-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOIw39fsDFvNXAo63e1X/s+hfGNRX8FI6y5/IHmgR3MKYSDhJDTdCQ3awtZcBd8f MC6wBVzyACYeqwdfiml1TA== 0001026777-98-000015.txt : 19980310 0001026777-98-000015.hdr.sgml : 19980310 ACCESSION NUMBER: 0001026777-98-000015 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980309 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFL CIO HOUSING INVESTMENT TRUST CENTRAL INDEX KEY: 0000225030 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 526220193 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-03493 FILM NUMBER: 98559843 BUSINESS ADDRESS: STREET 1: 1717 K STREET NW STREET 2: STE 707 CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2023318055 MAIL ADDRESS: STREET 1: 1717 K ST NW SUITE 707 CITY: WASHINGTON STATE: DC ZIP: 20006 N-30D 1 AFL-CIO Housing Investment Trust Annual Report, 1997 Performance Highlights 1997 1996 -------------- --------------- Net Assets $1,672 million $1,383 million Participant Investment $283 million $276 million Investment Fundings $483 million $470 million New Commitments $351 million $363 million Total Participants 394 395 Unit Value $1,104.30 $1,072.98 Total Gross Rate of Return 11.22% 5.59% As of December 31 01 MESSAGE FROM THE PRESIDENT OF THE AFL-CIO [PICTURE OF JOHN J. SWEENEY] The performance of the AFL-CIO Housing Investment Trust in 1997, as highlighted in this report, illustrates the Trust's great value to America's working men and women. Its prudently selected, well-managed investments continue to reward workers by producing highly competitive returns for their pension plans. At the same time, I am proud of the growing impact the Trust is having on communities across the country through its investments in new housing, jobs, and economic development. With its strong performance, the Trust shows what working people can achieve when they put their capital assets to work to promote their long-term economic interests. Encouraged by its accomplishments, our new leadership team at the AFL-CIO is currently considering how we can promote other innovative forms of capital stewardship that will further enhance workers' economic well-being. When the AFL-CIO created this investment program in 1965, we were considered pioneers. Now the Trust has earned national stature as a leader in housing investment. It has given workers an effective vehicle for directing how portions of their pension assets are used, while at the same time changing the way this country meets its housing needs. The Trust is a model whose success we hope to emulate with our expanded capital stewardship initiative. /s/ John J. Sweeney John J. Sweeney 02 CHAIRMAN'S LETTER [PICTURE OF RICHARD RAVITCH] The AFL-CIO Housing Investment Trust posted an outstanding record in 1997. Its returns outpaced the industry benchmarks, participants brought a record level of new funds to the program, and by year-end its net assets registered a new high of $1.67 billion. In all key areas of fund management, the Trust met or surpassed its strategic goals for the year. What is particularly distinctive about this performance is the seasoned investment leadership that it reflects. The Trust's capacity for initiating and managing investment has grown impressively and is widely recognized throughout the financial and housing communities. Its reputation as a reliable source of technical expertise in the complex world of real estate lending has made it a welcome investment partner. This has positioned the Trust to open doors to new collaborative relationships with partners such as HUD, FHA, Fannie Mae, Freddie Mac, and state and local housing finance agencies and to develop innovative investment tools to increase investment opportunity and enhance returns. The Trust's leadership in these areas benefits you, our participants, by creating the flexibility to move into the most favorable segments of the market under changing conditions. This active and versatile lending program positions the Trust for another highly productive year in 1998. Recent uncertainties in the global stock market remind us of the important role fixed income investments play in a balanced pension fund. We feel confident that with its exceptional record and strong leadership in housing investment, the Trust will continue to offer a very attractive opportunity for our investors in the period ahead. /s/ Richard Ravitch Richard Ravitch 03 REPORT TO PARTICIPANTS Impressive PERFORMANCE The AFL-CIO Housing Investment Trust generated very competitive returns for participating investors in 1997. Trust participants earned a total gross rate of return of 11.22 percent for the year ended December 31 a rate well above the industry benchmarks that are generally used for comparative analysis. Rates for the Salomon Brothers Mortgage Index and Lehman Brothers Aggregate Bond Index, by comparison, were 9.27 percent and 9.67 percent respectively. The Trust's total gross rates of return for longer periods were similarly impressive: 12.15 percent, 8.74 percent, and 10.15 percent, respectively, for the three-year, five-year, and ten-year periods ending December 31, 1997. These rates, too, exceeded the standard benchmarks, as shown in the table that follows. Net investment income showed an increase to nearly $109 million in 1997, up 18 percent from 1996. The net increase in net assets resulting from operations showed an even more substantial gain, reaching $154 million in 1997, a 129 percent increase. Also contributing to the rise in net investment income were a $751,000 realized gain on the sale of investments and a $44 million net increase in unrealized appreciation on investments. Participants' shares in the Trust benefited from these gains. The total net asset value per unit was up 3 percent to $1,104.30 at the close of 1997, compared to $1,072.98 a year earlier. The Trust also provided participants with strong net rates of return. The one-year rate at the close of 1997 was 10.74 percent; three-year, 11.65 percent; five-year, 8.23 percent; and ten-year, 9.61 percent.
PERFORMANCE TOTAL GROSS RATE OF RETURN 1 YEAR 3 YEAR 5 YEAR 10 YEAR - ------------------------------------------------------------------------------ AFL-CIO HOUSING INVESTMENT TRUST 11.22% 12.15% 8.74% 10.15% SALOMON BROTHERS MORTGAGE INDEX 9.27% 10.37% 8.74% 9.37% LEHMAN BROTHERS AGGREGATE BOND INDEX 9.67% 10.42% 7.48% 9.18%
Historic GROWTH The Trust's net assets reached a historic high of $1.67 billion at year-end. This represented a gain of more than 20 percent since the close of the prior year, when net assets were $1.38 billion. Participants brought a total of $283 million in new investment to the Trust during the year. This included $96 million in earnings reinvested by participants. The impressive total for new investment was up 3 percent over the year earlier an indicator of continued participant confidence in the Trust. At year-end, there were 394 participants in the Trust, including both Taft-Hartley and public sector pension plans. The number of units of participation grew by 17 percent during 1997 to a total of 1,513,856 units as of December 31. 04 Well-managed PORTFOLIO The robust performance of the Trust in 1997 reflected the success of its strategy of active portfolio management. Portfolio allocation and duration of investments were continually monitored and adjusted in an effort to maximize yield and mitigate negative impacts of market fluctuations. At December 31, 43.8 percent of the portfolio was in mortgage-backed securities, including GNMA securities, 22.9 percent; FNMA securities, 13.7 percent; GNMA construction loans, 4.1 percent; and FHLMC securities, 3.1 percent. FHA mortgages comprised the second largest category in the portfolio, at 31.6 percent. Another 18.8 percent of the portfolio was in FHA construction loans. Local initiatives accounted for 0.8 percent of the portfolio. The Trust's short-term investments were 5.0 percent of the total portfolio, in keeping with the management goal of maintaining a low cash position. The long-term portfolio of the Trust was allocated 69.9 percent to multi-family and 30.1 percent to single-family instruments. The Trust continued to offer investors a high degree of security, with over 99 percent of HIT's long-term investments insured or guaranteed by the U.S. government or government-sponsored enterprises such as Fannie Mae or Freddie Mac. The highly efficient management structure of the Trust was reflected in a reduced ratio of expenses to average net assets, a rate of 0.43 percent for the year.
LOAN PRODUCTION -DOLLAR VOLUME YEAR DOLLAR VALUE (IN MILLIONS) SINGLE FAMILY MULTI-FAMILY TOTAL ---------------------------------------------------------------- 1990 - $59 $59 1991 $26 85 111 1992 102 67 169 1993 42 103 145 1994 51 161 212 1995 70 258 328 1996 35 328 363 1997 65 286 351
PORTFOLIO DISTRIBUTION FHA MORTGAGES 31.6% FHA CONSTRUCTION LOANS 18.8% GNMA SECURITIES 22.9% GNMA CONSTRUCTION LOANS 4.1% FNMA SECURITIES 13.7% FHLMC SECURITIES 3.1% LOCAL INITIATIVES 0.8% SHORT-TERM INVESTMENTS 5.0%
05 Knowledgeable INVESTMENT Although growth was at a record level in 1997, loan production capacity kept pace, producing the highest level of project fundings in the Trust's history. This performance reflected the breadth of the Trust's continually expanding relationships with investment partners throughout the country. These relationships make it possible for HIT to maintain an exceptional pipeline of diverse and attractive investment prospects nationwide. During the year, HIT made $351 million in new lending commitments. Of these, $286 million will provide financing for 17 multi-family projects that will create over 3,100 units. The remaining $65 million were issued in four single-family commitments that will produce over 570 units of housing. The Trust placed a total of $483 million in project fundings in 1997. This included $265 million for multi-family projects, $183 million for single-family homes, and $35 million for other intermediate investments. The following sampling of projects serves to illustrate the wide range of housing needs met through Trust financing in 1997: [DRAWING OF ONE EMBARCADERO PROJECT] San Francisco -- A distinctive twin-tower high-rise known as One Embarcadero is rapidly taking shape on San Francisco Bay. When completed, it will have 233 housing units, 16 of which will be subsidized to make them more affordable. HIT is furnishing $42 million toward the $71.2 million project. In a first for the Trust, it is coordinating its participation in the project with its sister fund, the AFL-CIO Building Investment Trust, which is providing construction and equity financing. HIT's participation grew from the close partnership it has forged with the city and community of San Francisco. The project complements other renewal activities in the city's South Beach District. Development of One Embarcadero is expected to generate more than 700 jobs. [DRAWING OF LOWELL SQUARE PROJECT] Boston -- The Lowell Square Apartments in Boston's West End won praise from the mayor, state governor, a member of Congress, bank executives, religious leaders, and housing advocates, all of whom helped dedicate the project in the fall of 1997. HIT's $12.2 million in construction and permanent financing helped meet the project's $31.7 million total development cost. Lowell Square is a mixed-income limited equity cooperative, with 77 market-rate, 48 moderate-income, and 58 low-income units. Its innovative financing package included a special state appropriation, funds from state and city housing programs, and equity from low-income housing tax credits. A nonprofit housing developer affiliated with the Archdiocese of Boston served as co-developer along with a for-profit development firm. The project generated over 300 jobs. 06 [DRAWING OF McCORMACK HOUSE PROJECT] St. Louis -- Out of the Trust's partnership with the Missouri Housing Development Commission is emerging a new retirement community that will provide affordable assisted living for elderly residents of St. Louis. The McCormack House project will create 96 assisted living units, 70 of which will be for low- and moderate-income elderly. The Trust is financing $1.4 million of the $7.4 million development cost. As an FHA-Housing Finance Agency shared risk project, McCormack House also benefits from $1.9 million in financing from taxable bonds issued by the Missouri Housing Development Commission. St. Louis was one of the cities targeted in 1993 by the Trust's National Partnership for Community Investment, and projects there have received nearly $70 million in HIT financing since that time. [DRAWING OF RIVERWATCH COMMONS PROJECT] New Brunswick, NJ -- Riverwatch Commons is a handsome new co-op apartment building that was completed here in 1997. The five-story brick structure contains 117 affordable apartment units. The Trust provided $7.6 million in construction and permanent financing for this project. Total development costs were $11.5 million. Riverwatch generated over 100 construction and related jobs. The Trust's close working relationships with investment partners in New Jersey have produced more than $166 million in HIT lending in the state over the past five years. Since 1990, the Trust has financed 165 projects that provide over 29,000 units of housing nationwide. 07 Confident FUTURE To stay on the forward edge of housing development, the Trust has innovative plans for expanding its investment partnerships in the period ahead. One of its most promising new ventures is the Homeownership Opportunity Initiative, a joint effort by the Trust and Fannie Mae. The initiative opens attractive new financing opportunities for the Trust in thirteen pilot cities, through the production of single-family housing and home ownership opportunities for low- and moderate-income people. The Trust has also taken steps to participate with HUD in new partnerships in a number of cities to revitalize public housing. These growing opportunities will help maintain a healthy pipeline of investment projects in the years ahead. In cooperation with the FHA, the Trust will undertake new activities to build its highly productive relationships with state and local housing finance agencies. These partnerships with qualified housing finance agencies are expected to provide important opportunities for future Trust investment. Another key growth area for the Trust will be its new authority to offer secured bridge loans and certain other investment products. Approved by the Trustees and Participants in 1997, this lending authority gives our potential borrowers additional reasons to look to HIT for the financing of their housing projects. The Trust intends to continue its exploration of other potential products in order to stay ahead of changing markets. The Trust continues to build its capacity to underwrite and manage a steadily growing volume of investments. In 1997 it obtained the services of the distinguished accounting firm of Arthur Andersen LLP to serve as the Trust's public accountant. The Board approved a change to Bankers Trust Company as custodian of investment documents, effective in early 1998. Additionally, the Trust is in the process of implementing enhanced technology and analytical tools that will aid in portfolio management and strengthen the flow of communications to participants and their consultants. This active agenda demonstrates that the Housing Investment Trust is prepared to build on its accomplishments. In this decade to date, the Trust has provided more than $2.5 billion in fundings. Our overriding goal for the remainder of the decade is to pursue the wide-ranging investment opportunities that the Trust has created, through leadership and innovation, to help assure a secure future for the beneficiaries of our participating pension plans. 08 1997 PARTICIPANTS MEETING The 1997 Annual Meeting of Participants was held in Washington, D.C. on May 13, 1997. The following matters were put to a vote of Participants, through the solicitation of proxies, at the meeting: RICHARD RAVITCH was re-elected to chair the Board of Trustees by a vote of 998,487.0872 for, 652.0795 against, 4,098.6218 abstentions, and 318,752.2297 votes not cast. The following table details votes pertaining to Trustees who were elected at the Annual Meeting:
Trustee Votes For Votes Against Votes Abstained Votes not Cast - ------- --------- ------------- --------------- ----------- Robert A. Georgine 917,257.9391 15,034.5425 70,945.3069 318,752.2297 John T. Joyce 930,607.6892 1,684.7924 70,945.3069 318,752.2297 Alfred J. Fleischer 931,963.3662 0 71,274.4223 318,752.2297 Marlyn J. Spear 899,481.6149 0 103,756.1736 318,752.2297
TRUSTEES Arthur A. Coia, Terrence R. Duvernay, Frank Hanley, Frank Hurt, Walter Kardy, George Latimer, H.D. LaVere, A.L. Monroe, Tony Stanley, John J. Sweeney, Linda Chavez-Thompson, Richard L. Trumka and Patricia F. Wiegert were not up for election in 1997. Their terms continued after the date of the Annual Meeting. ARTHUR ANDERSEN LLP was ratified as the Trust's Public Accountant by a vote of 999,165.4771 for, 150.1577 against, 3,922.1537 abstentions, and 318,752.2297 votes not cast. AMENDMENTS TO THE TRUST'S CHARTER were ratified to authorize investment in (A) construction or permanent loans issued or guaranteed by state housing finance agencies rated "A" or better by Standard & Poor's Inc., securities backed by such loans and interests in such loans or securities and (B) secured bridge loans by a vote of 997,183.2011 for, 10.0000 against, 6,044.5874 abstentions, and 318,752.2297 votes not cast. WELLINGTON MANAGEMENT COMPANY LLP was ratified as the Trust's Investment Adviser for short-term assets by a vote of 974,814.9057 for, 20,483.2273 against 7,939.6555 abstentions, and 318,752.2297 votes not cast. 09 AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST FINANCIAL STATEMENTS DECEMBER 31,1997 (with Independent Auditor's Report Thereon) 10 STATEMENT OF ASSETS AND LIABILITIES December 31, 1997 (Dollars in thousands unless noted) Assets Investments, at value (amortized cost $1,623,461) $1,689,061 Cash 866 Accrued interest receivable 10,962 Accounts receivable 496 Prepaid expenses and other assets 1,236 ---------- Total Assets 1,702,621 ---------- Liabilities Accounts payable and accrued expenses 911 Redemptions payable 28,013 Refundable deposits 776 Income distribution payable, net of dividends reinvested of $8,751 1,176 --------- Total Liabilities 30,876 Net assets applicable to participants' equity - certificates of participation; authorized unlimited; outstanding 1,513,856 units (note 5) $1,671,745 --------- Net asset value per unit of participation (in dollars) $1,104.30 --------- See accompanying notes to financial statements.
SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands) FHA Mortgages (31.6%) Interest Maturity Face Amortized Value Rates Date Amount Cost -------- -------- ------ --------- ------ Single-Family 7.75% Jul-2021-Aug-2021 $1,728 1,728 1,764 8.00% Jul-2021 1,792 1,799 1,843 10.31% Feb-2016 78 78 78 11.31% Mar-2016 89 89 89 -------- ------- ------ 3,686 3,693 3,773 /TABLE 11 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
FHA MORTGAGES (31.6%) Interest Maturity Face Amortized Value Rates Date Amount Cost -------- -------- ------ --------- ------ Multi-family 6.50% Aug-2004 17,899 17,899 17,589 6.75% Sep-2037 3,692 3,205 3,639 7.25% Dec-2028-Feb-2029 33,776 34,315 34,524 7.43% May-2023 17,948 18,321 18,319 7.50% Nov-2022 7,610 7,801 7,724 7.55% Aug-2012 956 711 956 7.63% Apr-2031 33,092 33,100 33,754 7.75% Apr-2029 23,269 23,276 24,393 7.88% Mar-2034 12,382 12,575 13,001 7.93% Jul-2035 19,673 19,682 20,699 7.95% Apr-2029 1,735 1,735 1,769 8.00% Sep-2031-Sep-2034 15,659 15,616 16,323 8.13% Aug-2029-Nov-2037 27,253 27,203 28,485 8.18% Feb-2036-Nov-2036 40,990 40,456 43,561 8.25% Feb-2026-Sep-2035 36,521 36,548 38,122 8.30% Nov-2027-Jun-2036 11,244 11,191 12,031 8.38% Jan-2027-Nov-2034 39,249 39,270 41,394 8.40% Apr-2012-Jan-2028 14,716 14,367 15,524 8.50% Apr-2012-Feb-2035 13,217 13,068 14,003 8.60% Jan-2028 2,059 2,062 2,203 8.63% Dec-2029 4,258 4,261 4,556 8.65% Jul-2022 1,429 1,429 1,497 8.70% Jan-2027-Feb-2033 13,271 13,487 13,636 8.75% May-2036-Sep-2036 12,322 12,208 13,162 8.80% Oct-2032 5,661 5,664 5,944 8.88% Sep-2029-Jun-2036 23,913 23,833 25,547 9.00% Jun-2032-Nov-2035 20,063 19,919 21,253 9.13% Apr-2031-May-2035 16,440 16,445 17,061 9.25% Jun-98-Jun-2034 9,789 9,789 10,252 9.31% Dec-2032 181 178 190 9.38% Jun-2034 1,873 1,905 2,004 9.40% Jan-2036 9,673 9,679 10,351 9.50% Jul-2027 381 391 407 9.75% Apr-2031-Jan-2033 6,253 6,230 6,648 10.00% May-2002-Mar-2031 5,887 5,887 6,297 10.15% Mar-2034 1,967 1,967 2,046 10.45% Jan-2030 1,222 1,229 1,247 -------- -------- -------- 507,523 506,902 530,111 -------- -------- -------- TOTAL FHA MORTGAGES 511,209 510,595 533,884 -------- -------- -------- /TABLE 12 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
FHA CONSTRUCTION LOANS (18.8%) Interest Rates Maturity Commitment Face Amortized Value Perm Const Date* Amount Amount Cost ---- ----- ------- --------- -------- ---------- ----- Multi-family 6.75% 6.75% Mar-2021 $ 1,141 0 0 0 6.75% 6.75% Mar-2038 3,123 2,732 2,139 2,615 6.75% 6.75% Jun-2040 1,103 0 0 (33) 7.13% 7.13% Apr-2039 8,200 0 0 34 7.50% 7.50% May-2037 10,145 9,148 9,148 9,426 7.55% 7.55% Nov-2037 9,225 7,928 7,940 8,220 7.63% 7.63% Dec-2027 33,989 28,345 28,093 29,638 7.63% 7.63% Jun-2037 12,105 10,907 10,912 11,363 7.70% 7.95% Apr-2038 85,622 80,865 79,023 83,433 7.70% 7.70% Oct-2039 12,535 4,088 3,965 4,586 7.75% 7.75% Oct-2037 3,050 3,050 3,046 3,202 7.75% 7.75% Jan-2038 7,218 6,777 6,777 7,178 7.75% 7.75% Aug-2038 1,452 0 0 29 7.80% 7.80% Feb-2038 21,801 7,167 7,167 8,322 7.85% 7.85% Sep-2037 2,621 2,374 2,374 2,513 7.88% 7.88% Mar-2037 4,275 3,918 3,922 4,170 7.88% 7.88% Nov-2038 5,282 2,342 2,342 2,447 7.90% 8.13% Feb-2038 41,836 36,613 36,417 36,613 7.97% 7.97% Jul-2038 4,134 2,855 2,792 2,971 8.00% 8.00% Jul-2038 7,600 7,618 7,476 8,073 8.13% 8.13% Apr-2028 5,007 5,007 5,007 5,508 8.13% 8.50% Aug-2038 3,992 3,458 3,458 3,735 8.25% 8.25% Nov-2036 3,645 3,270 3,273 3,525 8.25% 8.50% Feb-2037 5,265 4,852 4,856 5,220 8.31% 8.31% Mar-2038 22,998 20,321 19,989 21,931 8.75% 8.80% Mar-2037 29,095 27,133 27,139 28,995 9.25% 9.25% May-2036 20,600 19,493 19,499 20,935 9.90% 10.00% Oct-2032 2,262 2,173 2,188 2,310 --------- -------- --------- TOTAL FHA CONSTRUCTION LOANS 302,434 298,943 316,957 --------- -------- --------
* Permanent mortgage maturity date. 13 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
GNMA SECURITIES (22.9%) Interest Maturity Face Amortized Value Rates Date Amount Cost -------- -------- ------ --------- --------- Single-Family 7.00% Apr-2026 $ 9,283 9,180 9,361 7.50% Oct-2025-Dec-2027 82,994 84,701 85,017 8.00% Mar-2017-May-2027 114,890 117,622 118,935 8.50% Jul-2021-Aug-2025 62,730 64,907 66,416 9.00% May-2016-Jun-2016 20,949 21,837 22,509 9.50% Aug-2016-Sep-2021 5,832 6,019 6,303 10.00% Jun-2019 40 40 40 11.00% Jul-2015-Sep-2016 172 172 172 11.25% Oct-2015 89 89 89 12.00% Apr-2015-Jun-2015 64 64 64 12.25% Apr-2015 6 6 6 13.00% Jul-2014 5 5 5 13.25% Dec-2014 8 8 8 13.50% Aug-2014 4 4 4 --------- --------- -------- 297,065 304,656 308,929 --------- --------- ------- Multi-family 6.75% Nov-2028 13,100 13,137 13,131 7.70% Jul-2036 9,039 9,084 9,672 7.88% Jul-2039 0 0 1,341 8.25% May-2032-Jul-2037 13,161 13,319 13,632 8.50% Jan-2027-Jul-2029 13,353 13,463 13,955 8.75% Dec-2026 4,394 4,394 4,513 9.00% Jun-2030-May-2031 12,699 12,134 13,584 10.05% May-2026 1,260 1,260 1,296 12.55% Jun-2025 6,121 6,016 6,271 -------- -------- ------- 73,128 72,807 77,394 -------- -------- ------- TOTAL GNMA SECURITIES 370,193 377,463 386,323 -------- -------- -------
14 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
GNMA CONSTRUCTION LOANS (4.15) Interest Rates Maturity Commitment Face Amortized Value Perm Const Date* Amount Amount Cost ---- ----- ------- --------- ---------- ---------- ------- Multifamily 7.10% 7.10% Oct-2039 $42,137 18,547 18,387 18,899 7.12% 7.12% Nov-2038 7,516 816 742 870 7.18% 7.18% Jan-2039 4,095 25 25 69 7.33% 7.76% Nov-2029 27,555 0 0 98 7.63% 7.63% Oct-2037 7,615 7,160 7,090 7,568 7.80% 8.00% Jan-2039 54,238 17,933 17,944 20,916 8.04% 7.88% Jan-2039 20,958 3,667 3,742 4,856 8.25% 8.25% Sep-2037 9,935 9,194 9,199 9,217 ------- ------ ------- TOTAL GNMA CONSTRUCTION LOANS 63,731 63,293 69,494 ------- ------ ------- *Permanent mortgage maturity date
FNMA SECURITIES (13.7%) Interest Maturity Face Amortized Value Rates Date Amount Cost -------- ------- --------- ---------- -------- Single-family 7.00% Jan-2004-Jan-2028 $ 34,023 33,755 34,278 7.50% Jul-2024-Sep-2027 31,988 32,412 32,747 8.00% Jun-2025-Jun-2027 35,608 35,764 36,877 8.25% Oct-2021 156 155 162 8.50% Aug-2021-Oct-2026 19,412 19,780 20,273 9.00% Jan-2024-May-2025 1,555 1,625 1,654 -------- ------- -------- 122,742 123,491 125,991 -------- ------- -------- /TABLE 15 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
FNMA SECURITIES (13.7%) Interest Maturity Commitment Face Amortized Value Rates Date Amount Amount Cost --------- ------- --------- ---------- --------- ------- Multi-family 7.50% Jan-2015 $ 3,030 0 0 0 7.63% Apr-2012 1,489 0 0 30 7.75% Dec-2012-Jan-2025 6,170 1,111 1,100 1,133 7.88% Feb-2013-Apr-2027 1,333 2,816 2,816 3,016 8.00% Nov-2019-May-2020 7,220 7,175 7,654 8.13% May-2020 8,370 8,309 8,873 8.25% Jun-2008-Mar-2014 3,634 1,183 1,168 1,412 8.50% Jan-2007-May-2012 2,332 488 484 601 8.63% Sep-2006 726 718 777 8.75% Sep-2025 10,939 10,939 11,420 8.88% Sep-2025 10,637 10,644 11,249 9.00% Jan-2022 1,129 1,118 1,242 9.13% Jul-2012-Sep-2015 12,957 12,920 13,990 9.13% May-2022 551 0 0 44 9.25% Jun-2018-Sep-2026 6,944 6,898 7,638 9.75% Feb-2023 1,981 1,965 2,173 ------- ------ ------ 66,501 66,254 71,250 ------- ------ ------ Other 6.18% May-99 10,000 10,014 10,059 6.24% May-99 10,000 9,991 10,064 6.27% May-99 10,000 9,994 10,069 6.43% Apr-99 5,000 5,034 5,043 ------- ------- ------ 35,000 35,033 35,235 ------- ------- ------- TOTAL FNMA SECURITIES 224,242 224,778 232,476 ------- ------- ------- /TABLE 16 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
FHLMC SECURITIES (3.1%) Interest Maturity Face Amortized Value Rates Date Amount Cost -------- -------- ------ --------- ---------- Single-family 6.50% Oct-2027 $ 196 195 194 7.00% May-2004-Feb-2027 4,610 4,618 4,658 7.50% Nov-2003-Oct-2027 11,699 11,816 11,987 8.00% Jun-2024-Jul-2027 14,267 14,459 14,757 8.25% Dec-2022 657 653 683 8.50% Jul-2024-Jun-2025 8,942 9,006 9,336 9.00% Mar-2025 1,963 1,988 2,090 ------- -------- ------ 42,333 42,736 43,706 ------- -------- ------ Multi-family 8.00% Feb-2009 8,318 8,330 8,484 ------- ------- ------ TOTAL FHLMC SECURITIES 50,651 51,066 52,190 ------- ------- ------
LOCAL INITIATIVES (0.8%) Interest Maturity Commitment Face Amortized Value Rates Date Amount Amount Cost ------- ------- ------- -------- ------ ------- Multi-family 8.00% May-2025 4,935 4,919 5,034 8.38% Feb-2007 996 1,020 1,013 8.50% Jan-2005 $1,016 994 974 1,014 8.63% Jan-2008 755 0 0 15 8.63% Sep-2012-Jun-2025 1,941 1,936 2,010 9.13% May-2017 701 706 736 9.39% Dec-2023 978 974 1,027 9.50% Aug-2012-Apr-2024 2,200 2,212 2,307 ------- ------- ------ TOTAL LOCAL INITIATIVES 12,744 12,741 13,155 ------- ------- ------ TOTAL LONG-TERM INVESTMENTS $1,535,204 1,538,879 1,604,479 ---------- --------- ---------
17 SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 1997 (Dollars in thousands)
SHORT-TERM INVESTMENTS (5.0%) Maturity Face Amortized Description Date Rate Amount Cost Value - ----------- -------- -------- -------- -------- --------- COMMERCIAL PAPER George Washington University 05-Jan-98 6.00% $5,000 5,000 5,000 Archer Daniels Midland Co. 06-Jan-98 6.20% 5,000 4,996 4,996 Sara Lee Corp. 07-Jan-98 6.00% 5,000 4,995 4,995 Enterprise Funding Corp. 09-Jan-98 5.74% 5,000 4,994 4,994 Delaware Funding Corp. 16-Jan-98 5.95% 5,000 4,988 4,988 Falcon Asset Management 20-Jan-98 6.00% 5,025 5,009 5,009 PREFCO 20-Jan-98 6.02% 5,000 4,984 4,984 Park Avenue Receivable 23-Jan-98 5.90% 5,000 4,982 4,982 Centric Capital Corp. 30-Jan-98 5.85% 5,000 4,976 4,976 Fleet Funding Corp. 30-Jan-98 5.95% 5,000 4,976 4,976 American General Finance 12-Feb-98 5.69% 5,000 4,967 4,967 Beneficial Corp. 24-Feb-98 5.58% 5,000 4,958 4,958 Associates Corp. NA 24-Feb-98 5.58% 5,000 4,958 4,958 Metlife Funding, Inc. 26-Feb-98 5.68% 5,000 4,956 4,956 New York Life Capital Corp. 27-Feb-98 5.68% 5,000 4,955 4,955 Island Finance PR 27-Feb-98 5.70% 5,000 4,955 4,955 National Rural Utilities 26-Mar-98 5.70% 5,000 4,934 4,934 ------ ------ ------ TOTAL SHORT-TERM INVESTMENTS 85,025 84,582 84,582 ------ ------ ------
TOTAL INVESTMENTS Face Amount Amortized Cost Value -------------- --------------- -------- $1,620,229 1,623,461 1,689,061 18 STATEMENT OF OPERATIONS Year ended December 31,1997 (Dollars in thousands)
INVESTMENT INCOME: Interest: FHA mortgages $ 41,786 FHA construction loans 21,750 GNMA securities 28,993 FNMA securities 14,255 FHLMC securities 3,883 Local initiatives 1,058 Short-term investments 5,255 Discount and (premium) (1,729) amortization and other income, net ---------- TOTAL INCOME 115,251 ---------- EXPENSES: Salaries and fringe benefits 3,798 Legal fees 237 Consulting fees 157 Auditing and tax accounting fees 78 Insurance 175 Marketing and sales promotion 498 Program development 263 Trustee expenses 33 General expenses 1,219 --------- TOTAL EXPENSES 6,458 Investment income - net 108,793 ---------- Net realized gain on sale of investments 751 ---------- Net change in unrealized appreciation and (depreciation)on investments (note 4) 44,383 ------------ Net gain on investments 45,134 ------------ Net increase in net assets resulting from operations $153,927 ----------- See accompanying notes to financial statements. /TABLE 19 STATEMENT OF CHANGES IN NET ASSETS Years ended December 31, 1997 and 1996 (Dollars in thousands)
INCREASE IN NET ASSETS FROM OPERATIONS 1997 1996 ------------ --------- Investment income - net $108,793 92,434 Net realized gain on sale of investments 751 748 Net change in unrealized appreciation and (depreciation) 44,383 (25,991) -------- -------- Net increase in net assets resulting from operations 153,927 67,191 -------- -------- Distribution paid to participants or reinvested from: Investment income - net (108,848) (91,992) Net realized gain on investments (733) 0 --------- --------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 1997 1996 ----------- -------- Proceeds from the sale of 171,967 and 186,419 units of participation in 1997 and 1996, respectively 187,444 198,303 Dividend reinvestment of 88,600 and 73,296 units of participation in 1997 and 1996, respectively 96,007 78,074 Payments for redemption of 35,793 and 32,866 units of participation in 1997 and 1996, respectively (39,215) (35,306) -------- ---------- Net increase from share transactions 244,236 241,071 -------- ---------- TOTAL INCREASE IN NET ASSETS 288,582 216,270 -------- ---------- Net Assets at the beginning of period 1,383,163 1,166,893 --------- ---------- Net Assets at end of period $1,671,745 1,383,163 --------- ---------- 20 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, construction loans and participation certificates, are valued using published prices, dealer bids, or cash flow models discounted using market-based discount and prepayment rates, developed individually for each security. The market-based discount rate is composed of a risk-free yield (i.e., a U.S. Treasury Note with a weighted average life comparable to the security being valued) adjusted for an appropriate risk premium. The risk premium reflects actual premiums in the marketplace over the yield on U.S. Treasury securities of comparable risk and maturity to the security being valued as adjusted for other market considerations. On loans for which the Trust finances the construction and permanent mortgage, value is determined based upon the total amount of the commitment for the term of the construction loan plus the permanent mortgage loan. For construction-only loans, the outstanding principal balance of the loan is used to approximate value, assuming no decline in credit quality. SHORT-TERM INVESTMENTS, consisting of 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 prospectus. 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 reporting 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 which allows current participants to automatically reinvest their income distribution into Trust units of participation. Total reinvestment approximated 88 percent of distributable income for the year ended December 31, 1997. 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 loans 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 loan or mortgage-backed security. Realized gains and losses from investment transactions are recorded on the trade date using an identified cost basis. 2. TRANSACTIONS WITH AFFILIATES During the year ended December 31, 1997, certain members of the Trust's staff provided services to the AFL-CIO Building Investment Trust, a Maryland Group Trust. The total cost for these services and related expenses for the year ended December 31, 1997, amounted to $1,428,849. The Trust was reimbursed for all of these costs, except for $385,166 which is included within accounts receivable in the accompanying financial statements. 3. COMMITMENTS The assets of the Trust are invested in short-term investments until they are required to fund commitments for construction loans, mortgage-backed securities or permanent mortgages. At December 31, 1997, the Trust had remaining unfunded commitments of approximately $278,800,000 to fund construction and permanent mortgages, and other investments. 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. 21 4. INVESTMENT TRANSACTIONS (dollars in thousands) A summary of investment transactions for the separate instruments included in the Trust's investment portfolio, at amortized cost, for the year ended December 31, 1997, follows:
Investment Transactions FHA GNMA FHA Construction GNMA Construction FNMA FHLMC Local Mortgages Loans Securities Loans Securities Securities Initiatives --------- ------------ ---------- ------------ --------- ---------- ----------- Balance, January 1, 1997 $467,115 226,936 350,327 15,051 151,307 46,593 12,286 Purchases & construction loan advances, net of discounts 1,740 177,013 123,659 73,114 94,236 11,742 1,516 Change in Discounts & Premiums (747) (807) 1,796 110 (391) 3 (35) Transfers 109,960 (91,531) 2,851 (21,280) 0 0 0 Principal Reductions (67,473) (12,668) (101,170) (3,702) (20,374) (7,272) (1,026) --------- ------- --------- -------- --------- ------- -------- Balance, December 31, 1997 510,595 289,943 377,463 63,293 224,778 51,066 12,741 --------- ------- --------- --------- --------- ------- ---------
For the year ended December 31, 1997, the Trust had net unrealized appreciation in value of investments of $44,383. The accumulated unrealized net appreciation in the value of investments of securities was $65,600. 5. PARTICIPANTS' EQUITY (dollars in thousands) Participants' equity consisted of the following at December 31, 1997 Amount invested and reinvested by current participants $1,606,374 Gain (loss) on redemption of units of participation (967) Accumulated net unrealized appreciation in the value of investments 65,600 Accumulated undistributed investment income - net 738 ----------- $1,671,745 ----------- 6. 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 16.9 percent of employees' salaries during the six months ended June 30, 1997 and 17.4 percent of employees' salaries for the six months ended December 31, 1997. The Trust's total pension expense for the year ended December 31, 1997 was approximately $539,000. The Trust has a tax deferred compensation plan, referred to as a 401(k) plan, covering substantially all employees. This plan permits employees to defer the lesser of 15 percent of their annual salary or the applicable IRS limit. The Trust matched dollar for dollar the first $1,250 of employee contributions. The Trust's 401(k) contribution for the year ended December 31, 1997 was approximately $57,000. 7. BANK LOANS The Trust has a secured $25,000,000 bank line of credit. Borrowings under this agreement bear interest at LIBOR plus one-half percent. Five mortgage-backed securities have been pledged as collateral for the line of credit. As of December 31, 1997, the Trust had no outstanding balance on this line of credit. No compensating balances are required. 22 SUPPLEMENTAL INFORMATION Selected Per Share Data and Ratios for the Years Ended December 31, 1997, 1996, 1995, 1994, 1993
PER SHARE DATA 1997 1996 1995 1994 1993 ------ ------ ------- ------ ----- Investment Income $ 83.77 84.10 86.50 87.13 91.83 Expenses (4.71) (4.99) (5.38) (5.47) (5.90) ---------- ------- ------- ------ ------- Investment Income - net 79.06 79.11 81.12 81.66 85.93 Distribution from investment income - net (79.10) (78.76) (80.77) (81.66) (83.64) Distribution from realized gain on investments (0.48) (2.29) Net asset value Beginning of period 1,072.98 1,098.53 991.40 1,102.58 1,086.40 Net increase (decrease) in net asset value 31.32 (25.55) 107.13 (111.18) 16.18 --------- --------- ------- -------- ------- END OF PERIOD $1,104.30 1,072.98 1,098.53 991.40 1,102.58 --------- --------- -------- -------- --------
RATIOS 1997 1996 1995 1994 1993 ------ ------ ------- ------ ----- Ratio of expenses to average net assets 0.4% 0.5% 0.5% 0.5% 0.5% Ratio of net investment income to average net assets 7.2% 7.3% 7.6% 7.8% 7.5% Portfolio turnover rate 15.3% 20.3% 31.2% 27.5% 24.2% Number of outstanding units at end of period 1,513,856 1,289,082 1,062,234 943,378 767,101
See accompanying notes to financial statements. 23 INDEPENDENT AUDITORS' REPORT TO THE PARTICIPANTS AND TRUSTEES OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST: We have audited the accompanying statement of assets and liabilities of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust (the Trust), including the schedule of portfolio investments, as of December 31, 1997, and the related statement of operations, changes in net assets and the selected per share data and ratios for the year then ended. These financial statements and per share data and ratios are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and per share data and ratios based on our audit. The financial statements of the Trust as of December 31, 1996, and the per share data and ratios for each of the four years then ended were audited by other auditors whose report, dated January 29,1997, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included verification by examination, or confirmation by correspondence with the custodian, of investments owned at December 31, 1997. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and selected per share data and ratios referred to above present fairly, in all material respects, the financial position of the American Federation of Labor and Congress of Industrial Organizations Housing Investment Trust as of December 31, 1997, the results of its operations and changes in its net assets, selected per share data and ratios for the year then ended, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Washington, D.C. January 21, 1998 24 TRUSTEES Richard Ravitch, Chairman* Principal Ravitch, Rice and Company John J. Sweeney* President AFL-CIO Richard L. Trumka Secretary-Treasurer AFL-CIO Linda Chavez-Thompson Executive Vice President AFL-CIO Arthur A. Coia President Laborers' International Union of North America Terrence R. Duverney Legg Mason Public Finance Alfred J. Fleischer Chairman Fleischer-Seegar Construction Company Robert A. Georgine President Building and Construction Trades Department, AFL-CIO Frank Hanley President International Union of Operating Engineers Frank Hurt President Bakery, Confectionery & Tobacco Workers International Union John T. Joyce President International Union of Bricklayers and Allied Craftworkers Walter M. Kardy President Specialty Contractors Management, Inc. George Latimer Distinguished Visiting Professor Macalester College H. D. LaVere President Michigan Carpentry, Inc. & Thunderbird Homes A. L. "Mike" Monroe President International Brotherhood of Painters and Allied Trades Marlyn J. Spear Investment Coordinator Milwaukee & Vicinity Building Trades United Pension Trust Fund Tony Stanley* Vice President TransCon Builders, Inc. Patricia F. Wiegert Retirement Administrator Contra Costa County Employees' Retirement Association *Executive Committee Members EXECUTIVE OFFICERS [PHOTOGRAPH OF STEPHEN COYLE] Stephen Coyle Chief Executive Officer [PHOTOGRAPH OF MICHAEL M. ARNOLD] Michael M. Arnold Director of Investor Relations [PHOTOGRAPH OF JAMES D. CAMPBELL] James D. Campbell Chief Investment Officer [PHOTOGRAPH OF ELCHINO MARTIN] ElChino Martin General Counsel [PHOTOGRAPH OF HARRY THOMPSON] Harry Thompson Controller [PHOTOGRAPH OF PATTON ROARK] Patton Roark Portfolio Manager REGIONAL OFFICES RICK JACKSON Northeast Regional Executive 1717 K Street, NW, Suite 707 Washington, DC 20006 (202) 331-8055 PHIL COUTURE Midwest Regional Executive 5330 Heatherdowns Boulevard Suite 100 Toledo, Ohio 43614 (419) 865-0048 GREGORY DYSON Western Regional Executive 160 Spear Street, 19th Floor San Francisco, CA 94105 (415) 512-7418 MARCIE COHEN Director of Development Western Region 160 Spear Street, 19th Floor San Francisco, CA 94105 (415) 512-7451 COUNSEL OF RECORD Swidler & Berlin, Chartered Washington, DC CERTIFIED PUBLIC ACCOUNTANT Arthur Andersen LLP Washington, DC INVESTMENT ADVISER Wellington Management Company Boston, Massachusetts VALUATION CONSULTANT Chartered Capital Advisers, Inc. New York, New York -----END PRIVACY-ENHANCED MESSAGE-----