UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21206
AEW Real Estate Income Fund
(Exact name of registrant as specified in charter)
399 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip code)
Coleen Downs Dinneen, Esq.
IXIS Asset Management Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
(Name and address of agent for service)
Registrant's telephone number, including area code: (617) 449-2810
Date of fiscal year end: January 31
Date of reporting period: October 31, 2006
ITEM I SCHEDULE OF INVESTMENTS
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of October 31, 2006 (Unaudited)
Shares Description Value (+)(e)
------ ---------------------------------------------------------- ------------
Common Stocks -- 91.7% of Net Assets
Real Estate Investment Trusts -- 91.7%
REITs - Apartments -- 12.1%
40,000 Archstone-Smith Trust...................................... $ 2,408,400
63,000 Camden Property Trust...................................... 5,085,360
55,000 GMH Communities Trust...................................... 768,350
40,000 Mid-America Apartment Communities, Inc..................... 2,546,000
41,500 Municipal Mortgage & Equity LLC............................ 1,150,795
-----------
11,958,905
-----------
REITs - Healthcare -- 16.6%
65,000 Health Care Property Investors, Inc........................ 2,041,000
121,000 Healthcare Realty Trust, Inc............................... 4,900,500
45,000 Nationwide Health Properties, Inc.......................... 1,293,300
110,000 Omega Healthcare Investors, Inc............................ 1,856,800
190,500 Senior Housing Properties Trust............................ 4,368,165
50,000 Ventas, Inc................................................ 1,949,000
-----------
16,408,765
-----------
REITs - Hotels -- 4.5%
105,000 Ashford Hospitality Trust.................................. 1,352,400
63,000 Hospitality Properties Trust............................... 3,052,980
-----------
4,405,380
-----------
REITs - Industrial -- 6.7%
25,000 EastGroup Properties, Inc.................................. 1,330,750
62,400 First Potomac Realty Trust................................. 1,930,656
70,500 Liberty Property Trust..................................... 3,398,100
-----------
6,659,506
-----------
REITs - Office -- 21.8%
85,400 Brandywine Realty Trust, Inc............................... 2,848,944
77,000 Glenborough Realty Trust, Inc.............................. 2,000,460
100,000 Highwoods Properties, Inc.................................. 3,820,000
311,300 HRPT Properties Trust...................................... 3,704,470
43,000 Kilroy Realty Corp......................................... 3,239,190
70,000 Mack-Cali Realty Corp...................................... 3,703,000
45,500 Parkway Properties, Inc.................................... 2,244,970
-----------
21,561,034
-----------
REITs - Regional Malls -- 6.9%
62,000 Glimcher Realty Trust...................................... 1,597,120
35,000 Macerich Co. (The)......................................... 2,812,250
150,000 Primaris Retail (CAD)...................................... 2,459,148
-----------
6,868,518
-----------
REITs - Shopping Centers -- 6.3%
140,000 Cedar Shopping Centers, Inc................................ 2,339,400
46,000 Equity One, Inc............................................ 1,155,520
39,000 Ramco-Gershenson Properties Trust.......................... 1,279,590
40,000 Tanger Factory Outlet Centers, Inc......................... 1,492,000
-----------
6,266,510
-----------
REITs - Storage -- 1.3%
70,000 Extra Space Storage, Inc................................... 1,290,800
-----------
REITs - Triple Net Lease -- 15.5%
23,000 CentraCore Properties Trust................................ 745,200
27,000 Entertainment Properties Trust............................. 1,485,000
90,000 iStar Financial, Inc....................................... 4,169,700
70,000 Lexington Corporate Properties Trust....................... 1,491,000
100,000 National Retail Properties................................. 2,247,000
80,000 Realty Income Corp......................................... 2,112,000
130,000 Spirit Finance Corp........................................ 1,548,300
90,000 Trustreet Properties, Inc.................................. 1,527,300
-----------
15,325,500
-----------
Total Common Stocks
(Identified Cost $54,186,480).............................. 90,744,918
-----------
Preferred Stocks -- 35.4%
Real Estate Investment Trusts -- 35.4%
REITs - Apartments -- 4.6%
50,000 Apartment Investment & Management Co., Series G............ 1,338,500
42,000 Apartment Investment & Management Co., Series U............ 1,069,740
45,000 Apartment Investment & Management Co., Series Y............ 1,154,250
37,500 BRE Properties, Inc., Series C............................. 938,625
-----------
4,501,115
-----------
REITs - Diversified -- 3.9%
54,800 Crescent Real Estate Equities Co., Series B................ 1,414,388
50,000 Vornado Realty Trust, Series G............................. 1,245,000
48,300 Vornado Realty Trust, Series H............................. 1,211,847
-----------
3,871,235
-----------
REITs - Healthcare -- 3.1%
50,000 Health Care Property Investors, Inc., Class F.............. 1,269,000
65,400 Omega Healthcare Investors, Inc., Series D................. 1,739,640
-----------
3,008,640
-----------
REITs - Hotels -- 4.4%
25,000 Felcor Lodging Trust, Inc., Series C....................... 626,250
71,900 Hospitality Properties Trust, Series B..................... 1,892,408
15,000 LaSalle Hotel Properties, Series A......................... 387,450
54,000 Strategic Hotel Capital, Inc., Series B.................... 1,409,400
-----------
4,315,508
-----------
REITs - Industrial -- 4.1%
70,000 Duke Realty Corp., Series M................................ 1,789,200
27,600 PS Business Parks, Inc., Series M.......................... 699,660
60,000 PS Business Parks, Inc., Series O.......................... 1,548,000
-----------
4,036,860
-----------
REITs - Office -- 4.7%
40,000 Corporate Office Properties Trust.......................... 1,044,000
90,400 HRPT Properties Trust, Series B............................ 2,309,720
30,000 LBA Realty Fund LP(a)(d)................................... 1,327,500
-----------
4,681,220
-----------
REITs - Regional Malls -- 3.1%
75,000 Glimcher Realty Trust, Series F............................ 1,920,000
45,000 Taubman Centers, Inc., Series H............................ 1,170,000
-----------
3,090,000
-----------
REITs - Shopping Centers -- 6.7%
27,000 Cedar Shopping Centers, Inc., Series A..................... 722,250
42,200 Developers Diversified Realty Corp., Series F.............. 1,079,898
21,300 Developers Diversified Realty Corp., Series G.............. 552,309
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of October 31, 2006 (Unaudited)
Shares Description Value (+)(e)
------ ------------------------------------------------------- ------------
Real Estate Investment Trusts - continued
REITs - Shopping Centers - continued
13,000 Federal Realty Investment Trust, Series B............... $ 325,520
6,700 Ramco-Gershenson Properties Trust, Series B............. 176,277
35,000 Urstadt Biddle Properties, Inc., Series C............... 3,788,750
------------
6,645,004
------------
REITs - Triple Net Lease -- 0.8%
24,000 National Retail Properties, Inc., Series C(a)........... 608,400
9,000 Realty Income Corp., Series D........................... 233,550
------------
841,950
------------
Total Preferred Stocks
(Identified Cost $34,207,979)........................... 34,991,532
------------
Principal
Amount
---------
Short-Term Investments -- 0.2%
$200,028. Tri-Party Repurchase Agreement with Fixed Income
Clearing Corporation, dated 10/31/2006 at 4.25% to be
repurchased at $200,052 on 11/01/2006, collateralized
by $205,000 U.S. Treasury Note, 4.875% due 10/31/2008
valued at $205,540, including accrued interest(c)..... 200,028
------------
Total Investments -- 127.3%
(Identified Cost $88,594,487)(b)........................ 125,936,478
------------
Auction Rate Preferred Shares plus cumulative unpaid
dividends-(28.3)%(f).................................. (28,003,983)
Other Assets Less Liabilities--1.0%..................... 956,357
------------
Net Assets -- 100%...................................... $ 98,888,852
============
+ Equity securities, including closed - end investment companies, for which
market quotations are readily available are valued at market price on the
basis of valuations furnished to the Fund by a pricing service which has
been authorized by the Board of Trustees. Such pricing services generally
use the security's last sale price on the exchange or market where primarily
traded or, if there is no reported sale during the day, the closing bid
price. Securities traded on the NASDAQ National Market are valued at the
NASDAQ Official Closing Price ("NOCP"), or if lacking an NOCP, at the most
recent bid quotation on the NASDAQ National Market. Debt securities for
which market quotations are readily available (other than short-term
obligations with a remaining maturity of sixty days or less) are generally
valued at market price on the basis of valuations furnished to the Fund by a
pricing service which has been authorized by the Board of Trustees, which
service determines valuations for normal, institutional-size trading units
of such securities using market information, transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders. Broker- dealer bid quotations may also
be used to value debt and equity securities where a pricing service does not
price a security or where a pricing service does not provide a reliable
price for the security. Short-term obligations with a remaining maturity of
sixty days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Fund's investment
adviser using consistently applied procedures under the general supervision
of the Board of Trustees. Investments in other open-end investment companies
are valued at the net asset value each day.
The Fund may hold securities traded in foreign markets. Foreign securities
are valued at the market price in the foreign market. However, if events
occurring after the close of the foreign market (but before the close of
regular trading on the New York Stock Exchange) are believed to materially
affect the value of those securities, such securities are fair valued
pursuant to procedures approved by the Board of Trustees. When fair valuing
securities, the Fund may, among other things, use modeling tools or other
processes that may take into account factors such as securities market
activity and/or significant events that occur after the close of the foreign
market and before the Fund calculates its net asset value.
In September, 2006, Statement of Financial Accounting Standards No. 157,
Fair Value Measurements ("SFAS 157"), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures
about fair value measurements. Management is currently evaluating the
impact, if any, the adoption of SFAS 157 will have on the Funds' financial
statements disclosures.
The books and records of the Fund are maintained in U.S. dollars. The value
of securities, currencies and other assets and liabilities denominated in
currencies other than U.S. dollars are translated into U.S. dollars based
upon foreign exchange rates prevailing at the end of the period.
(a)Non-income producing security.
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of October 31, 2006 (Unaudited)
(b)Federal Tax Information: (Amounts exclude certain adjustments made at the
end of the Fund's fiscal year for tax purposes. Such adjustments are
primarily due to wash sales and return of capital included in dividends
received from the Fund's investments in REITs):
At October 31, 2006, the net unrealized appreciation on investments based on
cost of $88,594,487 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value of
tax cost............................................. $37,588,772
Aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost
over value........................................... (246,781)
-----------
Net unrealized appreciation............................ $37,341,991
===========
(c)The Fund, through its custodian, receives delivery of the underlying
securities collateralizing repurchase agreements. It is the Fund's policy
that the market value of the collateral be at least equal to 102% of the
repurchase price, including interest. The repurchase agreements are
tri-party arrangements whereby the collateral is held at the custodian bank
in a segregated account for the benefit of the Fund and on behalf of the
counterparty. Repurchase agreements could involve certain risks in the event
of default or insolvency of the counterparty including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities.
(d)Illiquid security. At October 31, 2006, the value of this security was
$1,327,500, or 1.3% of net assets.
(e)The Fund concentrates its investments in real estate securities, including
REITs. A fund with a concentrated portfolio is vulnerable to the risks of
the industry in which it invests and is subject to greater risks and market
fluctuations than funds investing in a broader range of industries. Real
estate securities are susceptible to the risks associated with direct
ownership of real estate such as declining property values, increases in
property taxes, operating expenses, interest rates or competition, zoning
changes and losses from casualty and condemnation.
(f)On February 10, 2003, the Fund issued 1,120 shares of Series M AMPS with
proceeds of $28,000,000 in a public offering. Underwriting commissions and
offering costs of $601,187 ($0.16 per common share) were incurred in
connection with the offering and were charged directly to paid-in-capital of
the common shares. Dividends on the AMPS are cumulative at a rate which was
established at the offering of the AMPS and has been reset every seven days
thereafter by an auction. The Fund pays annual fees equivalent to 0.25% of
the preferred shares' liquidation value for the remarketing efforts
associated with the preferred auctions.
The AMPS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends, on any
dividend payment date. The AMPS may also be subject to mandatory redemption
at a redemption price equal to $25,000 per share, plus accumulated and
unpaid dividends, if the Fund defaults on its asset maintenance requirements
with respect to the AMPS as defined in the Fund's By-Laws and fails to cure
such a default within the time permitted. If the dividends on the AMPS shall
remain unpaid in an amount equal to two full years' dividends, the holders
of the AMPS as a class have the right to elect a majority of the Board of
Trustees. In general, the holders of the AMPS and the common shares have
equal voting rights of one vote per share, except that the holders of the
AMPS, as a separate class, have the right to elect at least two members of
the Board of Trustees and to vote under certain other circumstances
specified in the Fund's By-Laws. The AMPS have a liquidation preference of
$25,000 per share.
AMPS Auction Market Preferred Shares
CAD Canadian Dollar
REITs Real Estate Investment Trusts
Holdings at October 31, 2006 as a Percentage of Net Assets
Office................................................. 26.5%
Healthcare............................................. 19.7
Apartments............................................. 16.7
Triple Net Lease....................................... 16.3
Shopping Centers....................................... 13.0
Industrial............................................. 10.8
Regional Malls......................................... 10.0
Hotels................................................. 8.9
Diversified............................................ 3.9
Storage................................................ 1.3
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of October 31, 2006 (Unaudited)
Swap Agreements. The Fund may enter into swap agreements to manage its exposure
to the financial markets. A swap is an agreement to exchange the return
generated by one instrument for the return generated by another instrument. The
Fund may enter into interest rate, total return and forward swap spread lock
swap agreements to manage its exposure to interest rates. Interest rate swap
agreements involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal.
Swaps are marked to market daily based upon quotations from market makers and
the change in value, if any, is recorded as unrealized gain or loss. Payments
received or made at the end of the measurement period are recorded as realized
gain or loss.
These financial instruments are not actively traded on financial markets. The
values assigned to these instruments are based upon the best available
information and because of the uncertainty of the valuation, these values may
differ significantly from the values that would have been realized had a ready
market for these instruments existed, and the differences could be material.
Entering into these agreements involves, to varying degrees, elements of
credit, legal, market and documentation risk in excess of the amounts
recognized on the Statement of Assets and Liabilities. Such risks involve the
possibility that there will be no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform or
disagree as to the meaning of contractual terms in the agreements, or that
there may be unfavorable changes in interest rates. A summary of the open swap
agreements as of October 31, 2006 is as follows:
Notional Expiration Unrealized
Amount Date Description Appreciation
-------- ---------- --------------------------------------- ------------
Interest Rate Swaps
$14,000,000 3/3/2008 Agreement with Bank of America dated
2/28/2003 to pay the notional amount
multiplied by 3.104% and to receive
the notional amount multiplied by the
1 week Floating Rate London Interbank
Offer Rate ("LIBOR") adjusted by a
specific spread....................... $358,316
$ 8,400,000 3/1/2010 Agreement with Bank of America dated
2/28/2003 to pay the notional amount
multiplied by 3.622% and to receive
the notional amount multiplied by the
1 week Floating Rate LIBOR adjusted
by a specific spread.................. 326,946
--------
$685,262
========
ITEM 2. CONTROLS AND PROCEDURES.
The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the
registrant in this Form N-Q was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 3. EXHIBITS
(a)(1) Certification for the principal executive officer as required by Rule
30a-2(a) of the Investment Company Act of 1940, as amended (the
"Act") filed herewith.
(a)(2) Certification for the principal financial officer as required by Rule
30a-2(a) of the Act filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AEW Real Estate Income Fund
By: /s/ John T. Hailer
------------------------------
Name: John T. Hailer
Title: President and Chief Executive
Officer
Date: December 22, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ John T. Hailer
------------------------------
Name: John T. Hailer
Title: President and Chief Executive
Officer
Date: December 22, 2006
By: /s/ Michael C. Kardok
------------------------------
Name: Michael C. Kardok
Title: Treasurer
Date: December 22, 2006