aflcio_497.htm

A Detailed Overview of the

AFL-CIO Housing Investment Trust:

ITS FIXED-INCOME STRATEGY AND FUND PERFORMANCE

Spring 2011

The HIT Advantage

The AFL-CIO Housing Investment Trust (HIT) has a 45-year record of success in generating competitive risk-adjusted returns for pension funds while also providing the vital collateral benefits of jobs and affordable housing for working people and their communities.

The HIT is a $3.9 billion investment grade fixed-income mutual fund1 that specializes in the highest credit quality multifamily mortgage-backed securities. This focus provides pension plans with an investment that is low risk, a source of attractive current income, and also liquid. Approximately 95% of the HIT’s investments are insured, guaranteed, or issued by the U.S. government, its agencies, or government-sponsored enterprises.

The HIT is well-suited to meeting a major investment need of pension plans with union member beneficiaries because:

(1) The HIT is a fixed-income option with a strong record of performance versus its benchmark, providing similar levels of interest rate risk, higher income, and a superior credit profile;

(2) The HIT’s focus on high credit quality multifamily securities and its lack of corporate bonds can make it a better source of diversification than other fixed-income investments that include corporate bonds, whose performance tends to be more highly correlated with equities; and

(3) The HIT directly sources multifamily and healthcare construction-related investments that generate competitive returns while also creating good union jobs and affordable housing at a time when communities can greatly benefit from development activity.

1 An open-end investment company registered under the Investment Company Act of 1940 and regulated under federal securities laws administered by the Securities and Exchange Commission.

Fixed-Income: An Investment Category Whose Time Is Now

High credit quality fixed-income investments offer pension plans the benefits of capital preservation, reliable cash flow, diversification, and reduced volatility. They are especially well-suited to the current economic environment of high unemployment and lackluster growth because they can provide steady income without taking on undue market risk.

The Current Economic Environment Favors Fixed-Income

The HIT is a fixed-income investment that has the ability to provide

reliable income and diversification in these uncertain times.

The economy is showing some signs of a weak recovery, but the potential for growth is being threatened by a barrage of new shocks, from nuclear problems and manufacturing slowdowns triggered by the Japanese earthquake and tsunami to political uprisings in the Middle East and North Africa. In addition, debt problems in Europe persist. While the U.S. economy is now experiencing a limited amount of job growth, wages are not keeping up with inflation, as food and energy prices rose significantly in the first quarter. Home prices have begun to decline again and foreclosure rates remain elevated.

Source: Wall Street Journal/Haver Analytics

Equity markets remain volatile as global uncertainty has increased. While equities are inherently more volatile than the fixed-income sector, this characteristic is exacerbated in times of uncertainty and may continue even over extended periods of time. In fact, for the 10-year period from March 2001 through March 2011, equity markets, as represented by the Standard and Poor’s 500 Index, generated smaller returns than fixed-income investments, as represented by the Barclays Capital Aggregate Bond Index (see chart above).

Moreover, one of the greatest risks of fixed-income investments — that their value will be eroded by inflation — has the potential to become an advantage to investors in periods of slow economic growth, such as those we have experienced over the past decade. While overall inflation has increased recently, core prices, which exclude food and energy, have risen only slightly.

Unlike funds investing in corporate debt securities, the AFL-CIO Housing Investment Trust is a fixed-income investment that has the ability to provide both reliable income and diversification in these uncertain times.

The HIT: A Good Fixed-Income Option

An investment of $5 million in the HIT in March 2001 would have grown to $8.69 million by March 2011,

whereas the same investment in major stock indices and real estate would be worth less than the HIT investment.

The HIT advantage holds up over the long term and provides diversification from equities and corporate bonds. The HIT has produced a significant positive return over the past 10 years, a period when many pension funds reduced their allocations in fixed-income, to their detriment. An investment of $5 million in the HIT in March 2001 would have grown to $8.69 million by March 2011, whereas the same investment in major stock indices and real estate, as shown below, would be worth less than the HIT investment.

Because the HIT does not hold corporate bonds, it can provide greater diversification from equities. The HIT’s returns are negatively correlated with equity and real estate indices and not highly correlated with corporate bond indices, as seen in the table below. (See page 7 for more information on the HIT’s performance.)

$5 Million Invested for 10 Years

(period ending March 31, 2011)

	Value after 10 Years	Percent Change	Correlation2
HIT	$ 8,691,377	74%	--
Barclays Capital Aggregate	$ 8,593,067	72%	+0.95
U.S. Bloomberg REIT Index	$ 8,115,203	62%	-0.14
U.S. NYSE	$ 6,672,367	33%	-0.31
U.S. Dow Jones	$ 6,235,451	25%	-0.25
U.S. S&P	$ 5,713,159	14%	-0.30
United Kingdom FTSE	$ 5,657,096	13%	-0.39
Dow Investment Grade Corporate Index	$ 5,481,429	10%	+0.62
Japan Nikkei 225	$ 3,752,048	-25%	-0.50

Source: Haver Analytics, Bloomberg and the HIT

In addition to producing competitive returns with less credit risk than the Barclays Aggregate, the HIT creates family-supporting union construction jobs, increases the supply of multifamily housing, and promotes economic development in communities across the country. The HIT’s proven track record demonstrates that participating in its socially responsible and economically targeted investments does not diminish returns for investors, but can enhance them. Unlike most bond funds, the HIT helps to create assets by financing job-generating construction of multifamily developments and healthcare facilities to meet communities’ needs.3 The HIT has successfully funded development projects that meet priorities established by specific states or cities, including affordable housing for low-income families and workforce housing that is affordable to middle-income wage-earners.

2 Correlation to the HIT of monthly year-over-year changes in indices.

3 The HIT requires that all new construction and substantial rehabilitation investments be constructed with 100% union labor.

The HIT responded to the nation’s urgent need for job creation with its own “stimulus” effort, the Construction Jobs Initiative, which in 2009 set a goal of creating 10,000 union construction jobs by the spring of 2011. At the end of the first quarter of 2011, the HIT was poised to meet that goal. New commitments since the end of the first quarter have put the HIT over the 10,000 job goal. With total development investments of nearly $1.8 billion in over 30 projects in 18 cities under this initiative, the more than $800 million in construction-related HIT financing commitments to date are expected to generate additional income for the HIT’s participants as projects are funded during the construction period. The HIT continues to add to its pipeline of transactions that should provide attractive investment opportunities in the future.

To increase its capacity to invest in job-generating projects in low-income communities, the HIT has established a Community Development Entity (CDE) as a wholly-owned subsidiary. The CDE, known as Building America CDE, Inc., is designed to utilize New Markets Tax Credits to attract investors and enhance the financial viability of these projects. Building America CDE was awarded $35 million in New Markets Tax Credits in February 2011. It is currently evaluating prospective projects for financing, including mixed-use developments and healthcare facilities in underserved neighborhoods.

HIT Financing for Multifamily and Healthcare Facility Projects

(Inception through March 31, 2011)

	Since 1965
HIT Financing Commitments	$6,028 million
Total Development Value	$8,924 million
Union Construction Jobs	66,700
Units of Housing/Beds	97,916
Affordable Units	58,176

With increased capital from investors, the HIT will be able to purchase additional securities with which to pursue its goal of providing competitive returns coupled with union construction jobs, affordable housing, and community development.

The HIT Difference

The investment strategy and core competency of the AFL-CIO Housing Investment Trust differentiate it from other core fixed-income investments and are responsible for its competitive advantage.

Investment Strategy

The HIT’s investment strategy is to construct and manage a portfolio with higher yield, higher credit quality, and similar interest rate risk compared to its benchmark, the Barclays Capital Aggregate Bond Index (Barclays Aggregate). The HIT specializes in government and agency issued, guaranteed, or insured multifamily4 mortgage-backed securities (MBS) that have call/prepayment protection, and it directly sources the construction-related multifamily MBS in which it invests. It substitutes multifamily MBS for corporate securities as well as some of the Treasury and agency debt in the Barclays Aggregate. Since government/agency permanent multifamily MBS generally offer higher yields than securities with similar credit and interest rate risk, and construction-related MBS provide even higher yields, the HIT’s portfolio is designed to offer superior risk-adjusted returns relative to the benchmark. The result is a consistent income advantage that contributes positively to the HIT’s performance.

The HIT strategy takes advantage of inefficiencies in the market for financing multifamily projects. The HIT’s ability to customize construction financing for developers, particularly financing insured by the Federal Housing Administration (FHA), allows it to invest in assets that offer relative value opportunities.

Core Competency

The HIT stands out among fixed-income because it has the internal capability to source multifamily mortgage

investments directly, and to provide technical expertise to assist in completing complex transactions

in today’s difficult environment.

The HIT stands out among fixed-income investments because it has the internal capability to source multifamily mortgage investments directly from developers, issuers, and mortgage bankers, and to provide technical expertise to assist them in completing complex transactions in today’s difficult credit environment. The HIT has internal expertise in trading, structuring, and negotiating terms for multifamily investments to maximize their value for the portfolio. These investments contribute to the HIT’s track record over time of successfully generating alpha versus the Barclays Aggregate.

The HIT’s Multifamily Investment Division, comprised of 10 professionals, works to identify multifamily construction, substantial rehabilitation, and preservation projects. These professionals use their extensive relationships with developers, mortgage bankers, state housing finance agencies, state and local officials, as well as staff at FHA, Fannie Mae, and Freddie Mac, to identify and evaluate a large number of investment transactions and achieve a high capture rate of secure and competitive investments. The HIT’s Portfolio Management Group, consisting of four investment professionals, is responsible for negotiating pricing for all of the HIT’s investments and for managing the HIT’s commingled portfolio.

4 The HIT focuses on government insured/guaranteed multifamily housing but also funds government insured/guaranteed healthcare facilities, including hospitals, nursing facilities, and rehabilitation centers.

Multifamily construction securities are a particularly attractive investment for the HIT portfolio at this time, as shown in the graph below.

Source: HIT and Securities Dealers

Multifamily construction securities are a particularly attractive investment for the HIT portfolio at this time.

By continuing to invest in construction securities, the HIT is taking advantage of the attractive yield spreads shown here while at the same time generating much-needed union construction jobs. At a time when the FHA has assumed a more significant role in the multifamily marketplace, the HIT’s expertise in FHA programs is extremely valuable to market participants. With more than four decades of experience with FHA programs, the HIT is well-positioned to finance FHA transactions that meet its investment criteria and generate union construction jobs and affordable housing. The FHA loans purchased by the HIT typically are wrapped by Ginnie Mae so that 100% of the principal and interest are guaranteed by the U.S. government. Over the past five years, the HIT has experienced only one default resulting in the loss of principal and interest, totaling $82,897, for a loss rate of 0.002% of average net assets.

Portfolio Performance

The AFL-CIO Housing Investment Trust continued to outperform its benchmark, the Barclays Capital Aggregate Bond Index (Barclays Aggregate), on a gross and net basis for the first quarter of 2011, following its 18th consecutive calendar year of outperformance on a gross basis.

The HIT’s performance for the first quarter of 2011 was enhanced by its ongoing income advantage versus the benchmark and by continued spread tightening in agency multifamily MBS. With its specialization in these multifamily securities, the HIT benefited as these investments had better price performance than Treasuries with comparable average lives. The HIT’s better relative performance was achieved despite strong performance by corporate bonds, which comprised 19.4% of the benchmark at March 31 but are not permissible investments for the HIT. Corporate bonds outperformed Treasuries by 102 basis points during the quarter based on optimism about the U.S. economic recovery and improving corporate earnings.

For the 1-, 3-, 5-, and 10-year periods ending March 31, the HIT outperformed the Barclays Aggregate on a gross basis by 15, 72, 49, and 54 basis points, respectively, as seen in the chart below. On a net basis, the HIT outperformed the benchmark for the 3-, 5-, and 10-year periods by 26, 4, and 12 basis points, respectively.

The performance data quoted represents past performance and is no guarantee of future results. Investment results and principal value will fluctuate so that units in the HIT, when redeemed, may be worth more or less than the original cost. The HIT’s current performance may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available from the HIT’s website at www.aflcio-hit.com. Gross performance figures do not reflect the deduction of HIT expenses. Net performance figures reflect the deduction of HIT expenses and are the performance figures investors experience in the HIT. Information about HIT expenses can be found on page 1 of the HIT’s current prospectus. Periods over one year are annualized.

This is a particularly good time for pension plans to consider investing in the HIT. With continuing volatility in many asset classes, value and diversification opportunities can be found in high credit quality fixed-income investments that offer attractive yield spreads. Yield spreads on construction-related multifamily MBS remain especially attractive (as shown in the graph on page 6). The large multifamily pipeline under review should allow the HIT to benefit from acquiring additional construction-related securities at wide spreads.

Portfolio Construction and Composition

The HIT’s stated investment guideline is to maintain the effective duration of its portfolio within the range of plus or minus 0.50 years of the effective duration of the Barclays Aggregate. The effective duration of the HIT’s portfolio is managed daily relative to the Barclays Aggregate using BondEdge software. The Portfolio Management Group acts upon any perceived risk differentials, as needed, to purchase or sell securities to manage the duration gap. They also monitor the allocation to various sectors compared to the Barclays Aggregate and may adjust allocations by purchasing or selling securities. The percentage of single family agency MBS in the HIT’s portfolio is typically similar to that in the Barclays Aggregate. However, the HIT may underweight or overweight these MBS based on relative value opportunities. The HIT’s government/agency multifamily MBS allocation typically ranges from 50% to 75% of the portfolio. Restrictions on the portfolio’s holdings of various classes of securities can be found in the HIT’s prospectus. The HIT does not use derivatives or leverage through borrowing.

Relative value is the most important consideration when the HIT decides whether to buy or sell a specific security. Characteristics considered include price, yield, duration, convexity, option adjusted spread (OAS), seasoning, issuer, servicer, geographic location, call/prepayment protection, as well as liquidity.

The composition of the HIT’s portfolio as of March 31, 2011, demonstrates its high credit quality and specialization in multifamily MBS, as shown below.5

*Single family (SF) MBS are all Fannie Mae, Freddie Mac, and Ginnie Mae MBS and comprised 27.4% of the portfolio.

5 Includes commitments that have not yet been funded.

Higher Income, Superior Credit Quality versus the Barclays Aggregate

The HIT is well-positioned for investment success due to its superior portfolio fundamentals, which have the potential to offer higher income, higher credit quality, and similar interest rate risk relative to the benchmark.

Risk Comparison: HIT Portfolio vs. Barclays Capital Aggregate Bond Index

March 31, 2011

	HIT		Barclays		HIT	Barclays
Superior Credit Profile				Similar Interest Rate Risk
AAA & Above	94.8%		77.1%	Effective Duration	4.83	4.94
A & Below	1.7%		18.4%	Convexity	-0.11	-0.09
Yield Advantage				Similar Call Risk
Yield to Maturity/Worst		3.54%	2.99%	Call Protected	71%	67%
→ 55 basis point Yield Advantage				Not Call Protected	29%	33%

Strong Correlation with the Barclays Aggregate

Because the HIT actively maintains its duration and convexity and agency single family MBS allocation to be similar to the Barclays Aggregate, its returns are highly correlated to the benchmark. The correlation between the HIT’s returns and those of the Barclays Aggregate for the five years ending March 31, 2011, was 94% and has ranged from 94% to 99% in recent years. The correlation with single family MBS indices is somewhat lower because most of the HIT’s MBS are call-protected multifamily MBS, as shown above. The correlation with the Citigroup BIG Mortgage Index for the five years ending March 31, 2011, was 87% and has ranged from 87% to 94% in recent years.

The HIT can preserve capital and provide consistent income during periods of economic contraction,

offering diversification benefits to investors.

The HIT’s outperformance versus the Barclays Aggregate tends to increase during periods of market stress, as shown in the preceding graph, which compares the HIT’s gross and net returns to the Barclays Aggregate. The HIT can preserve capital and provide consistent income during periods of economic contraction, offering diversification benefits to investors.

Internal Research Capability

As an internally managed fund, the HIT maintains considerable research capability covering financial markets, economic developments, and the market for multifamily investments.

The Portfolio Management Group performs the research underlying its investment decisions. Information regarding macroeconomic factors and trends along with capital markets data are gathered using a wide variety of sources, including government agencies, market news providers, trading platform market data service providers, broker/dealer research, and nationally recognized economists. Sector and security level research is also conducted for trade and risk management purposes. Housing and real estate data along with factors that impact inflation expectations are of particular interest.

The HIT’s Chief Economist performs ongoing market research and provides in-depth research reports to staff on topics that impact the U.S. and global economy. She reviews primary sources of data from government agencies, including the Federal Reserve, to gain insight into current market and economic trends.

The HIT also has contracts with independent economic consultants Gary Shilling of A. Gary Shilling & Co. and Lyle Gramley, Senior Economic Adviser to the Soleil Securities Group (formerly a Federal Reserve Board Governor). They make periodic presentations to HIT staff and provide monthly economic reports and forecasts.

The Multifamily Investment Division works through its staff members in Washington, New York City, Boston, New Orleans, and San Francisco to use their extensive relationships with developers, mortgage bankers, housing agencies, community organizations, and others to help develop investment opportunities. The staff also reviews housing industry publications and websites, keeps abreast of legislative and regulatory changes, and closely follows changes in the competitive environment.

No Separate Management Fees

The HIT’s only expenses are its actual costs of operations. All returns over actual costs are distributed on a pro rata basis to investors based on units held, and all expenses are borne in proportion to the number of units held. There are no fees or commissions associated with the purchase or redemption of units in the HIT. Each year the Board of Trustees approves the HIT budget and monitors it throughout the year. For the years ended December 31, 2010, 2009, and 2008, the HIT’s ratio of expenses to average net assets was 44, 43, and 41 basis points, respectively. Expenses may be higher or lower in any given year.

Risk Management

Over 99% of the HIT’s investments are considered liquid securities, largely due to their high credit quality.

The AFL-CIO Housing Investment Trust’s primary portfolio risk measures are credit quality, duration, convexity, and liquidity. The HIT manages its credit quality by focusing on the highest quality sectors — agency multifamily and single family MBS. As of March 31, 2011, over 94% of the HIT’s portfolio consisted of MBS and other securities insured or guaranteed by the U.S. government or a government-sponsored enterprise (GSE), compared to less than 75% in the Barclays Aggregate. The HIT seeks to construct a portfolio that has a higher expected yield than its benchmark. The HIT manages its interest rate risk by targeting duration to be effectively neutral to the benchmark. Duration and convexity of the HIT’s portfolio and the benchmark are modeled daily, and staff acts upon any perceived risk differentials to purchase or sell securities to limit the duration gap. Prepayment risk is also targeted to be similar to the benchmark by using the HIT’s specialized approach of purchasing government/agency multifamily MBS with prepayment restrictions. As of March 31, 2011, 63.3% of assets were invested in this product.6 Over 99% of the HIT’s investments are considered highly liquid securities, largely due to their high credit quality. The fact that participants have chosen to reinvest nearly 90% of dividends allows the HIT to easily accommodate attractive investment opportunities and honor redemption requests.

The HIT adheres to strict policies and procedures that control and monitor risk. The Portfolio Management Committee, comprised of members of senior management, sets the HIT’s portfolio management strategy and oversees the work of the Portfolio Management Group. It meets at least monthly to review portfolio strategy and performance, discuss portfolio activity, address recommendations to add or delete counterparties, review portfolio composition relative to limits in the HIT’s governing documents, and discuss issues of importance to the HIT’s portfolio management. All mortgage investments related to new multifamily construction, substantial rehabilitation, or preservation are reviewed internally and approved by the HIT’s Investment Committee, which is comprised of members of senior management. The Investment Committee reviews and approves each transaction, including the pricing provided by the Portfolio Management Group. Any proposed single transaction of $50 million or greater requires the approval of the Executive Committee of the HIT’s Board of Trustees.

The trading process is strictly controlled. Chang Suh, CFA, CPA, Executive Vice President/Chief Portfolio Manager, is responsible for the day-to-day management of the HIT’s portfolio, including maintaining duration comparable to the benchmark. He recommends strategies to the Portfolio Management Committee and makes the individual trade decisions that fit the strategy set forth by the committee. The trading function is carried out by the four members of the Portfolio Management Group: Mr. Suh; Michael Cook, CFA, and J. Guy Carter IV, Assistant Portfolio Managers; and David Phillips, Senior Financial Analyst.

Each trade is reviewed for compliance with HIT guidelines by the Executive Vice President/Chief Portfolio Manager, and each trade with its documentation is reviewed by Portfolio Management Group staff for accuracy and by at least two Board-appointed officers. The movement of monies for the settlement of each trade also requires the signatures of two Board-appointed officers. In addition, the Legal Department reviews trading activities to ensure compliance with governing documents and applicable policies and procedures.

6 Including commitments that have not yet been funded.

The HIT maintains the integrity of its valuation process and assures the reliability of the portfolio value by following a three-pronged approach. This includes (1) an independent monthly valuation; (2) an independent quarterly valuation validation review of the first three quarters and a review of all multifamily security sales; and (3) an independent annual audit in which every asset as of year-end is valued by the HIT’s auditors, Ernst & Young, LLP (E&Y). See page 25 of the 2010 Annual Report, available on the HIT’s website at www.aflcio-hit.com, for additional information on investment valuation.

The HIT’s annual financial statements are audited by E&Y in accordance with the standards of the Public Company Accounting Oversight Board and are in conformity with U.S. generally accepted accounting principles. The most recent audited financial statements can be found in its Annual Report, available on the HIT’s website at www.aflcio-hit.com.

The HIT’s Compliance Program operates under the oversight of the Chief Compliance Officer (CCO). The CCO is responsible for administering the program to insure adherence to internal policies and procedures and is required to report directly to the Board of Trustees. The HIT’s comprehensive compliance procedures cover business operations and establish compliance policies for, among other things, anti-money laundering, personal trading, record retention, the protection of material non-public HIT information, and attorney conduct rules. Among these policies and procedures, the HIT has three formal written codes of ethics that meet or exceed the requirements of the U.S. Securities and Exchange Commission (SEC), as well as the Sarbanes-Oxley Act of 2002. HIT operations are also governed by provisions of the Declaration of Trust and resolutions of the Board of Trustees.

A number of measures mitigate counterparty risk. The Portfolio Management Committee, along with the Portfolio Management Group, closely monitors news on all approved trade counterparties. Portfolio Management staff recommends additions or deletions to the approved counterparty list and provides documentation to the Portfolio Management Committee, which reviews the list and recommendations at its monthly meetings and counterparty allocations at least twice annually. The HIT does not believe its exposure to counterparty risk is significant since most of the HIT’s trades (1) are delivery versus payment, so funds or securities are not wired unless the counterparty has provided the appropriate securities or funds, and (2) have a short settlement window of less than 30 days.

The HIT carries greater than required insurance coverage. This includes a $15,000,000 fidelity bond, errors and omissions insurance totaling $20,000,000, and a fiduciary ERISA bond for $5,000,000.

The HIT has systems in place to handle anticipated portfolio growth up to $10 billion. Therefore, no capacity constraints exist for the foreseeable future. In preparing for growth, the HIT has contracted with industry-leading institutional service providers to provide ancillary services (such as custodian, transfer agent, and investment accounting services) to enable it to concentrate on its core competencies. It has developed its staff capacity in all major areas including portfolio management, investment sourcing, accounting, and legal/regulatory functions.

The HIT’s Ownership, Management, and Staff

Institutional investors that purchase units of participation in the AFL-CIO Housing Investment Trust are its sole owners. As of March 31, 2011, the HIT had a net asset value of approximately $3.93 billion and 348 institutional investors.

Clients by Type ($ in millions as of 3/31/2011)	$ Amount	Percentage	Number of Accounts
Public	1,076.34	27.37	10
Taft-Hartley	2,519.42	64.06	185
Other (Labor Organizations)	337.27	8.57	153
Total	3,933.03	100.00	348

The largest five accounts and length of HIT investment are shown below:

Type of Account	Length of Relationship (Since)	% of HIT Net Assets March 31, 2011
Taft-Hartley Fund	1983	>5%
Northeast Public Fund 1	2002	>5%
Northeast Public Fund 2	2002	4.8%
Western Public Fund 1	1991	4.4%
Western Public Fund 2	1996	3.2%

Nearly 90% of the dividends received by participants are reinvested in the HIT. This demonstrates investor confidence. For 2010, those reinvested dividends provided $145 million in new capital.

Overall responsibility for the management of the HIT is vested in its Board of Trustees. Board members currently include a chairman, eight labor trustees, and six management trustees (current trustees are listed on the HIT’s website at www.aflcio-hit.com).

The HIT’s Chief Executive Officer is Stephen Coyle. He is assisted by the other officers of the HIT in day-to-day administration. Mr. Coyle has served in this capacity since 1992. He has been active in housing production and finance, economic development, and urban planning for nearly 40 years.

The HIT is structured in six divisions. The Executive Division sets and executes overall HIT policy; the Portfolio Management Group manages the HIT’s portfolio within the investment policy outlined in the HIT’s prospectus; the Multifamily Investment Division generates secure and competitive fixed-income investments in multifamily housing and healthcare facilities; the Marketing, Investor Relations, and Labor Relations Division markets the HIT to Taft-Hartley and public employee pension plans, maintains relationships with investors, investment consultants, and the union pension community, and monitors labor activity on HIT-financed construction projects to assure that HIT’s union labor policy is carried out; the Management and Finance Division maintains stewardship of the HIT’s assets; and the Legal Division provides the legal advice and assistance required to protect and advance the interests of the HIT and its investors.

The HIT has five offices in Washington, Boston, New York, San Francisco, and New Orleans as well as a Midwest regional marketing director.

Location	Function	Employees
Washington, DC (Headquarters)	Portfolio Management, Investments, Marketing, Investor Relations, Labor Relations, Fund Administration and Management, and Legal	48
Boston, MA	Marketing/Investment Sourcing/Investor Relations	2
New York, NY	Investment Sourcing/Investor Relations	2
San Francisco, CA	Marketing/Investment Sourcing/Investor Relations	1
New Orleans, LA	Investment Sourcing	2

The HIT encourages staff development and promotion from within. The HIT has been able to achieve a low attrition rate through its policies on salary, fringe benefits, work/life balance, and employee education. The HIT’s salaries are competitive and its benefits are superior to many other employers in the industry. The HIT actively supports the professional development of its staff to meet the dynamics of the capital markets, through professional education, attendance at industry conferences, and tuition assistance for professional training and education. The HIT has no formal incentive compensation system and does not pay commissions or performance bonuses.

Executive officers and key staff are shown in the table on the next page. Brief biographies of the members of the Portfolio Management Group are provided below. Biographies for executive officers and key staff can be found on the HIT’s website at www.aflcio-hit.com.

Chang Suh, CFA, CPA, Executive Vice President/Chief Portfolio Manager, has been with the HIT's Portfolio Management Group since 1998 and was named to his current position in 2003. Mr. Suh is experienced in overall portfolio management, pricing and trade execution, investment valuation, and risk management. In particular, Mr. Suh has extensive experience in structuring multifamily investments and has established a wide network of capital markets participants. Before coming to the HIT, Mr. Suh worked in the financial services group of Arthur Andersen specializing in the commercial mortgage industry.

Michael Cook, CFA, Assistant Portfolio Manager, has approximately eight years of experience in finance and has been working in the HIT’s Portfolio Management Group in positions of increasing responsibility since 2003. Prior to joining the HIT, Mr. Cook interned at an investment banking firm.

J. Guy Carter IV, Assistant Portfolio Manager, joined the HIT in early 2008. Previously, he worked at Freddie Mac for six years, most recently as a Portfolio Manager managing a portion of the company's $700 billion mortgage-backed securities portfolio and prior to that as a Senior Analyst focusing on mortgage derivatives and collateralized mortgage obligations.

David Phillips Jr., Senior Financial Analyst, has been with the HIT since 1998 and in his current position since 2004.

Executive Officers and Key Staff

Name	Title & Responsibility	Years with HIT	Years in Current Role	Years of Experience
Stephen Coyle	Chief Executive Officer	19	19	38
Ted Chandler	Chief Operating Officer	2	2	25
Erica Khatchadourian	Chief Financial Officer	18	8	22
Saul Schapiro	General Counsel	2	2	38
Chang Suh	Executive Vice President – Chief Portfolio Manager	12	7	15
Michael Cook	Assistant Portfolio Manager	8	3	8
J. Guy Carter IV	Assistant Portfolio Manager	3	3	9
Harpreet Peleg	Controller	6	4	14
Stephanie H. Wiggins	Executive Vice President and Chief Investment Officer	10	8	21
Eric Price	Executive Vice President	5	1	18
Lesyllee White	Director of Marketing	11	6	16
Debbie Cohen	Chief Development Officer	3	2	30
Sondra Albert	Chief Economist	7	7	14
Christopher Kaiser	Chief Compliance Officer and Deputy General Counsel	4	3	16

Collateral Benefits: Construction Investment, Job Creation, Community Development, and Economic Stimulus

The HIT’s investments help to close capital gaps in housing and community development projects.

The AFL-CIO Housing Investment Trust continues to invest in construction in a market environment where many other lenders are not active, providing a lifeline for struggling union construction workers and a boost to local economies. The HIT’s more than 45 years of experience in housing finance; its well-established relationships with for-profit and nonprofit developers, mortgage bankers, public agencies, GSEs, and others; and its unique ability to structure complex financing transactions to make projects viable have enabled the HIT to support new construction and create union jobs despite the economic downturn. The HIT’s full-time labor relations staff makes sure that its 100% union labor policy is carried out effectively at every project it finances. The HIT’s investments help to close capital gaps in housing and community development projects. In addition, the HIT’s new subsidiary — Building America CDE, Inc. — is expected to increase the HIT’s capacity to invest in mixed-use projects in low-income communities by providing equity to fill capital gaps through the sale of New Markets Tax Credits.

The HIT’s Construction Jobs Initiative has passed its goal of creating 10,000 union construction jobs by the spring of 2011. The economic impact of this construction activity is far broader than the projects the HIT has financed. It is often measured by the construction multiplier, which quantifies the impact of construction activity on many other related businesses and on job creation. Construction activity has a “backward” stimulus to the providers of building materials, professional services, and insurance, and a “forward” stimulus by increasing economic activity and jobs in the local economy, which spurs local businesses and increases tax revenues. The construction employment multiplier estimates that 35.9 jobs are created for every million dollars spent on a construction project.7 Therefore, the $1.8 billion of development activity that the HIT has leveraged with its $800 million of investments under the Construction Jobs Initiative should create over 64,000 jobs in the larger economy.

The HIT is authorized to invest in mortgage securities backed by housing developments anywhere in the U.S. However, the HIT invests only in mortgage securities that provide yields competitive with those prevailing in the market, taking into consideration all relevant factors to evaluate risk and return, as well as the overall objectives of the HIT. When possible, the HIT invests in projects in geographic areas in which participants or their beneficiaries are located. HIT projects often help communities achieve their goals for responsible urban development, creation or preservation of affordable and workforce housing, adaptive reuse of older structures, transit-oriented development, and LEED certification or environmentally-friendly design.

7 “Measuring How Much Economic Change Will Mean to Your Community,” by Dr. Michael Walden, Department of Agricultural and Resource Economics, North Carolina State University.

Examples of HIT-Financed Projects

Several of the projects to which the HIT has recently committed financing are shown below. Information on additional projects can be found on the HIT’s website, www.aflcio-hit.com.

Randolph Tower City Apartments, Chicago, IL

The HIT invested $20 million to help finance the conversion of an historic office building in Chicago’s western Loop into a multifamily development. The taxable bond purchase was part of the financing package for the $148.2 million, 45-story building. A landmark for more than 80 years, the Gothic Revival-style skyscraper will undergo massive rehabilitation. When completed it will include 310 loft-style rental units, 20% of which will be affordable to low-income households, as well as retail, restaurant, and office space. The project will create approximately 690 union construction jobs.

Applewood Pointe of Roseville at Langton Lake, Roseville, MN

To help finance construction of the $11.2 million first phase of senior cooperative housing, the HIT is providing $4.7 million of union pension capital. Located near the Twin Cities of St. Paul and Minneapolis, the project will consist of 48 housing units in a four-story building offering residents a wide array of amenities. The project, which will create about 70 union construction jobs, will be developed by United Properties. In 2009, the HIT provided $17.6 million for another United Properties project, the recently completed Applewood Pointe of Bloomington at Southport, which created 101 senior housing units and approximately 130 union construction jobs.

Douglass Park, New York, NY

Construction of the 70-unit project in Central Harlem was recently completed. The HIT provided $9.5 million in financing for the $31.2 million affordable housing development, which features 70 low- and moderate-income housing units that are being marketed through city-supervised lotteries. The HIT provided union pension capital to help finance the project through the purchase of fixed-rate, tax-exempt bonds issued by New York City’s Housing Development Corporation under the Low-Income Affordable Marketplace Program. Douglass Park is part of a major campaign being carried out by New York City’s Department of Housing Preservation and Development to finance affordable housing projects throughout the City’s five boroughs. The project provided an estimated 180 union construction jobs.

Old Colony, Boston, MA

To help revitalize the Old Colony public housing property in South Boston, the HIT has committed to invest $26.7 million in a tax-exempt bond to assist in financing the construction of 116 units of housing for low-income residents. The total development investment will be $56.8 million. To support the redevelopment effort, HUD awarded the Boston Housing Authority a $22 million grant under the Capital Fund Recovery Competition, which promotes “green” public housing communities. This is intended to be the first phase of a multi-year effort to revitalize the 70-year-old Old Colony development. The project is expected to provide approximately 320 union construction jobs.

Potrero Launch, San Francisco, CA

Contributing to San Francisco’s efforts to increase housing development and business activity in city neighborhoods, the HIT is helping to finance the $80.4 million Potrero Launch project in the Central Waterfront area. The union-built development will create an estimated 460 union construction jobs, produce 196 rental units, including 39 units affordable to residents earning up to 30% of the area median income, as well as child care facilities and commercial space. The HIT has committed to purchase $2.59 million in taxable bonds upon conversion to a permanent loan, with Freddie Mac providing the credit enhancement. With its many green features, Potrero Launch is designed to be a LEED-certified residential project.

Coquille Valley Hospital, Coquille, OR

The HIT has made a $22 million investment to build a medical facility in Coquille, Oregon. The extension to the adjacent Coquille Valley Hospital has been designated a “critical access” facility because of the need for medical care in this rural community. The construction project, which will create approximately 225 union constructions jobs, is the first project funded by the HIT that will utilize Build America Bonds. The new 60,000 square-foot, three-story structure will have 16 beds and will house primary medical departments. The project’s total development investment value will be $30 million.

Conclusion

The AFL-CIO Housing Investment Trust is one of the oldest socially responsible investment funds in the U.S. In more than 45 years of service, the HIT has always embraced “triple bottom line investing.” As a steward of union and public employee pension capital, the HIT is committed to producing: (1) competitive returns for its investors and their beneficiaries through prudent high-credit-quality investing; (2) good jobs for union members; and (3) more livable communities, with high quality, affordable housing, a better environment, and a higher quality of life.

Since 1965, the HIT and its predecessor fund have committed over $6 billion to finance 98,000 units of housing, including more than 58,000 affordable units, thereby enhancing the nation’s stock of affordable housing and revitalizing communities coast to coast. HIT projects regularly promote responsible urban development, transit-oriented development, affordable housing construction or preservation, adaptive reuse of older structures, and often some level of environmentally-friendly design. The HIT’s 100% union labor requirement has generated some 67,000 union construction jobs on the projects it finances — jobs that pay family-supporting wages, provide health and retirement security, contribute to the economic base of the communities where union members live and work, and foster economic growth beyond the communities where it invests.

The HIT’s strategy and core competency differentiate it from other core fixed-income investments. The construction-related government/agency multifamily securities that are the HIT’s focus are particularly attractive at this time, and with the HIT’s current wide yield advantage over the benchmark, the HIT portfolio is well positioned to outperform over the long term.

With increased capital from investors, the HIT will be able to

purchase additional securities with which to pursue its goal of providing competitive returns

coupled with union jobs, affordable housing, and community development.

How to Invest in the HIT

The AFL-CIO Housing Investment Trust is an open-end investment fund registered with the U.S. Securities and Exchange Commission. Units in the HIT are sold without any sales charge (load) or commissions. HIT units are purchased on the last business day of each month in order to be invested in the HIT that month. The purchase price will be equal to the units’ net asset value as of the close of business of the major bond markets in New York on the last business day of each month. Funds received prior to the last day of the month are invested in short-term securities until the last day of the month, at which time all earnings will be included in the investment in the HIT or, if the participant chooses, returned.

We encourage you to contact one of the marketing/investor relations staff below if you would like to invest or if you have any questions about investing in the HIT or increasing your HIT investment.

Lesyllee White, Esq. Director of Marketing National and Mid-Atlantic Accounts (202) 467-2546 lwhite@aflcio-hit.com	Paul Sommers Regional Marketing Director Midwest Accounts (937) 604-9681 psommers@aflcio-hit.com
Paul Barrett Regional Marketing Director New England Accounts (508) 397-9750 pbarrett@aflcio-hit.com	Liz Diamond Regional Marketing Director Western Accounts (415) 433-3044 ldiamond@aflcio-hit.com
Debbie Cohen Chief Development Officer (202) 467-2591 dcohen@aflcio-hit.com	Julissa Servello Marketing Coordinator (202) 467-2544 jservello@aflcio-hit.com

This document contains forecasts, estimates, opinions, and other information that is subjective. Statements concerning economic, financial, or market trends are based on current conditions, which will fluctuate. There is no guarantee that such statements will be applicable under all market conditions, especially during periods of downturn. Actual outcomes and results may differ significantly from the views expressed. It should not be considered as investment advice or a recommendation of any kind. All statistics are current as of March 31, 2011, unless otherwise noted, and the HIT disclaims any responsibility to update such statistics.

Investors should consider the HIT’s investment objectives, risks, and charges and expenses carefully before investing. This and other information is contained in the HIT’s prospectus. To obtain a prospectus, call the HIT at (202) 331-8055 or visit the HIT’s website at www.aflcio-hit.com.

AFL-CIO Housing Investment Trust

2401 Pennsylvania Avenue, NW, Suite 200, Washington, DC 20037

Phone (202) 331-8055 Fax (202) 331-8190

www.aflcio-hit.com