SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Under Rule 14a-12
AFL-CIO Housing Investment Trust
(Name of Registrant as Specified In Its Charter)
_________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
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1) Title of each class of securities to which transaction applies:
_______________________
2) Aggregate number of securities to which transaction applies:
_______________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
________________________________________________________________
4) Proposed maximum aggregate value of transaction:____________________
5) Total fee paid:_____________________________________________________
|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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4) Date Filed:
July __, 2007
TO PARTICIPANTS, AFL-CIO HOUSING INVESTMENT TRUST
Enclosed is the Notice of the 2007 Annual Meeting of Participants and a Proxy
Statement describing proposals to permit the Trust to admit non-U.S. investors,
offer additional portfolios to investors, increase production of affordable
housing by engaging in total return swap contracts in connection with tax-exempt
bonds, re-elect a Chairman and Trustees, ratify selection of the independent
registered public accounting firm, and approve other indicated matters that are
expected to come up at the meeting.
I want to draw your particular attention to the proposals insofar as they relate
to three important new directions for the Trust and ask for your support. These
proposals represent the strategic judgment of the Board and management as to
important steps the Trust must take to build upon its past success and core
strengths to meet the demands of a changing marketplace.
Specifically, the Board of Trustees and Trust management are seeking your
approval to make the necessary changes to the Trust's governing documents to
permit the Trust to pursue three key strategies:
> Open to New Investors. The Board is recommending that the Trust
permit non-U.S. pension plans with union beneficiaries to invest in
the Trust. This is expected to provide a broad new pool of
investment capital controlled by investors who understand and share
the Trust's goals of competitive returns through exposure to the
U.S. fixed-income market combined with a strong socially responsible
mission. It is also allows the Trust to take advantage of
legislative changes in Canada that expanded the authority of
Canadian pension plans to invest outside of Canada. The staff of the
U.S. Securities and Exchange Commission advised the Trust this
spring that it would not object to the Trust's selling to these
investors, subject to certain conditions.
> Offer New Investment Products. The Board is recommending that the
Trust be authorized to offer investors additional investment
options. With this authority, the Trust would be able to develop and
offer new funds with investment guidelines that differ from the
Trust--for example investment strategies designed to produce
workforce housing or focus on particular geographic regions or to
test new investment strategies.
> Expand Authorities to Increase Production of Investment Assets. The
Board is recommending that the Trust be authorized to engage in
total returns swap contracts in connection with tax-exempt bonds.
This is intended to permit the Trust to continue to be a leader in
the production of union-built affordable housing.
Each of these proposals has been carefully considered, vetted and reviewed by
Trust staff and the Board. A New Directions strategy containing elements of
these proposals was first developed in Fall 2005. Since then, the Board has
considered reports from staff on the proposals, as they were being developed and
refined, at six separate meetings. In addition, briefing sessions were conducted
with outside industry participants, staff and Board members over a period of
many months. The proposals, as you will read in the enclosed materials, are
designed to allow the Trust to respond to specific challenges identified by
management and the Board. The Board, in making its recommendations for approval
considered many issues. These included the pressures faced by pension plan
investors to increase real returns, without overly increasing risk; significant
changes in the financing of multi-family housing; and the need to structure new
investment funds able to respond to the overwhelming need for affordable housing
across the United States.
We hope that the attached materials will answer any questions you might have
about the proposals. As always, thank you for the careful thought you will give
to this, and for your continuing commitment to the Trust's investment program.
We strive to continuously improve our program. We believe that the proposals
submitted for your approval will allow the Trust to do just that.
Sincerely,
Stephen Coyle
Chief Executive Officer
PLEASE VOTE WITHIN FIVE DAYS OF RECEIPT
SC/mo
opeiu #2, afl-cio
Enclosures
AFL-CIO HOUSING INVESTMENT TRUST
PROXY
2007 Annual Meeting of Participants
The undersigned hereby appoints Helen R. Kanovsky and Mary C.
Moynihan and each of them with power to act without the other and with full
power of substitution, as proxies for and on behalf of the undersigned, to vote
all Units of Participation which the undersigned is entitled to vote at the
Annual Meeting of Participants to be held August 16, 2007 and all postponements
and adjournments thereof, with all the powers that the undersigned would possess
if personally present and particularly (but without limiting the generality of
the foregoing) to vote and act as follows:
(I) To approve an amendment to Section 3.3. of the Declaration of
Trust, to permit the Trust, in connection with any investment in tax-exempt
bonds otherwise permitted by the Declaration of Trust, to enter into total
return swap contracts with counterparties that are rated in one of the two
highest rating categories by at least two nationally recognized statistical
rating agencies, provided that the total notional value of the tax-exempt bonds
involved in such contracts that are outstanding from time to time shall not
exceed ten percent (10%) of the value of all of the Trust's assets:
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FOR |_| AGAINST |_| ABSTAIN |_|
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(II) To approve an amendment to Section 5.2 of the Declaration of Trust to
expand the definition of "Eligible Pension Plan" to include (i) non-United
States employee benefit plans subject to regulation under applicable non-United
States laws that are similar in purpose and intent to the Employee Retirement
Income Security Act of 1974; (ii) pension or retirement programs of a non-United
States jurisdiction similar to a "governmental plan" as defined in Title 29,
Section 1002(32) of the United States Code; and (iii) master trusts holding the
assets of more than one Pension Plan or more than one Governmental Plan, where
at least one of the plans with assets in the master trust has beneficiaries who
are represented by a Labor Organization:
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FOR |_| AGAINST |_| ABSTAIN |_|
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(III) To approve certain amendments to the Declaration of Trust to
authorize the Trust to issue additional Series or Classes of Units:
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FOR |_| AGAINST |_| ABSTAIN |_|
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(IV) To approve certain amendments to the Trust's Fundamental Policies to
permit the Trust to enter into total return swap contracts:
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FOR |_| AGAINST |_| ABSTAIN |_|
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(V) For the reelection of a Chairman to serve until the 2008 Annual
Meeting of Participants or until his successor is elected and qualifies:
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Richard Ravitch
FOR |_| AGAINST |_| ABSTAIN |_|
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(VI) For the reelection of two (2) Class III Union Trustees and one (1)
Class III Management Trustee, to serve until the 2010 Annual Meeting of
Participants or until their respective successors are elected and qualify:
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John J. Sweeney (Class III Union Trustee)
FOR |_| AGAINST |_| ABSTAIN |_|
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Frank Hurt (Class III Union Trustee)
FOR |_| AGAINST |_| ABSTAIN |_|
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Tony Stanley (Class III Management Trustee)
FOR |_| AGAINST |_| ABSTAIN |_|
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(VII) For ratification of the Board of Trustees' selection of Ernst &
Young, LLP as the independent registered public accounting firm for the Trust's
2007 fiscal year:
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FOR |_| AGAINST |_| ABSTAIN |_|
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(VIII) Upon such other matters as may properly come before the meeting.
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FOR |_| AGAINST |_| ABSTAIN |_|
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The Trustees recommend a vote FOR the above items. ANY PROXY NOT MARKED
OTHERWISE WILL BE TREATED AS A VOTE FOR THE ITEMS.
The Units of Participation represented hereby will be voted in accordance
with instructions contained in this Proxy.
The undersigned hereby ratifies and confirms all that said proxies or
their substitutes or any of them may lawfully do by virtue hereof. The
undersigned hereby acknowledges receipt of the Notice of 2007 Annual Meeting of
Participants to be held August 16, 2007 and the Proxy Statement dated
__________, 2007.
Please sign your name and indicate your capacity as designee, attorney, trustee
or official of a Participant.
Dated:_____________________, 2007
Participant ID:
Participant Name:
Number of Units:
By: _____________________________________________________________
(Signature)
_____________________________________________________________
(Name - please print)
Title: _____________________________________________________________
(please print)
___________________________________________________________________________
To vote via Internet, please use the following User Name and Password*:
User Name: __________________________________________________
Password: __________________________________________________
___________________________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST.
IMPORTANT: THIS PROXY MAY BE VOTED IN ANY OF THREE (3) WAYS:
BY MAIL: PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
SELF-ADDRESSED, STAMPED ENVELOPE.
BY FACSIMILE: PLEASE SIGN, DATE AND FAX THIS PROXY TO (202) 331-8190.
BY INTERNET: PLEASE GO TO http://www.aflcio-hit.com/proxy AND ENTER THE
USER NAME AND PASSWORD INDICATED ABOVE.*
PLEASE NOTE THAT ALL VOTES MUST BE TIME-STAMPED OR POSTMARKED
BY MIDNIGHT ON _________________, 2007.
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* Please note the User Name and Password are case-sensitive.
AFL-CIO Housing Investment Trust
NOTICE OF 2007 ANNUAL MEETING OF PARTICIPANTS
To Participants, AFL-CIO Housing Investment Trust:
Notice is hereby given that the 2007 Annual Meeting of Participants (the
"Meeting") of the American Federation of Labor and Congress of Industrial
Organizations Housing Investment Trust (the "Trust"), a District of Columbia
common law trust, will be held at the offices of the Trust, 1717 K Street, N.W.,
Suite 707, Washington, D.C. 20036 on August 16, 2007 at 2:00 p.m. for the
following purposes:
1. To approve an amendment to Section 3.3 of the Declaration of Trust,
to permit the Trust, in connection with any investment in tax-exempt
bonds otherwise permitted by the Declaration of Trust, to enter into
total return swap contracts with counterparties that are rated in
one of the two highest rating categories by at least two nationally
recognized statistical rating agencies, provided that the total
notional value of the tax-exempt bonds involved in such contracts
that are outstanding from time to time shall not exceed ten percent
(10%) of the value of all of the Trust's assets.
2. To approve an amendment to Section 5.2 of the Declaration of Trust
to expand the definition of "Eligible Pension Plan" thereunder to
include (i) non-United States employee benefit plans subject to
regulation under applicable non-United States laws that are similar
in purpose and intent to the Employee Retirement Income Security Act
of 1974; (ii) pension or retirement programs of a non-United States
jurisdiction similar to a "governmental plan" as defined in Title
29, Section 1002(32) of the United States Code; and (iii) master
trusts holding the assets of more than one Pension Plan or more than
one Governmental Plan, where at least one of the plans with assets
in the master trust has beneficiaries who are represented by a Labor
Organization.
3. To approve certain amendments to the Declaration of Trust to
authorize the Trust to issue additional Series or Classes of Units.
4. To approve certain amendments to the Trust's Fundamental Policies to
permit the Trust to enter into total return swap contracts.
5. To re-elect Richard Ravitch as Chairman to serve until the 2008
Annual Meeting of Participants or until his successor is elected and
qualifies.
6. To re-elect John J. Sweeney and Frank Hurt as Class III Union
Trustees and Tony Stanley as a Class III Management Trustee, to
serve until the 2010 Annual Meeting of Participants or until their
respective successors are elected and qualify.
7. To ratify the Board of Trustees' selection of Ernst & Young, LLP as
the independent registered public accounting firm for the Trust's
2007 fiscal year.
8. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
The close of business on July 1, 2007 has been fixed as the record date
for the determination of Participants entitled to notice of and to vote at the
Meeting and any adjournment(s) thereof. Accordingly, only Participants of record
as of the close of business on that date are entitled to notice of and to vote
at the Meeting or at any such adjournment.
By Order of the Board of Trustees
Stephen Coyle
Chief Executive Officer
Dated: July __, 2007
AFL-CIO HOUSING INVESTMENT TRUST
PROXY STATEMENT
______, 2007
GENERAL MATTERS
This Proxy Statement is being sent ____________, 2007 in connection with
the solicitation of proxies for use at the 2007 Annual Meeting of Participants
(the "Meeting") of the American Federation of Labor and Congress of Industrial
Organizations Housing Investment Trust (the "Trust") to be held at the offices
of the Trust, 1717 K Street, N.W., Suite 707, Washington, D.C. 20036, on
August 16, 2007, beginning at 2:00 p.m. and at any adjournment(s) thereof.
A copy of the Trust's Annual Report for the year ended December 31, 2006
together with financial statements for the corresponding fiscal year, were
previously mailed to each Participant entitled to vote at the Meeting. The Trust
will furnish, without charge, a copy of the Annual Report for 2006 and the most
recent Semi-annual Report succeeding the Annual Report, if any, to any
Participant that requests one. Requests for reports should be made by placing a
collect call to the Trust, at (202) 331-8055, and directing the call to the
Marketing and Investor Relations Department. Written requests may be directed to
the AFL-CIO Housing Investment Trust, 1717 K Street, N.W., Suite 707,
Washington, D.C. 20036. Reports may also be accessed on the Trust's website at
www.aflcio-hit.com.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Trust's Annual Meeting, Participants will act upon the matters
outlined in the accompanying notice of Meeting, including (i) approval of an
amendment to the Declaration of Trust to permit the Trust, in connection with
any investment in tax-exempt bonds otherwise permitted by the Declaration of
Trust, to enter into total return swap contracts with counterparties that are
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating agencies, provided that the total notional value
of the tax-exempt bonds involved in such contracts that are outstanding from
time to time shall not exceed ten percent (10%) of the value of all of the
Trust's assets; (ii) approval of an amendment to the Declaration of Trust to
expand the definition of "Eligible Pension Plan" to include master trusts and
certain non-U.S. employee benefit plans and pension plans of non-U.S.
jurisdictions to invest in the Trust; (iii) approval of certain amendments to
the Declaration of Trust to authorize the Trust to issue additional Series or
Classes of Units; (iv) approval of certain amendments to the Trust's Fundamental
Policies to permit the Trust to enter into total return swap contacts; (v) the
reelection of a Chairman of the Board of Trustees; (vi) the reelection of
Trustees; and (vii) ratification of the selection of the Trust's independent
registered public accounting firm. In addition, the Trust's management will
respond to questions from Participants.
WHO IS ENTITLED TO VOTE?
The close of business on July 1, 2007 is the record date for the
determination of Participants entitled to notice of and to vote at the Meeting
and any adjournment(s) thereof (the "Record Date"). As of the Record Date, there
were _______________ Units of Participation of the Trust outstanding, each Unit
being entitled to one vote. No shares of any other class of securities were
outstanding as of that date.
Only Participants of record as of the close of business on the Record Date
will be entitled to vote at the Meeting.
WHO CAN ATTEND THE MEETING?
All Participants as of the Record Date, or their duly appointed proxies,
may attend the Meeting.
1
WHAT CONSTITUTES A QUORUM?
A quorum for the Meeting is the presence in person or by proxy of
Participants holding a majority of Units outstanding at the close of business on
the Record Date. As of the Record Date, __________________ Units of
Participation of the Trust were outstanding. Proxies received but marked as
abstentions will be included in the calculation of the number of Units
considered to be present at the Meeting.
HOW DO I VOTE?
By Mail: If the proxy card that is enclosed with this Proxy Statement is
properly executed and returned, the Units of Participation it represents will be
voted at the Meeting in accordance with the instructions noted thereon. If no
direction is indicated, the proxy card will be voted in accordance with the
Trustees' recommendations set forth thereon.
By Facsimile: If the proxy card that is enclosed with this Proxy Statement
is properly executed and returned via facsimile to (202) 331-8190, the Units of
Participation it represents will be voted at the Meeting in accordance with the
instructions noted thereon. If no direction is indicated, the proxy card will be
voted in accordance with the Trustees' recommendations set forth thereon.
By Internet: If the proxy card is properly voted through the Internet, the
Units of Participation it represents will be voted at the Meeting in accordance
with the instructions noted thereon. If no direction is indicated, the proxy
card will be voted in accordance with the Trustees' recommendations set forth
thereon.
To vote by proxy through the Internet:
1) Use a web browser to go to http://www.aflcio-hit.com/proxy
2) Enter the User Name* and Password* that are included with this
mailing.
*Please note that the User Name and Password are CASE-SENSITIVE.
Please type the User Name and Password into the appropriate screen
exactly as it is shown on the enclosure.
In Person: By attending the Meeting and voting your Units.
CAN I CHANGE MY VOTE AFTER GIVING A PROXY?
Yes. Any Participant giving a Proxy may revoke it at any time before it is
exercised by giving written notice to the Trust bearing a date later than the
date of the Proxy, by submission of a later dated Proxy, or by voting in person
at the Meeting, which any Participant may do whether or not such Participant has
previously given a Proxy.
WHAT ARE THE BOARD OF TRUSTEES' RECOMMENDATIONS?
Unless you give other instructions when you vote, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Trustees. The Board's recommendation is set forth together with
the description of each item in this Proxy Statement. In summary, the Board
recommends a vote:
o FOR approval of an amendment to the Declaration of Trust to
permit the Trust, in connection with any investment in
tax-exempt bonds otherwise permitted by the Declaration of
Trust, to enter into total return swap contracts with
counterparties that are rated in one of the two highest rating
categories by at least two nationally recognized statistical
rating agencies, provided that the total notional value of the
tax-exempt bonds involved in such contracts that are
outstanding from time to time shall not exceed ten percent
(10%) of the value of all of the Trust's assets (see page __).
o FOR approval of an amendment to the Declaration of Trust to
expand the definition of "Eligible Pension Plan" to include
master trusts and certain non-U.S. employee benefit plans and
pension plans of non-U.S. jurisdictions (see page __).
2
o FOR approval of certain amendments to the Declaration of Trust
to authorize the Trust to issue additional Series or Classes
of Units (see page __).
o FOR approval of certain amendments to the Trust's Fundamental
Policies to permit the Trust to enter into total return swap
contracts (see page __)
o FOR re-election of the nominated Chairman (see page __).
o FOR re-election of the nominated Trustees (see page __).
o FOR ratification of the selection of Ernst & Young, LLP as the
independent registered public accounting firm for the Trust's
fiscal year ending December 31, 2007 (see page __)
With respect to any other matter that properly comes before the Meeting or
any adjournment(s) or postponements thereof, the proxy holders will vote as
recommended by the Board of Trustees or, if no recommendation is given, in their
own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
As to Proposals I, II, III, V, VI and VII, the vote required for approval
will be an affirmative vote of a majority of the Units represented in person or
by proxy at the Meeting. As to Proposal IV, the vote required for approval will
be a majority vote, defined as the lesser of (a) 67% or more of the Units of the
Trust that are present at the meeting or represented by proxy if Units
representing more than 50% of the outstanding Units are present or represented
by proxy or (b) more than 50% of the voting Units. Each Unit is entitled to one
vote. Abstentions will not be included in the calculation of the number of Units
voted affirmatively for a proposal.
WHO IS MAKING THE SOLICITATION ON BEHALF OF THE TRUST?
The Proxy is being solicited by the Board of Trustees of the Trust through
the mail. The cost of solicitation will be paid by the Trust. Further
solicitation of proxies may be made by telephone or oral communication with some
Participants following the original solicitation. Any such further solicitation
will be made by Trustees or officers of the Trust who will not be compensated
therefor. The date on which proxy materials were first mailed to Participants
was _______________, 2007.
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APPROVAL OF AUTHORITY TO ENTER INTO TOTAL RETURN SWAPS
PROPOSAL I: TO APPROVE AN AMENDMENT TO SECTION 3.3 OF THE DECLARATION OF
TRUST, TO PERMIT THE TRUST, IN CONNECTION WITH ANY INVESTMENT IN
TAX-EXEMPT BONDS OTHERWISE PERMITTED BY THE DECLARATION OF TRUST,
TO ENTER INTO TOTAL RETURN SWAP CONTRACTS WITH COUNTERPARTIES
THAT ARE RATED IN ONE OF THE TWO HIGHEST RATING CATEGORIES BY AT
LEAST TWO NATIONALLY RECOGNIZED STATISTICAL RATING AGENCIES,
PROVIDED THAT THE TOTAL NOTIONAL VALUE OF THE TAX-EXEMPT BONDS
INVOLVED IN SUCH CONTRACTS THAT ARE OUTSTANDING FROM TIME TO TIME
SHALL NOT EXCEED TEN PERCENT (10%) OF THE VALUE OF ALL OF THE
TRUST'S ASSETS.
The proposed amendment to the Declaration of Trust will permit the Trust to
enter into total return swap ("TRS") contracts referencing tax-exempt bonds with
counterparties rated in one of the two highest rating categories by at least two
nationally recognized statistical rating agencies. As proposed, the Declaration
of Trust will be amended to (i) insert a new subsection 3.3(o) substantially as
follows:
(o) In connection with any investment in tax-exempt bonds otherwise
permitted by any paragraph of this Article III, to enter into
total return swap contracts with counterparties that are rated in
one of the two highest rating categories by at least two
nationally recognized statistical rating agencies, provided that
the total notional value of the tax-exempt bonds involved in such
contracts that are outstanding from time to time shall not exceed
ten percent (10%) of the value of all of the Trust's assets.
and (ii) redesignate current subsection 3.3(o) as subsection 3.3(p).
DISCUSSION
To meet its investment objectives, the Trust seeks to find high
credit-quality mortgage-related investments that generate competitive yields
while creating union jobs and housing. Recently, much of the new construction in
affordable housing projects has been financed through tax-exempt financing.
Approximately $5 billion of tax-exempt bonds financing new construction and
substantial rehabilitation of affordable multifamily housing projects are issued
annually. A significant percentage of the volume comes from strong union states
or states which are well represented in the Trust's investor base. Specifically,
New York, Illinois, California and Massachusetts comprise the top four issuers
in the country. These tax-exempt financings could provide an excellent source of
investment for the Trust. However, because the Trust cannot capture the economic
benefits of tax-exempt bonds by holding them directly, the Trust must use an
investment strategy using TRS contracts. The Board is therefore recommending
that the Trust amend its Declaration of Trust to permit it to enter into TRS
contracts referencing tax-exempt bonds, as described below.
A TRS contract is a contract in which one party makes payments based on a
set rate, either fixed or variable, while the other party makes payments based
on the return of a reference asset, which includes both the income it generates
and gains or losses related to price change of the bonds. The reference asset
may be any asset, index or basket of assets. As proposed, the reference asset
would be a tax-exempt bond backed by a mortgage used to finance a multifamily
property. The Trust intends to sell tax-exempt bonds to a counterparty and
simultaneously enter into a TRS contract under which the Trust will retain the
mark-to-market risk of the bonds and agree to pay a variable interest rate in
exchange for interest payments equal to the bond coupon.
TRS contracts offer an entity like the Trust the ability to increase its
return on a tax-exempt bond. As a general matter, tax exempt bonds pay a lower
coupon rate than taxable securities. Because the Trust cannot benefit from the
tax advantage, it would ordinarily have to take a lower yield, making the bonds
unattractive in most interest rate environments. However, through the TRS
mechanism, the Trust will seek to realize some of the value of the tax exempt
income, by selling it off to counterparties who can benefit from it. Under the
proposed amendment, the total
4
notional value of the tax-exempt bonds involved in the contracts will not exceed
10% of the value of the Trust's total assets.
Utilizing TRS presents two main risks: counterparty risk and risk of
convergence of taxable rates and tax-exempt rates. Counterparty risk is the risk
that the counterparty fails or is unable to make the necessary payments to the
Trust. The Trust intends to mitigate the counterparty risk by limiting
counterparties to those rated AA or better by at least two nationally recognized
rating agencies at the time the contract is executed. The requirement of a AA
rating is consistent with the counterparty risk that the Trust currently assumes
for other investments in its portfolio. The convergence risk in the tax-exempt
bond TRS contract is the risk that the tax-exempt money market rate plus the
spread (the amount that would be payable by the Trust) could exceed the taxable
money market rate (the rate payable to the Trust) under certain interest rate
conditions. Historically, the tax-exempt money market rate has been
approximately 68 percent of taxable money market rates. If taxable interest
rates fall low enough or if the spread between the two markets significantly
tightens, the total return on the investment will begin to fall below the
tax-exempt bond's coupon return. This risk can be mitigated by retaining the
ability to terminate the TRS contract prior to maturity. It is also possible the
spread could go in a favorable direction generating a higher return. This risk
and benefit of spread widening or tightening already exists on all investments
in the Trust's portfolio.
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR"
THE PROPOSED AMENDMENT TO THE DECLARATION OF TRUST
SET FORTH IN PROPOSAL I
APPROVAL OF OPENING TRUST TO NON-U.S. PENSION PLAN INVESTORS WITH
UNION BENEFICIARIES
PROPOSAL II: TO APPROVE AN AMENDMENT TO SECTION 5.2 OF THE DECLARATION OF
TRUST TO EXPAND THE DEFINITION OF "ELIGIBLE PENSION PLAN"
THEREUNDER TO INCLUDE (I) NON-UNITED STATES EMPLOYEE BENEFIT
PLANS SUBJECT TO REGULATION UNDER APPLICABLE NON-UNITED STATES
LAWS THAT ARE SIMILAR IN PURPOSE AND INTENT TO THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974; (II) PENSION OR
RETIREMENT PROGRAMS OF A NON-UNITED STATES JURISDICTION SIMILAR
TO A "GOVERNMENTAL PLAN" AS DEFINED IN TITLE 29, SECTION 1002(32)
OF THE UNITED STATES CODE; AND (III) MASTER TRUSTS HOLDING THE
ASSETS OF MORE THAN ONE PENSION PLAN OR MORE THAN ONE
GOVERNMENTAL PLAN, WHERE AT LEAST ONE OF THE PLANS WITH ASSETS IN
THE MASTER TRUST HAS BENEFICIARIES WHO ARE REPRESENTED BY A LABOR
ORGANIZATION.
As proposed, Section 5.2 of the Declaration of Trust will be amended and
restated to read as follows
Section 5.2. Only Labor Organizations and Eligible Pension Plans as
defined in this section shall be eligible to own Units of the Trust or to
hold Units in the Trust. A "Labor Organization" means any organization of
any kind, any agency, employee representation committee, group,
association or plan in which employees participate directly or through
affiliated organizations, and which exists for the purpose, in whole or in
part, of dealing directly or through affiliated organizations with
employers concerning grievances, labor disputes, wages, rates of pay,
hours or other terms or conditions of employment and any employee benefit
plan of such an organization, or any other organization which is, in the
discretion of the Board of Trustees, affiliated with or sponsored by such
an organization. An "Eligible Pension Plan" includes:
A. a pension plan ("Pension Plan") constituting a qualified trust under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") which has beneficiaries who are represented by a Labor
Organization and the assets of which
5
are managed without the direct intervention or control of the plan's
beneficiaries;
B. a governmental plan ("Governmental Plan") within the meaning of section
414(d) of the Code which has beneficiaries who are represented by a Labor
Organization and the assets of which are managed without the direct
intervention or control of the plan's beneficiaries;
C. a master trust holding the assets of more than one Pension Plan or more
than one Governmental Plan, where at least one of the plans with assets in
the master trust has beneficiaries who are represented by a Labor
Organization;
D. a pension or retirement program of a non-United States jurisdiction
that is similar to a "governmental plan" as defined in Title 29, Section
1002(32) of the United States Code; or
E. a non-United States employee benefit plan subject to regulation under
applicable non-United States laws that are similar in purpose and intent
to the Employee Retirement Income Security Act of 1974, as amended.
Units will not be transferable or assignable. No holder of a Unit will
have the authority to pledge its Unit as collateral for any loan. [Text
marked to show changes.]
The primary purpose of the amendment is to permit non-U.S. pension plans
to invest in the Trust. The amendment also makes two technical changes to
clarify (i) that certain master trusts may invest in the Trust and (ii) that
governmental plans that do not choose to comply with Section 401(a) of the
Internal Revenue Code of 1986, as amended, may invest in the Trust.
DISCUSSION
The Board of Trustees and management believe that opening the Trust to
labor friendly, non-U.S. investors will enable the Trust to achieve continued
growth and hold down relative costs for investors. The Trust expects to be
competitive to non-U.S. investors seeking exposure to fixed-income, real estate
related investments in the United States. Furthermore, the Trust's socially
responsible investments should be attractive to Canadian and European funds,
which have a long history of socially responsible investing. In addition,
Canadian regulations have recently authorized Canadian pension plans to invest
more broadly outside Canada, and Trust management believes the Trust will
provide an attractive investment alternative for Canadian pension plans seeking
to increase their investment in the United States.
The staff of the U.S. Securities and Exchange Commission advised the Trust
this spring that it would not object to the Trust's selling to these investors,
subject to certain conditions. In particular, there must be a system in the home
country for regulation of pension plans that is substantially similar to that in
the United States. Trust employees who engage in such marketing must also meet
certain requirements under the rules and regulations of the Securities Exchange
Act of 1934, as amended, which they must already comply with in order to market
in the United States.
Trust management also believes it is imperative to develop new capital
sources to respond to the challenges of the fixed-income market. For many years,
the Trust has enjoyed the support of Taft-Hartley and public pension plan
investors, which have collectively invested through new investment or dividend
reinvestment an average in excess of $350 million each year since 2000. However,
because of current market conditions for fixed-income investments, the Trust
must reach out to new capital markets if it is to maintain the steady pace of
asset growth experienced over the past two decades. This amendment will give the
Trust the authority to target non-U.S. pension plans, in particular, Canadian
and European pension plans.
Taft-Hartley funds and public pension plans will continue to represent a
major focus of the Trust's marketing efforts. However, several market realities
dictate a need to reach out to new investors. These include the fact that
fixed-income investment is cyclical, just as fixed-income returns are cyclical,
and current market conditions have supported an overall decline in fixed-income
allocations by pension funds, both Taft-Hartley and public.
6
The result is that the Trust must compete for a shrinking pool of new
allocations to fixed-income assets. These market conditions may present barriers
to the Trust's continued growth. Growing the Trust has been an integral part of
the Trust's investment strategy, in part because the larger the fund, the lower
the relative cost to investors, the easier it is to compete for and finance
major projects ($50 - 100 million), and the greater the critical mass of working
capital available for investment initiatives. With the prospect of a possible
decline in the rate of new investment from Taft-Hartley funds, the Board of
Trustees and management believe that it is prudent to open the Trust to
investment by funds outside the United States that have union member
beneficiaries, beginning with union and public funds in Canada. International
funds offer a huge untapped opportunity for new Trust investors. In Canada, for
example, just four funds in Ontario and Quebec hold a combined total of $121
billion in assets, which is nearly a third of the total Taft-Hartley market.
In addition to extending the definition of Eligible Investor, the
amendment contains two technical clarifications. The first would clarify that if
more than one plan invests through a master trust, the Trust could accept
investment on behalf of the master trust (as noted above this would be necessary
for investment by certain corporate plans, because it is not uncommon for a
single employer to have a salaried and an hourly plan invest through the same
master trust). The second would clarify the ability of public plans to invest in
the Trust, even if such plans have opted not qualify under section 401(a) of the
Internal Revenue Code.
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR"
THE PROPOSED AMENDMENT TO THE DECLARATION OF TRUST
SET FORTH IN PROPOSAL II
AUTHORIZING THE TRUST TO ISSUE ADDITIONAL SERIES OR CLASSES OF UNITS
PROPOSAL III: TO APPROVE CERTAIN AMENDMENTS TO THE DECLARATION OF TRUST TO
AUTHORIZE THE TRUST TO ISSUE ADDITIONAL SERIES OR CLASSES OF
UNITS.
The purpose of the Proposal is to permit the Trust to create one or more
additional portfolios through the issuance of additional series or classes of
units. Currently, under the Trust's Declaration of Trust, the Trust may issue
only one series of Units, each of which represents an equal beneficial interest
in the Trust. In order to be able to create additional portfolios for
investment, the Declaration must be amended to permit the Trust to issue
multiple series of Units, each of which would represent an equal beneficial
interest in the assets of the particular portfolio represented by the series and
a pro rata share of the general operating assets of the Trust. Each such series
would have separate assets belonging to it, as described below.
The full text of the amendments is contained in the Amended and Restated
Declaration of Trust which is attached to this Proxy Statement as Exhibit A.
BACKGROUND
Since September 2006, the Trust has been exploring the opportunities
available for the creation of additional series, or investment portfolios,
within the Trust investment company. In the course of the considerations, the
Board has considered the following important goals:
> Satisfy Investor Demand. Investors over time have expressed interest in
investing in a "HIT-like" fund focused on a particular geographic area or
having a more diversified investment profile. Investors have also
expressed demand for economically targeted investment or funds able to
provide financing for specific types of housing--for example workforce
housing.
> New Investment. Creating separate funds or portfolios could stimulate new
investments in both the HIT and the new funds from both current and new
investors. This would provide HIT with a larger asset base.
7
> New Products. Different portfolios may offer different risk profiles or
investment mixes than the Trust currently offers. For example, the Trust
might be able to provide more financing of affordable housing in
particular regions by investing in projects and securities particularly
appropriate to that region. This could facilitate achievement of the
Trust's collateral objectives of producing affordable housing and union
jobs.
> Innovation. New funds would allow the Trust investment staff to develop
new products and methods to finance housing. It is expected that these
innovations would have value to all of the portfolios within the Trust,
including the existing HIT portfolio.
> Leverage Strengths. Additional portfolios would allow HIT to leverage its
core capacity across multiple portfolios, thus spreading costs, and
providing investors with the opportunity to invest in a more diversified
investment product that would not be so dependent on a single investment
model. To the extent permitted by applicable law, the different funds
could co-invest with one another, with the potential to allow the current
HIT portfolio to participate in transactions that might otherwise be
unavailable.
In December of 2006, the Board authorized Trust staff to construct and
develop alternate portfolios and present their results to the Board with
recommendations for how to proceed. Among other issues, the Board considered the
feasibility of developing new funds with profiles similar to HIT, but with
important differences with respect to permitted investments and specific
investment objectives. It is expected that these funds would retain the high
level of investment security offered by HIT. In addition, SEC regulations would
require that at least 85% of the permitted investments for each fund be housing
related.
However, within a limit of 10% of a new fund's total assets, the Board is
considering the feasibility of offering funds with investment strategies that
could include, for example, the following: (i) bridge lending for low income and
historic tax credit projects; (ii) mezzanine lending; and (iii) other investment
authorities not currently utilized by HIT. In June 2007, the Board determined
that it was appropriate to move forward to seek the amendments described herein
to permit the Trust to offer additional series and classes of Units.
If the Proposal is approved by Participants, the Board has requested Trust
staff to develop a detailed proposal for the development of a new fund focusing
on development of workforce housing. The specific investment objectives and
guidelines of such a fund would then be set by the Board of Trustees. However,
there can be no assurances that this or any other new fund or portfolio will be
developed and opened to investors, including Participants.
If the Proposal is approved, the Trust will become a series company. A
series company is an investment company that operates and offers multiple,
segregated portfolios or funds for investment. It is organized, however, under
one set of governing documents (e.g., the Declaration of Trust and By-Laws).
Each fund ordinarily has different investment objectives, policies, and risks.
The investors in one portfolio do not share in the investment results of any
other portfolio and must look solely to the assets of their portfolio for most
purposes, including rights of redemption, earnings distribution and investment
appreciation. As a Participant in the Trust today, for example, you would not
have an interest in any new portfolio or fund of the Trust unless you invested
in that portfolio or fund.
A series company in certain respects is treated as a single investment
company and in other respects is treated as multiple investment companies. Each
series company constitutes a single legal entity and registers as a single
investment company; however, each series of units issued by such series company
represents a different group of investors with an interest in a segregated
portfolio of assets. As a practical matter, all of the assets of a series
company are allocated to specific portfolios and each portfolio's assets are
managed as if it were a separate investment company.
Section 18(f)(2) under the Investment Company Act of 1940, as amended (the
"Investment Company Act") granted the SEC the authority to implement rules to
ensure that Participants of each series of outstanding voting securities is
treated equitably and fairly with regard to voting matters that may affect them.
Pursuant to this section, the SEC adopted rule 18f-2 that mandates any matter
requiring Participant approval and affecting holders of any series of securities
issued by the investment company must be voted upon separately by the
Participants of each series. SEC rule 18f-2 provides that any matter required to
be submitted by the provisions of the Investment Company Act or applicable state
law (e.g., approval of mergers or reorganization), or otherwise (e.g., under the
series company's registration statement or governing documents), to the holders
of the outstanding voting securities
8
of a series company shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding voting
securities of each series affected by such matter. If a particular series would
not be affected by a matter requiring Participant vote, a vote by Participants
of the unaffected series is not required. For purposes of the rule, a series
will be deemed to be affected by a matter unless: the interests of each series
in the matter are substantially identical; or the matter does not affect any
interest of such series. In certain circumstances, Participants in all series or
funds will vote together.
Should Participants approve this Proposal, the existing investment
objectives, policies and risks profile of the Trust would remain unchanged. Any
new portfolio would have its own investment objectives, policies and risks,
completely independent of the currently existing Trust portfolio.
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR"
THE PROPOSED AMENDMENTS TO THE DECLARATION OF TRUST
SET FORTH IN PROPOSAL III
AMENDMENTS TO TRUST FUNDAMENTAL POLICIES
PROPOSAL IV: TO APPROVE CERTAIN AMENDMENTS TO THE TRUST'S FUNDAMENTAL POLICIES
TO PERMIT THE TRUST TO ENGAGE IN TOTAL RETURN SWAPS
All mutual funds like the Trust are required by several technical
provisions of the Investment Company Act to have policies governing certain
investment practices that may only be changed by shareholder approval. These
policies are referred to as "fundamental policies". While current law requires
only a small number of investment practices to be governed by fundamental
policies, this has not always been so. As a result, the Trust has many policies
that are designated as "fundamental" but are no longer required by law and have
no relevance to the Trust's operations. In addition, the Trust's outside counsel
has advised that certain of these fundamental policies could be construed to
prohibit the Trust from entering into Total Return Swaps ("TRS") contracts.
The Proposal, if approved, would amend those policies that could restrict
the Trust's ability to enter into TRS contracts. Except to permit TRS contracts,
none of the proposed changes is intended to change the manner in which the Trust
is managed. The Trust's permitted investments, guidelines and objectives will
continue to be governed by its Declaration of Trust, prospectus and Statement of
Additional Information. In Particular, because the Trust's Declaration of Trust
specifically enumerates the Trust's permitted investments, Participants will
continue to be afforded the opportunity to vote on changes that are material to
the Trust's investment guidelines, regardless of whether such matters are
covered in the Trust's fundamental policies.
CHANGES RELATING TO TRS CONTRACTS
In order to permit the Trust to enter into TRS contracts, it is proposed
to amend the Trust's existing policies with respect to (i) issuance of senior
securities, (ii) borrowing and (iii) lending of assets. Policies on these
matters continue to be required by the Investment Company Act; therefore the
policies are being amended, but retained. Each of these policies is being
revised to use language that prohibits the activities "except as permitted by
(i) the Investment Company Act and the rules and regulations thereunder, or
interpretations or modifications by the SEC, SEC staff or other authority with
appropriate jurisdiction, or (ii) exemptive or other relief from the SEC, SEC
staff, or other authority". This is because the Investment Company Act and
related regulatory rules and actions by the SEC make clear that TRS contracts
are carved out from such prohibitions in certain circumstances (including the
manner in which the Trust intends to utilize them). A secondary goal is to
provide the Trust with flexibility to respond to future changes in applicable
law without the necessity of returning to Participants for further amendments or
incurring regulatory compliance risk. In addition, two policies that related to
(i) investment in mineral leases and arbitrage transactions and (ii) purchase of
securities on margin, which could have been construed to limit TRS contracts,
are being deleted in their entirety because they are no longer required by law,
are outdated and potentially misleading.
9
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR"
THE PROPOSED AMENDMENTS TO THE TRUST'S FUNDAMENTAL POLICIES
SET FORTH IN PROPOSAL IV
10
ELECTION OF TRUSTEES
PROPOSAL V: TO REELECT THE CHAIRMAN
PROPOSAL VI: TO REELECT TWO (2) CLASS III UNION TRUSTEES AND ONE (1) CLASS III
MANAGEMENT TRUSTEE
Under the Trust's Declaration of Trust, the Board of Trustees may have up
to 25 Trustees. Up to 12 Trustees may be Union Trustees, up to 12 Trustees may
be Management Trustees, and one neutral Trustee is to be the Chairman. The Board
of Trustees currently consists of 14 Trustees, eight (8) of whom are Union
Trustees (Chavez-Thompson, Flynn, Hurt, Sullivan, Sweeney, Trumka, Walters and
Williams), five (5) of whom are Management Trustees (Frank, Latimer, Quinn,
Spear and Stanley), and one (1) of whom is the Chairman (Ravitch). Proxies will
not be voted for a greater number of persons than the number of nominees named.
The Declaration of Trust divides the Union and Management Trustees into
three classes (each, a "Class"). 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;
the term of one Class expires each year. At each Annual Meeting, the
Participants elect a Chairman to serve until the next Annual Meeting and such
number of Trustees as is necessary to fill vacancies in (i) the Class whose
terms expire as of that meeting, and (ii) any other Class. The terms of office
of Trustees Sweeney, Hurt, Stanley and Chairman Ravitch will expire on the day
of the Meeting. Each of these Trustees is standing for reelection.
The principal occupations and business experience for the past five years
of the Class III Trustees standing for reelection are described below under
"Nominees for Reelection." If a proxy in the enclosed form is received from a
Participant, the Units of Participation represented by such Proxy will be voted
for the nominees listed below (unless otherwise indicated on the proxy). Class
III Trustees will serve for three-year terms ending in 2010, or until their
respective successors are elected and qualify.
Although the Trust does not contemplate that any of the nominees will be
unavailable for election, if a vacancy in the slate of nominees should be
occasioned by death or other unexpected occurrence, it is currently intended
that the proxies will be voted for such other persons, if any, as the Nominating
Committee may recommend.
NOMINEES FOR REELECTION
The following information was furnished to the Trust by each nominee and
sets forth the name, age, principal occupation or employment of each nominee and
the period during which he or she has served as a Trustee of the Trust. Each
nominee has consented to be named in this Proxy Statement and to serve on the
Board of Trustees if elected.
11
Other
Term of Office Directorships
Position Held and Length of Principal Occupation/Business Held by
Name, Age, Address with Trust Time Served Experience During Past 5 Years Trustee**
- -----------------------------------------------------------------------------------------------------------------------
Richard Ravitch Chairman Service Principal, Ravitch, Rice & Co. None
610 5th Avenue Commenced LLC; Director, Brinckerhoff Inc.
Ste. 420 May 1991. formerly, Co-Chair, Millenial
New York, NY 10020 Term expires Housing Commission; President
Age 73 2007 and Chief Executive Officer, Player
Relations Committee of Major
League Baseball
John J. Sweeney Union Service President, AFL-CIO None
815 16th Street, N.W. Trustee Commenced
Washington, D.C. April 1981.
20006 Term Expires
Age 73 2007
Tony Stanley Management Service Director, TransCon Builders, Inc. None
2221 Stonehave Road, Trustee Commenced
Port St. Lucie, FL December 1983.
34952 Term Expires
Age 73 2007
Frank Hurt Union Service President, Bakery, Confectionery & None
10401 Connecticut Trustee Commenced Tobacco Workers and Grain Millers
Avenue March 1993. International Union
Kensington, MD 10895 Term Expires
Age 68 2007
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR" THE REELECTION
OF THE NOMINATED CHAIRMAN AND CLASS III TRUSTEES.
- -------------
** Disclosure is limited to directorships in a corporation or trust having
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, or subject to the requirements of Section 15(d) of such Act,
or a company registered as an investment company under the Investment Company
Act of 1940, as amended.
12
INCUMBENT TRUSTEES
The following incumbent Trustees will continue in office in accordance
with the Trust's Declaration of Trust, and are expected to stand for reelection
at subsequent Annual Meetings of Participants.
Other
Term of Office Directorships
Position Held and Length of Principal Occupation/Business Held by
Name, Age, Address with Trust Time Served Experience During Past 5 Years Trustee**
- -----------------------------------------------------------------------------------------------------------------------
Linda Chavez-Thompson Union Service Executive Vice President, None
815 16th Street, NW Trustee Commenced AFL-CIO
Washington, DC May 1996.
20006 Term Expires
Age 62 2008
Richard Trumka Union Service Secretary-Treasurer, AFL-CIO None
815 16th Street, NW Trustee Commenced
Washington, DC December 1995.
20006 Term Expires
Age 57 2008
John J. Flynn Union Service President, International Union of None
1776 Eye Street, N.W. Trustee Commenced Bricklayers and Allied Craftsmen
Washington, D.C. 20006 May 2000. (BAC); formerly BAC Secretary-
Age 72 Term Expires Treasurer
2009
Jon F. Walters Union Service International Secretary-Treasurer, None
900 7th Street, N.W. Trustee Commenced International Brotherhood of
Washington, D.C. May 2005. Electrical Workers (IBEW);
20001 Term Expires formerly, International Vice
Age 65 2009 President of the Eighth District
IBEW
Edward C. Sullivan Union Service President, Building and None
815 16th Street, N.W. Trustee Commenced Construction Trades Department,
Suite 600 May 2000. AFL-CIO; formerly, General
Washington, D.C. Term Expires President, International Union of
20006 2009 Elevator Constructors
Age 63
James A. Williams Union Service General President, International None
1750 New York Avenue, NW Trustee Commenced Union of Painters and Allied Trades
Washington, DC June 2005. ("IUPAT"); General Secretary-
20006 Term Expires Treasurer, IUPAT
Age 56 2008
- -------------
** Disclosure is limited to directorships in a corporation or trust having
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, or subject to the requirements of Section 15(d) of such Act,
or a company registered as an investment company under the Investment Company
Act of 1940, as amended.
13
Other
Term of Office Directorships
Position Held and Length of Principal Occupation/Business Held by
Name, Age, Address with Trust Time Served Experience During Past 5 Years Trustee**
- -----------------------------------------------------------------------------------------------------------------------
George Latimer Management Service Distinguished Visiting Professor of None
1600 Grand Avenue Trustee Commenced Urban Land Studies, Macalester
St. Paul, MN 55105 May 1996. College; formerly, Director, Special
Age 72 Term Expires Actions Office, Department of
2008 Housing and Urban Development
Stephen Frank Management Service Retired; formerly Vice President None
8584 Via Avellino Trustee Commenced and Chief Financial Officer, The
Lake Worth, FL 33467 May 2003. Small Business Funding
Age 67 Term Expires Corporation
2009
Marlyn J. Spear, CFA Management Service Chief Investment Officer, Building None
500 Elm Grove Road Trustee Commenced Trades United Pension Trust Fund,
Elm Grove, WI 53122 March 1995. (Milwaukee and Vicinity)
Age 54 Term Expires
2009
Jack Quinn Management Service President, Cassidy & Associates; Kaiser
700 13th Street, NW Trustee Commenced Former Member, United States Aluminum
Suite 400 June 2005. House of Representatives
Washington, DC Term Expires
20005 2008
Age 56
EXECUTIVE OFFICERS
All executive officers of the Trust are located at 1717 K Street, N.W.,
Suite 707, Washington, D.C. 20036. The executive officers of the Trust are
elected annually by the Board of Trustees to one-year terms that begin on
January 1 and expire on December 31, or until their respective successors are
appointed and qualify. No executive officer of the Trust serves as a trustee or
director in any corporation or trust having securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of such Act, or any company registered as an
investment company under the Investment Company Act. The executive officers of
the Trust are as follows:
Name & Age Current Position w/ Trust Previous Principal Occupations over Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------
Stephen F. Coyle Chief Executive Officer Chief Executive Officer since 1992, AFL-CIO Housing
Age 61 Since 1992 Investment Trust
Helen R. Kanovsky Chief Operating Officer Executive Vice President - Finance and Administration
Age 56 since January 2002 from 1999-2001, AFL-CIO Housing Investment Trust
Erica Khatchadourian Chief Financial Officer Executive Vice President - Finance and Administration,
Age 39 since January 2004 from 2001-2003, Controller in 2001, and Chief of Staff
from 1997-2000, AFL-CIO Housing Investment Trust
14
Name & Age Current Position w/ Trust Previous Principal Occupations over Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------
Chang Suh Executive Vice Chief Portfolio Manager from 2003- 2004, Assistant
Age 36 President/Chief Portfolio Portfolio Manager from 2001-2003, Senior Portfolio
Manager since November 2004 Analyst from 1998-2001, AFL-CIO Housing Investment Trust
Mary C. Moynihan General Counsel since April Chief Counsel in 2004, Deputy General Counsel in 2003,
Age 48 2004 AFL-CIO Housing Investment Trust
Stephanie Wiggins Chief Investment Officer - Director, Fannie Mae Production from 2000-2001, AFL-CIO
Age 42 Multifamily Investments Housing Investment Trust; Director from 1998-2000,
since January 2002 Prudential Mortgage Capital Company
Harpreet Peleg Controller since 2005 Chief Financial Officer from 2003-2005, AFL-CIO
Age 33 Investment Trust Corporation; Supervisor - Gas
Settlements from 2001- 2003, PG&E National Energy Group;
Financial Analyst from 1999- 2001, Goldman Sachs
Christopher Kaiser Associate General Counsel Branch Chief, Division of Investment Management,
Age 42 since February 2007 and Securities and Exchange Commission, 2003-2007; Staff
Chief Compliance Officer Attorney, Division of Investment Management, 2001-2003.
since June 2007
ORGANIZATION OF BOARD OF TRUSTEES
Under the terms of the Declaration of Trust, the Board of Trustees of the
Trust has overall responsibility for the management and policies of the Trust.
The Board of Trustees maintains four committees: the Executive Committee, the
Nominating Committee, the Audit Committee and the Committee of the Whole.
The Executive Committee is currently composed of Chairman Ravitch, who
serves as Chairman of the Committee, Union Trustee Sweeney and Management
Trustee Stanley. The Executive Committee has all the authority of the Board of
Trustees when the Board is not in session and met four times during 2006.
No committee functions as a compensation committee as such. The Executive
Committee, however, may from time to time make recommendations to the Board of
Trustees concerning compensation payable to Trustees acting in their capacities
as Trustees, and compensation payable to executive officers. See "COMPENSATION
OF TRUSTEES AND EXECUTIVE OFFICERS."
Nominating Committee
The Nominating Committee is a separately chartered committee which was
formally constituted by the Board of Trustees on April 7, 2004. It is composed
of Messrs. Ravitch, Stanley and Sweeney, none of whom are interested persons, as
defined by Section 2(a)(19) of the Investment Company Act. The Nominating
Committee is responsible for the nomination of persons to serve as members of
the Board of Trustees. The Nominating Committee met once in 2006 and has met
once in 2007.
The Nominating Committee has a charter, a copy of which was filed as an
appendix to the May 18, 2005 Proxy Statement. Pursuant to Section (4) of its
charter, the Nominating Committee will consider Trustee candidates recommended
by Participants. The Nominating Committee has not adopted formal procedures to
be followed by Participants in submitting such recommendations. However, it is
the practice of the Board of Trustees, the majority of which are disinterested,
to set a record date by which Participants in the Trust may submit matters for
consideration by the Participants at the Annual Meeting, including
recommendations for Trustee candidates. Once received, the Nominating Committee
reviews the eligibility of each candidate in accordance with the criteria set
forth in the charter.
15
All candidates are evaluated in the same manner, regardless of the process
by which they were recommended. Pursuant to the Nominating Committee charter,
candidates are evaluated by the Committee in terms of relevant experience that
would enable the candidate to serve effectively as a Trustee, as well as
compatibility with respect to the Trust's mission. In addition, candidates are
evaluated based on their eligibility to serve under the Trust's Declaration of
Trust. When a viable candidate has been identified, the members of the Committee
may conduct in-person interviews of such candidate using a standardized
questionnaire. When all of the candidates recommended to the Committee have been
evaluated and, if applicable, interviewed, the Committee will determine which of
the viable candidates should be presented to the Board of Trustees of the Trust
for nomination to Participants to become a member of the Board of Trustees of
the Trust.
Audit Committee
The Audit Committee is a separately constituted committee within the
meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. It
monitors the accounting practices and performance of Trust management and the
Trust's independent registered public accounting firm. The Committee is composed
of Chairperson of the Committee, Marlyn Spear (designated Audit Committee
Financial Expert), Stephen Frank (designated Audit Committee Financial Expert),
Frank Hurt, Richard Trumka, George Latimer and Tony Stanley, none of whom are
interested persons, as defined by Section 2(a)(19) of the Investment Company
Act. The Audit Committee operates under a written charter adopted by the Board
of Trustees, a copy of which was filed as an appendix to the May 18, 2005 Proxy
Statement. Pursuant to its charter, the Audit Committee must meet annually with
the independent registered public accounting firm to review the audit outside
the presence of Trust management. The Audit Committee met two times in 2006 and
has met two times in 2007.
Committee of the Whole
The Committee of the Whole monitors the Trust's investment practices and
policies, reviews proposed changes thereto, considers new investment practices
and policies and oversees the marketing policies and strategies of the Trust.
This Committee is currently composed of all Trustees. It met one time in 2006
and has not met in 2007.
Board of Trustees
The Board of Trustees met four times during the Trust's fiscal year ended
December 31, 2006. Trustees Edward Sullivan, Frank Hurt, Richard Trumka, John
Flynn, Jon Walters, James Williams and George Latimer attended fewer than 75% of
the aggregate of (1) the total number of meetings of the Board of Trustees (held
during the period for which they were Trustees) and (2) the total number of
meetings held by all committees of the Board of Trustees on which they served
(during the periods that they served) during the 2006 fiscal year.
As the Trust's investors are made up primarily of eligible pension plans,
Participants have ready access to the Board of Trustees, both collectively and
individually. This may be accomplished by contacting, in the first instance, the
Trust's Chief Operating Officer. Participants may also contact Trustees directly
(several of whom sit on the Boards of Participants). In addition, since
historically the Trust's Board of Trustees has been comprised solely of
independent trustees and an independent Chairman, the Trust has no policy with
respect to Trustee attendance at the Annual Meeting. No Trustees and no
Participants attended the Trust's Annual Meeting in 2006.
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
During the fiscal year ended December 31, 2006, the Chairman received an
annual fee of $10,000. The Trust paid each Management Trustee who did not waive
such fee $500 per day for attendance at Board of Trustees meetings and committee
meetings. The Trust paid no fee to any Union Trustee. The aggregate compensation
paid to Trustees in the year ended December 31, 2006 was $22,500. The Trust
reimbursed all Management Trustees for out-of-pocket expenses incurred in
attending Board of Trustees and committee meetings.
16
2006 Compensation Table
The following table sets forth the aggregate compensation, including any
previously deferred compensation, paid during the 2006 fiscal year to each of
the three highest paid officers of the Trust and to all Trustees of the Trust.
As the Trust is a single, self-managed fund, its staff as of December 31, 2006
included 56 employees. Therefore, in addition to those individuals identified in
the table below, the Trust had 46 other employees who earned aggregate
compensation exceeding $60,000 during the 2006 fiscal year.
Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation From as Part of Trust Benefits Upon From Trust Paid to
Name of Person, Position Trust Expenses Retirement(1) Trustees
- --------------------------------------------------------------------------------------------------------
Stephen Coyle(2) $ 357,983 158,390 Cannot be Not applicable
Chief Executive Officer determined
Helen R. Kanovsky(3) 279,348 42,290 63,499 Not applicable
Chief Operating Officer
Chang Suh(4) 252,813 37,824 45,063 Not applicable
Chief Portfolio Manager
Richard Ravitch, 10,000 -- -- 10,000
Chairman
Linda Chavez-Thompson, -- -- -- --
Union Trustee
John J. Flynn, -- -- -- --
Union Trustee
Stephen Frank 4,500 -- -- 4,500
Management Trustee
- -------------
(1) The estimated annual benefits payable upon retirement to the executive
officers of the Trust, other than Mr. Coyle who does not participate in the
Retirement Plan, are determined primarily by a formula based on current average
final compensation and years of service. See "THE RETIREMENT PLAN" below.
(2) Aggregate Trust Compensation includes $20,000 of deferred compensation in
2006 under the 401(k) Plan, and excludes compensation deferred in lieu of
participation in the Retirement Plan and interest thereon. Pension or Retirement
Benefits as Part of Trust Expenses includes $3,300 of matching funds paid into
the 401(k) Plan and $155,090 of deferred compensation in lieu of participation
in the Retirement Plan. The total amount deferred by Mr. Coyle through December
31, 2006 in lieu of participation in the Retirement Plan, including interest, is
$1,278,060 and the total amount deferred under the 401(k) Plan through December
31, 2006, including interest and Trust matching, is $188,174.
(3) Aggregate Trust Compensation includes $20,000 of deferred compensation in
2006 under the 401(k) Plan, and excludes amounts contributed to the Retirement
Plan on Ms. Kanovsky's behalf. Pension or Retirement Benefits as Part of Trust
Expenses includes $3,300 of matching funds paid into the 401(k) Plan and $38,990
contributed to the Retirement Plan in 2006 on Ms. Kanovsky's behalf. The total
amount deferred by Ms. Kanovsky as of December 31, 2006 under the 401(k) Plan,
including interest and Trust matching, is $146,099.
(4) Aggregate Trust compensation includes $15,000 of deferred compensation in
2006 under the 401 (k) Plan, and excludes amounts contributed to the Retirement
Plan on Mr. Suh's behalf. Pension or Retirement Benefits as Part of Trust
Expenses includes $3,300 of matching funds paid into the 401(k) Plan and $34,524
contributed to the Retirement Plan in 2006 on Mr. Suh's behalf. The total amount
deferred by Mr. Suh as of December 31, 2006 under the 401(k) Plan, including
interest and Trust matching, is $121,283.
17
Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation From as Part of Trust Benefits Upon From Trust Paid to
Name of Person, Position Trust Expenses Retirement(1) Trustees
- --------------------------------------------------------------------------------------------------------
Frank Hurt,
Union Trustee -- -- -- --
Edward C. Sullivan,
Union Trustee -- -- -- --
John Sweeney,
Union Trustee -- -- -- --
Richard Trumka,
Union Trustee -- -- -- --
Jon Walters,
Union Trustee -- -- -- --
James Williams,
Union Trustee -- -- -- --
George Latimer,
Management Trustee 500 -- -- 500
Marlyn J. Spear,
Management Trustee 3,000 -- -- 3,000
Tony Stanley,
Management Trustee 3,500 -- -- 3,500
Jack Quinn,
Management Trustee 1,000 -- -- 1,000
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. Also prior to October 1,
1990, 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 (who by the terms of the Retirement Plan is ineligible),
effective as of October 1, 1990. Effective October 1, 1996, the Trust adopted
the AFL-CIO Housing Investment Trust 401(k) Plan described below for all of its
employees including its Chief Executive Officer.
THE RETIREMENT PLAN
Under the Retirement Plan, contributions are based on an eligible
employee's base salary. The Internal Revenue Service also imposes an annual
maximum on the amount that can be counted in determining base salary, which
amount is currently $220,000. In general, rates are determined actuarially every
year. The Retirement Plan was funded by employer contributions at rates of
approximately 17.21% of eligible employees' base salaries during the twelve
months ended December 31, 2006. During 2006, the annual base salaries for
pension purposes of Ms. Kanovsky and Mr. Suh were $217,580 and $192,655
respectively.
18
The Retirement Plan is open to employees of the AFL-CIO and other
participating employers that are approved by the Retirement Plan's board of
trustees and that make contributions to the Retirement Plan on their behalf.
Such employees become members of the Retirement Plan on their first day of
employment that they are scheduled to work at least 1,000 hours during the next
12 consecutive months.
The Retirement Plan provides a normal retirement pension to eligible
employees for life, beginning at age 65 if the employee has at least three years
of credited service, beginning at age 60 if the employee has at least 10 years
of credited service, or beginning at age 50 if the employee's age plus years of
credited service equals 80 or more. The amount of this pension depends on salary
and years of credited service at retirement. Eligible employees will receive
3.0% of the average of their highest three years' earnings, subject to the
Internal Revenue Service limit noted above ("Final Average Salary") for each
year of credited service up to 25 years, and 0.5% of their Final Average Salary
of each year of credited service over 25 years. Eligible employees must have at
least three 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.
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, Ms. Kanovsky has approximately 10 and Mr. Suh has
approximately 9 credited years of service under the Retirement Plan.
Years of Service
Final Average Salary(1) 15(1) 20(2) 25(2) 30(3) 35(3)
----------------------- ---------------------------------------------------------------------
$ 100,000 $ 45,000 $ 60,000 $ 75,000 $ 77,500 $ 80,000
150,000 67,500 90,000 112,500 116,250 120,000
220,000 99,000 132,000 165,000 170,500 176,000
THE 401(K) PLAN
Under the AFL-CIO Housing Investment Trust 401(k) Plan, an eligible
employee may designate to set aside up to 100% of his or her total compensation,
up to a maximum of $15,000 in 2006 (or up to $20,000 for eligible employees over
the age of 50). In 2007, the Trust is matching dollar-for-dollar the first
$3,300 contributed. The amount set aside by an eligible employee and the amount
of the Trust's matching contribution, if any, will be deposited in a trust
account in the employee's name. Every employee of the Trust is eligible to
participate in the 401(k) Plan provided such employee has reached the age of 21
and is not a nonresident alien. An eligible employee may enroll in the 401(k)
Plan every January 1st and July 1st of a given year.
When a participating employee terminates his or her employment, retires or
becomes disabled, the employee will be able to receive as a lump sum payment the
salary reduction amounts that were contributed to the trust account on the
employee's behalf, the additional amounts that the Trust contributed to the
trust account on the employee's behalf, plus income earned (or less losses
incurred) as a result of investment of these contributions (less the employee's
allocated share of expenses).
If the employee continues to work for the Trust, the employee cannot
withdraw these amounts unless the employee has a financial hardship. A financial
hardship is an immediate and heavy financial need for which the employee has no
other available resources, and includes medical expenses, the purchase of a
primary residence, the payment of tuition and related educational fees, funeral
expenses and the need to prevent eviction from, or foreclosure of the mortgage
of, the employee's primary residence. The employee will be required to present
evidence of the financial hardship and upon submission of such evidence may be
entitled to withdraw an amount, up to the balance in the employee's account, to
meet the immediate financial need.
- -------------
(1) 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 shown, depending on several factors, including but not limited to the
employee's years of service, level of compensation, and actual year of
retirement.
(2) 3.0% per year up to 25 years.
(3) 0.5% per year over 25 years.
19
The amount in an employee's account must be distributed to the employee in
one lump sum or in periodic installments beginning April 1st of the year
following the year in which the employee reaches age 70 1/2. Additionally, these
amounts must be distributed within a reasonable time following the termination
of the 401(k) Plan or the termination of the employee's employment. An employee
will be entitled to receive a distribution of the amounts in their account upon
the employee's attainment of age 65. A participating employee may borrow from
his or her account subject to certain prescribed limitations.
The following table sets forth the amounts paid or distributed pursuant to
the 401(k) Plan in 2006 to the executive officers listed in the Compensation
Table above, and the amounts deferred and paid as part of Trust expenses,
pursuant to the 401(k) Plan for the accounts of such individuals during 2006,
the distribution or unconditional vesting of which are not subject to future
events.
Amount
Deferred from
Trust
Amount Paid or Aggregate Employer
Name of Individual Distributed Compensation Matching
- ----------------------------------- -------------- -------------- --------
Stephen Coyle $ 0 20,000 3,300
Helen R. Kanovsky 0 20,000 3,300
Chang Suh 0 15,000 3,300
DESIGNATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL VII: TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Participants are requested to ratify the Board of Trustees' selection
of Ernst & Young, LLP as the independent registered public accounting firm for
the Trust for the fiscal year 2007. Representatives of Ernst & Young, LLP are
not expected to be present at the Meeting and thus will not have an opportunity
to make a statement or be available to respond to questions.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(1) Audit Fees
The aggregate fees billed for services provided to the Registrant by its
independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $232,000
for the fiscal year ended December 31, 2006.
The aggregate fees billed for services provided to the Registrant by its
independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $215,000
for the fiscal year ended December 31, 2005.
(2) Audit-Related Fees
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended December 31, 2006. The percentage of these fees relating to
services approved by the
20
Registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for services relating to the performance of the
audit of the financial statements of the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were $0 for
the Registrant's fiscal year ended December 31, 2006. The percentage of these
fees relating to services approved by the Registrant's Audit Committee pursuant
to the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended December 31, 2005. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended December 31, 2005. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
(3) Tax Fees
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $16,000 for the fiscal year
ended December 31, 2006. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were $0 for
the Registrant's fiscal year ended December 31, 2006. The percentage of these
fees relating to services approved by the Registrant's Audit Committee pursuant
to the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $13,000 for the fiscal year
ended December 31, 2005. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's adviser(s) and other service
providers under common control with the adviser(s) and that relate directly to
the operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended December 31, 2005. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
(4) All Other Fees
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $8,500 for the fiscal year ended December 31, 2006. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under
21
common control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended December 31, 2006. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $8,000 for the fiscal year ended December 31, 2005. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended December 31, 2005. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.The Trust's Audit Committee has not established
pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of
Regulation S-X.
In connection with its selection of the independent registered public
accounting firm, the Trust's Audit Committee has considered the independent
registered public accounting firm' provision of non-audit services to the
Trust's investment adviser and other service providers under common control with
the investment adviser that were not required to be pre-approved pursuant to
Rule 2-01(c)(7)(ii) of Regulation S-X. During the last two fiscal years, the
Trust's independent registered public accounting firm has not performed any
non-audit related services to such entities.
PRE-APPROVAL POLICIES AND PROCEDURES
It is the policy of the Audit Committee to pre-approve the engagement of
the Trust's independent registered public accounting firm and to pre-approve
each audit and non-audit related service. The engagement of Ernst & Young, LLP
was pre-approved by the Audit Committee for the fiscal years 2006 and 2005. In
addition, the Audit Committee pre-approved the provision of all non-audit
related services by Ernst & Young, LLP for the fiscal years 2006 and 2005 and
determined that such services and related fees were not incompatible with
maintaining the independence of Ernst & Young, LLP.
THE BOARD OF TRUSTEES RECOMMENDS THAT PARTICIPANTS VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS THE TRUST'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2007.
PROPOSALS FOR 2008 ANNUAL MEETING OF PARTICIPANTS
Participants who wish to make a proposal to be included in the Trust's
proxy statement and form of proxy for the Trust's 2008 Annual Meeting of
Participants (expected to be held in May 2008) must cause such proposal to be
received by the Trust at its principal office not later than December 15, 2007.
OTHER MATTERS
The Trust is internally managed and currently has no independent
investment adviser. Prior to May 30, 2007, Wellington Management Company LLP,
managed certain of the Trust's investments with a scheduled maturity not to
exceed 24 months. Wellington Management Company is a Massachusetts limited
liability partnership and a registered investment adviser. Its principal offices
are located at 75 State Street, Boston, Massachusetts 02109.
22
At the date of this Proxy Statement, the Trustees know of no other matters
that may come before the Meeting. If any other matter properly comes before the
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the Units represented by such Proxy in accordance with their best
judgment.
Participants who are unable to attend the Meeting in person are urged to
forward their Proxies without delay. A prompt response will be appreciated.
By Order of the Board of Trustees
STEPHEN COYLE
Chief Executive Officer
23
EXHIBIT A
[Proposed Amendments to Declaration of Trust]
AMERICAN FEDERATION OF LABOR
AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
HOUSING INVESTMENT TRUST
DECLARATION OF TRUST
(as amended and restated through ____, 2007)
DECLARATION OF TRUST made in Washington, D.C. by the original signatories
to this instrument (who, together with their successors in office, are
hereinafter called "Trustees").
WHEREAS, by Declaration of Trust made September 19, 1981, there was
created a trust (the "Trust") as a step in the organization of a new pooled
investment fund to be created under the auspices of the American Federation of
Labor -- Congress of Industrial Organizations ("AFL-CIO"); and
WHEREAS, the Trustees have amended the Declaration of Trust from time to
time to create an investment company by naming the Trust the "American
Federation of Labor and Congress of Industrial Organizations Housing Investment
Trust" and by restating the Declaration of Trust in its entirety as set forth
herein; and
WHEREAS, certain subscriptions to Units in the Trust hereby created have
been and will be received from the participants whose interests are hereinafter
described,
NOW, THEREFORE, the Trustees declare that they will hold all such
contributions that they have acquired or will acquire as Trustees, together with
the proceeds thereof, in trust, in the manner and subject to the provisions
hereof, for the benefit of any and all contributors to the corpus of the Trust
(hereinafter collectively called "Participants").
ARTICLE I
Purposes
Section 1.1. The purpose of this Trust shall be to earn a fair and secure
rate of return for its Participants by investing the pooled contributions of all
Participants. All buildings, structures and other improvements that are to be
built or rehabilitated on mortgaged real estate or exchanged for such Trust
investments must be built or rehabilitated by union labor except as otherwise
expressly provided in Section 3.3.
ARTICLE II
Name and Trustees
Section 2.1. The Trust shall be named "The American Federation of Labor
and Congress of Industrial Organizations Housing Investment Trust". The Trustees
shall manage the Trust property, execute all instruments in writing, and do all
other things relating to the Trust. Every duly authorized instrument executed in
the name of the Trust shall have the same effect as if executed in the name of
the Trustees.
- 1 -
Section 2.2. There shall be up to twenty-five voting Trustees and such
non-voting members of the Board of Trustees as provided by Section 2.10 hereof.
Section 2.3. (a) Up to twelve of the Trustees (hereinafter the "Union
Trustees") shall be officers or employees of the AFL-CIO or an AFL-CIO member
union; (b) up to twelve of the Trustees (hereinafter the "Management Trustees")
shall be (i) officers or management employees of one or more organizations
contributing directly or indirectly through contractors to an Eligible Pension
Plan as defined in Section 5.2 hereof, or officers or management employees of
such an Eligible Pension Plan, or (ii) with respect to the Management Trustees,
an officer, director, or trustee of an organization connected in whole or in
part with the housing, finance, or real estate development industries, or a
current or former elected or appointed official of the federal or any state or
local government or an agency or instrumentality thereof; and (c) one Trustee
(hereinafter the "Chairman") shall be an individual who is neither an officer,
trustee, or employee of any organization that is a Participant in the Trust. The
number of Management Trustees shall not exceed the number of Union Trustees
except as the result of a vacancy during an unexpired term caused by death or
resignation.
Section 2.4. The Union and Management Trustees shall be divided into up to
three classes ("Classes") in respect to term of office, provided that no new
Class shall be established if any existing Class has less than five Trustees. No
Class shall have more than eight Trustees. Each Class shall have, insofar as the
population of Trustees permits, an equal number of Union and Management Trustees
and, upon the appointment of one or more new Trustees, the Trustees shall alter
Class assignments as required to comply with the provisions of this sentence.
The term of the first Class of Trustees shall expire at the first annual meeting
of Participants, the term of the second Class shall expire at the second annual
meeting of Participants, and the term of the third Class shall expire at the
third annual meeting of Participants. After the expiration of the initial terms
as set forth above, the term of each Class of Trustee shall expire at the third
annual meeting following its election. At each annual meeting, the Participants
shall elect a Chairman to serve until the next annual meeting and such number of
Trustees as necessary to fill vacancies in the Class of Trustees whose terms
expire as of such meeting. Each Trustee shall serve until his successor shall be
elected and shall qualify.
Section 2.5. A Trustee shall be an individual at least twenty-one years of
age who is not under legal disability and who shall have in writing accepted his
or her appointment and agreed to be bound by the terms of this Declaration of
Trust. The Trustees, in their capacity as Trustees, shall not be required to
devote their entire time to the business and affairs of the Trust.
Section 2.6. All Trustees shall serve their full terms unless they resign
or die. Any Trustee can resign at any time by giving written notice to the other
Trustees, to take effect upon receipt of the notice or such later date as the
notice specifies.
Section 2.7. Upon the death or resignation of any Union Trustee, the
remaining Union Trustees shall appoint by a majority vote a replacement to serve
out the remainder of the term (with the Chairman, if any, voting only in case of
a tie). Upon the death or resignation of any Management Trustee, the remaining
Management Trustees shall appoint by majority vote a replacement to serve out
the remainder of the term (with the Chairman, if any, voting only in case of a
tie). Upon the death or resignation of the Chairman, the Union and Management
Trustees together shall appoint by majority vote a replacement to serve out the
remainder of the term.
Section 2.8. The death or resignation of one or more Trustees shall not
annul the Trust or revoke any existing agency created pursuant to the terms of
this Declaration of Trust. Whenever a Trustee's position becomes vacant because
of the Trustee's death or resignation the other Trustees shall have all of the
powers specified in this Declaration of Trust until such vacancy is filled.
Section 2.9. The Chairman, Management Trustees and non-voting members may
be compensated for their services as provided by the Board of Trustees. No Union
Trustee shall receive any compensation or fee for his services as Trustee.
Trustees and non-voting members shall be reimbursed for expenses of attending
meetings of the Board of Trustees and committees thereof.
- 2 -
Section 2.10. The Chief Executive Officer, upon his or her retirement or
resignation, may be appointed by the Executive Committee, subject to approval by
the Board of Trustees, as a non-voting member of the Board of Trustees, with the
right to attend meetings and participate in discussions, for an initial term not
to exceed five years.
ARTICLE III
Powers
Section 3.1. The Trustees shall have power to do all things proper or
desirable in order to carry out, promote, or advance the purpose of the Trust
even though such things are not specifically mentioned in this Declaration of
Trust. Any determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive.
Section 3.2. The Trustees shall have without further authorization,
full, exclusive, and absolute power, control, and authority over the Trust
property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust property and business in their own
right, subject to such delegation as may be permitted in this Declaration of
Trust. The enumeration of any specific powers or authority herein shall not be
construed as limiting the aforesaid powers or authority or any specific power or
authority. In construing the provisions of this Declaration of Trust the
presumption shall be in favor of a grant of power to the Trustees. Subject to
any applicable limitation in this Declaration of Trust, the Trustees shall have
power and authority:
(a) To employ suitable counsel.
(b) To employ banks or trust companies to act as
depositories or agents.
(c) To engage in and to prosecute, compound, compromise,
abandon, or adjust by arbitration or otherwise any
actions, suits, proceedings, disputes, claims, or
demands relating to the Trust property to pay any debts,
claims, or expenses incurred in connection therewith,
including those of litigation, upon any evidence that
the Trustees may deem sufficient (these powers to apply
whether or not the Trust is named as a party or any of
the Trustees are named individually).
(d) To form corporations, partnerships, or trusts upon such
terms and conditions as the Trustees deem advisable.
(e) To purchase, sell, and hold legal title to any
securities or other property including Certificates of
Interest in the Trust upon such terms and conditions as
the Trustees deem advisable.
(f) To purchase, lease, or rent suitable offices for the
transaction of the business of the Trust.
(g) To appoint, employ, or contract with any person or
persons as the Trustees deem necessary or desirable for
the transaction of the business of the Trust, including
any person who, under the supervision of the Trustees
and consistent with the Trustees' ultimate
responsibility to supervise the affairs of the Trust,
may, among other things:
(i) Administer the day-to-day operations of the Trust;
(ii) Serve as the Trust's adviser and consultant in
connection with policy decisions made by the
Trustees;
(iii) Furnish reports to the Trustees and provide
research, economic, and statistical data to the
Trustees; and
(iv) Act as accountants, correspondents, technical
advisers, attorneys, brokers, underwriters,
fiduciaries, escrow agents, depositories, insurers
or insurance
- 3 -
agents, transfer agents, or registrars for Units,
or in any other capacity deemed necessary or
desirable by the Trustees.
(h) To purchase, maintain and pay for entirely out of Trust
property insurance policies insuring any person who is
or was a Trustee, officer, employee, or agent of the
Trust or who is or was serving at the request of the
Trust as a director, officer, employee or agent of
another person individually against any claim or
liability of any nature asserted against him or incurred
by him in any such capacity, or arising out of his
status as such, whether or not the Trust would otherwise
have the power to indemnify such person against such
liability.
(i) To execute and deliver as Trustees hereunder any and all
deeds, leases, mortgages, conveyances, contracts,
waivers, releases, and other instruments in writing
necessary or proper for the accomplishment of the
purposes of the Trust.
(j) To pay out of the funds of the Trust property any and
all taxes or liens imposed upon or against the Trust
property or any part thereof, or imposed upon any of the
Trustees herein, individually or jointly, by reason of
the Trust property, or of the business conducted by the
Trustees under the terms of this Declaration of Trust.
(k) To issue, purchase, or sell Units in the Trust either
for cash or for property whenever and in such amounts as
the Trustees deem desirable, but subject to the
limitations specified below.
(l) To make distributions of net income to Participants, in
the manner specified below.
(m) To determine whether money or other assets received by
the Trust shall be charged to income or capital or
allocated between income and capital.
(n) To determine conclusively the value of any of the Trust
property and of any services, securities, assets, or
other consideration hereafter acquired by the Trust, and
to revalue Trust property.
(o) To engage in activities that are designed to generate
potential investments in which the Trust is authorized
to invest under this Declaration of Trust, including but
not limited to activities that also (x) generate fees
for the Trust or (y) benefit unions and/or union
members, such as facilitating or promoting (i) housing
construction utilizing union labor, (ii) construction of
housing for union members or their families or (iii) the
availability of mortgage loans for union members.
(p) To make, adopt, amend, and repeal such by-laws (not
inconsistent with the terms of this Declaration of
Trust) as the Trustees deem necessary or desirable for
the management of the Trust and for the government of
themselves, their officers, agents, employees, and
representatives.
(q) To establish separate and distinct Series with
separately defined investment objectives and policies
and distinct investment purposes in accordance with the
provisions of Article V and to establish Classes of such
Series, each such Series and Class with such rights,
preferences, limitations, restrictions and other
relative terms as shall be determined by the Trustees
from time to time, consistent with applicable laws.
(r) To allocate assets, liabilities and expenses of the
Trust to a particular Series or Class, as appropriate,
or to apportion the same between or among two or more
Series or Classes, as appropriate, provided that any
liabilities or expenses incurred by a particular Series
or Class shall be payable solely out of the assets
belonging to that Series as provided in Article V.
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(s) To interpret the investment policies, practices or
limitations of any Series.
Section 3.3. In respect of the investment of the assets belonging to
Series A (as designated by the Trustees) , the Trustees shall have each of the
following specific powers and authority in the administration of the Trust, to
be executed in their sole discretion in accordance with the Investment Company
Act of 1940, as amended ("Investment Company Act"):
(a) To invest in construction and/or long-term mortgage
loans or mortgage-backed securities that are guaranteed
or insured by the federal government or an agency
thereof or interests in such mortgage loans or
securities.
(b) To invest in securities that are secured by securities
and/or mortgage loans of the type described in paragraph
(a) above and that are rated in one of the two highest
rating categories by at least one nationally recognized
statistical rating agency.
(c) To invest in (i) obligations issued or guaranteed by
Fannie Mae or Freddie Mac, or (ii) securities that are
backed by Fannie Mae or Freddie Mac and are, at the time
of their acquisition by the Trust, rated in one of the
two highest rating categories by at least one nationally
recognized statistical rating agency or (iii) securities
that are secured by single family or multifamily
mortgage securities and/or single family or multifamily
mortgage loans and that are rated at the highest rating
by Standard & Poors ("S&P"), Moody's Investor Services
("Moody's"), Fitch Investors Services Inc. ("Fitch"), or
a comparable nationally recognized statistical rating
agency.
(d) To invest up to 30 percent of the value of all of the
Trust's assets in any of the following:
(i) Construction and/or permanent loans, or securities
backed by construction and/or permanent loans, or
interests in such loans or securities, provided
that:
(A) such loans or securities are supported by a
full faith and credit guaranty of a state or
local government or agency or
instrumentality thereof that has general
taxing authority; or
(B) such loans or securities are issued (with or
without recourse) or guaranteed, as the case
may be, by a state or local housing finance
agency designated "top tier" by S&P (or
designated comparably by another nationally
recognized statistical rating agency, as
determined by the Executive Committee of the
Trust) at the time of acquisition by the
Trust; and are (i) with full recourse
(directly or by way of guaranty or
indemnity) to such agency's general credit
and assets, or (ii) secured by recourse to
such assets of the agency or by such third
party credit enhancement as to provide, in
the judgment of management, protection
comparable to a pledge of the agency's
general credit, or (iii) backed by the
"moral obligation" of the state in which
such agency is located in the form of the
state's commitment to replenish any
insufficiencies in the funds pledged to debt
service on the obligations; or
(C) such loans or securities are supported by a
guaranty of at least the first 75 percent of
the principal amount of such loans or
securities under a state insurance or
guarantee program by a state-related agency
with a record of creditworthiness as
evidenced by a rating of the agency or the
obligations issued or guaranteed by such
agency of at least "A-" by S&P, Fitch
Investors Services Inc. ("Fitch") or Duff &
Phelps Inc. ("Duff & Phelps") or at least
"A3" by Moody's at the time of their
acquisition by the Trust; or
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(D) such loans or securities are issued or
guaranteed, as the case may be, by a state
or local housing finance agency with a
general obligation rating of "A" or better
by S&P (or a comparable rating by another
nationally recognized statistical rating
agency, as determined by the Executive
Committee of the Trust) at the time of
acquisition by the Trust; and are (i) with
full recourse (directly or by way of
guaranty or indemnity) to such agency's
general credit and assets or (ii) backed by
the "moral obligation" of the state in which
such agency is located, in the form of the
state's commitment to replenish any
insufficiencies in the funds pledged to debt
service on the obligations or similar
commitment; or
(E) such loans are made by a state or local
government or an agency or instrumentality
thereof, including a state or municipal
housing finance agency, and such loans or
the securities backed by such loans are
fully collateralized or secured in a manner
satisfactory to the Trust by:
(I) cash placed in trust or in escrow by a
state or local government or agency or
instrumentality thereof with an
independent third party satisfactory
to the Trust on terms and conditions
satisfactory to the Trust; or
(II) a letter of credit, insurance or other
guaranty from an entity satisfactory
to the Trust which has a rating (at
the time of the Trust's acquisition of
the related loan, securities or
interests in such loans or securities)
which is at least "A" or better from
S&P (or a comparable rating by another
nationally recognized statistical
rating agency, as determined by the
Executive Committee of the Trust); or
(F) such loans are made by any lender acceptable
to the Trust and such loans or the
securities backed by such loans are fully
collateralized or secured in a manner
satisfactory to the Trust by:
(I) cash placed in trust or in escrow by a
state or local government or agency or
instrumentality thereof with an
independent third party satisfactory
to the Trust on terms and conditions
satisfactory to the Trust; or
(II) a letter of credit, insurance or other
guaranty from an entity satisfactory
to the Trust which has a rating (at
the time of the Trust's acquisition of
the related loan, securities or
interests in such loans or securities)
which is at least "A" or better from
S&P (or a comparable rating by another
nationally recognized statistical
rating agency, as determined by the
Executive Committee of the Trust).
(ii) Construction and/or permanent loans, or securities
backed by construction and/or permanent loans or
interests in such loans or securities, that have
evidence of support by a state or local government
or an agency or instrumentality thereof, provided
that the total principal amount of investments
made under this section and under section
3(d)(iii) hereof that are outstanding from time to
time shall not exceed 4 percent of the value of
all of the Trust's assets and all of the following
criteria are satisfied:
(A) the loan-to-value ratio of the project shall
not exceed 60 percent, the "value" for such
purposes to be determined on the basis of an
independent appraisal by a licensed
appraiser acceptable to the Trust,
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except that (1) a loan-to-value ratio of up
to 80 percent shall be permitted if (x)
mortgage insurance in an amount which will
cover all losses down to a 60 percent
loan-to-value level has been provided by a
mortgage insurance provider rated at least
"A" or better by S&P (or a comparable rating
by another nationally recognized statistical
rating agency, as determined by the
Executive Committee of the Trust); or (y)
another form of guaranty or credit support
of the Trust's investment which will cover
all losses down to a 60 percent
loan-to-value level and which is provided by
a guarantor rated "A" or better by S&P (or a
comparable rating by another nationally
recognized statistical rating agency, as
determined by the Executive Committee of the
Trust) at the time of acquisition by the
Trust; or (z) the project receives the
benefits of Low Income Housing Tax Credits
pursuant to Section 42 of the Internal
Revenue Code of 1986, as amended, in
accordance with the standards adopted by the
Executive Committee;
(B) the state or local government or agency or
instrumentality thereof or a foundation
exempt from federal income tax under Section
501(c) of the Internal Revenue Code of 1986,
as amended, must make or facilitate a
financial contribution in the project within
guidelines adopted by the Executive
Committee of the Trust, such financial
contribution to be in the form of
subordinate financing, an interest rate
write-down, a donation of land, an award of
tax credits, grants or other financial
subsidy, a form of insurance or guarantee or
some other similar contribution all within
guidelines adopted by the Executive
Committee of the Trust;
(C) the development and ownership team of the
project must have a demonstrably successful
record of developing or managing low-income
housing projects, in accordance with
guidelines to be developed by the Trust;
(D) the underwriter and servicer of the mortgage
loan for the project must have been approved
by the Trust; and
(E) the minimum debt service coverage for the
project must be at least 1.15, based upon
projections of future income and expenses
satisfactory to the Trust.
(iii) Construction and/or permanent loans, or securities
backed by construction and/or permanent loans or
interests in such loans or securities, for the
financing of market rate projects, provided that
the total principal amount of investments made
under this section and under section 3(d)(ii) that
are outstanding from time to time shall not exceed
4 percent of the value of all of the Trust's
assets and all of the following criteria are
satisfied:
(A) the loan-to-value ratio of the project shall
not exceed 60 percent, the "value" for such
purposes to be determined on the basis of an
independent appraisal by a licensed
appraiser acceptable to the Trust, except
that a loan-to-value ratio of up to 80
percent shall be permitted if (1) mortgage
insurance in an amount which will cover all
losses down to a 60 percent loan-to-value
level has been provided by a mortgage
insurance provider rated at least "A" or
better by S&P (or a comparable rating by
another nationally recognized statistical
rating agency, as determined by the
Executive Committee of the Trust); or (2)
another form of guaranty or credit support
of the Trust's investment which will
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cover all losses down to a 60 percent
loan-to-value level and which is provided by
a guarantor rated "A" or better by S&P (or a
comparable rating by another nationally
recognized statistical rating agency, as
determined by the Executive Committee of the
Trust) at the time of acquisition by the
Trust; and
(B) the development and ownership team of the
project must have a demonstrably successful
record of developing market rate housing
projects, in accordance with guidelines to
be developed by the Trust; and
(C) the underwriter and servicer of the mortgage
loan for the project must have been approved
by the Trust; and
(D) the minimum debt service coverage for the
project must be at least 1.25, based upon
projections of future income and expenses
satisfactory to the Trust.
(iv) Bridge loans or interests in bridge loans made to
(i) the owners of single family or multifamily
housing developments which are eligible to receive
and have allocations or other rights to receive
Low Income Housing Tax Credits under Section 42 of
the Internal Revenue Code of 1986, as amended,
and/or (ii) the owners of single family or
multifamily housing developments which are
eligible to receive and have allocations or other
rights to receive Federal Rehabilitation Tax
Credits under Section 47 of the Internal Revenue
Code of 1986, as amended; provided that all of the
following criteria are satisfied:
(A) at the time of the Trust's acquisition of
such investment, such investment must be:
(I) are issued or guaranteed by a state or
local housing finance agency
designated "top tier" by S&P (or
designated comparably by another
nationally recognized statistical
rating agency, as determined by the
Executive Committee of the Trust) with
full recourse to the assets and credit
of such agency (or in lieu of such
full recourse, secured by such third
party credit enhancement as to
provide, in the judgment of
management, security comparable to
full recourse to the assets and credit
of such agency); or
(II) issued (with recourse) or guaranteed
by a state or local agency which has a
long term credit rating of "A" or
better by S&P (or a comparable rating
by another nationally recognized
rating agency approved by the
Executive Committee of the Trust) for
a bridge loan with a term of longer
than 12 months and a short-term rating
of A-1 or better by S&P (or a
comparable rating by another
nationally recognized rating agency
approved by the Executive Committee of
the Trust) for a bridge loan with a
term of less than 12 months;
(III) issued (with recourse) or guaranteed
by FHA, GNMA, Fannie Mae, Freddie Mac
or another entity with a credit rating
of "AA" or better by S&P (or a
comparable rating by another
nationally recognized rating agency
approved by the Executive Committee of
the Trust) or fully collateralized by
obligations issued (with recourse) or
guaranteed by FHA, GNMA, Fannie Mae or
Freddie Mac or another entity with a
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credit rating of "AA" or better by S&P
(or a comparable rating by another
nationally recognized rating agency
approved by the Executive Committee of
the Trust); or
(IV) fully collateralized by a letter of
credit or other guaranty by a bank or
other financial entity with a credit
rating of "AA" or better by S&P (or a
comparable rating by another
nationally recognized rating agency
approved by the Executive Committee of
the Trust) or a bank rated in category
"B" or higher by Thomson Bankwatch;
(B) at the time of the Trust's acquisition of
such investment, the Trust is committed to
invest in the construction and/or permanent
loan for the related development, unless the
permanent loan for the development is
anticipated to have an original principal
balance which is less than $1 million or is
anticipated to be financed primarily on a
tax-exempt basis; and
(C) not more than 5% of the Trust's assets may
at any time be invested in bridge loans (or
interests in bridge loans) acquired pursuant
to this Section 3.3(d)(iv),
(e) To invest in mortgage loans, or securities or
obligations backed by mortgage loans, described in
paragraph (a) or paragraph (c) of this Section 3.3 that
include provisions:
(i) Requiring the borrower to pay, in addition to all
payments of principal and base interest insured or
guaranteed by the federal government, an agency
thereof, or by Fannie Mae or Freddie Mac,
additional interest based on net or gross cash
flow and/or net or gross proceeds upon the sale,
refinancing or disposition of the mortgaged real
estate properties which is not guaranteed or
insured, or
(ii) Requiring the borrower to pay the principal
balance of the mortgage loan in full prior to its
scheduled maturity.
In negotiating investments with participating features
or rights to demand early repayment, the Trust may
accept a base interest rate of up to 2 percent per annum
lower than the rate which it would otherwise be willing
to receive in the absence of such features.
(f) To invest in construction and/or permanent loans, or
securities or obligations backed by construction and/or
permanent loans which are supported, either concurrently
or sequentially, by any combination of two or more of
the types of credit enhancement described in paragraphs
(a) through (d) of this section, as long as all of the
principal component of such loans or securities or
obligations backed by such loans are fully
collateralized by one or more of the different types of
the credit enhancement described in paragraphs (a)
through (d) of this section; provided, however, that the
principal portion of any investment made pursuant to
this paragraph which is secured by one of the types of
credit enhancement described in paragraph (d) of this
section shall be subject to the 30 percent limitation
set forth in paragraph (d) of this section.
(g) If necessary or desirable to facilitate any investment
by the Trust permitted under paragraphs (a) through (f)
of this section, to deposit the purchase price for the
loan, securities, interests in loans or other
obligations to be acquired by the Trust in an escrow
account which is structured and secured in a manner
acceptable to the Trust and consistent with the
provisions of the Investment Company Act of 1940, as
amended, until the purchase price is disbursed, either
in a lump sum or over time, to fund the Trust's purchase
of such investment, provided that (i) all monies in such
escrow must be
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invested, as fully and as continuously as practical, in
instruments in which the Trust is permitted to invest
under paragraph (m) of this section or (ii) all monies
in such escrow must be secured or supported by one or
more of the different types of credit enhancement
described in paragraphs (a) through (d) of this section.
(h) To invest up to 15 percent of the value of all of the
Trust's assets in any of the following instruments:
(i) United States Treasury issues;
(ii) Obligations which are either (a)
issued or guaranteed by Fannie
Mae, Freddie Mac or the Federal
Home Loan Banks or (b) backed by
Fannie Mae, Freddie Mac or the
Federal Home Loan Banks and, at
the time of their acquisition by
the Trust, rated in one of the
two highest rating categories by
at least one nationally
recognized statistical rating
agency; and
(iii) Commercial mortgage backed
securities ("CMBS") that at the
time of their acquisition by the
Trust are rated in the highest
rating category by at least one
nationally recognized
statistical rating agency,
subject to a limit of 10 percent
of the value of all of the
Trust's assets.
(i) To sell any asset held by the Trust.
(j) To renew or extend (or to participate in the renewal or
extension of) any mortgage construction loan.
(k) To engage in borrowing, provided that the Trust may not
(i) issue senior securities, except as permitted by (A)
the Investment Company Act and the rules and regulations
thereunder, or interpretations or modifications by the
SEC, SEC staff or other authority with appropriate
jurisdiction, or (B) exemptive or other relief from the
SEC, SEC staff, or other authority; and (ii) borrow
money, except as permitted by (X) the Investment Company
Act and the rules and regulations thereunder, or
interpretations or modifications by the SEC, SEC staff
or other authority with appropriate jurisdiction, or (Y)
exemptive or other relief from the SEC, SEC staff, or
other authority, provided that not more than 50% of the
HIT's assets will be used as security for such
borrowings.
(l) To manage, administer, operate, lease for any number of
years, or sell any real estate acquired by reason of
foreclosure by the Trust and to hold such property in
the name of the Trust or its nominees.
(m) To take title to real estate in lieu of its foreclosure
sale.
(n) To invest money held pending investment in mortgages or
construction loans in any of the following instruments:
(i) United States Treasury issues;
(ii) Federal agency issues;
- 10 -
(iii) Commercial bank time certificates of deposit of
banks whose accounts are insured by the Federal
Deposit Insurance Corporation through its Bank
Insurance Fund ("BIF");
(iv) Savings bank deposits (insured by the Federal
Deposit Insurance Corporation through BIF);
(v) Savings and loan association deposits (insured
by the Federal Deposit Insurance Corporation
through its Savings Association Insurance Fund);
(vi) Bankers acceptances;
(vii) Commercial paper rated as category A-1 or P-1 by
S&P or Moody's;
(viii) Collateral loans (including warehousing
agreements) secured by Federal Housing
Administration or Veterans Administration
guaranteed single-family or multi-family
mortgages;
(ix) Interests (including repurchase agreements) in
U.S. Government securities pledged by a bank or
other borrower to secure short-term loans from
the Trust; and
(x) Securities issued by an investment company
registered under the Investment Company Act that
invests predominantly in United States Treasury
issues or Federal agency issues.
(o) In connection with any investment in tax-exempt bonds
otherwise permitted by any paragraph of this Article
III, to enter into total return swap contracts with
counterparties that are rated in one of the two highest
rating categories by at least two nationally recognized
statistical rating agencies, provided that the total
notional value of the tax-exempt bonds involved in such
contracts that are outstanding from time to time shall
not exceed ten percent (10%) of the value of all of the
Trust's assets.
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(p) To issue new Units of the Trust in exchange for assets
of the AFL-CIO Mortgage Investment Trust ("Mortgage
Trust") on the basis of relative net asset values,
provided that: the Board of Trustees of the Trust
(including a majority of the Trustees who are not
interested persons of either the Trust or the Mortgage
Trust) find that the exchange is in the best interests
of the Trust and that the
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interests of existing Participants in the Trust will not
be diluted as a result of its effecting the
transactions; and provided further that the United
States Securities and Exchange Commission ("SEC") issues
an Order of Exemption under Section 17 of the Investment
Company Act, having found that: (1) the terms of the
proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not
involve overreaching on the part of any person
concerned; (2) the proposed transaction is consistent
with the policy of the Trust and the Mortgage Trust as
recited in their registration statements and reports
filed with the SEC under the Investment Company Act; and
(3) the proposed transaction is consistent with the
general purposes of the Investment Company Act.
ARTICLE IV
Operations
Section 4.1. The principal office of the Trust shall be in Washington,
D.C., unless changed to another location by a majority vote of the Trustees. The
Trust may have such other office or places of business as the Trustees determine
necessary or expedient.
Section 4.2. The Chairman shall be the chairman of the Board of Trustees.
The Trustees may select from among themselves an Executive Committee (chaired by
the Chairman) to whom the Trustees may delegate appropriate power to carry on
the business of the Trust. The Trustees may elect or appoint, from among their
number or otherwise, or may authorize the Chairman to appoint, such other
officers or agents to perform functions on behalf of the Trustees as the
Trustees or Chairman deemed advisable.
Section 4.3. The Trustees shall meet at the Chairman's request or as
specified in rules and regulations of the Trustees, but in no event less than
once each year. Action by the Trustees may also be taken by them in writing. A
quorum for doing business shall be a majority of the Trustees entitled to vote,
but never less than three.
Section 4.4. The Trustees may authorize one or more of their number to
sign, execute, acknowledge, and deliver any note, deed, certificate, or other
instrument in the name of, and in behalf of, the Trust, and upon such
authorization such signature, acknowledgment, or delivery shall have full force
and effect as the act of all of the Trustees. The receipt of the Trustees, or
any of them, or any of the officers or agents thereunto authorized, for money or
property paid or delivered to them, or any of them, shall be an effectual
discharge therefor to the person paying or delivering such money or property.
Section 4.5. This Declaration of Trust may be amended or altered by a
majority of the Trustees at any time. The Trust, or any Series or Class thereof,
may be terminated at any time by the Trustees after notice in writing to all
Participants of the Trust or such Series or Class thereof (as applicable). Upon
such termination, the Trust or any Series or Class thereof shall carry on no
business except for the purpose of winding up its affairs, the Trustees shall
retain all powers given to them under this Declaration of Trust with respect to
the Trust, such Series or Class until the Trust or such Series or Class (as
applicable) shall have been wound up, and, after paying or adequately providing
for the payment of all liabilities, the Trustees shall distribute the remaining
Trust property or Trust property allocated or belonging to such Series or Class
to the Participants in the Trust or of the Series or Class (as applicable)
according to their respective rights.
Section 4.6. A majority of the Trustees may: (a) select or direct the
organization of a corporation, association, trust, or other organization to take
over the Trust property and carry on the affairs of the Trust; (b) sell, convey,
and transfer the Trust property to any such organization in exchange for shares,
securities, or beneficial interests therein, and the assumption by such
transferee of the liabilities of the Trust; and (c) thereupon terminate the
Trust and deliver such shares, securities, or beneficial interest
proportionately among the Participants in redemption of their Units.
Section 4.7. No Trustee shall be liable for having acted in good faith in
any transaction connected with the Trust or the administration of the Trust. The
Trustees shall be held harmless in acting upon any instrument,
- 13 -
certificate, or paper that they believe to be genuine and to be signed or
presented by the proper person or persons. The Trustees shall have no duty to
make any investigation or inquiry concerning any statement contained in any such
writing. No recourse shall be had at any time upon any note, bond, contract,
instrument, certificate, undertaking, obligation, covenant, or agreement
(whether oral or written) made, issued, or executed by the Trustees in pursuance
of the terms of this Declaration of Trust, or by any officer or agent of the
Trustees, against the Trustees or such officer or agent individually by legal or
equitable proceeding, except only to compel the proper application or
distribution of the Trust property, provided that no Trustee shall be excused
from liability for willful malfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office ("disabling
conduct"). The Trustees shall not be liable for the proper application of any
part of the Trust property, provided that distributions are made in accordance
with directions provided in this Declaration of Trust. Nothing contained in this
Declaration of Trust shall be construed as giving power to the Trustees to
contract any debt or to do anything that will bind any Participant personally.
Any person, firm, corporation, or association dealing with the Trustees shall be
limited to satisfying any obligation, liability, or covenant with the Trustees
only out of the Trust property, and not out of the personal property of any
Participant.
Section 4.8. The Trust shall indemnify each Trustee and officer and each
former Trustee and officer of the Trust against fines, judgments, amounts paid
in settlement and expenses, including attorneys' fees, actually and reasonably
incurred in connection with any pending or threatened criminal action, civil
suit or administrative or investigative proceeding (any "matter") against him or
her arising by reason of the fact that he or she is or was a trustee or officer
of the Trust, or by reason of actions taken by him or her as such Trustee or
officer, if it is found that his or her liability does not result from disabling
conduct. The finding that liability does not arise from disabling conduct may be
made in a final decision by a court or other body before which the matter giving
rise to the expense or liability was brought or, in the absence of such a
decision, by (a) the vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the
Investment Company Act nor parties to such matter ("disinterested non-party
Trustees") or (b) an independent legal counsel in a written opinion. Expenses of
the kind eligible for indemnification may be paid as incurred by a trustee or
officer in advance of final disposition of a matter upon receipt of an
undertaking by the recipient to repay such amount unless it is ultimately
determined that he is entitled to indemnification hereunder if (a) the
indemnitee provides security for his or her undertaking, (b) the Trust is
insured for losses arising by reason of any lawful advances or (c) a majority of
a quorum of disinterested non-party Trustees or independent legal counsel (in a
written opinion) determines, based on a review of readily available facts, that
there is reason to believe that the indemnitee ultimately will be found entitled
to indemnification. This Section is intended to provide indemnification to
Trustees and officers to the full extent permitted by law and shall be construed
and enforced to that extent.
Section 4.9. The Trustees and any employee or agent of the Trustees
(except a bank or trust company) who handles funds or other property of the
Trust shall be bonded for the faithful discharge of his or her duties in such
amount and as otherwise required by applicable law. The expenses of such bond
shall be paid by the Trust.
Section 4.10. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees, or be liable for the application of money or property paid,
loaned, or delivered. Every note, bond, contract, instrument, certificate, or
undertaking, and every other act or thing executed or done by any Trustee in
connection with the Trust, shall be conclusively taken to have been executed or
done only in his or her capacity as Trustee, and such Trustee shall not be
personally liable thereon. Every such note, bond, contract, certificate or
undertaking made or issued by the Trustees shall recite that it is executed or
made by them not individually, but as Trustees, and that the obligations of any
such instrument are not binding upon any of the Trustees individually, but bind
only the Trust property, and may contain any further recital that they may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually.
Section 4.11. The Trustees shall be reimbursed from the Trust property for
their expenses and disbursements, including expenses for clerks, transfer
agents, office hire, and counsel fees, and for all losses and liabilities by
them incurred in administering the Trust and for the payment of such expenses,
disbursements, losses, and liabilities, the Trustees shall have a lien on the
Trust property prior to any rights or interests of the Participants.
Section 4.12. This Declaration of Trust shall be construed, regulated, and
administered under the laws of the District of Columbia and in the courts of the
District of Columbia.
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ARTICLE V
Units and Distributions
Section 5.1. (a) The beneficial interests of the Trust shall be divided
into portions ("Units") of one or more separate and distinct Series or Classes
of Series as the Trustees shall, from time to time, create and establish. The
number of authorized Units of each Series and Class thereof is unlimited. In
lieu of issuing certificates to evidence ownership of such Units, the Trustees
may establish a book-entry system whereby Units may be issued and redeemed by
bookkeeping entry and without physical delivery of the securities. The Trustees
shall have full power and authority in their sole discretion, and without
obtaining any prior authorization or vote of the Participants (to the extent
permitted by applicable law) (i) to create and establish (and to change in any
manner) Units or any Series or Classes thereof with such preferences, voting
powers, rights, and privileges as the Trustees may from time to time, determine;
(ii) to divide or combine the Units or any Series or Classes thereof into a
greater or lesser number; (iii) to classify or reclassify any issued Units into
one or more Series or Classes of Units; (iv) to abolish any one or more Series
or Classes of Units; (v) to reorganize or merge any Series or Class thereof into
another Series or Class thereof; and (vi) to take such other action with respect
to the Units or Series or Classes thereof as the Trustees may deem desirable;
provided, however, that the Trustees may not amend a fundamental policy with
respect to any Series or Class without the affirmative vote of Participants
holding a majority of the Units of such Series or Class. The Trustees shall have
the right to sell or exchange such additional Units without offering the same to
the holders of the then-outstanding Units. All references to Units in this
Declaration shall be deemed to include references to Units of any or all Series
or Classes as the context may require.
(b) The establishment of any Series or Class thereof shall be effective upon the
adoption of a resolution of the majority of the then Trustees setting forth such
establishment and designation and the relative rights and preferences of the
Units of such Series or Class, whether directly in such resolution or by
reference to, or approval of, another document that sets forth such relative
rights and preferences of the Units of such Series or Class including, without
limitation, any registration statement of the Trust, or as otherwise provided in
such resolution. At any time that there are no Units outstanding of any
particular Series or Class previously established and designated, the Trustees
may by a majority vote abolish such Series or Class and the establishment and
designation thereof.
(c) Until such time as any Units of any Series or Class are issued, the Trustees
may exercise all rights of the holders of such Series or Class and may take any
actions required or permitted by law, the Declaration or Bylaws to be taken by
the holders of such Series or Class.
Section 5.2. Only Labor Organizations and Eligible Pension Plans as
defined in this section shall be eligible to own Units of the Trust or to hold
Units in the Trust. A "Labor Organization" means any organization of any kind,
any agency, employee representation committee, group, association or plan in
which employees participate directly or through affiliated organizations, and
which exists for the purpose, in whole or in part, of dealing directly or
through affiliated organizations with employers concerning grievances, labor
disputes, wages, rates of pay, hours or other terms or conditions of employment
and any employee benefit plan of such an organization, or any other organization
which is, in the discretion of the Board of Trustees, affiliated with or
sponsored by such an organization. An "Eligible Pension Plan" includes:
(a) a pension plan ("Pension Plan") constituting a qualified trust under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") which has beneficiaries who are represented by a Labor
Organization and the assets of which are managed without the direct
intervention or control of the plan's beneficiaries;
(b) a governmental plan ("Governmental Plan") within the meaning of
section 414(d) of the Code which has beneficiaries who are
represented by a Labor Organization and the assets of which are
managed without the direct intervention or control of the plan's
beneficiaries;
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(c) a master trust holding the assets of more than one Pension Plan or
more than one Governmental Plan, where at least one of the plans
with assets in the master trust has beneficiaries who are
represented by a Labor Organization;
(d) a pension or retirement program of a non-United States jurisdiction
that is similar to a "governmental plan" as defined in Title 29,
Section 1002(32) of the United States Code; or
(e) a non-United States employee benefit plan subject to regulation
under applicable non-United States laws that are similar in purpose
and intent to the Employee Retirement Income Security Act of 1974,
as amended.
Units will not be transferable or assignable. No holder of a Unit will
have the authority to pledge its Unit as collateral for any loan.
Section 5.3. All consideration received by the Trust for the issue or sale
of Units of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange, or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition, any assets,
income, earnings, profits, and proceeds thereof, funds or payments that are not
readily identifiable as belonging to any particular Series or Class, shall be
allocated by the Trustees between and among one or more of the Series or Classes
in such manner as they, in their sole discretion, deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Participants in all
Series or Classes for all purposes, and shall be referred to as assets belonging
to that Series or Class. The assets belonging to a particular Series shall be so
recorded upon the books of the Trust or of its agent or agents and shall be held
by the Trustees in trust for the benefit of the holders of Units of that Series.
The assets belonging to each particular Series shall be charged with the
liabilities of that Series and all expenses, costs, charges, and reserves
attributable to that Series, except that liabilities and expenses may, in the
Trustee's discretion, be allocated solely to a particular Class and, in which
case, shall be borne by that Class. Any general liabilities, expenses, costs,
charges, or reserves of the Trust that are not readily identifiable as belonging
to any particular Series or Class shall be allocated and charged by the Trustees
between or among any one or more of the Series or Classes in such manner as the
Trustees, in their sole discretion, deem fair and equitable and shall be
referred to as "liabilities belonging to" that Series or Class. Each such
allocation shall be conclusive and binding upon the Participants in all Series
or Classes for all purposes. Any creditor of any Series may look only to the
assets of that Series to satisfy such creditor's debt. No Participant or former
Participant of any Series shall have a claim on or any right to any assets
allocated or belonging to any other Series.
Section 5.4. (a) The term "Net Asset Value" of any Series or Class shall
mean that amount by which the assets of the Series or Class exceed its
liabilities, all as determined by or under the direction of the Trustees. Such
Net Asset Value per Unit shall be determined separately for each Series or Class
of Units and shall be determined on such days and at such times as the Trustees
may determine (each, a "Valuation Date").
(b) Notwithstanding subparagraph (a) of this Section 5.4, with respect to
Series A, the net asset value shall be set at fair value as determined by the
Trustees as of the close of business at the end of each calendar month
(hereinafter "Series A Valuation Dates"). On the basis of the valuation made on
the Series A Valuation Date, the beneficial interest of each Participant shall
be adjusted to reflect the effect of income (collected or accrued), realized and
unrealized gains and losses, expenses, and all other transactions with respect
to such Series since the last preceding Series A Valuation Date.
(c) In determining the value of the assets of any Series or Class of
Units, the Trust will comply with the Investment Company Act, including Section
2(a)(41) thereof, and the rules, regulations, and interpretations thereof
promulgated or issued by the Commission or insofar as permitted by any order of
the Commission applicable to the Trust, as the same may be amended from time to
time. The Trustees may delegate any of their powers and duties under this
Section 5.4 with respect to valuations of assets and liabilities.
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Section 5.5. The Trustees shall as of each Valuation Date declare
dividends of net income earned during each month. Such distributions will be
payable after the end of each calendar quarter or such other dates as the
Trustees may designate and will be made in cash, except that on written request
of a Participant, distribution can be made in Units of the relevant Series or
Class of the Trust valued as of the distribution date provided that such
automatic reinvestment of income distribution does not subject the Trust to
adverse consequences in the opinion of legal counsel for the Trust.
Section 5.6. Notwithstanding anything to the contrary contained in this
Declaration of Trust or in any amendment thereto, no part of the Trust that
equitably belongs to any Participant (other than such part as is required to pay
the expenses of the Trust) shall be used for any purpose other than the
exclusive benefit of the Participant.
Section 5.7. The Trustees shall render from time to time an accounting of
the Trust's transactions. A copy of such accounting will be made available to
each Participant. No person other than a Participant may require an accounting
or bring any action against the Trustees with respect to the Trust or because of
any Trustee's actions on behalf of the Trust.
Section 5.8. In case of the loss or destruction of any certificate, the
Trustees may, under such terms as they deem expedient, issue a new certificate
in place of the one so lost.
ARTICLE VI
Admissions to and Withdrawals from Trust
Section 6.1. (a) No admission to or withdrawal from the Trust shall be
permitted except in Units. Units shall be issued and redeemed only as of a
Valuation Date and may be issued and redeemed in fractions of a Unit. A request
for issuance of Units must be received by the Trust before the Valuation Date as
of which they are to be issued.
(b) With respect to Series A Units, a request for redemption of Units must
be received by the Trust at least 15 days before the Series A Valuation Date as
of which they are to be redeemed. No issue of Units will be made to any new
Participant having a value of less than Fifty Thousand Dollars ($50,000). Any
request for redemption of Units made between Valuation Dates will be considered
as having been made 15 days before the next ensuing Valuation Date and will be
honored only as of such date.
Section 6.2. Payment in satisfaction of a duly tendered request for
redemption shall be made as soon as practicable and in any event within seven
days after the Valuation Date as of which redemption is effected.
Section 6.3. Upon the agreement of the redeeming Participant, the Trust
may give securities and/or mortgages or other Trust assets in partial or full
satisfaction of a duly tendered request for redemption. Such securities and/or
mortgages will be treated for redemption purposes as being the cash equivalent
of their value of the Valuation Date before the date on which redemption was
requested.
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EXHIBIT B
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SUMMARY OF PROPOSED CHANGES TO THE TRUST'S FUNDAMENTAL POLICIES REQUIRED
TO PERMIT THE TRUST TO ENTER INTO TRS CONSTRACTS (PROPOSAL IV)
The table on the following pages lays out the proposed changes to the
Fundamental Policies set forth in the Statement of Additional Information,
necessary to make clear that the Trust may enter into TRS contracts.
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Fundamental Policies which are Being Modified
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Existing Policy New Language:
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The HIT will not issue senior securities, except that The HIT will not issue senior securities, except as permitted by (i)
the HIT may borrow money from banks provided that, the Investment Company Act and the rules and regulations thereunder,
immediately after such borrowing, there is an asset or interpretations or modifications by the SEC, SEC staff or other
coverage of at least 300% of all borrowings of the authority with appropriate jurisdiction, or (ii) exemptive or other
HIT. Not more than 50% of the HIT's assets will be relief from the SEC, SEC staff, or other authority.
used as security for such borrowings. This borrowing
provision is not for investment leverage, but The HIT will not borrow money, except as permitted by (i) the
primarily to facilitate management of the portfolio Investment Company Act and the rules and regulations thereunder, or
by enabling the HIT to meet redemption requests and interpretations or modifications by the SEC, SEC staff or other
to make advances on construction loans securing authority with appropriate jurisdiction, or (ii) exemptive or other
Mortgage Securities and to meet outstanding HIT relief from the SEC, SEC staff, or other authority, provided that
commitment obligations (and, on occasion, to make not more than 50% of the HIT's assets will be used as security for
income distributions) when available HIT cash is such borrowings.
insufficient for such purposes and the liquidation of
investments is deemed to be inconvenient or
disadvantageous. Discussion:
-----------
This policy is being divided into two separate policies on senior
securities and borrowing because these may be treated as separate
categories in the regulatory regime.
All mutual funds are required by the Act to have a fundamental
policy about the borrowing of money and the issuance of senior
securities. The policies had to be revised, however, to delete
restrictions on the purpose of borrowings or issuance of senior
securities, which may be viewed as a form of borrowing, to remove
any inference that TRS transactions are prohibited. In addition,
the restriction on percentage of borrowing in the Fundamental Policy
on borrowing is being deleted because it merely restated the
Investment Company Act requirements, which are now incorporated.
The new polices, which track the limitations under the Investment
Company Act, incorporate the following restrictions:
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o Senior securities are generally defined as fund
obligations that have a priority over the fund's shares
with respect to the payment of dividends or
distribution of fund assets. The Act prohibits a fund
from issuing senior securities except with regard to
borrowing. In addition, the SEC staff has indicated
that it may consider certain investments that employ
leverage to be senior securities, but would not
consider such investments prohibited if 100% covered by
segregated, non-illiquid assets. To the extent
required, the Trust intends to segregate assets to
cover any TRS contracts.
o With regard to borrowing, the Act generally permits a
fund to borrow money in amounts of up to one-third of
the fund's total assets from banks for any purpose, and
to borrow up to 5% of the fund's total assets from
banks or other lenders for temporary purposes.
As amended, if the Investment Company Act guidelines change, the
provisions would change as well, thus eliminating a need for
amendment.
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Existing Policy New Language:
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The HIT will not lend any assets of the HIT The HIT will not lend any assets of the HIT except as permitted (i)
except as set forth above. the Investment Company Act and the rules and regulations thereunder,
or interpretations or modifications by the SEC, SEC staff or other
authority with appropriate jurisdiction, or (ii) exemptive or other
relief from the SEC, SEC staff; or other authority.
Discussion:
----------
All mutual funds are required to have a fundamental policy about
lending money and other assets. The reference "as set forth above"
in the existing policy is to descriptions contained in the Statement
of Information, but could be viewed as ambiguous. The revised
policy removes this ambiguity. In addition, because TRS contracts
could be viewed as lending, it makes clear that the prohibition
covers only those practices not permitted under applicable legal
authority. The Act does not prohibit a fund from making loans;
however, SEC staff interpretations currently prohibit funds from
lending more that one-third of their total assets, except through
the purchase obligations or the use of repurchase agreements. (A
repurchase agreement is an agreement to purchase a security, coupled
with an agreement to sell that security back to the original seller
on an agreed-upon date at a price that generally depends on current
interest rates. The SEC frequently treats repurchase agreements as
loans.) As amended, if the Investment Company Act guidelines
change, the provisions would change as well, thus eliminating a need
for further amendment.
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Fundamental Policies Which are Being Deleted
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Existing Policy
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The HIT will not invest in oil, gas or other mineral Deleted. The Act does not require the Trust to have a fundamental
leases, or arbitrage transaction. policy relating to these types of investments. The provision
reflects outdated requirements under state law that may be read to
prohibit TRS transactions because of the reference to arbitrage
transactions. Insofar as the provision is otherwise irrelevant to
the operations of the Trust, it is proposed to be deleted. Under
the Trust's investments guidelines and restrictions, as set forth in
its Declaration of Trust, investments in oil, gas or other mineral
leases are not permitted, and any change would require the consent
of Participants.
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Existing Policy
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The HIT will not purchase securities on margin (but Deleted. The Act does not require that a fund have a fundamental
the HIT may obtain such short-term credits as may be policy relating to the purchase of securities on margin. Margin
necessary for the clearance of transactions). purchases generally involve borrowing money from a broker to
purchase securities, and the practice would be covered in any event
by the Trust's Fundamental Policy on borrowing. Because the
provision may be read to prohibit TRS transactions and addresses a
subject that is covered by the separate policy regarding borrowing,
it is proposed to be deleted.
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