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
2020 K Street, N.W., Washington, DC 20006
(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: January 1, 2006 - December 31, 2006
Item 1. Reports to Stockholders.
A copy of the 2006 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
[GRAPHICS]
[LOGO]
Annual Report 2006
The AFL-CIO Housing Investment Trust is a fixed-income fund providing financing
for multifamily and single family housing. The Trust's investment objective is
to provide current income while preserving capital over time and obtaining
returns competitive with industry benchmarks. Through its investments, the Trust
also seeks to increase the supply of affordable housing for working families,
generate union jobs and strengthen communities across the United States.
Message from the
Chairman
[PHOTO]
Richard Ravitch
Chairman
AFL-CIO Housing Investment Trust
I am pleased to report that the AFL-CIO Housing Investment Trust (the Trust) has
completed another year of producing competitive returns for its investors and
financing innovative housing initiatives that demonstrate once again the Trust's
unique role in the portfolios of our pension plan investors.
In 2006, the Trust maintained its highly competitive performance, exceeding its
benchmark, the Lehman Brothers Aggregate Bond Index, by 32 basis points for the
year on a net basis. The consistency of its performance is evident in its
returns for longer periods as well, as discussed in this report. As a high
credit-quality fixed-income investment, the Trust continues to help its
investors achieve desired portfolio diversification and capital preservation,
while also creating and preserving affordable housing, generating good jobs, and
strengthening communities across the country. That is a lot to ask of an
investment, and once again the Trust has delivered.
The pension investment environment has changed significantly in the four decades
during which the Trust and its predecessor fund have been serving the men and
women of the labor movement. The Trust's performance reflects its ability to
develop innovative investment tools and collaborative relationships to take
advantage of evolving market opportunities. One thing that has not changed,
though, is the Trust's dedication to the growth and security of its investors'
assets. With its specialization in multifamily securities, the Trust has created
a secure niche in the fixed-income market from which it has been successful in
generating added value for investors. Moreover, the Trust operates in a
regulated environment in which it makes regular filings with the Securities and
Exchange Commission, including its audited financial statements. This offers
investors the peace of mind that comes from full knowledge of how their assets
are being managed.
Building on these achievements, the Trust will continue to strive to meet its
participants' needs for competitive fixed-income returns. We feel confident that
the Trust is well positioned to meet those needs in the period ahead.
/s/ Richard Ravitch
Richard Ravitch
ANNUAL REPORT 2006 1
Message from the
AFL-CIO President
[PHOTO]
John J. Sweeney
President, AFL-CIO
For decades, the AFL-CIO Housing Investment Trust has successfully worked to
fulfill its primary mission of investing union pension assets in America's
communities to achieve financial security for working people. The year 2006 was
no exception as the Trust continued to achieve competitive returns while also
contributing to the quality of life for working families through the affordable
housing and good union jobs it financed across the country.
At no time have we had better reason to take pride in the Trust than in the last
few years when our country suffered two unprecedented national disasters - the
terrorist attacks of September 11, 2001, and the horrific destruction wrought by
Hurricane Katrina along the Gulf Coast in 2005. Not only were union members
among the first responders to both of these tragedies, but the Trust also
stepped up to the plate with two long-term investment initiatives designed to
breathe new life into the hard-hit communities. These innovative initiatives
featured prominently in Trust activities in 2006.
In New York City, the Trust announced early in the year that it had exceeded its
initial $500 million investment goal for the period that followed the 9/11
tragedy. The Trust also renewed its commitment to the working families of New
York City with a new pledge that will further expand affordable multifamily
housing and homeownership opportunities over the next five years.
In the wake of Hurricane Katrina, the Trust initiated an ambitious investment
plan to aid in the region's recovery. Now that plan is on its way to reality
with the 2006 launch of the AFL-CIO Gulf Coast Revitalization Program. The
building trades unions are working closely with the Trust to ensure that
community residents will be able to access the good union jobs created by this
exciting program.
The AFL-CIO Housing Investment Trust exemplifies how working people benefit when
unions and their employers take an active role in managing pension fund assets.
We are proud to support the Trust as it works to ensure a secure future for
pension beneficiaries while seeking solutions to some of our country's most
pressing housing needs.
/s/ John J. Sweeney
John J. Sweeney
2 AFL-CIO HOUSING INVESTMENT TRUST
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Report to Participants
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Discussion of Performance
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Outperforming the Benchmark
The AFL-CIO Housing Investment Trust completed 2006 with a net return of 4.65
percent for the year, outperforming its benchmark, the Lehman Brothers Aggregate
Bond Index (Aggregate or benchmark), by 32 basis points. The benchmark reported
a return of 4.33 percent for the year. The Trust also exceeded the benchmark
over longer periods, with net returns for the Trust of 3.83 percent, 5.34
percent, and 6.51 percent for the three-, five- and ten-year periods,
respectively. This compared to the Aggregate's 3.70 percent, 5.06 percent and
6.24 percent for those periods.
Market Environment
The U.S. fixed-income markets were characterized by four significant
developments in the 12-month period ending December 31, 2006:
o Interest rates increased across the yield curve.
o Short-term interest rates increased more than longer-term rates.
o The yield curve was inverted with overnight rates higher than the yield on
10-year Treasuries for a significant period.
o The Federal Reserve raised the Federal Funds Rate from 4.25 percent to
5.25 percent.
Each of these played an important role in the market during the year.
The Federal Reserve held back on further increases in interest rates after its
June 29 meeting, as inflation indicators eased in the latter half of the year.
This ended a run of 17 consecutive increases in interest rates by the Federal
Reserve dating from June 30, 2004. The economy began to show signs of slowing
midway through 2006, primarily as a result of a significant slowdown in the
residential housing sector and higher energy prices.
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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 Trust's website at
www.aflcio-hit.com. The prospectus should be read carefully before investing.
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Competitive Performance
Average Annual Total Return
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
AFL-CIO Housing Lehman Brothers
Investment Trust Aggregate Bond Index
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1 Year 4.65% 4.33%
3 years 3.83% 3.70%
5 Years 5.34% 5.06%
10 Years 6.51% 6.24%
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
December-96 50.00 50.00
December-97 54.83 55.37
December-98 59.59 59.95
December-99 59.10 59.61
December-00 65.97 66.95
December-01 71.54 72.45
December-02 78.88 80.88
December-03 82.12 83.93
December-04 85.68 87.46
December-05 87.76 89.77
December-06 91.56 93.95
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HIT $93,953
Lehman $91,562
- --------------------------------------------
The Trust's performance assumes reinvestment of dividends and capital gains.
ANNUAL REPORT 2006 3
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Report to Participants
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DISCUSSION OF PERFORMANCE
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U.S. Treasury Yield Curve Shift
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Years to
Maturity 12/31/2005 6/30/2006 12/31/2006
0.25 4.08 4.98 5.01
2 4.40 5.15 4.81
3 4.36 5.12 4.73
5 4.35 5.09 4.69
10 4.39 5.14 4.70
30 4.54 5.19 4.81
Source: Bloomberg L.P., 2007
Single Family Housing Starts 2003-2006 (annualized, in thousands)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Housing Starts in thousands
Jan-03 1853
Feb-03 1629
Mar-03 1726
Apr-03 1643
May-03 1751
Jun-03 1867
Jul-03 1897
Aug-03 1833
Sep-03 1939
Oct-03 1967
Nov-03 2083
Dec-03 2057
Jan-04 1911
Feb-04 1846
Mar-04 1998
Apr-04 2003
May-04 1981
Jun-04 1828
Jul-04 2002
Aug-04 2024
Sep-04 1905
Oct-04 2072
Nov-04 1782
Dec-04 2042
Jan-05 2137
Feb-05 2213
Mar-05 1856
Apr-05 2079
May-05 2034
Jun-05 2078
Jul-05 2070
Aug-05 2075
Sep-05 2158
Oct-05 2046
Nov-05 2131
Dec-05 2002
Jan-06 2265
Feb-06 2132
Mar-06 1972
Apr-06 1832
May-06 1953
Jun-06 1833
Jul-06 1760
Aug-06 1659
Sep-06 1724
Oct-06 1478
Nov-06 1572
Dec-06 1642
Source: U.S. Census Bureau
Home price appreciation slowed from the pace of 2005 as demand for homes
slackened. This led to a 12.3 percent decrease in average monthly annualized
housing starts from 2.1 million in 2005 to 1.8 million in 2006, the U.S. Census
Bureau reported. New home sales fell from an average annual rate of 1.3 million
in 2005 to 1.1 million in 2006, while the inventory of unsold new homes rose
from an average of 4.4 months supply in 2005 to 6.4 months supply in 2006.
Energy costs experienced volatility as the price of a barrel of crude oil spiked
to the mid-$70s during the summer before falling to the low $60s by year-end.
Inflation, measured by the "core" Consumer Price Index, which excludes volatile
energy and food costs, rose 2.6 percent in 2006, up from 2.2 percent in 2005.
The inflation rate began to slow gradually towards the latter part of the year,
however, with monthly increases remaining at or below 0.2 percent. The economy
added an average of 187,000 new jobs per month in 2006, compared to a monthly
average of 212,000 in 2005. The manufacturing sector continued to lag other
sectors, losing an average of approximately 7,000 jobs per month.
Portfolio Strategy
The Trust's strong performance in comparison to its benchmark was once again
attributable in part to its high credit-quality non-Treasury investments. The
Trust obtained a yield advantage over the benchmark from its emphasis on
multifamily mortgage-backed securities (MBS) that are insured or guaranteed by a
government-sponsored enterprise (GSE) or a U.S. government agency. These
investments -- often referred to as agency multifamily MBS - tend to produce
higher yields than other securities with similar credit ratings.
Active management of duration again served the Trust well in 2006. Duration is a
measure of a fund's sensitivity to changes in the direction of interest rates.
The Trust managed the portfolio duration to be effectively neutral but slightly
short of the benchmark. This "duration neutral" position meant that the Trust's
portfolio maintained roughly the same sensitivity to interest rate moves as its
benchmark index.
Early in the year, the Trust received authority to invest up to 10 percent of
its net assets in AAA-rated private-label commercial mortgage-backed securities
(CMBS). The new authority proved timely. Although CMBS comprised just 5.88
percent of the portfolio at December 31, the Trust's exposure to this investment
contributed to its strong performance against its benchmark, as CMBS was one of
the best performing sectors of the Lehman Aggregate in 2006. Agency multifamily
MBS tend to perform very similarly to private-label CMBS. The Trust benefited by
overweighting the portfolio with both of these investment types.
4 AFL-CIO HOUSING INVESTMENT TRUST
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Finally, it should be noted that corporate bonds and lower-rated
investment-grade securities had a strong year. The Trust is not authorized to
invest in these types of securities, and its structural underweight could have
dampened its performance were it not for its corresponding overweight in high
quality agency and private-label multifamily CMBS, which performed well.
The Year Ahead
The two- and ten-year U.S. Treasuries ended the year 48 and 55 basis points,
respectively, below their highest levels of 2006. Economic growth had slowed
significantly by year-end from the 5.6 percent annualized growth rate of the
first quarter. A big question for those looking ahead was whether past interest
rate hikes and the slowdown in the housing market had reduced inflationary
pressures and economic growth enough to spur interest rate cuts by the Federal
Reserve in 2007.
Should the slowdown in the residential housing market continue into 2007, the
Trust's ongoing strategy of underweighting the lower-quality sectors of the
investment-grade fixed income market is expected to continue to serve its
investors well. The Trust expects to continue its long-term strategy of
overweighting in agency-credit quality multifamily MBS in the period ahead,
since this sector has a record of outperforming other investments with similar
credit ratings. The Trust also anticipates maintaining its strategy of interest
rate neutrality relative to its benchmark, which will help to minimize interest
rate risk at a time of general uncertainty about the likely path of interest
rates in the coming year.
An important emphasis for the Trust will be to maintain and increase its
commitments for multifamily mortgage investments. This is a sector that has
provided relative value over other investment grade bonds in the benchmark, and
a sector in which the Trust possesses special expertise drawn from years of
experience in sourcing and investing in multifamily projects. These investments
also contribute to the Trust's secondary objectives of providing affordable
housing and union jobs.
Trust Portfolio Distrubution*
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Construction and Permanent Mortgages 3.05%
U.S. Treasury and Government-Sponsored Enterprise Securities 1.46%
AAA-Rated Private-Label Commercial Mortgage-Backed Securities 5.88%
Cash and Cash Equivalents 2.35%
Short-Term Intermediate Securities 0.05%
Multifamily Permanent Mortgage-Backed Securities 46.93%
Single Family Mortgage-Backed Securities 31.10%
Multifamily Construction Mortgage-Backed Securities 8.76%
State Housing Finance Agency Securities 0.42%
* Includes funded and unfunded commitments.
ANNUAL REPORT 2006 5
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Report to participants
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Investment Dollars at Work
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Creating and Preserving Multifamily Housing
The Trust committed $77.1 million in financing in 2006 that will create or
preserve 1,366 units of multifamily housing in urban areas such as Chicago,
Boston and New York. The great majority of these housing units, 94 percent, will
be affordable to working families and seniors with low or moderate incomes.
While helping communities meet their urgent housing needs, Trust investments
also generated good union jobs, helped stimulate local economies and leveraged
almost $75 million of additional investment capital for housing.
The year's multifamily commitments included $47.5 million for eight transactions
that were financed with FHA mortgage insurance. The Trust's relationships with
state housing finance agencies in Massachusetts and Illinois resulted in $18.2
million in commitments for four multifamily projects in those two states with
development costs of $76.2 million. Because many projects were delayed by market
conditions in 2006, a substantial pipeline of prospective projects had been
assembled by year-end as a basis for action in 2007.
Initiative Investing
During 2006, the Trust took steps to assure the future growth of its targeted
community investing initiatives in New York City, Chicago, and along the Gulf
Coast.
New York City Community Investment Initiative: In early 2006, the Trust
announced the second phase of this initiative with a renewed commitment to
preserve housing affordability and promote homeownership for working families in
New York City. Goals for phase two include $250 million in multifamily
investments over the next five years. Single family mortgages are being offered
to union members and city employees through a $1 billion homeownership program
with Chase and Union Privilege. By the end of 2006, the Trust had made headway
toward these phase two goals with $47.3 million in multifamily investments and
$252.3 million in home loans through Chase and Union Privilege. The Trust first
established this investment initiative in the aftermath of the 9/11 terrorist
attacks as a way to attract needed investment capital to New York. It exceeded
its original $500 million investment goal one year ahead of schedule. The
Trust's investments have stimulated over $1.2 billion in total investments in
New York since the inception of the initiative in 2002.
Chicago Community Investment Plan: Since implementing this initiative in 2005,
the Trust has moved forward with $68.6 million in financing for multifamily
projects representing over 1,200 housing units in the Chicago area. Ninety
percent of the housing financed through the initiative is designated as
affordable to low- and moderate-income households. The initiative builds on the
Trust's long history of working with the City of Chicago to help meet residents'
housing needs.
AFL-CIO Gulf Coast Revitalization Program: As part of the AFL-CIO Investment
Program, the Trust took part in the planning and launch of the AFL-CIO Gulf
Coast Revitalization Program in 2006. The Trust has set a goal of investing $600
million over the next seven years to help meet critical housing needs of Gulf
Coast residents. This initiative is working to stimulate a total of $1 billion
in housing and economic development investments over the next seven years to aid
in the region's recovery from the 2005 hurricanes. To support its efforts, the
Trust has brought together a broad coalition of local and national groups
committed to affordable housing in the region.
These special initiatives are not only helping the Trust expand its investment
activity but are also providing resources to assist these regions and their
residents to meet extraordinary housing needs.
6 AFL-CIO HOUSING INVESTMENT TRUST
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Project Profiles
Among the projects for which financing was committed in 2006:
Ashmont Transit Oriented Development: The Trust collaborated with MassHousing,
the Massachusetts state housing finance agency, to help finance construction of
this $48.6 million multifamily project in Boston's Dorchester neighborhood.
Nearby public transportation will serve the residents of the 116 units.
John M. Evans Supportive Living Community: The Trust teamed up with the
Laborers' Home Development Corporation and the Illinois Housing Development
Authority to provide $5.6 million in financing for this $10.2 million housing
facility for seniors in Pekin, Illinois.
Cedar River Tower: With $3.3 million in financing from the Trust, affordability
is being preserved at this 85-unit residence serving elderly and handicapped
individuals in Waterloo, Iowa. All residents of the facility are eligible for
Section 8 rental assistance.
Bronx Healthcare Centers: The Trust provided $22.1 million to refinance two
skilled nursing facilities in the Bronx, New York, which will help preserve
quality health care for local residents. The Eastchester Rehabilitation and
Healthcare Center and the Bronx Center for Rehabilitation and Healthcare provide
a total of 400 beds, serving primarily individuals receiving Medicaid or
Medicare.
Bloomingdale Horizon Senior Living Community: A $3.3 million investment from the
Trust will be used in the construction of a $17.5 million project that will
create 91 units of mixed-income housing for older residents of Bloomingdale,
outside of Chicago.
SEBCO I & II: The Trust provided $25.2 million in financing to help preserve the
affordability of 361 units of Section 8 rental housing in the Bronx, New York.
With these two projects, the Trust helped carry on a decades-long community
development effort led by the South East Bronx Community Organization (SEBCO) to
combat blight and deterioration in the Hunt's Point neighborhood of the Bronx.
Roosevelt-Independence Apartments: An important source of affordable housing for
residents of Chicago's historic North Lawndale neighborhood is undergoing
substantial rehabilitation with the help of $4.9 million in HIT financing. With
all residents eligible for Section 8 rental assistance, the project represents
much-needed affordable housing in an emerging neighborhood experiencing
significant growth in real estate prices and value.
[GRAPHIC]
Ashmont Transit Oriented
Development:
Dorchester, Massachusetts
[GRAPHIC]
Cedar River Tower:
Waterloo, Iowa
[GRAPHIC]
Bloomingdale Horizon Senior
Living Community:
Bloomingdale, Illinois
ANNUAL REPORT 2006 7
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Other Important Information
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2006 Participants Meeting
The 2006 Annual Meeting of Participants was held in Washington, D.C., on
Tuesday, August 15, 2006. 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: votes for
2,258,935.025; votes against 0; votes abstaining 92,682.761; votes not cast
2,351,617.786.
The table below details votes pertaining to Trustees who were reelected at the
Annual Meeting.
The following Trustees were not up for reelection and their terms of office
continued after the Annual Meeting: John J. Sweeney, Linda Chavez-Thompson,
Frank Hurt, Richard Trumka, James A. Williams, George Latimer, Jack Quinn, and
Tony Stanley.
Ernst & Young LLP was ratified as the HIT's Independent Registered Public
Accounting Firm by: votes for 2,259,006.013; votes against 0; votes abstaining
92,611.773; votes not cast 2,351,617.786.
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 twelve-month period ended June 30,2006, the Trust held no
voting securities in its portfolio. The Trust's proxy voting report on Form N-PX
for the twelve-month period ended June 30, 2006, 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.
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Participants Meeting
Trustee Votes For Votes Against Votes Abstaining*
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John J. Flynn 2,169,229.864 89,892.718 92,495.204
Edward C. Sullivan 2,169,229.864 89,892.718 92,495.204
Jon F. Walters 2,259,122.582 0 92,495.204
Stephen Frank 2,259,051.594 0 92,566.192
Marlyn J. Spear 2,259,051.594 0 92,566.192
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* Votes not cast: 2,351,617.786.
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8 AFL-CIO HOUSING INVESTMENT TRUST
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 July 1, 2006, and held for
the entire period ended December 31, 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.
Investment Advisory Agreement Approval
On July 12, 2006, 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 short-term cash which is managed
by Wellington. The Trust has historically managed its cash position to be less
than two percent of its assets at the end of each quarter. The 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 only 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.
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Expense Example
Beginning Ending Expenses Paid During
Account Value Account Value Six-Month Period Ended
July 1, 2006 December 31, 2006 December 31, 2006*
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Actual expenses $ 50,000 $ 52,618.73 $ 106.05
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Hypothetical expenses
(5% return before expenses) $ 50,000 $ 51,156.93 $ 104.54
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* Expenses are equal to the Trust's annualized expense ratio of 0.41 %,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
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ANNUAL REPORT 2006 9
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Other Important Information
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In evaluating the Advisory Agreement, the Board ofTrustees 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 July 12, 2006 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.
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 in its section
15(c) report that Wellington manages over $542 billion of client assets and
serves as an investment adviser for over 1,000 clients -- all institutions. 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 short-term 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 those of a similar fund advised by
Wellington. The Trustees 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 relative expense of Wellington compared to
the cost of adding staff to the Trust's portfolio management group to perform
the services provided by Wellington.
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 Trustees concluded it would be in the best
interest of the Trust and its participants to approve a renewal of the Advisory
Agreement.
10 AFL-CIO HOUSING INVESTMENT TRUST
2006
FINANCIAL STATEMENTS
[GRAPHICS]
[LOGO] American Federation of Labor
and Congress of Industrial Organizations
Housing Investment Trust
- --------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Trustees and Participants of American Federation of Labor and
Congress of Industrial Organizations Housing Investment Trust:
We have audited the accompanying statement of assets and liabilities of American
Federation of Labor and Congress of Industrial Organizations Housing Investment
Trust (the "Trust"), including the schedule of portfolio investments, as of
December 31, 2006, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Trust's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American Federation of Labor and Congress of Industrial Organizations Housing
Investment Trust at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst + Young LLP
McLean, Virginia
February 9, 2007
12 AFL-CIO HOUSING INVESTMENT TRUST
Statements of Assets and Liabilities
December 31, 2006 (Dollars in thousands)
Assets
- --------------------------------------------------------------------------------
Investments, at fair value (amortized cost $3,628,791) $ 3,632,733
Cash and cash equivalents 48,081
Accrued interest receivable 17,831
Accounts receivable 932
Prepaid expenses and other assets 933
================================================================================
Total Assets 3,700,510
================================================================================
Liabilities
- --------------------------------------------------------------------------------
Accounts payable and accrued expenses 2,918
Payables for investments purchased 33,264
Redemptions payable 55,423
Refundable deposits 930
Income distribution payable, net of dividends
reinvested of $13,111 2,296
================================================================================
Total Liabilities 94,831
================================================================================
Net Assets Applicable to Participants' Equity --
- --------------------------------------------------------------------------------
Certificates of Participation -- Authorized Unlimited;
Outstanding 3,334,684 Units $ 3,605,679
- --------------------------------------------------------------------------------
================================================================================
Net Asset Value Per Unit of Participation (in dollars) $ 1,081.27
================================================================================
Participants' Equity
- --------------------------------------------------------------------------------
Participants' equity consisted of the following:
Amount invested and reinvested by current participants $ 3,619,844
Net unrealized appreciation of investments 3,942
Undistributed net investment income 3,050
Accumulated net realized losses (21,157)
================================================================================
Total Participants' Equity $ 3,605,679
================================================================================
See accompanying Notes to Financial Statements.
ANNUAL REPORT 2006 13
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments December 31, 2006 (Dollars in thousands)
- --------------------------------------------------------------------------------
FHA Permanent Securities (4.2% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- ----------------------------------------------------------------------------------------------
Single Family 7.75% Jul-2021-Aug-2021 $ 34 $ 34 $ 34
8.00% Jul-2021 33 33 33
- ----------------------------------------------------------------------------------------------
67 67 67
- ----------------------------------------------------------------------------------------------
Multifamily(1) 5.25% Mar-2024 5,119 5,146 4,990
5.60% Jun-2038 2,878 2,882 2,874
5.62% Jun-2014 724 724 717
5.65% Oct-2038 2,208 2,278 2,199
5.87% Jun-2044 1,967 1,968 2,005
6.02% Jun-2035 6,958 6,958 7,124
6.40% Aug-2046 4,107 4,104 4,401
6.65% Apr-2040 940 948 1,003
6.66% May-2040 5,752 5,752 5,867
6.70% Dec-2042 6,010 6,009 6,287
6.75% Feb-2039-Jul-2040 5,535 5,496 5,854
6.88% Apr-2031 28,605 28,289 29,644
7.00% Jun-2039 6,034 6,073 6,161
7.05% Jul-2043 5,327 5,327 5,703
7.13% Mar-2040 7,887 7,859 8,557
7.20% Nov-2033-Oct-2039 10,066 10,065 10,891
7.50% Sep-2032 1,624 1,628 1,827
7.70% Oct-2039 12,099 12,036 12,453
7.75% Oct-2038 1,395 1,388 1,413
7.88% Jul-2038 5,065 5,066 5,014
7.93% Apr-2042 2,894 2,894 3,324
8.15% Mar-2037 1,192 1,306 1,254
8.27% Jun-2042 2,532 2,532 2,813
8.38% Feb-2007 178 187 179
8.40% Apr-2012 684 684 687
8.75% Jul-2036-Aug-2036 11,822 11,768 11,837
8.80% Oct-2032 5,340 5,340 5,340
8.88% May-2036 2,399 2,365 2,410
- ----------------------------------------------------------------------------------------------
147,341 147,072 152,828
==============================================================================================
Total FHA Permanent Securities $ 147,408 $ 147,139 $ 152,895
==============================================================================================
FHA Construction Securities and Commitments (0.5% of net assets)
Interest Rates(2) Maturity Commitment
Permanent Construction Date Amount Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------------------
Multifamily(1) 5.35% 5.35% Mar-2047 $ 8,050 $ 8,050 $ 8,060 $ 7,913
5.55% 5.55% May-2042 8,950 8,950 8,954 8,928
- -------------------------------------------------------------------------------------------------------------------
17,000 17,000 17,014 16,841
- -------------------------------------------------------------------------------------------------------------------
Forward Commitments(1) 5.89% 5.89% Mar-2038 5,350 -- -- (31)
- -------------------------------------------------------------------------------------------------------------------
5,350 -- -- (31)
===================================================================================================================
Total FHA Construction Securities and Commitment $ 22,350 $ 17,000 $ 17,014 $ 16,810
===================================================================================================================
14 AFL-CIO HOUSING INVESTMENT TRUST
Ginnie Mae Securities and Commitments (28.5% of net assets)
Interest Commitment
Rate Maturity Dates Amount Face Amount Amortized Cost Value
- ----------------------------------------------------------------------------------------------------
Single Family 3.75% Dec-2033 $ 15,106 $ 15,036 $ 14,914
5.50% Jan-2033-Aug-2033 9,831 9,939 9,807
6.00% Jan-2032-Jun-2033 5,320 5,501 5,410
6.50% Jul-2028-Dec-2028 466 466 481
7.00% Nov-20l6-Jan-2030 8,365 8,547 8,665
7.50% Apr-2013-Aug-2030 8,082 8,258 8,413
8.00% Nov-2009-Nov-2030 3,282 3,367 3,450
8.50% Nov-2009-Aug-2027 2,856 2,920 3,066
9.00% May-20l6-Jun-2025 800 820 874
9.50% Sep-2021-Sep-2030 271 275 300
10.00% Jun-2019 1 1 1
13.00% Jul-2014 1 1 1
13.25% Dec-2014 1 1 1
- ----------------------------------------------------------------------------------------------------
54,382 55,132 55,383
- ----------------------------------------------------------------------------------------------------
Multifamily(1) 2.91% Jun-2018-Aug-2020 7,939 7,865 7,609
3.53% Jan-2032 1,352 1,291 1,300
3.61% May-2018 18,194 17,865 17,664
3.62% May-2017 23,055 22,289 22,307
3.65% Sep-2017-Oct-2027 19,284 19,059 18,563
3.96% May-2032 1,000 946 961
4.25% Feb-2031-Feb-2039 11,000 10,673 10,493
4.26% Jul-2029 3,000 2,992 2,886
4.43% Apr-2034-Jun-2034 109,470 107,210 102,793
4.49% Apr-2023 8,531 8,531 8,288
4.59% May-2033 16,300 16,291 15,998
4.65% Mar-2026 448 447 442
4.66% Dec-2030 8,617 8,687 8,364
4.70% Dec-2024 13,310 13,001 13,046
4.71% May-2025 33,294 33,282 32,505
4.78% Apr-2034 28,561 29,844 28,062
4.88% Mar-2036 17,000 16,753 16,512
4.92% Feb-2034-May-2034 65,000 64,665 63,475
5.00% Dec-2033 5,321 5,379 5,208
5.05% Nov-2028 32,000 32,099 31,772
continued
ANNUAL REPORT 2006 15
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments December 31, 2006 (Dollars in thousands)
- --------------------------------------------------------------------------------
Ginnie Mae Securities and Commitments (28.5% of net assets) continued
Commitment
Interest Rate Maturity Dates Amount Face Amount Amortized Cost Value
- --------------------------------------------------------------------------------------------------
5.08% Jan-2030 24,025 23,542 23,858
5.12% Feb-2037 10,000 10,182 9,800
5.13% Jul-2024 12,000 11,967 11,940
5.15% Jun-2023 36,081 36,764 35,445
5.21% Jan-2045 5,743 5,744 5,670
5.25% Feb-2031-Oct-2044 76,831 76,741 76,460
5.30% Apr-2039 55,000 54,101 54,676
5.32% Aug-2030 35,000 34,847 34,972
5.34% Jul-2040 18,000 17,642 17,666
5.38% Apr-2025 504 520 514
5.40% Nov-2015 388 389 388
5.45% Mar-2042 2,332 2,417 2,388
5.50% Sep-2023-Jul-2033 37,814 39,607 38,050
5.55% May-2026-Mar-2045 31,620 31,772 31,786
5.58% May-2031-Oct-2031 94,581 94,973 95,423
5.68% Jul-2027 15,152 15,136 15,410
5.75% Sep-2027 3,269 3,331 3,406
5.84% May-2041 11,770 12,398 12,364
5.88% Mar-2024 4,276 4,277 4,279
6.00% Jan-2046 3,669 3,673 3,915
6.05% Jun-2043 6,088 6,088 6,393
6.11% Nov-2021 204 204 204
6.25% Dec-2046 18,916 18,915 20,489
6.26% Apr-2027 10,000 10,765 10,362
6.38% Mar-2026 10,000 10,291 10,425
6.48% Aug-2023 3,464 3,464 3,540
7.00% Jun-2043 28,565 28,564 30,486
8.75% Dec-2026 3,957 3,957 3,957
- --------------------------------------------------------------------------------------------------
981,925 981,440 972,514
- --------------------------------------------------------------------------------------------------
Forward Commitments(1)
5.25% Jul-2036 8,173 -- 61 39
5.75% Dec-2026-Jul-2037 7,357 -- 52 276
5.85% Dec-2037 3,250 -- -- 127
- --------------------------------------------------------------------------------------------------
18,780 -- 113 442
==================================================================================================
Total Ginnie Mae Securities and Commitments $ 18,780 $ 1,036,307 $ 1,036,685 $ 1,028,339
==================================================================================================
16 AFL-CIO HOUSING INVESTMENT TRUST
Ginnie Mae Construction Securities and Commitments (5.8% of net assets)
Interest Rates(2) Commitment
Permanent Construction Maturity Date Amount Face Amount Amortized Cost Value
- --------------------------------------------------------------------------------------------------------------------
Multifamily(1) 4.70% 4.70% Jan-2047(3) $ 6,035 $ 6,035 $ 6,047 $ 5,855
4.74% 4.74% Feb-2045(3) 6,418 5,887 5,692 5,646
4.83% 4.83% May-2046(3) 5,650 5,650 5,650 5,484
4.94% 4.94% June-2046(3) 4,000 4,000 4,005 3,908
5.10% 5.10% Oct-2046 25,363 23,814 23,947 23,919
5.20% 5.20% Mar-2047 26,236 23,161 23,426 22,744
5.21% 5.21% Jan-2047(3) 16,188 11,677 11,547 11,567
5.34% 5.34% Mar-2046 11,340 10,178 10,195 10,155
5.46% 5.46% Feb-2047 3,165 2,751 2,774 2,824
5.51% 5.51% Apr-2046 27,944 27,360 28,015 28,115
5.75% 5.75% Aug-2046 18,424 17,178 17,194 17,734
5.85% 5.85% Nov-2045 2,091 1,974 1,977 2,042
6.22% 5.75% Aug-2035 14,599 11,932 11,942 12,689
6.25% 6.25% Feb-2034 4,890 425 703 812
7.75% 7.25% Aug-2035 51,779 51,780 51,533 55,921
====================================================================================================================
Total Ginnie Mae Construction Securities and Commitments $ 224,122 $ 203,802 $ 204,647 $ 209,415
====================================================================================================================
Fannie Mae Securities (35.5% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- --------------------------------------------------------------------------------------------------------------------
Single Family 3.97% Aug-2033 $ 1,780 $ 1,775 $ 1,749
4.00% Jul-2033 12,163 12,245 12,020
4.10% Jul-2033 5,634 5,587 5,562
4.27% May-2033- Nov-2033 42,094 42,096 41,671
4.50% Jun-2018-Feb-2019 14,900 15,121 14,402
4.61% Aug-2034 832 837 824
4.80% Sep-2035 5,292 5,267 5,269
5.00% Jul-2018-Jul-2035 70,872 71,118 69,144
5.50% Jul-2017-Aug-2036 200,667 202,241 198,836
6.00% Apr-2016-Jun-2036 212,446 214,843 214,037
6.50% Nov-2016-May-2036 57,602 58,359 58,743
7.00% Nov-2013-May-2032 7,850 7,937 8,101
7.50% Nov-2016-Sep-2031 2,866 2,847 2,981
8.00% Jun-2012-May-2031 1,733 1,755 1,806
8.50% Nov-2009-Apr-2031 1,243 1,263 1,317
9.00% Jul-2009-May-2025 359 361 387
- --------------------------------------------------------------------------------------------------------------------
638,333 643,652 636,849
- --------------------------------------------------------------------------------------------------------------------
continued
ANNUAL REPORT 2006 17
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments December 31, 2006 (Dollars in thousands)
- --------------------------------------------------------------------------------
Fannie Mae Securities (35.5% of net assets) continued
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- ------------------------------------------------------------------------------------------
Multifamily(1) 4.10% Jun-2027 9,498 9,290 9,168
4.22% Jul-2018 4,975 4,632 4,711
4.48% Oct-2031 17,687 17,691 17,318
4.66% Jul-2021-Sep-2033 8,660 8,784 8,210
4.67% Aug-2033 9,600 9,582 9,160
4.99% Apr-2021-Aug-2021 42,368 42,352 41,215
5.15% Oct-2022 4,717 4,757 4,691
5.35% Apr-2012-Jun-2018 25,153 25,271 25,334
5.36% Feb-2016 5,000 5,019 5,023
5.43% Nov-2018 1,412 1,410 1,413
5.44% Mar-2016 3,965 4,041 4,039
5.45% May-2033 3,270 3,314 3,274
5.52% May-2016 23,038 22,633 23,577
5.59% May-2017 7,553 7,584 7,777
5.60% Feb-2018-Jan-2024 12,936 12,937 13,258
5.62% Jun-2011 28,945 28,607 29,044
5.70% Mar-2009-Jun-2016 7,075 7,359 7,185
5.80% May-2018(4) 53,569 53,195 55,230
5.85% Oct-2008 940 961 940
5.86% Dec-2016 415 419 429
5.92% Dec-2016 412 418 425
5.96% Jan-2029 490 500 509
6.03% Jun-2017 1,931 2,069 2,040
6.06% Jul-2034 10,699 11,163 11,203
6.10% Apr-2011 2,796 2,852 2,885
6.13% Dec-2016 3,730 4,016 3,965
6.14% Sep-2033 325 350 345
6.15% Oct-2032 3,738 3,842 3,947
6.16% Aug-2013 12,245 13,070 12,359
6.19% Jul-2013 5,000 5,347 5,223
6.22% Aug-2032 1,909 1,976 2,025
6.23% Sep-2034 1,559 1,660 1,655
6.27% Jan-2012 2,136 2,161 2,237
6.28% Nov-2028 3,475 3,762 3,695
6.35% Jun-2020-Aug-2032 28,962 30,322 30,208
6.38% Jul-2021 5,975 6,196 6,519
6.39% Apr-2019 1,039 1,116 1,117
continued
18 AFL-CIO HOUSING INVESTMENT TRUST
Fannie Mae Securities (35.5% of net assets) continued
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------
6.41% Aug-2013 1,958 2,077 1,986
6.42% Apr-2011 1,404 1,473 1,424
6.44% Apr-2014-Dec-2018 47,380 47,922 51,731
6.50% Jun-2016 2,817 2,816 2,983
6.52% May-2029 6,003 6,691 6,527
6.53% May-2030 2,947 2,954 2,946
6.63% Jun-2014-Apr-2019 4,784 4,807 5,108
6.65% Aug-2007-Aug-2011 1,970 2,106 2,069
6.70% Jan-2011 2,497 2,624 2,532
6.74% Aug-2007 13,449 14,055 13,411
6.79% Aug-2009 7,278 7,265 7,513
6.80% Jul-2016 918 918 985
6.85% Aug-2014 45,063 45,018 49,474
6.88% Feb-2028 5,060 5,637 5,423
6.91% Jun-2007 734 745 736
7.00% Jun-2018 4,196 4,196 4,527
7.01% Apr-2031 3,546 3,581 3,899
7.07% Feb-2031 17,904 18,283 19,740
7.18% Aug-2016 566 566 617
7.20% Apr-2010-Aug-2029 9,506 9,255 10,301
7.25% Nov-2011-Jul-2012 8,948 8,948 9,236
7.26% Dec-2018 13,647 14,962 15,025
7.46% Aug-2029 9,729 11,068 10,818
7.50% Dec-2014 1,836 1,837 2,000
7.57% Feb-2024 6,643 7,416 6,762
7.71% Feb-2010 9,337 9,399 9,354
7.75% Dec-2012-Dec-2024 3,973 3,975 4,367
8.00% Nov-2019 2,207 2,200 2,216
8.13% Sep-2012-Aug-2020 8,896 8,867 9,095
8.38% Jan-2022 957 957 962
8.40% Jul-2023 524 515 601
8.50% Jan-2007-Sep-2026 5,594 5,990 6,327
8.63% Sep-2028 6,826 6,826 7,772
9.13% Sep-2015 2,927 2,912 2,945
- -------------------------------------------------------------------------------
619,221 629,519 642,765
===============================================================================
Total Fannie Mae Securities $ 1,257,554 $ 1,273,171 $1,279,614
===============================================================================
ANNUAL REPORT 2006 19
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments December 31, 2006 (Dollars in thousands)
- --------------------------------------------------------------------------------
Freddie Mac Securities (13.9% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------
Single Family 4.00% Oct-2033 $ 10,467 $ 10,320 $ 10,273
4.22% Jun-2033 4,102 4,086 4,047
4.35% Jul-2035 2,597 2,586 2,563
4.50% Aug-2018-Feb-2019 22,954 23,032 22,168
5.00% Jan-2019-Oct-2036 70,640 70,071 68,897
5.05% Apr-2035 2,673 2,673 2,653
5.50% Oct-2017-Dec-2036 100,985 100,971 100,068
5.62% Dec-2035-Feb-2036 51,910 51,888 51,933
5.67% Apr-2036 9,725 9,709 9,739
6.00% Mar-2014-Dec-2036 156,510 159,382 157,805
6.50% Feb-2007-Sep-2036 36,355 37,210 37,051
7.00% Mar-2011-Mar-2030 2,621 2,593 2,695
7.50% Jul-2010-Apr-2031 2,505 2,488 2,582
8.00% May-2008-Feb-2030 1,038 1,035 1,072
8.50% Jun-2010-Jan-2025 757 765 799
9.00% Sep-2010-Mar-2025 244 246 258
- -------------------------------------------------------------------------------------------------------
476,083 479,055 474,603
- -------------------------------------------------------------------------------------------------------
Multifamily(1) 5.42% Apr-2016 10,000 9,903 10,059
5.65% Apr-2016 15,760 15,829 15,944
8.00% Feb-2009 2,633 2,624 2,644
- -------------------------------------------------------------------------------------------------------
28,393 28,356 28,647
=======================================================================================================
Total Freddie Mac Securities $ 504,476 $ 507,411 $503,250
=======================================================================================================
Commercial Mortgage-Backed Securities (6.1% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------
5.31% Dec-2039-Nov-2048 $ 45,000 $ 45,224 $ 44,699
5.35% Nov-2038 10,000 10,049 9,983
5.37% Sep-2039 15,000 15,135 15,005
5.41% Dec-2040 17,000 16,687 17,048
5.54% Oct-2041 27,000 27,146 27,332
5.55% Apr-2038 40,000 40,655 40,555
5.56% Nov-2039 25,000 25,124 25,340
5.57% Oct-2048 25,000 25,124 25,325
5.61% Feb-2039 15,000 15,141 15,205
=======================================================================================================
Total Commercial Mortgage-Backed Securities $ 219,000 $ 220,285 $220,492
=======================================================================================================
20 AFL-CIO HOUSING INVESTMENT TRUST
Government-Sponsored Enterprise Securities (1.2% of net assets)
Issuer Interest Rate Maturity Date Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------------------------
Fannie Mae 6.00% Feb-2020 $ 45,000 $ 45,233 $ 44,517
=========================================================================================================================
Total Government-Sponsored Enterprise Securities $ 45,000 $ 45,233 $ 44,517
=========================================================================================================================
United States Treasury Securities (0.3% of net assets)
Interest Rate Maturity Dates Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------------------------
5.13% May-2016 $ 10,000 $ 10,167 $ 10,302
=========================================================================================================================
Total United States Treasury Securities $ 10,000 $ 10,167 $ 10,302
=========================================================================================================================
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 $ 2,533
MA Housing Finance Agency 5.42% Jun-2009 2,610 2,610 2,609
MA Housing Finance Agency 5.92% Dec-2037 6,710 6,714 6,741
=========================================================================================================================
Total State Housing Finance Agency Securities $ 11,820 $ 11,824 $ 11,883
=========================================================================================================================
Other Multifamily Investments and Commitments (3.1% of net assets)
Interest Rates(2) Commitment
Permanent Construction Maturity Dates Amount Face Amount Amortized Cost Value
- -------------------------------------------------------------------------------------------------------------------------
Multifamily Construction/Permanent Mortgages
5.54% 5.30% Jul-2017(5) $ 62,016 $ 60,939 $ 61,011 $ 61,860
7.08% N/A Jan-2011 813 364 364 372
8.63% N/A Jun-2025 1,469 1,269 1,269 1,269
9.50% N/A Apr-2024 760 674 674 674
9.75% N/A Aug-2012 1,524 1,155 1,155 1,155
- -------------------------------------------------------------------------------------------------------------------------
66,582 64,401 64,473 65,330
- -------------------------------------------------------------------------------------------------------------------------
Privately Insured Construction/Permanent Mortgages(6)
5.40% 5.40% Mar-2047 $ 9,000 $ 9,000 $ 9,008 $ 8,677
5.55% N/A Apr-2021 12,006 11,092 11,094 10,887
5.55% 5.55% Jan-2047 12,809 12,809 12,811 12,403
5.73% 5.73% Aug-2047 5,575 5,575 5,581 5,508
5.95% 5.95% Mar-2044 4,400 4,325 4,339 4,355
6.15% 6.15% Feb-2045 1,600 1,583 1,589 1,622
6.20% 6.20% Mar-2047-Dec-2047 8,099 4,301 4,326 4,440
- -------------------------------------------------------------------------------------------------------------------------
53,489 48,685 48,748 47,892
=========================================================================================================================
Total Other Multifamily Investments and Commitments $ 120,071 $ 113,086 $ 113,221 $ 113,222
=========================================================================================================================
Total Long-Term Investments $ 3,565,453 $ 3,586,797 $3,590,739
=========================================================================================================================
ANNUAL REPORT 2006 21
- --------------------------------------------------------------------------------
Schedule of Portfolio Investments December 31, 2006 (Dollars in thousands)
- --------------------------------------------------------------------------------
Short-Term Investments (1.2% of net assets)
Description Maturity Date Interest Rate Face Amount Amortized Cost Value
- --------------------------------------------------------------------------------------------------------------
Short-term - Intermediates(7)
Repurchase Agreement
Amalgamated Bank(8) April 4, 2007 5.05% $ 2,000 $ 2,000 $ 2,000
- --------------------------------------------------------------------------------------------------------------
2,000 2,000 2,000
- --------------------------------------------------------------------------------------------------------------
Short-Term - Cash Equivalents(9)
Commercial Paper(10)
Anheuser Busch January 2, 2007 5.23% 20,000 19,997 19,997
Bank of America January 2, 2007 5.23% 20,000 19,997 19,997
- --------------------------------------------------------------------------------------------------------------
40,000 39,994 39,994
==============================================================================================================
Total Short-Term Investments $ 42,000 $ 41,994 $ 41,994
==============================================================================================================
Total Investments $ 3,607,453 $ 3,628,791 $3,632,733
==============================================================================================================
(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. The commitment amount for this security is $75 million.
(5) During construction this investment is a mortgage credit 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
5.30%. 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.
(6) Loans insured by Ambac Assurance Corporation.
(7) Short-term investments with remaining maturities of between 61 days and
365 days.
(8) This instrument was purchased in December 2006. The Trust will receive
$2,033,205 upon maturity. The underlying collateral for the repurchase
agreement is a Freddie Mac MBS with a market value of $2,114,533. The
security pledged as collateral is held by the counterparty until maturity
of the repurchase agreement. Provisions of the agreement and the Trust's
policies ensure that the market value of the collateral, including accrued
interest thereon, is sufficient to cover the Trust's interest in the event
of default by the counterparty.
(9) Short-term investments with remaining maturities of sixty days or less.
(10) Interest rate is yield calculated based on purchase price of discount
note.
22 AFL-CIO HOUSING INVESTMENT TRUST
Statement of Operations
For the Year Ended December 31, 2006 (Dollars in thousands)
Investment Income
- ------------------------------------------------------------------------------------------------------------
FHA permanent securities $ 10,613
FHA construction securities* 925
Ginnie Mae securities* 50,233
Ginnie Mae construction securities 16,158
Fannie Mae securities 68,581
Freddie Mac securities 23,721
Commercial mortgage-backed securities 3,642
Government-sponsored enterprise securities 5,759
United States Treasury securities 1,513
State Housing Finance Agency securities 584
Other multifamily investments 5,830
Short-term investments 3,871
============================================================================================================
Total Income 191,430
============================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------
Officer salaries and fringe benefits 2,551
Other salaries and fringe benefits 7,092
Legal fees 437
Consulting fees 432
Auditing, tax and accounting fees 263
Insurance 327
Marketing and sales promotion (12b-l) 272
Investment management 692
Trustee expenses 45
Rental expenses 781
General expenses 1,630
============================================================================================================
Total Expenses 14,522
============================================================================================================
- ------------------------------------------------------------------------------------------------------------
Net Investment Income 176,908
- ------------------------------------------------------------------------------------------------------------
Net realized loss on investments (8,583)
Net change in unrealized depreciation on investments (5,936)
============================================================================================================
Realized and Unrealized Net Losses on Investments (14,519)
============================================================================================================
============================================================================================================
Net Increase in Net Assets Resulting from Operations $ 162,389
============================================================================================================
* Including forward commitments.
See accompanying Notes to Financial Statements.
ANNUAL REPORT 2006 23
Statement of Changes in Net Assets
For the Years Ended December 31, 2006 and 2005 (Dollars in thousands)
Increase in Net Assets From Operations 2006 2005
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 176,908 $ 163,168
Net realized (loss)/gain on investments (8,583) 334
Net change in unrealized depreciation on investments (5,936) (69,016)
===============================================================================================================
Net Increase in Net Assets Resulting from Operations 162,389 94,486
===============================================================================================================
Decrease in Net Assets From Distributions
- ---------------------------------------------------------------------------------------------------------------
Distributions paid to participants or reinvested from:
Net investment income (180,525) (170,964)
===============================================================================================================
Net Decrease in Net Assets from Distributions (180,525) (170,964)
===============================================================================================================
Increase/(Decrease) in Net Assets From Unit Transactions
- ---------------------------------------------------------------------------------------------------------------
Proceeds from the sale of units of participation 180,432 111,325
Dividend reinvestment of units of participation 154,997 148,694
Payments for redemption of units of participation (288,489) (272,616)
===============================================================================================================
Net increase/(decrease) from unit transactions 46,940 (12,597)
===============================================================================================================
Total increase/(decrease) in net assets 28,804 (89,075)
===============================================================================================================
Net assets at beginning of period 3,576,875 3,665,950
===============================================================================================================
Net assets at end of period $ 3,605,679 $ 3,576,875
===============================================================================================================
Undistributed Net Investment Income $ 3,050 $ 3,023
===============================================================================================================
Unit Information
- ---------------------------------------------------------------------------------------------------------------
Units sold 167,870 101,212
Distributions reinvested 144,192 135,208
Units redeemed (268,076) (246,580)
===============================================================================================================
Increase/(Decrease) in Units Outstanding 43,986 (10,160)
===============================================================================================================
See accompanying Notes to Financial Statements.
24 AFL-CIO HOUSING INVESTMENT TRUST
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 157, Fair Value Measurements ("Statement 157"). Statement 157
establishes a framework for measuring fair value within generally accepted
accounting principles, clarifies the definition of fair value within the
framework, and expands disclosure about the use of fair value measurements,
highlighting that fair value is a market-based measurement. Statement 157 is
intended to increase consistency and comparability among fair value estimates
used in financial reporting. Statement 157 is effective for fiscal years
beginning after November 15, 2007. Management does not expect the adoption of
Statement 157 to have an impact on the Trust's investment valuation.
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.
ANNUAL REPORT 2006 25
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
In July 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Trust's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the "more-likely-than-not" threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is t o be
applied to all open tax years as of the effective date. Management has not
thoroughly evaluated the implications of FIN 48 but initially believes the
adoption of FIN 48 will not have an impact on the financial statements.
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 year ended December 31, 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-l 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-l expenses). For the year
2006, the Trust is authorized to pay 12b-l 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 year ended December 31, 2006, the Trust
incurred approximately $272,000 of 12b-l expenses.
Receivables for Investments Sold
Receivables for Investments Sold represent investments that were sold on or
prior to December 31, 2006, which settled subsequent to December 31, 2006.
Payables for Investments Purchased
Payables for Investments Purchased represent investments that were purchased on
or prior to December 31, 2006, which settled subsequent to December 31, 2006.
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 ofthe 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.
26 AFL-CIO HOUSING INVESTMENT TRUST
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 year ended December 31, 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 year, an
employee of the Trust also served as an officer of the ITC. The total cost for
such personnel and related expenses for the year ended December 31, 2006,
amounted to approximately $407,000. During the year ended December 31, 2006, the
Trust was reimbursed for approximately $390,000 of current year costs. As of
December 31, 2006, approximately $17,000, 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 year ended December 31, 2006, was approximately $97,000. During the year
ended December 31, 2006, the Trust paid the ITC approximately $96,000 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
December 31, 2006, the Trust had outstanding unfunded purchase commitments of
approximately $80.9 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 December 31, 2006, the value of
the publicly traded mortgage-backed securities maintained for the reserve in a
segregated account was approximately $3.22 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 year ended December 31, 2006,
follows (dollars in thousands):
ANNUAL REPORT 2006 27
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 4,115 -- 426,403 63,638 798,308
Change in discounts and (premiums) (63) 9 (3,903) 213 (10,910)
Transfers -- -- 146,048 (146,048) --
Principal reductions/Sales (10,775) -- (435,839) (25,540) (733,809)
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 2006 $ 147,139 $ 17,014 $ 1,036,685 $ 204,647 $ 1,273,171
- ---------------------------------------------------------------------------------------------------------------
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 292,891 460,151 36,500 5,110 21,220
Change in discounts and (premiums) 21,015 1,285 (25,985) -- 26
Transfers -- -- -- -- --
Principal reductions/Sales (213,551) (241,151) (174,400) (340) (706)
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 2006 $ 507,411 $ 220,285 $ 45,233 $ 11,824 $ 113,221
- ---------------------------------------------------------------------------------------------------------------
* Including forward commitments.
Note 6. Federal Taxes
The tax character of distributions paid during 2006 and 2005 was as follows (dollars in thousands): 2006 2005
- --------------------------------------------------------------------------------------------------------------------------------
Ordinary investment income $ 180,525 $ 170,964
================================================================================================================================
Total distributions paid to participants or reinvested $ 180,525 $ 170,964
================================================================================================================================
As of December 31, 2006, the components of accumulated losses on a tax basis were as follows
(dollars in thousands): 2006
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated capital loss carryforward $ (18,194)
Unrealized appreciation 979
Undistributed ordinary income 987
Other temporary differences 2,063
================================================================================================================================
Total accumulated losses $ (14,165)
================================================================================================================================
Of the total accumulated capital loss carryforward, $8,030,000 may be used to
offset future capital gain recognized by the Trust through December 31, 2013 and
$10,164,000 through December 31, 2014.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. These 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.
For the year ended December 31, 2006, the Trust recorded the following permanent reclassifications
(dollars in thousands): 2006
- --------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income $ 3,644
Accumulated net realized losses (3,617)
Amount invested and reinvested by current participants (27)
================================================================================================================================
At December 31, 2006 the cost of investments and net unrealized appreciation for
federal income tax purposes was $3,632,754,000 and $979,000, respectively.
28 AFL-CIO HOUSING INVESTMENT TRUST
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 year ended December 31, 2006. The total
Trust pension expense for the year ended December 31, 2006, was approximately
$1,041,000.
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 year
ended December 31, 2006, was approximately $179,000.
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. However, the Trust has not had prior claims or
losses pursuant to these contracts and expects the risk of loss to be remote.
ANNUAL REPORT 2006 29
Financial Highlights
Selected Per Share Data and Ratios for the Years Ended December 31, 2006, 2005,
2004, 2003, and 2002 (Dollars in thousands)
Per Share Data 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $ 1,086.97 $ 1,110.61 $ 1,125.21 $ 1,152.30 $ 1,098.40
Income from investment operations:
Net investment income 53.55 50.08 48.63 54.26 65.19
Net realized and unrealized
(losses) gains on investments (4.60) (21.25) (2.38) (11.69) 59.15
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations 48.95 28.83 46.25 42.57 124.34
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (54.65) (52.47) (49.10) (54.26) (65.19)
Net realized gains on investments -- -- (11.75) (15.40) (5.25)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (54.65) (52.47) (60.85) (69.66) (70.44)
===================================================================================================================================
Net Asset Value, End of Period $ 1,081.27 $ 1,086.97 $ 1,110.61 $ 1,125.21 $ 1,152.30
===================================================================================================================================
Ratios
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.41% 0.37% 0.37% 0.37% 0.36%
Ratio of net investment income to average
net assets 5.0% 4.5% 4.4% 4.7% 5.8%
Portfolio turnover rate 65.0% 68.4% 85.5% 73.1% 64.3%
===================================================================================================================================
Number of Outstanding Units at End of Period 3,334,684 3,290,698 3,300,858 3,206,626 2,848,002
===================================================================================================================================
===================================================================================================================================
Net Assets, End of Period (in thousands) $3,605,679 $ 3,576,875 $ 3,665,950 $ 3,608,139 $ 3,281,763
===================================================================================================================================
===================================================================================================================================
Total Return* 4.65% 2.64% 4.20% 3.78% 11.64%
===================================================================================================================================
* Net of fund expenses.
See accompanying Notes to Financial Statements.
30 AFL-CIO HOUSING INVESTMENT TRUST
- --------------------------------------------------------------------------------
Board of Trustees
- --------------------------------------------------------------------------------
Overall responsibility for the management of the AFL-CIO Housing Investment
Trust, the establishment of policies and the oversight of activities is vested
in its Board of Trustees. The list below provides the following information for
each of the Trustees: name, age, address, term of Office, length of time served,
principal occupations during the past five years and other directorships held.*
The Trust's Statement of Additional Information includes additional information
about the Trustees and is available, without charge, upon request, by placing a
collect call directed to the Trust's Investor Relations Office at (202)
331-8055.
Richard Ravitch**, age 73; 610 5th Avenue, Ste. 420, New York, NY 10020;
Chairman of the Board; term commenced 1991, expires 2007; Principal, Ravitch
Rice & Co. LLC; Director, Parsons, Brinckerhoff Inc.; formerly Co-Chair,
Millennial Housing Commission; President and Chief Executive Officer, Player
Relations Committee of Major League Baseball.
John J. Sweeney**, age 72; 815 16th Street, NW, Washington, DC 20006; Union
Trustee; term commenced 1981, expires 2007; President, AFL-CIO.
Richard L. Trumka, age 57; 815 16th Street, NW, Washington, DC 20006; Union
Trustee; term commenced 1995, expires 2008; Secretary-Treasurer, AFL-CIO.
Linda Chavez-Thompson, age 62; 815 16th Street, NW, Washington, DC 20006; Union
Trustee; term commenced 1996, expires 2008; Executive Vice-President, AFL-CIO.
John J. Flynn, age 72; 1776 Eye Street, NW, Washington, DC 20006; Union Trustee;
term commenced 2000, expires 2009; President, International Union of Bricklayers
and Allied Craftworkers (BAC).
Stephen Frank, age 66; 8584 Via Avellino, Lake Worth, FL 33467; Management
Trustee; term commenced 2003, expires 2009; Independent Consultant; formerly
Vice President and Chief Financial Officer, The Small Business Funding
Corporation.
Frank Hurt, age 67; 10401 Connecticut Avenue, Kensington, MD 20895; Union
Trustee; term commenced 1993, expires 2007; International President, Bakery,
Confectionery & Tobacco Workers and Grain Millers International Union.
George Latimer, age 71; 1600 Grand Avenue, St. Paul, MN 55105; Management
Trustee; term commenced 1996, expires 2008; Distinguished Visiting Professor of
Urban Land Studies at Macalester College; Director, Identix Incorporated;
formerly Director, Special Actions Office, Department of Housing and Urban
Development.
Jack Quinn, age 55; 700 13th Street, NW, Suite 400, Washington, DC 20005;
Management Trustee; term commenced 2005, expires 2008; President, Cassidy &
Associates; Director, Kaiser Aluminum Corporation; formerly Member of Congress,
27th District, New York.
Marlyn J. Spear, CFA, age 53; 500 Elm Grove Road, Elm Grove, WI 53122;
Management Trustee; term commenced 1995, expires 2009; Chief Investment Officer,
Building Trades United Pension Trust Fund (Milwaukee and Vicinity).
Tony Stanley**, age 73; 2221 Stonehaven Road, Port St. Lucie, FL 34952;
Management Trustee; term commenced 1983, expires 2007; Director, TransCon
Builders, Inc.; formerly Executive Vice President, TransCon Builders, Inc.
Edward C. Sullivan, age 62; 815 16th Street, NW, Suite 600, Washington, DC
20006; Union Trustee; term commenced 2000, expires 2009; President, Building and
Construction Trades Department, AFL-CIO; formerly General President,
International Union of Elevator Constructors.
Jon F. Walters, age 64; 900 7th Street, NW, Washington, DC 20001; Union Trustee;
term commenced 2005, expires 2009; International Secretary-Treasurer,
International Brotherhood of Electrical Workers; formerly International Vice
President, IBEW.
James A. Williams, age 56; 1750 New York Avenue, NW, Washington, DC 20006; Union
Trustee; term commenced 2005, expires 2008; General President, International
Union of Painters and Allied Trades of the United States and Canada; formerly
General Secretary-Treasurer, IUPAT.
* Only directorships in a corporation or trust having securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended,
or subject to the requirements of Section 15(d) of such Act or a company
registered as an investment company under the Investment Company Act of
1940, as amended, are listed.
** Executive Committee member.
ANNUAL REPORT 2006 31
- --------------------------------------------------------------------------------
Leadership
- --------------------------------------------------------------------------------
All officers of the Trust are located at 1717 K Street, NW, Suite 707,
Washington, DC 20036.*
Stephen Coyle,+ age 61; Chief Executive Officer, AFL-CIO Housing Investment
Trust since 1992.
Helen R. Kanovsky,+ age 55; Chief Operating Officer, AFL-CIO Housing Investment
Trust since 2002; formerly Chief Operating Officer, AFL-CIO Investment Trust
Corporation; Executive Vice President - Finance and Administration, AFL-CIO
Housing Investment Trust; Chief of Staff for U.S. Senator John F. Kerry; General
Counsel, AFL-CIO Housing Investment Trust.
Erica Khatchadourian,+ age 39; Chief Financial Officer (position formerly titled
Executive Vice President - Finance and Administration), AFL-CIO Housing
Investment Trust since 2001; formerly Controller, Chief of Staff and Director of
Operations, AFL-CIO Housing Investment Trust.
Chang Suh,+ CFA, age 35; Chief Portfolio Manager, AFL-CIO Housing Investment
Trust since March 2003; formerly Assistant Portfolio Manager and Senior
Portfolio Analyst, AFL-CIO Housing Investment Trust.
Mary C. Moynihan,+ age 47; General Counsel, AFL-CIO Housing Investment Trust
since April 2004; formerly Chief Counsel and Deputy General Counsel, AFL-CIO
Housing Investment Trust; Associate Specialist, Sullivan & Cromwell.
Stephanie H. Wiggins,+ age 41; Chief Investment Officer - Multifamily Finance,
AFL-CIO Housing Investment Trust since 2001; formerly Director, Prudential
Mortgage Capital Company; Vice President/Multifamily Transaction Manager, WMF
Capital Corporation.
Marcie Cohen, age 59; Senior Vice President, AFL-CIO Housing Investment Trust
since 2002; formerly Director of the New York Office, 2002-2004; Director of
Development, AFL-CIO Housing Investment Trust.
Harpreet Peleg,+ age 32; Controller, AFL-CIO Housing Investment Trust since
2005; formerly Chief Financial Officer, AFL-CIO Investment Trust Corporation;
Supervisor - Gas Settlements, PG&E National Energy Group; Financial Analyst,
Goldman Sachs.
Lesyllee White, Age 44; Director of Marketing, AFL-CIO Housing Investment Trust
since 2004, formerly Regional Marketing Director and Senior Marketing Associate,
AFL-CIO Housing Investment Trust.
Nicholas Milano,+ age 39; Deputy General Counsel (since January 2003) and Chief
Compliance Officer (since May 2004), AFL-CIO Housing Investment Trust; formerly
Senior Counsel, Division of Investment Management, U.S. Securities and Exchange
Commission; Senior Counsel, Division of Trading and Markets, U.S. Commodity
Futures Trading Commission.
* No officer of the Trust serves as a trustee or director in any corporation
or trust having securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of such Act, or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
+ Board-appointed officer. These officers are appointed annually to a term
expiring December 31 of the year appointed, or until their respective
successors are appointed and qualify.
32 AFL-CIO HOUSING INVESTMENT TRUST
Corporate Counsel
Bingham McCutchen LLP
Washington, DC
Securities Counsel
Wilmer Cutler Pickering Hale and Dorr LLP
Washington, DC
Independent Registered Public Accounting Firm
Ernst & Young LLP
McLean, Virginia
Investment Adviser
Wellington Management Company, LLP
Boston, Massachusetts
Transfer Agent
PFPC Inc.
Wilmington, Delaware
Custodian
PFPC Trust Company
Philadelphia, Pennsylvania
National Office
1717 K Street, NW, Suite 707
Washington, DC 20036
(202) 331-8055
New York City Office
Carol Nixon, Director
1270 Avenue of the Americas, Suite 210
New York, New York 10020
(212) 554-2750
Western Regional Office
Aaron Prince, Director
235 Montgomery Street, Suite 1001
San Francisco, California 94104
(415) 433-3044
Boston Office
Paul Barrett, Director
655 Summer Street
Boston, Massachusetts 02210
(617) 261-4444
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Gulf Coast Revitalization Program
1100 Poydras Street, Suite 2870
New Orleans, Louisisana 70163
(504) 599-8750
[LOGO]
AFL-CIO Housing Investment Trust
1717 K Street, NW, Suite 707
Washington, DC 20036
(202) 331-8055
www.aflcio-hit.com
[LOGO]
Item 2. Code of Ethics.
(a) The Trust has adopted a Code of Ethics to comply with Section 406 of
the Sarbanes-Oxley Act of 2002, as of December 31, 2006. This Code
of Ethics applies to the Trust's principal executive officer,
principal financial officer, and principal accounting officer or
controller or persons performing similar functions.
(b) For purposes of this Item, the term "code of ethics" means written
standards that are reasonably designed to deter wrongdoing and to
promote:
(1) Honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
(2) Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits
to, the Commission and in other public communications made by
the registrant;
(3) Compliance with applicable governmental laws, rules, and
regulations;
(4) The prompt internal reporting of violations of the code to an
appropriate person or persons identified in the code; and
(5) Accountability for adherence to the code.
(c) There have been no amendments granted to the Trust's Code of Ethics
during the period covered by the Report.
(d) There have been no waivers granted from any provision of the Trust's
Code of Ethics during the period covered by the Report.
(e) Not applicable.
(f) (1) A copy of the Trust's Code of Ethics is filed herewith as an
Exhibit pursuant to Item 12(a)(1).
Item 3. Audit Committee Financial Expert.
(a) (1) The Trust's Board of Trustees has determined that it has two
audit committee financial experts serving on its audit
committee, Marlyn Spear and Stephen Frank.
(2) Ms. Spear and Mr. Frank are both are independent for purposes
of this Item 3.
Item 4. Principal Accountant Fees and Services.
(a) Audit fees.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual
financial statements and for services normally provided by the
independent auditors in connection
with statutory and regulatory filings or engagements were $232,000
for the fiscal year ended December 31, 2006.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual
financial statements and for services normally provided by the
independent auditors in connection with statutory and regulatory
filings or engagements were $215,000 for the fiscal year ended
December 31, 2005.
(b) Audit-related fees.
The aggregate fees billed by the Registrant's independent auditors
for services relating to the performance of the audit of the
Registrant's financial statements and not reported under paragraph
(a) of this Item were $0 for the fiscal year ended December 31,
2006. The percentage of these fees relating to services approved by
the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
The aggregate fees billed for services relating to the performance
of the audit of the financial statements of the Registrant's
investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the
operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended December 31, 2006. The percentage of
these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval
requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors
for services relating to the performance of the audit of the
Registrant's financial statements and not reported under paragraph
(a) of this Item were $0 for the fiscal year ended December 31,
2005. The percentage of these fees relating to services approved by
the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors
for services relating to the performance of the audit of the
financial statements of the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and
that relate directly to the operations or financial reporting of the
Registrant were $0 for the Registrant's fiscal year ended December
31, 2005. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
(c) Tax fees.
The aggregate fees billed by the Registrant's independent auditors
for tax-related services provided to the Registrant were $16,000 for
the fiscal year ended December 31, 2006. The percentage of these
fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval
requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors
for tax-related services provided to the Registrant's investment
adviser(s) and other service providers under common control with the
adviser(s) and that relate directly to the operations or financial
reporting of the Registrant were $0 for the Registrant's fiscal year
ended December 31, 2006. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors
for tax-related services provided to the Registrant were $13,000 for
the fiscal year ended December 31, 2005. The percentage of these
fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval
requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors
for tax-related services provided to the Registrant's adviser(s) and
other service providers under common control with the adviser(s) and
that relate directly to the operations or financial reporting of the
Registrant were $0 for the Registrant's fiscal year ended December
31, 2005. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
(d) All other fees.
The aggregate fees billed for all services provided by the
independent auditors to the Registrant other than those set forth in
paragraphs (a), (b) and (c) of this Item were $8,500 for the fiscal
year ended December 31, 2006. The percentage of these fees relating
to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set
forth in paragraphs (b) and (c) of this Item provided by the
Registrant's independent auditors to the Registrant's adviser(s) and
other service providers under common control with the adviser(s) and
that relate directly to the operations or financial reporting of the
Registrant were $0 for the Registrant's fiscal year ended December
31, 2006. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
The aggregate fees billed for all services provided by the
independent auditors to the Registrant other than those set forth in
paragraphs (a), (b) and (c) of this Item were $8,000 for the fiscal
year ended December 31, 2005. The percentage of these fees relating
to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set
forth in paragraphs (b) and (c) of this Item provided by the
Registrant's independent auditors to the Registrant's adviser(s) and
other service providers under common control with the adviser(s) and
that relate directly to the operations or financial reporting of the
Registrant were $0 for the Registrant's fiscal year ended December
31, 2005. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C)
of Regulation S-X was 0%.
(e) (1) The Charter of the Trust's Audit Committee provides that the
Audit Committee shall review and, if appropriate, approve in
advance all audit and non-audit services (as such term may be
from time to time defined in the Securities Exchange Act of
1934, as amended) to be provided to the Trust by the Trust's
independent auditor; provided, however, that the Charter
provides that the Audit Committee shall only approve the
following non-audit services: tax preparation and the
Association for Investment Management Research (AIMR) Level 2
Compliance Review. In making a determination, the Audit
Committee considers whether the services are consistent with
maintaining the principal accountant's independence. If such a
service is required between regularly scheduled audit
committee meetings, pre-approval may be authorized by a
majority of the audit committee members at a special meeting
called for such purposes or by unanimous written consent. The
Audit Committee's Charter does not permit waiver of
pre-approval for audit or non-audit services requiring fees of
a de minimis amount.
(2) No percentage of the services included in (b)-(d) above were
approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, less than 50 percent of the hours
expended by the Trust's principal accountant were performed by
persons other than the accountant's full-time permanent employees.
(g) The Trust's accountant performed no non-audit services for the
Trust's investment adviser during each of the last two fiscal years.
(h) Not applicable. The Trust's accountant performed no non-audit
services for the Trust's investment adviser during each of the last
two fiscal years.
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
December 31, 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 last fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Trust's internal
control over financial reporting.
Item 12. Exhibits.
(a) (1) The Trust's Code of Ethics applicable to its principal
executive officer, principal financial officer, and principal
accounting officer or persons performing similar functions is
attached hereto.
(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
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Stephen Coyle
Chief Executive Officer
Date: March 2, 2007
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
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Stephen Coyle
Chief Executive Officer
(Principal Executive Officer)
Date: March 2, 2007
/s/ Erica Khatchadourian
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Erica Khatchadourian
Chief Financial Officer
(Principal Financial Officer)
Date: March 2, 2007