N-30D 1 semi.txt SEMI-ANN RPT SHAREHOLDERS FOR PER. ENDED 6/30/01 [LETTERHEAD OF AFL-CIO HOUSING INVESTMENT TRUST] August 28, 2001 MEMORANDUM TO: Participants, AFL-CIO Housing Investment Trust FROM: Michael M. Arnold, Executive Vice President SUBJECT: Semi-Annual Report June 30, 2001 ----------------------------------------------------------------------------- I am pleased to enclose the semi-annual report of the AFL-CIO Housing Investment Trust, covering the six months ended June 30, 2001. Total net assets of the Trust increased to $2.577 billion from $2.477 billion at the beginning of the period. The Trust's performance continued to be among the highest in the fixed income market for managers having similar risk characteristics. Returns during the six month period again compared favorably to the industry benchmark, as shown in the report. Despite continued uncertainty in the economy, we are confident that with the progress achieved to date, 2001 will be another successful year for the Trust. If you would like additional copies of the report, please do not hesitate to contact us. MMA/spt opeiu #2, afl-cio Enclosure 2001 SEMI-ANNUAL REPORT AFL-CIO HOUSING INVESTMENT TRUST INSIDE COVER REPORT TO PARTICIPANTS In the first six months of 2001, the AFL-CIO Housing Investment Trust delivered solid performance and highly competitive returns to investors. Key to this performance was the Trust's success in managing the portfolio to maximize returns while minimizing risk in the current economic environment. The Trust's investments have also helped working families and communities nationwide by creating jobs and housing while stimulating economic growth. The Trust enters the period ahead with a number of new initiatives and an active pipeline of investments that will help maintain its outstanding record of investment success and its position as one of the most attractive fixed-income investment options available to pension investors. GROWTH AND PERFORMANCE The Trust continued to exhibit strong growth in the first two quarters of 2001, with total net assets climbing to $2.58 billion. The Trust attracted $50.6 million in new investments during this period while participants reinvested earnings at a rate of 89.5 percent, reflecting continuing confidence in the Trust's management strategy for its diverse fixed-income portfolio. The net asset value of $1,086.00 per unit at June 30 represented a gain of $41.73 over the past twelve months. The Trust's 409 participants increased their units of participation held to 2,372,987 at June 30. The Trust carried out its investment program with one of the most cost- effective operating structures in the industry. Its ratio of expenses to average net assets was 38 basis points (0.38%) for the six months ended June 30, a decrease of 2 basis points from the six months ended June 30, 2000. While interest rate volatility in the financial markets continued to affect all fixed-income investments as a class, the Trust's total rates of return still compared favorably with the industry benchmark, Lehman Brothers Aggregate Bond Index. The Trust's one-year and five-year total net returns were 11.24 percent and 7.82 percent, respectively. The Trust's continuing strong performance has put it in the ranks of the top money managers. For example, the Trust's total return ranked 13 out of 234 for the one-year period ended March 31, 2001, and 12 out of 182 for the five- year period, according to the Nelson's Investment Manager 2001. While mid- year data were not available, at the end of the first quarter Nelson's placed the Trust first among major fund managers managers with assets under management of over $1 billion for the one-year period and fifth for the five-year period. [PIE CHART INDICATING PORTFOLIO DISTRIBUTION] PORTFOLIO DISTRIBUTION (%) Mortgage-backed Securities 65.3% FHA Securities 18.5% Construction-related Securities and MBS 9.7% State Housing Bonds 2.0% Federal Agency Notes 2.6% Short Term Investments 1.9% [BAR CHART INDICATING PERFORMANCE TOTAL RATES OF RETURN] PERFORMANCE - TOTAL RATES OF RETURN (%)(1) 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- Housing Investment Trust Gross Returns(2) 11.65% 6.71% 8.25% 8.45% Housing Investment Trust Net Returns(3) 11.24% 6.30% 7.82% 7.95% Lehman Brothers Aggregate Bond Index 11.23% 6.26% 7.48% 7.87% Returns for periods exceeding one year are annualized. (1) The performance data shown here represents past performance and does not mean that the Trust will achieve similar results in the future. The investment return and principal value of an investment in the Trust will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. A Prospectus containing more complete information may be obtained from the Trust by contacting the Marketing and Investor Relations Department. The Prospectus sets forth information about the Trust that an investor should read carefully before investing. (2) Gross returns are calculated before the deduction of Trust expenses. (3) Returns shown reflect the growth of an investment for the specified periods. Page 1 INVESTMENT INITIATIVES Despite the overall slowing of the economy, an active housing market created continuing investment opportunities for Trust products and initiatives. Several new initiatives will help the Trust diversify its sources of credit enhancement and maintain an active pipeline of future investments that will close before year-end 2001. During the first two quarters of 2001, the Trust issued $113 million in multi- family financing commitments that are expected to produce 881 units of housing. With the current pipeline of Federal Housing Administration (FHA) or state housing finance agency multi-family projects, as well as the expected increase in Fannie Mae transactions under the new HIT Correspondent Lending Initiative, the Trust expects a steady increase in financial commitments through year-end. Of special importance to increasing loan production are the Trust's continuing efforts to broaden and redefine its relationships with Fannie Mae Delegated Underwriting and Servicing (DUS) lenders and state housing finance agencies. To enhance the Trust's single-family portfolio while simultaneously providing important homeownership opportunities for union members, the Trust has successfully launched its newest mortgage initiative, HIT HOME, in 15 metro- politan areas, while continuing to expand its Homeownership Opportunity Initiative to serve even more working families. Highlights of new initiatives include: - STATE HOUSING FINANCE AGENCY INITIATIVE Building on its successful history of partnering with state housing finance agencies (HFAs), the Trust is piloting an initiative in Illinois that will boost construction-related investments with private mortgage insurance. The Illinois Housing Development Authority (IHDA) and the Ambac Assurance Corporation (AAA-Rated) are participating with the Trust in this initial partnership. By developing a new investment structure with IHDA and Ambac, the Trust has laid the foundation for similar credit-enhanced relationships with other state HFAs. - CORRESPONDENT LENDING INITIATIVE To expand and diversify its investment options, the Trust has entered into a Correspondent Lending Agreement with Lend Lease Mortgage Capital, a Fannie Mae DUS Lender. As a Correspondent Lender, the Trust will take advantage of Fannie Mae's growing share of the multi-family housing market by identifying multi-family loans that are eligible to be credit enhanced by Fannie Mae and invested by the Trust. Investments created through this initiative will provide competitive returns and will help HIT maintain its rate of investment growth. - HIT HOME Through its expanding HIT HOME mortgage program, the Trust is increasing single-family loan production while providing attractive mortgage financing for union members. Working with Countrywide Home Loans and Fannie Mae, the Trust will roll out this initiative in at least 32 metro areas nationwide over the next three years. To date, HIT HOME has been introduced in San Antonio, Texas; Milwaukee, Wisconsin; Cleveland, Columbus and Youngstown, Ohio; Springfield and Hampshire and Franklin Counties, Massachusetts; Philadelphia, Pennsylvania; Albany and Syracuse, New York; Denver, Colorado; St. Louis, Missouri; Hartford, Connecticut, and Birmingham, Alabama. Page 2 PORTFOLIO MANAGEMENT In response to interest rate volatility during the period, the Trust actively managed the portfolio to maximize total returns and participant value consistent with the defined risk management framework. Interest-rate risk was actively managed to be constructively neutral, relative to core fixed-income performance benchmarks. With approximately 98 percent of the Trust's long-term investments continuing to be insured or guaranteed or issued by the U.S. government or government-sponsored enterprises such as Fannie Mae and Freddie Mac, credit risk is minimized. Investment activity remained strong with the majority of assets invested in the mortgage-backed securities sector, while short-term investments were held to only 1.9 percent of the total portfolio. A change in the Trust's investment policy, approved at the Annual Participants Meeting in May, will allow the Trust to invest in longer-term agency and treasury securities. This action has provided the Trust with additional tools to manage portfolio risks. LOOKING AHEAD The growth and performance achieved in the first half of the year provide the foundation for a successful 2001. Managing the portfolio for changing market conditions, the Trust expects to maintain its characteristic combination of high security and competitive returns. At the same time, the initiatives now underway will increase the Trust's ability to make prudent investments that enhance the portfolio while also creating jobs, stimulating community development and generating much-needed housing. For Trust investors, this means the Trust will continue to be an attractive investment choice in the period ahead. Page 3 2001 PARTICIPANTS MEETING The 2001 Annual Meeting of Participants was held in Washington, D.C., on May 22, 2001. The following matters were put to a vote of Participants at the meeting through the solicitation of proxies. Richard Ravitch was reelected to chair the Board of Trustees by a vote of 1,449,677.1739 for, 0.0000 against, 902.7222 abstentions, and 865,075.7012 votes not cast. The table below summarizes votes pertaining to Trustees who were elected at the Annual Meeting. The following Trustees were not up for election because their terms continued after the date of the Annual Meeting: Linda Chavez-Thompson, Jack E. Cullerton, Alfred J. Fleischer, John J. Flynn, Frank Hanley, Walter M. Kardy, George Latimer, Martin J. Maddaloni, Marlyn Spear, Andrew L. Stern, Edward C. Sullivan and Richard Trumka. Participants considered and approved an amendment to the Trust's Charter to provide more explicit authorization for the Trust to engage in activities that are designed to generate potential investments in which the Trust is authorized to invest, including but not limited to activities that also generate fees for the Trust or benefit unions and/or union members. Participants also considered and approved an amendment to the Trust's Charter to modify the Trust's investment policy to allow it to invest up to 10 percent of its assets in United States Treasury issues and in obligations which are issued or guaranteed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks or which are backed by Fannie Mae, Freddie Mac or the Federal Home Loan Banks and rated in one of the two highest rating categories, provided that such instruments have a scheduled maturity of 10 years or less. Arthur Andersen LLP was ratified as the Trust's Public Accountants by a vote of 1,444,360.2768 for, 0.0000 against, 6,419.6193 abstentions and 865,075.7012 votes not cast. Votes Votes Votes Votes Not Trustee For Against Abstaining Cast ------------------------------------------------------------------------------ John J. Sweeney 1,439,422.1155 5,647.8071 5,709.9735 865,075.7012 Frank Hurt 1,444,797.6669 0.0000 5,982.2292 865,075.7012 Michael E. Monroe 1,429,954.2410 4,758.4873 16,067.1678 865,075.7012 Terrence M. O'Sullivan 1,435,737.4814 0.0000 15,042.4147 865,075.7012 Tony Stanley 1,442,293.1417 0.0000 8,486.7544 865,075.7012 Patricia F. Wiegert 1,443,032.0431 0.0000 7,747.8530 865,075.7012 Jeremiah J. O'Connor 1,444,961.9309 0.0000 5,817.9652 865,075.7012 Page 4 FINANCIAL STATEMENTS American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust June 30, 2001 STATEMENT OF ASSETS AND LIABILITIES June 30, 2001 (Dollars in thousands unless noted; unaudited) ASSETS Investments, at fair value (amortized cost $2,533,627) $2,573,898 Cash 1,132 Accrued interest receivable 16,150 Accounts receivable 2,636 Prepaid expenses and other assets 2,472 ----------- TOTAL ASSETS 2,596,288 ----------- LIABILITIES Accounts payable and accrued expenses 1,012 Payables-investments purchased 8,975 Redemptions payable 5,780 Refundable deposits 2,030 Income distribution payable, net dividends reinvested of $12,404 1,432 ---------- TOTAL LIABILITIES 19,229 ---------- NET ASSETS APPLICABLE TO PARTICIPANTS' EQUITY - CERTIFICATES OF PARTICIPATION - AUTHORIZED UNLIMITED; OUTSTANDING 2,372,987 UNITS (NOTE 5) $2,577,059 ========== NET ASSET VALUE PER UNIT OF PARTICIPATION (IN DOLLARS) $1,086.00 ========== See accompanying notes to financial statements SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
INTEREST FACE AMORTIZED RATE MATURITY DATE AMOUNT COST VALUE ---------------------------------------------------------------------------- SINGLE-FAMILY: 7.75% Jul-2021-Aug-2021 521 521 521 8.00% Jul-2021 591 591 591 10.31% Feb-2016 71 71 71 ----------------------------- 1,183 1,183 1,183 ----------------------------- MULTI-FAMILY: 6.50% Aug-2004 9,126 9,126 9,415 6.66% Apr-2040 5,966 5,977 5,778 6.75% Nov-2037-Jul-2040 10,281 9,955 10,008 6.88% Jul-2040 23,324 23,330 22,906 7.00% Jun-2039 6,242 6,325 6,185 7.13% Mar-2040 8,153 8,171 8,134 7.17% Feb-2040 4,892 4,898 4,894 7.20% Aug-2039-Sep-2039 11,568 11,583 11,597 7.25% Oct-2039-Oct-2039 30,517 30,517 30,798 7.50% Nov-2022-Nov-2037 17,181 17,253 17,411 7.55% Aug-2012-Nov-2037 9,903 9,914 10,084 7.63% Dec-2027-Jun-2037 77,019 76,870 78,607 7.70% Oct-2039 12,453 12,363 12,839 7.75% Jan-2038-Oct-2038 11,575 11,600 11,928 7.80% Dec-2038 21,589 21,597 22,332 7.85% Sep-2037 2,587 2,587 2,674 7.88% Mar-2037-Jul-2038 9,364 9,375 9,699 8.00% Sep-2031-Jun-2038 12,275 12,183 12,706 8.13% Apr-2028-Aug-2037 18,873 18,885 19,758 8.18% Nov-2036 36,421 36,124 38,067 8.25% Feb-2026-Oct-2036 31,197 31,220 32,453 8.38% Jan-2027 15,844 15,848 16,198 8.40% Apr-2012 1,130 1,130 1,132 8.50% Apr-2012-Oct-2029 8,381 8,360 8,632 8.63% Dec-2029 4,155 4,155 4,288 8.75% May-2036-Sep-2036 12,172 12,100 12,867 8.80% Oct-2032 5,563 5,563 5,669 8.88% Sep-2029-Jun-2036 10,222 10,164 10,597 9.25% Feb-2029-Jun-2036 24,333 24,338 25,127 9.38% Jun-2036 1,850 1,870 1,895 9.50% Jun-2034 372 378 410 9.75% Jul-2027 3,552 3,537 3,566 10.00% Apr-2031 5,772 5,772 5,798 10.45% Mar-2031 1,202 1,205 1,238 -------------------------------- 465,054 464,273 475,690 -------------------------------- TOTAL FHA SECURITIES 466,237 465,456 476,873 ================================
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited) FHA CONSTRUCTION SECURITIES (2.0% OF TOTAL PORTFOLIO)
INTEREST RATES COMMITMENT FACE AMORTIZED PERM CONST MATURITY DATE* AMOUNT AMOUNT COST VALUE ------------------------------------------------------------------------------------ Multi-family 6.70% 6.70% Jun-2002 6,150 6,150 6,150 5,878 6.88% 7.13% Apr-2030 29,545 26,004 25,923 25,319 6.88% 6.88% Aug-2041 2,770 1,612 1,505 1,550 7.33% 7.33% Dec-2042 14,370 2,566 2,566 2,501 7.50% 7.50% Mar-2032 1,700 1,700 1,705 1,725 7.50% 7.50% May-2042 6,693 1,153 1,174 1,262 7.93% 7.93% Feb-2042 2,952 2,952 2,952 3,119 8.27% 8.27% May-2042 2,575 2,575 2,577 2,752 8.40% 9.50% Dec-2041 8,723 8,475 8,435 8,650 ------------------------------------- TOTAL FHA CONSTRUCTION SECURITIES 75,478 53,187 52,987 52,756 ===================================== * Permanent mortgage maturity date
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited) GINNIE MAE SECURITIES (25.5% OF TOTAL PORTFOLIO)
INTEREST FACE AMORTIZED RATE MATURITY DATE AMOUNT COST VALUE ----------------------------------------------------------------------------------------- Single-family 6.50% Jul-2028-May-2031 11,753 11,727 11,576 7.00% Apr-2026-Jan-2030 100,847 102,087 101,752 7.50% Apr-2013-Jun-2028 96,926 99,252 99,791 8.00% Nov-2009-Dec-2030 73,664 75,490 76,405 8.50% Nov-2009-Oct-2030 47,229 48,538 49,555 9.00% May-2016-Jun-2025 6,205 6,400 6,634 9.50% May-2019-Sep-2030 3,362 3,465 3,614 10.00%-13.50% Jun-2019 151 151 167 ------------------------------- 340,137 347,110 349,494 ------------------------------- Multi-family 6.09% Jun-2021 5,000 5,000 4,933 6.24% May-2041 27,906 27,251 26,762 6.32% Jan-2041 17,566 16,795 17,050 6.34% Aug-2023 3,464 3,464 3,343 6.50% Dec-2039-Jul-2040 17,745 17,611 17,371 6.63% Oct-2033-Jul-2040 41,998 41,755 41,444 6.67% Sep-2040 8,884 8,889 8,788 6.69% Jun-2040 5,605 5,596 5,554 6.75% Nov-2038-Feb-2041 35,722 35,205 35,531 6.78% May-2041 28,093 28,098 27,990 7.00% Apr-2040 12,149 11,905 12,278 7.50% Apr-2038 24,644 24,291 25,494 7.80% Jul-2039 19,074 19,085 20,115 8.00% Nov-2036 894 894 933 8.15% Nov-2025 3,733 3,694 3,962 8.50% Mar-2027-Jul-2029 33,604 33,609 35,795 8.75% Dec-2026 4,265 4,265 4,296 9.00% Jun-2030 7,840 7,490 7,866 10.05% May-2026 1,230 1,230 1,235 12.55% Jun-2025 6,013 5,962 6,145 ------------------------------- 305,429 302,089 306,885 ------------------------------- TOTAL GINNIE MAE SECURITIES 645,566 649,199 656,379 ===============================
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited) GINNIE MAE CONSTRUCTION SECURITIES (7.5% OF TOTAL PORTFOLIO)
INTEREST RATES COMMITMENT FACE AMORTIZED PERM CONST MATURITY DATE* AMOUNT AMOUNT COST VALUE ------------------------------------------------------------------------------------------ Multi-family 6.62% 6.62% Jan-2040 10,010 9,559 9,561 9,347 6.98% 6.98% Jan-2041 47,090 44,353 44,357 44,463 7.23% 8.40% Sep-2041 8,100 7,832 7,535 8,041 7.24% 7.24% Dec-2042 51,242 7,304 7,304 7,664 7.25% 7.25% Jun-2042 4,211 25 25 71 7.33% 7.76% Jan-2030 27,555 24,849 24,866 25,496 7.33% 7.33% Jan-2043 11,946 0 (119) 97 7.45% 7.45% Jun-2042 9,700 341 342 608 7.50% 7.63% Apr-2041 19,440 16,558 16,566 17,402 7.50% 7.63% Jan-2042 8,126 2,259 2,261 2,555 7.50% 7.88% Jul-2042 25,150 4,814 4,816 5,678 7.57% 7.57% Nov-2041 2,565 785 790 890 7.70% 7.70% Mar-2042 50,584 31,435 30,606 33,888 7.75% 7.25% Feb-2031 51,076 22,673 22,418 24,859 7.75% 7.75% Jul-2042 30,808 10,742 10,135 12,350 ------------------------------------------ TOTAL GINNIE MAE CONSTRUCTION SECURITIES 357,603 183,529 181,463 193,409 ========================================== * Permanent mortgage maturity date
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
FANNIE MAE SECURITIES (29.2% OF TOTAL PORTFOLIO) - INCLUDING CONSTRUCTION SECURITIES INTEREST COMMITMENT FACE AMORTIZED RATE MATURITY DATE AMOUNT AMOUNT COST VALUE ------------------------------------------------------------------------------------------ SINGLE-FAMILY 5.50% Sep-2029 215 208 200 6.00% Jun-2005-Aug-2029 47,566 47,223 46,164 6.50% Oct-2005-Jun-2031 58,278 58,774 57,568 7.00% Jan-2004-Jun-2031 56,823 57,208 57,205 7.50% Jul-2004-Jun-2031 75,941 75,931 77,561 8.00% Jan-2007-May-2031 31,892 32,437 33,028 8.50% Nov-2009-Apr-2031 18,143 18,534 19,211 9.00% Jul-2009-May-2025 6,076 6,249 6,360 9.50% Aug-2004 1,233 1,235 1,273 ---------------------------------- 296,167 297,799 298,570 ---------------------------------- MULTI-FAMILY 6.02% Nov-2010 52,735 52,778 51,697 6.06% Sep-2011 1,878 1,849 1,880 6.06% Aug-2010 16,500 0 0 (444) 6.09% May-2011 17,000 16,978 16,681 6.13% May-2014 6,039 5,958 6,120 6.25% Dec-2013 2,552 2,638 2,517 6.30% Dec-2015 3,194 3,173 3,228 6.38% Nov-2008 18,277 18,277 18,388 6.44% Mar-2012 60,000 0 4 21 6.50% Jun-2016 3,750 3,756 3,688 6.52% Dec-2001-Jul-2008 8,763 8,669 8,775 6.53% May-2030 11,920 11,978 11,693 6.63% Apr-2019 2,546 2,546 2,522 6.65% Apr-2002-Aug-2007 1,144 1,158 1,151 6.75% Mar-2010 22,000 0 0 484 6.80% Apr-2016 5,250 0 0 7 6.90% Jun-2007 20,598 21,480 21,030 6.96% Aug-2007 9,460 9,874 9,682
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
FANNIE MAE SECURITIES (29.2% OF TOTAL PORTFOLIO) - INCLUDING CONSTRUCTION SECURITIES (continued) INTEREST COMMITMENT FACE AMORTIZED RATE MATURITY DATE AMOUNT AMOUNT COST VALUE ------------------------------------------------------------------------------------------ 6.97% Jun-2007 39,613 39,627 40,727 7.01% Apr-2031 3,760 3,816 3,745 7.07% Feb-2031 19,029 19,600 19,048 7.14% Sep-2002 2,951 2,947 2,961 7.15% Oct-2009 1,000 1,030 1,032 7.16% Jan-2022 8,605 8,979 8,827 7.20% Apr-2010-Aug-2029 10,700 10,309 10,830 7.25% Nov-2011-Jul-2012 9,817 9,817 9,917 7.27% Dec-2009 22,584 22,669 23,205 7.29% Jul-2003 1,704 1,723 1,707 7.30% May-2010-Aug-2006 57,568 59,811 60,518 7.37% Oct-2006-Jan-2013 34,907 35,008 36,264 7.38% Jun-2014-Oct-2015 5,687 5,165 5,186 5,315 7.50% Dec-2014 2,547 2,557 2,655 7.71% Feb-2010 9,833 10,125 10,291 7.75% May-2012-Dec-2024 5,210 5,211 5,501 7.88% Mar-2007 2,779 2,816 2,849 8.00% Nov-2019-May-2020 6,811 6,783 7,048 8.13% Sep-2012-May-2020 11,142 11,103 11,744 8.38% Jan-2022 1,080 1,080 1,152 8.40% May-2022 580 590 640 8.50% Jan-2007 348 348 372 8.63% Sep-2006 507 507 528 8.63% Sep-2028 7,226 7,230 8,087 8.70% Feb-2005 4,558 4,685 4,749 9.13% Sep-2015 3,832 3,809 4,121 9.25% Jun-2018-Sep-2026 6,575 6,558 7,149 ---------------------------------------------- 109,437 440,287 445,040 450,102 ---------------------------------------------- TOTAL FANNIE MAE SECURITIES 109,437 736,454 742,839 748,672 ==============================================
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
FREDDIE MAC SECURITIES (10.8% OF TOTAL PORTFOLIO) INTEREST FACE AMORTIZED RATE MATURITY DATE AMOUNT COST VALUE ------------------------------------------------------------------------------------- SINGLE-FAMILY 6.00% Mar-2005-Apr-2029 25,641 25,595 25,244 6.50% Dec-2006-Dec-2029 49,456 49,323 49,489 7.00% May-2004-Mar-2030 70,736 71,450 71,964 7.50% Nov-2003-Apr-2031 66,647 66,591 68,286 8.00% May-2008-Aug-2030 36,560 36,836 37,848 8.25% Dec-2022 141 141 148 8.50% Jun-2010-Jan-2025 15,086 15,381 15,930 9.00% Sep-2010-Mar-2025 2,692 2,776 2,840 -------------------------------------- 266,959 268,093 271,749 -------------------------------------- MULTI-FAMILY 8.00% Feb-2009 6,641 6,649 6,657 -------------------------------------- 6,641 6,649 6,657 -------------------------------------- TOTAL FREDDIE MAC SECURITIES 273,600 274,742 278,406 ====================================== FEDERAL AGENCY NOTES (2.6% OF TOTAL PORTFOLIO) INTEREST FACE AMORTIZED RATE MATURITY DATE AMOUNT COST VALUE --------------------------------------------------------------------------------- 5.30% Dec-2004 5,725 5,725 5,720 5.38% May-2006 29,000 28,828 28,669 5.88% Feb-2006 15,000 15,268 15,195 6.01% Dec-2005 6,000 6,132 6,104 6.50% Nov-2005 10,000 10,425 10,364 ------------------------------------- TOTAL FEDERAL AGENCY NOTES 65,725 66,378 66,052 =====================================
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
STATE HOUSING FINANCE BONDS (2.0% OF TOTAL PORTFOLIO) INTEREST COMMITMENT FACE AMORTIZED RATE MATURITY DATE AMOUNT AMOUNT COST VALUE ------------------------------------------------------------------------------------------ MULTI-FAMILY 7.63% Jan-2008 813 784 784 788 7.70% Jun-2006-Jun-2029 41,095 39,945 39,950 40,348 8.00% May-2025 4,745 4,735 4,852 8.13% Jan-2005 1,016 620 608 626 8.25% Sep-2012 500 445 449 457 8.38% Feb-2007 760 760 795 778 8.63% Jun-2025 1,389 1,389 1,453 9.39% Dec-2023 943 943 999 9.50% Aug-2012-Apr-2024 2,093 2,100 2,240 ------------------------------------------------ TOTAL STATE HOUSING FINANCE BONDS 44,184 51,724 51,753 52,541 ================================================ TOTAL LONG-TERM INVESTMENTS 2,476,022 2,484,817 2,525,088 ================================
SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2001 (Dollars in Thousands; unaudited)
SHORT-TERM INVESTMENTS (1.9% OF TOTAL PORTFOLIO) INTEREST FACE AMORTIZED DESCRIPTION MATURITY DATE RATE AMOUNT COST VALUE ----------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS Amalgamated Bank Jul-2001 4.40% 2,000 2,000 2,000 ---------------------------------- 2,000 2,000 2,000 ---------------------------------- COMMERCIAL PAPER Newell Rubbermaid Jul-2001 4.18% 10,000 9,999 9,999 USA Education Jul-2001 4.14% 10,000 9,999 9,999 Merrill Lynch Jul-2001 4.12% 11,400 11,399 11,399 Hubbell, Inc Jul-2001 4.18% 5,150 5,149 5,149 Corporate Asset Funding Jul-2001 3.72% 5,000 4,984 4,984 ---------------------------------- 41,550 41,530 41,530 ---------------------------------- AGENCY FNMA Aug-2001 3.76% 5,000 4,980 4,980 ---------------------------------- 5,000 4,980 4,980 ---------------------------------- CERTIFICATES OF DEPOSIT Shore Bank - Chicago Nov-2001 5.05% 100 100 100 Shore Bank - Cleveland Nov-2001 4.70% 100 100 100 Shore Bank - Pacific Nov-2001 5.47% 100 100 100 ---------------------------------- 300 300 300 ---------------------------------- TOTAL SHORT-TERM INVESTMENTS 48,850 48,810 48,810 ================================== TOTAL INVESTMENTS 2,524,872 2,533,627 2,573,898 ==================================
STATEMENT OF OPERATIONS Six Months Ended June 30, 2001 (Dollars in Thousands, Unaudited) INVESTMENT INCOME Interest: FHA securities $19,467 FHA construction securities 2,848 Ginnie Mae securities 22,246 Ginnie Mae construction securities 6,629 Fannie Mae securities (including construction securities) 23,390 Freddie Mac securities 12,168 Federal Agency Notes 163 State Housing Finance Bonds 2,103 Short-term investments 1,338 Net premium amortization (1,894) -------- TOTAL INCOME 88,458 -------- EXPENSES Salaries and fringe benefits 2,982 Legal fees 134 Consulting fees 77 Auditing and tax accounting fees 70 Insurance 57 Marketing and sales promotion 253 Investment management 129 Trustee expenses 11 General expenses 1,079 ------- TOTAL EXPENSES 4,792 INVESTMENT INCOME NET 83,666 ------- REALIZED AND UNREALIZED NET GAIN ON INVESTMENTS 792 ------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $84,458 ======= See accompanying notes to financial statements STATEMENT OF CHANGES IN NET ASSETS Six Months Ended June 30, 2001 (Dollars in thousands; unaudited) INCREASE IN NET ASSETS FROM OPERATIONS Investment income net $83,666 Net realized and unrealized gain on investments 792 -------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 84,458 DISTRIBUTION PAID TO PARTICIPANTS OR REINVESTED FROM INVESTMENT INCOME NET (83,666) INCREASE IN NET ASSETS FROM UNIT TRANSACTIONS Proceeds from the sale of 46,394 units of participation 50,589 Dividend reinvestment of 68,461 units of participation 74,914 Payments for redemption of (24,379) units of participation (26,718) --------- NET INCREASE FROM SHARE TRANSACTIONS 98,785 --------- TOTAL INCREASE IN NET ASSETS 99,577 --------- NET ASSETS AT BEGINNING OF PERIOD 2,477,482 --------- NET ASSETS AT END OF PERIOD $2,577,059 ========= See accompanying notes to financial statements NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) Housing Investment Trust (the Trust) is a common law trust created under the laws of the District of Columbia and is registered under the Investment Company Act of 1940 as a no-load, open-end investment company. The Trust has obtained certain exemptions from the requirements of the Investment Company Act of 1940 that are described in the Trust's prospectus. Participation in the Trust is limited to labor organizations and eligible pension, welfare and retirement plans that have beneficiaries who are represented by labor organizations. The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATION Investments are presented at value. Value determinations are summarized by specific category of investment as follows: Long-term investments, consisting of permanent mortgages, mortgage-backed securities, insured construction securities and participation certificates, are valued using published prices, dealer bids or cash flow models discounted using market-based discount and prepayment rates, developed for each investment category. The market-based discount rate is composed of a risk- free yield (i.e., a U.S. Treasury Note) adjusted for an appropriate risk premium. The risk premium reflects actual premiums in the marketplace over the yield on U.S. Treasury securities of comparable risk and maturity to the security being valued as adjusted for other market considerations. On investments for which the Trust finances the construction and permanent securities, value is determined based upon the total amount of the commitment for the term of the construction securities plus the permanent securities. For insured construction-only securities, the outstanding principal balance of the securities is used to approximate value, assuming no decline in credit quality. Short-term investments, consisting of repurchase agreements, certificates of deposit and commercial paper that mature less than sixty days from the balance sheet date, are valued at amortized cost, which approximates value. Short- term investments maturing more than sixty days from the balance sheet date are valued at the last reported sales price on the last business day of the month or the mean between the reported bid and ask price if there was no sale. Short-term investments maturing more than sixty days from the balance sheet date for which there are no quoted market prices are valued to reflect current market yields for securities with comparable terms and interest rates. Additional information relative to investment terms and credit risks are described more fully in the Trust's SEC filings. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. FEDERAL INCOME TAXES The Trust's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. The total cost of the portfolio of investments for federal income tax purposes approximates the cost of all investments for financial statement purposes. DISTRIBUTIONS TO PARTICIPANTS At the end of each calendar month, pro rata distribution is made to participants of the net investment income earned during the preceding month. Amounts distributable, but not disbursed, as of the balance sheet date are classified as income distribution payable. Participants redeeming their investments are paid their pro rata share of undistributed net income accrued through the month-end of redemption. The Trust offers an income reinvestment plan that allows current participants to automatically reinvest their income distribution into Trust units of participation. Total reinvestment was 89.5 percent of distributable income for the six months ended June 30, 2001. INVESTMENT INCOME Interest income is recognized on an accrual basis. Commitment fees, points and other discounts or premiums resulting from the funding or acquisition of mortgage securities or mortgage-backed securities are accounted for as an adjustment to the cost of the investment and amortized over the estimated life of the mortgage securities or mortgage-backed security using the effective interest method. Realized gains and losses from investment transactions are recorded on the trade date using an identified cost basis. PAYABLES-INVESTMENTS PURCHASED Payables-Investments Purchased represents an investment that was purchased prior to June 30, 2001, which settled subsequent to June 30, 2001. 2. TRANSACTIONS WITH AFFILIATES During the six months ended June 30, 2001, the Trust provided certain services to the AFL-CIO Investment Trust Corporation (formerly known as the Building Investment Trust Corporation), a D.C. non-profit corporation. The total cost for these services and related expenses for the six months ended June 30, 2001, amounted to approximately $917,000. During the six months ended June 30, 2001, the Trust was reimbursed for approximately $629,000 of these costs and prior year costs. In addition, approximately $1.2 million is included within the accounts receivable in the accompanying financial statements for amounts outstanding. 3. COMMITMENTS At June 30, 2001, the Trust had outstanding unfunded commitments of approximately $326.7 million. These include commitments to purchase $225 million in FHA and Ginnie Mae construction and permanent securities and $101.7 million in Fannie Mae construction-related mortgage securities. The Trust is required to maintain a segregated account of securities in an amount no less than the total unfunded commitments less short-term investments. As of June 30, 2001, this segregated account held securities with a value of approximately $1.9 billion. The commitment amounts disclosed on the Schedule of Portfolio Investments represent the original commitment amount, which includes both funded and unfunded commitments. 4. INVESTMENT TRANSACTIONS A summary of investment transactions for the separate instruments included in the Trust's investment portfolio, at amortized cost, for the six months ended June 30, 2001, follows: INVESTMENT TRANSACTIONS (DOLLARS IN THOUSANDS)
State FHA Ginnie Mae Fannie Freddie Federal Housing FHA Construction Ginnie Mae Construction Mae Mac Agency Finance Securities Securities Securities Securities Securities Securities Notes Bonds ---------------------------------------------------------------------------------------------------------- Balance, January 1, 2001 $500,362 $122,721 $499,217 $168,219 $688,941 $303,155 $9,070 $52,145 Purchases and insured construction securities advances, net of discounts - 16,635 69,568 75,408 251,533 74,275 65,725 - Change in discounts and (premiums) 122 721 (2,470) 893 7,888 2,849 653 2 Transfers (3,711) (81,161) 141,904 (48,568) (10,248) 1,784 - - Principal reductions (31,317) (5,929) (59,020) (14,489) (195,275) (107,321) (9,070) (394) --------- --------- --------- ---------- --------- -------- ------ ----- Balance, June 30, 2001 $465,456 $ 52,987 $649,199 $181,463 $742,839 $274,742 $66,378 $51,753 ========= ========= ========= ========== ========= ======== ====== ======= *Including construction securities
5. PARTICIPANTS' EQUITY (DOLLARS IN THOUSANDS) Participants' equity consisted of the following at June 30, 2001: Amount invested and reinvested by current participants $2,537,428 Accumulated unrealized appreciation in the value of investments 39,233 Accumulated undistributed investment income net 398 ----------- $2,577,059 =========== 6. REALIZED AND UNREALIZED GAINS ON INVESTMENTS (DOLLARS IN THOUSANDS) Realized and unrealized gains on investments are comprised of the following: Realized gain on investments $ 5,463 Net change in unrealized depreciation on investments (4,671) ---------- Net realized and unrealized gains on investments for the six months ended June 30, 2001 $ 792 ========== 7. RETIREMENT AND DEFERRED COMPENSATION PLANS The Trust participates in the AFL-CIO Staff Retirement Plan, which is a multi- employer defined benefit pension plan, covering substantially all employees. This plan was funded by employer contributions, at rates approximating 11.1 percent of employees' salaries for the six months ended June 30, 2001. The total Trust pension expense for the six months ended June 30, 2001 was approximately $216,200. The Trust also participates in a deferred compensation plan, referred to as a 401(k) plan, covering substantially all employees. This plan permits an employee to defer the lesser of 15 percent of their annual salary or the applicable IRS limit. The Trust matches dollar for dollar the first $1,550 of employee contributions. The Trust's 401(k) contribution for the six months ended June 30, 2001 was approximately $72,200. 8. BANK SECURITIES The Trust has a secured $12.5 million bank line of credit. Borrowings under this agreement bear interest at LIBOR plus one-half percent. One mortgage- backed security with a value of approximately $20.8 million (as of June 30, 2001) has been pledged as collateral for the line of credit. In addition, the Trust has a $12.5 million uncommitted and unsecured line of credit facility. As of June 30, 2001, the Trust had no outstanding balance on either of these facilities. No compensating balances are required. SUPPLEMENTAL INFORMATION Selected Per Share Data and Ratios for the Six Months Ended June 30, 2001 and the Years Ended December 31, 2000, 1999, 1998 and 1997
Six Months Ended June 30, 2001 2000 1999 1998 1997 ----------------------------------------------------------------------------- Per Share Data Net Asset Value, Beginning of Period $1,085.42 $1,035.72 $1,114.08 $1,104.30 $1,072.98 Net Investment Income 36.18 72.83 71.65 77.48 79.06 Net realized and unrealized gains (losses) on investments 0.58 49.70 (77.96) 11.15 31.84 Distribution from investment income - net (36.18) (72.83) (71.74) (77.55) (79.10) Distribution from realized gain on investments - - (0.31) (1.30) (0.48) --------- --------- -------- --------- --------- Net Asset Value, End of Period $1,086.00 $1,085.42 $1,035.72 $1,114.08 $1,104.30 ========= ========= ======== ======== ======== RATIOS Ratio of expenses to average net assets 0.38%(1) 0.38% 0.39% 0.39% 0.43% Ratio of net investment income to average net assets 6.6%(1) 6.9% 6.7% 6.8% 7.2% Portfolio turnover rate 34.1%(1) 25.9% 31.7% 39.5% 15.3% NUMBER OF OUTSTANDING UNITS AT END OF PERIOD 2,372,987 2,282,511 2,075,197 1,816,185 1,513,856 NET ASSETS, END OF PERIOD $2,577,059 $2,477,482 $2,149,327 $2,023,371 $1,671,745 TOTAL RETURN 6.90%(1) 12.31% (0.57%) 8.28% 10.74%
See accompanying notes to financial statements (1) Percents are annualized. [HIT logo] AFL-CIO Housing Investment Trust 1717 K Street, NW, Suite 707 Washington, DC 20036 (202) 331-8055 www.aflcio-hit.com