUD" or "FHA"), the Department of Veterans Affairs ("VA") and the Government National Mortgage Association ("Ginnie Mae"); (b) mortgaged-backed securities that are secured by mortgage loans and/or securities that are insured or guaranteed by the federal government or an agency of the federal government and are rated AAA or AA by a nationally recognized rating agency; (c) loans, securities or other obligations that are issued or guaranteed by the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Mortgage Corporation ("Freddie Mac") (including Fannie Mae mortgage-backed securities and Freddie Mac participation certificates); (d) securities that are backed by Fannie Mae or Freddie Mac and are rated AAA or AA by a nationally recognized rating agency when issued; (e) to the extent that the Trust is authorized to purchase such obligations, obligations that are either (i) issued or guaranteed by the Federal Home Loan Banks or (ii) backed by the Federal Home Loan Banks and, at the time of their acquisition by the Trust, rated AAA or AA by a nationally recognized rating agency; and (f) privately collateralized mortgage obligations and state and local government- related investments, including bridge loans for low income housing tax credit projects in which the Trust is authorized to invest under Section 3.3(d) of the Trust's Declaration of Trust. The term Mortgage Investment does not include securities that may not be purchased by the Trust in accordance with its investment restrictions and policies. 3. Policy on Personal Securities Transactions - - - ---------------------------------------------- Every Investment Personnel of the Trust must obtain prior written approval from the Compliance Officer before engaging in a personal securities transaction (including an acquisition or disposition other than through a purchase or sale) involving a Mortgage Investment. For purposes of this Code, transactions in Mortgage Investments for an Investment Personnel's own account, including an individual retirement account and an account in which such person has an indirect Beneficial Interest, but excluding accounts over which the Investment Personnel has no direct or indirect influence or control, are considered "personal" transactions. Accounts involving an immediate family member (i.e. a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, including adoptive relationships) sharing the same household with the Investment Personnel and accounts in which the Investment Personnel has a Beneficial Interest (such as a trust of which the Investment Personnel is an income or principal beneficiary) are included within the meaning of "indirect Beneficial Interest." These rules relating to personal securities transactions are not considered applicable to accounts over which an Investment Personnel may have a substantial measure of influence or control, but in which the Investment Personnel has no direct or indirect Beneficial Interest (such as a trust for which the Investment Personnel serves as trustee but is not a beneficiary). Prior clearance and reporting requirements are not applicable to transactions for such accounts. In all transactions involving such an account, an Investment Personnel should, however, conform to the spirit of these rules and avoid any activity that might appear to conflict with the Investment Personnel's fiduciary duty of loyalty to the Trust and the Shareholders. Approval for a personal securities transaction in a Mortgage Investment shall depend upon the circumstances of the transaction, including the timing of the proposed transaction relative to transactions on behalf of the Trust, the nature of the securities and the parties involved in the transaction, and the relative sizes of the investments by the Trust and the individual. The Compliance Officer shall approve transactions upon determining that the proposed transaction would not have an adverse impact on the Trust. Obtaining pre-clearance approval does not constitute a waiver of any prohibitions, restrictions, or disclosure requirements in this Code. Pre-clearance approval will remain in effect for a reasonable period thereafter, as determined by the Compliance Officer, not to exceed 90 days. After the Compliance Officer has granted pre-clearance with respect to any personal securities transaction, the Compliance Officer shall verify from the Investment Personnel's quarterly transaction report that the person's investment activity conforms to the pre-clearance so granted and the provisions of this Code. No Investment Personnel may execute a securities transaction in a Mortgage Investment held in his or her own name or in which he or she has, or as a result of such transaction, will have, a direct or indirect beneficial interest on a day during which the Trust has a pending "buy" or "sell" order in that same Mortgage Investment until the Trust's order is fully executed or withdrawn. 4. Policy on Participation in Initial Public Offerings and Limited Offerings - - - ----------------------------------------------------------------------------- Any Investment Personnel of the Trust must obtain written approval from the Compliance Officer prior to obtaining, directly or indirectly, a Beneficial Interest in any securities in an Initial Public Offering or in a Limited Offering. Approval shall be based upon a determination that the investment opportunity need not be reserved for the Trust, that the Investment Personnel is not being offered the investment opportunity due to his or her employment with the Trust, and other relevant factors on a case-by-case basis. 5. Reporting Obligations - - - ------------------------- The Compliance Officer shall identify all Access Persons who are required to make reports under the Code and inform those Access Persons of their reporting obligations. Unless exempted from a reporting requirement as described in paragraph (d) below, each Access Person is required to submit the following reports to the Compliance Officer: (a) Initial Holdings Report. No later than ten days after becoming an ------------------------ Access Person, such Access Person shall provide (i) the title and the number of shares or principal amount of each Covered Security in which such person had any direct or indirect Beneficial Interest when the person became an Access Person, (ii) the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the Access Person's direct or indirect benefit, and (iii) the date of the report's submission to the Compliance Officer. (b) Quarterly Transaction Reports. No later than ten days after the end ------------------------------ of each calendar quarter, each Access Person shall provide, with respect to any transaction in a Covered Security during the quarter in which the person had any direct or indirect Beneficial Interest (i) the date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved, (ii) the nature of the transaction, (iii) the price of the Covered Security at which the transaction was effected, (iv) the name of the broker, dealer or bank with or through which the transaction was effected, and (v) the date of the report's submission to the Compliance Officer. With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of such Access Person, the Quarterly Transaction Report shall include (i) the name of the broker, dealer or bank with whom the Access Person established the account, (ii) the date the account was established, and (iii) the date of the report's submission to the Compliance Officer. (c) Annual Holdings Reports. By January 30 of each year, each Access ----------------------- Person must provide, a schedule indicating his or her personal securities holdings as of the preceding December 31, which schedule shall include (i) the title and the number of shares or principal amount of each Covered Security in which the Access Person had any direct or indirect Beneficial Interest, (ii) the name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for his or her direct or indirect benefit, and (iii) the date of the report's submission to the Compliance Officer. (d) Exemptions from Reporting Requirements. -------------------------------------- (i) Insufficient Control. An Access Person need not make any -------------------- of the above reports with respect to transactions effected for, and Covered Securities held in, any account over which the person had no direct or indirect influence or control. (ii) Disinterested Trustees. An Access Person whose status as ---------------------- such derives solely from his or her being a Trustee of the Trust who is not an "interested person" of the Trust, as defined by section 2(a)(19) of the Act, need not make an Initial Holdings Report or an Annual Holdings Report, and need make a Quarterly Transaction Report only if such Trustee knew, or in the ordinary course of fulfilling his or her duties as a Trustee of the Trust, should have known, that during the 15-day period immediately before or after the Trustee's transaction in a Covered Security, the Trust purchased or sold the Covered Security, or the Trust or its investment adviser considered purchasing or selling the Covered Security. (e) Certifications. All Access Persons are required to certify annually --------------- in writing that they have: (i) read and understand this Code and recognize that they are subject thereto, (ii) complied with the requirements of this Code, and (iii) disclosed or reported all personal securities transactions, holdings and accounts required to be disclosed or reported pursuant to the requirements of the Code. 6. Procedures with Regard to Dissemination of Information - - - ---------------------------------------------------------- Access Persons are prohibited from revealing information relating to current or anticipated investment intentions, portfolio transactions or activities of the Trust except to persons whose responsibilities require knowledge of the information. 7. Implementation - - - ------------------ Violations. Any person who has knowledge of any violation of this Code ---------- shall report said violation to the Compliance Officer. Sanctions. The Trust shall have authority to impose sanctions for ---------- violations of this Code. Such sanctions may include a letter of censure, suspension or termination of the employment of the violator, forfeiture of profits, forfeiture of personal trading privileges, forfeiture of gifts, or any other penalty deemed to be appropriate under the circumstances. Forms. The Compliance Officer is authorized, with the advice of counsel, ----- to prepare written forms for use in implementing this Code. Such forms shall be attached as an Appendix to this Code and shall be disseminated to all individuals subject to the Code. Exceptions. Exceptions to the requirements of this Code shall rarely, if ---------- ever, be granted. However, the Compliance Officer shall have authority to grant exceptions on a case-by-case basis. EX-99.P2CODEETH 10 welleth.txt WELLINGTON CODE OF ETHICS Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- Summary Wellington Management Company, llp and its affiliates have a fiduciary duty to investment company and investment counseling clients which requires each employee to act solely for the benefit of clients. Also, each employee has a duty to act in the best interest of the firm. In addition to the various laws and regulations covering the firm's activities, it is clearly in the firm's best interest as a professional investment advisory organization to avoid potential conflicts of interest or even the appearance of such conflicts with respect to the conduct of the firm's employees. Wellington Management's personal trading and conduct must recognize that the firm's clients always come first, that the firm must avoid any actual or potential abuse of our positions of trust and responsibility, and that the firm must never take inappropriate advantage of its positions. While it is not possible to anticipate all instances of potential conflict, the standard is clear. In light of the firm's professional and legal responsibilities, we believe it is appropriate to restate and periodically distribute the firm's Code of Ethics to all employees. It is Wellington Management's aim to be as flexible as possible in its internal procedures, while simultaneously protecting the organization and its clients from the damage that could arise from a situation involving a real or apparent conflict of interest. While it is not possible to specifically define and prescribe rules regarding all possible cases in which conflicts might arise, this Code of Ethics is designed to set forth the policy regarding employee conduct in those situations in which conflicts are most likely to develop. If an employee has any doubt as to the propriety of any activity, he or she should consult the President or Regulatory Affairs Department. The Code reflects the requirements of United States law, Rule 17j-1 of the Investment Company Act of 1940, as amended on October 29, 1999, as well as the recommendations issued by an industry study group in 1994, which were strongly supported by the SEC. The term "Employee" includes all employees and Partners. - - - ------------------ ---------------------------------------------------------- Policy on Essentially, this policy requires that all personal Personal (including acquisitions or dispositions other than through Securities a purchase or sale) by all Employees must be cleared prior Transaction to execution. The only exceptions to this policy of prior clearance are noted below. Definition of "Personal Securities Transactions" The following transactions by Employees are considered "personal" under applicable SEC rules and therefore subject to this statement of policy: Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- 1 Transactions for an Employee's own account, including IRA's. 2 Transactions for an account in which an Employee has indirect beneficial ownership, unless the Employee has no direct or indirect influence or control over the account. Accounts involving family (including husband, wife, minor children or other dependent relatives), or accounts in which an Employee has a beneficial interest (such as a trust of which the Employee is an income or principal beneficiary) are included within the meaning of "indirect beneficial interest". If an Employee has a substantial measure of influence or control over an account, but neither the Employee nor the Employee's family has any direct or indirect beneficial interest (e.g., a trust for which the Employee is a trustee but not a direct or indirect beneficiary), the rules relating to personal securities transactions are not considered to be directly applicable. Therefore, prior clearance and subsequent reporting of such transactions are not required. In all transactions involving such an account an Employee should, however, conform to the spirit of these rules and avoid any activity which might appear to conflict with the investment company or counseling clients or with respect to the Employee's position within Wellington Management. In this regard, please note "Other Conflicts of Interest", found later in this Code of Ethics, which does apply to such situations. - - - ----------------- ---------------------------------------------------------- Preclearance Except as specifically exempted in this section, all Required Employees must clear personal securities transactions prior to execution. This includes bonds, stocks (including closed end funds), convertibles, preferreds, options on securities, warrants, rights, etc., for domestic and foreign securities, whether publicly traded or privately placed. The only exceptions to this requirement are automatic dividend reinvestment and stock purchase plan acquisitions, broad-based stock index and US government securities futures and options on such futures, transactions in open-end mutual funds, US Government securities, commercial paper, or non-volitional transactions. Non-volitional transactions include gifts to an Employee over which the Employee has no control of the timing or transactions which result from corporate action applicable to all similar security holders (such as splits, tender offers, mergers, stock dividends, etc.). Please note, however, that most of these transactions must be reported even though they do not have to be precleared. See the following section on reporting obligations. Clearance for transactions must be obtained by contacting the Director of Global Equity Trading or those personnel designated by him for this purpose. Requests for clearance and approval for transactions may be communicated orally or via email. The Trading Department will maintain a log of all requests for approval as coded confidential records of the firm. Private placements (including both securities Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- and partnership interests) are subject to special clearance by the Director of Regulatory Affairs, Director of Enterprise Risk Management or the General Counsel, and the clearance will remain in effect for a reasonable period thereafter, not to exceed 90 days. Clearance for personal securities transactions for publicly traded securities will be in effect for one trading day only. This "one trading day" policy is interpreted as follows: * If clearance is granted at a time when the principal market in which the security trades is open, clearance is effective for the remainder of that trading day until the opening of that market on the following day. * If clearance is granted at a time when the principal market in which the security trades is closed, clearance is effective for the next trading day until the opening of that market on the following day. - - - ----------------- ---------------------------------------------------------- Filing of Reports Records of personal securities transactions by Employees will be maintained. All Employees are subject to the following reporting requirements: 1 Duplicate Brokerage Confirmations All Employees must require their securities brokers to send duplicate confirmations of their securities transactions to the Regulatory Affairs Department. Brokerage firms are accustomed to providing this service. Please contact Regulatory Affairs to obtain a form letter to request this service. Each employee must return to the Regulatory Affairs Department a completed form for each brokerage account that is used for personal securities transactions of the Employee. Employees should not send the completed forms to their brokers directly. The form must be completed and returned to the Regulatory Affairs Department prior to any transactions being placed with the broker. The Regulatory Affairs Department will process the request in order to assure delivery of the confirms directly to the Department and to preserve the confidentiality of this information. When possible, the transaction confirmation filing requirement will be satisfied by electronic filings from securities depositories. 2 Filing of Quarterly Report of all "Personal Securities Transactions" SEC rules require that a quarterly record of all personal securities transactions be submitted by each person subject to the Code's requirements and that this record be available for inspection. To comply with these rules, every Employee must file a quarterly personal securities transaction report within 10 calendar days after the end of Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- each calendar quarter. Reports are filed electronically utilizing the firm's proprietary Personal Securities Transaction Reporting System (PSTRS) accessible to all Employees via the Wellington Management Intranet. At the end of each calendar quarter, Employees will be notified of the filing requirement. Employees are responsible for submitting the quarterly report within the deadline established in the notice. Transactions during the quarter indicated on brokerage confirmations or electronic filings are displayed on the Employee's reporting screen and must be affirmed if they are accurate. Holdings not acquired through a broker submitting confirmations must be entered manually. All Employees are required to submit a quarterly report, even if there were no reportable transactions during the quarter. Employees must also provide information on any new brokerage account established during the quarter including the name of the broker, dealer or bank and the date the account was established. IMPORTANT NOTE: The quarterly report must include the required information for all "personal securities transactions" as defined above, except transactions in open-end mutual funds, money market securities, US Government securities, and futures and options on futures on US government securities. Non-volitional transactions and those resulting from corporate actions must also be reported even though preclearance is not required and the nature of the transaction must be clearly specified in the report. 3 Certification of Compliance As part of the quarterly reporting process on PSTRS, Employees are required to confirm their compliance with the provisions of this Code of Ethics. Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- 4 Filing of Personal Holding Report Annually, all Employees must file a schedule indicating their personal securities holdings as of December 31 of each year by the following January 30. SEC Rules require that this report include the title, number of shares and principal amount of each security held in an Employee's personal account, and the name of any broker, dealer or bank with whom the Employee maintains an account. "Securities" for purposes of this report are those which must be reported as indicated in the prior paragraph. Newly hired Employees are required to file a holding report within ten (10) days of joining the firm. Employees may indicate securities held in a brokerage account by attaching an account statement, but are not required to do so, since these statements contain additional information not required by the holding report. 5 Review of Reports All reports filed in accordance with this section will be maintained and kept confidential by the Regulatory Affairs Department. Reports will be reviewed by the Director of Regulatory Affairs or personnel designated by her for this purpose. - - - ------------------ ---------------------------------------------------------- Restrictions on While all personal securities transactions must be cleared "Personal prior to execution, the following guidelines indicate Securities which transactions will be prohibited, discouraged, or Transactions" subject to nearly automatic clearance. The clearance of personal securities transactions may also depend upon other circumstances, including the timing of the proposed transaction relative to transactions by our investment counseling or investment company clients; the nature of the securities and the parties involved in the transaction; and the percentage of securities involved in the transaction relative to ownership by clients. The word "clients" refers collectively to investment company clients and counseling clients. Employees are expected to be particularly sensitive to meeting the spirit as well as the letter of these restrictions. Please note that these restrictions apply in the case of debt securities to the specific issue and in the case of common stock, not only to the common stock, but to any equity-related security of the same issuer including preferred stock, options, warrants, and convertible bonds. Also, a gift or transfer from you (an Employee) to a third party shall be subject to these restrictions, unless the donee or transferee represents that he or she has no present intention of selling the donated security. Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- 1 No Employee may engage in personal transactions involving any securities which are: * being bought or sold on behalf of clients until one trading day after such buying or selling is completed or canceled. In addition, no Portfolio Manager may engage in a personal transaction involving any security for 7 days prior to, and 7 days following, a transaction in the same security for a client account managed by that Portfolio Manager without a special exemption. See "Exemptive Procedures" below. Portfolio Managers include all designated portfolio managers and others who have direct authority to make investment decisions to buy or sell securities, such as investment team members and analysts involved in Research Equity portfolios. All Employees who are considered Portfolio Managers will be so notified by the Regulatory Affairs Department. * the subject of a new or changed action recommendation from a research analyst until 10 business days following the issuance of such recommendation; * the subject of a reiterated but unchanged recommendation from a research analyst until 2 business days following reissuance of the recommendation * actively contemplated for transactions on behalf of clients, even though no buy or sell orders have been placed. This restriction applies from the moment that an Employee has been informed in any fashion that any Portfolio Manager intends to purchase or sell a specific security. This is a particularly sensitive area and one in which each Employee must exercise caution to avoid actions which, to his or her knowledge, are in conflict or in competition with the interests of clients. 2 The Code of Ethics strongly discourages short term trading by Employees. In addition, no Employee may take a "short term trading" profit in a security, which means the sale of a security at a gain (or closing of a short position at a gain) within 60 days of its purchase, without a special exemption. See "Exemptive Procedures". The 60 day prohibition does not apply to transactions resulting in a loss, nor to futures or options on futures on broad-based securities indexes or US government securities. Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- 3 No Employee engaged in equity or bond trading may engage in personal transactions involving any equity securities of any company whose primary business is that of a broker/dealer. 4 Subject to preclearance, Employees may engage in short sales, options, and margin transactions, but such transactions are strongly discouraged, particularly due to the 60 day short term profit-taking prohibition. Any Employee engaging in such transactions should also recognize the danger of being "frozen" or subject to a forced close out because of the general restrictions which apply to personal transactions as noted above. In specific case of hardship an exception may be granted by the Director of Regulatory Affairs or her designee upon approval of the Ethics Committee with respect to an otherwise "frozen" transaction. 5 No Employee may engage in personal transactions involving the purchase of any security on an initial public offering. This restriction also includes new issues resulting from spin-offs, municipal securities and thrift conversions, although in limited cases the purchase of such securities in an offering may be approved by the Director of Regulatory Affairs or her designee upon determining that approval would not violate any policy reflected in this Code. This restriction does not apply to open-end mutual funds, U. S. government issues or money market investments. 6 Employees may not purchase securities in private placements unless approval of the Director of Regulatory Affairs, Director of Enterprise Risk Management or the General Counsel has been obtained. This approval will be based upon a determination that the investment opportunity need not be reserved for clients, that the Employee is not being offered the investment opportunity due to his or her employment with Wellington Management and other relevant factors on a case-by-case basis. If the Employee has portfolio management or securities analysis responsibilities and is granted approval to purchase a private placement, he or she must disclose the privately placed holding later if asked to evaluate the issuer of the security. An independent review of the Employee's analytical work or decision to purchase the security for a client account will then be performed by another investment professional with no personal interest in the transaction. Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- Gifts and Other Employees should not seek, accept or offer any gifts or Sensitive favors of more than minimal value or any preferential Payments treatment in dealings with any client, broker/dealer, portfolio company, financial institution or any other organization with whom the firm transacts business. Occasional participation in lunches, dinners, cocktail parties, sporting activities or similar gatherings conducted for business purposes are not prohibited. However, for both the Employee's protection and that of the firm it is extremely important that even the appearance of a possible conflict of interest be avoided. Extreme caution is to be exercised in any instance in which business related travel and lodgings are paid for other than by Wellington Management, and prior approval must be obtained from the Regulatory Affairs Department. Any question as to the propriety of such situations should be discussed with the Regulatory Affairs Department and any incident in which an Employee is encouraged to violate these provisions should be reported immediately. An explanation of all extraordinary travel, lodging and related meals and entertainment is to be reported in a brief memorandum to the Director of Regulatory Affairs. Employees must not participate individually or on behalf of the firm, a subsidiary, or any client, directly or indirectly, in any of the following transactions: 1 Use of the firm's funds for political purposes. 2 Payment or receipt of bribes, kickbacks, or payment or receipt of any other amount with an understanding that part or all of such amount will be refunded or delivered to a third party in violation of any law applicable to the transaction. 3 Payments to government officials or employees (other than disbursements in the ordinary course of business for such legal purposes as payment of taxes). 4 Payment of compensation or fees in a manner the purpose of which is to assist the recipient to evade taxes, federal or state law, or other valid charges or restrictions applicable to such payment. Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- 5 Use of the funds or assets of the firm or any subsidiary for any other unlawful or improper purpose. - - - ------------------ ---------------------------------------------------------- Other Conflicts Employees should also be aware that areas other than of Interest personal securities transactions or gifts and sensitive payments may involve conflicts of interest. The following should be regarded as examples of situations involving real or potential conflicts rather than a complete list of situations to avoid. "Inside Information" Specific reference is made to the firm's policy on the use of "inside information" which applies to personal securities transactions as well as to client transactions. Use of Information Information acquired in connection with employment by the organization may not be used in any way which might be contrary to or in competition with the interests of clients. Employees are reminded that certain clients have specifically required their relationship with us to be treated confidentially. Disclosure of Information Information regarding actual or contemplated investment decisions, research priorities or client interests should not be disclosed to persons outside our organization and in no way can be used for personal gain. Outside Activities All outside relationships such as directorships or trusteeships of any kind or membership in investment organizations (e.g., an investment club) must be cleared by the Director of Regulatory Affairs prior to the acceptance of such a position. As a general matter, directorships in unaffiliated public companies or companies which may reasonably be expected to become public companies will not be authorized because of the potential for conflicts which may impede our freedom to act in the best interests of clients. Service with charitable organizations generally will be authorized, subject to considerations related to time required during working hours and use of proprietary information. Exemptive Procedure The Director of Regulatory Affairs, the Director of Enterprise Risk Management, the General Counsel or the Ethics Committee can grant exemptions from the personal trading restrictions in this Code upon determining that the transaction for which an exemption is requested would not result in a conflict of interest or violate any other policy embodied in this Code. Factors to be considered may include: the size and holding period of the Employee's Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- position in the security, the market capitalization of the issuer, the liquidity of the security, the reason for the Employee's requested transaction, the amount and timing of client trading in the same or a related security, and other relevant factors. Any Employee wishing an exemption should submit a written request to the Director of Regulatory Affairs setting forth the pertinent facts and reasons why the employee believes that the exemption should be granted. Employees are cautioned that exemptions are intended to be exceptions, and repetitive exemptive applications by an Employee will not be well received. Records of the approval of exemptions and the reasons for ranting exemptions will be maintained by the Regulatory Affairs Department. Compliance with Adherence to the Code of Ethics is considered a basic the Code of condition of employment with our organization. The Ethics Ethics Committee monitors compliance with the Code and reviews violations of the Code to determine what action or sanctions are appropriate. Violations of the provisions regarding personal trading will presumptively be subject to being reversed in the case of a violative purchase, and to disgorgement of any profit realized from the position (net of transaction costs and capital gains taxes payable with respect to the transaction) by payment of the profit to any client disadvantaged by the transaction, or to a charitable organization, as determined by the Ethics Committee, unless the Employee establishes to the satisfaction of the Ethics Committee that under the particular circumstances disgorgement would be an unreasonable remedy for the violation. Violations of the Code of Ethics may also adversely affect an Employee's career with Wellington Management with respect to such matters as compensation and advancement. Employees must recognize that a serious violation of the Code of Ethics or related policies may result, at a minimum, in immediate dismissal. Since many provisions of the Code of Ethics also reflect provisions of the US securities laws, Employees should be aware that violations could also lead to regulatory enforcement action resulting in suspension or expulsion from the securities business, fines and penalties, and imprisonment. Again, Wellington Management would like to emphasize the importance of obtaining prior clearance of all personal securities transactions, avoiding prohibited transactions, filing all required reports promptly and avoiding other Wellington Management Company, LLP Wellington Trust Company, NA Wellington Management International, LLP Wellington International Management Company Pte Ltd Code of Ethics - - - ------------------ ---------------------------------------------------------- situations which might involve even an apparent conflict of interest. Questions regarding interpretation of this policy or questions related to specific situations should be directed to the Regulatory Affairs Department or Ethics Committee. Revised: March 1, 2000 EX-99.Q4 11 poas.txt POWERS OF ATTORNEY POWER OF ATTORNEY EXECUTIVE OFFICER The undersigned Executive Officer of the AFL-CIO Housing Investment Trust ("Housing Trust") hereby constitutes and appoints Michael M. Arnold and Helen R. Kanovsky and each of them, either of whom may act without the joinder of the other, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign in his or her behalf, individually and in his or her capacity as an Officer of the Housing Trust, all amendments to the Registration Statement on Securities and Exchange Commission Form N-1 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/ John M. Hanley ------------------------- (signature) Name: John M. Hanley ------------------------- (please type or print) Date: April 17, 2001. ---------- POWER OF ATTORNEY EXECUTIVE OFFICER The undersigned Executive Officer of the AFL-CIO Housing Investment Trust ("Housing Trust") hereby constitutes and appoints Michael M. Arnold and Helen R. Kanovsky and each of them, either of whom may act without the joinder of the other, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign in his or her behalf, individually and in his or her capacity as an Officer of the Housing Trust, all amendments to the Registration Statement on Securities and Exchange Commission Form N-1 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/ Eileen M. Fitzgerald ------------------------- (signature) Name: Eileen M. Fitzgerald ------------------------- (please type or print) Date: April 17, 2001. ---------- POWER OF ATTORNEY EXECUTIVE OFFICER The undersigned Executive Officer of the AFL-CIO Housing Investment Trust ("Housing Trust") hereby constitutes and appoints Michael M. Arnold and Helen R. Kanovsky and each of them, either of whom may act without the joinder of the other, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign in his or her behalf, individually and in his or her capacity as an Officer of the Housing Trust, all amendments to the Registration Statement on Securities and Exchange Commission Form N-1 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/ David B. Keto ------------------------- (signature) Name: David B. Keto ------------------------- (please type or print) Date: April 18, 2001. --------- POWER OF ATTORNEY EXECUTIVE OFFICER The undersigned Executive Officer of the AFL-CIO Housing Investment Trust ("Housing Trust") hereby constitutes and appoints Michael M. Arnold and Helen R. Kanovsky and each of them, either of whom may act without the joinder of the other, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, to sign in his or her behalf, individually and in his or her capacity as an Officer of the Housing Trust, all amendments to the Registration Statement on Securities and Exchange Commission Form N-1 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/ Erica Khatchadourian ------------------------- (signature) Name: Erica Khatchadourian ------------------------- (please type or print) Date: April 18, 2001. --------- EX-99.Q5 12 welllist.txt WELLINGTON LIST OFFICERS AND DIRECTORS The principal business address of Wellington Management Company, llp ("Wellington Management") is 75 State Street, Boston, Massachusetts 02109. Wellington Management is an investment adviser registered under the Investment Advisers Act of 1940. Name and Position With Name of Connection With Investment Adviser Other Company Other Company - - - ---------------------------------------------------------------------------- Kenneth Lee Abrams -- -- Partner Nicholas Charles Adams Partner -- -- Rand Lawrence Alexander Partner -- -- Deborah Louise Allinson Partner Wellington Trust Company, NA Vice President Steven C. Angeli Partner -- -- James Halsey Averill Partner -- -- John F. Averill Partner Wellington Hedge Management, Inc. Vice President Karl E. Bandtel Partner Wellington Global Administrator, Ltd. Sr. Vice President Wellington Global Holdings, Ltd. Sr. Vice President Wellington Hedge Management, Inc.Sr. Vice President Mark James Beckwith Partner -- -- Kevin J. Blake Partner -- -- William Nicholas Booth Partner -- -- Michael J. Boudens Wellington Global Vice President Partner Administrator, Ltd. Wellington Hedge Management, Inc. Vice President Paul Braverman Wellington Global Partner Administrator, Ltd. Treasurer Wellington Global Holdings, Ltd. Treasurer Wellington Hedge Management, Inc. Treasurer Wellington International Management Company Pte Ltd. Director Wellington Management Global Holdings, Ltd. Treasurer Wellington Management International, LLP Partner & CFO Wellington Sales Corporation Pres. & Treasurer Wellington Trust Company, NA Treasurer/Cashier Robert A. Bruno Partner -- -- Maryann Evelyn Carroll Partner -- -- Pamela Dippel Partner Wellington Trust Company, NA Vice President Robert Lloyd Evans Partner -- -- Lisa de la Fuente Finkel Wellington Global Partner Administrator, Ltd. Sr. VP & Director Wellington Global Holdings, Ltd. Director Wellington Hedge Management, Inc. Sr. Vice President Wellington Luxembourg S.C.A. Supervisory Board Wellington Management Global Holdings, Ltd. Director Wellington Sales Corporation Sr. VP & Director Mark T. Flaherty Partner Wellington Trust Company, NA Vice President Charles Townsend Freeman Partner -- -- Laurie Allen Gabriel Wellington Global Managing Partner Administrator, Ltd. Sr. Vice President Wellington Hedge Management, Inc.Sr. VP & Director Wellington Trust Company, NA Vice President John Herrick Gooch Wellington Global Pres. & Director Partner Administrator, Ltd. Wellington Global Holdings, Ltd. Pres. & Director Wellington Hedge Management, Inc.President Wellington Management Global Holdings, Ltd. Pres. & Director Wellington Management International, LLP Partner Wellington Trust Company, NA VP & Director Nicholas Peter Greville Wellington Global Partner Administrator, Ltd. Sr. Vice President Wellington Global Holdings, Ltd. Sr. Vice President Wellington International Management Company Pte Ltd. Director Wellington Management International, LLP Partner Paul J. Hamel Vice President & Partner Wellington Trust Company, NA Bank Information Systems Officer Lucius Tuttle Hill, III Partner -- -- Jean M. Hynes Partner -- -- Paul David Kaplan Wellington Global Partner Administrator, Ltd. Director Wellington Global Holdings, Ltd. Director Wellington Management Global Holdings, Ltd. Director John Charles Keogh Partner Wellington Trust Company, NA Vice President George Cabot Lodge, Jr. Wellington Global Sr. Vice President Partner Administrator, Ltd. Wellington Hedge Management, Inc.Sr. Vice President Nancy Therese Lukitsh Wellington Global Sr. Vice President Partner Administrator, Ltd. Wellington Hedge Management, Inc.Sr. Vice President Wellington Trust Company, NA VP & Director Mark Thomas Lynch Partner -- -- Christine Smith Manfredi Wellington Global Sr. Vice President Partner Administrator, Ltd. Wellington Global Holdings, Ltd. Sr. Vice President Wellington Hedge Management, Inc.Sr. Vice President Wellington Trust Company, NA Vice President Earl Edward McEvoy Partner -- -- Duncan Mathieu McFarland Wellington Global Managing Partner Administrator, Ltd. Chairman & Director Wellington Global Holdings, Ltd.Chairman & Director Wellington Hedge Mgmt, Inc. Chairman & Director Wellington International Management Company Pte Ltd. Director Wellington Management Global Holdings, Ltd. Chairman & Director Wellington Management International, LLP Partner Wellington Trust Company, NA Chair. of the Board & Director Paul Mulford Mecray III Partner -- -- Matthew Edward Megargel Partner -- -- James Nelson Mordy Partner -- -- Diane Carol Nordin Wellington Global Partner Administrator, Ltd. Sr. Vice President Wellington Hedge Management, Inc. Sr. Vice President Stephen T. O'Brien Partner -- -- Andrew S. Offit Partner -- -- Edward Paul Owens Partner -- -- Saul Joseph Pannell Partner -- -- Thomas Louis Pappas Partner -- -- Jonathan Martin Payson Wellington Global Partner Administrator, Ltd. Director Wellington Global Holdings, Ltd. Director Wellington Management Global Holdings, Ltd. Director Wellington Sales Corporation Sr. Vice Pres. Wellington Trust Company, NA Pres. & Director Philip H. Perelmuter Partner -- -- Robert Douglas Rands Partner -- -- Eugene Edward Record, Jr. Partner Wellington Trust Company, NA Vice President James Albert Rullo Partner -- -- John Robert Ryan Managing Partner Wellington Hedge Management, Inc. Director Joseph Harold Schwartz Partner -- -- James H. Shakin Partner -- -- Theodore Shasta Partner -- -- Binkley Calhoun Shorts Partner -- -- Scott E. Simpson Partner Wellington Hedge Management, Inc. Vice President Trond Skramstad Partner -- -- Catherine Anne Smith Partner -- -- Stephen Albert Soderberg Partner -- -- Eric Stromquist Wellington Hedge Partner Management, Inc. Sr. Vice President Brendan James Swords Wellington Global Sr. Vice President Partner Administrator, Ltd. Wellington Hedge Management, Inc. Sr. Vice President Harriett Tee Taggart Partner -- -- Perry Marques Traquina Partner -- -- Gene Roger Tremblay Partner -- -- Michael Aaron Tyler Partner -- -- Mary Ann Tynan Partner Wellington Luxembourg S.C.A. Supervisory Board Wellington Management Partner & International, LLP Compliance Officer Wellington Sales Corporation Sr. VP, Clerk & Director Wellington Trust Company, NA VP & Trust Officer Clare Villari Partner -- -- Ernst Hans von Metzsch Wellington Global Partner Administrator, Ltd. Sr. Vice President Wellington Global Holdings, Ltd. Sr. Vice President Wellington Hedge Management, Inc. Sr. Vice President James Leland Walters Wellington Global Deputy Chairman & Partner Administrator, Ltd. Director Wellington Global Deputy Chairman & Holdings, Ltd. Director Wellington International Director Management Company Pte Ltd. Wellington Luxembourg S.C.A. Supervisory Board Wellington Management Deputy Chairman, Global Holdings, Inc. Sr. VP & Director Wellington Sales Corporation Sr. VP, Asst. Clerk & Director Wellington Trust Company, NA Trust Counsel & Director Kim Williams Partner -- -- Francis Vincent Wisneski Partner -- -- Please note the principal business address for Wellington Hedge Management, Inc., Wellington Management International, llp, Wellington Sales Corporation and Wellington Trust Company, NA is the same as Wellington Management. The principal business address for Wellington International Management Company Pte Ltd. is Six Battery Road, Ste. 17-06, Singapore 049909. The principal business address for Wellington Global Administrator, Ltd., Wellington Global Holdings, Ltd. and Wellington Management Global Holdings, Ltd. is Clarendon House, 2 Church Street, PO Box HM 666, Hamilton HMCX, Bermuda. The principal business address for Wellington Luxembourg S.C.A. is 33, boulevard Prince Henri, L-2014 Luxembourg. -----END PRIVACY-ENHANCED MESSAGE-----