N-CSRS 1 d69288_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 Bingham McCutchen 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, 2006 Item 1. Reports to Stockholders. A copy of the 2006 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. [GRAPHIC OMITTED] [LOGO] AFL - CIO HOUSING INVESTMENT TRUST SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- report to participants -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- STRATEGY FOR COMPETITIVE RETURNS For the six months ended June 30, 2006, the AFL-CIO Housing Investment Trust (HIT or the Trust) outperformed its benchmark, the Lehman Brothers Aggregate Bond Index (Lehman Aggregate) by 17 basis points net of fees. For the six-month period, the HIT's total return of -0.55% compared to a return of -0.72% for the Lehman Aggregate. The HIT's performance, like that of other fixed-income investments, reflected the impact of rising interest rates. For the one-, five- and ten-year periods, the HIT outperformed its benchmark net of fees by 3, 25, and 29 basis points, respectively. The HIT's performance advantage relative to its benchmark during this six-month period reflected in part its overweight in high credit quality mortgage investments, particularly multifamily mortgage-backed securities (MBS) insured or guaranteed by a government-sponsored enterprise or a U.S. government agency, as well as its success in maintaining portfolio duration slightly short of the Lehman Aggregate. Contributing to the HIT's outperformance was the fact that it does not invest in corporate bonds, whose underperformance affected the Lehman Aggregate's returns for the period. During the approximately two-year period ending in June, the Federal Reserve increased its federal funds rate from 1.00% to 5.25% (Figure 1, next page), prompting a general rise in interest rates (Figure 2). The performance of fixed-income funds in general has been adversely affected by this interest rate environment, but the HIT has been a consistently strong performer, beating its benchmark for the one-, five-, and ten-year periods in both rising and falling interest rate environments, as discussed above. In the near term, the HIT expects to maintain its overweight in multifamily mortgage investments and to continue to manage the portfolio to achieve an effectively neutral duration as compared to its benchmark. COMPETITIVE PERFORMANCE as of June 30, 2006 Average Annual Total Return [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] Average Annual Total Return (Percent) AFL-CIO Housing Lehman Brothers Investment Trust Aggregate Bond Index 1 yr (0.78)% (0.81)% 3 yrs 2.01% 2.05% 5 yrs 5.22% 4.97% 10 yrs 6.51% 6.22% Comparison of $50,000 Investment in the Trust and Lehman Aggregate [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] AFL-CIO Housing Investment Trust Value Growth of $50,000 Invested Lehman HIT net June-96 50.00 50.00 June-97 54.08 54.89 June-98 59.78 60.66 June-99 61.66 62.63 June-00 64.47 65.49 June-01 71.71 72.85 June-02 77.90 80.30 June-03 86.00 88.51 June-04 86.27 88.48 June-05 92.14 94.68 June-06 91.30 93.94 ---------- 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. The Lehman Brothers Aggregate Bond Index is an unmanaged index and 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. 1 -------------------------------------------------------------------------------- report to participants -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- TRUST PORTFOLIO DISTRIBUTION Includes funded and unfunded commitments as of June 30, 2006 [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Single Family Mortgage-Backed Securities 32.03% U.S. Treasury and Government-Sponsored Enterprise Securities 2.91% Construction and Permanent Mortgages 3.17% Commercial Mortgage-Backed Securities 1.89% Multifamily Permanent Mortgage-Backed Securities 47.74% State Housing Finance Agency Securities 0.32% Multifamily Construction Mortgage-Backed Securities 11.52% Cash and Cash Equivalents 0.42% Figure 1 FEDERAL FUNDS TARGET RATE [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Date Fed Funds Target Rate 6/30/2003 1 7/31/2003 1 8/29/2003 1 9/30/2003 1 10/31/2003 1 11/28/2003 1 12/31/2003 1 1/30/2004 1 2/27/2004 1 3/31/2004 1 4/30/2004 1 5/31/2004 1 6/30/2004 1.25 7/30/2004 1.25 8/31/2004 1.5 9/30/2004 1.75 10/29/2004 1.75 11/30/2004 2 12/31/2004 2.25 1/31/2005 2.25 2/28/2005 2.5 3/31/2005 2.75 4/29/2005 2.75 5/31/2005 3 6/30/2005 3.25 7/29/2005 3.25 8/31/2005 3.5 9/30/2005 3.75 10/31/2005 3.75 11/30/2005 4 12/30/2005 4.25 1/31/2006 4.5 2/28/2006 4.5 3/31/2006 4.75 4/28/2006 4.75 5/31/2006 5 6/30/2006 5.25 Source: Federal Reserve Board Figure 2 U.S. TREASURY YIELD CURVE [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Years to Maturity 12/31/2004 12/30/2005 6/30/2006 2 3.065 4.400 5.150 3 3.218 4.362 5.122 5 3.607 4.350 5.093 10 4.218 4.391 5.136 30 4.826 4.535 5.186 Source: Bloomberg, L.P. chart C15 MULTIFAMILY HOUSING The HIT issued $35 million in financing commitments for five multifamily projects in the first two quarters of 2006. This financing will create or preserve 678 units of housing, with over 90% of the units affordable to low- or moderate-income households. Total development costs of these projects will exceed $66 million. At mid-year, more than two dozen HIT-financed projects were under construction, representing over $750 million in combined total development activity. These projects are producing thousands of union jobs in construction and related industries. In response to the highly competitive production climate and significant loss of market share by the Federal Housing Administration (FHA), the HIT focused on alternative strategies to meet its production goals. These strategies included a new emphasis on the marketing of Fannie Mae forward commitments, which are attractive to developers seeking to lock in their permanent cost of capital. The HIT has also focused on selected investment initiatives and structured finance activities. 2 -------------------------------------------------------------------------------- report to participants -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- INVESTMENT INITIATIVES The HIT expanded its strategy of targeted community investing to help increase its production while addressing critical housing needs in key urban areas. The strategy is designed to help communities benefit from the HIT's expertise in housing finance and its network of relationships with key partners in labor, housing development, government and real estate finance. Investments have the added advantage of generating employment opportunities and leveraging additional investment capital for development. Gulf Coast Revitalization Program: A new Gulf Coast Revitalization Program, announced by the HIT at a New Orleans press event in June, will put union capital to work in rebuilding communities devastated by Hurricane Katrina last year. The HIT has pledged $600 million over the next seven years to finance 5,000 to 10,000 units of affordable housing, increase homeownership opportunities, rebuild health care facilities and create good jobs for residents of New Orleans and other coastal communities. The program is designed to create prudent investment opportunities for the HIT as it helps address the unprecedented housing crisis in the Gulf Coast. [PHOTO OMITTED] The Port of New Orleans was the backdrop for the announcement of HIT's $600 million pledge for Gulf Coast housing. Shown (from left) are HIT CEO Stephen Coyle; Edward C. Sullivan, President, Building and Construction Trades Department, AFL-CIO; AFL-CIO President John Sweeney; New Orleans Mayor Ray Nagin; and AFL-CIO Executive Vice President Linda Chavez-Thompson. New York City Community Investment Initiative: In February, the HIT marked the success of its post-9/11 New York City Community Investment Initiative, announcing that it exceeded its five-year investment target of $500 million one year ahead of time. The HIT is now moving forward with Phase II of this initiative, with new five-year targets of $250 million for multifamily investments and $1 billion for single family loans to be issued by Chase through the Union Plus Mortgage Program and the new HIT HOME program. As its first financing under Phase II, the HIT committed $22.2 million for two healthcare facilities serving 400 low- to moderate-income seniors in the Bronx. Chase issued $133.3 million in mortgage loans through the Union Plus Mortgage Program for 544 union members in New York City. Chicago Community Investment Plan: Since the launch of the Chicago Community Investment Plan in 2005, the HIT has continued to move forward toward its five-year goal of $250 million for the production of multifamily rental housing, including affordable and special needs housing. The latest HIT commitment under its housing production program with the Illinois Housing Development Authority is $3.3 million for the 91-unit Bloomingdale Horizon Senior Living Community to be built west of Chicago. [GRAPHIC OMITTED] The $17.4 million Bloomingdale Horizon Senior Living Community will offer independent living for Chicago-area seniors. 3 -------------------------------------------------------------------------------- leadership -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- BOARD OF 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 Retired; 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 Professor of Urban Land Studies, 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* 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 OFFICERS AND KEY STAFF Stephen Coyle Chief Executive Officer Helen R. Kanovsky Chief Operating Officer Erica Khatchadourian Chief Financial Officer Chang Suh, CFA Executive Vice President Chief Portfolio Manager John Hanley Executive Vice President Investments and Portfolio Management Mary C. Moynihan General Counsel Stephanie H. Wiggins Chief Investment Officer Multifamily Finance Marcie Cohen Senior Vice President Harpreet S. Peleg Controller Lesyllee White Director of Marketing Nicholas Milano Chief Compliance Officer and Deputy General Counsel Carol Nixon Director, New York City Office Aaron Prince Director, Western Regional Office SERVICE PROVIDERS Independent Registered Public Accounting Firm Ernst & Young LLP McLean, VA Investment Adviser Wellington Management Company, LLP Boston, MA Corporate Counsel Bingham McCutchen LLP Washington, DC Securities Counsel Wilmer Cutler Pickering Hale and Dorr LLP Washington, DC Transfer Agent PFPC Inc. King of Prussia, PA Custodian PFPC Trust Company Philadelphia, PA National Office 1717 K Street, NW, Suite 707 Washington, DC 20036 (202) 331-8055 Western Regional Office 235 Montgomery Street, Suite 1001 San Francisco, CA 94104 (415) 433-3044 New York City Office 31 West 15th Street, Suite 203 New York, NY 10011 (212) 414-8500 Gulf Coast Revitalization Program 1100 Poydras Street, Suite 2870 New Orleans, LA 70163 (504) 599-8750 * Executive Committee member 4 [GRAPHIC OMITTED] [LOGO] AFL - CIO HOUSING INVESTMENT TRUST FINANCIAL STATEMENTS JUNE 30, 2006 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 2006 (Dollars in thousands, unless otherwise noted; unaudited) -------------------------------------------------------------------------------- Assets Investments, at fair value (amortized cost $3,534,430)* $ 3,448,756 Cash 782 Accrued interest receivable 18,656 Receivables for investments sold 91,902 Accounts receivable 44 Prepaid expenses and other assets 1,042 ----------------------------------------------------------------------------------------------------- Total Assets 3,561,182 ----------------------------------------------------------------------------------------------------- Liabilities Accounts payable and accrued expenses 2,388 Payables for investments purchased 98,077 Redemptions payable 19,131 Refundable deposits 1,163 Income distribution payable, net of dividends reinvested of $12,796 2,106 ----------------------------------------------------------------------------------------------------- Total Liabilities 122,865 ----------------------------------------------------------------------------------------------------- Net Assets Applicable to Participants' Equity -- Certificates of Participation -- Authorized Unlimited; Outstanding 3,262,233 Units $ 3,438,317 ===================================================================================================== Net Asset Value Per Unit of Participation (in dollars) $ 1,053.98 ===================================================================================================== Participants' Equity Participants' equity consisted of the following: Amount invested and reinvested by current participants $ 3,540,169 Net unrealized appreciation of investments (85,674) Undistributed net investment income 3,023 Undistributed net realized loss on investments (10,244) Accumulated net realized losses (8,957) ===================================================================================================== Total Participants' Equity $ 3,438,317 =====================================================================================================
* The cost for federal tax purposes approximates book cost. See accompanying Notes to Financial Statements. 6 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FHA PERMANENT SECURITIES AND COMMITMENTS (4.3% OF NET ASSETS)
Commitment Amortized Interest Rate Maturity Date Amount Face Amount Cost Value -------------------------------------------------------------------------------------------------------------------------- Single Family 7.75% Jul-2021-Aug-2021 $ $ 36 $ 36 $ 36 8.00% Jul-2021 34 34 34 -------------------------------------------------------------------------------------------------------------------------- 70 70 70 -------------------------------------------------------------------------------------------------------------------------- Multifamily(1) 5.25% Mar-2024 5,207 5,237 4,935 5.60% Jun-2038 2,894 2,899 2,817 5.62% Jun-2014 763 763 742 5.65% Oct-2038 2,219 2,292 2,148 5.87% Jun-2044 1,975 1,976 1,929 6.02% Jun-2035 7,056 7,057 7,015 6.66% May-2040 5,775 5,776 5,825 6.70% Dec-2042 6,030 6,030 6,169 6.75% Feb-2039-Jul-2040 6,500 6,469 6,710 6.88% Apr-2031 28,807 28,494 29,428 7.00% Jun-2039 6,056 6,098 6,144 7.05% Jul-2043 5,342 5,342 5,589 7.13% Mar-2040 7,916 7,890 8,397 7.20% Dec-2033-Oct-2039 10,119 10,120 10,702 7.50% Sep-2032 1,635 1,638 1,792 7.70% Oct-2039 12,137 12,077 12,470 7.75% Oct-2038 1,399 1,393 1,421 7.88% Jul-2038 5,082 5,084 5,082 7.93% Apr-2042 2,901 2,901 3,261 8.15% Mar-2037 1,196 1,312 1,255 8.27% Jun-2042 2,537 2,537 2,782 8.38% Feb-2007 241 248 243 8.40% Apr-2012 738 738 740 8.75% Jul-2036-Aug-2036 11,857 11,808 11,870 8.80% Oct-2032 5,365 5,365 5,365 8.88% May-2036 2,407 2,374 2,416 -------------------------------------------------------------------------------------------------------------------------- 144,154 143,918 147,247 -------------------------------------------------------------------------------------------------------------------------- Forward Commitments(1) 6.40% Jul-2046 4,114 -- -- 78 -------------------------------------------------------------------------------------------------------------------------- 4,114 -- -- 78 -------------------------------------------------------------------------------------------------------------------------- Total FHA Permanent Securities and Commitments $ 4,114 $ 144,224 $ 143,988 $ 147,395 --------------------------------------------------------------------------------------------------------------------------
7 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FHA CONSTRUCTION SECURITIES AND COMMITMENTS (0.5% OF NET ASSETS)
Interest Rates(2) Commitment Amortized Permanent Construction Maturity Date Amount Face Amount Cost Value -------------------------------------------------------------------------------------------------------------------------- Multifamily(1) 5.35% 5.35% Mar-2047 $ 8,050 $ 8,050 $ 8,060 $ 7,626 5.55% 5.55% May-2042 8,950 8,950 8,954 8,610 -------------------------------------------------------------------------------------------------------------------------- 17,000 17,000 17,014 16,236 -------------------------------------------------------------------------------------------------------------------------- Total FHA Construction Securities and Commitments $ 17,000 $ 17,000 $ 17,014 $ 16,236 --------------------------------------------------------------------------------------------------------------------------
GINNIE MAE SECURITIES AND COMMITMENTS (29.1% OF NET ASSETS)
Commitment Amortized Interest Rate Maturity Date Amount Face Amount Cost Value -------------------------------------------------------------------------------------------------------------------------- Single Family 3.75% Dec-2033 $ $ 16,540 $ 16,461 $ 16,204 4.00% Feb-2033-Aug-2033 9,445 9,509 9,441 4.13% Nov-2032-Oct-2033 12,647 12,765 12,652 5.50% Jan-2033-Aug-2033 11,739 11,873 11,392 6.00% Jan-2032-Jun-2033 6,086 6,299 6,052 6.50% Jul-2028-Jun-2032 4,834 4,993 4,909 7.00% Nov-2016-Jan-2030 9,264 9,480 9,567 7.50% Apr-2013-Aug-2030 9,161 9,375 9,494 8.00% Nov-2009-Nov-2030 3,949 4,049 4,150 8.50% Nov-2009-Aug-2027 3,307 3,383 3,503 9.00% May-2016-Jun-2025 935 960 1,008 9.50% Sep-2021-Sep-2030 298 303 328 10.00% Jun-2019 1 1 1 13.00% Jul-2014 1 1 1 13.25% Dec-2014 1 1 1 -------------------------------------------------------------------------------------------------------------------------- 88,208 89,453 88,703 -------------------------------------------------------------------------------------------------------------------------- Multifamily(1) 5.58% Oct-2031 14,000 13,685 13,670 2.91% Aug-2020 6,524 6,519 6,180 3.53% Jan-2032 1,419 1,354 1,340 3.61% May-2018 18,874 18,511 18,118 3.62% May-2017 10,736 10,396 10,269 3.65% Sep-2017-Oct-2027 20,866 20,639 19,828 3.96% May-2032 1,000 945 943 4.00% Oct-2033 3,956 3,835 3,801 4.25% Feb-2031 6,000 5,969 5,698 4.26% Jul-2029 3,000 2,992 2,817 4.43% Apr-2034-Jun-2034 105,951 103,853 95,701 4.49% Apr-2023 8,531 8,531 8,119 4.57% Sep-2027 10,000 9,998 9,517 4.59% May-2033 16,300 16,290 15,742 4.65% Mar-2026 459 457 449 4.66% Dec-2030 23,618 23,553 22,250 4.70% Dec-2024 13,310 12,993 12,791
(continued, next page) 8 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- GINNIE MAE SECURITIES AND COMMITMENTS (29.1% OF NET ASSETS), continued
Commitment Amortized Interest Rate Maturity Date Amount Face Amount Cost Value -------------------------------------------------------------------------------------------------------------------------- 4.71% May-2025 33,294 33,285 31,774 4.78% Apr-2034 28,917 30,250 27,961 4.88% Mar-2036 10,000 10,009 9,393 4.92% May-2034 40,000 40,047 37,590 4.97% Jun-2036 6,431 6,463 6,167 5.00% Dec-2033 5,364 5,424 5,172 5.05% Nov-2028 32,000 32,107 31,304 5.08% Jan-2030 25,000 24,488 24,525 5.12% Feb-2037 10,000 10,186 9,438 5.13% Jul-2024 12,000 11,968 11,745 5.15% Jun-2023 36,751 37,478 35,239 5.21% Jan-2045 5,770 5,772 5,524 5.25% Aug-2032-Oct-2044 35,579 35,594 34,464 5.30% Apr-2039 55,000 54,094 52,959 5.32% Aug-2030-Dec-2037 70,000 68,066 67,487 5.35% Mar-2046 10,782 10,956 10,568 5.40% Nov-2015 7,837 7,868 7,811 5.45% Jul-2041 8,660 8,747 8,549 5.50% Sep-2023-Jul-2033 37,814 39,667 37,333 5.55% May-2026-Jul-2046 36,209 36,269 35,873 5.58% May-2031 55,582 57,068 54,138 5.68% Jul-2027 15,152 15,138 14,935 5.71% Jan-2045 7,363 7,364 7,319 5.84% May-2041 11,819 12,459 12,002 5.88% Mar-2024 8,843 8,844 8,831 5.89% Oct-2023 8,667 9,119 8,660 6.00% Jan-2046 3,680 3,683 3,744 6.05% Jun-2043 6,088 6,088 6,111 6.11% Nov-2021 598 598 598 6.26% Apr-2027 10,000 10,787 10,113 6.38% Mar-2026 10,000 10,300 10,209 6.41% Aug-2023 3,464 3,464 3,504 7.00% Jun-2043 28,643 28,643 30,341 8.75% Dec-2026 3,992 3,992 3,992 -------------------------------------------------------------------------------------------------------------------------- 945,843 946,805 912,606 -------------------------------------------------------------------------------------------------------------------------- Forward Commitments(1) 5.25% Jul-2036 8,173 -- 61 (278) 5.38% Jul-2024 510 -- 16 (7) 5.75% Dec-2026-Jul-2037 7,357 -- 52 3 5.85% Dec-2037 3,250 -- -- (8) 7.50% Dec-2043 23,300 -- 93 233 -------------------------------------------------------------------------------------------------------------------------- 42,590 -- 222 (57) -------------------------------------------------------------------------------------------------------------------------- Total Ginnie Mae Securities and Commitments $ 42,590 $ 1,034,051 $1,036,480 $1,001,252 --------------------------------------------------------------------------------------------------------------------------
9 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- GINNIE MAE CONSTRUCTION SECURITIES AND COMMITMENTS (8.6% OF NET ASSETS)
Interest Rates(2) Commitment Amortized Permanent Construction Maturity Date Amount Face Amount Cost Value -------------------------------------------------------------------------------------------------------------------------- Multifamily(1) 4.70% 4.70% Jan-2047 (3) $ 6,035 $ 6,035 $ 6,035 $ 5,639 4.74% 4.74% Feb-2045 (3) 6,418 5,008 4,813 4,550 4.83% 4.83% May-2046 (3) 5,650 5,650 5,650 5,313 4.88% 4.88% Jun-2045 35,000 34,054 34,236 31,849 4.89% 4.89% Dec-2044 (3) 10,440 10,440 10,471 9,852 4.94% 4.94% May-2046 (3) 4,000 4,000 4,005 3,788 5.10% 2.25% Sep-2045 (3) 7,230 7,230 7,246 6,841 5.10% 5.10% Oct-2046 25,363 21,477 21,609 20,674 5.20% 5.20% Apr-2047 26,236 17,112 17,377 16,099 5.21% 5.21% Jan-2047 (3) 16,188 6,397 6,266 5,711 5.25% 5.95% Feb-2031 42,100 40,397 40,296 38,543 5.34% 5.34% Mar-2046 (3) 11,340 9,668 9,685 9,271 5.51% 5.51% Apr-2046 27,944 26,092 26,747 25,850 5.62% 5.62% Mar-2046 8,200 7,637 7,890 7,685 5.75% 5.75% Aug-2046 18,424 17,150 17,166 17,125 5.85% 5.85% Nov-2045 2,091 1,974 1,976 1,981 6.22% 5.75% Aug-2035 14,599 11,844 11,854 12,167 6.60% 6.60% May-2043 17,793 16,296 15,889 16,907 7.75% 7.25% Aug-2035 51,779 51,778 51,533 56,958 -------------------------------------------------------------------------------------------------------------------------- 336,830 300,239 300,744 296,803 -------------------------------------------------------------------------------------------------------------------------- Forward Commitments(1) 5.46% 5.46% Feb-2047 3,165 25 48 (34) -------------------------------------------------------------------------------------------------------------------------- 3,165 25 48 (34) -------------------------------------------------------------------------------------------------------------------------- Total Ginnie Mae Construction Securities and Commitments $ 339,995 $ 300,264 $ 300,792 $ 296,769 --------------------------------------------------------------------------------------------------------------------------
10 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FANNIE MAE SECURITIES (36.9% OF NET ASSETS)
Amortized Interest Rate Maturity Date Face Amount Cost Value ----------------------------------------------------------------------------------------------------------------- Single Family 3.97% Aug-2033 $ 1,798 $ 1,792 $ 1,749 4.00% Jul-2033 12,979 13,072 12,661 4.05% Jul-2033 6,527 6,472 6,374 4.27% May-2033 7,434 7,486 7,275 4.28% Aug-2033 5,722 5,710 5,605 4.30% Aug-2033 18,503 18,452 18,141 4.50% Jun-2018-Feb-2019 16,014 16,275 15,181 4.55% Nov-2033 16,700 16,715 16,435 4.59% Aug-2034 990 997 969 5.00% Jul-2018-Jul-2035 76,930 77,246 73,215 5.50% Jul-2017-Mar-2036 213,276 215,145 205,809 6.00% Apr-2016-May-2036 237,863 240,892 234,566 6.50% Nov-2016-Jun-2036 62,452 63,301 62,881 7.00% Nov-2013-May-2032 9,032 9,143 9,246 7.50% Nov-2016-Sep-2031 3,344 3,328 3,459 8.00% Jan-2007-May-2031 2,047 2,076 2,122 8.50% Nov-2009-Apr-2031 1,457 1,483 1,517 9.00% Jul-2009-May-2025 449 453 473 ----------------------------------------------------------------------------------------------------------------- 693,517 700,038 677,678 ----------------------------------------------------------------------------------------------------------------- Multifamily(1) 4.10% Jun-2027 9,498 9,284 9,012 4.22% Jul-2018 5,135 4,763 4,719 4.48% Oct-2031 23,310 23,315 22,613 4.66% Jul-2021-Sep-2033 8,725 8,856 8,120 4.67% Aug-2033 9,600 9,582 8,877 4.72% Mar-2014 6,351 6,019 6,001 4.99% Mar-2021-Aug-2021 42,388 42,367 39,223 5.15% Oct-2022 4,794 4,837 4,602 5.29% Apr-2016 19,961 19,592 19,448 5.36% Feb-2016 5,000 5,020 4,870 5.43% Nov-2013 1,423 1,422 1,423 5.45% May-2033 3,294 3,339 3,173 5.52% May-2016 23,175 22,742 22,969 5.59% May-2017 7,594 7,631 7,550 5.60% Feb-2018-Jan-2024 13,034 13,039 12,789 5.62% Jun-2011 28,947 28,563 28,918 5.70% Mar-2009 5,633 5,902 5,652 5.80% May-2018(4) 26,790 26,413 25,192 5.85% Oct-2008 946 976 947 5.86% Dec-2016 429 434 433 5.89% Nov-2008 2,322 2,411 2,332 5.92% Dec-2016 427 433 430 5.96% Jan-2029 495 505 496 6.03% Jun-2017 1,940 2,089 1,978 6.06% Jul-2034 10,765 11,243 10,834 6.10% Apr-2011 2,817 2,880 2,869 6.13% Dec-2016 3,751 4,064 3,851 6.14% Sep-2033 326 352 334 6.15% Oct-2032 3,759 3,867 3,831 6.16% Aug-2013 12,356 13,253 12,396 6.19% Jul-2013 5,000 5,369 5,111 6.22% Aug-2032-Jul-2034 11,217 12,026 11,444
(continued, next page) 11 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FANNIE MAE SECURITIES (36.9% OF NET ASSETS), continued
Amortized Interest Rate Maturity Date Face Amount Cost Value ----------------------------------------------------------------------------------------------------------------- 6.23% Sep-2034 1,569 1,672 1,601 6.27% Jan-2012 2,150 2,180 2,214 6.28% Nov-2028 3,509 3,805 3,600 6.35% Jun-2020-Aug-2032 29,034 30,452 29,588 6.38% Jul-2021 6,000 6,234 6,298 6.39% Apr-2019 1,045 1,127 1,088 6.41% Aug-2013 1,977 2,106 1,999 6.42% Apr-2011 1,414 1,495 1,433 6.44% Apr-2014-Dec-2018 47,702 48,292 50,403 6.50% Jun-2016 2,918 2,918 3,026 6.52% Jul-2008-May-2029 6,266 6,975 6,581 6.53% May-2030 3,979 3,988 3,960 6.63% Jun-2014-Apr-2019 4,853 4,878 5,074 6.65% Aug-2007-Aug-2011 2,045 2,200 2,122 6.70% Jan-2011 2,513 2,662 2,552 6.74% Aug-2007 13,450 14,150 13,471 6.79% Aug-2009 7,309 7,305 7,552 6.80% Jul-2016 950 950 999 6.85% Aug-2014 45,274 45,255 48,609 6.88% Feb-2028 5,108 5,703 5,358 6.92% Jun-2007 1,439 1,466 1,441 7.00% Jun-2018 4,306 4,306 4,571 7.01% Apr-2031 3,569 3,607 3,835 7.07% Feb-2031 18,027 18,421 19,426 7.16% Jan-2022 107 112 107 7.18% Aug-2016 585 585 625 7.20% Apr-2010-Aug-2029 9,638 9,381 10,239 7.25% Nov-2011-Jul-2012 9,043 9,043 9,330 7.26% Dec-2018 13,988 15,395 15,088 7.40% Aug-2010 1,198 1,246 1,270 7.46% Aug-2029 9,805 11,183 10,676 7.50% Dec-2014 1,915 1,918 2,057 7.53% Feb-2024 7,279 8,150 7,369 7.71% Feb-2010 9,392 9,473 9,507 7.75% Dec-2012-Dec-2024 4,111 4,113 4,457 8.00% Nov-2019 2,251 2,244 2,258 8.13% Sep-2012-Aug-2020 9,149 9,123 9,337 8.38% Jan-2022 971 973 982 8.40% Jul-2023 530 521 599 8.50% Sep-2006-Sep-2026 5,754 6,183 6,399 8.63% Sep-2028 6,871 6,871 7,796 9.13% Sep-2015 3,031 3,016 3,046 ----------------------------------------------------------------------------------------------------------------- 613,226 624,265 620,380 ----------------------------------------------------------------------------------------------------------------- TBA(5) 5.50% TBA (29,500) (28,581) (28,338) ----------------------------------------------------------------------------------------------------------------- (29,500) (28,581) (28,338) ================================================================================================================= Total Fannie Mae Securities $ 1,277,243 $ 1,295,722 $1,269,720 =================================================================================================================
12 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- FREDDIE MAC SECURITIES (12.1% OF NET ASSETS)
Interest Rate Maturity Date Face Amount Amortized Cost Value -------------------------------------------------------------------------------------------------------------- Single Family 4.00% Oct-2033 $ 11,516 $ 11,352 $ 11,157 4.24% Jun-2033 4,450 4,432 4,343 4.37% Jul-2035 2,948 2,935 2,882 4.50% Aug-2018-Feb-2019 25,061 25,157 23,735 4.83% Dec-2035 38,060 38,036 37,883 4.84% Feb-2036 15,000 15,000 14,966 5.00% Jan-2019-Jul-2035 54,994 55,326 52,670 5.07% Apr-2035 2,795 2,795 2,752 5.43% Apr-2036 9,947 9,931 9,929 5.50% Oct-2017-Jan-2035 68,909 69,030 66,600 6.00% Dec-2006-Feb-2036 161,174 164,347 158,878 6.50% Feb-2007-Apr-2036 41,257 42,142 41,562 7.00% Mar-2011-Mar-2030 3,120 3,092 3,181 7.50% Jul-2010-Apr-2031 3,063 3,028 3,148 8.00% May-2008-Feb-2030 1,380 1,381 1,420 8.50% Jun-2010-Jan-2025 983 992 1,024 9.00% Sep-2010-Mar-2025 268 271 282 -------------------------------------------------------------------------------------------------------------- 444,925 449,247 436,412 -------------------------------------------------------------------------------------------------------------- Multifamily(1) 8.00% Feb-2009 3,077 3,070 3,088 -------------------------------------------------------------------------------------------------------------- 3,077 3,070 3,088 -------------------------------------------------------------------------------------------------------------- TBA(5) 5.50% TBA (23,800) (22,714) (22,768) -------------------------------------------------------------------------------------------------------------- (23,800) (22,714) (22,768) ============================================================================================================== Total Freddie Mac Securities $ 424,202 $ 429,603 $ 416,732 ==============================================================================================================
COMMERCIAL MORTGAGE-BACKED SECURITIES (2.0% OF NET ASSETS)
Interest Rate Maturity Date Face Amount Amortized Cost Value -------------------------------------------------------------------------------------------------------------- 5.41% Dec-2040 $ 17,000 $ 16,684 $ 16,409 5.47% Apr-2038 12,000 11,985 11,730 5.61% Feb-2039 15,000 15,144 14,638 5.83% Jun-2038 10,000 9,991 9,997 6.01% Jun-2045 15,000 15,074 15,105 -------------------------------------------------------------------------------------------------------------- Total Commercial Mortgage-Backed Securities $ 69,000 $ 68,878 $ 67,879 --------------------------------------------------------------------------------------------------------------
13 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- GOVERNMENT-SPONSORED ENTERPRISE SECURITIES (3.0% OF NET ASSETS)
Issuer Interest Rate Maturity Date Face Amount Amortized Cost Value -------------------------------------------------------------------------------------------------------------- Fannie Mae 5.50% Jul-2007 $ 10,000 $ 10,000 $ 9,977 Fannie Mae 6.00% Feb-2020-Mar-2025 98,660 99,192 94,607 -------------------------------------------------------------------------------------------------------------- Total Government-Sponsored Enterprise Securities $ 108,660 $ 109,192 $ 104,584 --------------------------------------------------------------------------------------------------------------
STATE HOUSING FINANCE AGENCY SECURITIES (0.3% OF NET ASSETS)
Issuer Interest Rate Maturity Date Face Amount Amortized Cost Value -------------------------------------------------------------------------------------------------------------- Multifamily(1) MA Housing Finance Agency 5.25% Dec-2048 $ 2,500 $ 2,500 $ 2,472 MA Housing Finance Agency 5.42% Jun-2009 2,610 2,610 2,599 MA Housing Finance Agency 5.92% Dec-2037 6,710 6,714 6,519 -------------------------------------------------------------------------------------------------------------- Total State Housing Finance Agency Securities $ 11,820 $ 11,824 $ 11,590 --------------------------------------------------------------------------------------------------------------
OTHER MULTIFAMILY INVESTMENTS AND COMMITMENTS (3.0% OF NET ASSETS)
Interest Rates(2) Commitment Face Amortized Permanent Construction Maturity Date Amount Amount Cost Value ---------------------------------------------------------------------------------------------------------- Multifamily Construction/Permanent Mortgages 5.54% 5.30% Jul-2017(6) $ 62,016 $ 55,327 $ 55,396 $ 53,919 7.63% N/A Jan-2011 813 410 410 417 8.63% N/A Apr-2025 1,469 1,282 1,282 1,282 9.50% N/A Apr-2024 760 680 680 680 9.75% N/A Nov-2018 1,524 1,179 1,179 1,179 ---------------------------------------------------------------------------------------------------------- 66,582 58,878 58,947 57,477 ---------------------------------------------------------------------------------------------------------- Privately Insured Construction/Permanent Mortgages(7) 5.40% 5.40% Apr-2047 9,000 9,000 9,008 8,337 5.55% N/A May-2021 12,006 11,340 11,342 10,770 5.55% 5.55% Jan-2047 12,809 12,809 12,811 11,816 5.73% 5.73% Aug-2047 5,575 5,575 5,581 5,295 5.95% 5.95% Mar-2044 4,400 4,341 4,355 4,239 6.15% 6.15% Mar-2045 1,600 1,588 1,594 1,575 6.20% 6.20% Dec-2047-Mar-2047 8,099 2,778 2,803 2,594 ---------------------------------------------------------------------------------------------------------- 53,489 47,431 47,494 44,626 ---------------------------------------------------------------------------------------------------------- Total Other Multifamily Investments and Commitments $ 120,071 $ 106,309 $ 106,441 $ 102,103 ---------------------------------------------------------------------------------------------------------- ========================================================================================================== Total Long-Term Investments $3,492,773 $ 3,519,934 $ 3,434,260 ==========================================================================================================
14 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS (0.4% OF NET ASSETS)
Description Maturity Date Interest Rate(8) Face Amount Amortized Cost Value ------------------------------------------------------------------------------------------------------------------ Short-term - Cash Equivalents(9) Repurchase Agreement Amalgamated Bank(10) August 7, 2006 4.90% $ 2,000 $ 2,000 $ 2,000 ------------------------------------------------------------------------------------------------------------------ 2,000 2,000 2,000 ------------------------------------------------------------------------------------------------------------------ Commercial Paper UBS AMERICAS INC July 3, 2006 5.27% 12,500 12,496 12,496 ------------------------------------------------------------------------------------------------------------------ 12,500 12,496 12,496 ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Total Short-Term Investments $ 14,500 $ 14,496 $ 14,496 ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Total Investments $ 3,507,273 $ 3,534,430 $ 3,448,756 ------------------------------------------------------------------------------------------------------------------
(1) Multifamily MBS securities and forward commitments are valued by the fair value procedures adopted by the Trust's Board of Trustees. (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) Tax-exempt bonds collateralized by Ginnie Mae Securities. (4) During construction this investment is a 100% participation interest in a construction loan enhanced by a letter of credit issued by PNC Bank, N.A. in favor of the Trust. The interest rate during construction is a floating rate equal to LIBOR plus 150 basis points for the related monthly period up to a maximum rate of 5.80%. At stabilization, the Trust will take delivery of a Fannie Mae MBS with an interest rate of 5.80% and a term of ten years. (5) Represents to be announced ("TBA") securities, securities the Trust agreed to sell for which the specific securities have not yet been identified. (6) During construction this investment is a mortgage loan credit-enhanced by a letter of credit issued in favor of the Trust. The interest rate during construction is a floating rate equal to LIBOR plus 150 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 a Fannie Mae MBS with an interest rate of 5.54% and a term of ten years. (7) Loans insured by Ambac Assurance Corporation. (8) Interest rate is yield calculated based on purchase price of discount note. (9) Short-term investments with remaining maturities of sixty days or less. (10) This instrument was purchased in June 2006. The Trust will receive $2,016,545 upon maturity. The underlying collateral for the repurchase agreement is a Ginnie Mae security with a market value of $2,101,401. See accompanying Notes to Financial Statements. 15 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2006 (Dollars in thousands; unaudited) -------------------------------------------------------------------------------- Investment Income FHA permanent securities* $ 5,314 FHA construction securities 461 Ginnie Mae securities* 23,893 Ginnie Mae construction securities* 8,692 Fannie Mae securities 32,840 Freddie Mac securities 11,474 Commercial mortgage-backed securities 779 Government-sponsored enterprise securities 4,248 United States Treasury securities 640 State Housing Finance Agency securities 248 Other multifamily investments 2,824 Short-term investments 2,218 ------------------------------------------------------------------------------------------- Total Income 93,631 ------------------------------------------------------------------------------------------- Expenses Officer salaries and fringe benefits 1,374 Other salaries and fringe benefits 3,427 Legal fees 199 Consulting fees 190 Auditing, tax and accounting fees 132 Insurance 163 Marketing and sales promotion (12b-1) 244 Investment management 370 Trustee expenses 24 Rental expenses 369 General expenses 914 ------------------------------------------------------------------------------------------- Total Expenses 7,406 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- Net Investment Income 86,225 ------------------------------------------------------------------------------------------- Net realized loss on investments (10,244) Net change in unrealized depreciation on investments (95,551) ------------------------------------------------------------------------------------------- Realized and Unrealized Net Losses on Investments (105,795) =========================================================================================== Net Decrease in Net Assets Resulting from Operations $ (19,570) ===========================================================================================
* Includes forward commitments. See accompanying Notes to Financial Statements. 16 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Dollars in thousands) --------------------------------------------------------------------------------
Six Months Ended June 30, 2006 Year Ended (unaudited) December 31, 2005 ------------------------------------------------------------------------------------------------------------ Increase in Net Assets From Operations Net investment income $ 86,225 $ 163,168 Net realized (loss)/gain on investments (10,244) 334 Net change in unrealized depreciation on investments (95,551) (69,016) ------------------------------------------------------------------------------------------------------------ Net (decrease)/increase in net assets resulting from operations (19,570) 94,486 ------------------------------------------------------------------------------------------------------------ Decrease in Net Assets From Distributions Distributions paid to participants or reinvested from: Net investment income (88,515) (170,964) ------------------------------------------------------------------------------------------------------------ Net decrease in net assets from distributions (88,515) (170,964) ------------------------------------------------------------------------------------------------------------ Decrease in Net Assets From Unit Transactions Proceeds from the sale of units of participation 22,791 111,325 Dividend reinvestment of units of participation 76,144 148,694 Payments for redemption of units of participation (129,408) (272,616) ------------------------------------------------------------------------------------------------------------ Net decrease from unit transactions (30,473) (12,597) ------------------------------------------------------------------------------------------------------------ Total decrease in net assets (138,558) (89,075) ------------------------------------------------------------------------------------------------------------ Net assets at beginning of period 3,576,875 3,665,950 ============================================================================================================ Net assets at end of period $ 3,438,317 $ 3,576,875 ============================================================================================================ Unit Information Units sold 21,146 101,212 Distributions reinvested 71,311 135,208 Units redeemed (120,922) (246,580) ============================================================================================================ Decrease in units outstanding (28,465) (10,160) ============================================================================================================
See accompanying Notes to Financial Statements. 17 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- 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, commercial 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, mortgage securities, and construction mortgage securities and loans) 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. 18 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- 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 earned during the month. This pro-rata distribution is based on the participant's number of units held as of the immediately preceding month-end and excludes realized gains (losses) on paydowns of mortgage- and asset-backed securities which 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 the month in which they redeem. 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 86 percent of distributable income for the six months ended June 30, 2006. INVESTMENT TRANSACTIONS AND INCOME Security transactions are accounted for as of the 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 distribution activities (12b-1 expenses). For the year 2006, the Trust is authorized to pay 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, 2006, the Trust incurred approximately $244,000 of 12b-l expenses. RECEIVABLES FOR INVESTMENTS SOLD Receivables for Investments Sold represent investments that were sold on or prior to June 30, 2006, which settled subsequent to June 30, 2006. PAYABLES FOR INVESTMENTS PURCHASED Payables for Investments Purchased represent investments that were purchased on or prior to June 30, 2006, which settled subsequent to June 30, 2006. 19 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- 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, 2006, 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-month period, an employee of the Trust also served as an officer of the ITC. The total cost for such personnel and related expenses for the six months ended June 30, 2006, amounted to approximately $304,000. During the six months ended June 30, 2006, the Trust was reimbursed for approximately $274,000 of current year costs. As of June 30, 2006, approximately $30,000, 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, 2006, was approximately $80,000. During the six months ended June 30, 2006, the Trust paid the ITC approximately $67,000 of current costs. 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, 2006, the Trust had outstanding unfunded purchase commitments of approximately $158.9 million. The Trust maintains a reserve, in the form of securities, of no less than the total of the outstanding unfunded purchase commitments, less short-term investments. As of June 30, 2006, the value of the publicly traded mortgage-backed securities maintained for the reserve in a segregated account was approximately $3.04 billion. The commitment amounts disclosed on the Schedule of Portfolio Investments represent the original commitment amount, which includes both funded and unfunded commitments. 20 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) -------------------------------------------------------------------------------- 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, 2006, follows (dollars in thousands):
FHA FHA Ginnie Ginnie Mae Fannie Permanent Construction Mae Construction Mae Securities* Securities Securities* Securities* Securities ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 2006 $ 153,862 $ 17,005 $ 903,976 $ 312,384 $1,219,582 Purchases and insured construction securities advances, net of discounts -- -- 284,803 39,428 674,633 Change in discounts and (premiums) (30) 9 (1,853) (105) (8,048) Transfers -- -- 35,815 (35,815) -- Principal reductions/Sales (9,844) -- (186,261) (15,100) (590,445) ---------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2006 $ 143,988 $ 17,014 $ 1,036,480 $ 300,792 $1,295,722 ---------------------------------------------------------------------------------------------------------------------------------- Commercial Government- State Housing Freddie Mortgage- Sponsored Finance Other Mac Backed Enterprise Agency Multifamily Securities Securities Securities Securities Investments ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 2006 $ 407,056 -- $ 209,118 $ 7,054 $ 92,681 Purchases and insured construction securities advances, net of discounts 146,200 165,151 10,000 5,110 14,085 Change in discounts and (premiums) (2,278) (122) 74 -- 23 Transfers -- -- -- -- Principal reductions/Sales (121,375) (96,151) (110,000) (340) (348) ---------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2006 $ 429,603 $ 68,878 $ 109,192 $ 11,824 $ 106,441 ----------------------------------------------------------------------------------------------------------------------------------
* Includes forward commitments. NOTE 6. FEDERAL TAXES The information set forth in this footnote is actual information as of December 31, 2005, and will be updated in the Annual Report for December 31, 2006, to coincide with the 2006 tax reporting year-end. The tax character of distribution paid during 2005 was as follows (dollars in thousands): 2005 ----------------------------------------------------------------------------- Ordinary investment income - net $ 170,964 Long-term capital gains on investments -- ----------------------------------------------------------------------------- Total net distributions paid to participants or reinvested $ 170,964 ----------------------------------------------------------------------------- As of December 31, 2005, the components of accumulated earnings on a tax basis were as follows (dollars in thousands): 2005 ----------------------------------------------------------------------------- Accumulated capital loss carryforward $ (8,030) Unrealized appreciation 8,951 Other temporary differences 3,023 ----------------------------------------------------------------------------- Total accumulated earnings $ 3,944 ----------------------------------------------------------------------------- 21 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) -------------------------------------------------------------------------------- Accumulated capital loss carryforward may be used to offset future capital gain recognized by the Trust through December 31, 2013. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the year ended December 31, 2005, the Trust recorded the following permanent reclassifications (dollars in thousands): Undistributed net investment income $ 10,398 Accumulated net realized gain $ (9,224) Amount invested and reinvested by current participants $ (1,174) Reclassifications are primarily due to the different book and tax treatment of paydowns and distributions. Results of operations and net assets were not affected by these reclassifications. 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 17.92% percent of employees' salaries for the six months ended June 30, 2006. The total Trust pension expense for the six months ended June 30, 2006, was approximately $522,000. 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 2006, the Trust is matching dollar for dollar the first $3,300 of each employee's contributions. The Trust's 401(k) contribution for the six months ended June 30, 2006, was approximately $142,000. NOTE 8. LOAN FACILITY The Trust has a $25 million uncommitted loan facility which expires on June 30, 2007. 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. 22 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios for the Six Months Ended June 30, 2006 and Years Ended December 31, 2005, 2004, 2003, 2002, and 2001. --------------------------------------------------------------------------------
Six Months Ended June 30, 2006 (unaudited) 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------------------------ Per Share Data Net asset value, beginning of period $ 1,086.97 $ 1,110.61 $ 1,125.21 $ 1,152.30 $ 1,098.40 $ 1,085.42 Income from investment operations: Net investment income 26.35 50.08 48.63 54.26 65.19 70.86 Net realized and unrealized (losses) gains on investments (32.29) (21.25) (2.38) (11.69) 59.15 16.24 ------------------------------------------------------------------------------------------------------------------------------------ Total Income (Loss) from Investment Operations (5.94) 28.83 46.25 42.57 124.34 87.10 ------------------------------------------------------------------------------------------------------------------------------------ Less distributions from: Net investment income (27.05) (52.47) (49.10) (54.26) (65.19) (70.93) Net realized gains on investments -- -- (11.75) (15.40) (5.25) (3.19) ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions (27.05) (52.47) (60.85) (69.66) (70.44) (74.12) ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== Net Asset Value, End of Period $ 1,053.98 $ 1,086.97 $ 1,110.61 $ 1,125.21 $ 1,152.30 $ 1,098.40 ==================================================================================================================================== Ratios Ratio of expenses to average net assets 0.42%* 0.37% 0.37% 0.37% 0.36% 0.37% Ratio of net investment income to average net asset 4.9%* 4.5% 4.4% 4.7% 5.8% 6.4% Portfolio turnover rate 80.5%* 68.4% 85.5% 73.1% 64.3% 40.9% ------------------------------------------------------------------------------------------------------------------------------------ Number of Outstanding Units at End of Period 3,262,233 3,290,698 3,300,858 3,206,626 2,848,002 2,504,984 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Net Assets, End of Period (in thousands) $ 3,438,317 $ 3,576,875 $ 3,665,950 $ 3,608,139 $ 3,281,763 $2,751,482 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Total Return** (0.55%) 2.64% 4.20% 3.78% 11.64% 8.21% ------------------------------------------------------------------------------------------------------------------------------------
* Amounts are annualized. ** Net of fund expenses. See accompanying Notes to Financial Statements. 23 -------------------------------------------------------------------------------- AFL - CIO HOUSING INVESTMENT TRUST -------------------------------------------------------------------------------- OTHER IMPORTANT INFORMATION -------------------------------------------------------------------------------- 2006 SPECIAL MEETING OF PARTICIPANTS A Special Meeting of Participants was held in Washington, D.C., on Wednesday, February 22, 2006. The following matters were put to a vote of Participants at the meeting through the solicitation of proxies: To approve an amendment to Section 3.3(d)(ii)(A)(2) of the Declaration of Trust, to change the loan to value ratio requirement from 75 percent to 80 percent for construction and permanent mortgage loans and/or securities where the project receives the benefits of federal low income housing tax credits: votes for 2,323,508.039; votes against 6,266.307; votes abstaining 30,522.420; votes not cast 930,400.793. To approve an amendment to Section 3.3(d)(iv) of the Declaration of Trust to authorize the Trust to invest in bridge loans for developments that are eligible to receive and have allocations or other rights to receive federal rehabilitation tax credits: votes for 2,331,333.243; votes against 1,159.200; votes abstaining 27,804.323; votes not cast 930,400.793. To approve an amendment to Section 3.3(h) of the Declaration of Trust to authorize the Trust to invest in Commercial Mortgage Backed Securities (CMBS) that at the time of their acquisition by the Trust are rated in the highest rating category by at least one nationally recognized statistical rating agency - subject to a limit of no more than 10 percent of the total value of the Trust's assets: votes for 2,327,539.640; votes against 4,952.803; votes abstaining 27,804.323; votes not cast 930,400.793. 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, D.C. (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. 24 -------------------------------------------------------------------------------- SEMI - ANNUAL REPORT JUNE 2006 -------------------------------------------------------------------------------- OTHER IMPORTANT INFORMATION -------------------------------------------------------------------------------- EXPENSE EXAMPLE Participants of 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, 2006, and held for the entire period ended June 30, 2006. 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, 2006 June 30, 2006 June 30, 2006 * -------------------------------------------------------------------------------- Actual expenses $50,000 $49,724.53 $103.85 -------------------------------------------------------------------------------- Hypothetical expenses (5% return before expenses) $50,000 $51,135.59 $105.32 -------------------------------------------------------------------------------- * Expenses are equal to the Trust's annualized expense ratio of 0.42%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). 25 AFL-CIO Housing Investment Trust | 1717 K Street, NW, Suite 707 [LOGO] Washington, DC 20036 | 202-331-8055 | www.aflcio-hit.com -------------------------------------------------------------------------------- bug 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, 2006. (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 8, 2006 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 8, 2006 /s/ Erica Khatchadourian ------------------------ Erica Khatchadourian Chief Financial Officer (Principal Financial Officer) Date: September 8, 2006