N-CSRS 1 d65250_ncsrs.txt SEMI-ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number: 811-3493 American Federation of Labor - Congress of Industrial Organizations Housing Investment Trust (Exact name of registrant as specified in charter) 1717 K Street, N.W., Suite 707, Washington, D.C. 20036 (Address of principal executive offices) (Zip code) Kenneth G. Lore Swidler Berlin LLP 3000 K Street, N.W., Suite 300, Washington, D.C., 20007 (Name and address of agent for service) (202) 331-8055 (Registrant's telephone number, including area code) Date of fiscal year end: December 31 Date of reporting period: June 30, 2005 Item 1. Reports to Stockholders. A copy of the 2005 Semi-Annual Report (the "Report") of the AFL-CIO Housing Investment Trust (the "Trust") transmitted to Trust participants pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (17 CFR 270.30e-1) (the "Act"), is included herewith. AFL-CIO Housing Investment Trust [LOGO] Semi-Annual Report June 30, 2005 [PHOTO] [PHOTO] -------------------------------------------------------------------------------- [PHOTO] Report to Participants -------------------------------------------------------------------------------- For the six months ended June 30, 2005, the AFL-CIO Housing Investment Trust (HIT or the Trust) achieved a total net return of 2.88 percent. The HIT led its benchmark, the Lehman Brothers Aggregate Bond Index (Lehman Aggregate), by 37 basis points for the six-month period. Net returns for the one-, three-, five-, and ten-year periods ending June 30 were 7.01 percent, 5.64 percent, 7.65 percent, and 7.25 percent, respectively. At mid-year, the HIT had approximately $3.6 billion in assets under management for 415 investors, including three new investors in 2005. Strategy for Competitive Returns The HIT's favorable performance relative to the Lehman Aggregate in the first half of the year reflected the success of its strategy of managing the portfolio for superior credit quality and similar interest rate risk, as compared to the benchmark, while generating higher income. The HIT's overweight in high credit quality investments yielded strong returns in a challenging market environment. Higher-credit fixed-income investments significantly outperformed riskier assets, including equities and corporate bonds rated below A. Multifamily mortgage-backed securities (MBS) performed well throughout the first half of the year, while the weakness of large corporate bond issuers caused significant volatility in the credit sector of the fixed-income market. The Trust's specialization in multifamily MBS insured, issued, guaranteed, or backed by U.S. government agencies or government-sponsored enterprises allowed the portfolio to achieve superior risk-adjusted returns. Despite the Federal Reserve's continued tightening of monetary policy and its expressed concerns about the low level of long-term interest rates, long-term rates fell in the first six months of 2005. The HIT expects to continue to manage risk defensively during the balance of the year by maintaining its slightly short duration bias as compared to the Lehman Aggregate. Any further increases in the federal funds rate may cause the yield curve to continue to flatten. The HIT may respond to further flattening of the yield curve by gradually moderating its barbell strategy. The most significant risk to the HIT is wider swap spreads. In creasing cash and Treasury investments can help offset some of the negative effects of wider spreads, but yield would be sacrificed. The HIT will continue to place emphasis on innovative financing structures for multifamily mortgage investments that other attractive relative value, compared to other fixed-income investments. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Comparison of $50,000 Investment in the Trust and Lehman Aggregate(1) ($ in Thousands) AFL-CIO Housing Lehman Brothers Investment Trust Aggregate Bond Index(2) Jun. 95 50.00 50.00 Jun. 96 53.15 52.51 Jun. 97 58.34 56.79 Jun. 98 64.48 62.77 Jun. 99 66.58 64.75 Jun. 00 69.61 67.70 Jun. 01 77.44 75.31 Jun. 02 85.36 81.80 Jun. 03 94.08 90.31 Jun. 04 94.05 90.60 Jun. 05 100.65 96.76 $100,647 $96,763 Average Annual Total Return(1) [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] AFL-CIO Housing Investment Lehman Brothers Aggregate Trust Bond Index(2) -------------------------- ------------------------- 1 Year 7.01% 6.80% 3 Years 5.64% 5.76% 5 Years 7.65% 7.40% 10 Years 7.25% 6.83% (1) Past performance is no guarantee of future results. Economic and market conditions change, and both will cause investment return, principal value, and yield to fluctuate so that a participant's units when redeemed may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available at www.aflcio-hit.com. (2) The Lehman Brothers Aggregate Bond Index is an unmanaged index. It is not available for direct investment; its returns would be lower if they reflected the expenses associated with active management of an actual portfolio. Investors should consider the Trust's investment objectives, risks and expenses carefully before investing. A prospectus containing more complete information may be obtained from the Trust by calling the Marketing and Investor Relations Department collect at 202-331-8055, or by viewing the HIT website at www.aflcio-hit.com. The prospectus should be read carefully before investing. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [PHOTO] Report to Participants -------------------------------------------------------------------------------- Multifamily Housing The HIT issued $70.3 million in financing commitments for multifamily housing in the first six months of 2005. These commitments will provide for the creation or preservation of more than 2,270 units of housing, all of which are affordable to households with low or moderate incomes. The five multifamily projects financed during this period include four new construction or substantial rehabilitation projects, with total development costs of $57.3 million, and one project which will preserve 1,712 units of affordable housing. Housing Production Program: During this period, the HIT entered into a new housing production program with the Illinois Housing Development Authority (IHDA). The HIT expects to invest $250 million over the next five years in IHDA securities that will be used to finance approximately 2,500 units of affordable rental housing for working families across the state. The agreement with IHDA is seen as a model for similar agreements that the HIT is seeking to develop with other state housing finance agencies. The HIT expects these relationships will help it to expand its loan volume at a time when the use of Federal Housing Administration financing has been declining in the urban areas where the HIT has traditionally been most active. The HIT anticipates that new initiatives, like that with IHDA, will lay the foundation for the next generation of HIT housing investments. Community Investment Initiatives: Three and a half years after launching its New York City Community Investment Initiative, the HIT has achieved over 83 percent of its five-year target of $250 million in multifamily investments in that city. A total of $209 million has been invested to date in multifamily housing units, of which 90 percent are affordable to low or moderate income households. With the success of the community investment initiative in New York, the HIT is working to establish a similar program to spur housing investments in Chicago. Through this Chicago Community Investment Plan, the HIT will seek to invest $250 million in multifamily housing in the Chicago area over the next five years. The HIT will launch the Chicago initiative in July. Portfolio Distribution* [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Multifamily Permanent Mortgage-Backed Securities, 43.7% Single Family Mortgage-Backed Securities, 30.5% State Housing Finance Agency Securities, 0.2% Multifamily Construction Mortage-Backed Securities, 11.9% Construction and Permanent Mortgages, 2.8% U.S. Treasury & Government-Sponsored Enterprise Securities, 9.7% Cash and Cash Equivalents, 1.2% *Includes funded and unfunded commitments as of June 30, 2005. [GRAPHIC] Cecil Newman Apartments, Minneapolis, MN, with 64 units of affordable housing, is an $11.1 million new construction project for which the HIT committed $4.0 million. [GRAPHIC] Phalen Senior Apartments, St. Paul, MN, is an $11.1 million new construction project that will offer 73 units of affordable rental housing for seniors. The HIT has committed $5.65 million. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- [GRAPHIC] Report to Participants -------------------------------------------------------------------------------- Homeownership The HIT HOME homeownership program, now in its fifth year, originated more than 1,260 mortgage loans for union members and municipal employees in the first six months of 2005, with a loan volume of $216 million. This joint effort with Countrywide Home Loans and Fannie Mae has provided more than $1.4 billion in mortgage loans to over 9,800 union and public employee households since its inception in late 2000. HIT HOME actively reaches out to first-time homebuyers and to groups that have traditionally been underserved by mortgage lenders, with special focus on African-American and Hispanic households. HIT HOME has played an important role in the success of HIT's New York City Community Investment Initiative, originating $318 million in mortgage loans for New York City union members and public employees since January 2002. This number exceeds HIT HOME's five-year New York target of $250 million by more than 25 percent in just three and a half years. In Chicago, where HIT is planning a similar community investment initiative, HIT HOME will seek to increase homeownership opportunities for Chicago's working families with $250 million in mortgage loans over the next five years. Through HIT HOME, the HIT seeks to make homeownership more affordable for working families. HIT HOME offers homebuyer education, savings on closing costs, and a wide selection of financing options. [PHOTO] New Homeowners: Brandy, Payton, and Steve Hunter, Geneva, Illinois "HIT HOME turned out to be the best program for us. Now that we own our own home, it is a great feeling." -- Steve Hunter, IBEW Local 21 -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 3 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Trustees -------------------------------------------------------------------------------- Richard Ravitch, Chairman* Principal, Ravitch, Rice & Co. LLC John J. Sweeney* President, AFL-CIO Richard L. Trumka Secretary-Treasurer, AFL-CIO Linda Chavez-Thompson Executive Vice President, AFL-CIO John J. Flynn President, International Union of Bricklayers and Allied Craftworkers Stephen Frank Independent Consultant; formerly Vice President and Chief Financial Officer, The Small Business Funding Corporation Frank Hurt President, Bakery, Confectionery & Tobacco Workers and Grain Millers International Union George Latimer Distinguished Visiting Professor of Urban Land Studies at Macalester College Jack Quinn President, Cassidy & Associates; formerly Member of Congress, 27th District, New York Marlyn J. Spear Chief Investment Officer, Milwaukee and Vicinity Building Trades United Pension Trust Fund Tony Stanley* Executive Vice President (Retired) and Director, TransCon Builders, Inc. Edward C. Sullivan President, Building and Construction Trades Department, AFL-CIO Jon F. Walters Secretary-Treasurer, International Brotherhood of Electrical Workers James A. Williams General President, International Union of Painters and Allied Trades of the United States and Canada *Executive Committee member. Leadership Stephen Coyle Chief Executive Officer Helen R. Kanovsky Chief Operating Officer Michael M. Arnold Senior Executive Vice President Marketing, Investor and Labor Relations Erica Khatchadourian Chief Financial Officer John Hanley Executive Vice President Investments and Portfolio Management Chang Suh, CFA Executive Vice President Chief Portfolio Manager Stephanie H. Wiggins Chief Investment Officer Multifamily Finance Marcie Cohen Senior Vice President Harpreet S. Peleg Acting Controller Mary C. Moynihan General Counsel Nicholas Milano Chief Compliance Officer and Associate General Counsel Carol Nixon Director, New York City Office Aaron Prince Director, Western Regional Office -------------------------------------------------------------------------------- Corporate Counsel Swidler Berlin LLP Washington, DC Securities Counsel Wilmer Cutler Pickering Hale and Dorr LLP Washington, DC Independent Registered Public Accounting Firm Ernst & Young LLP Philadelphia, PA Investment Adviser Wellington Management Company, LLP Boston, MA Transfer Agent PFPC Inc. Wilmington, DE Custodian PFPC Trust Company Philadelphia, PA -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 4 -------------------------------------------------------------------------------- [PHOTO] AFL-CIO Housing Investment Trust [LOGO] Financial Statements June 30, 2005 -------------------------------------------------------------------------------- Statement of Assets and Liabilities June 30, 2005 (Dollars in thousands, unless otherwise noted; unaudited) -------------------------------------------------------------------------------- Assets Investments, at fair value (amortized cost $3,538,389)* $ 3,636,248 Cash 924 Accrued interest receivable 20,039 Receivables for investments sold 21,102 Accounts receivable 121 Prepaid expenses and other assets 1,895 ------------------------------------------------------------------------------- Total Assets 3,680,329 ------------------------------------------------------------------------------- Liabilities Accounts payable and accrued expenses 1,947 Payables for investments purchased 45,880 Redemptions payable 41,483 Refundable deposits 559 Income distribution payable, net of dividends reinvested of $12,169 1,978 ------------------------------------------------------------------------------- Total Liabilities 91,847 ------------------------------------------------------------------------------- Net Assets Applicable to Participants' Equity -- Certificates of Participation -- Authorized Unlimited; Outstanding 3,214,195 Units $ 3,588,482 =============================================================================== Net Asset Value Per Unit of Participation (in dollars) $ 1,116.45 =============================================================================== Participants' Equity Participants' equity consisted of the following: Amount invested and reinvested by current participants $ 3,486,726 Net unrealized appreciation of investments 97,859 Undistributed net investment income 421 Undistributed net realized gain on investment 3,543 Accumulated net realized losses (67) =============================================================================== Total Participants' Equity $ 3,588,482 =============================================================================== *The cost for federal tax purposes approximates book cost. See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 6 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FHA Permanent Securities (4.9% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value ------------------------------------------------------------------------------------------------------------ Single Family 7.75% Jul-2021-Aug-2021 $ 39 $ 39 $ 39 8.00% Jul-2021 108 108 108 ------------------------------------------------------------------------------------------------------------ 147 147 147 ------------------------------------------------------------------------------------------------------------ Multifamily(1) 5.25% Mar-2024 5,376 5,412 5,503 5.60% Jun-2038 2,926 2,932 3,070 5.62% Jun-2014 836 837 861 5.65% Oct-2038 2,241 2,317 2,357 5.87% Jun-2044 1,988 1,990 2,172 6.02% Jun-2035 7,243 7,246 7,847 6.66% May-2040 5,818 5,822 6,182 6.70% Dec-2042 6,067 6,070 6,709 6.75% Feb-2039-Jul-2040 6,548 6,519 7,285 6.88% Apr-2031 29,194 28,879 31,939 7.00% Jun-2039 6,099 6,145 6,547 7.05% Jul-2043 5,370 5,370 6,070 7.07% Sep-2039 8,131 8,131 8,480 7.13% Mar-2040 7,970 7,947 9,083 7.17% Feb-2040 4,790 4,792 5,005 7.20% Dec-2033-Oct-2039 10,217 10,224 11,664 7.50% Sep-2032 1,654 1,659 1,944 7.70% Oct-2039 12,210 12,156 13,265 7.75% Oct-2038 1,408 1,402 1,493 7.88% Nov-2036-Jul-2038 9,158 9,163 9,337 7.93% Apr-2042 2,915 2,915 3,492 8.15% Mar-2037 1,204 1,324 1,345 8.27% Jun-2042 2,548 2,548 2,995 8.38% Feb-2007 364 376 374 8.40% Apr-2012 827 827 831 8.75% Jul-2036-Aug-2036 11,937 11,893 12,142 8.80% Oct-2032 5,413 5,413 5,413 8.88% May-2036 2,422 2,389 2,461 ------------------------------------------------------------------------------------------------------------ 162,874 162,698 175,866 ------------------------------------------------------------------------------------------------------------ Total FHA Permanent Securities $ 163,021 $162,845 $176,013 ============================================================================================================
-------------------------------------------------------------------------------- 2005 Semi-Annual Report | 7 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Ginnie Mae Securities and Commitments (25.2% of net assets)
Commitment Interest Rate Maturity Dates Amount Face Amount Amortized Cost Value ------------------------------------------------------------------------------------------------------------------------------ Single Family 3.75% Dec-2033 $ $ 21,065 $ 20,960 $ 20,902 4.00% Feb-2033-Aug-2033 16,137 16,263 16,309 4.13% Nov-2032-Oct-2033 22,474 22,699 22,741 5.50% Jan-2033-Aug-2033 15,189 15,373 15,548 6.00% Jan-2032-Jun-2033 8,229 8,532 8,511 6.50% Jul-2028-Jun-2032 7,347 7,606 7,706 7.00% Nov-2016-Jan-2030 12,485 12,800 13,257 7.50% Apr-2013-Aug-2030 12,639 12,961 13,503 8.00% Nov-2009-Dec-2030 6,251 6,406 6,738 8.50% Nov-2009-Aug-2027 4,564 4,669 4,976 9.00% May-2016-Jun-2025 1,312 1,347 1,460 9.50% Sep-2021-Sep-2030 553 568 611 10.00% Jun-2019 2 2 2 12.00% May-2015-Jun-2015 - - 2 13.00% Jul-2014 1 1 1 13.25% Dec-2014 1 1 1 ------------------------------------------------------------------------------------------------------------------------------ 128,249 130,188 132,268 ------------------------------------------------------------------------------------------------------------------------------ Multifamily(1) 2.91% Aug-2020 8,971 8,965 8,663 3.65% Sep-2017-Oct-2027 27,760 27,549 27,277 4.25% Feb-2031 6,000 5,968 5,973 4.26% Jul-2029 3,000 2,992 2,942 4.43% Apr-2034-Jun-2034 73,700 72,268 72,704 4.49% Apr-2023 8,531 8,531 8,561 4.57% Sep-2027 10,000 10,000 10,083 4.59% May-2033 16,300 16,290 16,450 4.65% Mar-2026 605 600 611 4.66% Dec-2030 8,617 8,696 8,707 4.71% May-2025 33,294 33,293 33,719 4.78% Apr-2034 33,199 34,805 33,754 4.88% Mar-2036 10,000 10,012 10,213 4.92% May-2034 40,000 40,057 40,936 4.95% Dec-2044 11,132 11,337 11,493 5.00% Dec-2033 5,445 5,510 5,522 5.05% Nov-2028 32,000 32,121 32,885 5.13% Jul-2024 5,000 5,087 5,154 5.15% Jun-2023 37,167 38,043 38,408 5.18% May-2028-Dec-2044 35,975 35,905 37,417 5.21% Jan-2045 5,821 5,825 6,119 5.25% Sep-2028 5,837 5,864 6,095 5.30% Apr-2039 55,000 54,077 57,640 5.32% Aug-2030 35,000 34,848 36,574 5.50% Sep-2023-Aug-2038 53,113 55,130 56,025 5.58% May-2031 70,000 73,060 75,006 5.60% Nov-2036 4,374 4,264 4,771 5.68% Jul-2027 5,152 5,337 5,515 5.71% Jan-2045 7,482 7,482 8,125 5.79% Aug-2043 7,540 7,542 7,556 5.85% Mar-2045 18,573 18,480 20,242 5.88% Mar-2024 12,045 12,046 12,569 5.89% Oct-2023 10,000 10,563 10,443 6.11% Nov-2021 970 970 1,006 6.26% Apr-2027 10,000 10,832 11,011 6.41% Aug-2023 3,464 3,464 3,793 7.00% Jun-2043 28,791 28,791 31,922 8.75% Dec-2026 4,056 4,056 4,083 ------------------------------------------------------------------------------------------------------------------------------ 743,914 750,660 769,967 ------------------------------------------------------------------------------------------------------------------------------ Forward Commitments 6.00% Jul-2038 5,130 - - 51 7.50% Dec-2043 23,300 - 69 233 ------------------------------------------------------------------------------------------------------------------------------ 28,430 - 69 284 ------------------------------------------------------------------------------------------------------------------------------ Total Ginnie Mae Securities and Commitments $ 28,430 $ 872,163 $ 880,917 $ 902,519 ==============================================================================================================================
-------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 8 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Ginnie Mae Construction Securities and Commitments (9.3% of net assets)
Interest Rates(2) Permanent Mortgage Commitment Permanent Construction Maturity Date Amount Face Amount Amortized Cost Value ------------------------------------------------------------------------------------------------------------------------------ Multifamily(1) 4.65% 5.00% Oct-2045(3) $ 28,901 $ 23,932 $ 22,683 $ 24,915 4.74% 4.74% Feb-2045(4) 6,418 2,144 1,949 2,211 4.82% 4.82% Jul-2046(4) 6,300 6,300 6,304 6,480 4.83% 4.83% May-2046(4) 5,650 5,650 5,650 5,803 4.88% 4.88% Jun-2045 35,000 29,086 29,266 29,842 4.89% 4.89% Dec-2044 10,440 10,440 10,470 10,912 4.94% 4.94% May-2046(4) 4,000 4,000 4,005 4,139 5.10% 2.25% Sep-2045 7,230 7,230 7,243 7,570 5.10% 5.10% Oct-2046 24,300 15,547 15,677 17,053 5.19% 5.19% Oct-2045 11,880 11,214 11,275 11,866 5.20% 3.45% Oct-2044(4) 21,139 21,139 21,215 22,581 5.25% 5.95% Feb-2031 42,100 28,280 28,179 30,106 5.34% 5.34% Mar-2046(4) 11,340 2,149 2,166 2,737 5.35% 5.35% Dec-2044(4) 8,800 8,800 8,809 9,360 5.35% 5.35% Mar-2046 10,800 8,015 8,189 8,704 5.51% 5.51% Apr-2046 27,944 17,137 17,783 19,630 5.55% 5.55% Mar-2045 9,279 8,626 8,629 9,335 5.62% 5.62% Mar-2046 8,200 736 765 1,426 5.75% 5.75% Sep-2045-Aug-2046 27,954 18,116 18,028 20,652 5.85% 5.85% Nov-2045 2,091 804 807 986 6.00% 6.00% Jan-2046 3,689 25 28 371 6.22% 5.75% Aug-2035 14,599 10,010 10,016 11,470 6.60% 6.60% May-2043 17,793 16,296 15,889 18,444 7.75% 7.25% Aug-2035 51,779 51,778 51,535 56,956 ------------------------------------------------------------------------------------------------------------------------------ 397,626 307,454 306,560 333,549 ------------------------------------------------------------------------------------------------------------------------------ Forward Commitments 5.21% 5.21% Jan-2047(4) 16,188 51 (81) 680 ------------------------------------------------------------------------------------------------------------------------------ 16,188 51 (81) 680 ------------------------------------------------------------------------------------------------------------------------------ Total Ginnie Mae Construction Securities and Commitments $ 413,814 $ 307,505 $ 306,479 $ 334,229 ==============================================================================================================================
-------------------------------------------------------------------------------- 2005 Semi-Annual Report | 9 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Fannie Mae Securities and Commitments (37.2% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value ----------------------------------------------------------------------------------------------------- Single Family 3.99% Aug-2033 $ 3,343 $ 3,332 $ 3,331 4.00% Jul-2033 16,574 16,702 16,548 4.06% Jul-2033 8,790 8,715 8,782 4.27% May-2033 9,330 9,395 9,366 4.28% Aug-2033 8,934 8,914 8,969 4.31% Aug-2033 25,675 25,598 25,821 4.50% Jun-2018-Feb-2019 18,681 19,035 18,619 4.55% Nov-2033 23,579 23,599 23,764 4.61% Aug-2034 1,763 1,776 1,771 5.00% Jul-2018-May-2034 110,060 110,569 110,679 5.50% Jul-2017-Jun-2035 247,732 251,176 251,712 6.00% Jan-2006-May-2035 98,901 101,613 101,718 6.50% Nov-2016-Nov-2032 18,831 19,073 19,555 7.00% Nov-2013-May-2032 13,150 13,335 13,874 7.50% Nov-2016-Sep-2031 4,279 4,244 4,568 8.00% Jan-2007-May-2031 3,167 3,217 3,357 8.50% Nov-2009-Apr-2031 2,221 2,267 2,381 9.00% Jul-2009-May-2025 671 677 724 ---------------------------------------------------------------------------------------------------- 615,681 623,237 625,539 ---------------------------------------------------------------------------------------------------- Multifamily(1) 3.24% Dec-2005(5) 22,900 22,772 22,781 3.40% Sep-2005(5) 18,381 18,115 18,116 3.81% Nov-2012 8,087 8,087 7,968 4.10% Jun-2027 9,498 9,273 9,369 4.48% Oct-2031 35,000 35,012 35,028 4.55% Oct-2033 5,278 5,337 5,254 4.66% Jul-2021-Sep-2033 8,851 8,995 8,876 4.67% Aug-2033 9,600 9,583 9,591 4.71% Feb-2011 5,675 5,742 5,750 4.77% Apr-2012 4,278 4,401 4,356 4.99% Aug-2021 2,422 2,397 2,496 5.14% Jan-2018 7,963 8,285 8,344 5.15% Oct-2022 4,940 4,991 5,234 5.23% Mar-2018-Apr-2021 4,898 5,059 5,176 5.24% Dec-2012-Jul-2034 5,217 5,080 5,413 5.30% Oct-2014 893 922 953 5.32% Sep-2017-Nov-2017 18,482 18,540 19,382 5.34% Apr-2012 310 321 329 5.35% Dec-2012 5,888 5,905 6,148 5.43% May-2021 3,515 3,614 3,781 5.44% Sep-2013 2,103 2,134 2,258 5.45% May-2033 3,339 3,388 3,528 5.58% Jan-2021 3,832 3,885 4,135 5.60% Oct-2023(6) 12,550 12,268 13,654 5.70% Mar-2009-May-2011 7,779 8,243 8,160 5.78% Dec-2008 1,473 1,556 1,542 5.80% Jan-2009-Jan-2033 9,153 9,495 9,806 5.83% Aug-2014 1,190 1,257 1,280 5.84% Aug-2010 1,852 1,941 1,901 5.85% Oct-2008 959 1,007 979 5.88% Nov-2027 3,476 3,553 3,803 5.89% Nov-2008-Mar-2009 8,810 9,243 9,253 5.91% Dec-2008 1,011 1,070 1,063 5.96% Jan-2029 504 515 553 6.03% Jun-2017 1,956 2,127 2,189 6.06% Jul-2034 10,891 11,300 12,064 6.09% May-2009 1,337 1,399 1,417
(continued, next page) -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Fannie Mae Securities and Commitments (37.2% of net assets), continued
Interest Rate Maturity Dates Face Amount Amortized Cost Value ---------------------------------------------------------------------------------------------------------- Multifamily(1) 6.10% Apr-2011 2,857 3,060 3,112 6.11% Jul-2008 909 959 952 6.13% Dec-2016 3,791 4,156 4,189 6.14% Sep-2033 330 357 368 6.15% Oct-2032 3,802 3,916 4,239 6.16% Aug-2013 12,568 13,604 13,194 6.21% Aug-2010 10,917 11,707 11,806 6.22% Aug-2032-Jul-2034 11,350 12,205 12,675 6.23% Dec-2008-Sep-2034 1,877 2,003 2,082 6.25% Dec-2013 1,966 2,018 2,130 6.27% Jan-2012 2,175 2,216 2,401 6.28% Oct-2008-Nov-2028 5,859 6,322 6,412 6.35% May-2010 11,741 11,741 12,636 6.35% Jun-2020-Aug-2032 29,173 30,697 32,123 6.39% Apr-2019 1,058 1,149 1,191 6.41% Aug-2013 2,013 2,163 2,127 6.42% Apr-2011-Aug-2013 7,267 7,844 7,684 6.44% Apr-2014-Dec-2018 48,316 49,003 55,187 6.50% May-2008-Jun-2016 8,223 8,477 8,843 6.52% Jul-2008-May-2029 7,883 8,631 8,787 6.53% May-2030 7,990 8,014 8,315 6.63% Jun-2014-Apr-2019 4,986 5,015 5,521 6.65% Aug-2007-Aug-2011 2,189 2,383 2,406 6.70% Jan-2011 2,544 2,736 2,696 6.74% Aug-2007 13,450 14,333 13,909 6.75% Aug-2007 906 955 943 6.79% Aug-2009 7,370 7,373 8,010 6.80% Jul-2016 1,011 1,011 1,138 6.85% Aug-2014 45,682 45,685 52,676 6.88% Feb-2028 5,200 5,829 5,835 6.92% Jun-2007 5,499 5,640 5,652 6.96% Aug-2007 7,037 7,181 7,345 7.00% Jun-2018 4,513 4,513 5,050 7.01% Apr-2031 3,614 3,655 4,162 7.07% Feb-2031 18,260 18,683 21,090 7.16% Jan-2022 748 780 767 7.18% Aug-2016 620 620 709 7.20% Apr-2010-Aug-2029 9,884 9,617 11,237 7.25% Nov-2011-Jul-2012 9,222 9,222 9,604 7.30% May-2010 807 830 872 7.40% Aug-2010 1,240 1,368 1,400 7.42% Nov-2018 10,309 11,087 10,476 7.46% Aug-2029 9,949 11,401 11,601 7.50% Dec-2014 2,063 2,069 2,354 7.53% Feb-2024 10,088 11,364 10,634 7.71% Feb-2010 9,496 9,614 10,018 7.75% Dec-2012-Dec-2024 4,370 4,373 4,958 8.00% Nov-2019-May-2020 6,150 6,134 6,185 8.13% Sep-2012-Aug-2020 9,624 9,602 9,976 8.38% Jan-2022 998 1,000 1,052 8.40% Jul-2023 542 533 648 8.50% Sep-2006-Sep-2026 6,113 6,608 7,135 8.63% Sep-2028 6,956 6,956 8,395 9.13% Sep-2015 3,223 3,211 3,248 ---------------------------------------------------------------------------------------------------------- 661,019 678,435 710,085 ---------------------------------------------------------------------------------------------------------- Total Fannie Mae Securities and Commitments $ 1,276,700 $ 1,301,672 $ 1,335,624 ==========================================================================================================
-------------------------------------------------------------------------------- 2005 Semi-Annual Report | 11 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Freddie Mac Securities (11.5% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value --------------------------------------------------------------------------------------------- Single Family 4.00% Oct-2033 $ 14,894 $ 14,674 $ 14,818 4.25% Jun-2033 5,853 5,827 5,859 4.50% Aug-2018-Feb-2019 29,378 29,516 29,281 5.00% Jan-2019-Nov-2019 59,857 60,628 60,487 5.50% Oct-2017-Jan-2035 49,171 50,336 50,076 6.00% Dec-2006-May-2035 212,309 219,289 217,934 6.50% Dec-2006-Aug-2032 16,136 16,331 16,749 7.00% Mar-2011-Mar-2030 4,649 4,621 4,876 7.50% Jul-2010-Apr-2031 4,535 4,498 4,795 8.00% May-2008-Feb-2030 2,549 2,554 2,675 8.50% Jun-2010-Jan-2025 1,754 1,771 1,874 9.00% Sep-2010-Mar-2025 446 453 481 --------------------------------------------------------------------------------------------- 401,531 410,498 409,905 --------------------------------------------------------------------------------------------- Multifamily(1) 8.00% Feb-2009 3,909 3,908 3,931 --------------------------------------------------------------------------------------------- 3,909 3,908 3,931 --------------------------------------------------------------------------------------------- Total Freddie Mac Securities $ 405,440 $ 414,406 $ 413,836 =============================================================================================
Government-Sponsored Enterprise Securities (8.2% of net assets)
Issuer Interest Rate Maturity Date Face Amount Amortized Cost Value --------------------------------------------------------------------------------------------- Fannie Mae 1.88% Feb-2006 $ 25,000 $ 24,923 $ 24,715 Fannie Mae 2.25% May-2006 15,045 15,108 14,847 Fannie Mae 2.50% Jun-2006 40,000 39,846 39,508 Fannie Mae 3.13% Jul-2006 40,000 40,182 39,753 Fannie Mae 5.00% Apr-2015 10,000 10,460 10,566 Fannie Mae 5.50% Jul-2012 30,000 30,491 30,026 Fannie Mae 6.00% Aug-2019-Mar-2025 133,640 134,326 133,765 --------------------------------------------------------------------------------------------- Total Government-Sponsored Enterprise Securities $ 293,685 $ 295,336 $ 293,180 =============================================================================================
-------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 12 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- United States Treasury Securities (2.1% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value ------------------------------------------------------------------------------------ 2.25% Feb-2007 $ 20,000 $ 20,115 $ 19,572 2.75% Aug-2007 22,000 21,889 21,593 3.50% Nov-2006 2,085 2,132 2,083 4.00% Mar-2010-Feb-2015 8,250 8,130 8,318 4.13% May-2015 25,000 25,401 25,373 ------------------------------------------------------------------------------------ Total United States Treasury Securities $ 77,335 $ 77,667 $ 76,939 ====================================================================================
State Housing Finance Agency Securities (0.2% of net assets)
Issuer Interest Rate Maturity Date Face Amount Amortized Cost Value ----------------------------------------------------------------------------------------------------------------------- Multifamily(1) MA Housing Finance Agency 8.00% Jan-2026 $ 4,470 $ 4,465 $ 4,582 MA Housing Finance Agency 8.63% Jan-2013 340 344 377 MA Housing Finance Agency 9.00% Jan-2025 930 930 946 ----------------------------------------------------------------------------------------------------------------------- Total State Housing Finance Agency Securities $ 5,740 $ 5,739 $ 5,905 =======================================================================================================================
Other Multifamily Investments and Commitments (1.5% of net assets)
Interest Rates(2) Permanent Mortgage Commitment Face Amortized Permanent Construction Maturity Dates Amount Amount Cost Value ------------------------------------------------------------------------------------------------------------------- Multifamily Construction/Permanent Mortgages 5.54% N/A Jul-2017(7) $ 62,016 $ 15,298 $ 15,359 $ 18,317 7.63% N/A Jan-2011 813 498 498 530 8.13% N/A Aug-2005 1,016 29 29 29 8.63% N/A Apr-2025 - 1,308 1,308 1,308 9.50% N/A Apr-2024 - 691 691 691 9.75% N/A Nov-2018 - 1,225 1,225 1,225 ------------------------------------------------------------------------------------------------------------------- 63,845 19,049 19,110 22,100 ------------------------------------------------------------------------------------------------------------------- Privately Insured Construction/Permanent Mortgages(8) 5.55% 5.55% May-2021 12,006 11,815 11,818 12,211 5.55% 5.55% Jan-2047 12,809 12,809 12,811 13,412 5.95% 5.95% Mar-2044 4,400 4,370 4,386 4,640 6.15% 6.15% Mar-2045 1,600 1,598 1,603 1,727 6.20% 6.20% Mar-2047 5,200 - - 313 ------------------------------------------------------------------------------------------------------------------- 36,015 30,592 30,618 32,303 ------------------------------------------------------------------------------------------------------------------- Total Other Multifamily Investments and Commitments $ 99,860 $ 49,641 $ 49,728 $ 54,403 =================================================================================================================== =================================================================================================================== Total Long-Term Investments $3,451,230 $3,494,789 $3,592,648 ===================================================================================================================
-------------------------------------------------------------------------------- 2005 Semi-Annual Report | 13 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Schedule of Portfolio Investments June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Short-Term Investments (1.2% of net assets)
Description Maturity Date Interest Rate(9) Face Amount Amortized Cost Value --------------------------------------------------------------------------------------------------------------- Short-term - Cash Equivalents(10) Repurchase Agreement Amalgamated Bank(11) July 25, 2005 2.80% $ 2,000 $ 2,000 $ 2,000 --------------------------------------------------------------------------------------------------------------- 2,000 2,000 2,000 --------------------------------------------------------------------------------------------------------------- Commercial Paper Ciesco LLC July 1, 2005 3.07% 16,000 16,000 16,000 GW University July 1, 2005 3.18% 13,000 13,000 13,000 UBS Finance July 1, 2005 3.37% 12,500 12,500 12,500 --------------------------------------------------------------------------------------------------------------- 41,500 41,500 41,500 --------------------------------------------------------------------------------------------------------------- Certificate of Deposit Shore Bank - Pacific July 1, 2005 2.86% 100 100 100 --------------------------------------------------------------------------------------------------------------- 100 100 100 --------------------------------------------------------------------------------------------------------------- =============================================================================================================== Total Short-Term Investments $ 43,600 $ 43,600 $ 43,600 =============================================================================================================== =============================================================================================================== Total Investments $ 3,494,830 $ 3,538,389 $ 3,636,248 ===============================================================================================================
(1) Multifamily MBS securities are valued by the fair value procedures adopted by the Trust's Board of Trustees. Refer to Note 1 of the financial statements for further information. (2) Construction interest rates are the rates charged to the borrower during the construction phase of the project. The permanent interest rates are charged to the borrower during the amortization period of the loan, unless HUD requires that such rates be charged earlier. (3) Prior to December 20, 2005, this investment is a mortgage-backed security guaranteed by the Government National Mortgage Association ("GNMA-MBS"). From and after December 20, 2005, the investment will be a tax-exempt bond collateralized by the GNMA-MBS. (4) Tax-exempt bonds collateralized by Ginnie Mae Securities. (5) Discount note secured by Fannie Mae MBS. Interest rate is yield calculated based on purchase price of discount note. (6) During construction the investment is a participation in the construction loan which is secured by a letter of credit; the permanent financing will be a Fannie Mae MBS for which the Trust has issued its commitment to purchase. (7) During construction, this investment is a mortgage credit enhanced by a letter of credit issued in favor of the Trust. Additionally, the interest rate during construction is a floating rate equal to LIBOR plus one hundred and fifty basis points for the related monthly period up to a maximum rate of 5.30%. At the completion of construction, the Trust will take delivery of either a Government-Sponsored Enterprise MBS with an interest rate of 5.54% and a term of ten years, or under certain conditions, a Mini-Perm Loan with an interest rate of 5.45% and a term of five years. (8) Loan insured by Ambac Assurance Corporation. (9) Interest rate is yield calculated based on purchase price of discount security. (10) Short-term investments with remaining maturities of sixty days or less. (11) This instrument was purchased in June, 2005. The Trust will receive $2,004,756 upon maturity. The underlying collateral of the repurchase agreement is a Ginnie Mae security with a market value of $2,100,458. See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 14 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statement of Operations For the Six Months Ended June 30, 2005 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Investment Income FHA permanent securities $ 5,748 FHA construction securities 180 Ginnie Mae securities* 20,380 Ginnie Mae construction securities* 8,063 Fannie Mae securities 31,220 Freddie Mac securities 10,089 Government-Sponsored Enterprise securities 5,744 United States Treasury securities 2,232 State Housing Finance Agency securities 234 Other multifamily investments 1,159 Short-term investments 2,078 -------------------------------------------------------------------------------- Total Income 87,127 -------------------------------------------------------------------------------- Expenses Officer salaries and fringe benefits $ 1,170 Other salaries and fringe benefits 3,262 Legal fees 200 Consulting fees 114 Auditing, tax and accounting fees 118 Insurance 162 Marketing and sales promotion (12b-1) 273 Investment management 373 Trustee expenses 17 Rental expenses 354 General expenses 731 -------------------------------------------------------------------------------- Total Expenses 6,774 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Net Investment Income 80,353 -------------------------------------------------------------------------------- Net realized gain on investments 3,543 Net change in unrealized appreciation (depreciation) on investments 18,966 -------------------------------------------------------------------------------- Realized and Unrealized Net Gains on Investments 22,509 -------------------------------------------------------------------------------- ================================================================================ Net Increase in Net Assets Resulting from Operations $ 102,862 ================================================================================ *Including forward commitments. See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Statements of Changes in Net Assets (Dollars in thousands) --------------------------------------------------------------------------------
Six Months Ended Year Ended June 30, 2005 December 31, 2004 (unaudited) Increase in Net Assets From Operations Net investment income $ 80,353 $ 157,612 Net realized gain on investments 3,543 40,091 Net change in unrealized depreciation on investments 18,966 (45,819) ----------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 102,862 151,884 ----------------------------------------------------------------------------------------------------- Decrease in Net Assets From Distributions Distributions paid to participants or reinvested from: Net investment income (84,547) (159,172) Net realized gains on investments -- (38,531) ----------------------------------------------------------------------------------------------------- Net decrease in net assets from distributions (84,547) (197,703) ----------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets From Unit Transactions Proceeds from the sale of units of participation 57,833 94,404 Dividend reinvestment of units of participation 73,329 175,076 Payments for redemption of units of participation (226,945) (165,850) ----------------------------------------------------------------------------------------------------- Net (decrease)/increase from unit transactions (95,783) 103,630 ----------------------------------------------------------------------------------------------------- Total (decrease)/increase in net assets (77,468) 57,811 ----------------------------------------------------------------------------------------------------- Net assets at beginning of period 3,665,950 3,608,139 ----------------------------------------------------------------------------------------------------- Net Assets at End of Period $ 3,588,482 $ 3,665,950 ----------------------------------------------------------------------------------------------------- Unit Information Units sold 52,065 84,609 Distributions reinvested 66,219 156,550 Units redeemed (204,947) (146,927) ----------------------------------------------------------------------------------------------------- (Decrease)/Increase in Units Outstanding (86,663) 94,232 -----------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 16 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- Note 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 Statement of Additional Information and Prospectus. Participation in the Trust is limited to eligible labor organizations and 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 accounting principles generally accepted in the United States. Investment Valuation Net asset value per share (NAV) is calculated as of the close of business of the major bond markets in New York City on the last business day of the month. Portfolio securities for which market quotations are readily available (single family mortgage-backed securities, Government-Sponsored Enterprise securities, and U.S. Treasury securities) are valued by an independent pricing service, published prices, market quotes and dealer bids. Portfolio investments for which market quotations are not readily available (multifamily mortgage-backed securities investments, mortgage securities and construction mortgage securities) are valued at their fair value determined in good faith under consistently applied procedures adopted by the Board of Trustees using dealer bids and discounted cash flow models. The respective cash flow models use 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 market place 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 or participation interests, value is determined based upon the total amount, funded and/or unfunded, of the commitment. The Trust has retained an independent firm to determine the fair market value of such securities. In accordance with the procedures adopted by the Board, the monthly third-party valuation is reviewed by the Trust staff to determine whether valuation adjustments are appropriate based on any material impairments in value arising from specific facts and circumstances of the investment (e.g., mortgage defaults). All such adjustments must be reviewed and approved by the independent valuation firm prior to incorporation in the NAV. Short-term investments with remaining maturities of sixty days or less are valued on the basis of amortized cost, which approximates fair value. Cash and cash equivalents include overnight money market funds which are also carried at cost. Use of Estimates The preparation of financial statements in conformity with U.S. 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. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 17 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- 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 participants. Therefore, no federal income tax provision is required. Distributions to Participants At the end of each calendar month, a pro rata distribution is made to participants of the net investment income, excluding realized gains (losses) on paydowns of mortgage- and asset-backed securities, earned during the month. Amounts distributable, but not disbursed, as of the balance sheet date are classified as income distribution payable. The realized gains (losses) are distributed at year end. 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 permits current participants automatically to reinvest their income distributions into Trust units of participation. Total reinvestment was approximately 87 percent of distributable income for the six months ended June 30, 2005. Investment Transactions and Income Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of amortized cost. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income. Interest income, which includes amortization of premium and accretion of discount on debt securities, is accrued as earned. 12b-1 Plan of Distribution The Board of Trustees annually approves a 12b-1 Plan of Distribution to pay for marketing and sales promotion expenses incurred in connection with the offer and sale of units and related service and distribution activities (12b-1 expenses). For the year 2005, the Trust is authorized to pay for 12b-1 expenses in an amount up to $600,000 or 0.05 percent of its average monthly net assets on an annualized basis, whichever is greater. During the six months ended June 30, 2005, the Trust incurred approximately $272,797 of 12b-l expenses. Receivables for Investments Sold Receivables for Investments Sold represent investments that were sold on or prior to June 30, 2005, which settled subsequent to June 30, 2005. Payables for Investments Purchased Payables for Investments Purchased represent investments that were purchased on or prior to June 30, 2005, which settled subsequent to June 30, 2005. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 18 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- Note 2. Investment Risks Interest Rate Risk As with any fixed-income investment, the market value of the Trust's investments will fall below the principal amount of those investments at times when market interest rates rise above the interest rates of the investments. Rising interest rates may also reduce prepayment rates, causing the average life of the Trust's investments to increase. This could in turn further reduce the value of the Trust's portfolio. Prepayment and Extension Risk The Trust invests in certain fixed-income securities whose value is derived from an underlying pool of mortgage loans that are subject to prepayment and extension risk. Prepayment risk is the risk that a security will pay earlier than its assumed payment rate, shortening its expected average life, resulting in a lower return from the security. In such an event, the Trust may be required to reinvest the proceeds of such prepayments in other investments bearing lower interest rates. The majority of the Trust's securities backed by loans for multifamily projects include restrictions on prepayments for specified periods to mitigate this risk. Extension risk is the risk that a security will pay more slowly than its assumed payment rate, extending its expected average life, resulting in a lower return from the security. When this occurs, the ability to reinvest principal repayments in higher returning investments may be limited. These two risks may increase the sensitivity of the Trust's portfolio to fluctuations in interest rates and change the value of the Trust's portfolio. Note 3. Transactions with Related Entities During the six months ended June 30, 2005, the Trust provided the time of certain personnel to the AFL-CIO Investment Trust Corporation (ITC), a D.C. not-for-profit corporation, on a cost-reimbursement basis. During the six months, certain employees of the Trust also served as officers of the ITC. The total cost for such personnel and related expenses for the six months ended June 30, 2005, amounted to approximately $662,000. During the six months ended June 30, 2005, the Trust was reimbursed for approximately $572,000 of current year costs. As of June 30, 2005, approximately $90,000, representing a current balance, is included within the accounts receivable in the accompanying financial statements for amounts outstanding under the arrangement. The ITC provided the time of certain personnel to the Trust on a cost-reimbursement basis. The total cost for such personnel and related expenses for the six months ended June 30, 2005, was approximately $36,000. During the six months ended June 30, 2005, the Trust paid the ITC approximately $34,000 of current costs. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 19 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- Note 4. Commitments Certain assets of the Trust are invested in short-term investments until they are required to fund purchase commitments for long-term investments. As of June 30, 2005, the Trust had outstanding unfunded purchase commitments of approximately $186.7 million. The Trust maintains a reserve, in the form of securities, no less than the total of the outstanding unfunded purchase commitments, less short-term investments. As of June 30, 2005, the value of the publicly traded mortgage-backed securities maintained for the reserve in a segregated account was approximately $3.3 billion. The commitment amounts disclosed on the Schedule of Portfolio Investments represent the original commitment amount, which includes both funded and unfunded commitments. Note 5. Investment Transactions A summary of investment transactions (excluding short-term investments and U.S. Treasury securities) for the separate instruments included in the Trust's investment portfolio, at amortized cost, for the six months ended June 30, 2005, follows (dollars in thousands):
Government- State Housing FHA FHA Ginnie Ginnie Mae Fannie Fannie Sponsored Finance Other Permanent Construction Mae Construction Mae Mae Enterprise Agency Multifamily Securities Securities Securities* Securities* Securities* Securities Securities Securities Investments -------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 2005 $ 161,998 $ 7,246 $ 839,242 $ 240,388 $ 1,153,951 $ 410,416 $ 181,838 $ 5,820 $ 36,202 Purchases and insured construction securities advances, net of discounts 1,206 0 223,081 123,296 558,914 126,482 193,215 0 13,827 Change in discounts and (premiums) 247 (3) (1,127) (18) (1,049) (557) 968 (1) (1,401) Transfers 3,728 (7,243) 33,943 (30,428) (1,471) 0 0 0 1,471 Principal reductions/ Sales (4,334) 0 (214,222) (26,759) (408,673) (121,935) (80,685) (80) (371) -------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2005 $ 162,845 $ 0 $ 880,917 $ 306,479 $ 1,301,672 $ 414,406 $ 295,336 $ 5,739 $ 49,728 ================================================================================================================================
* Including forward commitments. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 20 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Notes to Financial Statements (unaudited) -------------------------------------------------------------------------------- Note 6. Federal Taxes The information set forth in this footnote is actual information as of December 31, 2004, and will be updated in the Annual Report for December 31, 2005, to coincide with the 2005 tax reporting year-end. The tax character of distributions paid during 2004 was as follows (dollars in thousands): 2004 ---------------------------------------------------------------------- Ordinary investment income - net $ 164,877 Long-term capital gains on investments 32,826 ---------------------------------------------------------------------- Total net distributions paid to participants or reinvested $ 197,703 ====================================================================== As of December 31, 2004, the components of accumulated earnings on a tax basis were as follows (dollars in thousands): 2004 ---------------------------------------------------------------------- Undistributed ordinary income $ 3,445 Unrealized appreciation 77,397 Other temporary differences (1,595) ---------------------------------------------------------------------- Total accumulated earnings $ 79,247 ====================================================================== Note 7. Retirement and Deferred Compensation Plans The Trust participates in the AFL-CIO Staff Retirement Plan, which is a multiple employer-defined benefit pension plan, covering substantially all employees. This plan was funded by employer contributions, at rates approximating 16.49% percent of employees' salaries for the six months ended June 30, 2005. The total Trust pension expense for the six months ended June 30, 2005 was approximately $491,000. The Trust also participates in a deferred compensation plan, referred to as a 401(k) plan, covering substantially all employees. This plan permits employees to defer the lesser of 100 percent of their total compensation or the applicable IRS limit. During 2004, the Trust matched dollar for dollar the first $3,100 of each employee's contributions. The Trust's 401(k) contribution for the six months ended June 30, 2005, was approximately $151,000. Note 8. Loan Facility The Trust has a $25 million uncommitted loan facility which expires on June 30, 2006. Borrowings under this facility bear interest at LIBOR plus one-half percent plus a 12.5 basis point administrative fee charged for each advance. The Trust had no outstanding balance under the facility during the period. No compensating balances are required. Note 9. Contract Obligations In the ordinary course of business, the Trust enters into contracts that contain a variety of indemnifications. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 21 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Financial Highlights Selected Per Share Data and Ratios for the Six Months Ended June 30, 2005 and the Years Ended December 31, 2004, 2003, 2002, 2001 and 2000 --------------------------------------------------------------------------------
Six Months Ended June 30, 2005, unaudited 2004 2003 2002 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 1,110.61 $ 1,125.21 $ 1,152.30 $ 1,098.40 $ 1,085.42 $ 1,035.72 Income from investment operations: Net investment income 24.45 48.63 54.26 65.19 70.86 72.83 Net realized and unrealized (losses) gains on investments 7.11 (2.38) (11.69) 59.15 16.24 49.7 ---------------------------------------------------------------------------------------------------------------- Total Income (Loss) from Investment Operations 31.56 46.25 42.57 124.34 87.1 122.53 ---------------------------------------------------------------------------------------------------------------- Less distributions from: Net investment income (25.72) (49.1) (54.26) (65.19) (70.93) (72.83) Net realized gains on investments -- (11.75) (15.4) (5.25) (3.19) -- --------------------------------------------------------------------------------------------------------------------------------- Total Distributions (25.72) (60.85) (69.66) (70.44) (74.12) (72.83) --------------------------------------------------------------------------------------------------------------------------------- ================================================================================================================================= Net Asset Value, End of Period $ 1,116.45 $ 1,110.61 $ 1,125.21 $ 1,152.30 $ 1,098.40 $ 1,085.42 ================================================================================================================================= Ratios Ratio of expenses to average net assets 0.37%** 0.37% 0.37% 0.36% 0.37% 0.38% Ratio of net investment income to average net assets 4.4%** 4.4% 4.7% 5.8% 6.4% 6.9% Portfolio turnover rate 76.1%** 85.5% 73.1% 64.3% 40.9% 25.9% ================================================================================================================================= Number of Outstanding Units at End of Period 3,214,195 3,300,858 3,206,626 2,848,002 2,504,984 2,282,511 ================================================================================================================================= ================================================================================================================================= Net Assets, End of Period (in thousands) $ 3,588,482 $ 3,665,950 $ 3,608,139 $ 3,281,763 $ 2,751,482 $ 2,477,482 ================================================================================================================================= ================================================================================================================================= Total Return* 2.88% 4.20% 3.78% 11.64% 8.21% 12.31% =================================================================================================================================
*Net of fund expenses. **Amounts are annualized. See accompanying Notes to Financial Statements. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 22 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Other Important Information -------------------------------------------------------------------------------- 2005 Participants Meeting The 2005 Annual Meeting of Participants was held in Washington, D.C., on Wednesday, June 8, 2005. 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 2,548,767.620 for, 989.481 against, 93,142.834 abstentions, and 644,323.835 votes not cast. The table below details votes pertaining to Trustees who were elected or reelected at the Annual Meeting: Trustee Votes For Votes Against Votes Abstaining* Linda Chavez-Thompson 2,549,110.722 774.363 93,014.850 Richard L. Trumka 2,549,100.722 774.363 93,024.850 James A. Williams 2,549,757.101 0.000 93,142.834 George Latimer 2,548,450.623 466.372 93,982.940 Jack Quinn 2,548,460.623 466.372 93,972.940 ------------------------------------------------------------------------- *Votes not cast: 644,323.835. The following Trustees were not up for election and their terms of office continued after the date of the Annual Meeting: John J. Sweeney, John J. Flynn, Frank Hurt, Edward C. Sullivan, Tony Stanley, Stephen Frank and Marlyn J. Spear. Trustee Andrew Stern did not seek reelection to the Board of Trustees and his term of office expired at the Annual Meeting. Trustee Jeremiah O'Connor resigned from the Board of Trustees effective March 1, 2005. Trustee Jon F. Walters was unanimously appointed by the Union Trustees to serve out the remainder of Trustee O'Connor's term, such term to expire at the 2006 Annual Meeting of Participants or until his respective successor shall be elected and qualify. Trustee Walters was elected pursuant to Section 2.7 of the Trust's Declaration of Trust, which permits, upon the resignation of any Union Trustee, the remaining Union Trustees to appoint by majority vote a replacement to serve out the remainder of the term of such resigning Union Trustee. Ernst & Young LLP was ratified as the HIT's Independent Registered Public Accounting Firm by a vote of 2,414,427.810 for, 134,545.811 against, 93,926.314 abstentions, and 644,323.835 votes not cast. Availability of Quarterly Portfolio Schedule In addition to disclosure in the Annual and Semi-Annual Report to Participants, the Trust also files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Trust's Forms N-Q are made available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC (information relating to the hours and operation of the SEC's Public Reference Room may be obtained by calling 1-800- SEC-0330). Participants may also obtain copies of the Trust's Forms N-Q, without charge, upon request, by calling the Trust collect at 202-331-8055. Proxy Voting Record The Trust invests exclusively in non-voting securities and has not deemed it necessary to adopt policies and procedures for the voting of portfolio securities. During the most recent twelve-month period ended June 30, the Trust held no voting securities in its portfolio and has reported this information in its most recent filing with the SEC on Form N-PX. The Trust's proxy voting report on Form N-PX for the most recent twelve-month period ended June 30 is available on the SEC's website at http://www.sec.gov. Participants may also obtain a copy of the Trust's report on Form N-PX, without charge, upon request, by calling the Trust collect at 202-331-8055. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 23 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Other Important Information -------------------------------------------------------------------------------- Expense Example Participants in the Trust incur ongoing expenses related to the management and distribution activities of the Trust, as well as certain other expenses. This example is intended to help participants understand the ongoing costs (in dollars) of investing in the Trust and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $50,000 invested at the beginning of the period January 1, 2005, and held for the entire period ended June 30, 2005. Actual Expenses: The first line of the table below provides information about actual account values and actual expenses. Participants may use the information in this line, together with the amount they invested, to estimate the expenses that they paid over the period. Simply divide the account value by $50,000 (for example, an $800,000 account value divided by $50,000 = 16), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses paid on a particular account during this period. Hypothetical Expenses (for Comparison Purposes Only): The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Trust's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Trust's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses a participant paid for the period. Participants may use this information to compare the ongoing costs of investing in the Trust and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds. Please note that the Trust charges no transactional costs, such as sales charges (loads) or redemption fees.
Beginning Ending Expenses Paid Account Value Account Value During Period Ended January 1, 2005 June 30, 2005 June 30, 2005 * ----------------------------------------------------------------------------------------- Actual expenses $ 50,000 $ 51,441.91 $ 93.06 ----------------------------------------------------------------------------------------- Hypothetical expenses (5% return before expenses) $ 50,000 $ 51,147.99 $ 92.79 -----------------------------------------------------------------------------------------
*Expenses are equal to the Trust's annualized expense ratio of 0.37%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Investment Advisory Agreement Approval On May 12, 2005, the Board of Trustees met in person to discuss, among other things, the renewal and approval of the Investment Advisory Agreement ("Advisory Agreement") between the Trust and Wellington Management Company, LLP ("Wellington"). Unlike most other mutual funds, the Trust's portfolio is internally managed, except for a portion of its cash and cash equivalents having a duration of less than 24 months, which is managed by Wellington. The Trust has historically managed its cash position to be less than two percent of its assets. Trustees accordingly took note that although for purposes of the Investment Company Act of 1940 (the "Investment Company Act"), Wellington is the Trust's investment adviser, Wellington manages a small percentage of the Trust's assets. The Board of Trustees has previously considered the Trust's internal management structure and made a determination that the structure is in the best interests of the Trust and its participants. In evaluating the Advisory Agreement, the Board of Trustees considered a variety of information relating to the Trust and Wellington. The Trustees considered materials prepared by Wellington, which provided an overview of Wellington, the services provided to the Trust, Wellington personnel serving the Trust, the investment performance of Trust assets managed by Wellington, and a comparison of fees charged by Wellington to the Trust and another similar fund. Representatives of Wellington met with the Trustees at the May 12, 2005 meeting to review these materials. The Trustees also considered materials which outlined the requirements of the Investment Company Act with respect to the approval of investment advisory agreements and requested and received the advice of the Trust's outside counsel. -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust | 24 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Other Important Information -------------------------------------------------------------------------------- Investment Advisory Agreement Approval (Continued) In the course of their deliberations regarding the Advisory Agreement, the Trustees considered the following factors, among other things: the nature, extent and quality of the services provided by Wellington; the investment performance of the Trust; the cost of services to be provided by Wellington; the extent to which economies of scale would be realized as the Trust grows; and whether fee levels reflect these economies of scale for the benefit of the Trust's participants. Nature, Extent and Quality of the Services under the Advisory Agreement: In considering the nature, extent and quality of services provided to the Trust under the Advisory Agreement, the Trustees reviewed information describing the services provided by Wellington to the Trust. The Trustees also reviewed information on Wellington personnel serving the Trust, including biographical information and a description of the responsibilities of the personnel, and concluded that Wellington's personnel are well qualified to perform the services set forth in the Advisory Agreement. In addition, the Trustees considered the financial condition and stability of Wellington. It was noted that Wellington manages over $470 billion of client assets and serves as an investment adviser for over 300 mutual funds. The Trustees also reviewed Wellington's certification that its code of ethics contains provisions necessary to prevent access persons from engaging in conduct prohibited by Rule 17j-1 of the Investment Company Act. Based on the foregoing, the Trustees concluded that they were satisfied with the nature, extent and quality of services provided to the Trust under the Advisory Agreement. Investment Performance: The Trustees reviewed the returns of Trust assets under management by Wellington, including periods of outperformance and underperformance against relevant benchmarks, and determined that the returns provided by Wellington have been in line with expectations. Cost of Services Provided: The Trustees considered information comparing the advisory fee charged to the Trust with fees charged to a similar fund advised by Wellington. The Board concluded that, while Wellington's advisory fee is higher for the Trust, based on the relatively small percentage of the Trust's assets under management compared to the other fund, the level of fees charged bears a reasonable relationship to the services provided pursuant to the Advisory Agreement. The Trustees did not consider the profitability of Wellington in determining whether to approve the advisory fee. Wellington is an independent firm and the advisory fee is the result of an arm's length negotiation between the Trust and Wellington. Because the Trust is internally managed, Trustees also considered the expense of Wellington relative to the expense of adding staff to the Trust's portfolio management group to perform the services provided by Wellington. It was noted that Wellington's fees were substantially less than the costs the Trust would incur in retaining additional staff. Economies of Scale: The Trustees reviewed the structure of the advisory fee under the Advisory Agreement and concluded that the Trust's participants benefit from economies of scale as the Trust's assets grow because of the breakpoint that reduces the advisory fee on assets managed by Wellington above a specified level. Conclusion: Based on the Trustees' deliberations and their evaluation of the information described above, the Board concluded it would be in the best interest of the Trust and its participants to approve renewal of the Advisory Agreement. -------------------------------------------------------------------------------- 2005 Semi-Annual Report | 25 -------------------------------------------------------------------------------- AFL-CIO Housing Investment Trust [LOGO] 1717 K Street, NW, Suite 707 Washington, DC 20036 202-331-8055 www.aflcio-hit.com Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not Applicable. Item 6. Schedule of Investments. Not Applicable Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not Applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not Applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not Applicable. Item 10. Submission of Matters to a Vote of Security Holders. No material changes have been made to the procedures by which participants may recommend nominees to the Board of Trustees of the Trust, where those changes were implemented after the Trust last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A (17 CFR 240.14a-101) or this Item 10. Item 11. Controls and Procedures. (a) The Trust's Chief Executive Officer (the principal executive officer) and Chief Financial Officer (the principal financial officer) have concluded that the Trust's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c)), are effective to ensure that material information relating to the Trust is made known to them by appropriate persons, based on their evaluation of such controls and procedures as of June 30, 2005. (b) There was no change in the Trust's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the Trust's second fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. Item 12. Exhibits. (a) (1) Not Applicable. (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)). (3) Not Applicable. (b) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(b) under the Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the AFL-CIO Housing Investment Trust has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AFL-CIO HOUSING INVESTMENT TRUST By: /s/ Stephen Coyle ------------------------------- Name: Stephen Coyle Title: Chief Executive Officer Date: September 2, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the AFL-CIO Housing Investment Trust and in the capacities and on the dates indicated. /s/ Stephen Coyle ----------------------------- Stephen Coyle Chief Executive Officer (Principal Executive Officer) Date: September 2, 2005 /s/ Erica Khatchadourian ----------------------------- Erica Khatchadourian Chief Financial Officer (Principal Financial Officer) Date: September 2, 2005