AFL-CIO Housing Investment Trust
1998 Annual Report
<PAGE>
<PAGE>
Performance Highlights
1998 1997
-------------- ---------------
Net Assets $2,023 million $1,672 million
New participant investment $234 million $187 million
Participant reinvestment $118 million $96 million
Investment commitments $488 million $351 million
Investment fundings $1,050 million $483 million
Number of participants 409 394
Gross yield on investment 7.54% 8.04%
Total gross rate of return, 1-year 8.71% 11.22%
As of December 31
<PAGE>
<PAGE>01
MESSAGE FROM THE PRESIDENT OF THE AFL-CIO
[Photograph of John J. Sweeney]
Nineteen ninety-eight will go down in the history of the AFL-CIO Housing
Investment Trust as the year when net assets exceeded $2 billion and
investment activity produced the highest dollar volume of new loans of any
year to date. In the past four years, the Trust has more than doubled its
asset base and lending capacity. It has done this without compromising the
objectives that inspired its creation more than three decades ago. Its
productive and highly secure investments continue to generate the competitive
returns that are labor's bottom-line objective. At the same time, its 1998
commitments will finance homes for more than 4,500 families, create more than
4,200 jobs, and provide at least 900 affordable mortgages for union members
and city employees. Through the capital it brought to housing development,
the Trust made unions central players in creating more livable communities all
across the country.
I was pleased to help the Trust launch an exciting home rehabilitation
program in New Orleans last year - an initiative that will boost union
employment as it lifts up neglected neighborhoods. Although it is just one
example of the Trust's work in 1998, it shows dramatically the impact workers
can have on their communities through their pension investments. This is why
the AFL-CIO is so proud of what the Trust is accomplishing and why we advocate
through our capital stewardship program that union leaders and the trustees of
our pension plans pursue "high road investments" like the AFL-CIO Housing
Investment Trust.
/s/ John J. Sweeney
JOHN J. SWEENEY
<PAGE>
<PAGE>02
REPORT TO PARTICIPANTS
[Photograph of Richard Ravitch]
The AFL-CIO Housing Investment Trust has completed one of its most
impressive years to date. It set records for growth in 1998 and continued to
provide participants highly competitive rates of return. This was a year when
net assets topped $2 billion for the first time, when new investments reached
historic levels, and when the Trust embarked on a bold investment strategy
designed to solidify its leadership in community housing investment as we
approach the new century. These performance milestones were matched by
commensurate growth in the Trust's internal management capacity, while keeping
expenses among the lowest in the industry. The year's outstanding record is
detailed in the following pages.
/s/ Richard Ravitch
RICHARD RAVITCH, CHAIRMAN, BOARD OF TRUSTEES
PERFORMANCE
The AFL-CIO Housing Investment Trust outperformed its industry benchmarks in
1998, bringing participants highly competitive risk-adjusted returns on their
investments. The total gross rate of return for the year ended December 31
was 8.71 percent. This compared favorably to the rates recorded by the
Salomon Brothers Mortgage Index and Lehman Brothers Aggregate Index, which
were 6.99 percent and 8.69 percent, respectively. In a year when fixed-income
markets reacted to turmoil in the world economy by a so-called "flight-to-
quality," the Trust closed the period with the steady performance that has
become its trademark.
The Trust's performance over longer periods was particularly impressive.
Total gross rates of return for the three-year, five-year, and ten-year
periods ended December 31, 1998 were 8.48 percent, 8.45<PAGE>
<PAGE>03
percent, and 10.10 percent, respectively. As shown in the chart at right,
these rates consistently exceeded industry benchmarks for each period.
Net rates of return at December 31 were also strong, at 8.28 percent for
one year, 8.02 percent for three years, 7.96 percent for five years, and 9.58
percent for ten years.
The Trust made distributions to participants of $3,978,000 in net
realized gains, a substantial increase over the $733,000 distributed in 1997.
The Trust's net asset value per unit reached $1,114.08 at the close of the
year, the highest year-end level ever.
<TABLE>
<CAPTION>
PERFORMANCE
TOTAL GROSS RATE OF RETURN
1 YEAR 3 YEAR 5 YEAR 10 YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AFL-CIO HOUSING INVESTMENT TRUST 8.71% 8.48% 8.45% 10.10%
SALOMON BROTHERS MORTGAGE INDEX 6.99% 7.20% 7.24% 9.18%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.69% 7.29% 7.27% 9.26%
</TABLE>
GROWTH
The Trust's net assets grew by $351 million, the largest one-year increase in
history. During December, the Trust passed the $2 billion milestone, closing
the year at $2.023 billion in net assets. This represented a substantial 21
percent increase over the year-ago figure of $1.672 billion. Helping assure
that the Trust would surpass $2 billion in 1998 were significant year-end
contributions from the International Brotherhood of Painters and Allied Trades
Union & Industry Pension Fund and from the Joint Industry Board of the
Electrical Industry of New York.
The Trust's strong growth -- with assets doubling in less than four years
- -- was a reflection of the continuing confidence of investors, who contributed
an all-time high of $336 million in new investment in 1998. This included net
participant investment of $218 million and $118 million in reinvested
earnings.
More Taft-Hartley and public sector pension plans that ever before are
participating in the Trust. The number of participants at year-end totaled
409,up from 394 a year earlier.
<PAGE>
<PAGE>04
PORTFOLIO
Active portfolio management continued to be a cornerstone of the Trust's
investment strategy, helping to minimize yield amid fluctuations in the
market. Close monitoring of portfolio duration and convexity enabled the Trust
to make timely adjustments as market conditions warranted. This contributed
to the Trust's competitive performance relative to industry benchmarks.
Multi-family securities comprised 55 percent of the portfolio at year-
end, and single-family securities comprised 43 percent. The cash and short-
term investment position was just 2 percent of net assets another key factor
in the Trust's outstanding performance for the year.
The portfolio distribution at December 31 is shown in the chart at left.
Participants continued to obtain a high degree of security through
investments in the Trust. Over 98 percent on the Trust's long-term portfolio
at year-end was insured or guaranteed by the U.S. government or government-
sponsored enterprises such as Fannie Mae or Freddie Mac.
Once again, the Trust carried out its investment program with one of the
most cost-effective operating structures in the industry. Total operating
expenses were just 39 basis points, or 0.39 percent of average net assets, a
reduction of nearly one-quarter in three years.
<TABLE>
<CAPTION>
PORTFOLIO DISTRIBUTION
<S> <C>
FHA MORTGAGES 30.0%
FHA CONSTRUCTION LOANS 6.6%
GNMA SECURITIES 27.1%
GNMA CONSTRUCTION LOANS 6.8%
FNMA SECURITIES 19.4%
FHLMC SECURITIES 6.3%
LOCAL INITIATIVES 1.9%
SHORT-TERM INVESTMENTS 1.9%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE RATIO
OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS
<S> <C>
1994 0.52%
1995 0.51%
1996 0.46%
1997 0.43%
1998 0.39%
</TABLE>
<PAGE>
<PAGE>05
[Photograph of Frank Hanley]
"The Trust's long record of performance makes it a model for the prudent
investment of union pension funds in activities that meet labor's broader
economic goals."
Frank Hanley
President, International Union
of Operating Engineers
INVESTMENT
The Trust expanded its housing investment activity to a historic level in
1998, bringing into play new strategies for utilizing pension funds to solve a
wide range of housing needs in local communities.
More funds were committed for housing in 1998 than in any prior year. In
all, the Trust issued financial commitment totaling more than $488 million.
This included $323 million for 22 multi-family projects that will have over
3,200 units of housing and $165 million for single-family housing projects
comprising over 1,300 units.
Contributing to this success were growing involvements with state and
local organizations that turned to the Trust for assistance in addressing
their housing needs. The Trust worked with state housing finance agencies,
city housing authorities, and public and private development organizations to
devise answers to housing problems in communities across the country.
Total investment funding for single- and multi-family housing reached an
unprecedented $1.05 billion during the year.
With the approval of the Board of Trustees, the Trust launched an
ambitious investment strategy for the period ahead -- Urban Investment 2000.
This strategy creates new opportunities to increase the Trust's investment
pipeline and to link with public and private partners to meet local housing
and community development needs. Urban Investment 2000 has already opened the
door to productive partnerships with many cities to increase homeownership in
urban areas. The investment strategy will also address cities' needs for
rental housing, permanent housing for the homeless, and economic development.
In addition to furthering the Trust's work with the cities, it will serve as a
foundation for expanded relationships with such
<TABLE>
<CAPTION>
LOAN PRODUCTION
NEW COMMITMENTS
YEAR DOLLAR VALUE (IN MILLIONS)
SINGLE FAMILY MULTI-FAMILY TOTAL
----------------------------------------------------------------
<C> <C> <C> <C>
1990 - $59 $59
1991 $26 85 111
1992 102 67 169
1993 42 103 145
1994 51 161 212
1995 70 258 328
1996 35 328 363
1997 65 286 351
1998 165 323 488
</TABLE>
<TABLE>
<CAPTION>
LOAN PRODUCTION
INVESTMENT FUNDINGS (IN MILLIONS)
<S> <C>
1990 $ 64
1991 100
1992 299
1993 298
1994 426
1995 407
1996 470
1997 483
1998 1,050
</TABLE>
<PAGE>
<PAGE>06
[Photographs And Drawings of Various Projects]
investment partners as HUD, Fannie Mae, Freddie Mac, state housing finance
agencies, and community development groups.
A few examples of Trust activities in 1998 illustrate the wide range of
community needs addressed by its investments.
- -The Homeownership Opportunity Initiative, a $250 million endeavor with Fannie
Mae, garnered strong endorsements from mayors in San Francisco, Seattle,
Boston, Columbus, Minneapolis, St. Paul, New Orleans, and other cities after
a February launch. The initiative offers attractive financing for union-
uilt homes in designated cities -- like those at River Station in Minneapolis
-- plus affordable mortgages for union members and public employees who buy
existing homes in urban areas.
- -The old Otis Terminal Warehouse in Cleveland is entering a new life as an
apartment building, shown at left. The Trust is providing $26.5 million to
rehabilitate the structure and create nearly 250 units of housing plus
commercial space, parking and a fitness facility. Total development costs
will exceed $36 million.
- -Blighted neighborhoods in New Orleans are getting a facelift through "At Home
in New Orleans," an imaginative partnership of the Trust, Freddie Mac, and
the City of New Orleans. Unions affiliated with the Southeast Louisiana
Building and Construction Trades Council will renovate or rebuild abandoned
homes acquired by the city. The Trust has made an initial commitment of $20
million for up to 250 homes.
- -The Trust is helping to turn around a troubled HUD property in Pittsburgh
with its financing for New Penney Place. The run-down housing complex is
getting complete makeover to make it an asset to the neighborhood. The Trust
is providing $682,000 in construction<PAGE>
<PAGE>07
[Photograph of Linda Chavez-Thompson]
"The Housing Investment Trust is on the cutting edge of the AFL-CIO's efforts
to build partnerships with communities, while promoting jobs, affordable
housing, and homeownership."
LINDA CHAVEZ-THOMPSON
EXECUTIVE VICE PRESIDENT
AFL-CIO
[Photograph of Michael M. Arnold]
"We take seriously our mission to make a difference in the lives of working
men and women by helping provide retirement security and building more livable
communities."
MICHAEL M. ARNOLD
DIRECTOR OF
INVESTOR RELATIONS
and permanent financing, a $2.9 million secured bridge loan, and $3.5 million
in Section 8 rental assistance for this $14.6 million project.
- -Redevelopment of a shut-down IBM facility in Kingston, N.Y., is bringing new
jobs to an economically depressed area. The Trust is providing $41.1 million
to transform the IBM plant into a 280-bed nursing center, Hudson River Valley
Care.
- -The New Mexico Mortgage Finance Authority is partnering with the Trust to
develop 100 affordable apartments in Albuquerque. The Trust issued a $3.3
million commitment for the Life Style Apartments Renaissance Center, which
shown on the opposite page.
- -In Jefferson Parish, Louisiana, the Trust has committed $2.1 million in
financing and $8.5 million in Section 8 rental assistance for the renovation
of the Jefferson Place Apartments, a dilapidated HUD property. With strong
support from the community, the $6.5 million project seeks to reclaim a
deteriorated complex and replace it with renovated apartments, open green
space, a community center and services such as day-care to improve the
quality of life in the neighborhood.
- -The Trust scored impressive results in affordable housing as it made its
final commitments in 1998 under the HUD Community Investment Demonstration
Program. Since 1994, when HUD selected the Trust as its partner in this
demonstration program, the Trust has committed financing for 19 innovative
housing projects in communities from Atlanta to San Francisco. Total
development costs exceed $250 million.
The Trust initiated a major review and upgrade of its financial and
information management systems in 1998. When completed in 1999, the state-of-
the-art systems will enable the Trust to maintain its pace of <PAGE>
<PAGE>08
[Photographs of Trust projects]
[Photograph of Stephen Coyle]
"The unprecedented growth, investment activity and overall performance of the
Trust have earned it a reputation as a premier player in the pension
investment and housing finance markets. This record of achievement
establishes a solid foundation for even greater accomplishments in the
future."
STEPHEN COYLE
CHIEF EXECUTIVE OFFICER
progress in the period ahead while keeping expense ratios among the lowest in
the industry. The Trust took steps to ensure that its systems, and those of
major suppliers, are Year 2000 compliant before the end of 1999. Information
system upgrades, currently being implemented, will significantly enhance the
Trust's services to its participants.
LOOKING AHEAD
The Trust achieved unprecedented success in 1998 in attracting capital,
expanding housing investments, and managing growth assets to meet its
investment goals. While it took three decades of growth before the Trust
reached its first billion dollars of net assets in May 1995, the second
billion was achieved less than four years later. With this growth, the
Housing Investment Trust has moved into the front ranks of housing finance.
The Trust has met the challenges of rapid growth by building an
attractive, high-performing investment program -- one that moves beyond the
traditional FHA multi-family market to develop sound investment opportunities
in both multi- and single-family housing. Adoption of the Urban Investment
2000 strategy further expands these opportunities and, in doing so, positions
the Trust to take a leadership role in pension investment in 1999 and into the
next decade.
This record of growth, performance and prudent management gives the Trust
a strong foundation for further success in 1999 and beyond -- providing the
secure investments, competitive returns, job creation, and housing production
that our investors expect from the Trust.
<PAGE>
<PAGE>09
FINANCIAL
STATEMENTS
AMERICAN FEDERATION OF LABOR
AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
HOUSING INVESTMENT TRUST
DECEMBER 31,1998
(with Independent Auditor's Report Thereon)
<PAGE>
<PAGE>10
INDEPENDENT AUDITORS' REPORT
TO THE PARTICIPANTS AND TRUSTEES OF THE AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS HOUSING INVESTMENT TRUST:
We have audited the accompanying statement of assets and liabilities of
the American Federation of Labor and Congress of Industrial Organizations
Housing Investment Trust (the "Trust"), including the schedule of portfolio
investments, as of December 31, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and the selected per share data and
ratios for the two years in the period then ended. These financial statements
and per share data and ratios are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and per share data and ratios based on our audits. The per share
data and ratios for each of the three years ended December 31,1996 were
audited by other auditors whose report dated January 29, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
-----------------------------
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification by examination, or
confirmation by correspondence with the custodian, of securities owned as of
December 31, 1998. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data and
ratios referred to above present fairly, in all material respects, the
financial position of the American Federation of Labor and Congress of
Industrial Organizations Housing Investment Trust as of December 31, 1998, 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 selected
per share data and ratios for each of the two years in the period then ended,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
January 15, 1999
<PAGE>
<PAGE>11
AFL-CIO HOUSING INVESTMENT TRUST
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (Dollars in thousands)
ASSETS
Investments, at value (amortized cost $1,934,751) $2,016,142
Cash 220
Accrued interest receivable 12,719
Accounts receivable 920
Prepaid expenses and other assets 1,588
TOTAL ASSETS 2,031,589
LIABILITIES
Accounts payable and accrued expenses $909
Redemptions payable 4,364
Refundable deposits 1,305
Income distribution payable, net of dividends
reinvested of $15,315 1,640
TOTAL LIABILITIES 8,218
Net assets applicable to participants' equity -
certificates of participation;
authorized unlimited; outstanding
1,816,185 units (note 5) $2,023,371
Net asset value per unit of participation
(in dollars) $1,114.08
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998 (Dollars in thousands)
FHA Mortgages (30.0%)
Interest Maturity Face Amortized Value
Rates Date Amount Cost
-------- -------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Single-Family 7.75% Jul-2021-Aug-2021 $1,039 1,039 1,071
8.00% Jul-2021 1,133 1,138 1,172
10.31% Feb-2016 76 76 76
11.31% Mar-2016 87 87 87
2,335 2,340 2,406
/TABLE
<PAGE>
<PAGE>12
FINANCIAL STATEMENTS
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998(Dollars in thousands)
<TABLE>
<CAPTION>
FHA MORTGAGES (30.0%)
Interest Maturity Face Amortized Value
Rates Date Amount Cost
-------- -------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Multi-family 6.50% Aug-2004 15,515 15,515 15,487
6.75 Nov-2037 3,660 3,200 3,698
7.20 Aug-2039 0 0 134
7.25 Oct-2039 0 0 1,659
7.43 May-2023 17,705 18,055 17,924
7.50 Nov-2022 7,539 7,718 7,614
7.55 Aug-2012 919 693 921
7.63 Dec-2027-Jun-2037 78,592 78,358 83,587
7.70 Apr-2038 85,305 83,501 91,798
7.75 Nov-2034-Jun-2038 24,030 24,066 25,765
7.85 Sep-2037 2,614 2,614 2,819
7.88 Mar-2034-Mar-2037 16,510 16,696 17,829
7.93 Jul-2035 19,588 19,596 20,761
7.97 Jul-2038 4,129 4,045 4,531
8.00 Sep-2031-Jun-2038 23,430 23,247 24,740
8.13 Apr-2028-Apr-2038 23,111 23,129 24,772
8.18 Nov-2036 36,635 36,186 39,684
8.25 Feb-2026-Oct-2036 31,914 31,938 34,280
8.30 Nov-2027-Jun-2036 11,179 11,127 12,061
8.31 Mar-2038 22,963 22,641 25,260
8.38 Jan-2027 16,203 16,210 17,026
8.40 Apr-2012-Jan-2028 14,534 14,209 15,253
8.50 Apr-2012-Feb-2035 13,120 12,982 13,963
8.60 Jan-2028 2,042 2,045 2,138
8.63 Dec-2029 4,229 4,233 4,470
8.75 May-2036-Sep-2036 12,284 12,181 13,471
8.80 Oct-2032 5,634 5,637 6,046
8.88 Sep-2029-Jun-2036 10,378 10,292 11,095
9.00 Nov-2035 7,386 7,301 7,386
9.13 Dec-2033-May-2035 7,583 7,584 7,986
9.25 Feb-2029-Jun-2036 29,923 29,928 31,731
9.38 Jun-2034 1,867 1,897 2,036
9.50 Jul-2027 378 388 416
9.75 Apr-2031 3,596 3,575 3,842
10.00 May-2002-Mar-2031 5,863 5,863 6,193
10.15 Mar-2034 1,960 1,960 2,033
10.45 Jan-2030 1,219 1,215 1,285
563,537 559,825 601,694
TOTAL FHA MORTGAGES $565,872 562,165 604,100
/TABLE
<PAGE>
<PAGE>13
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
FHA CONSTRUCTION LOANS (6.6%)
Interest Rates Maturity Commitment Face Amortized Value
Perm Const Date* Amount Amount Cost
---- ----- ------- --------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Multi-family NA 6.50% May-2000 $5,700 $0 $0 $4
6.50% 6.50% Jul-2040 8,190 865 865 517
6.66 6.66 Apr-2040 6,000 6,000 6,000 5,861
6.75 6.75 Mar-2038 4,264 3,644 3,064 3,600
6.75 6.75 Jun-2040 1,103 339 310 325
6.81 6.81 Oct-2030 35,503 3,586 3,586 3,399
6.88 7.13 Nov-2030 29,545 3,446 3,446 3,642
6.88 6.88 Oct-2030 23,426 8,090 8,090 8,168
6.90 7.25 Apr-2040 23,254 0 0 302
7.00 7.00 Apr-2039 6,044 4,507 4,554 4,571
7.13 7.13 Apr-2039 8,200 7,256 7,264 7,456
7.17 7.17 Oct-2038 4,905 278 278 391
7.50 7.50 May-2037 10,145 9,112 9,112 9,010
7.55 7.55 Nov-2037 9,225 8,296 8,308 8,672
7.70 7.70 Oct-2039 12,535 11,661 11,538 12,413
7.75 7.75 Aug-2038 1,452 1,222 1,222 1,293
7.80 7.80 Feb-2038 21,801 19,667 19,674 21,289
7.88 7.88 Nov-2038 5,282 4,136 4,142 4,426
8.25 8.50 Feb-2037 5,265 4,834 4,838 5,205
8.75 8.80 Mar-2037 29,095 26,923 26,929 29,832
9.90 10.00 Oct-2032 2,262 2,166 2,177 2,254
TOTAL FHA CONSTRUCTION LOANS 126,028 125,397 132,630
</TABLE>
* Permanent mortgage maturity date.
<PAGE>
<PAGE>14
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998(Dollars in thousands)
<TABLE>
<CAPTION>
GNMA SECURITIES (27.1%)
Interest Maturity Face Amortized Value
Rate Date Amount Cost
-------- -------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Single-Family 6.50% Jul-2028-Dec-2028 $17,128 $17,126 $17,281
7.00 Apr-2026-Dec-2028 105,060 107,076 107,349
7.50 Jan-2025-Jun-2028 150,587 154,378 155,288
8.00 Dec-2009-May-2028 132,194 136,210 137,126
8.50 Jun-2022-Dec-2024 28,410 29,217 30,225
9.00 May-2016-Jun-2025 13,513 14,031 14,487
9.50 Aug-2016-Sep-2021 3,864 3,938 4,147
10.00 Jun-2019 28 28 30
11.00 Jul-2015-Sep-2016 168 168 184
11.25 Oct-2015 87 87 87
12.00 Apr-2015-Jun-2015 58 58 64
12.25 Apr-2015 4 4 4
13.00 Jul-2014 2 2 3
13.25 Dec-2014 6 6 6
13.50 Aug-2014 2 2 2
451,111 462,331 466,283
Multi-family 6.75% Nov-2038 $15,285 $15,060 $15,592
7.50 Jul-2037-Nov-2037 13,358 13,373 14,412
7.70 Jul-2036 9,006 9,049 9,878
7.88 Jan-2033-Jul-2039 2,630 2,630 4,715
8.25 May-2032-Sep-2036 7,552 7,620 7,837
8.50 Jul-2029 7,256 7,257 7,718
8.75 Dec-2026 4,361 4,361 4,430
9.00 Jun-2030 7,959 7,436 8,186
10.05 May-2026 1,253 1,253 1,260
12.55 Jun-2025 6,095 6,019 6,248
74,755 74,058 80,276
TOTAL GNMA SECURITIES $525,866 $536,389 $546,559
</TABLE>
<PAGE>
<PAGE>15
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
GNMA CONSTRUCTION LOANS (6.8%)
Interest Rates Maturity Commitment Face Amortized Value
Perm Const Date* Amount Amount Cost
---- ----- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Multi-family 6.24% 6.24% Jan-2040 $26,500 $2,633 $1,997 $1,620
6.50 6.50 Apr-2040 3,600 25 25 2
6.62 6.62 Jan-2040 10,010 1,582 1,582 1,667
6.93 7.07 Jan-2040 8,460 4,641 4,641 4,884
7.10 7.10 Oct-2039 42,137 30,194 30,035 31,905
7.13 7.13 Nov-2038 7,516 7,003 6,929 7,281
7.18 7.18 Jan-2039 4,095 3,840 3,840 4,012
7.33 7.76 Nov-2029 27,555 9,979 9,984 11,657
7.80 8.00 Jan-2039 54,238 48,162 48,194 53,151
8.04 7.88 Jan-2039 20,958 18,031 18,150 20,126
TOTAL GNMA CONSTRUCTION LOANS $126,090 $125,377 $136,305
*Permanent mortgage maturity date
</TABLE>
<TABLE>
<CAPTION>
FNMA SECURITIES (19.4%)
Interest Maturity Commitment Face Amortized Value
Rates Date Amount Amount Cost
-------- ------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Single-family 6.00% Jun-2005-Dec-2028 $106,894 $106,004 $105,621
6.50 Oct-2005-Nov-2028 95,274 96,293 96,020
7.00 Jan-2004-Jul-2028 27,726 27,531 28,261
7.50 Dec-2007-Dec-2010 46,731 48,111 48,042
8.25 Oct-2021 154 152 160
8.50 Aug-2021-Dec-2021 344 344 361
9.00 Jan-2024-May-2025 1,066 1,109 1,093
278,189 279,544 279,558
/TABLE
<PAGE>
<PAGE>16
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
FNMA SECURITIES (19.4%)
Interest Maturity Commitment Face Amortized Value
Rates Date Amount Amount Cost
-------- ---------------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Multi-family 5.57% Aug-2010 $16,500 $0 $0 $(325)
6.25 Dec-2013 2,841 2,856 2,853
6.38 Nov-2008 30,750 30,750 32,092
6.50 Nov-2015 7,400 328 328 334
7.25 Nov-2011-Jul-2012 10,103 10,103 10,710
7.38 Mar-2015 3,200 0 0 0
7.50 May-2012-Dec-2012 1,648 1,640 1,791
7.50 Jan-2015 3,030 1,811 1,811 2,084
7.63 Jun-2008-Feb-2013 4,073 4,508 4,420
7.75 Sep-2006-May-2013 2,343 2,319 2,558
7.75 Jan-2025 6,170 0 0 621
7.88 Jan-2007 453 447 490
8.00 Nov-2019-May-2020 7,116 7,075 7,899
8.13 Sep-2012-May-2020 11,841 11,786 13,256
8.25 May-2022 597 601 669
8.25 Sep-2025 10,939 9,812 9,812 10,303
8.38 Jan-2022 1,117 1,103 1,251
8.50 Sep-2026 1,530 1,514 1,714
8.63 Sep-2028 7,349 7,354 8,231
9.13 Sep-2015 4,108 4,075 4,601
9.25 Jun-2018 5,323 5,296 5,960
103,143 102,928 111,843
TOTAL FNMA SECURITIES $381,332 $382,472 $391,401
/TABLE
<PAGE>
<PAGE>17
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998(Dollars in thousands)
<TABLE>
<CAPTION>
FHLMC SECURITIES (6.3%)
Interest Maturity Face Amortized Value
Rate Date Amount Cost
-------- -------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
Single-family 6.00% Mar-2005-Nov-2028 $1,940 $1,956 $1,919
6.50 Mar-2013-Oct-2028 27,308 27,663 27,656
7.00 May-2004-Mar-2028 37,072 37,761 37,830
7.50 Nov-2003-Aug-2024 42,243 43,506 43,405
8.25 Dec-2022 405 403 422
8.50 Jul-2024-Jun-2025 5,924 5,964 6,201
9.00% Mar-2025 1,122 1,138 1,187
116,014 118,391 118,620
Interest Maturity Face Amortized Value
Rate Date Amount Cost
-------- -------- ------ --------- ----------
Multi-family 8.00% Feb-2009 $7,854 $7,864 $7,868
TOTAL FHLMC SECURITIES $123,868 $126,255 $126,488
</TABLE>
<TABLE>
<CAPTION>
LOCAL INITIATIVES (1.9%)
Interest Maturity Commitment Face Amortized Value
Rates Date Amount Amount Cost
------- ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Multi-family 7.70% Jun-2006-Jun-2029 $41,094 $24,366 $24,366 $25,527
8.00 May-2025 4,885 4,869 5,186
8.25 Jan-2025-Sep-2012 1,400 1,378 1,434
8.38 Feb-2007-Jan-2008 1,766 1,746 1,866
8.63 Jun-2025 1,428 1,428 1,528
9.13 May-2017 688 693 688
9.39 Dec-2023 968 964 1,036
9.50 Aug-2012-Apr-2024 2,175 2,185 2,327
TOTAL LOCAL INITIATIVES $37,676 $37,629 $39,592
TOTAL LONG-TERM INVESTMENTS $1,886,732 1,895,684 1,977,075
</TABLE>
<PAGE>
<PAGE>18
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998(Dollars in thousands)
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS (1.9%)
Maturity Face Amortized
Description Date Rate Amount Cost Value
- ----------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
REPURCHASE
AGREEMENTS
NationsBank 04-Jan-99 4.50% $2,300 $2,300 $2,300
Amalgamated Bank 27-Jan-99 5.55% 2,000 2,000 2,000
4,300 4,300 4,300
COMMERCIAL PAPER
Corporate Receivable 04-Jan-99 5.15 5,000 4,998 4,998
Corporate Asset Funding 04-Jan-99 4.95 5,000 4,998 4,998
Campbell Soup Co. 04-Jan-99 5.20 5,500 5,498 5,498
Xerox Credit Corp. 14-Jan-99 5.30 5,000 4,990 4,990
GTE Funding, Inc. 21-Jan-99 5.31 4,760 4,746 4,746
AESOP Funding Corp. 29-Jan-99 5.47 5,000 4,979 4,979
Kitty Hawk Funding Corp. 12-Feb-99 4.90 4,585 4,558 4,558
34,845 34,767 34,767
TOTAL SHORT-TERM INVESTMENTS $39,145 $39,067 $39,067
</TABLE>
TOTAL INVESTMENTS
Face Amount Amortized Cost Value
-------------- --------------- --------
$1,925,877 $1,934,751 $2,016,142
<PAGE>
<PAGE>19
STATEMENT OF OPERATIONS
Year ended December 31,1998 (Dollars in thousands)
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
INTEREST:
FHA mortgages $ 47,186
FHA construction loans 17,187
GNMA securities 45,302
FNMA securities 15,808
FHLMC securities 8,049
Local initiatives 1,979
Short-term investments 3,884
Discount and (premium) (5,950)
amortization and other
income - net
TOTAL INCOME 133,445
EXPENSES:
Salaries and fringe benefits 4,357
Legal fees 268
Consulting fees 317
Auditing and tax accounting fees 87
Insurance 152
Marketing and sales promotion 536
Program development 247
Trustee expenses 32
General expenses 1,259
TOTAL EXPENSES 7,255
INVESTMENT INCOME - NET 126,190
Realized gain on sale
of investments 3,978
Net change in unrealized
appreciation on
investments 15,792
NET GAIN ON INVESTMENTS 19,770
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $145,960
See accompanying notes to
financial statements.
/TABLE
<PAGE>
<PAGE>20
STATEMENT OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997 (Dollars in thousands)
<TABLE>
<CAPTION>
INCREASE IN NET ASSETS FROM OPERATIONS 1998 1997
------------ ---------
<S> <C> <C>
Investment income - net $126,190 $108,793
Net realized gain on sale of investments 3,978 751
Net change in unrealized appreciation 15,792 44,383
Net increase in net assets resulting
from operations 145,960 153,927
Distribution paid to participants
or reinvested from:
Investment income - net (126,322) $(108,848)
Net realized gain on investments (3,978) (733)
Net decrease in net assets from
distributions (130,300) (109,581)
</TABLE>
<TABLE>
<CAPTION>
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 1998 1997
----------- --------
<S> <C> <C>
Proceeds from the sale of 210,757 and
171,967 units of participation in 1998
and 1997, respectively 234,115 187,444
Dividend reinvestment of 105,856 and
88,600 units of participation in
1998 and 1997, respectively 117,712 96,007
Payments for redemption of 14,284 and
35,793 units of participation in
1998 and 1997, respectively (15,861) (39,215)
Net increase from share transactions 335,966 244,236
TOTAL INCREASE IN NET ASSETS 351,626 288,582
Net Assets at the beginning of period 1,671,745 1,383,163
NET ASSETS AT END OF PERIOD $2,023,371 $1,671,745
See accompanying notes to financial statements.<PAGE>
<PAGE>21
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The American Federation of Labor and Congress of Industrial Organizations
(AFL-CIO) Housing Investment Trust (the Trust) is a common law trust created
under the laws of the District of Columbia and is registered under the
Investment Company Act of 1940 as a no-load, open-end investment company. The
Trust has obtained certain exemptions from the requirements of the Investment
Company Act of 1940 that are described in the Trust's prospectus.
Participation in the Trust is limited to labor organizations and eligible
pension, welfare and retirement plans that have beneficiaries who are
represented by labor organizations.
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
INVESTMENT VALUATION
Investments are presented at value. Value determinations are summarized by
specific category of investment as follows:
Long-term investments, consisting of permanent mortgages, mortgage-backed
securities, construction loans and participation certificates, are valued
using published prices, dealer bids, or cash flow models discounted using
market-based discount and prepayment rates, developed individually for each
security. The market-based discount rate is composed of a risk-free yield
(i.e., a U.S. Treasury Note with a weighted average life comparable to the
security being valued) adjusted for an appropriate risk premium. The risk
premium reflects actual premiums in the marketplace over the yield on U.S.
Treasury securities of comparable risk and maturity to the security being
valued as adjusted for other market considerations. On loans for which the
Trust finances the construction and permanent mortgage, value is determined
based upon the total amount of the commitment for the term of the construction
loan plus the permanent mortgage loan.
Short-term investments, consisting of repurchase agreements and
commercial paper that mature less than sixty days from the balance sheet date,
are valued at amortized cost, which approximates value. Short-term
investments maturing more than sixty days from the balance sheet date are
valued at the last reported sales price on the last business day of the month
or the mean between the reported bid and ask price if there was no sale.
Short-term investments maturing more than sixty days from the balance sheet
date for which there are no quoted market prices are valued to reflect current
market yields for securities with comparable terms and interest rates.
Additional information relative to investment terms and credit risks are
described more fully in the Trust's prospectus.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FEDERAL INCOME TAXES
The Trust's policy is to comply with the requirements of the Internal Revenue
Code that are applicable to regulated investment companies and to distribute
all of its taxable income to its shareholders. Therefore, no federal income
tax provision is required.
The total cost of the portfolio of investments for federal income tax
purposes approximates the cost of all investments for financial statement
purposes.
DISTRIBUTIONS TO PARTICIPANTS
At the end of each calendar month, pro rata distribution is made to
participants of the net investment income earned during the preceding month.
Amounts distributable, but not disbursed, as of the balance sheet date are
classified as income distribution payable.
Participants redeeming their investments are paid their pro rata share of
undistributed net income accrued through the month-end of redemption.
The Trust offers an income reinvestment plan which allows current
participants to automatically reinvest their income distribution into Trust
units of participation. Total reinvestment approximated 90 percent of
distributable income for the year ended December 31, 1998.
INVESTMENT INCOME
Interest income is recognized on an accrual basis. Commitment fees, points
and other discounts or premiums resulting from the funding or acquisition of
mortgage loans or mortgage-backed securities are accounted for as an
adjustment to the cost of the investment and amortized over the estimated life
of the mortgage loan or mortgage-backed security. Realized gains and losses
from investment transactions are recorded on the trade date using an
identified cost basis.
2. TRANSACTIONS WITH AFFILIATES
During the year ended December 31, 1998, certain members of the Trust's staff
provided services to the AFL-CIO Building Investment Trust, a Maryland Group
Trust. The total cost for these services and related expenses for the year
ended December 31, 1998, amounted to $1,544,000. The Trust was reimbursed for
all of these costs, except for $314,000 which is included within accounts
receivable in the accompanying financial statements.
<PAGE>
<PAGE>22
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT TRANSACTIONS
(dollars in thousands)
FHA GNMA
FHA Construction GNMA Construction FNMA FHLMC Local
Mortgages Loans Securities Loans Securities Securities Initiatives
--------- ------------ ---------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1998 $510,595 $298,943 $377,463 $63,293 $224,778 $51,066 $12,741
Purchases &
construction
loan advances,
net of
discounts 0 79,468 400,654 109,066 308,589 127,148 25,395
Change in
Discounts &
(premiums) (3,093) 2,860 3,253 (274) 604 1,972 (44)
Transfers 213,640 (216,279) 25,743 (23,104) 0 0 0
Principal
Reductions (158,977) (39,595) (270,724) (23,604) (151,499) (53,931) (463)
Balance,
December 31,
1998 $562,165 $125,397 $536,389 $125,377 $382,472 $126,255 $37,629
</TABLE>
3. COMMITMENTS
The assets of the Trust are invested in short-term investments until they are
required to fund commitments for construction loans, mortgage-backed
securities or permanent mortgages. At December 31, 1997, the Trust had
remaining unfunded commitments of approximately $519,200,000 to fund
construction and permanent mortgages, and other investments. The Trust is
required to maintain a segregated account of securities in an amount no less
than the total unfunded commitments less short-term investments.
4. INVESTMENT TRANSACTIONS
A summary of investment transactions for the separate instruments included in
the Trust's investment portfolio, at amortized cost, for the year ended
December 31, 1998, is shown in the Investment Transactions chart above.
For the year ended December 31, 1998, the Trust had net unrealized
appreciation in value of investments of approximately $15,792,000. The
accumulated unrealized appreciation in the value of investments of securities
was approximately $81,391,000.
5. PARTICIPANTS' EQUITY (dollars in thousands)
Participants' equity consisted of the following at
December 31, 1998:
Amount invested and reinvested by current participants $1,943,094
(Gain)loss on redemption of units of participation (1,720)
Accumulated net unrealized appreciation in the value
of investments 81,391
Accumulated undistributed investment income - net 606
NET PARTICIPANTS' EQUITY $2,023,371
6. RETIREMENT AND DEFERRED COMPENSATION PLANS
The Trust participates in the AFL-CIO Staff Retirement Plan, which is a
multi-employer defined benefit pension plan, covering substantially all
employees. This plan was funded by employer contributions, at a rate
approximating 17.4 percent of employees' salaries during the year ended
December 31, 1998. The Trust's total pension expense for the year ended
December 31, 1998 was approximately $608,000.
The Trust has a tax deferred compensation plan, referred to as a 401(k) plan,
covering substantially all employees. This plan permits employees to defer the
lesser of 15 percent of their annual salary or the applicable IRS limit. The
Trust matched dollar for dollar the first $1,350 of employee contributions.
The Trust's 401(k) contribution for the year ended December 31, 1998 was
approximately $66,000.
7. BANK LOANS
The Trust has a secured $25,000,000 bank line of credit. Borrowings under this
agreement bear interest at LIBOR plus one-half percent. Five mortgage-backed
securities have been pledged as collateral for the line of credit. As of
December 31, 1998, the Trust had no outstanding balance on this line of
credit. No compensating balances are required.
<PAGE>
<PAGE>23
SUPPLEMENTAL INFORMATION
Selected Per Share Data and Ratios for the Years Ended December 31, 1998,
1997, 1996, 1995, 1994
<TABLE>
<CAPTION>
PER SHARE DATA
1998 1997 1996 1995 1994
-------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Investment Income $81.89 83.77 84.10 86.50 87.13
Expenses (4.41) (4.71) (4.99) (5.38) (5.47)
-------- ------- ------- ------
Investment Income - net 77.48 79.06 79.11 81.12 81.66
Distribution from
investment income - net(77.55) (79.10) (78.76) (80.77) (81.66)
Distribution from
realized gain on
investments (1.30) (0.48)
Net asset value
Beginning of period 1,104.30 1,072.98 1,098.53 991.40 1,102.58
Net realized and
unrealized gains
(losses) on
investments
Net increase (decrease)
in net asset value 9.78 31.32 (25.55) 107.13 (111.18)
END OF PERIOD $1,114.08 1,104.30 1,072.98 1,098.53 991.40
</TABLE>
<TABLE>
<CAPTION>
RATIOS
1998 1997 1996 1995 1994
----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Ratio of expenses to
average net assets 0.39% 0.43% 0.46% 0.51% 0.52%
Ratio of net investment
income to average net
assets 6.8% 7.2% 7.3% 7.6% 7.8%
Portfolio turnover rate 39.5% 15.3% 20.3% 31.2% 27.5%
Number of outstanding
units at end of period 1,816,185 1,513,856 1,289,082 1,062,234 943,378
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<PAGE>24
TRUSTEES
Richard Ravitch, Chairman* -- Principal, Ravitch, Rice and Company
John J. Sweeney* -- President, AFL-CIO
Richard L. Trumka -- Secretary-Treasurer, AFL-CIO
Linda Chavez-Thompson -- Executive Vice President, AFL-CIO
Arthur A. Coia -- President, Laborers' International Union of North America
Jack E. Cullerton -- Management Trustee, Central Pension Fund of the
International Union of Operating Engineers and
Participating Employers
Terrence R. Duverney -- Legg Mason Public Finance
Alfred J. Fleischer -- Chairman, Fleischer-Seegar Construction Company
Robert A. Georgine -- President, Building and Construction Trades Department,
AFL-CIO
Frank Hanley -- President, International Union of Operating Engineers
Edwin D. Hill -- International Secretary-Treasurer, International Brotherhood
of Electrical Workers
Frank Hurt -- President, Bakery, Confectionery & Tobacco Workers International
Union
John T. Joyce -- President, International Union of Bricklayers and Allied
Craftworkers
Walter M. Kardy -- President, Specialty Contractors Management, Inc.
George Latimer -- Distinguished Visiting Professor, Macalester College
Martin J. Maddaloni -- General President, United Association of Journeymen
and Apprentices of the Plumbing and Pipefitting
Industry
Michael E. Monroe -- General President, International Brotherhood of Painters
and Allied Trades
Marlyn J. Spear -- Chief Investment Officer, Milwaukee & Vicinity Building
Trades United Pension Trust Fund
Tony Stanley* -- Vice President, TransCon Builders, Inc.
Andrew L. Stern -- President, Service Employees International Union
Patricia F. Wiegert --Retirement Administrator, Contra Costa County Employees'
Retirement Association
*Executive Committee Members
EXECUTIVE OFFICERS
Stephen Coyle
Chief Executive Officer
Michael M. Arnold
Director of Investor Relations
James D. Campbell
Chief Investment Officer
ElChino Martin
General Counsel
Harry W. Thompson
Controller
Patton H. Roark, Jr.
Portfolio Manager
REGIONAL OFFICES
RICK JACKSON -- Northeast Regional Director
1717 K Street, NW, Suite 707; Washington, DC 20006; (202) 331-8055
PHIL COUTURE -- Midwest Regional Director
5330 Heatherdowns Boulevard Suite 100; Toledo, Ohio 43614;(419) 865-0048
GREGORY DYSON -- Western Regional Executive
CHRISTINE BOYLAN CARR -- Director of Development, Western Region
235 Montgomery Street, Suite 935; San Francisco, CA 94105; (415) 512-7418
COUNSEL OF RECORD
Swidler Berlin Shereff Friedman LLP;
Washington, DC
CERTIFIED PUBLIC ACCOUNTANT
Arthur Andersen LLP; Washington, DC
INVESTMENT ADVISER
Wellington Management Company LLP;
Boston, Massachusetts
VALUATION CONSULTANT
KPMG LLP; Washington, D.C.
CUSTODIAN BANK
Bankers Trust Company; New York
New York
