As filed with the Securities and Exchange Commission on May 15, 1997
Registration No. 2-78066
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- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under
The Securities Act of 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 26 [X]
and/or
Registration Statement Under
The Investment Company Act of 1940
Amendment No. 29 [X]
-------------------------------------
Registrant's Name, Address and Telephone Number:
American Federation of Labor and Congress of Industrial Organizations
Housing Investment Trust
1717 K Street, N.W.
Suite 707
Washington, D.C. 20006
(202) 331-8055
Name and Address of Agent for Service:
Kenneth G. Lore
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Approximate Date of Proposed Public Offering:
Public Offering Commenced February 9, 1983
-------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[x] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Rule 24f-2(a)(1) Declaration:
An indefinite number of Units of Beneficial Interest of the Registrant
are being registered by this Registration Statement pursuant to Rule 24f-2
under the Investment Company Act of 1940. Registrant's most recent Rule 24f-2
Notice was filed on February 26, 1997 and registration fees totalling
$73,051.56 were paid. Future Rule 24f-2 Notices will be filed and further
filing fees paid as prescribed in Rule 24f-2.
<PAGE>
<PAGE>
AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS
HOUSING INVESTMENT TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
N-1A Item No. Location
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PART A: PROSPECTUS
Item 1. Cover Page Cover Page
Item 2. Synopsis Prospectus Summary
Item 3. Condensed Financial Condensed Financial
Information Information
Item 4. General Description of Prospectus Summary;
Registrant History and Purpose;
Investment Objective and Policies
Investment Restrictions
Risk Factors
Item 5. Management of the Fund Prospectus Summary;
Management; Investment Adviser
Item 5A. Management's Discussion Trust Performance
of Fund Performance
Item 6. Capital Stock and Other Prospectus Summary;
Securities Incidents of Ownership of Units
Securities Offered; Tax Status
Item 7. Purchase of Securities Prospectus Summary;
Being Offered Securities Offered;
Sales Activities
Item 8. Redemption or Repurchase Prospectus Summary; Redemption
Item 9. Legal Proceedings Pendency of Legal Proceedings
<PAGE>
<PAGE>
PART B: STATEMENT OF ADDITIONAL INFORMATION
N-1A Item No. Location
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History; Exemptions
History from Specific Requirements of the
Investment Company Act;
Supplementary Information
Item 13. Investment Objective and Prospectus Investment Objective
and Policies and Policies; Prospectus
Investment Restrictions
Item 14. Management of the Management of the Trust
Registrant
Item 15. Control Persons and Principal Holders of
Principal Holders of Securities
Securities
Item 16. Investment Advisory and Management of the Trust;
Other Services Investment Adviser;
Sales and Distribution Activities;
Supplementary Information
Item 17. Brokerage Allocation and Prospectus Management;
Other Services Investment Adviser
Item 18. Capital Stock and Other Admission to the Trust
Securities
Item 19. Purchase, Redemption and Sales and Distribution Activities;
Pricing of Securities Being Admission to the Housing Trust;
Offered Prospectus Securities Offered
Item 20. Tax Status Prospectus Tax Status
Item 21. Underwriters Not Applicable
Item 22. Calculation of Not Applicable
Performance Data
Item 23. Financial Statements Financial Statements<PAGE>
<PAGE>
PART C: STATEMENT OF OTHER INFORMATION
N-1A Item No. Location
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Item 24. Financial Statements and Financial Statements and Exhibits
and Exhibits
Item 25. Persons Controlled by or Common Control
Under Common Control
Item 26. Number of Holders of Number of Security Holders
Securities
Item 27. Indemnification Indemnification
Item 28. Business and Other Connections Business and Other Connections
of Investment Adviser of Investment Advisor
Item 29. Principal Underwriters Not Applicable
Item 30. Location of Accounts and Location of Accounts and
Records Records
Item 31. Management Services Not Applicable
Item 32. Undertakings Not Applicable
SIGNATURES Signatures
<PAGE>
<PAGE>
AFL-CIO
HOUSING INVESTMENT TRUST
-------------------
PROSPECTUS
-------------------
The investment objective of the American Federation of Labor and Congress
of Industrial Organizations Housing Investment Trust ("Trust") is to provide
current income through a program of investment in construction and long-term
mortgage loans, secured bridge loans and mortgage-backed securities carrying
competitive market yields. The Trust invests primarily in obligations that
are evidenced or secured by mortgage-backed securities, mortgages or other
liens on real estate. At least 70% of the mortgage loans and mortgage-backed
securities in which the Trust invests directly or that back other investments
of the Trust are either federally insured or guaranteed or issued or
guaranteed by the Federal National Mortgage Association ("Fannie Mae") or the
Federal Home Loan Mortgage Corporation ("Freddie Mac"). At the same time, the
Trust seeks to promote important objectives of the American labor union
movement by encouraging the construction of housing and by promoting
additional and continuing employment for union members in the construction
trades and related industries that provide materials, furnishings, appliances
and services related to housing construction. The Trust proposes to achieve
these union objectives by limiting investments secured by mortgaged real
estate involving new construction or rehabilitation work to those in which
such new construction or rehabilitation work is done by union labor. Real
estate securing Trust investments will include single-family dwellings,
multi-family projects, intermediate care facilities and nursing homes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Trust that
a prospective investor ought to know before investing. Investors should read
and retain this Prospectus for future reference. A Statement of Additional
Information about the Trust has been filed with the Securities and Exchange
Commission ("SEC") and is available upon request without charge from Trust
headquarters. The Statement of Additional Information, including the Trust's
audited financial statements for the year ended December 31, 1996, is
incorporated by reference in this Prospectus.
The date of this Prospectus is May 15, 1997.
The date of the Statement of Additional Information is May 15, 1997.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary.................................................... 1
Condensed Financial Information........................................ 6
History and Purpose.................................................... 7
Investment Objective and Policies...................................... 8
Investment Restrictions................................................ 26
Risk Factors........................................................... 28
Management............................................................. 37
Trust Performance...................................................... 38
Investment Adviser..................................................... 41
Incidents of Ownership of Units........................................ 43
Securities Offered..................................................... 44
Sales Activities....................................................... 48
Redemption............................................................. 49
Tax Status............................................................. 50
Pendency of Legal Proceedings.......................................... 50
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THIS OFFERING, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THESE SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE.
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The summary information below should be read in conjunction with the
detailed information appearing elsewhere in this Prospectus.
ISSUER
The Trust is a common law trust created under the laws of the District
of Columbia and sponsored by the American Federation of Labor and Congress of
Industrial Organizations ("AFL-CIO"). The terms of the Trust are set forth in
the Declaration of Trust as amended to date ("Declaration of Trust"). See
"HISTORY AND PURPOSE."
The Trust is governed by a Board of Trustees, consisting of up to 12
Trustees who are officers of the AFL-CIO or its member unions ("Union
Trustees"); up to 12 Trustees who are (i) officers or management employees of
one or more organizations contributing directly or indirectly through
contractors to an Eligible Pension Plan (as defined below), or officers or
management employees of such a Plan, or (ii) with respect to not more than 2
of such Trustees, an officer, director or trustee of an organization connected
in whole or in part with the housing industry, or an elected or appointed
official of the federal or any state or local government or an agency or
instrumentality thereof ("Management Trustees"); and one Trustee who is
neither an officer, trustee or employee of any organization that participates
in the Trust ("Chairman"). The number of Management Trustees may not exceed
the number of Union Trustees except in case a Trustee dies or resigns before
the expiration of his or her term. See "MANAGEMENT."
ELIGIBLE INVESTORS
Units of beneficial interest ("Units") in the Trust are offered,
without charge of any sales load or commission, only to organizations which
exist for the purpose of dealing with employees regarding terms and conditions
of employment, as well as any employee benefit plan or other organization
affiliated with or sponsored by such an organization ("Labor Organizations")
and to pension plans constituting qualified trusts under Section 401(a) of the
Internal Revenue Code of 1986, as amended ("IRC") that have beneficiaries who
are union members ("Eligible Pension Plans"). See "SECURITIES OFFERED" for
more complete definitions. Eligible Labor Organizations include 72 national
and international unions and 624 state and local central bodies directly
affiliated with the AFL-CIO, the great number of local unions and state and
local central bodies affiliated directly with those national and international
unions, and other labor organizations.
SECURITIES OFFERED
Units representing interests in the Trust are offered at the Net Asset
Value per Unit as of the last business day of each month ("Valuation Date")
following receipt of a purchase order. A minimum initial investment of
$50,000 is required. See "SECURITIES OFFERED." Securities may be issued for
whole or fractional Units. Units are not transferable and are not assignable.
The Trust is an open-end company but securities are redeemable in whole or
<PAGE>
<PAGE>
fractional Units as of monthly Valuation Dates with at least 15 days prior
written notice. See "REDEMPTION." Each Unit will be valued at its pro rata
share of the Net Asset Value of the Trust as of the close of business on the
last business day of each month. The Trust does not issue certificates
evidencing ownership of Units. Units are issued and redeemed by bookkeeping
entry and without physical delivery of securities.
INVESTMENT OBJECTIVE
The Trust's investment objective is to provide current income through
investment in construction and long-term mortgage loans and mortgage-backed
securities and secured bridge loans carrying competitive market yields. The
Trust invests primarily in obligations that are evidenced or secured by
mortgage-backed securities, mortgages or liens on real estate. At least 70%
of the mortgage loans and mortgage-backed securities in which the Trust
invests or that back other investments of the Trust are either federally
insured or guaranteed or issued or guaranteed by Fannie Mae or Freddie Mac.
Although principal and interest (base interest in the case of contingent
interest mortgage loans) payments are guaranteed, the market value of such
mortgage loans and securities is not guaranteed and will fluctuate. One
purpose of these investments is to encourage construction of housing and
thereby facilitate additional and continuing employment for union members in
the construction trades and related industries. In addition, to promote its
objective of encouraging union construction, the Trust may enter into
pre-construction loan commitments. See "INVESTMENT OBJECTIVE AND
POLICIES--Pre-construction Commitments." The Trust has been established to
promote important objectives of the American labor union movement.
The Trust may invest up to 100% of its assets in construction and
long-term loans insured or guaranteed by the Federal Housing Administration
("FHA"), the Department of Veterans Affairs ("VA") and the Government National
Mortgage Association ("Ginnie Mae") and securities that are secured by
securities and/or mortgage loans issued or insured, as applicable, by FHA, VA
and Ginnie Mae if the securities are rated in one of the two highest rating
categories (that is, AAA or AA) of a nationally recognized rating agency. The
Trust may invest up to 100% of its assets in obligations that are issued or
guaranteed by Fannie Mae or Freddie Mac (including Fannie Mae mortgage-backed
securities and Freddie Mac participation certificates) and in securities
backed by Fannie Mae or Freddie Mac if the securities are rated in one of the
two highest rating categories (that is, AAA or AA) of a nationally recognized
rating agency (such obligations and securities are sometimes hereinafter
referred to collectively as "Fannie Mae and Freddie Mac Investments").
Trust investments may include federal government-related, Fannie Mae,
and Freddie Mac contingent interest mortgage loans. See "INVESTMENT OBJECTIVE
AND POLICIES -- Contingent Interest Mortgage Loans" and "INVESTMENT OBJECTIVE
AND POLICIES -- Pass-Through and Pay-Through Securities." Trust investments
also may include federally insured or guaranteed mortgages or securities
backed thereby and Fannie Mae and Freddie Mac Investments that include a right
to require early repayment under certain circumstances. See "INVESTMENT
OBJECTIVE AND POLICIES--Early Repayment Loans."
<PAGE>
<PAGE>
The Trust may invest up to 30% of its assets in certain privately
collateralized obligations and in certain qualified state and local
government-related investments, including certain secured bridge loans
("Secured Bridge Loans") that may not, in the aggregate, exceed 5% of the
Trust's assets. See "INVESTMENT OBJECTIVE AND POLICIES--Privately
Collateralized Investments; State and Local Government-Related Investments."
Although the Trust's Declaration of Trust authorizes the Trust to
invest in a range of investments (as described above), historically the Trust
has concentrated its investments in FHA-, VA- and Ginnie Mae-insured or
guaranteed construction loans and in Fannie Mae and Freddie Mac investments.
At December 31, 1996, such investments represented 92.7% of the Trust's total
investment portfolio. The Management of the Trust intends to maximize Trust
investments in such assets to the extent market conditions permit, consistent
with the overall objectives of the Trust. However, there can be no assurance
that this historic concentration of investments will be maintained.
Pending investment in such loans and securities, assets of the Trust
are held in various instruments, including United States Government issues,
federal agency issues, mutual funds that invest in such securities, commercial
paper, collateral loans and warehousing agreements and instruments which are
liquid but which may or may not be secured by real estate or by federal
guarantees or insurance. See "INVESTMENT OBJECTIVE AND POLICIES--Temporary
Investments." A portion of such instruments may be managed by Wellington
Management Company, an investment advisor that has been retained by the Trust
to manage short-term Trust assets. See "INVESTMENT ADVISER."
RISK FACTORS
The Net Asset Value of each Unit will reflect the market value of the
Trust's portfolio of investments. The current market value of the Trust's
portfolio will fluctuate, primarily in response to changing interest rates.
Generally, the market value of Trust mortgage loans, mortgage securities and
other assets will fall below the principal amount of such assets at times when
market interest rates rise above the interest rates on such investments.
Participants who redeem Units in such circumstances will suffer the resulting
loss in value of Trust assets.
While the Trust does not buy mortgage loans or securities backed by
mortgage loans for purposes other than investment, the Trust will from time to
time buy or sell mortgage loans or mortgage-backed securities in order to
prevent fluctuations in the weighted average maturity of its portfolio or to
maintain a desirable level of portfolio diversification. The Trust retains
the flexibility to sell all or any portion of its assets if circumstances
(e.g., changed market conditions) suggest the prudence of that course.
Although registered investment companies generally must value their assets and
accept redemption requests daily, the Trust is permitted to value its assets
and accept redemption requests no more often than quarterly, by virtue of an
exemptive order received from the SEC. The Trust's Board of Trustees has
implemented monthly valuations of the Trust's assets, which enables the Trust
to redeem Units on a monthly, rather than quarterly, basis. Consistent with
the Trust's exemptive order and its redemption procedures (see "REDEMPTION"),
the Trust will invest at least 90% of the value of its assets in investments
that are readily marketable and convertible into cash within 120 days without
a<PAGE>
<PAGE>
discount from their market value (see "INVESTMENT RESTRICTIONS"). It is
possible, however--due to changes in interest rates, the performance of
specific properties, or general economic conditions since the monthly
Valuation Date preceding a request for redemption--for the market value of an
investment at the time of its liquidation to be less than its market value as
of the monthly Valuation Date preceding a request for redemption.
Most of the Trust's assets could be disposed of in a timeframe
sufficient to meet monthly redemptions. In the event the Trust were to
receive redemption requests with respect to a particular monthly Valuation
Date in an amount that exceeds the amount of assets that the Trust could
liquidate at market value prior to the applicable redemption date, the Trust
would not be able to satisfy such redemption requests without liquidating
certain of its assets at a discount from their market value. If such
circumstances were to occur, the Trust would be unable to satisfy at least
some of the redemption requests on a timely basis because the Trust would not
liquidate assets at a discount from their market value. Therefore, in
anticipating the availability of funds based on a redemption of Units,
investors should be prepared for the possibility of a delay in the
satisfaction of a monthly redemption request. Such a delay would not,
however, extend more than 120 days beyond the monthly Valuation Date following
the Trust's receipt of the redemption request (except to the extent it were
necessary to liquidate that portion of the Trust's portfolio (up to 10%) not
required to be invested in assets that are readily marketable and convertible
into cash within 120 days without a discount from their market value). See
"REDEMPTION." The Trust has never failed to satisfy any redemption request on
a timely basis.
Other risk factors relating to an investment in Units include: the
possible reduction in yield caused by prepayments, a limited resale market for
certain types of loans, inflation, defaults on loans, changes in ratings, lack
of diversification and real estate-related risks for certain investments that
are neither federally insured or guaranteed nor issued or guaranteed by Fannie
Mae or Freddie Mac. For a discussion of these items, see "RISK FACTORS."
INVESTMENT MANAGEMENT
The Trust's Chief Executive Officer, assisted by the Chief Investment
Officer, Director of Investor Relations and the General Counsel, is
responsible for the day to day administration of the Trust, including the
selection of investments, other than certain short-term investments, and
communication with existing and potential investors. For the fiscal year
ended December 31, 1996, the Trust's personnel expenses (salaries and
benefits) for all Trust officers and staff members totalled $3,402,914. See
"MANAGEMENT."
Set forth below is certain information regarding fund operating expenses
in tabular format:
<PAGE>
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
12b-1 Fees .03%
Other Expenses .43%
Total Fund Operating Expenses .46%
EXAMPLE
1 year 3 years 5 years 10 years
You would pay the
following expenses
on a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each time
period: $4.83 $14.49 $24.15 $48.30
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Trust
will bear directly or indirectly. The Trust does not charge a sales load or
redemption fee on the purchase or redemption of its Units. For a more
complete description of the various costs and expenses listed above, see
"MANAGEMENT" and "SALES ACTIVITIES."
The foregoing example should not be considered a representation of
past or future expenses. Actual expenses may be greater or lesser than those
shown.
REDEMPTION
The Trust will redeem Units after receipt of a written request for
redemption. Redemptions will be made without any charge, at the Net Asset
Value of each Unit, determined as of the next Valuation Date following the
request. The Trust will accept a request for redemption only if received 15
days or more before the Valuation Date as of which the Net Asset Value is to
be determined. It usually takes from 7 to 10 business days to calculate the
Trust's Net Asset Value after a Valuation Date. Cash payment upon redemption
will be made within 7 days after the Net Asset Value has been determined. See
"REDEMPTION."
<PAGE>
<PAGE>
REGISTERED INVESTMENT COMPANY
The Trust has registered as an investment company under the Investment
Company Act of 1940, as amended ("Investment Company Act"), and accordingly is
subject to the regulatory authority of the SEC. The Trust has been exempted
from certain investor protection provisions of the Investment Company Act.
See "EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT COMPANY ACT" in
the Statement of Additional Information. THE SEC HAS NOT "APPROVED" OR
"DISAPPROVED" THE UNITS ISSUED BY THE TRUST OR PASSED UPON THE ACCURACY OF
THIS PROSPECTUS.
INVESTMENT ADVISER
Except with respect to certain short-term assets, the Trust operates
without an investment adviser. Except with respect to such short-term assets,
investment decisions are the responsibility of the Trust's Chief Executive
Officer, Chief Investment Officer and General Counsel subject to the
supervision and control of the Board of Trustees and the Executive Committee
(with respect to certain activities delegated to such committee by the full
Board). Certain short-term assets are managed by Wellington
Management Company, LLP, a registered investment adviser. See "INVESTMENT
ADVISER." Sales of Units are effected only by representatives of the Trust.
See "SALES ACTIVITIES."
CONDENSED FINANCIAL INFORMATION
The following information regarding per unit income and capital
changes is presented here for the fiscal year ended September 30, 1987, the 3
month period ended December 31, 1987, and the years ended
December 31, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996. The
condensed financial information has been derived from financial statements
audited by KPMG Peat Marwick, the Trust's independent certified public
accountants, and should be read in conjunction with the financial statements
and the notes thereto. The financial statements as of December 31, 1996, and
for each of the years in the 2 year period then ended, and the selected per
share data and ratios for the years ended December 31, 1996, 1995, 1994, 1993,
1992, 1991 and 1990, together with the auditors' report thereon, are included
in the Statement of Additional Information. The following data is presented
for each unit outstanding throughout each period.
[Financial information is set forth on the following pages 6-A through 6-C.]
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(amounts in thousands)
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Year Ended Three Months Ended
September 30, 1987 December 31, 1987
- ------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
Beginning of Period 1,064.08 991.28
Net Investment
Income 96.65 25.00
Net Gains (losses)
on investments -
realized and unrealized (72.80) (17.60)
Dividends (from
net investment
income) <F1> (96.65) (25.00)
Distributions
(from capital gains) ---- ----
Net Asset Value,
End of Period 991.28 1,008,88
Total Gross Return 2.78% 4.46%
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- ------------------------------------------------------------------------------
Year Ended Three Months Ended
September 30, 1987 December 31, 1987
- ------------------------------------------------------------------------------
<S> <C> <C>
Net Assets,
End of Period 186,666,594 201,924,231
Ratio of Expenses to
Average Net Assets <F2> 0.7% 0.7%<F3>
Ratio of Net Income
to Average Net Assets <F2> 8.9% 9.8%<F3>
Portfolio Turnover Rate 12.0% 6.2%<F3>
</TABLE>
<F1> Includes income distributed for the semi-annual periods ended March 31
and September 30 of 7, and June 30 and December 31 for 1988; and for the
quarterly periods ended March 31, June 30, September 30, and December 31,
1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996.
<F2> Average net assets were computed on the net asset value at the end of
each quarter. Investments were valued quarterly through September 30,
1987.
<F3> Percentages are annualized.
- ------------------
Primarily as a result of fluctuations in market interest rates, the net
unrealized gains (losses) on investments fluctuate from month to month.
Return on investment calculated on a market value basis would consist of both
net investment income and net realized and unrealized gains (losses) on
investments.
6-A<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
(amounts in thousands)
- ------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1988 1989 1990 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period 1,008.88 994.27 1,056.29 1,054.91
Net Investment Income 99.12 100.22 96.89 91.99
Net Gains (losses)
on investments -
realized and unrealized (14.61) 62.02 (1.38) 51.99
Dividends (from net
investment income) <F1> (99.12) (100.22) (96.89) (91.99)
Distributions (from
capital gains) --- --- --- ---
Net Asset Value, End
of Period 994.27 1,056.29 1,054.91 1,106.90
Total Gross Return 9.15% 17.65% 10.25% 14.90%
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- ------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1988 1989 1990 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets,
End of Period 227,570,708 284,723,220 366,147,338 528,731,177
Ratio of Expenses to
Average Net Assets 0.6% 0.6% 0.6% 0.6%
Ratio of Net Income to
Average Net Assets 9.7% 9.7% 9.3% 8.4%
Portfolio Turnover Rate 7.0% 8.6% 2.3% 9.5%
</TABLE.
<F1> Includes income distributed for the semi-annual periods ended March 31
and September 30 of 7, and June 30 and December 31 for 1988; and for the
quarterly periods ended March 31, June 30, September 30, and December 31,
1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996.
- ----------
Primarily as a result of fluctuations in market interest rates, the net
unrealized gains (losses) on investments fluctuate from month to month.
Return on investment calculated on a market value basis would consist of both
net investment income and net realized and unrealized gains (losses) on
investments.
6-B
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(amounts in thousands)
- -----------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Year Ended
December 31, December 31, December 31, December 31,
December 31,
1992<F4> 1993 1994 1995
1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
Net Asset Value,
Beginning of Period 1,106.90 1,086.40 1,102.58 991.40
1098.53
Net Investment Income 81.54 85.93 81.66 81.12
79.11
Net Gains (Losses) on
investments -
realized and unrealized (20.50) 16.18 (111.18) 107.13
(25.55)
Dividends (from net
investment income)<F1> (81.54) (83.64) (81.66) (80.77)
78.76
Undistributed Investment
Income --- --- --- (.35)
(.35)
Distributions (from
capital gains) --- (2.29) --- ---
---
Net Asset Value,
End of Period 1,086.40 1,102.58 991.40 1,098.53
1,072.98
Total Gross Return 6.25% 10.17% (2.15%) 20.11%
5.59%
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Year Ended
December 31, December 31, December 31, December 31,
December 31,
1992<F4> 1993 1994 1995
1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
Net Assets,
End of Period 661,940,825 845,793,592 935,264,189 1,166,893,471
1,383,163,166
Ratio of Expenses
to Average Net Assets 0.5% 0.5% 0.5% 0.5%
0.5%
Ratio of Net Income
to Average Net Assets 7.4% 7.5% 7.8% 7.6%
7.3%
Portfolio Turnover Rate 22.1% 24.2% 27.5% 31.2%
20.3%
</TABLE>
<F1> Includes income distributed for the semi-annual periods ended March 31
and September 30 of 7, and June 30 and December 31 for 1988; and for the
quarterly periods ended March 31, June 30, September 30, and December 31,
1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996.
<F4> Beginning as of May 21, 1992, the Trust engaged Wellington Management
Company to furnish investment advisory services concerning certain short-
term, liquid assets in the Trust's portfolio. See "INVESTMENT ADVISER."
- -------
Primarily as a result of fluctuations in market interest rates, the net
unrealized gains (losses) on investments fluctuate from month to month.
Return on investment calculated on a market value basis would consist of both
net investment income and net realized and unrealized gains (losses) on
investments.
6-C<PAGE>
<PAGE>
HISTORY AND PURPOSE
The Trust is a common law trust created under the laws of the District of
Columbia pursuant to a Declaration of Trust originally executed September 19,
1981. The Trust is an open-end management company with a portfolio that may
be either diversified or nondiversified, as it changes from time to time. The
Trust has been established under the sponsorship of the AFL-CIO as an
instrumentality of the United States labor union movement.
The Trust acquired all the assets of the AFL-CIO Mortgage Investment
Trust ("Mortgage Trust") in exchange for Units of the Trust on the basis of
relative net asset values as of September 30, 1984. The exchange was approved
by order of the SEC dated October 1, 1984. Trust Units received in the
exchange were distributed on a pro rata basis to Mortgage Trust participants
as of September 30, 1984 and the Mortgage Trust was thereupon liquidated.
The Trust is a non-tax-exempt investment company operated without
profit to the Trust or the AFL-CIO for funds controlled by or of interest to
unions that may wish to place a portion of their assets in mortgage
investments. The Trust pays expenses of trust administration but, except with
respect to certain short-term assets (see "INVESTMENT ADVISER"), no investment
advisor earns a profit of the sort normally taken by an investment adviser for
a commercial investment company; instead the Trust distributes all net
earnings on investments to Participants (as defined below). See "MANAGEMENT."
The Trust increases the amount of financing available for housing and other
construction projects. It thereby creates job opportunities for union labor
in the construction trades and related industries and stimulates the
production of housing.
The Labor Organizations and Eligible Pension Plans for which the Trust
is designed ("Participants") are institutional-type investors that are
interested in a long-term income investment program. Units are sold without
charge of any sales load or commission. Units are nonassignable and
nontransferable. The minimum initial investment by any Participant is
$50,000. Each Unit is valued at its pro rata share of the Net Asset Value of
the Trust as of the close of business on the last business day of each month
("Valuation Date"). The Trust is an open-end investment company but Units are
redeemable as of each Valuation Date with at least 15 days prior written
notice. Any order to purchase or request for redemption of Units made between
Valuation Dates is honored as of the next Valuation Date. See "REDEMPTION."
The Trust distributes net income quarterly. See "INCIDENTS OF OWNERSHIP OF
UNITS."
<PAGE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust concentrates its investments in the real estate industry.
For purposes of the Investment Company Act, "concentration" means more than
twenty-five percent of asset value in any one industry.) The Trust invests
primarily in mortgage loans and mortgage-backed securities that are secured by
mortgages or liens on real estate, at least 70% of which mortgages or
mortgage-backed securities acquired by the Trust or backing securities
acquired by the Trust will be federally insured or guaranteed or guaranteed by
Fannie Mae or Freddie Mac with respect to the payment of principal and
interest, or issued by Fannie Mae or Freddie Mac. These are fundamental
policies and may not be changed without the approval of the holders of a
majority of the Trust's outstanding Units.
The investment objective of the Trust is to earn current income through
investment in construction and long-term mortgage loans and mortgage-backed
securities secured by mortgages or other liens upon real estate, or by other
mortgage-backed securities and in secured bridge loans. The Trust will limit
investments secured by mortgaged real estate involving new construction or
rehabilitation work to those in which such new construction or rehabilitation
work is done by union labor. The Trust will acquire only mortgages,
mortgage-backed securities and other investments with yields competitive with
those
then generally prevailing on similar investments having comparable terms and
conditions taking into account differences in risk including those resulting
from differences in properties, borrowers and loan terms.
Under existing federal housing programs, the federally insured or
guaranteed mortgage loans eligible for direct purchase by the Trust are first
or second mortgage loans insured by the Department of Housing and Urban
Development ("HUD") acting by and through the FHA to finance the purchase and
ownership of completed single-family dwellings and, in some circumstances, the
construction or renovation of single-family dwellings, or to provide
construction and/or permanent financing for multi-family housing projects and
certain health care facilities, including hospitals, intermediate care
facilities and nursing homes. These mortgage loans have maturities that range
from 10 to 40 years from project completion and commencement of principal
repayments. The Trust may also purchase mortgage loans guaranteed by the VA
to finance the purchase of single-family dwellings. Obligations of FHA are
backed by the General Insurance Fund established pursuant to the National
Housing Act of 1934, as amended. Obligations of the VA are backed by the Loan
Guaranty Revolving Fund.
The Trust may also purchase notes or other obligations guaranteed
under Section 108 of the Housing and Community Development Act of 1974, as
amended ("Section 108"). Under Section 108, HUD is authorized to guaranty
notes or other obligations issued by eligible public entities; the proceeds
from the sale of the notes are used by such public entities for eligible
community development and economic development activities, including
rehabilitation of privately owned or publicly owned housing. The Trust may
purchase such notes in cases where the proceeds will be used to finance the
<PAGE>
<PAGE>
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 Ginnie Mae, a mortgage
banker or other lender and carry the right to receive principal and interest
payments related to payments of principal and interest under one or more
identified mortgages. Full and timely payment under these mortgage-backed
securities is guaranteed by Ginnie Mae and backed by the full faith and credit
of the United States. These Ginnie Mae securities are readily marketable,
generally at publicly quoted prices. Such Ginnie Mae securities bear interest
at rates ranging from 0.25% to 0.5% less than the whole loans backing such
securities, reflecting the cost of the Ginnie Mae guarantee and servicing of
the mortgages in the pool.
Other investments that the Trust is authorized to make are Fannie Mae and
Freddie Mac Investments, contingent interest mortgage loans, early repayment
loans, pass-through and pay-through securities, construction loans secured by
a bank letter of credit or other guarantee, state and local government-related
investments, pre-construction commitments and Secured Bridge Loans, in each
case as described below and subject to the restrictions noted below.
Certain of the Trust's authorized investments are tied to specified
ratings by one or more nationally recognized statistical rating agencies. A
description of Standard & Poor's Corporation ("Standard & Poor's") rating
categories is included as Appendix A to the Statement of Additional
Information. The rating categories of other nationally recognized statistical
rating agencies are similar to those of Standard & Poor's.
THE NATIONAL PARTNERSHIP FOR COMMUNITY INVESTMENT
In 1993, the Trust initiated a 5 year investment initiative called The
National Partnership for Community Investment ("National Partnership").
Pursuant to this initiative, the Trust expects to invest significant funds in
mortgage loans and securities secured by properties located in
major metropolitan areas and regions throughout the country. It is
contemplated that an aggregate investment of approximately $500 million will
be made in qualified investments over this five year period by the Trust.
One potential benefit to the Trust from the National Partnership
initiative is expected to be larger and more diversified investment
opportunities. The National Partnership initiative is also expected to benefit
the nation's urban areas and create employment opportunities for union
members. <PAGE>
<PAGE>
Each investment made by the Trust through the National Partnership
program must meet the underwriting criteria established in its Declaration of
Trust, and may be insured or guaranteed by the FHA, the VA, Ginnie Mae, Fannie
Mae or Freddie Mac. While the investments will be consistent with the Trust's
present Declaration of Trust, the National Partnership initiative will help
target investments within the selected metropolitan areas, located in all
regions of the country. The Trust believes this targeting will enable it to
originate investments more expeditiously and at lower cost with borrowers who
will better understand the Trust's investment criteria and origination and
underwriting procedures.
The Trust hopes to secure the involvement and assistance of local and
state housing groups, labor organizations and the United States Departments of
Labor and Housing and Urban Development in achieving its objectives under the
National Partnership initiative.
FANNIE MAE AND FREDDIE MAC INVESTMENTS
The Trust may invest up to 100% of its total assets in Fannie Mae and
Freddie Mac Investments, which consist of (i) obligations issued or guaranteed
by Fannie Mae or Freddie Mac, including Fannie Mae 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. The backing referred to in clause (ii) may take the form of Fannie
Mae mortgage-backed securities and Freddie Mac participation certificates.
SEE "INVESTMENT OBJECTIVE AND POLICIES -- 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 multi-family mortgage loans, Ginnie Mae-guaranteed securities
backed by multi-family mortgage loans, and other multi-family projects, the
Trust has, since 1991, increased investments in single-family Fannie Mae and
Freddie Mac mortgage-backed securities. In these investments, the Trust
enters into commitments with mortgage banking firms, banks and other financial
institutions ("Issuers") to purchase mortgage-backed securities secured by
mortgage loans financing the purchase of newly-constructed single-family homes
that are union-built and meet certain eligibility criteria. The securities
which are purchased by the Trust under this program are single-family
mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac. The
securities are generally required to be delivered to the Trust within 60 days
after all of the qualified mortgage loans backing a given issue of securities
have been closed. <PAGE>
<PAGE>
The interest rate and discount points for each mortgage loan backing
an issue of securities is generally established under one of two alternate
methods. Under the first and most frequently used mechanism, the Trust and
each Issuer agree weekly, based on a survey of current market conditions, on
an interest rate and discount point schedule which is used to determine the
maximum interest rate and maximum discount points on each mortgage loan for
which the Issuer issues a loan commitment during the applicable week. Under
the second mechanism, the Trust and each Issuer agree to use the interest
rates and discount points publicly quoted for securities of the type to be
purchased by the Trust at the time the loan applications for the underlying
mortgage loans are accepted plus the applicable servicing and guarantee fees
with respect to the related securities. Depending upon the terms and
conditions of the loan, the Trust will lock the interest rate for a period of
time in advance of the loan closing. Typically, the interest rate lock will
be for a period of no more than 18 months. The number of points that the
Trust charges for the interest rate lock varies depending upon the length of
the lock-in period.
The interest rates and discount points may be reduced by the mortgagor
prior to the closing of the underlying mortgage loan if market interest rates
have declined from the commitment date. The Trust has concluded that the
slight reduction in yield on the securities backed by mortgage loans whose
interest rates and discount points are reduced in this way is largely offset
by savings on transactions fees that would have been incurred in purchasing
comparable securities from broker-dealers in the secondary market (which
securities also would not necessarily have financed union-built single family
homes).
Almost all of the single family Fannie Mae and Freddie Mac
mortgage-backed securities purchased by the Trust to date have been backed by
fixed rate mortgage loans, although the Trust has the authority to acquire
single family Fannie Mae and Freddie Mac securities which are backed by
adjustable rate mortgage loans. The Trust anticipates that in the future 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 adjustments occurring from every
6 months to annually to each 3 or 5 years) based upon a specified market index
at the time of each adjustment to loans which carry a fixed interest rate for
a specified period of time (e.g., 3 or 5 years in the case of Freddie Mac
securities or 5 or 7 years in the case of Fannie Mae securities) after which
the interest rate on the loan is adjusted annually based on a specified market
index. There are specified limits on the maximum amount of each upward or
downward adjustment in the interest rate on these mortgage loans and caps on
the maximum aggregate adjustment in the interest rate, either up or down, over
the life of each loan. These limits and caps vary based on the frequency with
which the adjustments are made and by loan type. Some types of the adjustable
rate mortgage loans which may back single family Fannie Mae and Freddie Mac
securities also have provisions under which they may be converted into fixed
rate mortgage loans at the option of the mortgagor at specified times.
<PAGE>
<PAGE>
Under the single family Fannie Mae and Freddie Mac securities backed by
adjustable rate mortgage loans, Fannie Mae or Freddie Mac, as applicable,
guarantees the timely payment of interest, based upon the interest rates borne
by the underlying mortgage loans, as the same are adjusted from time to time,
less applicable servicing and guaranty fees.
CONTINGENT INTEREST MORTGAGE LOANS
The Trust is authorized to make or invest in federal
government-related, Fannie Mae or Freddie Mac contingent interest mortgage
loans. A contingent interest mortgage loan of this type is a mortgage loan on
a rental project which provides for repayment of principal and base interest
at a fixed rate which is insured or guaranteed by the federal government or an
agency thereof, or is guaranteed by Fannie Mae or Freddie Mac, and also
includes separate contractual provisions obligating the borrower to pay
additional interest based entirely on net or gross cash flow and/or net or
gross proceeds upon sale, refinancing or disposition of the project. This
additional interest is not insured or guaranteed, and is sometimes referred to
as "contingent interest."
Agreements for such contingent interest mortgage loans would be
negotiated on a project-by-project basis. Accordingly, the precise formula
for calculating the amount of contingent interest payments would vary
depending on several factors, including the projected cash flow from the
project, the base interest rate and financial resources of the borrower, and
other factors which the Trust deems relevant. Receipt of contingent interest
is affected by the amount of appreciation and rental income and expenses of a
project. Generally, if there is insufficient cash flow or appreciation, no
contingent interest is due or payable.
Contingent interest mortgage loans generally require the lender to
accept a lower base interest rate than it otherwise would have been able to
negotiate in return for the right to receive as additional interest a portion
of cash flow and/or proceeds from the sale or refinancing of the project. The
Trust is permitted to make a contingent interest mortgage loan in return for a
base interest rate which is up to 2% per annum lower than the rate which it
would otherwise be willing to accept (i.e., in the absence of the contingent
interest feature). Although all principal and base interest would remain
insured by FHA, or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac, as the
case may be, this structure may result in a reduction of current income
(particularly during construction and rent-up) in the hope of greater returns
in future years based on the project's economic performance. As noted above,
such amounts of contingent interest are neither federally guaranteed or
insured nor guaranteed by Fannie Mae or Freddie Mac. See "RISK
FACTORS--Defaults on Loans."
EARLY REPAYMENT LOANS
The Trust also may invest in federally insured or guaranteed mortgages or
securities backed thereby and in Fannie Mae and Freddie Mac Investments that
include a right to require the borrower to repay a mortgage loan prior to the
regular maturity date of the mortgage loan after an initial period during
which the loan cannot be called. This authorization affords the Trust<PAGE>
<PAGE>
additional flexibility to make loans of shorter duration. Such loans may be
more attractive to borrowers since the rate of interest on shorter term loans
may be lower and may be more attractive to the Trust because it involves a
commitment of funds for a shorter term.
In the case of such "early repayment" loans that are federally insured or
guaranteed, while all principal and base interest would continue to be insured
or guaranteed by FHA, VA or Ginnie Mae, the balloon repayment obligation would
not be secured by the mortgaged real property or by any government insurance
or guarantee. It is anticipated that such obligation instead would be secured
by a security interest in the ownership interests of the principals of the
borrower or other security as negotiated by the Trust and the borrower or
principals. Since the obligation to repay the loan prior to its stated
maturity would not be included in the note and mortgage, the Trust would not
be entitled to foreclose on the mortgaged property or obtain insurance
proceeds in the event of non-compliance with a demand for repayment at such
earlier date. The Trust expects that if it is unable to enforce its right to
early repayment, it would continue to hold the mortgage loan or the securities
backed by such mortgage loan, the principal and interest of which would remain
federally insured or guaranteed. In such event, a loss could be incurred
because the Trust would have required a higher rate for a mortgage or
mortgage-backed security that was not accompanied by the right to demand
repayment at an earlier date. The risk described in this paragraph does not
apply to "early repayment" loans, or securities backed thereby, that are
guaranteed by Fannie Mae or Freddie Mac. This is because such loans and
securities are guaranteed at the stated early maturity.
PASS-THROUGH AND PAY-THROUGH SECURITIES
The Trust also is authorized to invest in mortgage-backed pass-through
or pay-through securities if the securities are rated in one of the two
highest rating categories of a national rating agency, such as Standard and
Poor's or Moody's Investors Service ("Moody's"), and also backed by certain
mortgage investments in which the Trust is otherwise authorized to invest.
Mortgage-backed pass-through or pay-through securities are securities
which may be issued by privately owned corporations or public issuers and
secured by mortgages or mortgage-related instruments such as FHA-insured or
VA-guaranteed loans, Ginnie Mae securities or securities which are guaranteed
by Fannie Mae or Freddie Mac, and provide certain characteristics and features
that federally insured loans or guaranteed certificates do not. Although
payment of the principal of, and interest on, such mortgage-backed securities
may be secured by Ginnie Mae securities, FHA-insured loans, VA-guaranteed
loans or securities which are guaranteed by Fannie Mae or Freddie Mac, such
mortgage-backed pass-through or pay-through securities represent obligations
solely of the issuer and may not themselves be guaranteed or insured by any
governmental entity or instrumentality.
Although the Trust will purchase only mortgage-backed pass-through and
pay-through securities that have been rated in one of the two highest rating
categories by a nationally recognized statistical rating agency, there is no
assurance that any rating on securities purchased by the Trust will continue
for any given period of time or that it will not be revised downward or<PAGE>
<PAGE>
withdrawn entirely by the rating agency if, in its judgment, circumstances so
warrant. Any such downward revision or withdrawal of such rating would be
likely to signify an increase in the risk to the Trust associated with the
related securities and would be likely to result in a reduction in the value
of the related securities. The Trust is not required to dispose of securities
the rating for which has been revised below the second highest rating category
or withdrawn except to the extent required by certain investment restrictions.
See "INVESTMENT RESTRICTIONS; " RISK FACTORS--Investment Restrictions."
PRIVATELY COLLATERALIZED 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 Investments
------------------------------------
The Trust may invest in construction loans, or securities backed by
construction loans, if the loans are collateralized by (a) a letter of credit
in favor of the Trust issued by a depository institution rated in category "B"
or higher by Thomson Bankwatch, Inc. ("Thomson Bankwatch") on terms and
conditions acceptable to the Trust, or (b) another form of guaranty issued by
an entity with a short-term (12 months or less) rating at the time of issuance
of the guaranty of at least "A-1" from Standard & Poor's or "P-1" from Moody's
with respect to a guaranty with a duration of 12 months or less, or with a
long-term (more than 12 months) rating in one of the two highest rating
categories of at least one nationally recognized statistical rating agency
with respect to a guaranty with a duration of more than 12 months.
Thomson Bankwatch is a proprietary credit ratings and consulting
service. A rating of "B" is the third highest of nine rating categories. A
bank rated in category "B" is characterized as follows: "A strong company
with a solid financial record and well received by its natural money markets.
Some minor weaknesses may exist, but any deviation from the company's
historical performance levels should be both limited and short-lived. The
likelihood of a problem developing is small, yet slightly greater than for a
higher-rated company." As of December 31, 1996 there were 114 banks in the
United States rated in category "B" or higher by Thomson Bankwatch. A
description of all Thomson Bankwatch rating categories is included as Appendix
B to the Trust's Statement of Additional Information.
There is no assurance that the rating of the issuer of any letter of
credit or other form of guaranty which collateralizes a construction loan
investment acquired by the Trust will continue for any given period of time or
that it will not be revised downward or withdrawn entirely by the rating
agency if, in the rating agency's judgment, circumstances so warrant. Any
such downward revision or withdrawal of such rating would be likely to signify
an increase in the risk to the Trust associated with the related investment
and would be likely to result in a reduction in the value of the related
obligation. The Trust is not required to dispose of privately collateralized
construction investments if the rating of the issuer of the related letter of
credit or guaranty is downgraded or withdrawn, except to the extent required
by certain investment restrictions. See "INVESTMENT RESTRICTIONS"; "RISK<PAGE>
<PAGE>
FACTORS--Investment Restrictions." Notwithstanding any of the above, such a
downward revision or withdrawal of a rating would not have any impact upon the
flow of income from the project to the Trust.
If the issuer of any letter of credit or other form of guaranty which
secures a privately collateralized construction investment fails or is unable
to meet its obligations under such letter of credit or other guaranty, the
Trust would be subject to the same real estate-related risks and uncertainties
that apply to real estate investments generally, which could have a material
adverse effect on the value and performance of the investments, except to the
extent that the Trust has obtained other forms of credit enhancement or has
taken other steps to secure its interests in the project. See "RISK FACTORS
- -- Real Estate-Related Risks."
The Trust intends to enter into a Memorandum of Understanding with
approximately 4 or 5 major banks with respect to privately collateralized
construction loan investments. It is anticipated that the Memorandum of
Understanding with each bank will provide as follows: The Trust and the bank
will cooperate with each other in marketing efforts with respect to new
construction and substantial rehabilitation and permanent mortgage loan
financing on multifamily rental and cooperative housing projects and single
family developments located within a specified market region. The
construction loan will be secured by a letter of credit issued by the bank or
another form of guaranty issued by the bank or another entity acceptable to
the Trust. The making of the Trust loan is also conditioned on the delivery
of a commitment from (a) Fannie Mae to issue mortgage-backed securities
secured by the permanent loan, (b) another source acceptable to the Trust to
provide credit enhancement for the permanent loan on terms acceptable to the
Trust, or (c) a commitment for a take-out of the construction loan from an
entity, and on terms, acceptable to the Trust.
2. State and Local Government-Related Obligations
----------------------------------------------
The Trust may invest in the types of state and local government-related
obligations described below.
(a) Full Faith and Credit. The Trust may invest in construction
or permanent loans, or securities backed by construction or permanent loans,
or interests in such loans or securities, if such loans or securities are
supported by a full faith and credit guaranty of a state or local government
or agency or instrumentality thereof that has general taxing authority,
without regard to the credit rating of such entity or the obligations
acquired. If the state or local government or agency or instrumentality which
provided such guaranty fails or is unable to meet its obligations thereunder,
the Trust would be subject to the same real estate-related risks and
uncertainties that apply to real estate investments generally, which could
have a material adverse effect on the value and performance of the
investments. See, "RISK FACTORS -- Real Estate-Related Risks."
(b) "Top Tier" Agencies. The Trust may invest in construction
or permanent loans, or securities backed by construction or permanent loans,
or interests in such loans or securities, provided that such loans or<PAGE>
<PAGE>
securities are issued (with or without recourse) or guaranteed, as the case
may be, by a state or local housing finance agency designated "top tier" by
Standard & Poor's (or designated comparably by another nationally recognized
statistical rating agency, as determined by the Executive Committee of the
Trust) at the time of acquisition by the Trust, and are (i) with full recourse
(directly or by way of guaranty or indemnity) to such agency's general credit
and assets, or (ii) secured by recourse to such assets of the agency or by
such third party credit enhancement as to provide, in the judgment of
management, protection comparable to a pledge of the agency's general credit,
or (iii) backed by the "moral obligation" of the state in which such agency is
located in the form of the state's commitment to replenish any insufficiencies
in the funds pledged to debt service on the obligations.
Although the agency must be rated "top tier" by Standard & Poor's,
there is no requirement that the obligations to be acquired by the Trust be
rated or ratable at all, as long as the agency is a top tier agency at the
time an obligation is acquired by the Trust. Standard & Poor's has informally
indicated to the Trust that the only relevance a top tier designation would
have on the rating of particular obligations issued by such an agency is that
Standard & Poor's would, under certain circumstances, increase the rating of
such obligations from the level they would otherwise be entitled to receive by
one-half a level within an existing rating category. So, for example, an
issue that might otherwise be entitled to an A rating could get an A+ rating
if the agency was top tier (or an AA- rating could be raised to an AA rating).
However, an A+ rating would not be increased to AA- because it would take the
rating into another rating category (that is, from single-A to double-A).
Before designating a housing agency as top tier, Standard & Poor's
must favorably evaluate a number of criteria, including the agency's general
track record, unrestricted fund balances, administrative capabilities,
investment policy, internal controls, portfolio quality and the sponsoring
state's commitment to housing. For a more complete description of the
guidelines used by Standard & Poor's, see Appendix C to the Statement of
Additional Information. There can be no assurance that any such rating of any
agency would continue for any given period of time after the Trust acquires
such an obligation, or that it would not be revised downward or withdrawn
entirely by the rating entity if, in its judgment, circumstances so warrant.
A downgrade in or withdrawal of the rating of an agency would signify an
increase in the risk that the obligations issued or guaranteed by that agency
would not be paid in accordance with their terms and would be likely to result
in a reduction in the value of the related obligations, except to the extent
that the Trust has obtained other forms of credit enhancement or has taken
other steps to secure its interests in the project. The Trust is not required
to dispose of the obligations issued or guaranteed by an agency which loses
its top tier rating, except to the extent required by certain investment
restrictions. See "INVESTMENT RESTRICTIONS;" "RISK FACTORS--Investment
Restrictions."
With respect to any obligation issued or guaranteed by a top tier
agency, the Trust expects that it will be secured either by the recourse
obligation of the issuer (or its guarantee) or by other collateral security,
in addition to having the benefit (directly or indirectly) of a lien on the
<PAGE>
<PAGE>
underlying real estate. Management of the Trust intends to undertake
transactions with top tier agencies under the foregoing authority selectively,
and only after having made its own independent evaluation and investigation
with respect to the experience, credit history, and underwriting expertise of
the agencies issuing the obligations to be acquired. The Trust therefore
believes that the direct obligation or other collateral security provided by
the top tier issuer will be a significant factor in helping to assure the
safety and soundness of the investment to the Trust. If such recourse or
other collateral security which the Trust receives in conjunction with an
investment issued by a top tier agency proves insufficient to ensure full and
timely performance of the obligations of the issuer under the terms of the
investment, the Trust (or an agent or nominee on its behalf) will have
recourse to a lien on the underlying real property securing the projects
financed. If the Trust is required to enforce its rights to the underlying
real property because its recourse to the
issuer or the other collateral security is insufficient, the Trust will be
subject to the same real estate-related risks and uncertainties that apply to
real estate investments generally, which could have a material adverse effect
on the value and performance of the investments. For a description of these
potential risks, see "RISK FACTORS -- Real Estate-Related Risks" below.
(c) Agencies Rated "A" or Higher. The Trust is permitted to
invest in construction or permanent mortgage loans, or securities backed by
construction 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 Standard & Poor's (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 guarantee) 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 guarantees 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 noted 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.
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Before rating a housing agency's general obligation debt as "A" or
better, Standard & Poor's 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. As of January 1997, the following state
and municipal housing finance agencies had a general obligation rating of "A"
or better from Standard & Poor's: Alaska, California, Illinois, New Jersey,
Nebraska, New York City, Massachusetts, Minnesota, Pennsylvania, Utah and
Virginia.
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
RESTRICTIONS"; "RISK FACTORS--Investment Restrictions."
Although the agency which issues or guarantees an obligation 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 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 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 "RISK FACTORS--Real Estate-Related Risks."
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(d) State Insurance Funds/Programs. The Trust may invest in
construction and permanent loans, or securities backed by construction or
permanent loans, or interests in such loans or securities, if no less than the
first 75% of such investment is supported by a guaranty of a state-related
agency under a state insurance or guarantee program with a record of
creditworthiness, as evidenced by a rating of the agency or the obligations
issued or guaranteed by such agency, of at least "A-" by Standard & Poor's,
Fitch Investors Services Inc. ("Fitch"), or Duff & Phelps Inc. ("Duff &
Phelps") or at least "A3" by Moody's at the time of the acquisition of such
investment by the Trust. There can be no assurance that any such rating would
continue for any given period of time after the insurance or guaranty is
issued, or that it would not be revised downward or withdrawn entirely by the
rating entity if, in its judgment, circumstances so warrant. A downgrade in
or withdrawal of the rating would signify an increase in the risk to the Trust
associated with the related investments, and would be likely to result in a
reduction in the value of the related obligations. The Trust is not required
to dispose of these investments if the rating of an agency or the obligations
issued or guaranteed by such agency is downgraded or withdrawn, except to the
extent required by certain investment restrictions. See "INVESTMENT
RESTRICTIONS" 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 in which the Trust invests, the
Trust would be subject to the same real estate-related risks and uncertainties
that apply to real estate investments generally, which could have a material
adverse effect on the value and performance of the investments. See, "RISK
FACTORS--Real Estate-Related Risks."
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(e) State and Local Government Encouraged Projects Meeting
Specified Underwriting Criteria. The Trust is permitted to invest in
construction or permanent loans, or securities backed by construction or
permanent loans, that have evidence of support by a state or local government
or an agency or instrumentality thereof (evidenced by at least the adoption of
a resolution by the governing body or other applicable governmental agency in
support of the related project), provided that all of the following criteria
are satisfied: (i) the loan-to-value ratio of the project shall not exceed
50%, the "value" for such purposes to be determined on the basis of an
independent appraisal by a licensed appraiser acceptable to the Trust, except
that a loan-to-value ratio of up to 65% shall be permitted if mortgage
insurance in an amount that will cover all first losses down to a 50%
loan-to-value level has been provided by a private mortgage insurance company
rated at least "A-" by Standard & Poor's, Fitch or Duff & Phelps or at least
"A3" by Moody's or approved and accepted by Fannie Mae or Freddie Mac for
insurance of the type of obligation to be acquired by the Trust; (ii) the
state or local government or agency or instrumentality thereof or a foundation
exempt from federal income tax under IRC Section 501(c) must have, in the
aggregate, a financial participation in the project of at least $15,000
(present value) per unit for a period at least equal to the outstanding term
of the Trust's investment, such financial interest to be in the form of
subordinate financing, an interest rate write-down, a donation of land, some
other form of insurance or guarantee or some other similar contribution within
guidelines adopted by the Executive Committee of the Trust; (iii) the sponsor
of the project must have a demonstrably successful record of developing or
managing low-income housing projects, in accordance with guidelines developed
by the Trust; (iv) the underwriter and servicer of the mortgage loan for the
project must have been approved by the Trust; (v) the construction of the
project must be supervised on a regular basis by agents or employees of the
state or local government or agency or instrumentality thereof, or tax-exempt
foundation; and (vi) the minimum debt service coverage for the project must be
at least 1.15 to 1, based upon projections of future income and expenses
satisfactory to the Trust. There is no requirement that the obligations
acquired by the Trust be rated or ratable.
The investments in this category are subject to real-estate related
risks which could have a material adverse effect on the value and performance
of the obligations. See "RISK FACTORS--Real Estate-Related Risks."
(f) Collateralized Loans. The Trust may invest in construction
(but not permanent) loans made by a state or local government or an agency or
instrumentality thereof, or by another party so long as the related project is
sponsored by a state or local government or an agency or instrumentality
thereof, to the extent that such loans are fully collateralized or secured in
a manner satisfactory to the Trust by: (i) cash placed in trust or in escrow
by a state or local government or agency or instrumentality thereof with an
independent third party satisfactory to the Trust on terms and conditions
satisfactory to the Trust; or (ii) a letter of credit in favor of the Trust
established by or at the direction of a state or local government, or an
agency or instrumentality thereof, with a depository institution rated in
category "B" or higher by Thomson Bankwatch, on terms and conditions
acceptable to the Trust; or (iii) some other form of guaranty issued by an
entity with a short-term (twelve months or less) rating at the time of<PAGE>
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issuance of the guaranty of at least "A-1" from Standard & Poor's or
"P-1" from Moody's with respect to a guaranty with a duration of 12 months or
less, or with a long-term (more than 12 months) rating in one of the two
highest rating categories by at least one nationally recognized statistical
rating agency with respect to a guaranty with a duration of more than twelve
months. Obligations acquired by the Trust under this category are not
required to be rated or ratable.
There is no assurance that the rating of the issuer of any letter of
credit or other form of guaranty which collateralizes this type of
construction loan investment acquired by the Trust will continue for any given
period of time or that it will not be revised downward or withdrawn entirely
by the rating agency if, in the rating agency's judgment, circumstances so
warrant. Any such downward revision or withdrawal of such rating would
signify an increase in the risk to the Trust associated with the related
investment and would be likely to result in a reduction in the value of the
related obligation. The Trust is not required to dispose of its investments
in collateralized loans if the rating of the issuer of the related letter of
credit or guaranty is downgraded or withdrawn, except to the extent required
by certain investment restrictions. See "INVESTMENT RESTRICTIONS" RISK
FACTORS--INVESTMENT RESTRICTIONS."
If the issuer of any letter of credit or other form of guaranty which
secures this type of collateralized construction loan investment fails to meet
its obligations under such letter of credit or other guaranty, the Trust will
be subject to the same real estate-related risks and uncertainties that apply
to real estate investments generally, which could have a material adverse
effect on the value and performance of the investments. See, "RISK
FACTORS--Real Estate-Related Risks".
3. Secured Bridge Loans
--------------------
The Trust is permitted to invest up to 5% of all the Trust's assets in
Secured Bridge Loans, as part of the privately collateralized 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
Section 42 of the Internal Revenue Code of 1986, as amended. 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.
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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 secured by the
underlying development. Instead, such Secured Bridge Loans are secured, as
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) (i) issued or guaranteed by a state or local agency designated as
"Top Tier" by Standard & Poor's (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
(ii) issued (with recourse) or guaranteed by a state or local
agency which has its long term credit rating at the level of "A"
or above by Standard & Poor's (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
Standard & Poor's (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;
(b) issued (with recourse) or guaranteed by FHA, GNMA, Fannie Mae,
Freddie Mac or another entity rated AA or above by Standard &
Poor's (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, GNMA, Fannie Mae, Freddie Mac or another
entity rated AA or above by Standard & Poor's (or a comparable
rating by another nationally recognized rating agency approved by
the Trust's Executive Committee); or
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(c) fully collateralized by a letter of credit or other guaranty by a
bank or other financial entity whose credit rating is rated as AA
or above by Standard & Poor's (or a comparable rating by another
nationally recognized rating agency approved by the Trust's
Executive Committee) or a bank with a rating Thompson Bankwatch of
"B" or better.
The Trust will invest in Secured Bridge Loans only in cases where the
Trust is otherwise committed to invest in the project's construction and/or
permanent mortgage loan, except in cases where the project's permanent loan is
less than $1 million, 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 loans at maturity or after foreclosure
or other liquidation.
There is no requirement that the Secured Bridge Loan itself be rated or
ratable.
The Secured Bridge Loans 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
are not secured by mortgages on real property or directly related to payments
on first-lien mortgage loans, nor are they necessarily insured or guaranteed
by the federal government or a federal government-sponsored enterprise such as
Fannie Mae. However, as described above, Secured Bridge Loans are 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 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 and the Trust will obtain one of the types of credit
enhancement described above. 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
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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 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 OBJECTIVE AND POLICIES -- Retention of Technical Consultants."
In determining whether to invest in a state or local
government-related mortgage loan or security, the Trust is not limited to
investments which have been rated in any particular category by a nationally
recognized statistical rating organization. Although such a rating provides
no assurance of repayment and is subject to revision or withdrawal at any time
by the assigning rating agency, ratings do provide the prospective investor
with some indication that the proposed structure and revenue analysis satisfy
the rating agency's internal criteria for the respective rating. The Trust
will seek to minimize the risk of loss in this connection by investing only in
instruments satisfying other criteria, as outlined above.<PAGE>
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The Trust believes that the foregoing state and local
government-related investments provide the Trust with considerable flexibility
in creating investment opportunities for the Trust. In addition to the issues
outlined above, the investments can involve certain risks not present with
other authorized investments. Without requirements for ratings or access to
taxing power, the credit determinations with respect to the proposed state and
local government-related investments could be more difficult to make, and
their credit quality could be lower than that of other investments the Trust
is permitted to make. The state and local government-related investments may
also be less liquid than most other investments authorized for the Trust.
However, the state and local government-related investments, together with all
other Trust investments, would be subject to the SEC's requirement that at
least 90% of the value of the Trust's assets be invested in investments that
are readily marketable and convertible into cash within 120 days without a
discount from their market value. See "INVESTMENT RESTRICTIONS;" "RISK
FACTORS--Redemption." To the extent that state and local government-related
investments are not rated or may not be readily traded in existing markets,
the valuation of these are likely to be less precise than those of the Trust's
other investments.
PRE-CONSTRUCTION COMMITMENTS
The Trust may enter into pre-construction commitments to provide
long-term financing upon satisfactory completion of a specified project. Such
commitments, commonly known as permanent loan commitments, are often a
precondition to the ability of a developer to obtain a construction loan. The
Trust may receive good-faith deposits for such financing commitments, but such
deposits are not expected to be a major source of Trust income. In contrast
to a company hoping to earn a standby commitment fee without investment, the
Trust will make loan commitments with the purpose and ability to acquire the
mortgage or mortgage-related investment.
Because complete funding of construction and long-term mortgage loans
requires up to three years after making a loan commitment, the Trust estimates
the amount of funds it expects to have available for investment from principal
payments and prepayments on existing loans, dividend reinvestment and sales of
additional Units to new or existing Participants. Loan commitments are made
after considering reasonable projections of available funds. At times, the
Trust's short-term cash balances may be less than its outstanding loan
commitments. This commitment policy reduces the amount of assets the Trust
would otherwise invest in lower yielding, short-term investments. The Trust
maintains highly liquid government securities in a segregated account which,
in addition to short-term liquid assets, and amounts projected to be
available, is at least equal to outstanding loan commitments. If, however, a
substantial amount of the funds projected to be available are not in fact
received, the Trust would either borrow funds pursuant to lines of credit
previously established with commercial banks (in accordance with applicable
asset coverage requirements) or sell long-term assets to raise the cash
necessary to fund the loan commitments.
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FORWARD COMMITMENTS
The majority of Trust investments are made pursuant to forward
commitments, in which the Trust agrees to purchase investments in or backed by
mortgage loans that have not yet been originated. This type of transaction
requires the Trust to commit funds for future purchases of such investments at
rates which are set at the time of the commitment. With respect to
multi-family mortgage loans, the Trust sets fixed rates for future delivery.
With respect to single-family mortgage loans, the Trust generally sets either
(i) a fixed rate or (ii) a maximum rate that may be adjusted by the mortgagor
prior to the closing of the mortgage loan if market interest rates decline.
In the event market interest rates decline, it may be difficult for the Trust
to get delivery of the single- and multi-family mortgage loans that back the
Trust's investments. The Trust generally imposes penalties equal to the
commitment fee on the mortgage loan (generally 1/2 to 1 point) where delivery
on a forward commitment is not fulfilled. The Trust also has begun including
mandatory-delivery clauses in its forward commitments on certain obligations
secured by mortgages on multi-family projects. Notwithstanding such penalties
and clauses referred to above, there is no guarantee that the obligations
committed to will be delivered to the Trust.
TEMPORARY INVESTMENTS
The Trust will invest funds temporarily in liquid assets until they
can be placed in investments meeting Trust investment objectives. Such liquid
assets are limited by the Declaration of Trust to: United States Treasury
issues; federal agency issues; commercial bank time certificates of deposit
and savings bank deposits in domestic banks insured by the Federal Deposit
Insurance Corporation (through the Bank Insurance Fund); domestic savings
association deposits insured by the Federal Deposit Insurance Corporation
(through the Savings Association Insurance Fund); bankers acceptances (drafts
or bills of exchange accepted by a bank or trust company that guarantees
payment thereof); commercial paper rated as category A-1 or P-1 by Standard &
Poor's or Moody's; collateral loans and warehousing agreements (temporary
assignments of mortgage notes or mortgage-backed securities) secured by
mortgages on FHA-insured or VA-guaranteed single-family dwellings or
FHA-insured multi-family projects or by mortgage-backed pass-through or pay
through securities guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac; and
interests (including repurchase agreements, that is, purchase of securities
accompanied by an agreement to resell the securities at a later date) in
United States Government securities pledged by a bank or other borrower to
secure short-term loans from the Trust.
The Trust also may invest funds temporarily in registered investment
companies investing predominantly in United States Treasury issues or federal
agency issues. Investments in other registered investment companies are
restricted as follows:
(1) Such securities acquired by the Trust shall not exceed 3% of
the total outstanding voting stock of any investment company;
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<PAGE>
(2) The total value of such securities acquired by the Trust in
any one investment company shall not exceed 5% of the Trust's total assets;
and
(3) The total value of such securities acquired by the Trust in
all investment companies shall not exceed 10% of the Trust's total assets.
RETENTION OF TECHNICAL CONSULTANTS
The majority of the construction and long-term mortgage loans and
mortgage-backed securities in which the Trust invests have been underwritten
to meet the requirements of HUD, Fannie Mae or Freddie Mac, or have been
underwritten by state or local housing finance authorities based on specified
qualifying loan to value standards. In evaluating certain investments,
however, the Trust may retain consultants to provide site inspections,
appraisal reviews, environmental analyses, property management reviews, and
such other statistical and factual information as the Trust may deem useful to
its evaluation and investment decision-making. Such consultants would provide
such analysis on a case-by-case basis and only with respect to occasional
transactions in specific proposals. It is anticipated that any such
consultants would be compensated either on an hourly basis or for a set fee
for evaluating each specific proposal.
OTHER POLICIES
If it is feasible and profitable, the Trust may directly service some
of its long-term loans. Generally, however, long-term mortgage loans and
construction loans in which the Trust proposes to invest, whether or not they
are originated by the Trust, will ordinarily be serviced by mortgage banks or
other mortgage servicing institutions, such as savings and loan institutions
or commercial banks, located throughout the United States. Such institutions
are generally compensated for their services at rates that vary from
one-twentieth to three-quarters of one percent (.05%-.75%) per annum,
calculated monthly, on the then current outstanding principal balance in the
case of long-term first mortgage loans, and at rates of 1% per annum or more
of the total loan commitment in the case of construction loans.
The Trust is empowered to invest in loans for projects anywhere in the
United States. The Trust will invest only in loans which provide yields
competitive with those then generally prevailing in the market taking into
consideration all factors relevant to an appropriate evaluation of risk and
return and the overall objectives of the Trust. Among loans of comparable
yield, the Trust will, if possible, invest in projects in geographic areas in
which Participants or their members are located.
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While the Trust does not buy mortgage loans or securities backed by
mortgage loans for purposes other than investment, the Trust will from time to
time buy or sell mortgage loans in order to prevent fluctuations in the
weighted average maturity of its portfolio or to maintain a desirable level
of portfolio diversification. Moreover, the Trust remains free to dispose of
construction and long-term loan investments at any time to meet objectives of
the Trust, generally on the basis of changed circumstances or market
conditions. The short-term liquid assets in which the Trust may temporarily
invest are subject to a very high turnover rate. Fees associated with the
purchase, sale or redemption of such liquid assets are nominal. See
"INVESTMENT ADVISER."
INVESTMENT RESTRICTIONS
The Trust operates under the following restrictions and policies relating
to investment of its assets and activities.
The Trust will not:
(1) concentrate its investments in any industry except the real
estate industry as set forth above;
(2) permit less than 70% of the mortgages and
mortgage-backed securities acquired by the Trust or backing securities
acquired by the Trust to be federally insured or guaranteed or guaranteed by
Fannie Mae or Freddie Mac with respect to the payment of principal and
interest (base interest in the case of contingent interest mortgage loans) or
issued by Fannie Mae or Freddie Mac; or
(3) originate or purchase any loan secured by a mortgage for a
project involving new construction or rehabilitation unless the buildings,
structures, or other improvements to be built on the real estate subject to
such mortgage will be built or rehabilitated by union labor.
The foregoing policies are fundamental to the Trust and may not be
changed without the approval of the holders of a majority of the Trust's
outstanding Units.
In addition, the Trust will not:
(1) issue senior securities, except in accordance with clause
(9) below;
(2) purchase securities on margin (but the Trust may obtain such
short-term credits as may be necessary for the clearance of transactions);
(3) sell any securities short;
(4) write put and call options;<PAGE>
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(5) underwrite the securities of other issuers except that the
Trust may resell to other financing institutions all or a portion of the
interests in loans acquired by the Trust in transactions exempt from
registration under the Securities Act of 1933, as amended;
(6) purchase or sell real estate (other than real estate
mortgage loans and construction loans) except for real
estate acquired through the foreclosure of mortgage loans
and construction loans held by the Trust;
(7) purchase or sell commodities or commodities futures
contracts;
(8) lend any assets of the Trust except as set forth above;
(9) borrow money from banks unless immediately after such
borrowing there is an asset coverage of at least 300%
of all borrowings of the Trust. Not more than fifty percent
of the value of the Trust's assets will be used as security
for such borrowings. This borrowing provision is not for
investment leverage, but primarily to facilitate management
of the portfolio by enabling the Trust to meet redemption
requests and to make advances on existing construction loans
and to meet outstanding Trust commitment obligations (and,
on occasion, to make income distributions) when available
Trust cash is insufficient for such purposes and the
liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Interest paid by the Trust
on borrowed funds will decrease the amount of Trust assets
available for investment;
(10) invest in commodities, commodity contracts, oil, gas or
other mineral leases, or arbitrage transactions; or
(11) invest more than 10% of the value of the Trust's assets in
securities that are not readily marketable and convertible
into cash within 120 days without a discount from their
market value.
One effect of the restriction described in clause (11) above is to
prohibit the Trust from investing more than ten percent of the value of its
assets in investments that do not satisfy the liquidity requirement even
though they may otherwise be permitted under the Trust's Declaration of Trust.
RISK FACTORS
RELIANCE ON MANAGEMENT -- UNSPECIFIED INVESTMENTS
The Trustees and officers of the Trust will invest the Trust's assets
as deemed prudent by the Trustees. See "INVESTMENT OBJECTIVE AND POLICIES,"
and "MANAGEMENT." Investors in the Trust will not have any specific<PAGE>
<PAGE>
information with which to evaluate future investments of the Trust in advance
of the Trust's investment or commitment to invest. Given present
uncertainties concerning the future status of FHA and HUD, there can be no
assurance that the Trust will be successful in acquiring investments that meet
the business objectives and investment objectives and policies of the Trust.
FLUCTUATING INTEREST RATES
While the Trust retains the freedom to sell all or any portion of its
assets if circumstances (e.g., changed market conditions) suggest the prudence
of that course, it will manage its assets with the expectation that despite
major temporary fluctuations in interest rates from time to time, return on
assets over a long term will be satisfactory. Nevertheless, the market value
of Trust mortgage loans and mortgage-backed securities and the resulting net
asset value of the Trust portfolio will fluctuate with short-term changes in
interest rates. When market interest rates rise, the net asset value of the
Trust will decline; Participants who redeem Units in such circumstances will
suffer the resulting loss in value of Trust assets. Conversely, in certain
periods of declining interest rates, mortgage investments held by the Trust
will increase in market value but may be prepaid by the various borrowers or
other obligors so that anticipated yields on such investments may not be
realized.
Scheduled payments of principal and any prepayments will be reinvested at
prevailing interest rates, which may be less than the rate of interest for the
loans or securities on which such payments are made. In addition, to the
extent the Trust purchases mortgage loans, mortgage-backed securities or other
investments at a premium (i.e., an amount in excess of the principal amount of
the asset purchased), partial prepayments of principal would reduce the yield
to the Trust and, in the event of complete prepayment, the Trust would be
unable to recover or recoup the premium.
REDEMPTION
While the Trust does not buy loans or securities backed by mortgage loans
for purposes other than investment, the Trust will from time to time buy or
sell mortgage loans in order to prevent fluctuations in the weighted average
maturity of its portfolio or to maintain a desirable level of portfolio
diversification. See "INVESTMENT OBJECTIVE AND POLICIES--Other Policies.)
Although registered investment companies generally
must value their assets and accept redemption requests daily, the Trust is
permitted to value its assets and accept redemption requests no more often
than quarterly, by virtue of an exemptive order received from the SEC. The
Trust's Board of Trustees has implemented monthly valuations of the Trust's
assets, which enables the Trust to redeem Units on a monthly, rather than
quarterly, basis. Consistent with the Trust's exemptive order and its
redemption procedures (see "REDEMPTION"), the Trust will invest at least 90%
of the value of its assets in investments that are readily marketable and<PAGE>
<PAGE>
convertible into cash within 120 days without a discount from their market
value (see "INVESTMENT RESTRICTIONS"). It is possible, however--due to
changes in interest rates, the performance of specific properties, or general
economic conditions since the monthly Valuation Date preceding a request for
redemption--for the market value of an investment at the time of its
liquidation to be less than its market value as of the monthly Valuation Date
preceding a request for redemption.
Most of the Trust's assets could be disposed of in a 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). See "REDEMPTION." Redemption is the only means available to the
holder of a Unit wishing to liquidate its interest in the Trust, as the Units
may not be transferred, assigned, pledged or otherwise encumbered. See
"INCIDENTS OF OWNERSHIP OF UNITS." The Trust has never failed to satisfy any
redemption request on a timely basis.
LIMITED RESALE MARKET FOR CERTAIN TYPES OF LOANS
The Trust normally anticipates holding the majority of its loans to
maturity. However, if for any reason the Trust were required to sell such
loans quickly, it may, on occasion, be able to dispose of them only at a
discount from their market value. These constraints relate principally to
loans that are not federally insured or guaranteed or not issued or
guaranteed by Fannie Mae or Freddie Mac. Under the Trust's Declaration of
Trust, such loans may not exceed more than 30% of the Trust's portfolio.
Moreover, to the extent such loans are considered illiquid for purposes of the
Investment Company Act (see "INVESTMENT RESTRICTIONS"), they will be treated
as such by the Trust.
A number of factors constrain the marketability of long-term loans that
are not federally insured or guaranteed or not issued or guaranteed by Fannie
Mae or Freddie Mac. Administrative loan servicing requirements and costs and
other factors restrict the resale market for single-family mortgage loans to
some extent. The large denominations of loans for multi-family projects
restrict the number of buyers interested in them. In the case of any
long-term loan, the market is apt to be more limited than for loans of shorter
maturity. Required liquidation of long-term loans in an unfavorable market
<PAGE>
<PAGE>
could result in significant losses from face value.
The market for construction loans is affected by the uncertainties
inherent in building construction. If a loan is sold during the construction
period, the purchaser customarily will seek assurances as to the status of
construction, the nature of the permanent loan commitment and other matters
relating to the underlying project. These and other factors may cause delays
in the event a decision is made to sell a construction loan.
INFLATION
Loans in which the Trust invests generally do not include any
provision giving the lender the right to require repayment of principal in
advance of maturity except in the case of default. The rate of inflation in
the national economy may from time to time be such that prevailing interest
rates exceed the rates earned on the loans in the Trust's portfolio. Such
circumstances could diminish the value of the Trust's assets, although
continued sales of Units will tend to mitigate such diminution.
DEFAULTS ON LOANS
The Trust may experience certain losses in the event of default on its
mortgage investments. This is true even for federally insured or guaranteed
loans. Losses on federally insured or guaranteed loans can occur as a result
of: (i) the requirement in some cases that the holder of a mortgage in
default generally pay an assignment fee of 1% when receiving an insurance
settlement; (ii) the requirement in some cases that the holder of the mortgage
obtain title to the property, through foreclosure or otherwise, in order to
obtain an insurance settlement; (iii) the fact that federal agencies can, in
some cases, settle insurance obligations by payment in debentures rather than
in cash; (iv) possible offsets of insurance proceeds against amounts held by
the Trust or mortgage banker; (v) loss of certain interest payments upon
default that are not covered by certain FHA insurance programs; (vi) costs of
foreclosure and related costs; and (vii) other reasons.
For VA-guaranteed loans not included in Ginnie Mae pools, it is
possible that the amount of the loss will exceed VA's maximum loss exposure
under its guaranty. If this were to occur, the Trust would bear the portion
of the loss not covered by VA's guaranty.
The Trust may invest in certain mortgages or securities which, in
addition to principal and base interest insured or guaranteed by FHA, VA or
Ginnie Mae, or guaranteed by Fannie Mae or Freddie Mac, include separate
uninsured obligations. These investments may consist of (i) federal
government-related, Fannie Mae and Freddie Mac contingent interest mortgage
loans which include separate contractual provisions obligating the borrower to
pay additional interest based entirely on net or gross cash flow and/or net or
gross proceeds upon sale, refinancing or disposition of the project (the
contingent interest); and (ii) mortgage loans that include a right to require
the borrower to repay a mortgage loan prior to the regular maturity date of
the insured mortgage loan. See "INVESTMENT OBJECTIVE AND POLICIES."
Contingent interest obligations in excess of principal and base<PAGE>
<PAGE>
interest are not secured by the mortgaged real property, by any government
insurance or guarantee, or by any obligation of Fannie Mae or Freddie Mac.
Moreover, in the event of a default under the mortgage loan which results in a
claim under the federal government's insurance or guarantee, or against Fannie
Mae or Freddie Mac's obligation, the right to receive the contingent interest
would either be assigned to the federal government agency, Fannie Mae or
Freddie Mac, as the case may be, or would terminate. In addition, the
obligation of the principals of a project owner to pay contingent interest is
generally not a personal obligation of such parties. There can be no
assurance that any project owner or principals thereof will have sufficient
financial resources to pay any contingent interest that may be owing. The
Trust expects that it will attempt to secure a contingent interest obligation
by obtaining, where possible, a subordinate mortgage and/or a security
interest in the ownership interest of the principals of the borrower or other
security.
State usury laws establish restrictions, in certain circumstances, on the
maximum rate of interest that may be charged and impose penalties on the
making of usurious loans, including monetary penalties, forfeiture of interest
and unenforceability of the debt. Although the Trust does not intend to make
or invest in mortgage loans charging contingent interest rates in excess of
those permitted by law, there is a risk that interest on contingent interest
mortgage loans could be found to exceed legal limits as a result of
uncertainties in determining the maximum legal rate of interest in certain
jurisdictions, especially with respect to contingent interest. To address
this risk, in circumstances where the Trust invests in contingent interest
mortgage loans, the Trust intends to obtain (i) an opinion of counsel from the
jurisdiction in which the mortgaged property is located stating that, in the
opinion of counsel, the rate of contingent interest does not and will not
exceed the maximum rate of interest allowed by law and/or (ii) a special
endorsement to the title insurance policy, 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 for any
obligations to secure the payment of contingent interest, there can be no
assurance that such subordinate mortgage or other security will provide
meaningful protection to the Trust with respect to any payments due, because
rights under such subordinate mortgage or other security to the related
project and the revenues therefrom will be subordinate to the rights of the
first priority lien holder.
The Trust's ability to collect contingent interest in excess of
insured base interest will be dependent also on the economic performance of
the project and will be subject to the risks inherent in investing in real
estate. The economic performance of a project may be affected by a number of
factors, including occupancy levels, defaults by tenants in the payment of
rent, increases in project operating expenses and acts of God, such as
earthquakes and floods.
With respect to federally insured or guaranteed mortgage loans that
include a right to require the borrower to repay the indebtedness prior to the
regular maturity date of a mortgage loan, the balloon repayment obligation
<PAGE>
<PAGE>
would not be secured by the federally insured note or mortgage or by any
government insurance or guarantee. It is anticipated instead that such
obligation would be secured by a security interest in the ownership interests
of the principals of the borrower or other security, including, where
obtainable, a subordinate mortgage. Because the obligation to repay the loan
prior to its stated maturity would not be included in the federally insured or
guaranteed note and mortgage, the Trust would not be entitled to obtain
insurance proceeds in the event of non-compliance with a demand for repayment
at such earlier date. If the Trust has obtained a subordinate mortgage to
secure the early repayment of the mortgage loan, the Trust would be able,
subject to compliance with certain conditions, foreclose on the mortgaged
property, and obtain title (either directly or through an agent or nominee) to
the underlying real property subject to the federally insured first mortgage.
However, even if the Trust obtains a subordinate mortgage or other security,
there can be no assurance that such subordinate mortgage or other security
will provide meaningful protection to the Trust with respect to the early
repayment of the loan, because rights under such subordinate mortgage or other
security to the related project and the revenues therefrom will be subordinate
to the rights of the holder of the first mortgage. The Trust expects that if
it is unable to enforce its right to early repayment, it would continue to
hold the mortgage loan or the securities backed by such mortgage loan, the
principal and interest of which would remain federally insured or guaranteed.
In such event, a loss could be incurred because the Trust would have required
a higher rate for a mortgage or mortgage-backed security that was not
accompanied by the right to demand repayment at an earlier date. The risk
described in this paragraph does not apply to "early repayment" loans, or
securities backed thereby, that are guaranteed by Fannie Mae or Freddie Mac,
because such loans and securities are guaranteed at the stated early maturity.
In addition, not all loans or mortgage-related assets in which the
Trust may invest are federally insured or guaranteed, or guaranteed by Fannie
Mae or Freddie Mac; mortgage investments which are not so insured or
guaranteed will be subject to all the risks inherent in investing in real
estate. See "INVESTMENT OBJECTIVE AND POLICIES; RISK FACTORS -- Real
Estate-Related Risks."
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 "RISK
FACTORS--Real Estate-Related Risks."
<PAGE>
<PAGE>
RATINGS
There can be no assurance that a rating that exists when a Trust
investment is made will continue for any given period of time, or that it
would not be revised downward or withdrawn entirely by the rating entity if,
in its judgment, circumstances so warrant. A downgrade in the rating or
withdrawal of the rating would signify an increase in the risk of default on
the mortgage investment and would be likely to result in a reduction in the
value of the investment.
LACK OF DIVERSIFICATION
The Investment Company Act defines a "diversified company" as an
investment company that maintains at least seventy-five percent of the value
of its total assets in, among other investments, securities of any one issuer
limited to an amount not greater in value than 5% of the value of the
company's total assets. In this connection, the Declaration of Trust does not
specify the proportion of the Trust's assets that may be committed to each of
the several types of investments the Trust may make. The Trust plans to
follow a policy of investing no more than 15% of the value of its total assets
in any single mortgage or construction loan as of the time of investment.
Given the foregoing definition of a diversified company, the Trust's ability
to lend up to 15% of its total assets in a single mortgage or construction
loan under this policy may from time to time result in the Trust's investment
portfolio shifting from nondiversified to diversified and back again, without
prior investor approval. This shift is contrary to Section 13(a)(1) of the
Investment Company Act, absent prior security holder approval. However, the
Trust has obtained from the SEC an exemption from this requirement insofar as
the exemption might be necessary for the Trust to conduct its investment
practices as described above. To the extent the Trust operates as a
nondiversified company, the risk of loss on its investment portfolio will be
increased. See "EXEMPTIONS FROM SPECIFIC REQUIREMENTS OF THE INVESTMENT
COMPANY ACT" in the Statement of Additional Information.
The terms "diversified" and "nondiversified" as used herein are not
intended to describe the geographical locations or concentrations of mortgaged
properties in the Trust's portfolio. Such properties are spread throughout
the United States and it is the Trust's intention to maintain such
geographical diversity.
INVESTMENT RESTRICTIONS
Because of certain legal restrictions, the Trust may not invest more
than 10% of the value of the Trust's assets in securities or investments that
are not readily marketable and convertible into cash within 120 days without a
discount from their market value. As of December 31, 1996, 0.9% of the
Trust's net assets were in this category. See "INVESTMENT RESTRICTIONS."
Circumstances may arise where the aggregate of such restricted investments
held by the Trust temporarily exceeds the 10% limitation. For example, the
rating of the issuer of a letter of credit or guarantee related to a privately
collateralized investment held by the Trust, or the rating of a state agency
guaranteeing obligations held by the Trust, may be downgraded or withdrawn,
which could in turn result in the investments being not readily marketable or
not convertible into cash within 120 days without a discount from their market
value. To the extent that the total amount of such securities or investments
exceeds 10% of the value of the Trust's assets, such securities must be
liquidated by the Trust even if the market requires that they be liquidated at
a price that reflects a substantial discount from their market value.
<PAGE>
<PAGE>
REAL ESTATE-RELATED RISKS
Certain authorized investments that (i) are neither federally insured
or guaranteed nor issued or guaranteed by Fannie Mae or Freddie Mac or (ii)
provide for contingent interest (see "INVESTMENT OBJECTIVE AND
POLICIES--Privately Collateralized investments; State and Local Government
Related Investments; Secured Bridge Loans.") will be subject to one or more
real estate-related risks described below.
Construction Risks. Due to the lack of federal insurance or
guarantees, some proposed investments may involve potential construction
risks. The construction period is an extremely risky phase of any project
development for a variety of reasons. For example, it is sometimes difficult
accurately to estimate prior to the commencement of construction the total
costs of construction and related carrying costs that will be required in
order to complete a project and to pay operating expenses, leasing costs and
debt service until the project reaches sustaining occupancy. In addition, the
construction period may be subject to unforeseeable delays and difficulties
which may adversely affect the project and the related construction loan.
The total development costs of a project and its scheduled completion
date are subject<PAGE>
<PAGE>
to change as construction and operation of a project
progresses. During all stages of development and construction, a developer is
subject to extensive environmental, building, land use, zoning and other
statutes and regulations administered by various federal, state, county and
local authorities. Such statutory and regulatory requirements (and any
changes in such requirements during construction) may result in increased
costs, delays in construction and/or an inability to complete a project on
schedule and in accordance with development plans. For example, changes in
environmental or other laws may impose or increase restrictions on the use or
operation of a project, may increase certain expenses of a project or may
necessitate potentially expensive changes in the physical configuration of the
property. Changes in federal tax laws may make investment in real estate less
attractive economically and thereby adversely affect real estate values.
Other factors that may result in increased costs, delays in
construction and/or an inability to complete a project on schedule and in
accordance with development plans include, without limitation, cost increases
or shortages in, or the unavailability when needed of, materials, labor and/or
services, construction or labor disputes, delays in construction caused by
adverse weather, casualty and other factors, poor management, delays,
unanticipated costs and difficulties in obtaining lease-up of a project and
other unforeseen occurrences. Such cost overruns and delays may adversely
affect the developer's ability to complete the construction of a project, as
well as the economic viability of a project.
Although the project and the sponsor will be carefully reviewed and
underwritten, there is no assurance that a developer will have the resources
available to fund the total construction and marketing costs of a project or
will be able to secure secondary or alternative financing of cost overruns or
unanticipated costs. In the event that construction loan proceeds and other
funds available to a borrower are insufficient to pay all such costs, the
project may not reach completion, satisfy any requirements for permanent
financing and/or reach sustaining occupancy, in which event the borrower is
unlikely to be able to repay the loan.
There is no assurance that a developer will be able to complete the
construction or lease-up of a project as required. Delays may result from a
variety of causes, including, without limitation, the factors discussed above,
despite the developer's contractual obligations as to completion and lease-up.
Any failure to complete the construction or lease-up of a project on schedule
and in accordance with development plans may result in loss of rental income,
loss of permanent financing (if the Trust is providing only construction
financing) or other financial assistance for the project.<PAGE>
<PAGE>
Market conditions also may change between the time at which a commitment
is issued or the construction loan is made and the completion of a project,
rendering the project economically unfeasible or anticipated rents
unattainable. In the event that any of the foregoing or other difficulties
occur during the construction period, the Trust may not receive the repayment
on a timely basis of all amounts advanced under a construction loan.
Risks Affecting the Operation of Projects and Repayment of Permanent
Loans. A borrower's ability to make required payments on any mortgage loan
after the completion of construction of a project will be affected by a
variety of factors. These include, but are not limited to, the achievement
and maintenance of a sufficient level of occupancy, sound management of the
project, timely receipt of rental income, increases in rents to cover
increases in operating expenses (including taxes, utility rates and
maintenance costs), and the costs of required repairs resulting from
reasonable wear and tear and casualties and changes in applicable laws and
governmental regulations. In addition, the continued feasibility of each
project may depend in part upon general and local economic factors, the supply
and demand for rental housing in the area in which the project is located,
competition from other rental housing projects, rent controls and profit
controls. There are no assurances that a project owner will be able to
achieve and maintain sufficient rental income in order to pay all operating
expenses and maintenance and repair costs of a project and the debt service
on the related mortgage loan on a timely basis. In the event that a project
owner is unable to pay all such costs, expenses and debt service, a default on
the related mortgage loan is likely to occur.
Environmental and Litigation Risks. Certain states impose a statutory
lien for associated costs on property that is the subject of a cleanup action
by the state on account of hazardous wastes or hazardous substances released
or disposed of on the property. Such a lien generally will have priority over
all subsequent liens on the property and, in certain states, will have
priority over prior recorded liens, including the lien of a mortgage. In
addition, under federal environmental law and possibly under state law in a
number of states, a secured party which takes a deed in lieu of foreclosure or
acquires a mortgaged property at a foreclosure sale may be liable for the
costs of cleaning up a contaminated site. Such costs could be substantial.
The imposition of such costs on a project owner may adversely affect such
owner's ability to pay the debt service on a mortgage loan. It is unclear
whether such costs would be imposed on a secured lender such as the Trust in
the event that it did not actually acquire title to the project. In the event
that title to a project securing a mortgage loan to the Trust was acquired by
the Trust and cleanup costs were incurred in respect of the project (or such
cleanup costs were imposed upon the Trust as a secured lender even if it did
not acquire title to the project), the Trust could realize a loss.
Any project owner may be vulnerable to potential litigation arising from
public or private disputes about the conduct of its business or the operation
of its project. A project owner may become involved in disputes or
litigation, during construction or in the course of continuing operations, as
to violations of federal, state or local laws, property tax valuations and
assessments, rent or profit controls, the terms of lease agreements with
tenants or any other contract or agreement as to which it is a party or will
<PAGE>
<PAGE>
become a party in the course of its business operations. There is no
assurance that litigation arising from such disputes will be resolved in favor
of the project owner and the existence of such a dispute or an unfavorable
resolution of such a dispute could adversely affect the ability of a project
owner to pay the debt service on its mortgage loan.
Foreclosure Risks. In cases in which the Trust invests directly in
mortgage loans, it is anticipated that the mortgage loan will be secured by a
deed of trust or mortgage, depending upon the prevailing practice in the state
in which the subject property is located. Foreclosure of a deed of trust may
be accomplished by a non-judicial trustee's sale under a specific provision in
the deed of trust which authorizes the trustee to sell the property upon any
default by the borrower under the terms of the note or deed of trust.
Foreclosure of a mortgage generally is accomplished by judicial action. The
action is initiated by the service of legal pleadings upon all parties having
an interest in the real property. Delays in completion of the foreclosure
occasionally may result from difficulties in locating necessary party
defendants. The borrower may seek bankruptcy protection in an attempt to
delay or avert a foreclosure and/or assert other defenses to the proceedings.
Any bankruptcy filing will, and the assertion of other defenses may,
significantly delay the proceedings and increase the expenses incurred by the
lender in prosecuting the proceedings, and could result in a reduction of the
secured debt in the event of a "cramdown" by a bankruptcy court. Depending
upon market conditions, the net proceeds of the sale of the property after
foreclosure, fix-up, and selling expenses may be less than the Trust's
investment.
In some states, after foreclosure and sale, the borrower and foreclosed
junior lienholders are given a statutory period in which to redeem the
property from the foreclosure sale. In some states, redemption may occur only
upon payment of the entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a
statutory right of redemption is to diminish the ability of the lender to sell
the foreclosed property. Consequently, the practical effect of the redemption
right is often to force the lender to retain the property and pay the expenses
of ownership until the redemption period has run.
MANAGEMENT
Under the terms of the Declaration of Trust, the power to exercise a
controlling influence over the management and policies of the Trust is vested
exclusively in the Board of Trustees. The Declaration of Trust provides that
the Board may have up to 25 Trustees. Up to 12 of the Trustees may be Union
Trustees, up to 12 of the Trustees may be Management Trustees, and one Trustee
is to be the Chairman. As of April 1, 1997, the Board of Trustees consisted
of the Chairman, 10 Union Trustees and 9 Management Trustees. The number of
Management Trustees may not exceed the number of Union Trustees except in the
event a Trustee dies or resigns before expiration of his term.
The Board of Trustees has overall responsibility for the management of
the Trust. Between meetings of the full Board, the Executive Committee of the
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Board of Trustees, currently consisting of the Chairman, one Union Trustee and
one Management Trustee, acts for the Board in managing Trust affairs. When
the Executive Committee is not in session, the Chief Executive Officer is
responsible for Trust management.
The Declaration of Trust divides the Union and Management Trustees
into 3 Classes. Each Class is required to have, insofar as the pool of
Trustees permits, an equal number of Union and Management Trustees. The term
of each Class expires at the third annual meeting following its election. At
each annual meeting, the Participants will elect a Chairman to serve until
the next annual meeting and such number of Trustees as is necessary to fill
vacancies in the Class whose terms expire as of that meeting and any Trustee
appointed to complete the remainder of a term. The current Trustees and
officers of the Trust and their principal occupations are described in the
Statement of Additional Information under "MANAGEMENT OF THE TRUST."
The Trust pays the Chairman $10,000 per year. The Trust pays Management
Trustees $500 per day for participation in Board of Trustee meetings and
committee meetings. The Trust pays no remuneration to any Union Trustee.
Individual Trustees are reimbursed for out-of-pocket expenses of attending
Trustee and committee meetings. The Trust employs the Chief Executive Officer
as a salaried employee pursuant to an employment agreement with him.
For the fiscal year ended December 31, 1996, the Trust's personnel
expenses (salaries and benefits) for all Trust officers and staff members
totaled $3,402,914.
The Trust has no independent investment adviser, except with respect
to certain short-term assets. See "INVESTMENT ADVISER." Investment decisions
are made by the Chief Executive Officer, the Chief Investment Officer, the
General Counsel and the Director of Investor Relations of the Trust under the
general supervision of the Executive Committee and, ultimately, the Board of
Trustees. Since both the Chief Executive Officer and the Chief Investment
Officer are officers of the Trust and neither is engaged in the business of
providing securities investment advice to others, neither the Chief Executive
Officer nor the Chief Investment Officer has registered or plans to register
as an investment adviser under the Investment Advisers Act. The Trust has no
independent transfer agent or dividend paying agent. Issuance and redemption
of Units and distribution of interest income are the responsibility of the
Chief Executive Officer and his staff.
The Chief Executive Officer and the Chief Investment Officer plan to
acquire the Trust's mortgage investments from, in participation with, or with
the assistance of FHA- and VA-approved mortgage banking firms, Fannie Mae- and
Freddie Mac-approved seller/servicers, depository institutions, investment
bankers and other
lenders approved by management, located throughout the United States believed
to be in a position to know the standing of local builders and other borrowers
and the merit of the building projects considered for investment. The Chief
Executive Officer and the Chief Investment Officer each has broad discretion
regarding the mortgage banking firms and institutions through which the Trust
deals. Construction loans and first mortgage loans are acquired from mortgage
banking firms or other lenders on a net price basis without commissions,
although the Trust will typically pay the mortgage banker or depository
institution involved an ongoing loan servicing fee in connection with whole
<PAGE>
<PAGE>
mortgage loans and participations therein, in each case ranging from .125% to
1.20% of the amount involved in the transaction.
The Trust does not ordinarily engage brokers to effectuate transactions
in mortgage loans or securities. It is customary for brokers for construction
and long-term real estate loans to be engaged by the mortgage borrower or the
mortgage banker without expense to mortgage investors such as the Trust.
Transactions in short-term liquid assets are customarily effectuated on a net
price basis without commission.
During the year ended December 31, 1996, the Trust's expenses totaled
$5,822,349 (0.46% of average net assets). The Trust does not expect to incur
a material amount of extraordinary expense during the current fiscal year.
TRUST PERFORMANCE
The factors that materially influenced the Trust's performance during
its most recently completed fiscal year are discussed in the Trust's 1996
annual report to shareholders, currently on file with the SEC.
The following graph illustrates the net and gross account value of
$50,000 invested in the Trust on January 1, 1987 at the end of each of the
past ten years, compared to the account value of $50,000 invested on the same
date at total rate of return of the Salomon Brothers Broad Bond Index, Salomon
Brothers Mortgages Index and the U.S. Treasury Bill Index.
Trust's Annualized Total Gross Returns
One year ended Five years ended Ten years ended
December 31, 1996 December 31, 1996 December 31, 1996
5.59% 7.75% 9.39%
PAST PERFORMANCE OF AN INVESTMENT IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE RATES OF RETURN 1986 - 1995
- ------------------------------------------------------------------------------
TOTAL VALUE OF INVESTMENT FOR YEAR ENDING
1987 1988 1989 1990 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AFL-CIO Housing
Investment Trust
Total Gross Rate
of Return $ 51,896.20 56,655.08 66,652.55 73,486.47 84,436.81
AFL-CIO Housing
Investment Trust
Total Net Rate
of Return $ 51,553.18 55,996.95 65,544.86 71,882.97 82,158.88
Salomon Brothers
Broad Bond -
Total Gross Rate
of Return $ 51,300.00 55,404.00 63,382.18 69,149.95 80,213.95
Salomon Brothers
Mortgages -
Total Gross Rate
of Return $ 52,050.00 56,630.40 65,238.22 72,349.19 83,635.66
U.S. Treasury
Bill - Total
Gross Rate of
Return $ 52,600.00 55,808.60 60,161.67 64,493.31 67,846.96
/TABLE
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE RATES OF RETURN 1986 - 1995 (continued)
- ------------------------------------------------------------------------------
TOTAL VALUE OF INVESTMENT FOR YEAR ENDING
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AFL-CIO Housing
Investment Trust
Total Gross Rate
of Return $ 89,718.12 98,842.23 96,712.48 116,161.96 122,655.94
AFL-CIO Housing
Investment Trust
Total Net Rate
of Return $ 86,891.46 95,295.00 92,724.54 110,861.02 116,543.03
Salomon Brothers
Broad Bond -
Total Gross Rate
of Return $ 86,310.21 94,854.92 92,104.12 102,235.49 113,167.97
Salomon Brothers
Mortgages -
Total Gross Rate
of Return $ 89,824.70 96,112.43 94,766.85 110,687.69 116,664.83
U.S. Treasury
Bill - Total
Gross Rate of
Return $ 70,018.07 71,908.55 74,497.26 78,147.63 81,820.57
</TABLE>
<PAGE>
<PAGE>
INVESTMENT ADVISER
Beginning as of May 21, 1992, the Trust engaged Wellington Management
Company, LLP ("Wellington Management") to furnish investment advisory services
concerning certain of the short-term, liquid assets in the Trust's portfolio
designated by the Trust from time to time. The Trust currently has no
independent investment adviser other than Wellington Management, whose
Investment Advisory Agreement with the Trust was initially approved by
Participants at the Trust's 1992 Annual Meeting. As of December 31, 1996, the
value of all short term assets eligible for management by Wellington
Management was $88,598,803 which represented 6.4% of the Trust's
total net assets at that date. The Investment Advisory Agreement was amended
and extended for a period of two years by a vote of the Participants at the
Trust's Annual Meeting in May 1997 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.
Wellington Management, a Massachusetts limited liability partnership, is
a registered investment adviser with principal offices located at 75 State
Street, Boston, Massachusetts 02109. Its Managing Partners are Robert W.
Doran, Duncan M. McFarland and John R. Ryan. Wellington Management is a
professional investment counseling firm that provides investment services to
investment companies, employee benefit plans, endowment funds, foundations,
and other institutions and individuals. As of February 28, 1997, Wellington
Management held investment management authority over approximately $139.6
billion of assets, including $16.6 billion of cash and cash-equivalent assets.
Wellington Management and its predecessor organizations have provided
investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960.
Under the 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 each Valuation Date market prices as of the Valuation Date
for 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.
<PAGE>
<PAGE>
Wellington Management renders all of the services described above at its
own expense, and provides the office space, furnishings and equipment, and
personnel required by it to perform those services for the compensation
described below.
Wellington Management is authorized to arrange for the execution of
portfolio transactions by selecting brokers or dealers that will execute the
transactions, and is directed to use its best efforts to obtain the best net
results, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of
execution, and operational facilities of the firm involved. Wellington
Management may in its discretion purchase and sell portfolio securities
through brokers who provide it or the Trust with research, analysis, advice
and similar services, and Wellington Management may pay to these brokers, in
return for research and analysis, a higher commission than may be charged by
other brokers, provided that Wellington Management determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Wellington Management, that
the total commission paid by the Trust will be reasonable in relation to the
benefits to the Trust over the long term, and that the total commission paid
by the Trust is consistent with commissions paid in comparable transactions.
In selecting a broker for each specific transaction, Wellington
Management 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
provision of market information relating to the security. Wellington
Management will make periodic evaluations of the quality of these brokerage
services as provided by various firms and measure these services against its
own standards of execution. Brokerage services will be obtained only from
those firms which meet its standards, maintain a reasonable capital position,
and can be expected to reliably and continuously supply these services.
On occasions when Wellington Management deems the purchase or sale of a
security to be in the best interest of the Trust as well as other clients,
Wellington Management, to the extent permitted by applicable laws and
regulations, may, but is under no obligation to, aggregate the securities to
be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by Wellington Management in the manner it considers
to be the most equitable and consistent with its fiduciary obligations.
Under the terms of the Investment Advisory Agreement, Wellington
Management is compensated monthly at the annual rate of 0.16% of the market
value of the Trust's assets under management by Wellington Management, based
upon the average monthly market value of such assets.
<PAGE>
<PAGE>
INCIDENTS OF OWNERSHIP OF UNITS
Beneficial interests of the Trust are divided into Units representing
equal portions of Trust assets. Rights arising from ownership of Units are
set forth in the Declaration of Trust. The Declaration of Trust can be
amended by vote of a majority of Trustees without any requirements of a vote
by holders of Units. However, the Declaration of Trust provides that,
notwithstanding anything to the contrary contained in the Declaration of Trust
or any amendment thereto, no part of the Trust that equitably belongs to any
investor (other than such part as is required to pay the expenses of the
Trust) is to be used for any purpose other than the exclusive benefit of the
investors. In addition, fundamental investment policies may not be changed
without the approval of holders of a majority of the Trust's outstanding
Units.
Each Unit carries the right to vote to elect a Class of Trustees, to
ratify selection of the auditors for the Trust, and to approve changes in
investment policy. Each Unit entitles the holder thereof to participate pro
rata with all other Units in the distribution of assets in any liquidation of
the Trust. No preemptive rights attach to Units; the Trust has the right to
sell or exchange Units without offering the same to the holders of the then
outstanding Units.
The overwhelming majority of jurisdictions in the United States
recognize a trust, such as the Trust, as a separate legal entity, wholly
distinct from its beneficiaries. In those jurisdictions, the beneficiaries of
a trust, such as the Participants in the Trust, are not liable for the debts
or other obligations of the trust. A few jurisdictions, particularly Texas
and Kansas, do not recognize so-called "business trusts" as separate legal
entities and hold the beneficiaries of such trusts personally liable for<PAGE>
<PAGE>
actions of the business trusts. The Trust nevertheless does not expect to
exclude otherwise eligible investors in Kansas and Texas and other such
jurisdictions from investing in Units.
The Declaration of Trust requires that every written undertaking
contain a provision stating that such undertaking is not binding upon any
investor personally and that any person, firm, corporation or association
dealing with the Trustees shall be limited to satisfying any obligation,
liability, or covenant of the Trustees out of the Trust property and not out
of the personal property of any investor. Counsel for the Trust is of the
opinion that in the overwhelming majority of jurisdictions, no personal
liability will attach to the holders of Units on any undertaking containing
such a provision. However, in those jurisdictions that refuse to recognize
the separate status of trusts such as the Trust, Participants could be held
personally liable for claims against the Trust. These claims could include
contract claims where the provision referred to above is omitted from the
undertaking, tort claims, tax claims and certain other statutory liabilities.
If such liability were ever imposed upon Participants, they would be liable
only to the extent that Trust assets and insurance were not adequate to
satisfy the claims.
Units are not transferable and are not assignable. No holder of a Unit
has the authority to pledge the Unit as collateral for any loan. The Trust
does not issue certificates to evidence ownership of Units. In lieu thereof,
Units are issued and redeemed by bookkeeping entry and without physical
delivery of any securities.
The Trust, at the end of each calendar quarter, makes pro rata
distributions of net income earned during the preceding three-month period.
Such distributions are made in cash. Pursuant to an Internal Revenue Service
ruling received by the Trust, a Participant may authorize the Trust
automatically to reinvest any dividends to which the Participant is entitled
in the Trust in exchange for a corresponding amount of Units, calculated at
the Net Asset Value as of the end of the calendar quarter.
The Trust may be terminated at any time by the Trustees after notice in
writing to all Participants.
Any inquiries or expressions of interest concerning sales transactions
should be referred to the Director of Investor Relations at Trust
headquarters, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006.
SECURITIES OFFERED
ELIGIBLE INVESTORS
Only "Labor Organizations" and "Eligible Pension Plans" are eligible
to own Units. A Labor Organization means any organization of any kind, any
agency, employee representation committee, group, association, or plan in
which employees participate directly or through affiliated organizations, and
which exists for the purpose, in whole or in part, of dealing directly or<PAGE>
<PAGE>
through affiliated organizations with employers concerning terms or conditions
of employment and any employee benefit plan of such an organization, or any
other organization which is, in the discretion of the Board of Trustees,
affiliated with or sponsored by such an organization. An Eligible Pension
Plan is a pension plan constituting a qualified trust under IRC Section 401(a)
that has beneficiaries who are represented by a Labor Organization and the
management of which has the discretionary right to invest funds of
beneficiaries without the direct intervention or control of those
beneficiaries.
VALUATION
The price of Units is based on Net Asset Value as of the monthly
Valuation Date following receipt of a purchase order by dividing the value of
the Trust's portfolio plus any cash and other assets (including interest and
dividends accrued but not collected) less all liabilities (including accrued
expenses but excluding capital and surplus) as of that Valuation Date by the
number of Units then outstanding.
Admission to or withdrawal from the Trust is permitted in whole or
fractional Units as of monthly Valuation Dates. A request for purchase of
Units must be received by the Trust before the Valuation Date as of which it
is to be issued. A minimum initial investment of $50,000 is required. A
request for purchase of Units must be accompanied by cash or by a subscription
agreement providing for a cash escrow of the amount to be invested as of the
forthcoming Valuation Date.
Forms of subscription agreements with banks providing for a cash escrow
pursuant to which escrowed amounts will be held in interest-bearing form are
available from the Trust. There is no sales charge or commission payable in
connection with the purchase of Units or the escrow.
Trust investments that regularly trade in a secondary market are
valued by the Trust principally by reference to available bid and ask
quotations. When the secondary market for the securities, mortgage loans and
construction loans in which the Trust invests is not sufficiently active to
permit ready ascertainment of a market price for any particular asset in the
Trust's portfolio, the Trust's securities, mortgage loans and construction
loans and other portfolio assets are valued in good faith after consideration
of other factors affecting remarketability and comparable market yield
pricing. The Trust has retained a third-party consultant which, in
consultation with Trust management, has developed a valuation methodology for
certain securities in the Trust's portfolio that have a less active secondary
market. The Trust may from time to time retain additional outside consultants
to assist the Trust's staff in establishing values in accordance with such
procedures.
A summary of the current valuation methodology used by the Trust with
respect to various categories of investments is as follows:
SHORT-TERM INVESTMENTS consisting of repurchase agreements, commercial
paper, bankers acceptances, investment trusts, other investments and
warehousing loans, which mature less than sixty days from the<PAGE>
<PAGE>
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 consisting of mortgage-backed securities, permanent
mortgages, construction loans and participation certificates are valued using
published prices or dealer bids, supported by the present value of projected
cash flows, discounted using market-based discount and prepayment rates
developed individually for each security. The market-based discount rate is
composed of the sum of a risk-free yield (i.e., a U.S. Treasury Note with a
weighted average life comparable to the security being valued), adjusted
for an appropriate risk premium. The risk premium reflects actual premiums in
the marketplace over the yield on U.S. Treasury securities of a comparable
risk and maturity to the security being valued. On loans for which the Trust
finances the construction and permanent mortgage, a value is determined based
upon funded and unfunded commitment amount for the term of the construction
loan plus the permanent mortgage loan. For construction only loans, the
outstanding principal balance of the loan is used to approximate value,
assuming no decline in credit quality.
CONTINGENT INTEREST LOANS. Contingent interest mortgage loans bear a
base rate of interest at a rate below the market rate for non-contingent
interest mortgage loans prevailing at the time the loan was made in return for
the right to receive as additional interest a portion of (i) net cash flow
from operations and/or (ii) proceeds from the sale or refinancing of the
related project. In general, the interest in the early years is lower than
would be the case for non-contingent interest mortgage loans, but increases in
later years as net operating cash flow increases and/or upon receipt of
proceeds of a sale or refinancing, and is added to the base interest. The
Trust, as holder of the contingent interest loan, is entitled to receive
additional interest in excess of the base interest rate. Because the amount
of any proceeds from net cash flow cannot be determined in advance, and the
amount of any proceeds from a sale or refinancing cannot be determined before
a sale or refinancing actually occurs, it is not possible to value the
contingent interest feature with precision.
The values of non-contingent mortgage loans are affected primarily by
changes in interest rates and secondarily by the performance of the underlying
property. With regard to contingent interest mortgage loans, however, the
performance of the underlying property becomes a more important determinant of
value.
Contingent interest mortgage loans generally are accounted for by an
estimate of the underlying property's value in those circumstances where no
exchange market exists. It is possible that the exchange value that would
take place between a willing buyer and a willing seller could differ from the
estimated value, and that the difference could be significant. The estimated
value is determined by an appraisal method that discounts the expected cash
flows of the underlying property. During the initial years the mortgage is
<PAGE>
<PAGE>
carried at outstanding principal amounts plus accrued interest (assuming no
inherent credit problems with the underlying property). In later years, as
the property matures, the Trust may record appreciation or depreciation in the
value of the investment based on whether the performance of the underlying
property exceeds or falls short of expectations. As long as the underlying
property is projected to generate net operating cash flow above the base rate,
the amount of the projected contingent interest obligation is accruable by the
Trust throughout the term of the mortgage. In no event, however, will the
carrying value of the underlying property exceed its appraised value at any
one reporting date.
Determining the value of underlying properties necessarily requires
assumptions and estimates about future events and cash flows of the
properties. It is the intent of the Trust to engage a qualified MAI appraiser
to perform the appraisal of underlying property every five years and to place
into effect appropriate procedures to assess the relevance of individual
appraisals so that they may be updated annually by the Trust.
Privately collateralized investments; state and local government-related
investments.
- ------------------------------------------------------------------------------
(1) Public ratings. Obligations which carry a public rating from one or
more nationally recognized rating agencies are valued to reflect current
market yields as determined by giving effect to the average of quotes obtained
from dealers in such obligations for securities of comparable quality,
interest rates and maturities.
(2) No public rating with recourse to issuer and/or with credit
enhancement. Obligations which do not carry a public rating but are with
recourse to the issuer and/or have the benefit of credit enhancement are
valued to reflect current market yields as determined by giving effect to the
average of quotes obtained from dealers in such obligations for securities of
comparable yield and term to maturity and of a quality which, in the
determination of the Trust, is most nearly comparable to obligations in any
one or more of the following categories:
(a) obligations which carry a private rating upon which the Trust is
entitled to rely shall be valued against securities having comparable
public or private ratings;
(b) obligations which are guaranteed or otherwise secured by the
general credit or moral obligation of a state or local government or an
agency or instrumentality thereof shall be compared to other publicly
sold obligations of the particular state or local government or agency or
instrumentality thereof carrying comparable guarantees or security
arrangements;
(c) obligations with respect to which no other publicly sold
obligations issued or guaranteed or otherwise secured by a particular
state or local government or agency or instrumentality thereof are
available (for purposes of determining comparable quality) will be valued
as if they were comparable in quality to the lowest rated "investment
grade" obligations of the particular issuer with respect to which<PAGE>
<PAGE>
comparable quotes are available, and if the only obligations of such
issuer with respect to which comparable quotes are available are of a
grade higher than the lowest rated investment grade, the Trust will make
an appropriate discount from quotes on such obligations to reflect a
reduction to the lowest rated investment grade; or
(d) obligations with respect to which no publicly sold securities of
comparable quality are found in accordance with the foregoing guidelines
will be valued by management on the basis of the particular facts and
circumstances of the case based on investments that are comparable with
respect to terms, quality and yield.
The averaging of quotes from dealers may be supplemented by application
of the following valuation criteria when, in the opinion of management, the
application of such supplemental criteria is warranted or desirable:
(i) discounting of expected future cash flows;
(ii) assessing the nature of the issuer or the entity providing credit
enhancement, as applicable, risks it is subject to, historical patterns
of revenue assessment and collection;
(iii) assessing tangible book value and financial condition of the
issuer or the entity providing credit enhancement, as applicable;
(iv) assessing revenue history of the issuer or the entity providing
credit enhancement, as applicable.
Obligations with respect to which a notice of redemption has been issued
will be valued on the basis of their current market yield and yield to
maturity, if the Trust has no reason to believe that payment on the
obligations will not be made at the call date. Any obligations (i) which are
in default or (ii) with respect to which one or more underlying assets are in
default and there is no mortgage insurance or other credit enhancement
available to assure full and timely payment will be valued by management based
upon the particular facts and circumstances of the case.
(3) No public rating without recourse to issuer and without credit
enhancement. Obligations which do not carry a public rating, are without
recourse to the issuer, and are without credit enhancement will be valued by
management on the basis of the particular facts and circumstances of the case
based on investments that are comparable with respect to terms, quality and
yield.
General. In addition to the valuation methods described above, all
investments are reviewed and appropriate adjustments are made to reflect the
effect of income (collected or accrued), realized and unrealized gains and
losses, expenses and any material impairments in value arising from the
specific conditions of investment (e.g., mortgage in default).<PAGE>
<PAGE>
SALES ACTIVITIES
The Trust conducts sales and distribution activities for Units that
are directed to certain pension plans. These activities, which are conducted
by and under the direction of the Director of Investor Relations, include
solicitations in person or by mail or telephone, as well as responding to
inquiries concerning the Trust's offering of Units, and the ministerial and
clerical work of effecting sales of Units. All inquiries concerning the
Trust's offering of Units should be directed to AFL-CIO Housing Investment
Trust, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006, Attention:
Director of Investor Relations, (202) 331-8055. Expenses of sales and
distribution of Units are paid by the Trust pursuant to a Plan for
Distribution adopted pursuant to SEC Rule 12b-1 under the Investment Company
Act.<F5> The budget for the sales and distribution activities authorized by
the Participants was $500,000 in 1996 and is $500,000 in 1997. Such sales and
distribution expenses for the year ended December 31, 1996 were $434,105,
which represented approximately .03 percent of $1,383,163,166 in net Trust
assets as of December 31, 1996. No material increase in the budgeted rate of
sales and distribution expense will be made without Participant approval. See
"SALES AND DISTRIBUTION ACTIVITIES" in the Statement of Additional Information
for a more detailed discussion of sales and distribution.
The Plan for Distribution will continue in effect until April 30,
1998, unless earlier terminated by vote of a majority of the Trust's
outstanding Units or by a majority of disinterested Trustees. Any change in
the Plan for Distribution that would materially increase the amount of
distribution expense borne by the Trust requires Participants' approval; any
other material change requires approval by the Trustees, including a majority
of the disinterested Trustees. The Plan for Distribution may continue in
effect for successive one-year periods, provided that each continuance is
specifically approved: (a) by a vote of the majority of the Trust's Units or
by the Trustees; and (b) by the vote of a majority of the Trustees who are
disinterested and who have no direct or indirect financial interest in the
Plan for Distribution or any related agreements. For additional information
regarding the Plan for Distribution, see "SALES AND DISTRIBUTION ACTIVITIES"
in the Statement of Additional Information.
<F5> In general, SEC Rule 12b-1, with which the Trust will comply,
requires that a Plan for Distribution be approved in a specified manner by the
holders of voting securities and Trustees, that quarterly reports of
distribution expenses be made to the Trustees, and that the plan be terminable
upon specified conditions.<PAGE>
<PAGE>
REDEMPTION
A request for redemption of Units will be honored if it is in writing
and received 15 days or more before the Valuation Date on which the Units are
to be redeemed. Securities may be redeemed in whole or fractional Units.
Payment in satisfaction of duly tendered requests for redemption will be made
as soon as practicable and, in any event, within 7 business days after the Net
Asset Value of the Trust is ascertained for the Valuation Date as of which
redemption is effected. It usually takes 7 to 10 business days to calculate
the Trust's Net Asset Value after a Valuation Date.
Upon the agreement of the redeeming Participant, the Trust may tender
securities or mortgages or other Trust assets in partial or full satisfaction
of a duly tendered request for redemption. Such securities, mortgages or
other assets will be treated for redemption purposes as the cash equivalent of
their value on the Valuation Date on which redemption is effected. A
Participant receiving such assets may incur expenses in disposing of such
assets for cash.
Section 22(c) of the Investment Company Act and SEC Rule 22c-1
thereunder provide that no registered investment company issuing a redeemable
security and no principal underwriter of such company shall sell or redeem any
such security except at a price based on the current net asset value of such
security that is next computed after receipt of a tender of such security for
redemption or of an order to purchase such security. Section 22(e) provides
that no registered investment company shall postpone the date of payment upon
redemption of a redeemable security in accordance with its terms for more than
seven days after the tender of such security for redemption except in certain
limited circumstances. The Trust's redemption policies do not conform to the
foregoing requirements. The Trust has obtained exemption from generally
applicable redemption requirements on the grounds that the interests of its
Participants will make investment and redemption other than on a quarterly
basis unnecessary and that daily valuation of the Trust portfolio of mortgage
loans would be unduly burdensome. The Board of Trustees has implemented
monthly valuations of the Trust's assets, which enables the Trust to sell and
redeem Units on a monthly, rather than quarterly, basis. See "RISK
FACTORS--Redemption."
TAX STATUS
The Trust has filed its tax returns as a regulated investment company
under Subchapter M of the Internal Revenue Code and intends to operate in a
manner which qualifies for treatment as a regulated investment company. If
the Trust so qualifies and distributes all of its taxable income to
Participants, it will not be subject to federal income tax. Participants
will be required to report their proportionate share of such income for income
tax purposes, but Participants not subject to tax on their income will not be
required to pay tax on amounts distributed to them. The Trust will inform
Participants annually of the amounts and nature of such income.<PAGE>
<PAGE>
PENDENCY OF LEGAL PROCEEDINGS
The Trust is not involved in any material legal proceedings and is not
aware of any legal proceedings against it contemplated by any governmental
authorities. <PAGE>
<PAGE>
PART B. STATEMENT OF ADDITIONAL INFORMATION
AFL-CIO
HOUSING INVESTMENT TRUST
1717 K Street, N.W.
Suite 707
Washington, D.C. 20006
(202) 331-8055
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
This Statement of Additional Information is not a Prospectus. It should
be read in conjunction with the American Federation of Labor and Congress of
Industrial Organizations Housing Investment Trust ("Trust") Prospectus, dated
May 15, 1997, which may be obtained without charge from Trust headquarters.
The date of this Statement of Additional Information is May 15,
1997.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
History............................................................... 1
Exemptions from Specific Requirements of the Investment
Company Act......................................................... 1
Nondiversification.............................................. 1
Redemption Restrictions......................................... 2
Investment Objective and Policies..................................... 3
Management of the Trust............................................... 4
Principal Holders of Securities....................................... 14
Investment Adviser.................................................... 15
Sales and Distribution Activities..................................... 17
Admission to the Trust................................................ 18
Supplementary Information............................................. 19
Custodian....................................................... 19
Auditors........................................................ 19
Reports......................................................... 19
Legal Matters................................................... 19
Financial Statements.................................................. 19
Appendix A............................................................ A-1
Appendix B............................................................ B-1
Appendix C............................................................ C-1
<PAGE>
<PAGE>
HISTORY
The American Federation of Labor and Congress of Industrial Organizations
Housing Investment Trust ("Trust") is a common law trust created under the
laws of the District of Columbia pursuant to a Declaration of Trust originally
executed September 19, 1981. The name of the Trust was changed from "AFL-CIO
Pooled Investment Trust" on May 27, 1982. The Trust has been established
under the sponsorship of the AFL-CIO as an instrumentality of the United
States labor union movement.
EXEMPTIONS FROM SPECIFIC
REQUIREMENTS OF THE INVESTMENT COMPANY ACT
On April 21, 1982 the Trust obtained from the Securities and Exchange
Commission ("SEC") an order under Section 6(c) of the Investment Company Act
of 1940, as amended ("Investment Company Act") exempting the Trust from
certain requirements of that Act (SEC Release No. 12387). The following is a
brief summary of certain of these exemptions.
NONDIVERSIFICATION
The Investment Company Act provides that no registered investment company
shall change its subclassification from diversified to nondiversified without
the shareholders' authorization. Under Section 5(b) of the Act, a
"diversified company" is:
[A] management company which meets the following requirements: At least
75 percentum of the value of its total assets is represented by cash and
cash items (including receivables), Government securities, securities of
other investment companies and other securities for the purposes of this
calculation limited in respect to any one issuer to an amount not greater
in value than 5 percentum of the value of the total assets of such
management company and to not more than 10 percentum of the outstanding
voting securities of such issuer.
A "nondiversified company" means any management company other than a
diversified company.
The Trust will seek to remain as diversified as practicable. Because,
however, the mortgages in which it proposes to invest are often offered in
large denominations, the Trust may shift from time to time from diversified to
nondiversified status. The Trust has obtained an exemption from the
requirement of a shareholder vote before shifting its diversification status.
The terms "diversified" and "non-diversified" as used herein are not
intended to describe the geographical locations or concentrations of mortgaged
properties represented in the Trust's portfolio. Such properties are spread
throughout the United States and it is the Trust's intention to maintain such
geographical diversity.
<PAGE>
<PAGE>
REDEMPTION RESTRICTIONS
Section 22(c) of the Investment Company Act and SEC Rule 22c-1 thereunder
provide that no registered investment company issuing a redeemable security
and no principal underwriter of such company shall sell or redeem any such
security except at a price based on the current net asset value of such
security that is next computed after receipt of a tender of such security for
redemption or of an order to purchase such security. Section 22(e) provides
that no registered investment company shall postpone the date of payment upon
redemption of a redeemable security in accordance with its terms for more than
seven days after the tender of such security for redemption except in certain
limited circumstances. The Trust's redemption policies do not conform to the
foregoing requirements. See "REDEMPTION" in the Prospectus. The Trust has
obtained exemption from generally applicable redemption requirements on the
grounds that the interests of its Participants will make investment and
redemption other than on a quarterly basis unnecessary and that daily
valuation of the Trust portfolio of mortgage loans would be unduly burdensome.
Effective October 1, 1987, the Board of Trustees authorized investments and
redemptions on a monthly basis instead of a quarterly basis.
INVESTMENT OBJECTIVE AND POLICIES
A description of the Trust's investment objective and policies is set
forth in the Trust's Prospectus under "INVESTMENT OBJECTIVE AND POLICIES."
Certain of the Trust's authorized investments are tied to ratings at various
levels by one or more nationally recognized statistical rating agencies. A
description of Standard & Poor's rating categories for long-term debt and
short-term debt are attached as Appendix A to this Statement of Additional
Information. The rating categories of other nationally recognized statistical
rating agencies are similar to those of Standard & Poor's.
Similarly, certain of the Trust's authorized investments relate to
depository institutions rated in category "B" or higher by Thomson Bankwatch,
Inc. See "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized
Investments; State and Local Government-Related Investments in the Prospectus.
A description of the rating categories of Thomson Bankwatch, Inc. is attached
as Appendix B to this Statement of Additional Information.
The following information is included to augment the discussion of "top
tier" agencies and agencies with a general obligation rating of "A" or better
under "INVESTMENT OBJECTIVE AND POLICIES--Privately Collateralized
Investments; State and Local Government-Related Investments" in
the Prospectus. The Trust is allowed to invest in construction or permanent
loans, or securities backed by construction or permanent loans, or interests
in such loans or securities, provided that such loans or securities are issued
or guaranteed, as the case may be, by (i)a state or local housing finance
agency designated "top tier" by Standard & Poor's (or designated comparably by
another nationally recognized statistical rating agency, as determined by the
Executive Committee of the Trust) or (ii) a state or local housing finance
agency having a general obligation rating of "A" or higher by Standard &
Poor's (or a comparable rating from another nationally recognized statistical
rating agency, as determined by a Executive Committee of the Trust) at the
time of acquisition by the Trust. Before designating a housing agency as top
tier, Standard & Poor's must favorably evaluate a number of criteria,
including the agency's general track record, unrestricted fund balances,
administrative capabilities, investment policy, internal controls, portfolio
quality and the sponsoring state's commitment to housing. More complete <PAGE>
<PAGE>
descriptions of the guidelines used by Standard & Poor's with respect to "top
tier" designations and general obligation ratings are attached to this
Statement of Additional Information as Appendices C and D, respectively.
MANAGEMENT OF THE TRUST
The current Trustees and officers of the Trust and their principal
occupations are as follows:
Position with Principal Occupation(s)
Name, Address, and Age Housing Trust During Past 5 Years
- --------------------- --------------- ------------------------
Richard Ravitch Chairman Formerly President and
350 Park Avenue Chief Executive Officer,
18th Floor Player Relations Committee
New York, New York of Major League Baseball;
age 63 formerly Chairman, Aquarius
Management Corporation
(limited profit housing
project management); formerly
Chairman and Chief Executive
Officer, Bowery Savings Bank
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 53 American Federation of State,
County and Municipal
Employees
Arthur A. Coia* Union Trustee General President, Laborers'
905 16th Street, N.W. International Union of
Washington, D.C. 20006 North America
age 54
Robert A. Georgine* Union Trustee President, Building and
815 16th Street, N.W. Construction Trades
Washington, D.C. 20006 Department, AFL-CIO
age 64
Francis X. Hanley Union Trustee General President (formerly
1125 17th Street, N.W. General Secretary-Treasurer
Washington, D.C. 20036 International Union of
age 66 Operating Engineers
Frank Hurt* Union Trustee President, Bakery,
10401 Connecticut Avenue Confectionery & Tobacco
Kensington, MD 20895 Workers International Union
age 58
John T. Joyce* Union Trustee President, Bricklayers &
815 15th Street, N.W. Allied Craftsmen Internationl
Washington, D.C. 20005 Union
age 61
<PAGE>
<PAGE>
Position with Principal Occupation(s)
Name, Address, and Age Housing Trust During Past 5 Years
- --------------------- --------------- ------------------------
A.L. Monroe* Union Trustee General President,
1750 New York Ave., N.W. International Brotherhood of
Washington, D.C. 20006 Painters and Allied Trades
age 63
Jack F. Moore* Union Trustee Secretary (formerly Vice
1125 15th Street, N.W. President), International
Washington, D.C. 20005 Brotherhood of Electrical
age 70 Workers
John J. Sweeney* Union Trustee President, AFL-CIO;
815 16th Street, N.W. Formerly International
Washington, D.C. 20006 President, Service
age 63 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 47 of America, United
Terrence R. Duvernay Management Trustee Public Finance division,
4740 Guilford Forest Dr. Legg Mason; formerly
Atlanta, GA 30331 Deputy Secretary of U.S.
age 54 Department of Housing and
Urban Development; formerly
Executive Director of Georgia
Housing and Finance Authority
and Michigan State Housing
Development Authority
Alfred J. Fleischer Management Trustee Chairman, Fleischer-Seeger
5725 Manchester Avenue Construction Corporation;
St. Louis, MO 63110 formerly a Direction of the
age 76 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 69
George Latimer Management Trustee Chief Executive Officer,
547 West Jackson National Equity Fund;
Suite 601 Professor of Urban Studies,
Chicago, IL 60661 Macalster College; Formerly
age 61 Director, Special Actions
Office, HUD<PAGE>
<PAGE>
Position with Principal Occupation(s)
Name, Address, and Age Housing Trust During Past 5 Years
- --------------------- --------------- ------------------------
H.D. LaVere Management Trustee President, Michigan
1100 Owendale Avenue Carpentry, Inc. (residential
Suite K building contractor); Labor
Troy, Michigan 48083-1914 Relations Director, Michigan
age 68 Carpentry Contractor
Association
George Miller Management Trustee Executive Vice President,
1550 Spring Road Mason Contractors Association
Suite 320 of America
Oakbrook Terrace, IL 60521
age 73
Marlyn J. Spear Management Trustee Investment Coordinator, The
500 Elm Grove Road Building Trades United
Room 300 Pension Trust Fund
Elm Grove, WI 53122-0530
age 44
Tony Stanley Management Trustee Executive Vice President and
25250 Rockside Road Director, TransCon Builders,
Bedford Heights, OH 44146 Inc. (building construction)
age 63
Patricia F. Wiegert Management Trustee Retirement Administrator,
1355 Willow Way Contra Costa County
Suite 221 Employee's Retirement
Concord, CA 94520 Association
age 50
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 51
Michael M. Arnold* Director of Investor Director of Investor
1717 K Street, N.W. Relations Relations, AFL-CIO Housing
Suite 707 Investment Trust
Washington, D.C. 20006
age 57
<PAGE>
<PAGE>
Position with Principal Occupation(s)
Name, Address, and Age Housing Trust During Past 5 Years
- --------------------- --------------- ------------------------
Helen R. Kanovsky General Counsel Formerly Executive Vice
1717 K Street, N.W. President and General Counsel
Suite 707 GE Capital Asset Management
Washington, D.C. 20006 Corporation; formerly Vice
age 46 President, Skyline Financial
Services Corporation
James D. Campbell Chief Investment Formerly Director, National
1717 K Street, NW Officer Partnership for Community
Suite 707 Investment, AFL-CIO
Washington, D.C. 20006 Housing Investment Trust
age 43
Union Trustees Chavez-Thompson, Hanley and Trumka and Management
Trustees Kardy, Latimer and LaVere are "Class I" Trustees, whose terms expire
at the 1999 Annual Meeting of Participants. Union Trustees Georgine, Joyce
and Moore and Management Trustees Fleischer, Miller and Spear are "Class II"
Trustees whose terms expire at the 2000 Annual Meeting of Participants. Union
Trustees Coia, Hurt, Monroe and Sweeney and Management Trustees Duvernay,
Stanley and Wiegert are "Class III" Trustees whose terms expire at the 1998
Annual Meeting of Participants. Trustee Ravitch is the Chairman (a
non-classified trustee) with a one-year term expiring at the 1998 Annual
Meeting of Participants.
Those Trustees and officers whose names are marked with an asterisk (*)
may be considered to be "interested persons" within the meaning of Section
2(19) of the Investment Company Act although the Trust does not concede that
such is the case. Each of these Trustees and officers is an officer or
employee of the AFL-CIO, a Labor Organization (as that term is defined in the
Trust's Declaration of Trust) that is a member of the AFL-CIO, or the Trust.
The Executive Committee of the Trust is composed of the Chairman, Richard
Ravitch (Chairman of the Executive Committee), Union Trustee John J. Sweeney
and Management Trustee Tony Stanley (Vice Chairman of the Executive
Committee). The Executive Committee has all the authority of the Board of
Trustees when the Board is not in session, except to the extent that such
authority is limited by law. The Executive Committee also serves as
Nominating Committee with authority to identify potential new members of the
Board of Trustees.
Since February 1, 1992, Stephen Coyle has served as Chief Executive
Officer of the Trust. Mr. Coyle, age 51, served as Director of the Boston
Redevelopment Authority from July 1984 to January 1992. Prior to that, he
served as Chief Executive Officer of John Carl Warnecke & Associates in San
Francisco, a national firm for architecture and urban design. From 1977
through 1980, Mr. Coyle served the Federal Government in Washington, D.C. as
Deputy Under Secretary of the United States Department of Health and Human
Services and Executive Assistant to the Secretary of the United States
Department of Housing and Urban Development. Mr. Coyle earned his Bachelor's
degree from Brandeis University (Waltham), his Master's degree from the
Harvard Kennedy School of Government, and a law degree from Stanford Law
School.
Mr. William C. Tutt served as Financial Manager of the Trust until his
retirement in December 1996.
<PAGE>
<PAGE>
The Trustees have selected Mr. Arnold to be Director of Investor
Relations. Mr. Arnold is 57 years old. He joined the Trust in April 1985
after being employed by the AFL-CIO Human Resources Development Institute
(HRDI) since 1969. During his tenure with HRDI, he held the positions of area
representative, regional director, assistant director and executive director.
As executive director during the six years prior to being employed by the
Trust, he was responsible for overall administration and fiscal affairs and
the general supervision of staff located at the national office in Washington,
D.C. and in field offices in 59 major metropolitan areas of the country.
During this period, Mr. Arnold had extensive experience in working with
officers and staff of international, state and local labor organizations. In
1967-68, Mr. Arnold was manpower coordinator and labor liaison officer with
the Dallas Community Action Agency. He is a 37-year member and former local
union officer of the International Union of Bricklayers and Allied Craftsmen,
and is also a licensed real estate broker.
The Trustees have selected Ms. Kanovsky to be General Counsel. Ms.
Kanovsky is 46 years old. She joined the Trust in 1995 after serving as
Executive Vice President and General Counsel of GE Capital Asset Management
Corporation (GECAMC) from October 1990 to December 1995. Prior to GECAMC,
from 1986 to 1990, Ms. Kanovsky served as Litigation Counsel (December 1986 -
June 1988) and Executive Vice President and General Counsel (June 1988 -
October 1990) of Skyline Financial Services Corporation. Ms. Kanovsky earned
her Bachelor of Arts degree from Cornell University and her Juris Doctor
degree from Harvard Law School.
<PAGE>
<PAGE>
The Trustees have selected Mr. Campbell to be Chief Investment officer of
the Trust. Mr. Campbell is 43 years old. He joined the Trust in 1993 after
serving as Financial Consultant to the Boston Redevelopment Authority from
1990 to 1992. Prior to that, from 1986 to 1989, Mr. Campbell served as Vice
President for Development for Related Companies Northeast. From 1983 to 1986,
he served as Director of the East Cambridge Riverfront Redevelopment Project.
Mr. Campbell earned his Bachelor's degree from Syracuse University and his
Master's degree in City Planning from Harvard University.
Mr. Arnold, Ms. Kanovsky, Mr. Campbell and their staff are responsible,
under the supervision of the Chief Executive Officer, for the day-to-day
administration and operation of the Trust, including the selection of mortgage
and other investments (with the exception of certain short-term assets--see
"Investment Adviser") and communication with existing and potential investors.
The following table sets forth the aggregate remuneration, including any
deferred compensation, which was paid during 1996 to each executive officer of
the Trust and to all executive officers and trustees of the Trust as a group:
<TABLE>
<CAPTION>
1996 COMPENSATION TABLE
NAME OF PERSON, AGGREGATE PENSION ESTIMATED
POSITION COMPENSATION OR RETIREMENT ANNUAL TOTAL COMPEN-
FROM TRUST<F6> BENEFITS BENEFITS SATION FROM
ACCRUED AS UPON TRUST PAID
PART OF TRUST RETIREMENT TO DIRECTORS
EXPENSES($) <F7> ($) <F8> ($)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen Coyle<F9>
Chief Executive $128,600.93 $66,737.24 can not be not
Officer determined applicable
Michael M. Arnold<F10>
Director of $ 93,495.22 $23,027.00 $39,994.33 not
Investor Relations applicable
Helen R. Kanovsky<F11> not
General Counsel $ 88,230.48 $22,166.94 not vested applicable
William C. Tutt<F12> not
Financial Manager $139,977.72 $23,027.04 $68,626.00 applicable
Richard Ravitch,
Chairman $ 10,000.00 0.00 0.00 10,000.00
Arthur A. Coia*,
Union Trustee $ 0.00 $ 0.00 0.00 $ 0.00
Linda Chavez-
Thompson, Union
Trustee $ 0.00 $ 0.00 0.00 $ 0.00
Terrence R. Duvernay,
Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
<PAGE>
<PAGE>
Alfred J. Fleischer,
Management Trustee $ 2,000.00 $ 0.00 $ 0.00 $2,000.00
Robert A. Georgine*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Francis X. Hanley*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Frank Hurt*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
John T. Joyce*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Walter Kardy,
Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
George Latimer,
Management Trustee $ 1,000.00 $ 0.00 $ 0.00 $ 1,000.00
H.D. LaVere,
Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
George Miller,
Management Trustee $ 2,000.00 $ 0.00 $ 0.00 $ 2,000.00
A.L. Monroe,*
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Jack F. Moore*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Marlyn J. Spear,
Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Tony Stanley,
Management Trustee $ 5,000.00 $ 0.00 $ 0.00 $ 5,000.00
John Sweeney*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Richard L. Trumka*,
Union Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
Patricia F. Wiegart*,
Management Trustee $ 0.00 $ 0.00 $ 0.00 $ 0.00
All Directors and
Executive Officers
as a Group (24
persons) $ 470,304.85 $134,958.22 $108,620.33 $20,000.00
<PAGE>
<PAGE>
</TABLE>
- ---------------------
<F6> Compensation figures represent 100% of each executive officer's
compensation for time devoted to Trust matters. Approximately 29% of Mr.
Coyle's time, 32% of Mr. Arnold's time, 32% of Ms. Kanovsky's time and 0%
of Mr. Tutt's time was devoted to matters relating to the AFL-CIO
Building Investment Trust ("BIT"). Mr. Coyle, Mr. Arnold and Ms.
Kanovsky received compensation from BIT Limited Partnership in addition
to the amount set forth above.
<F7> The Internal Revenue Code limits the permissible 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.
<F8> 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.
<F9> Aggregate Compensation includes $2,194.40 of deferred compensation in
1996 under the 401(k) Plan, and excludes compensation deferred in lieu of
participation in the Retirement Plan, and interest thereon. Pension or
Retirement Benefits Accrued as Part of Trust Fund Expenses includes
$1,150.00 of matching funds accrued under the 401(k) Plan and $65,587.24
of deferred compensation in lieu of participation in the Retirement Plan.
The total amount of compensation deferred by Mr. Coyle through December
31, 1996 in lieu of participation in the Retirement Plan, including
interest, is $172,754.07 and the total amount deferred under the 401(k)
Plan through December 31, 1996, including interest and Trust matching, is
$9,682.72.
<F10> Aggregate Compensation includes $9,500.00 of deferred compensation in
1996 under the 401(k) Plan, and excludes amounts contributed to the
Retirement Plan on Mr. Arnold's behalf. Pension or Retirement Benefits
Accrued as Part of Trust Fund Expenses includes $1,150.00 of matching
funds accrued under the 401(k) Plan and $21,877.00 contributed to the
Retirement Plan in 1996. The total amount of compensation deferred by
Mr. Arnold as of December 31, 1996 under the 401(k) Plan, including
interest and Trust matching, is $166,103.74.
<F11> Aggregate Compensation includes $9,500.00 of deferred compensation in
1996 under the 401(k) Plan, and excludes amounts contributed to the
Retirement Plan on Ms. Kanovsky's behalf. Pension or Retirement Benefits
Accrued as Part of Trust Fund Expenses includes $1,150.00 of matching
funds accrued under the 401(k) Plan and $21,016.94 contributed to the
Retirement Plan in 1996. The total amount of compensation deferred by
Ms. Kanovsky as of December 31, 1996 under the 401(k) Plan, including
interest and Trust matching, is $13,833.38.
<F12> Aggregate Compensation includes $9,500.00 of deferred compensation in
1996 under the 401(k) Plan, and excludes amounts contributed to the
Retirement Plan on Mr. Tutt's behalf. Pension or Retirement Benefits
Accrued as Part of Trust Fund Expenses includes $1,150.00 of matching
funds accrued under the 401(k) Plan and $21,877.04 contributed to the
Retirement Plan in 1996. The total amount of compensation deferred by
Mr. Tutt as of December 31, 1996 under the 401(k) Plan, including
interest and Trust matching, is $104,699.03. Mr. Tutt retired from the
Trust on December 31, 1996.
<PAGE>
<PAGE>
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 AFL-CIO Deferred
Compensation Plan for all of its employees including its Chief Executive
Officer (and subsequent Chief Executive Officers), which plan was subsequently
replaced by the AFL-CIO Housing Investment Trust 401(k) Retirement Plan (the
"401(k) Plan") in 1996.
THE RETIREMENT PLAN
Under the Retirement Plan, contributions are based on an eligible
employee's base salary. In general, rates are determined actuarially every
other year. As of June 30, 1996, contributions were 17.5 percent of an
eligible employee's base salary. During 1996, the base salaries
of Mr. Arnold and Ms. Kanovsky were $126,457 and $121,485, respectively.
The Retirement Plan is open to employees of the AFL-CIO and other
participating employers approved by the Retirement Plan's board of trustees
that make contributions to the Retirement Plan on their behalf. Such
employees become members of the Retirement Plan on their first day of
employment that they are scheduled to work at least 1,000 hours during the
next 12 consecutive months.
The Retirement Plan provides a normal retirement pension to eligible
employees for life, beginning at age 65. The amount of this pension depends
on salary and years of credited service at retirement. Eligible employees
will receive 2.80 percent of the average of their highest three years'
earnings ("Final Average Salary") for each year of credited service up to 25
years, and 0.5 percent of their Final Average Salary of each year of credited
service over 25 years. Eligible employees must have at least five years of
service to retire and receive a monthly pension. Eligible employees generally
earn credited service toward their pension for each year that they work for a
participating employer.
An eligible employee also can receive full benefits after reaching age
55, if his or her age plus his or her years of service equals 80 or more. It
is also possible for an employee who meets the combination of 80 requirement
to retire after age 50, but in such event benefits would be reduced 4 percent
for each year or portion thereof that the employee is less than 55 years old.
Set forth below is a table showing estimated annual benefits payable
upon retirement in specified compensation and years of service
classifications. As of the date hereof, Mr. Arnold and Ms. Kanovsky
have approximately 11 and 1 credited years of service, respectively, under
the Retirement Plan.
<PAGE>
<PAGE>
Years of Service
----------------
Final Average
Salary 15<F13> 20<F13> 25<F13> 30<F14> 35<F14>
$ 50,000 $21,000 $28,000 $35,000 $36,250 $37,500
70,000 29,400 39,200 49,000 50,750 52,500
100,000 42,000 56,000 70,000 72,500 75,000
<F13> 2.80 percent per year up to 25 years.
<F14> 0.5 percent per year for years over 25 years.
Benefits listed in the table are not subject to any deduction for Social
Security benefits or other offset amounts.
THE 401(K) PLAN
Under the 401(k) Plan, an eligible employee may agree with the Trust
to set aside up to 10 percent of his or her base salary (that is, base weekly
pay exclusive of bonuses, lump-sum payments, or over-time pay), up to a
maximum of $9,500 in 1997. In 1997, the Trust will match dollar-for-dollar
the first $1,250 contributed. The amount set aside by an eligible employee
and the amount of the Trust's matching contribution, if any, will be deposited
in a trust account in the employee's name.
An employee of the Trust is eligible to participate (i) if the employee
is a full-time employee, or (ii) if the employee is a temporary employee who
has been credited with 1,000 hours of service for any year beginning with the
date, or any subsequent anniversary date, of the employee's commencement of
employment with the Trust.
When a participating employee terminates his or her employment, retires,
or becomes disabled, the employee will be able to receive as a lump sum
payment the salary reduction amounts that were contributed to the Trust on the
employee's behalf, the additional amounts that the Trust contributed to the
trust account on the employee's behalf, plus income (less the employee's
allocated share of expenses) earned on these contributions.
If the employee continues to work for the Trust, the employee cannot
withdraw these amounts unless the employee has reached the age of 59 1/2 or
has a financial hardship. A financial hardship is one that is of such
magnitude that it would impair the employee's financial security. The
employee will be required to present evidence of the financial hardship and
upon submission of such evidence may be entitled to withdraw an amount, up to
the balance in the employee's account, to meet the immediate financial need.
The amount in an employee's account must be distributed to the employee
within 60 days following the later of (i) the calendar quarter in which the
employee reaches age 70 1/2 or (ii) the calendar quarter in which the employee
terminates employment with the Trust. Additionally, these amounts must be
distributed no later than 60 days following the year in which the latest of
the following occurs: (i) the employee's attainment of age 65; (ii) the tenth
<PAGE>
<PAGE>
anniversary of the employee's participation in the 401(k) Plan; or (iii)
termination of the employee's employment.
A participating employee may borrow from his or her account subject to
certain prescribed limitations.
The following table sets forth the amounts paid or distributed pursuant
to the 401(k) Plan in 1996 to the executive officers listed in the
Compensation Table above, and the amounts deferred and accrued pursuant to the
401(k) Plan for the accounts of such individuals during 1996, the distribution
or unconditional vesting of which are not subject to future events.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Name of Individual Amount Paid Amount Deferred Trust Matching or
Number of Group or Distributed in 1995 Contributions in 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephen Coyle -0- $ 2,194.40 $1,150.00
Michael M. Arnold -0- $ 9,500.00 $1,150.00
Helen R. Kanovsky -0- $ 9,500.00 $1,150.00
William C. Tutt -0- $ 9,500.00 $1,150.00
All executive
officers as a
group (4 persons) -0- $30,694.40 $4,600.00
</TABLE>
PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth the beneficial ownership information as
of April 1, 1997 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
66,099.5009 units) of the Trust's 1,321,990.0182 outstanding Units of
Participation. Because only Labor Organizations and Eligible Pension Plans
are eligible to own Units of Participation in the Trust, no Units of
Participation are owned by any Trustee or officer individually. Each
beneficial owner set forth below is also the record owner of the Units
specified.
Percent
Name and Address Number of Units of Class
- ---------------- --------------- ---------
California Public Employees'
Retirement System (Lincoln Plaza
400 P Street, Suite 2220
Sacramento, CA 96814) 70,374.5995 units 5.3%
Ohio Public Employees'
Retirement System
(227 East Town Street
Columbus, OH 43215) 67,165.5901 units 5.1%
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INVESTMENT ADVISER
Beginning as of May 21, 1992, the Trust engaged Wellington Management
Company, LLP ("Wellington Management") to furnish investment advisory services
concerning certain of the short-term, liquid assets in the Trust's portfolio
designated by the Trust from time to time. The Trust currently has no
independent investment adviser other than Wellington Management, whose
Investment Advisory Agreement with the Trust was initially approved by
Participants at the Trust's 1992 Annual Meeting. As of December 31, 1996, the
value of all short term assets eligible for management by Wellington
Management was $88,598,803 which represented 6.4% of the Trust's total net
assets at that date. The Investment Advisory Agreement was amended and
extended for a period of two years by a vote of the Participants at the
Trust's Annual Meeting in May 1997 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.
Wellington Management, a Massachusetts limited liability partnership, is
a registered investment adviser with principal offices located at 75 State
Street, Boston, Massachusetts 02109. Its Managing Partners are Robert W.
Doran, Duncan M. McFarland and John R. Ryan.
Wellington Management is a professional investment counseling firm
that provides investment services to investment companies, employee benefit
plans, endowment funds, foundations, and other institutions and individuals.
As of February 28, 1997, Wellington Management held investment management
authority over approximately $139.6 billion of assets, including $16.6 billion
of cash and cash-equivalent assets. Wellington Management and its predecessor
organizations have provided investment advisory services to investment
companies since 1933 and to investment counseling clients since 1960.
Under the 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 each 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.
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Wellington Management renders all of the services described above at its
own expense, and provides the office space, furnishings and equipment, and
personnel required by it to perform those services for the compensation
described below.
Wellington Management is authorized to arrange for the execution of
portfolio transactions by selecting brokers or dealers that will execute the
transactions, and is directed to use its best efforts to obtain the best net
results, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of
execution, and operational facilities of the firm involved. Wellington
Management may in its discretion purchase and sell portfolio securities
through brokers who provide it or the Trust with research, analysis, advice
and similar services, and Wellington Management may pay to these brokers, in
return for research and analysis, a higher commission than may be charged by
other brokers, provided that Wellington Management determines in good faith
that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of Wellington Management, that
the total commission paid by the Trust will be reasonable in relation to the
benefits to the Trust over the long term, and that the total commission paid
by the Trust is consistent with commissions paid in comparable transactions.
In selecting a broker for each specific transaction, Wellington
Management 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
provision of market information relating to the security. Wellington
Management will make periodic evaluations of the quality of these brokerage
services as provided by various firms and measure these services against its
own standards of execution. Brokerage services will be obtained only from
those firms which meet its standards, maintain a reasonable capital position,
and can be expected to reliably and continuously supply these services.
On occasions when Wellington Management deems the purchase or sale of a
security to be in the best interest of the Trust as well as other clients,
Wellington Management, to the extent permitted by applicable laws and
regulations, may, but is under no obligation to, aggregate the securities to
be so purchased or sold in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by Wellington Management in the manner it considers
to be the most equitable and consistent with its fiduciary obligations.
Under the terms of the Investment Advisory Agreement, Wellington
Management is compensated monthly at the annual rate of 0.16% of the market
value of the Trust's assets under management by Wellington Management, based
upon the average monthly market value of such assets. During the year ended
December 31, 1996, under the fee structure that was in place before the
amendment of the Investment Advisory Agreement, the Trust incurred total
investment advisory fees of $105,644, which represented 0.008% of the Trust's
average net assets for such period. During its last three fiscal years, the
Trust incurred total investment advisory fees of $222,813.
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SALES AND DISTRIBUTION ACTIVITIES
The Director of Investor Relations of the Trust, operating out of the
Trust headquarters in the District of Columbia, conducts, and is responsible
for other Trust staff members who conduct, sales and distribution activities
for the Trust. Sales and distribution activities are directed to certain
pension plans and include solicitations in person or by mail or telephone as
well as responding to inquiries concerning the Trust's offering of Units, and
the ministerial and clerical work of effecting sales of Units. Expenses of
sales and distribution of Units in this manner are paid by the Trust pursuant
to a Plan for Distribution adopted by the Trustees and the Participants
pursuant to SEC Rule 12b-1 under the Investment Company Act.<F15> Sales and
distribution expenses, including printing of the prospectus and travel costs,
for the year ended December 31, 1996 were $434,105, which represents
approximately .03 percent of the $1,383,163 in net Trust assets as of
December 31, 1996. In 1996, the Board of Trustees approved a budget of
$500,000 per year for the Plan for Distribution from which non-material
increases may be made by the Board. At its 1996 fall meeting, the Board of
Trustees approved a budget of $500,000 for the Plan of Distribution in 1997.
No material increase in the budget for the Plan for Distribution will be made
without Participant approval.
Under the Plan for Distribution approved by Participants and Trustees,
including all disinterested Trustees, the Trust may finance any activity that
is primarily intended to result in the sale of the Trust's Units, subject to
the limitations set forth above, including but not limited to advertising and
other expenses relating to selling efforts, printing of prospectuses and
reports for other than existing Participants, and preparation and distribution
of advertising material and sales literature. Each expenditure must be
specifically approved in advance by the Chief Executive Officer or the
Chief Investment Officer of the Trust, who will provide at least quarterly to
the Trustees a written report setting forth amounts expended and the purposes
for which the expenditures were made. In approving the Plan for Distribution
in accordance with the requirements of Rule 12b-1 under the Investment Company
Act, the Trustees (including the disinterested Trustees, none of whom have any
direct or indirect financial interest in the Plan for Distribution or any
related agreements) considered various factors and determined that there is a
reasonable likelihood that the Plan for Distribution will benefit the Trust
and its Participants because a relatively constant flow of funds into the
Trust, even at times when asset values are relatively high, will tend to
offset the effect of possible liquidation effected to obtain cash for
redemptions from the Trust when asset values are relatively low. The Plan for
Distribution will continue in effect until April 30, 1998, 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
<F15> In general, SEC Rule 12b-1, with which the Trust will comply, requires
that such a plan be approved in a specified manner by the holder of
voting securities and Trustees, that quarterly reports of distribution
expenses be made to the Trustees, and that the plan be terminable upon
specified conditions.
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Trust requires Participants' approval; any other material change requires
approval by the Trustees, including a majority of the disinterested Trustees.
The Plan for Distribution may continue in effect for successive one-year
periods, provided that each continuance is specifically approved: (a) by a
vote of the majority of the Trust's Units or by the Trustees; and (b) by the
vote of a majority of the Trustees who are disinterested and who have no
direct or indirect financial interest in the Plan for Distribution or any
related agreements. Any agreements relating to the Plan for Distribution will
be terminable upon assignment or upon 60 days written notice without payment
of any penalty by vote of a majority of Trustees who are not interested
persons.
Of the $434,105 of sales and distribution expenses incurred for the
year ended December 31, 1996, the following amounts were expended on each of
the categories listed below. All such amounts were paid in cash.
Year Ended
Category December 31, 1996
-------- ------------------
Printing and mailing of prospectuses
to other than current security holders................. $ 6,206
Compensation to sales personnel
(salaries plus fringe benefits)........................ $ 272,629
Other (includes travel and meeting
expenses, office supplies, consulting
fees and expenses and printing and
mailing of sales literature)........................... $ 155,270
TOTAL............................................. $ 434,105
No interested person of the Trust or any disinterested Trustee had any
direct or indirect financial interest in the operation of the Plan for
Distribution or related agreement during the year ended December 31, 1996,
with the possible exception of Director of Investor Relations Arnold who, if
he were determined to be an interested person of the Trust, would have such an
interest because part of his compensation is covered by the Plan.
ADMISSION TO THE TRUST
Only Labor Organizations and Eligible Pension Plans are eligible to own
Units. See "SECURITIES OFFERED" in the Prospectus for a discussion of
eligible persons.
The price of Units is based on Net Asset Value. Net Asset Value for a
particular purchase will be determined as of each Valuation Date following
receipt of the purchase order by dividing the value of the Trust's portfolio
plus any cash and other assets (including interest and dividends accrued but
not collected) less all liabilities (including accrued expenses but excluding
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capital and surplus), by the number of Units outstanding as of that Valuation
Date.
Admission to the Trust is permitted in whole or fractional Units as of
monthly Valuation Dates. A request for purchase of Units must be received by
the Trust before the Valuation Date as of which they are to be issued. A
minimum initial purchase of $50,000 is required. A request for purchase of
Units must be accompanied by cash or by a subscription agreement providing for
a cash escrow of the amount to be invested as of the forthcoming Valuation
Date. See "SECURITIES OFFERED" in the Prospectus for a discussion of the
valuation methods used by the Trust in determining the market price of its
portfolio assets.
SUPPLEMENTARY INFORMATION
CUSTODIAN
NationsBank Trust, 1501 Pennsylvania Avenue, N.W., Washington, D.C. acts
as a bank custodian of Trust portfolio securities pursuant to a safekeeping
agreement dated December 21, 1988, as amended. For providing such safekeeping
services, the Bank charges the Trust an annual fee of $4,000 plus a $10
transaction charge for each asset accepted or released. The Bank also serves
as custodian for the Trust's short-term account, pursuant to an amendment to
the safekeeping agreement dated May 21, 1991. Pursuant to this amendment, the
Bank charges the Trust an annual fee of $1,800 per year plus a $20 transaction
charge.
AUDITORS
Arthur Andersen, L.L.P., 2001 M Street, N.W., Washington, D.C., was
approved by the Participants at the 1997 Annual Meeting of Participants as the
independent certified public accountants for the Trust for the period ending
December 31, 1997. Arthur Andersen, L.L.P. audits the financial statements
of the Trust at the conclusion of each fiscal year, prepares applicable tax
returns for the Trust, and counsels the officers of the Trust with respect to
accounting and taxation matters from time to time.
REPORTS
In accordance with SEC requirements under the Investment Company Act, the
Trust will distribute periodic financial statements to Participants and will
file periodic reports with the SEC. Financial statements distributed to
Participants will include unaudited semi-annual statements and audited annual
statements. Copies of all reports filed with the SEC will be made available
for inspection by Participants at Trust headquarters in Washington, D.C.
LEGAL MATTERS
Certain legal matters in connection with the offering of Units were
reviewed for the Trust by Swidler & Berlin, Chartered, 3000 K Street, N.W.,
Suite 300, Washington, D.C. 20007.
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
February 25, 1997 as part of the Trust's Annual Report to Participants, which
are incorporated herein by reference.
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APPENDIX A
STANDARD & POOR'S DEBT RATING DEFINITIONS
Excerpted from Standard & Poor's "Credit Week", April 18, 1994, page 15.
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A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default-capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.
INVESTMENT GRADE
AAA -- Debt rated AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A -- Debt rated A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB' is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay<PAGE>
<PAGE>
principal for debt in this category than in higher rated categories.
SPECULATIVE GRADE
Debt rated BB', B', CCC', CC', and C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB' indicates the least degree of speculation
and CCC' the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB-' rating.
B -- Debt rated B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB' or BB-' rating.
CCC-- Debt rated CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B' or B-' rating.
CC -- The rating CC' typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC' rating.
C -- The rating C' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied CCC-' debt rating. The C'
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI -- The rating CI' is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D' is in payment default. The D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D' rating also will
be used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
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Plus (+) or Minus (-): The ratings from AA' to CC' may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
c -- The letter c' indicates that the holder's option to tender the
security for purchase may be canceled under certain prestated conditions
enumerated in the tender option documents.
L -- The letter L' indicates the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized. In the case of
certificates of deposit, the letter L' indicates that the deposit, combined
with other deposits being held in the same right and capacity, will be honored
for principal and accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured institution or, in the
event that the deposit is assumed by a successor insured institution, upon
maturity.
p -- The letter p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
N.R. -- Not rated.
Debt Obligations of Issuers outside the U.S. and its territories are
rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
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APPENDIX B
THOMSON BANKWATCH RATING CHARACTERISTICS
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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.
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APPENDIX C
STANDARD & POOR'S STATE AGENCY RATINGS
Excerpted from Standard & Poor's "Credit Review",
February 7, 1994, pages 59-61.
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State housing finance agencies (HFAs) represent an important presence in
the municipal bond market, with over $80 billion of debt outstanding. These
agencies have a 10 to 20-year history of debt issuance and have funded over
one million loans for first-time buyers of single-family homes and over
900,000 units of rental housing. Many agencies have built up a considerable
level of expertise in all areas of finance, development, and portfolio
management. In addition, because of their prudent and conservative approach
and many successful years of bond issuance, many HFAs have built up
significant fund balances either in their own general funds or under various
bond resolutions.
S&P's assessment of the managerial, administrative and financial
resources of agencies is an integral part of the bond rating. Managerial and
administrative capabilities are evaluated based upon meetings with the agency
at its offices, at which time the team of S&P analysts focuses on all systems
and procedures applicable to the bonds being rated. The specific areas of
focus are detailed in the attachment entitled "Checklist for Good Management."
The assessment of these capabilities is important because in addition to their
role as issuer, many agencies lend support to their bond programs depending on
their ability to:
- Perform the role of master servicer and directly service loan
portfolios;
- Manage investment portfolio to provide ongoing credit quality and
meet liquidity needs;
- Directly provide primary mortgage insurance and portfolio loss
coverage, or participate in risk sharing programs; and
- Generate bond cash flows at the time of the rating, and at critical
junctures of bond administration, such as prior to extension of
acquisition periods, exercising open flow of funds, recycling of
prepayments to make new loans and non-pro rata redemptions.
In addition to S&P's recognition of an agency's ability to perform these
responsibilities, additional flexibility in bond programs is often permitted.
For example, with regard to [certain housing bonds], S&P uses a blended rating
approach in determining the appropriate ratings of credit enhancement
providers, depending upon the level of investments the magnitude, duration and
purpose of the credit support, and such factors as the agency's cash flow
strength and portfolio performance. Agencies can also receive flexibility in
investment maturity standards, if they can substantiate their ability to
provide liquidity as needed. In the area of cash flow standards, agencies who
act as master servicer for their programs and demonstrate a strong track<PAGE>
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record of good portfolio performance and monitoring, can reduce the lag in
receipt of mortgage payments on `AA' rated transactions from 60 to 30 days.
Other reserves can be reduced as agency financial strength and track
records dictate.
GENERAL OBLIGATION RATINGS. State HFAs may also be assigned their own
general obligation ratings. Although several agencies' debt incorporates a
general obligation pledge, the rating on that debt has traditionally addressed
the credit strength of the primary security for the bonds, such as the
mortgage portfolio, reserves and investments. When an agency has been
afforded its own general obligation rating, the rating on the bonds reflects
the overall financial strength of the agency first.
TOP TIER STATUS. Top tier status was developed by S&P in 1986 to
recognize agencies with superior managerial and administrative strength who
also showed the willingness and the ability to lend financial support to their
bond programs. The top tier designation affords agencies increased
flexibility and can result in higher ratings than would be attainable based
solely on the credit strength of the bonds being rated. To date, 12 state
HFAs have been designated top tier. Local housing finance agencies are also
eligible, as evidenced by the recent addition of New York City Housing
Development Corporation, to the list of Top Tier agencies. The seven
guidelines for Top Tier status are as follows:
Years Issuing Bonds. S&P looks at the years of experience in active
management of the entire agency in the tax-exempt bond area. Continuity of
management and the agency's ability to resolve difficult situations in the
face of changing legislatures, changing governors and changing economic cycles
over the past 10 to 15 years are evaluated. S&P also focuses on the track
records of the agency, on its programs and overall operations and any lapses
in years issuing bonds.
Unrestricted Fund Balance. S&P will examine two levels: the overall
percentage of total unrestricted funds to total debt, and the percentage of
liquid unrestricted funds to total mortgages outstanding. As guidelines, the
percentages should be in the range of total unencumbered fund balances equal
to 4% of outstanding bonds, of which a minimum of 2% of outstanding mortgages
is liquid (i.e. with maturities of 18 months or less). This 4% ratio cannot
include money pledged to risk share programs, self-insurance funds,
multifamily coinsurance, letter of credit reimbursement obligations or any
other programs where the agency is taking on additional risk, that is not
covered by indentured monies. S&P reviews these ratios annually and factors
in all upcoming risks on issues anticipated for the coming year. Further,
these unencumbered fund balances should be stable over several fiscal years.
Surpluses under specific resolutions are eligible to be counted among agency
fund balances as long as they can be made available as needed. S&P will
examine whether the funds to be considered unrestricted are tangible assets
available for any general agency use. Outstanding debt should include
short-term obligations and overall debt may be reduced, for calculation
purposes, if
it is considered to have S&P's lowest degree of risk or highest ratings.
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Administrative Capabilities. In general, S&P will evaluate the
degree of portfolio oversight and computerization of the agency's entire
operations. Established procedures should be in effect requiring periodic
reports to senior staff as well as the board of directors. In addition, an
agency should be able to substantiate its ability to assume servicing of a
given portfolio, if necessary, without delays. Parallel monitoring, including
access to (or duplicates) of actual loan documents, indicate the agency's
level of preparedness. An ideal situation is when an agency maintains
parallel systems with the servicer and can track the loans individually
themselves, on a daily basis instead of relying solely on servicer's reports.
Periodic reviews of the performance of the entire portfolio should be designed
to address problems at an early stage of development.
Investment Policy. S&P will focus on the investment of unrestricted
fund balances and other funds being counted to meet financial standards for
top tier, including procedures for making investment decisions and monitoring
the investment portfolio. Written investment guidelines are considered
essential to good management. Investment standards should meet S&P's
standards at the `A' rating level. It is viewed positively when an agency is
on line with the trustee, which enables them to have immediate access to all
investment decisions as parallel computer systems are maintained.
Internal Controls and Financial Management. On a regular basis, S&P
will evaluate the agency's ability to produce audited financial reports,
including balance sheets, revenue and expenditure statements, changes in fund
balances, and changes in financial position. Interim statements need not be
audited or include notes to financials, but should be prepared on the same
basis as audited statements. An agency's accounting and/or financial control
area, as indicated on an organizational chart, will be evaluated as a separate
department. Long-term financial planning and the ability to deliver annual
cash flow projections on bond programs is considered favorably.
Portfolio Quality. The performance of an agency's single-family
portfolio is evaluated in comparison to the national and respective state
averages based on Mortgage Bankers Association (MBA) statistics, and compared
to the performance of other state agency portfolios. Other appropriate
measures may be used and the relative risk, including any available offsetting
coverage, will be considered. All loan portfolios, whether under rated or
unrated programs, will be assessed according to S&P's single-family mortgage
loan criteria, as detailed in [S&P's Credit Review, February 7, 1994].
Multifamily portfolios will be addresses according to S&P's multifamily
criteria. Good portfolio performance and close monitoring as outlined in the
"Checklist for Good Management" are earmarks of a top tier agency. Most
agencies do experience portfolio problems from time to time due to economic
and market downturns. This would not preclude an agency from being designated
top tier as long as they demonstrate strong portfolio oversight and the
ability to turn around problem situations.
State Support. S&P will examine any agency's legislative mandate
and review the degree to which a state interacts with the agency's programs
and purpose. S&P looks for a positive relationship where the state is working
with the housing agency to address the state's housing needs. Top tier
agencies should be able to demonstrate strong state support for its programs.
<PAGE>
<PAGE>
Past appropriations or expected future appropriations would be considered
evidence of state government support. As mentioned previously, S&P is
especially concerned about potential threats to agency fund balances. S&P
should be notified immediately of any such event. S&P's general obligation
group will assist in evaluating the degree of state involvement and financial
control of its housing finance agency. As part of the top tier review, S&P
may meet with members of state government, as well as the agency's board, to
better understand the interaction among the agency, state governments and its
board.
<PAGE>
<PAGE>
APPENDIX D
From Standard & Poor's Creditweek, February 7, 1994
STATE HOUSING FINANCE AGENCY G.O. DEBT CRITERIA
A state housing finance agency (HFA) G.O. rating is a comprehensive
assessment of the agency's ability to meet its general obligations. The
diverse nature of state HFAs has led S&P to develop a "top-down" analytical
approach that takes market, as well as agency-specific, risks into account
when evaluating how an agency generates revenue and what factors could
adversely affect its ability to meet G.O. debt service.
One might expect S&P'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 have experienced wide
mismatches between the maturities of assets and liabilities, which led to
substantial losses in the 1980s. They have 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.
S&P evaluates the capacity and willingness of state HFAs to repay their
G.O. debt by examining four basic analytical areas:
- State economy,
- Legislative mandate,
- Management,
- Earnings quality and financial strength.
THE 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 financial
performance. The general characteristics and strengths of an agency are
assessed relative to both 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.
<PAGE>
<PAGE>
The key economic factor in S&P'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:
- 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 a state government places on housing--both homeownership
and rental--can be a significant rating factor. S&P needs to be assured that
the long-term viability of the agency has the full support of the governor and
state legislature. S&P looks for security of agency fund balances and
continued management autonomy. In many instances, however, 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 savings and
loans, state HFAs face political pressures. Therefore, S&P prefers to see
lending decisions 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
S&B 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 S&P
can assess the continuity of management and the agency's ability to resolve
difficult situations over its operating history. S&P also evaluates the
agency's administrative capabilities as to degree of portfolio oversight, loan
servicing capability, planning procedures, and computerization. This analysis
incorporates S&P's "Top-Tier" guidelines. The Top Tier designation is the
recognition of an agency's history of superior portfolio management and
underwriting, depth of financial resources, prudent investment policies, and
other characteristics.
<PAGE>
<PAGE>
Next, financial management is considered. Historical financial
performance, as well as the experience and qualifications of financial
personnel and overall management, all have an impact on the bottom line.
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 are viewed negatively.
S&P 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. This has been increasingly important in
the current interest rate environment. 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 yields directly affects the agency's ability to provide
below-market mortgage rates.
S&P also focuses on the investment of fund balances, both restricted and
unrestricted, as well as bond funds. S&P 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
S&P's standard permitted investment guidelines, as well as be rated as high as
the agency's G.O. rating.
A state HFA's accounting quality, both historical and current, 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.
EARNINGS QUALITY & FINANCIAL STRENGTH
The assessment of earnings quality and financial strength is important in
determining an appropriate credit rating. 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.
S&P 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. Both approaches require further
evaluation of an agency's cash accumulation levels, types of investments,
interfund borrowing, historical use of debt, loan-loss reserves, real estate
owned, net charge-offs, equity and unrestricted fund balances. In addition,
S&P reviews the most recent budgets of the state HFA, relying on the
aforementioned income statement and balance sheet analysis.
S&P also continues to evaluate the quality of the agency's mortgage
collateral. The focus is on portfolio size, dwelling type, loan types,
payment characteristics, mortgage insurance and guaranties, loan underwriting
criteria, and location. The agency's loan portfolio performance is measured
against comparable state agency and Mortgage Bankers Association delinquency
statistics.
<PAGE>
<PAGE>
While financial performance is important it must be viewed in conjunction
with the other rating factors--the economy, management, and the agency's
relationship with the state. However, analysis of an agency's financial
performance is essential in determining the capacity of a state HFA to repay
its G.O. debt.
THE FUTURE
S&P believes many state HFAs have the capacity to issue debt rated based
on their G.O. pledges. S&P already has used this comprehensive analysis to
evaluate the ability of an agency's capital base to absorb loan losses, as
well as to determine whether the agency's assets are of sufficient rating
quality and liquidity to support the G.O. rating. That agency was the Alaska
Housing Finance Corp., which in 1991 was the first housing agency to receive a
rating based solely on its G.O. pledge.
The G.O. rating has been used by state HFAs to lend support to financings
that may not have been ratable relying on the underlying collateral alone.
Also, the rating allows an HFA to hedge against negative arbitrage by issuing
commercial paper to finance mortgage warehousing activities.
In the future, the rating may be used in conjunction with HUD's
anticipated risk-sharing program. The regulations provide for streamlined
state agency qualification for those agencies with G.O. debt rated A' or
higher. However, it is important to note that, although many agencies have
rated G.O. debt, many of the ratings are based on the underlying collateral
and not the G.O. of the agency itself.
A G.O. rating also brings with it the added burden of better disclosure
and more uniform accounting practices. For example, commercial paper ratings
required a minimum of quarterly reporting to S&P to maintain the outstanding
ratings. Therefore, state HFAs must be mindful of the additional
responsibility a G.O. rating confers and how that responsibility may affect
their housing programs.
<PAGE>
<PAGE>
PART C: STATEMENT OF OTHER INFORMATION
AFL-CIO
HOUSING INVESTMENT TRUST
1717 K Street, N.W.
Suite 707
Washington, D.C. 20006
(202) 331-8055
STATEMENT OF OTHER INFORMATION
This Statement of Other Information is not a prospectus. It should be
read in conjunction with the AFL-CIO Housing Investment Trust ("Trust")
Prospectus, dated May 15,1997, which may be obtained without charge from
Trust headquarters.
The date of this Statement of Other Information is May 15, 1997.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
Financial Statements and Exhibits..................................... 1
Persons Controlled by or Under
Common Control with Registrant...................................... 6
Business and Other Connections of Investment Advisor.................. 6
Number of Holders of Securities....................................... 6
Indemnification....................................................... 6
Location of Accounts and Records...................................... 7
Signatures............................................................ 8
<PAGE>
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements pertaining to the year ended
December 31, 1996 are incorporated by reference in Part B of this
Registration Statement (the Statement of Additional Information):
(i) Statement of Assets and Liabilities
(ii) Schedule of Investments
(iii) Statement of Operations
(iv) Statement of Changes in Net Assets
(v) Notes to Financial Statements
(vi) Supplemental Information -- Selected Per Share Data
and Ratios
(vii) Report of KPMG Peat Marwick, LLP independent
auditors
(b) Exhibits:
(1) Copies of the charter as now in effect;
Declaration of Trust as amended through April 25, 1994:
incorporated by reference to Part C, Item 24(b)(1)
[Exhibit 1] of the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933 (Post-Effective
Amendment No. 20) and the Investment Company Act of 1940
(Amendment No. 23), Registration No. 2-78066, as filed
with the SEC on June 6, 1994.
(2) Copies of the existing by-laws or instruments corresponding
thereto;
Rules and Regulations as amended through March 15, 1990:
incorporated by reference to Part C, Item 24(b)(2)
[Exhibit(2)] of the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933(Post-Effective
Amendment No. 13)and the Investment Company Act of 1940
(Amendment No. 16), Registration No. 2-78066, as filed
with the SEC on April 30, 1990.
(3) Copies of any voting trust agreement with respect to more than
5 percent of any class of equity securities of the Registrant;
(Not applicable)<PAGE>
<PAGE>
(4) Specimens or copies of each security issued by the Trust,
including copies of all constituent instruments, defining the
rights of the holders of such securities, and copies of each
security being registered;
(Not applicable)
(5) Copies of all investment advisory contracts relating to the
management of the assets of the Trust;
Investment Advisory Agreement dated May 21, 1992 with
Wellington Management Company: incorporated by reference
to Part C, Item 24(b)(5), [Exhibit (5)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective amendment No. 17) and the
Investment Company Act of 1940 (Amendment No. 20),
Registration No. 2-78066, as filed with the SEC on June
24, 1992.
(6) Copies of each underwriting or distribution contract between
the Trust and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;
(Not applicable)
(7) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Trust in their capacity as such;
if any such plan is not set forth in a formal document,
furnish a reasonably detailed description thereof;
(a) Summary of AFL-CIO Staff Retirement Plan dated
July 1985 and amendments thereto in effect as of January
30, 1989: incorporated by reference to Part C, Item
24(b)(7)(b) [Exhibit 7(b)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 14) and the Investment
Company Act of 1940 (Amendment No. 17), Registration No.
2-78066, as filed with the SEC on March 25, 1991.
(b) AFL-CIO Deferred Compensation Plan and Trust, as
restated and amended through August 1, 1988: incorporated
by reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)]
of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933 (Post-Effective Amendment No.
14) and the Investment Company Act of 1940 (Amendment No.
17), Registration No. 2-78066, as filed with the SEC on
March 25, 1991.
(c) AFL-CIO Housing Investment Trust 401(k)
Retirement
Plan, efffective as of October 1, 1996: incorporated by
reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)] of
the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 (Post-Effective Amendment No. 25)
and the Investment Company Act of 1940 (Amendment No.
28), Registration No. 2-78066, as filed with the SEC on
April 30, 1997.<PAGE>
<PAGE>
(8) Copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act, with
respect to securities and similar investments of the Trust,
including the schedule of remuneration;
Custody Agreement with American Security Bank dated
October 18, 1983, as amended through December 21, 1988:
incorporated by reference to Part C, Item 24(b)(8)
[Exhibit (8)] of the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 12) and the Investment
Company Act of 1940 (Amendment No. 15), Registration No.
2-78066, as filed with the SEC on April 28, 1989.
Custodian Agreement with Security Trust Company, N.A.
dated May 21, 1991: incorporated by reference to Part C,
Item 24(b)(8) [Exhibit (8)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post Effective Amendment No. 16) and the Investment
Company Act of 1940 (Amendment No. 19), Registration
No. 2-78066, as filed with the SEC on April 22, 1992.
(9) Copies of all other material contracts not made in the
ordinary course of business which are to be performed in whole
or in part at or after the date of filing the Registration
Statement;
(Not applicable)
(10) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid, and non-assessable;
Opinion letter and written consent of Swidler & Berlin,
Chartered, dated April 29, 1997, is included as Exhibit
(10) to this Registration Statement incorporated by
reference to Part C, Item 24(b)(10)[Exhibit (10)] of the
Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 (Post-Effective Amendment No. 25)
and the Investment Company Act of 1940 (Amendment No.
28), Registration No. 2-78066, as filed with the SEC on
April 30, 1997.
(11) Copies of any other opinions, appraisals, or rulings, and
consents to the use thereof relied on in the preparation of
this Registration Statement and required by Section 7 of the
1933 Act;
Consent of KPMG Peat Marwick, L.L.P. dated April 30,
1997 is included as Exhibit (11) to this Registration
Statement: incorporated by reference to Part C, Item
24(b)(11)[Exhibit (11)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
<PAGE>
<PAGE>
(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.
(12) All financial statements omitted from Item 23 of Part B;
(Not applicable)
(13) Copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Trust, the underwriter, adviser, promoter, or
initial stockholders and written assurances from promoters or
initial stockholders that their purchases were made for
investment purposes without any present intention of redeeming
or reselling;
(Agreements for Advances, executed September 24, 1981,
September 25, 1981, October 19, 1981 and April 16, 1982,
previously submitted, have expired.)
(14) Copies of the model plan used in the establishment of any
retirement plan in conjunction with which the Trust offers its
securities, any instructions thereto, and any other documents
making up the model plan. Such form(s) should disclose the
costs and fees charged in connection therewith;
(Not applicable)
(15) Copies of any plan entered into by the Trust pursuant to Rule
12b-1 under the Investment Company Act, which describes all
material aspects of the financing of distribution of the
Trust's shares, and any agreements with any person relating to
implementation of such plan;
Plan for Distribution as amended through December 14,
1995: incorporated by reference to Part C, Item 24(b)(15)
included as Exhibit (15) of this Registration Statement
on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 24) and the Investment
Company Act of 1940 (Amendment No. 27), Registration No.
2-78066, as filed with the SEC on April 29, 1996.
(16) Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
(which need not be audited);
(Not applicable)
<PAGE>
<PAGE>
(17) Financial Data Schedule: incorporated by reference to Part C,
Item 24(b)(17) [Exhibit (17)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933 (Post-
Effective Amendment No. 26) and the Investment Company Act of
1940 (Amendment No. 29, Registration No. 2-78066, as filed
with the SEC on May 15, 1997.
(18) Other Exhibits:
(a) Powers of Attorney for Trustees Moore
and Sweeney: incorporated by reference to Part
C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 12) and the
Investment Company Act of 1940 (Amendment No. 15),
Registration No. 2-78066, as filed with the SEC on April
28, 1989.
(b) Power of Attorney for Trustee Georgine:
incorporated by reference to Part C, Item 24(b)(17)(b)
[Exhibit (17)]
of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933 (Post-Effective Amendment No.
13) and the Investment Company Act of 1940 (Amendment No.
16), Registration No. 2-78066, as filed with the SEC on
April 30, 1990.
(c) Power of Attorney for Trustee LaVere: incorporated
by reference to Part C, Item 24(b)(17)(a) [Exhibit (17)]
of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933 (Post-Effective Amendment No.
14) and the Investment Company Act of 1940 (Amendment No.
17), Registration No. 2-78066, as filed with the SEC on
March 25, 1991.
(d) Power of Attorney for Trustee
Fleischer: incorporated by reference to Part C,
Item 24(b)(17)(d) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 16) and the
Investment Company Act of 1940 (Amendment No. 19),
Registration Statement No. 2-78066, as filed with the SEC
on April 22, 1992.
<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
(e) Powers of Attorney for Trustees Joyce and Coia:
incorporated by reference to Part C, item
24(b)(17)(d) [Exhibit (17)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 18) and the Investment
Company Act of 1940 (Amendment No. 21), Registration
Statement No. 2-78066, as filed with the SEC on April 30,
1993.
(f) Power of Attorney for Trustee Monroe:
incorporated by reference to Part C,
item 24(b)(17)(d) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 23) and the
Investment Company Act of 1940 (Amendment No. 26),
Registration No. 2-78066, as filed with the SEC on June
6, 1995.
(g) Power of Attorney for Trustee Duvernay: incorporated
by reference to Part C, item 24(b)(18)(d) [Exhibit 18] of
the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 Post-Effective Amendment No. 24)
and the Investment Company Act of 1940 (Amendment No.
27), Registration No. 2-78066, as filed with the SEC on
April 29, 1996.
(h) Powers of Attorney for Trustees Chavez-Thompson,
Kardy, Latimer, Stanley, Fleischer, Hanley, Miller, Hurt,
Spear and Wiegert: included as item 24(b)(18)(d) [Exhibit
18] 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.
PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
See "History and Purpose" in Part A of this Registration Statement.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Wellington Management Company ("Wellington Management") is an investment
adviser registered under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). The list required by this Item 28 of officers and partners
of Wellington Management, together with information as to any business
profession, vocation or employment of substantial nature engaged in by such
officers and partners during the past two years, is incorporated herein by
reference to Schedules A and D of Form ADV filed by Wellington Management
pursuant to the Advisers Act (SEC File No. 801-15908).
<PAGE>
<PAGE>
NUMBER OF HOLDERS OF SECURITIES
The number of record holders of Units of Participation of the Trust as
of April 1, 1997 is shown in the following table. No other securities were
outstanding as of that date.
Number of Record
Title of Class Holders
- -------------- -----------------
Units of Participation 394
<PAGE>
<PAGE>
INDEMNIFICATION
Pursuant to Section 4.8 of the Trust's Declaration of Trust (see Exhibit
(1) under "Financial Statements and Exhibits" above), each Trustee and officer
and each former Trustee and officer shall be indemnified against fines,
judgments, amounts paid in settlement and expenses, including attorney's fees,
actually and reasonably incurred in connection with any pending or threatened
criminal action, civil suit or administrative or investigative proceeding (any
"matter") against him or her arising by reason of the fact that he or she is
or was a Trustee or officer of the Trust, or by reason of actions taken by him
or her as such Trustee or officer, if it is found that his or her liability
does not result from willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
("disabling conduct"). The finding that liability does not arise from
disabling conduct may be made in a final decision by a court or other body
before which the matter giving rise to the expense or liability was brought
or, in the absence of such a decision, by (a) the vote of a majority of a
quorum of Trustees who are neither "interested persons" of the Trust as
defined in Section 2(a)(19) of the Investment Company Act of 1940 nor parties
to such matter ("disinterested non-party trustees") or (b) an independent
legal counsel in a written opinion. Expenses of the kind eligible for
indemnification may be paid as incurred by a Trustee or officer in advance of
final disposition of a matter upon receipt of an undertaking by the recipient
to repay such amount unless it is ultimately determined that he is entitled to
indemnification hereunder if (a) the indemnity provides security for his or
her undertaking, (b) the Trust is insured for losses arising by reason of any
lawful advances or (c) a majority of a quorum of disinterested non-party
Trustees or independent legal counsel (in a written opinion) determines, based
on a review of readily available facts, that there is reason to believe that
the indemnitee ultimately will be found entitled to indemnification. Section
4.8 is intended to provide indemnification to Trustees and officers to the
full extent permitted by law and is to be construed and enforced to that
extent.
LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act and Rules 31a-1 to 31a-3
thereunder are maintained in the possession of the Chief Executive Officer of
the Trust, 1717 K Street, N.W., Suite 707, Washington, D.C. 20006.<PAGE>
<PAGE>
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 15th day of May, 1997.
AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS
HOUSING INVESTMENT TRUST
By: /s/ Stephen Coyle
--------------------------------
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 and on the date(s) indicated:
/s/Richard Ravitch* Chairman May 15, 1997
----------------
Richard Ravitch
/s/Linda Chavez-Thompson* Union Trustee May 15, 1997
---------------------
Linda Chavez-Thompson
/s/Arthur A. Coia* Union Trustee May 15, 1997
----------------
Arthur A. Coia
/s/Robert A. Georgine* Union Trustee May 15, 1997
-------------------
Robert A. Georgine
/s/Francis X. Hanley* Union Trustee May 15, 1997
------------------
Francis X. Hanley
/s/Frank Hurt* Union Trustee May 15, 1997
-----------------
Frank Hurt
/s/John T. Joyce* Union Trustee May 15, 1997
-------------------
John T. Joyce
/s/A.L. Monroe* Union Trustee May 15, 1997
--------------------
A.L. Monroe
<PAGE>
<PAGE>
/s/Jack F. Moore* Union Trustee May 15, 1997
---------------------
Jack F. Moore
/s/John Sweeney* Union Trustee May 15, 1997
---------------------
John Sweeney
/s/Richard L. Trumka* Union Trustee May 15, 1997
---------------------
Richard L. Trumka
/s/Terrence R. Duvernay* Management Trustee May 15, 1997
----------------------
Terrence R. Duvernay
/s/Alfred J. Fleischer* Management Trustee May 15, 1997
----------------------
Alfred J. Fleischer
/s/Walter Kardy* Management Trustee May 15, 1997
----------------------
Walter Kardy
/s/George Latimer* Management Trustee May 15, 1997
-----------------------
George Latimer
/s/H.D. LaVere* Management Trustee May 15, 1997
------------------------
H.D. LaVere
/s/George Miller* Management Trustee May 15, 1997
------------------------
George Miller
/s/Tony Stanley* Management Trustee May 15, 1997
------------------------
Tony Stanley
/s/Marlyn J. Spear* Management Trustee May 15, 1997
-----------------------
Marlyn J. Spear
/s/Patricia F. Wiegert* Management Trustee May 15, 1997
-------------------------
Patricia F. Wiegert
/s/Stephen Coyle Chief Executive May 15, 1997
------------------------ Officer (Principal
Stephen Coyle Executive Officer)
/s/James D. Campbell Chief Investment May 15, 1997
-------------------------- Officer (Principal
James D. Campbell Financial and Accounting
Officer)
/s/Helen R. Kanovsky General Counsel May 15 1997
--------------------------
Helen R. Kanovsky
Note: Original Powers of Attorney authorizing Michael M. Arnold to sign
all amendments to the Registration Statement as attorney for the above listed
trustees are filed herewith as Exhibit (18), or have been filed previously as
Exhibit (17) or (18), as applicable.
May 15, 1997 *By:/s/ Michael Arnold
----------------------------
Michael Arnold
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Page Exhibit
- ------------ -------
(1) Copies of the charter as now in effect;
Declaration of Trust as amended through April 25, 1994:
incorporated by reference to Part C, Item 24(b)(1)
[Exhibit 1] of the Trust's Registration Statement on Form
N-1A under the Securities Act of 1933 (Post-Effective
Amendment No. 20) and the Investment Company Act of 1940
(Amendment No. 23), Registration No. 2-78066, as filed
with the SEC on June 6, 1994.
(2) Copies of the existing by-laws or instruments corresponding
thereto;
Rules and Regulations as amended through March 15, 1990:
incorporated by reference to Part C, Item 24(b)(2)
[Exhibit(2)] of the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933(Post-Effective
Amendment No. 13)and the Investment Company Act of 1940
(Amendment No. 16), Registration No. 2-78066, as filed
with the SEC on April 30, 1990.
(3) Copies of any voting trust agreement with respect to more than
5 percent of any class of equity securities of the Registrant;
(Not applicable)
(4) Specimens or copies of each security issued by the Trust,
including copies of all constituent instruments, defining the
rights of the holders of such securities, and copies of each
security being registered;
(Not applicable)
(5) Copies of all investment advisory contracts relating to the
management of the assets of the Trust;
Investment Advisory Agreement dated May 21, 1992 with
Wellington Management Company: incorporated by reference
to Part C, Item 24(b)(5), [Exhibit (5)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective amendment No. 17) and the
Investment Company Act of 1940 (Amendment No. 20),
Registration No. 2-78066, as filed with the SEC on June
24, 1992.
<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
(6) Copies of each underwriting or distribution contract between
the Trust and a principal underwriter, and specimens or copies
of all agreements between principal underwriters and dealers;
(Not applicable)
(7) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of
directors or officers of the Trust in their capacity as such;
if any such plan is not set forth in a formal document,
furnish a reasonably detailed description thereof;
(a) Summary of AFL-CIO Staff Retirement Plan dated
July 1985 and amendments thereto in effect as of January
30, 1989: incorporated by reference to Part C, Item
24(b)(7)(b) [Exhibit 7(b)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 14) and the Investment
Company Act of 1940 (Amendment No. 17), Registration No.
2-78066, as filed with the SEC on March 25, 1991.
(b) AFL-CIO Deferred Compensation Plan and Trust, as
restated and amended through August 1, 1988: incorporated
by reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)]
of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933 (Post-Effective Amendment No.
14) and the Investment Company Act of 1940 (Amendment No.
17), Registration No. 2-78066, as filed with the SEC on
March 25, 1991.
(c) AFL-CIO Housing Investment Trust 401(k)
Retirement
Plan, effective as of October 1, 1996: incorporated by
reference to Part C, Item 24(b)(7)(c) [Exhibit 7(c)] of
the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 (Post-Effective Amendment No. 25)
and the Investment Company Act of 1940 (Amendment No.
28), Registration No. 2-78066, as filed with the SEC on
April 30, 1997.
(8) Copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act, with
respect to securities and similar investments of the Trust,
including the schedule of remuneration;
Custody Agreement with American Security Bank dated
October 18, 1983, as amended through December 21, 1988:
incorporated by reference to Part C, Item 24(b)(8)
[Exhibit (8)] of the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 12) and the Investment
Company Act of 1940 (Amendment No. 15), Registration No.
2-78066, as filed with the SEC on April 28, 1989.
<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
Custodian Agreement with Security Trust Company, N.A.
dated May 21, 1991: incorporated by reference to Part C,
Item 24(b)(8) [Exhibit (8)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post Effective Amendment No. 16) and the Investment
Company Act of 1940 (Amendment No. 19), Registration
No. 2-78066, as filed with the SEC on April 22, 1992.
(9) Copies of all other material contracts not made in the
ordinary course of business which are to be performed in whole
or in part at or after the date of filing the Registration
Statement;
(Not applicable)
(10) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid, and non-assessable;
Opinion letter and written consent of Swidler & Berlin,
Chartered, dated April 29, 1997, is included as Exhibit
(10) to the Trust's Registration Statement incorporated
by reference to Part C, Item 24(b)(10)[Exhibit (10)] of
the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 (Post-Effective Amendment No. 25)
and the Investment Company Act of 1940 (Amendment No.
28), Registration No. 2-78066, as filed with the SEC on
April 30, 1997.
(11) Copies of any other opinions, appraisals, or rulings, and
consents to the use thereof relied on in the preparation of
this Registration Statement and required by Section 7 of the
1933 Act;
Consent of KPMG Peat Marwick, L.L.P. dated April 30,
1997 included as Exhibit (11) to the Trust's
Registration Statement: incorporated by reference to
Part C, Item 24(b)(11)[Exhibit (11)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 25) and the
Investment Company Act of 1940 (Amendment No. 28),
Registration No.2-78066, as filed with the SEC on April
30, 1997.
(12) All financial statements omitted from Item 23 of Part B;
(Not applicable)<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
(13) Copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Trust, the underwriter, adviser, promoter, or
initial stockholders and written assurances from promoters or
initial stockholders that their purchases were made for
investment purposes without any present intention of redeeming
or reselling;
(Agreements for Advances, executed September 24, 1981,
September 25, 1981, October 19, 1981 and April 16, 1982,
previously submitted, have expired.)
(14) Copies of the model plan used in the establishment of any
retirement plan in conjunction with which the Trust offers its
securities, any instructions thereto, and any other documents
making up the model plan. Such form(s) should disclose the
costs and fees charged in connection therewith;
(Not applicable)
(15) Copies of any plan entered into by the Trust pursuant to Rule
12b-1 under the Investment Company Act, which describes all
material aspects of the financing of distribution of the
Trust's shares, and any agreements with any person relating to
implementation of such plan;
Plan for Distribution as amended through December 14,
1995: incorporated by reference to Part C, Item 24(b)(15)
included as Exhibit (15) of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 24) and the Investment
Company Act of 1940 (Amendment No. 27), Registration No.
2-78066, as filed with the SEC on April 29, 1996.
(16) Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
(which need not be audited);
(Not applicable)
<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
(17) Financial Data Schedule: incorporated by reference to Part C,
Item 24(b)(17) [Exhibit (17)] of this Registration
Statement on Form N-1A under the Securities Act of 1933 (Post-
Effective Amendment No. 26) and the Investment Company Act of
1940 (Amendment No. 29), Registration No. 2-78066, as filed
with the SEC on May 15, 1997.
(18) Other Exhibits:
(a) Powers of Attorney for Trustees Moore
and Sweeney: incorporated by reference to Part
C, Item 24(b)(17)(b) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 12) and the
Investment Company Act of 1940 (Amendment No. 15),
Registration No. 2-78066, as filed with the SEC on April
28, 1989.
(b) Power of Attorney for Trustee Georgine:
incorporated by reference to Part C, Item 24(b)(17)(b)
[Exhibit (17)] of the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 13) and the Investment
Company Act of 1940 (Amendment No.16), Registration No.
2-78066, as filed with the SEC on April 30, 1990.
(c) Power of Attorney for Trustee LaVere: incorporated
by reference to Part C, Item 24(b)(17)(a) [Exhibit (17)]
of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933 (Post-Effective Amendment No.
14) and the Investment Company Act of 1940 (Amendment No.
17), Registration No. 2-78066, as filed with the SEC on
March 25, 1991.
(d) Power of Attorney for Trustee
Fleischer: incorporated by reference to Part C,
Item 24(b)(17)(d) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 16) and the
Investment Company Act of 1940 (Amendment No. 19),
Registration Statement No. 2-78066, as filed with the SEC
on April 22, 1992.
<PAGE>
<PAGE>
Sequentially
Numbered
Page Exhibit
- ------------ -------
(e) Powers of Attorney for Trustees Joyce and Coia:
incorporated by reference to Part C, item
24(b)(17)(d) [Exhibit (17)] of the Trust's Registration
Statement on Form N-1A under the Securities Act of 1933
(Post-Effective Amendment No. 18) and the Investment
Company Act of 1940 (Amendment No. 21), Registration
Statement No. 2-78066, as filed with the SEC on April 30,
1993.
(f) Power of Attorney for Trustee Monroe:
incorporated by reference to Part C,
item 24(b)(17)(d) [Exhibit (17)] of the Trust's
Registration Statement on Form N-1A under the Securities
Act of 1933 (Post-Effective Amendment No. 23) and the
Investment Company Act of 1940 (Amendment No. 26),
Registration No. 2-78066, as filed with the SEC on June
6, 1995.
(g) Power of Attorney for Trustee Duvernay: incorporated
by reference to Part C, item 24(b)(18)(d) [Exhibit 18] of
the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 Post-Effective Amendment No. 24)
and the Investment Company Act of 1940 (Amendment No.
27), Registration No. 2-78066, as filed with the SEC on
April 29, 1996.
(h) Powers of Attorney for Trustees Chavez-Thompson,
Kardy, Latimer, Stanley, Fleischer, Hanley, Miller, Hurt,
Spear and Wiegert: included as item 24(b)(18)(d) [Exhibit
18] 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.
<TABLE> <S> <C>
<ARTICLE> 6
<CURRENCY> U.S. DOLLARS
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
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<INVESTMENTS-AT-VALUE> 1,379,431,358
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<OTHER-ITEMS-ASSETS> 1,063,559
<TOTAL-ASSETS> 1,391,878,885
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<OTHER-INCOME> 73,916
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<APPREC-INCREASE-CURRENT> (25,991,014)
<NET-CHANGE-FROM-OPS> 67,191,466
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<DISTRIBUTIONS-OF-INCOME> 91,992,173
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<GROSS-ADVISORY-FEES> 105,644
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<GROSS-EXPENSE> 5,822,349
<AVERAGE-NET-ASSETS> 1,261,044,926
<PER-SHARE-NAV-BEGIN> 1098.53
<PER-SHARE-NII> 79.11
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