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
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(Exact name of registrant as specified in charter)
399 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Coleen Downs Dinneen, Esq.
IXIS Asset Management Distributors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
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(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: April 30, 2006
ITEM I SCHEDULE OF INVESTMENTS
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AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS
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Investments as of April 30, 2006 (Unaudited)
Shares Description Value (+)(b)(d)
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Common Stocks -- 91.9% of Net Assets
Real Estate Investment Trusts -- 91.9%
REITs - Apartments -- 12.3%
44,000 Archstone-Smith Trust $ 2,150,720
68,000 Camden Property Trust 4,673,640
55,000 GMH Communities Trust 676,500
40,000 Mid-America Apartment
Communities, Inc. 2,120,000
41,500 Municipal Mortgage & Equity LLC 1,125,065
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10,745,925
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REITs - Healthcare -- 15.2%
65,000 Health Care Property Investors, Inc. 1,782,300
121,000 Healthcare Realty Trust, Inc. 4,582,270
25,000 Nationwide Health Properties, Inc. 538,000
110,000 Omega Healthcare Investors, Inc. 1,406,900
190,500 Senior Housing Properties Trust 3,270,885
50,000 Ventas, Inc. 1,633,500
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13,213,855
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REITs - Hotels -- 3.1%
63,000 Hospitality Properties Trust 2,715,300
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REITs - Industrial -- 6.9%
25,000 EastGroup Properties, Inc. 1,116,750
62,400 First Potomac Realty Trust 1,721,616
70,500 Liberty Property Trust 3,151,350
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5,989,716
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REITs - Office -- 21.5%
87,700 Brandywine Realty Trust, Inc. 2,482,787
77,000 Glenborough Realty Trust, Inc. 1,613,150
100,000 Highwoods Properties, Inc. 3,154,000
311,300 HRPT Properties Trust 3,418,074
43,000 Kilroy Realty Corp. 3,066,760
70,000 Mack-Cali Realty Corp. 3,165,400
45,500 Parkway Properties, Inc. 1,801,800
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18,701,971
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REITs - Regional Malls -- 7.5%
62,000 Glimcher Realty Trust 1,599,600
35,000 Macerich Co. (The) 2,562,700
150,000 Primaris Retail, 144A 2,334,422
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6,496,722
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REITs - Storage -- 0.8%
44,200 Extra Space Storage, Inc. 694,824
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REITs - Shopping Centers -- 10.1%
140,000 Cedar Shopping Centers, Inc. 2,065,000
30,000 Equity One, Inc. 689,400
94,000 Heritage Property Investment Trust 3,630,280
39,000 Ramco-Gershenson Properties Trust 1,054,170
40,000 Tanger Factory Outlet Centers, Inc. 1,311,200
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8,750,050
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REITs - Triple Net Lease -- 14.5%
30,600 CentraCore Properties Trust 734,400
27,000 Entertainment Properties Trust 1,103,490
90,000 iStar Financial, Inc. 3,443,400
70,000 Lexington Corporate Properties Trust 1,509,200
100,000 National Retail Properties, Inc. 2,105,000
57,000 Realty Income Corp. 1,292,190
96,900 Spirit Finance Corp. 1,124,040
Shares Description Value (+)(b)(d)
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REITs - Triple Net Lease - continued
90,000 Trustreet Properties, Inc. $ 1,296,000
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12,607,720
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Total Common Stocks
(Identified Cost $53,489,692) 79,916,083
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Preferred Stocks -- 38.6%
Real Estate Investment Trusts -- 38.6%
REITs - Apartments -- 4.9%
50,000 Apartment Investment & Management
Co., Series G 1,307,500
29,400 Apartment Investment & Management
Co., Series R 749,700
42,000 Apartment Investment & Management
Co., Series U 1,047,060
45,000 Apartment Investment & Management
Co., Series Y 1,125,000
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4,229,260
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REITs - Diversified -- 2.8%
54,800 Crescent Real Estate Equities Co.,
Series B 1,391,920
43,700 Vornado Realty Trust, Series H 1,022,580
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2,414,500
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REITs - Factory Outlets -- 1.7%
35,500 Mills Corp. (The), Series B 852,000
25,000 Mills Corp. (The), Series E 600,000
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1,452,000
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REITs - Healthcare -- 3.4%
50,000 Health Care Property Investors,
Inc., Class F 1,247,500
65,400 Omega Healthcare Investors, Inc.,
Series D 1,680,780
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2,928,280
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REITs - Hotels -- 6.3%
75,000 Boykin Lodging Co., Series A 1,920,750
25,000 Felcor Lodging Trust, Inc.,
Series C 613,000
71,900 Hospitality Properties Trust,
Series B 1,862,929
15,000 LaSalle Hotel Properties,
Series A 384,300
30,000 Strategic Hotel Capital, Inc.,
Series B 745,500
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5,526,479
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REITs - Industrial -- 2.0%
70,000 Duke Realty Corp., Series M 1,716,400
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REITs - Office -- 7.2%
30,000 Bedford Property Investors, Inc.,
Series A, 144A 1,458,750
100,000 CarrAmerica Realty Corp.,
Series E 2,530,000
90,400 HRPT Properties Trust, Series B 2,311,528
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6,300,278
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REITs - Regional Malls -- 3.5%
75,000 Glimcher Realty Trust, Series F 1,905,000
45,000 Taubman Centers, Inc., Series H 1,125,000
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3,030,000
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REITs - Shopping Centers -- 6.5%
27,000 Cedar Shopping Centers, Inc.,
Series A 716,850
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AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
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Investments as of April 30, 2006 (Unaudited)
Shares Description Value (+)(b)(d)
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REITs - Shopping Centers - continued
42,200 Developers Diversified Realty Corp.,
Series F $ 1,081,164
21,300 Developers Diversified Realty Corp.,
Series G 545,280
13,000 Federal Realty Investment Trust,
Series B 329,420
6,700 Ramco-Gershenson Properties Trust,
Series B 171,252
27,000 Urstadt Biddle Properties, Inc.,
Series C 2,848,500
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5,692,466
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REITs - Triple Net Lease -- 0.3%
9,000 Realty Income Corp., Series D 225,000
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Total Preferred Stocks
(Identified Cost $33,408,172) 33,514,663
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Principal
Amount
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Short-Term Investment -- 0.8%
$ 719,876 Tri-Party Repurchase Agreement
with Fixed Income Clearing
Corporation, dated 4/28/2006 at
2.95% to be repurchased at
$720,053 on 5/1/2006,
collateralized by $565,000 U.S.
Treasury Bond, 8.125% due
8/15/2021 valued at $748,826,
including accrued interest(c)
(Identified Cost $719,876) 719,876
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Total Investments -- 131.3%
(Identified Cost $87,617,740)(a) 114,150,622
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Auction Rate Preferred Shares
plus cumulative unpaid dividends
-- (32.2)%(e) (28,021,466)
Other Assets Less Liabilities -- 0.9% 818,942
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Net Assets -- 100% $ 86,948,098
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(+) Equity securities 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. The
pricing service provides the last reported sale price for securities listed
on an applicable securities exchange or, if no sale was reported and in the
case of over-the-counter securities not so listed, the last reported 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 less than sixty days) are
generally valued at market price on the basis of valuations furnished by a
pricing service 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. Short-term obligations with a remaining maturity
of less than sixty days are stated at amortized cost, which approximates
market value. Securities traded on a foreign exchange will be valued at
their market price on the non-U.S. exchange. The value of other securities
principally traded outside the United States will be computed as of the
completion of substantial trading for the day on the markets on which such
securities principally trade. Occasionally, events affecting the value of
securities principally traded outside the United States may occur between
the completion of substantial trading of such securities for the day and
the close of the Exchange, which events would not be reflected in the
computation of the Fund's net asset value. If, in the determination of the
Board of Trustees or persons acting at their direction, events materially
affecting the value of the Fund's securities occur during such period, then
these securities may be fair valued at the time the Fund determines its net
asset value by or pursuant to procedures approved by the Board of Trustees.
When fair valuing its 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 local market and before the time the Fund's net asset
value is calculated. All other securities and assets are valued at their
fair value as determined in good faith by the Fund's investment advisor,
pursuant to the procedures approved by the Board of Trustees. Security
transactions are accounted for on trade date.
(a) 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 April 30, 2006, the net unrealized appreciation on investments based on
cost of $87,617,740 for federal income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there is an excess of value
over tax cost. $ 27,345,712
Aggregate gross unrealized depreciation for
all investments in which there is an excess of
tax cost over value. (812,830)
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Net unrealized appreciation $ 26,532,882
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(b) 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.
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AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
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Investments as of April 30, 2006 (Unaudited)
(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 Fund's investment adviser is
responsible for determining that the value of the collateral is at all
times 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 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) 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, increase in
property taxes, operating expenses, interest rates or competition, zoning
changes and losses from casualty and condemnation
(e) 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.
REITs Real Estate Investments Trusts
144A Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,793,172 or 4.4% of net
assets.
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AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
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Investments as of April 30, 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 April 30, 2006 is as follows:
Expiration Unrealized
Notional Amount Date Description Appreciation
--------------- ---- ----------- ------------
Interest Rate Swaps
$14,000,000 3/3/2008 Agreement with Bank of America dated 507,343
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 LIBOR adjusted by a specific
spread.
$ 8,400,000 3/1/2010 Agreement with Bank of America dated 461,616
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.
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$968,959
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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
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Name: John T. Hailer
Title: President and Chief Executive Officer
Date: June 19, 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.
AEW Real Estate Income Fund
By: /s/ John T. Hailer
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Name: John T. Hailer
Title: President and Chief Executive Officer
Date: June 19, 2006
By: /s/ Michael C. Kardok
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Name: Michael C. Kardok
Title: Treasurer
Date: June 19, 2006