UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21206
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 Advisors, 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: January 31, 2007
ITEM 1. REPORT TO STOCKHOLDERS.
The Registrant's annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
[LOGO] AEW
AEW Real Estate Income Fund
Annual Report
January 31, 2007
AEW Management and Advisors, L.P.
TABLE OF CONTENTS
Management Discussion
and Performance.........Page 1
Portfolio of InvestmentsPage 5
Financial Statements....Page 7
AEW REAL ESTATE INCOME FUND
PORTFOLIO PROFILE
Objective:
High current income is a primary objective; capital appreciation is a secondary
objective
--------------------------------------------------------------------------------
Strategy:
Invests primarily in income-producing securities issued by real estate
companies, including REITs
--------------------------------------------------------------------------------
Inception Date:
November 26, 2002
--------------------------------------------------------------------------------
Portfolio Manager:
Matthew A. Troxell, CFA
AEW Management and Advisors, L.P.
--------------------------------------------------------------------------------
Common shares American Stock Exchange Symbol:
RIF
--------------------------------------------------------------------------------
CUSIP Numbers
Common shares:
00104H107
Preferred shares:
00104H206
--------------------------------------------------------------------------------
January 31, 2007 Market Value Per Common Share:
$22.80
Net Asset Value Per Common Share:
$25.83
Management Discussion
--------------------------------------------------------------------------------
SPECIAL NOTICE
On March 12, 2007, the Fund's Board of Trustees approved the liquidation and
termination of the Fund. After considering the small asset size of the Fund and
the lack of prospects for significant growth in assets, despite a strong market
for REITs and AEW's solid performance, the Board of Trustees assessed a range
of options and concluded that it would be in the best interests of the Fund and
its shareholders to liquidate and terminate the Fund. It is expected that the
sale of the Fund's assets and the corresponding liquidating distributions will
be completed within 60 days of the date of approval.
The following is a discussion of the factors that materially affected the
Fund's performance during the fiscal year ending January 31, 2007. Because the
Fund is being liquidated, the discussion does not include forward looking
comments.
MARKET CONTEXT: REITs OUTPERFORMED STOCKS AND BONDS
Strong underlying property fundamentals, steady economic growth and a continued
investor appetite for real estate investments combined to create another
stellar year for the public real estate securities market. Real estate
investment trusts (REITs) as measured by the MSCI US REIT Index returned 37.23%
for the 12 months ended January 31, 2007, an even stronger performance than the
previous fiscal year. REITs also came in well ahead of two major stock market
indexes and two bond indexes for the fund's fiscal year ended January 31, 2007.
The Dow Jones Industrial Average and Standard & Poor's 500 Index returned
18.93% and 14.51%, respectively, while the Lehman Aggregate Bond Index (a
broad-based index of U.S. government and corporate bonds) returned 4.28% and
the Lehman U.S. Treasury Index (composed of Treasury bonds maturing in one year
or more) returned 3.22%.
FUND PROVIDED BOTH INCOME AND CAPITAL APPRECIATION
Both AEW Real Estate Income Fund's common and preferred shares posted positive
total returns and solid current yields during the fiscal year ended January 31,
2007, allowing the fund to meet its primary objective of current income.
Reflecting the robust returns in the REIT market, the fund's common shares once
again outperformed preferred shares.
The fund's total return based on the market value of common shares was 34.94%,
assuming reinvestment of $1.02 in dividends and $1.93 in capital gains during
the fiscal year. These results also reflect the change in the market value of
fund shares, which rose to $22.80 at the end of January 2007, from $19.35 at
the end of January 2006. The increase in the market price of fund shares
reflects investor demand and is not directly linked to changes in the fund's
net asset value. For the fiscal year, the fund's total return based on net
asset value was 31.07% with all distributions reinvested; the net asset value
of shares rose to $25.83 at January 31, 2007, from $22.55 one year ago.
SECTOR ALLOCATION AND SECURITY SELECTION WERE POSITIVE
Healthcare REITs performed well as concerns over increased government
regulations proved to be largely unfounded. One holding in particular that
enhanced the fund's results was Health Care Property Investors, which rose in
value to reflect the company's improving fundamentals. The fund's holdings in
office REIT Highwoods Properties moved sharply higher due to
better-than-expected leasing performance and its growing development pipeline.
Entertainment Properties Trust, which owns entertainment-related properties,
including multiplex movie theatre complexes, was another top performer thanks
to improving box office receipts and lower risk expectations.
1
AEW REAL ESTATE INCOME FUND
Management Discussion
--------------------------------------------------------------------------------
Detractors included the fund's relatively small position in apartment company
GMH Communities Trust, which weakened following a delay in the company's SEC
filings and the fact that it missed projected earnings targets. A preferred
equity holding that hurt performance was The Mills Corp., an owner of regional
malls in the U.S. The company's auditors announced that it would need to
restate its earnings for the last five years. We subsequently sold both of
these holdings.
The fund's use of interest rate swap agreements had a modest positive
contribution to the fund's net asset value during the year, while its leverage
was a slight negative.
PORTFOLIO CHANGES REFLECTED PURSUIT OF INCOME AND MERGERS AND ACQUISITIONS
Marginal changes to the portfolio's composition during the period were designed
to meet the fund's primary investment objective of generating current income.
We initiated small positions in healthcare REIT Nationwide Health Properties,
storage company Extra Space Storage, and hotel company Ashford Hospitality
Trust, all of which we believe represent good relative values at our entry
point. A few positions were eliminated as a result of mergers and acquisitions
that occurred, including shopping center company Heritage Property Investment
and office company CarrAmerica Realty.
As of January 31, 2007, the fund's common and preferred stocks amounted to
70.3% and 29.4% of total investments, respectively. The ten largest holdings
amounted to 32.7% of the fund's total investments, and no single holding
represented more than 4.1%.
2
AEW REAL ESTATE INCOME FUND
Investment Results through January 31, 2007
--------------------------------------------------------------------------------
PERFORMANCE IN PERSPECTIVE
The chart comparing the fund's performance to a REIT index provides a general
sense of how the fund performed for the periods shown. It may be helpful to
understand the differences between the two. The fund's total returns for the
periods shown below include fund expenses, such as management fees/1/. An index
measures the performance of a theoretical portfolio. Unlike a fund, the index
is unmanaged and does not have expenses that affect investment results. It is
not possible to invest directly in an index. Few investors could purchase all
of the securities necessary to match the index and would incur transaction
costs and other expenses even if they could. AEW Real Estate Income Fund is a
leveraged fund that invests in common and preferred shares of REITs, which
makes a REIT index composed of purely common shares less than a direct
comparison.
Average Annual Total Returns -- January 31, 2007
SINCE
INCEPTION/1/
1 YEAR/1/ (11/26/02)
Total return on market value 34.94% 22.65%
Total return on net asset value 31.07 27.86
------------------------------------------------------
COMPARATIVE PERFORMANCE
MSCI US REIT Index/2/ 37.23 30.21/3/
All returns represent past performance and do not guarantee future results.
Periods of less than one year are not annualized. Share price and return will
vary and you may have a gain or loss when you sell your shares. Current returns
may be higher or lower than those shown. All results include reinvestment of
dividends and capital gains, including that portion of distributions designated
as a return of capital, if any.
The table represents past performance of the fund's common shares and does not
reflect taxes shareholders might owe on any fund distributions or when they
sell their shares.
Total return on market value reflects, for the periods indicated, changes in
the fund's market price on the American Stock Exchange and the receipt and
reinvestment of all distributions. An investor may only purchase or sell shares
of the fund based upon its market price. In general, the market price of the
fund is determined by supply and demand. An investor's actual return will vary
depending on the market price of shares on the date of purchase and/or sale.
Total return on the net asset value reflects, for the periods indicated,
changes in the fund's net asset value per share, and the receipt and
reinvestment of all distributions.
PORTFOLIO FACTS
% of Investments as of
FUND COMPOSITION 1/31/07 1/31/06
-------------------------------------------------------
Common Stocks 70.3 70.2
-------------------------------------------------------
Preferred Stocks 29.4 29.6
-------------------------------------------------------
Short-Term Investments 0.3 0.2
-------------------------------------------------------
% of Investments as of
TEN LARGEST HOLDINGS 1/31/07 1/31/06
-------------------------------------------------------
Healthcare Realty Trust, Inc. 4.1 3.7
-------------------------------------------------------
Senior Housing Properties Trust 3.9 3.0
-------------------------------------------------------
Camden Property Trust 3.7 3.9
-------------------------------------------------------
iStar Financial, Inc. 3.6 2.9
-------------------------------------------------------
HRPT Properties Trust 3.2 3.0
-------------------------------------------------------
Urstadt Biddle Properties, Inc.,
Series C 3.0 2.5
-------------------------------------------------------
Kilroy Realty Corp. 3.0 2.6
-------------------------------------------------------
Liberty Property Trust 2.9 2.7
-------------------------------------------------------
Highwoods Properties, Inc. 2.8 2.8
-------------------------------------------------------
Macerich Co. (The) 2.6 2.2
-------------------------------------------------------
% of Investments as of
FIVE LARGEST INDUSTRIES 1/31/07 1/31/06
-------------------------------------------------------
REITs - Office 19.2 23.8
-------------------------------------------------------
REITs - Healthcare 17.1 13.2
-------------------------------------------------------
REITs - Triple Net Lease 13.2 11.3
-------------------------------------------------------
REITs - Apartments 11.2 12.1
-------------------------------------------------------
REITs - Shopping Centers 9.5 11.4
-------------------------------------------------------
Portfolio holdings and asset allocations will vary.
NOTES TO CHART
/1/Fund performance has been increased by expense waivers, without which
performance would have been lower.
/2/The MSCI US REIT Index is an unmanaged index of the most actively traded
real estate investment trusts (REITs), designed to measure real estate
equity performance. It is not possible to invest directly in the index.
/3/The since-inception index comparative performance shown is calculated from
12/1/02.
3
ADDITIONAL INFORMATION
SPECIAL NOTICE
On March 12, 2007, the Board of Trustees approved the liquidation and
termination of the Fund. It is expected that the sale of the Fund's assets and
the corresponding liquidating distributions to the common and preferred
shareholders will be completed within 60 days of the date of approval and
before the Fund would have held its next annual meeting of shareholders.
Included below is additional information required to be included in a
shareholder report, including instructions for how to obtain information about
the Fund's proxy voting policies and record as well as the Fund's quarterly
portfolio schedules filed on Form N-Q.
NOTICE OF PRIVACY POLICIES AND PRACTICES
We/1/ consider shareholder relationships to be the hallmark of our business and
are dedicated to protecting the confidentiality of any nonpublic personal
information provided by our customers/2/. We understand the trust that our
customers place in us and are committed to earning that trust well into the
future.
TYPES OF INFORMATION GATHERED
We collect personal information on applications, forms, documents, transaction
histories and correspondence (electronic, written and telephonic) with
customers. Through our Web sites we gather information about visitors and their
needs submitted through answers to surveys, data input to calculators and
information entered onto forms. This information includes but is not limited to
name, postal address, e-mail address and social security number. Much of the
data collected is statistical in nature and is not generally attributable to
any specific customers.
HOW WE USE THE INFORMATION
We use the information gathered to service your account and to provide you with
additional information about products and services. We do not disclose any
nonpublic information about current or former customers to any unaffiliated
third party except as permitted by law, or at the specific request of the
customer. The information we collect, as described above, may be shared with
our corporate affiliates in the financial services industry in order to enhance
and improve customer communications, services, and products designed to meet
our customers' needs. We may disclose some or all of the above information to
affiliated and unaffiliated companies that perform marketing and other services
(such as preparing and mailing prospectuses, reports and account statements,
conducting research on client satisfaction, and gathering votes for shareholder
proxies) on our or the funds' behalf or to other financial institutions with
whom we have joint marketing agreements. These parties that are not affiliated
with us have agreed not to use this information for any other purpose.
POLICIES AND PRACTICES TO PROTECT CONFIDENTIAL INFORMATION
Only those employees that have a business need for personally identifiable data
about our customers are given access to that information. We maintain physical,
electronic and procedural safeguards that comply with federal standards to
protect your nonpublic personal information. For example, we take precautions
to help keep our information systems secure, including the use of firewalls for
our internet-based systems. We also use, when appropriate, encryption
technologies, user authentication systems and access control mechanisms.
PROXY VOTING INFORMATION
A description of the fund's proxy voting policies and procedures is available
without charge, upon request, by calling IXIS Advisor Funds at 1-800-862-4863;
on the fund's website at www.ixisag.com/aew_rif and on the Securities and
Exchange's (SEC) website at www.sec.gov. Information describing how the fund
voted proxies relating to portfolio securities during the 12-month period ended
June 30, 2006 is available from the fund's website and the SEC's website.
QUARTERLY PORTFOLIO SCHEDULE
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Forms N-Q
are available on the SEC's website and may be reviewed and copied at the SEC's
Public Reference Room in Washington, DC. Information on the operations of the
Public Reference Room may be obtained by calling 1-800-SEC-0330.
/1/For purposes of this notice the term "We" includes AEW Real Estate Income
Fund and IXIS Asset Management Advisors, L.P.
/2/For purposes of this notice, the terms customer or customers include both
shareholders of AEW Real Estate Income Fund and individuals who provide
nonpublic personal information, but do not invest in the fund.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
4
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS
Investments as of January 31, 2007
Shares Description Value (+)
------------------------------------------------------------------------------
Common Stocks -- 89.6% of Net Assets
Real Estate Investment Trusts -- 89.6%
REITs - Apartments -- 9.7%
29,000 Archstone-Smith Trust $ 1,833,090
59,000 Camden Property Trust 4,625,600
30,000 Mid-America Apartment Communities, Inc. 1,803,600
41,500 Municipal Mortgage & Equity LLC 1,310,570
---------------
9,572,860
---------------
REITs - Healthcare -- 18.7%
65,000 Health Care Property Investors, Inc. 2,681,250
121,000 Healthcare Realty Trust, Inc. 5,127,980
45,000 Nationwide Health Properties, Inc. 1,499,400
110,000 Omega Healthcare Investors, Inc. 1,994,300
190,500 Senior Housing Properties Trust 4,956,810
50,000 Ventas, Inc. 2,312,500
---------------
18,572,240
---------------
REITs - Hotels -- 4.7%
130,000 Ashford Hospitality Trust 1,600,300
63,000 Hospitality Properties Trust 3,074,400
---------------
4,674,700
---------------
REITs - Industrial -- 6.3%
13,500 EastGroup Properties, Inc. 738,990
62,400 First Potomac Realty Trust 1,873,872
70,500 Liberty Property Trust 3,647,670
---------------
6,260,532
---------------
REITs - Office -- 19.7%
85,400 Brandywine Realty Trust, Inc. 2,977,044
80,000 Highwoods Properties, Inc. 3,496,000
311,300 HRPT Properties Trust 4,053,126
43,000 Kilroy Realty Corp. 3,734,120
50,000 Mack-Cali Realty Corp. 2,782,000
45,500 Parkway Properties, Inc. 2,495,675
---------------
19,537,965
---------------
REITs - Regional Malls -- 7.7%
62,000 Glimcher Realty Trust 1,752,120
35,000 Macerich Co. (The) 3,343,550
150,000 Primaris Retail (CAD) 2,500,850
---------------
7,596,520
---------------
REITs - Shopping Centers -- 6.8%
140,000 Cedar Shopping Centers, Inc. 2,345,000
46,000 Equity One, Inc. 1,276,040
39,000 Ramco-Gershenson Properties Trust 1,460,940
40,000 Tanger Factory Outlet Centers, Inc. 1,624,000
---------------
6,705,980
---------------
REITs - Storage -- 1.4%
70,200 Extra Space Storage, Inc. 1,385,748
---------------
REITs - Triple Net Lease -- 14.6%
27,000 Entertainment Properties Trust 1,751,220
90,000 iStar Financial, Inc. 4,513,500
70,000 Lexington Corporate Properties Trust 1,489,600
100,000 National Retail Properties 2,375,000
80,000 Realty Income Corp. 2,302,400
160,000 Spirit Finance Corp. 2,003,200
---------------
14,434,920
---------------
Total Common Stocks (Identified Cost $48,742,504) 88,741,465
---------------
Shares Description Value (+)
---------------------------------------------------------------------------------
Preferred Stocks -- 37.4%
Real Estate Investment Trusts -- 37.4%
REITs - Apartments -- 4.5%
50,000 Apartment Investment & Management Co., Series G $ 1,317,500
42,000 Apartment Investment & Management Co., Series U 1,076,040
45,000 Apartment Investment & Management Co., Series Y 1,173,150
37,500 BRE Properties, Inc., Series C 933,750
---------------
4,500,440
---------------
REITs - Diversified -- 5.2%
53,000 BioMed Realty Trust, Inc., Series A 1,321,820
54,800 Crescent Real Estate Equities Co., Series B 1,391,920
50,000 Vornado Realty Trust, Series G 1,241,000
48,300 Vornado Realty Trust, Series H 1,217,160
---------------
5,171,900
---------------
REITs - Healthcare -- 3.0%
50,000 Health Care Property Investors, Inc., Class F 1,277,000
65,400 Omega Healthcare Investors, Inc., Series D 1,674,894
---------------
2,951,894
---------------
REITs - Hotels -- 5.1%
25,000 Felcor Lodging Trust, Inc., Series C 633,500
71,900 Hospitality Properties Trust, Series B 1,858,615
15,000 LaSalle Hotel Properties, Series A 378,300
32,000 LaSalle Hotel Properties, Series G 800,000
54,000 Strategic Hotel Capital, Inc., Series B 1,393,200
---------------
5,063,615
---------------
REITs - Industrial -- 4.1%
70,000 Duke Realty Corp., Series M 1,807,400
27,600 PS Business Parks, Inc., Series M 699,660
60,000 PS Business Parks, Inc., Series O 1,548,000
---------------
4,055,060
---------------
REITs - Office -- 4.8%
40,000 Corporate Office Properties Trust 1,020,000
90,400 HRPT Properties Trust, Series B 2,296,160
30,000 LBA Realty Fund II -- WBP Inc., Series A(b) 1,410,000
---------------
4,726,160
---------------
REITs - Regional Malls -- 3.2%
75,000 Glimcher Realty Trust, Series F 1,961,250
45,000 Taubman Centers, Inc., Series H 1,154,250
---------------
3,115,500
---------------
REITs - Shopping Centers -- 5.3%
27,000 Cedar Shopping Centers, Inc., Series A 720,900
21,300 Developers Diversified Realty Corp., Series G 547,410
6,700 Ramco-Gershenson Properties Trust, Series B 176,545
35,000 Urstadt Biddle Properties, Inc., Series C 3,780,000
---------------
5,224,855
---------------
REITs - Triple Net Lease -- 2.2%
24,000 National Retail Properties, Inc., Series C 612,239
9,000 Realty Income Corp., Series D 232,830
55,000 Realty Income Corp., Series E 1,375,000
---------------
2,220,069
---------------
Total Preferred Stocks (Identified Cost $36,010,383) 37,029,493
---------------
See accompanying notes to financial statements.
5
AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued)
Investments as of January 31, 2007
Principal
Amount Description Value (+)
-------------------------------------------------------------------------------------------------
Short-Term Investments -- 0.4%
$ 378,551 Tri-Party Repurchase Agreement with Fixed Income Clearing
Corporation, dated 1/31/2007 at 4.25% to be repurchased at
$378,595 on 2/1/2007, collateralized by $330,000 U.S.
Treasury Bond, 6.125% due 8/15/2029 valued at $386,562,
including accrued interest (Identified Cost $378,551) $ 378,551
---------------
Total Investments -- 127.4% (Identified Cost $85,131,438) (a) 126,149,509
---------------
Auction Market Preferred Shares plus
cumulative unpaid dividends -- (28.3)% (28,007,779)
Other Assets Less Liabilities-- 0.9% 865,093
---------------
Net Assets -- 100% $ 99,006,823
===============
(+) See Note 2a of Notes to Financial Statements.
(a) Federal Tax Information :
At January 31, 2007, the net unrealized appreciation on
investments based on cost of $85,174,652 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 $ 41,128,262
Aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value (153,405)
---------------
Net unrealized appreciation $ 40,974,857
===============
(b) Illiquid security. At January 31, 2007, the value of this security
was $1,410,000, or 1.4% of net assets.
CAD Canadian Dollar
REITs Real Estate Investment Trusts
Holdings at January 31, 2007 as a Percentage of Net Assets (Unaudited)
Office 24.5%
Healthcare 21.7
Triple Net Lease 16.8
Apartments 14.2
Shopping Centers 12.1
Regional Malls 10.9
Industrial 10.4
Hotels 9.8
Diversified 5.2
Storage 1.4
See accompanying notes to financial statements.
6
STATEMENT OF ASSETS & LIABILITIES
January 31, 2007
ASSETS
Investments at cost $ 85,131,438
Net unrealized appreciation 41,018,071
------------
Investments at value 126,149,509
Cash 74,375
Dividends and interest receivable 360,165
Unrealized appreciation on open swap
agreements (Note 8) 673,245
Receivable for open swap agreements 37,461
------------
TOTAL ASSETS 127,294,755
------------
LIABILITIES
Payable for securities purchased 123,000
Management fees payable (Note 5) 47,285
Administrative fees payable (Note 5) 6,250
Other accounts payable and accrued
expenses 103,618
------------
TOTAL LIABILITIES 280,153
------------
Auction Market Preferred Shares (1,120
shares outstanding) at liquidation
value plus cumulative unpaid
dividends 28,007,779
------------
NET ASSETS $ 99,006,823
============
NET ASSETS CONSIST OF:
Common Shares, $0.00001 par value;
unlimited number of shares
authorized, 3,833,390 shares issued
and outstanding $ 38
Additional paid-in capital 54,000,310
Accumulated net realized gain on
investments, foreign currency
transactions and swap agreements 3,315,128
Net unrealized appreciation on
investments, foreign currency
translations and swap agreements 41,691,347
------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 99,006,823
============
COMPUTATION OF NET ASSET VALUE PER
COMMON SHARE:
Net assets $ 99,006,823
============
Common shares issued and outstanding 3,833,390
============
Net asset value per share
($99,006,823/3,833,390 shares of
beneficial interest) $ 25.83
============
Market Value (closing price on
American Stock Exchange) $ 22.80
============
See accompanying notes to financial statements.
7
STATEMENT OF OPERATIONS
For the Year Ended January 31, 2007
INVESTMENT INCOME
Dividends $ 4,903,351
Interest 27,418
Less net foreign taxes withheld (22,707)
-----------
4,908,062
-----------
Expenses
Management fees (Note 5) 954,436
Trustees' fees and expenses (Note 5) 58,104
Administrative fees (Note 5) 150,000
Custodian fees and expenses 17,466
Transfer agent fees 16,133
Audit fees 49,889
Legal fees 5,808
Shareholder reporting expenses 44,200
Preferred stock auction fees 70,971
Rating agency fees 14,450
American Stock Exchange fees 15,205
Miscellaneous expenses 20,612
-----------
Total expenses 1,417,274
Less waivers (Note 5) (492,565)
-----------
Net expenses 924,709
-----------
Net investment income 3,983,353
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS, FOREIGN CURRENCY
TRANSACTIONS AND SWAP AGREEMENTS
Realized gain (loss) on:
Investments - net 5,964,806
Capital gain distributions received
(Note 2) 1,568,213
Swap agreements - net 418,294
Foreign currency transactions - net (591)
Change in unrealized appreciation
(depreciation) on:
Investments - net 13,492,737
Swap agreements - net (169,582)
Foreign currency translations - net (29)
-----------
Net realized and unrealized gain on
investments, foreign currency
transactions and swap agreements 21,273,848
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 25,257,201
-----------
LESS DISTRIBUTIONS TO PREFERRED
SHAREHOLDERS FROM:
Net investment income (493,235)
Short-term capital gain (14,530)
Long-term capital gain (876,230)
-----------
(1,383,995)
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS APPLICABLE TO COMMON
SHAREHOLDERS $23,873,206
===========
See accompanying notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
January 31, 2007 January 31, 2006
---------------- ----------------
FROM OPERATIONS:
Net investment income $ 3,983,353 $ 3,937,358
Net realized gain on investments,
foreign currency transactions and
swap agreements 7,950,722 8,367,985
Net change in unrealized appreciation
(depreciation) on investments,
foreign currency translations and
swap agreements 13,323,126 5,259,851
------------ -----------
Net increase in net assets resulting
from operations 25,257,201 17,565,194
------------ -----------
LESS DISTRIBUTIONS TO PREFFERRED
SHAREHOLDERS FROM:
Net investment income (493,235) (472,513)
Short-term capital gain (14,530) (84,580)
Long-term capital gain (876,230) (411,299)
------------ -----------
Total distributions (1,383,995) (968,392)
------------ -----------
Net increase in net assets from
operations applicable to common
shareholders 23,873,206 16,596,802
------------ -----------
LESS DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income (3,907,821) (3,531,588)
Short-term capital gain (120,434) (632,156)
Long-term capital gain (7,262,611) (3,074,079)
------------ -----------
Total distributions (11,290,866) (7,237,823)
------------ -----------
Net increase in net assets 12,582,340 9,358,979
------------ -----------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS
Beginning of the year 86,424,483 77,065,504
------------ -----------
End of the year $ 99,006,823 $86,424,483
============ ===========
See accompanying notes to financial statements.
9
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period.
For the Period
Year Ended January 31, November 26, 2002*
------------------------------------------ through January 31,
2007 2006 2005 2004 2003
-------- -------- ------- ------- -------------------
Net asset value, beginning of period
(common shares) $ 22.55 $ 20.10 $ 19.70 $ 14.03 $ 14.33(a)
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income(b) 1.04 1.03 1.12 0.99 0.09
Net realized and unrealized gain
(loss) on investments 5.55 3.56 0.90 6.71 (0.24)
-------- -------- ------- ------- -------
Total from investment operations 6.59 4.59 2.02 7.70 (0.15)
-------- -------- ------- ------- -------
Less distributions to preferred
shareholders from:
Net investment income (0.13) (0.12) (0.08) (0.05) --
Short-term capital gain (0.00)(f) (0.02) (0.00)(f) (0.03) --
Long-term capital gain (0.23) (0.11) (0.04) (0.00)(f) --
-------- -------- ------- ------- -------
(0.36) (0.25) (0.12) (0.08) --
-------- -------- ------- ------- -------
Total from investment operations
applicable to common shareholders 6.23 4.34 1.90 7.62 (0.15)
-------- -------- ------- ------- -------
Less distributions to common
shareholders from:
Net investment income (1.02) (0.92) (1.03) (1.00) (0.09)
Short-term capital gain (0.03) (0.17) (0.00)(f) (0.72) (0.00)(f)
Long-term capital gain (1.90) (0.80) (0.44) (0.07) (0.01)
Tax return of capital -- -- (0.03) -- (0.02)
-------- -------- ------- ------- -------
Total distributions to common
shareholders (2.95) (1.89) (1.50) (1.79) (0.12)
-------- -------- ------- ------- -------
Common shares offering costs charged to
paid-in capital -- -- -- -- (0.03)
-------- -------- ------- ------- -------
Preferred shares underwriting
commissions and offering costs -- -- -- (0.16) --
-------- -------- ------- ------- -------
Net asset value, end of period (common
shares) $ 25.83 $ 22.55 $ 20.10 $ 19.70 $ 14.03
======== ======== ======= ======= =======
Market value, end of period (common
shares) $ 22.80 $ 19.35 $ 17.40 $ 17.87 $ 14.55
======== ======== ======= ======= =======
Total return on market value (%)(j) 34.94 23.03 6.11 37.45 (2.23)(c)
Total return on net asset value
(%)(i)(j) 31.07 24.12 11.19 56.84 (1.29)(c)
Ratio of expenses to average net assets
applicable to common shares, before
waivers (%)(e) 1.55 1.65 1.81 2.00 1.85
Ratio of expenses to average net assets
applicable to common shares, after
waivers (%)(d)(e) 1.01 1.09 1.23 1.38 1.37
Ratio of net investment income to
average net assets applicable to
common shares, before waivers (%)(e) 3.82 4.20 5.11 5.35 2.80
Ratio of net investment income to
average net assets applicable to
common shares, after waivers (%)(e) 4.36 4.76 5.69 5.97 3.28
Portfolio turnover rate (%) 15 15 8 31 1
Net assets applicable to common shares,
end of period (000's) $ 99,007 $ 86,424 $77,066 $75,503 $53,776
Auction market preferred shares:
Total shares outstanding 1,120 1,120 1,120 1,120 --
Asset coverage per share(g) $113,406 $102,168 $93,820 $92,414 $ --
Involuntary liquidation preference per
share(h) $ 25,000 $ 25,000 $25,000 $25,000 $ --
Approximate market value per share $ 25,000 $ 25,000 $25,000 $25,000 $ --
* Commencement of operations.
(a)Net asset value at beginning of period reflects the deduction of the sales
load of $0.675 per share paid by the shareholder from the $15.00 offering
price.
(b)Calculated using the average common shares outstanding during the period.
(c)Total return on net asset value is calculated assuming a purchase at the
offering price of $15.00 less the sales load of $0.675 paid by the
shareholder on the first day and the ending net asset value per share. Total
return on market value is calculated assuming a purchase at the offering
price of $15.00 on the first day and a sale at the current market price of
the last day of the period.
(d)The investment adviser and the Fund's administrator agreed to waive a
portion of their fees during the period. Without these waivers, expense
ratios would have been higher.
(e)Computed on an annualized basis for periods less than one year.
(f)Amount rounds to less than $0.01 per share.
(g)Calculated by subtracting the Fund's total liabilities (not including the
preferred shares) from the Fund's total assets, and dividing this by the
number of preferred shares outstanding.
(h)Plus accumulated and unpaid dividends.
(i)Had certain expenses not been waived during the period total return would
have been lower.
(j)Periods less than one year are not annualized.
See accompanying notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
January 31, 2007
1. Organization. AEW Real Estate Income Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified closed-end management investment company. The Fund is organized
under the laws of the Commonwealth of Massachusetts by an Amended and Restated
Agreement and Declaration of Trust dated October 10, 2002. The Fund's primary
investment objective is high current income; the Fund's secondary investment
objective is capital appreciation. The Fund seeks to achieve its objectives by
concentrating its investments in the United States real estate industry.
2. Significant Accounting Policies. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The Fund's financial statements are prepared in
accordance with accounting principles generally accepted in the United States
of America, which require the use of management estimates that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
a. Security Valuation. Equity securities, including closed-end investment
companies, for which market quotations are readily available are valued at
market value, as reported by pricing services recommended by the administrator
and approved 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 a 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 recommended by the administrator and
approved 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 less than sixty days 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 advisor using consistently applied
procedures under the general supervision of the Board of Trustees.
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 equity 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.
b. Security Transactions and Related Investment Income. Security transactions
are accounted for on trade date. Dividend income is recorded on ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified, and interest income is recorded on an accrual basis. Distributions
received on securities that represent a return of capital or capital gain are
recorded as a reduction of cost of investments and as a realized gain,
respectively. The calendar year-end amounts of ordinary income, capital gains,
and return of capital included in dividends received from the Fund's
investments in real estate investment trusts ("REITs") are reported to the Fund
after the end of the calendar year; accordingly, the Fund estimates these
amounts for accounting purposes until the characterization of REIT
distributions is reported to the Fund after the end of the calendar year.
Estimates are based on the most recent REIT distribution information available.
Interest income is increased by the accretion of discount and decreased by the
amortization of premium. Investment income is recorded net of foreign taxes
withheld when applicable. In determining net gain or loss on securities sold,
the cost of securities has been determined on an identified cost basis.
c. Foreign Currency Translation. The books and records of the Fund are
maintained in U.S. dollars. The values 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. Purchases and sales of investment securities, income and
expenses are translated on the respective dates of such transactions.
Since the values of investment securities are presented at the foreign exchange
rates prevailing at the end of the period, it is not practical to isolate that
portion of the results of operations arising from changes in exchange rates
from fluctuations arising from changes in market prices of the investment
securities. Such changes are included with the net realized and unrealized gain
or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign
currency, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the amounts of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the value of
assets and liabilities, other than investment securities, at the end of the
fiscal period, resulting from changes in exchange rates.
The Fund may use foreign currency exchange contracts to facilitate transactions
in foreign-denominated investments. Losses may arise from changes in the value
of the foreign currency or if the counterparties do not perform under the
contracts' terms.
The Fund may purchase investments of foreign issuers. Investing in securities
of foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies and securities of the U.S.
government. These risks include those resulting from future adverse political
or economic developments and the possible imposition of currency exchange
blockages or other foreign governmental laws or restrictions. Moreover, the
markets for securities of many foreign issuers may be less liquid and the price
of such securities may be more volatile than those of comparable U.S. companies
and the U.S. government.
11
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 2007
d. Federal and Foreign Income Taxes. The Fund intends to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies, and
to distribute to its shareholders substantially all of its net investment
income and any net realized capital gains, at least annually. Accordingly, no
provision for federal income tax has been made. The Fund may be subject to
foreign taxes on income and gains on investments that are accrued based upon
the Fund's understanding of the tax rules and regulations that exist in the
countries in which the Fund invests. Foreign governments may also impose taxes
or other payments on investments with respect to foreign securities. Such taxes
are accrued as applicable.
e. Dividends and Distributions to Shareholders. The Fund intends to make
regular monthly cash distributions to common shareholders at a level rate based
on the projected performance of the Fund. Distributions to common shareholders
are recorded on the ex-dividend date. Distributions to preferred shareholders
are recorded daily and are payable at the end of each dividend period. Each
dividend period for Auction Market Preferred Shares ("AMPS") is generally seven
days. For the year ended January 31, 2007, the dividend rates for AMPS ranged
from 4.30% to 5.31%. The dividend rate for AMPS on January 31, 2007 was 5.00%.
In addition, at least annually, the Fund intends to distribute net capital
gains, if any.
The timing and characterization of certain income and capital gain
distributions are determined annually in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. When the Fund identifies the character of
distributions paid by REITs in the previous calendar year, certain
distributions to Fund shareholders may be redesignated as capital gain
distributions or, if in excess of taxable income, as a return of capital. For
the year ended January 31, 2007, the character of distributions paid as
disclosed within the Statement of Changes in Net Assets includes certain
calendar year federal tax-based amounts and corresponding estimates for the
period from January 1, 2007 through January 31, 2007 of ordinary income,
capital gains and return of capital based on dividends received from REITs.
Permanent differences are primarily due to differing treatments for book and
tax purposes of items such as foreign currency transactions and swap
agreements. Permanent book and tax basis differences relating to shareholder
distributions, net investment income, and net realized gains will result in
reclassifications to the capital accounts. Temporary differences between book
and tax distributable earnings are primarily due to wash sales.
The tax character of distributions paid for the years ended January 31, 2007
and January 31, 2006 was as follows:
2007 2006
- ---- ----
Distributions from:
Ordinary income $ 4,536,020 $4,720,837
Long-term capital gains 8,138,841 3,485,378
----------- ----------
$12,674,861 $8,206,215
=========== ==========
Differences between these amounts and those reported in the Statement of
Changes in Net Assets are primarily attributable to different book and tax
treatment for short-term capital gains.
At January 31, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income $ --
Undistributed long-term capital gains 3,358,342
-----------
Total undistributed earnings 3,358,342
Unrealized appreciation 41,648,133
-----------
Total accumulated earnings $45,006,475
===========
f. 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 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 in the
Statement of Operations. Payments received or made at the end of the
measurement period are recorded as realized gain or loss in the Statement of
Operations. 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 in 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
12
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 2007
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. See Note 8 for a summary of the open swap agreements as of
January 31, 2007.
g. Repurchase Agreements. 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.
h. Indemnifications. Under the Fund's organizational documents, its officers
and Trustees are indemnified against certain liability arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
3. Auction Market Preferred Shares. 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 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.
4. Purchases and Sales of Securities. For the year ended January 31, 2007,
purchases and sales of securities (excluding short-term investments) were
$18,142,104 and $23,773,700, respectively.
5. Management Fees and Other Transactions with Affiliates.
a. Management Fees. AEW Management and Advisors, L.P. ("AEW") serves as the
investment advisor to the Fund. Under the terms of the management agreement,
the Fund pays a management fee at an annual rate of 0.80%, calculated daily and
payable monthly, based on the Fund's average daily managed assets (net assets
applicable to common shares plus the liquidation preference of any preferred
shares and the principal amount of any borrowings used for leverage).
AEW has contractually agreed to waive a portion of its management fees in the
amount of 0.25% of the Fund's average daily managed assets during the first
five years of the Fund's operations, 0.20% of average daily managed assets in
year six, 0.15% of average daily managed assets in year seven, 0.10% of average
daily managed assets in year eight, and 0.05% of average daily managed assets
in year nine.
AEW has also agreed to waive an additional portion of its management fees in
the amount of 0.10% of the Fund's average daily managed assets. This waiver is
voluntary and may be terminated by the investment advisor at any time without
notice.
For the year ended January 31, 2007, management fees and waivers for the Fund
were as follows:
Percentage of Average
Daily Managed Assets
- --------------------
Gross Management Fee Waiver of Management Fee Net Management Fee Gross Net
-------------------- ------------------------ ------------------ ----- ---
$954,436 $417,565 $536,871 0.80% 0.45%
AEW is an affiliate of AEW Capital Management, L.P., a wholly-owned subsidiary
of IXIS Asset Management US Group, L.P. ("IXIS US Group"), which is part of
IXIS Asset Management Group, an international asset management group based in
Paris, France.
b. Administrative Fees. IXIS Asset Management Advisors, L.P. ("IXIS Advisors"),
a wholly-owned subsidiary of IXIS US Group, provides certain administrative
services for the Fund and has subcontracted with State Street Bank and Trust
Company ("State Street Bank") to serve as sub-administrator. The Fund pays IXIS
Advisors a fee for these services at an annual rate of 0.0600% of the first
$300 million of the Fund's average daily managed assets, and 0.0575% of such
assets in excess of $300 million, subject to an annual minimum fee of $150,000.
13
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 2007
IXIS Advisors has agreed to voluntarily waive a portion of its fee. This waiver
is voluntary and may be terminated by IXIS Advisors at any time without notice.
For the year ended January 31, 2007, the following was paid to IXIS Advisors
for administrative services:
Percentage of Average
Daily Managed Assets
- --------------------
Gross Administrative Fee Waiver of Administrative Fee Net Administrative Fee Gross Net
------------------------ ---------------------------- ---------------------- ----- ---
$150,000 $75,000 $75,000 0.13% 0.06%
c. Trustees Fees and Expenses. The Fund does not pay any compensation directly
to its officers or Trustees who are directors, officers or employees of IXIS
Advisors, IXIS US Group or its affiliates. The Chairperson of the Board
receives a retainer fee at an annual rate of $200,000. The Chairperson does not
receive any meeting attendance fees for Board of Trustees meetings or committee
meetings that she attends. Each independent Trustee (other than the
Chairperson) receives a retainer fee at an annual rate of $2,000 and meeting
attendance fees of $375 for each meeting of the Board of Trustees he or she
attends. Each committee member receives an additional retainer fee at an annual
rate of $2,000 while each committee chairman receives a retainer fee at an
annual rate of $3,000. The retainer fees assume four Board or Committee
meetings per year. Trustees are compensated for each additional Board or
Committee meeting in excess of four meetings per year at a rate of $375 and
$200, respectively. The annual retainer fee of the Chairperson of the Board is
allocated among the Fund and the funds in the IXIS Advisor Funds Trusts and
Loomis Sayles Funds Trusts based on a formula that takes into account, among
other factors, the relative net assets of each fund. Trustees are reimbursed
for travel expenses in connection with attendance at meetings.
6. Brokerage Commission Recapture. The Fund has entered into agreements with
certain brokers whereby the brokers will rebate a portion of brokerage
commissions. All amounts rebated by the brokers are returned to the Fund under
such agreements and are included in realized gains in the Statement of
Operations. For the year ended January 31, 2007, $1,271 was rebated under these
agreements.
7. Shares of Beneficial Interest. The Amended and Restated Agreement and
Declaration of Trust permits the Fund's Trustees to issue an unlimited number
of common shares, $0.00001 par value per share. For the years ended January 31,
2007 and January 31, 2006, there were no transactions in common shares.
8. Swap Agreements. Open swap agreements as of January 31, 2007 are 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 $319,580
notional amount multiplied by 3.104% and to receive the notional
amount multiplied by the 1 week Floating Rate London Interbank
Offering Rate ("LIBOR") adjusted by a specific spread.
$8,400,000 3/1/2010 Agreement with Bank of America dated 2/28/2003 to pay the 353,665
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.
--------
$673,245
========
9. Other. On January 3, 2007, the Fund declared three monthly dividends of
$0.115 per common share for the months of January, February and March payable
on January 26, February 23, and March 30, respectively. Characterization of the
dividends for tax purposes, determined annually, may result in a portion of the
dividends being designated as a capital gain distribution or as a return of
capital.
10. Concentration of Risk. 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.
11. Subsequent Event. On March 12, 2007, the Board of Trustees approved the
liquidation and termination of the Fund. It is expected that the sale of the
Fund's assets and the corresponding liquidating distributions to the common and
preferred shareholders will be completed within 60 days of the date of approval.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of AEW Real Estate Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AEW Real Estate Income Fund
(the "Fund"), at January 31, 2007, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at January 31, 2007 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
As discussed in Note 11 to the financial statements, the Trustees approved the
liquidation and termination of the Fund on March 12, 2007.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 2007
15
DIVIDEND REINVESTMENT PLAN
The following information describes the Fund's Dividend Reinvestment Plan. As
discussed earlier in this report, the Board of Trustees approved the
liquidation and termination of the Fund. It is expected that the sale of the
Fund's assets and the corresponding liquidating distributions to the common and
preferred shareholders will be completed within 60 days of the date of
approval. The information outlined below will only apply to dividends paid
while the Plan is still in existence. The Fund expects that the Plan will be
terminated prior to the payment of the final liquidation amounts.
The Fund has a Dividend Reinvestment Plan (the "Plan") commonly referred to as
an "opt-out" plan. Each Common Shareholder will have all distributions of
dividends and capital gains automatically reinvested in additional Common
Shares by Computershare Limited, as agent for shareholders pursuant to the Plan
(the "Plan Agent"), unless they elect to receive cash. The Plan Agent will
either (i) effect purchases of Common Shares under the Plan in the open market
or (ii) distribute newly issued Common Shares of the Fund. Shareholders who
elect not to participate in the Plan will receive all distributions in cash
paid by check mailed directly to the shareholder of record (or if the shares
are held in street or other nominee name, then to the nominee) by the Plan
Agent, as dividend disbursing agent. Shareholders whose Common Shares are held
in the name of a broker or nominee should contact the broker or nominee to
determine whether and how they may participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
After the Fund declares a dividend or makes a capital gain distribution, the
Plan Agent will, as agent for the participants, either (i) receive the cash
payment and use it to buy Common Shares in the open market, on the American
Stock Exchange or elsewhere, for the participants' accounts or (ii) distribute
newly issued Common Shares of the Fund on behalf of the participants. The Plan
Agent will receive cash from the Fund with which to buy Common Shares in the
open market if, on the determination date, the net asset value per share
exceeds the market price per share plus estimated brokerage commissions on that
date. The Plan Agent will receive the dividend or distribution in newly issued
Common Shares of the Fund if, on the determination date, the market price per
share plus estimated brokerage commissions equals or exceeds the net asset
value per share of the Fund on that date. The number of shares to be issued
will be computed at a per share rate equal to the greater of (i) the net asset
value or (ii) 95% of the closing market price per share on the payment date.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. Such withdrawal will be effective immediately if received not less
than ten days prior to a distribution record date; otherwise, it will be
effective for all subsequent dividend record dates. When a participant
withdraws from the Plan or upon termination of the Plan as provided below,
certificates for whole Common Shares credited to his or her account under the
Plan will be issued and a cash payment will be made for any fraction of a
Common Share credited to such account. In the alternative, upon receipt of the
participant's instructions, Common Shares will be sold and the proceeds sent to
the participant less brokerage commissions and any applicable taxes.
The Plan Agent maintains each shareholder's account in the Plan and furnishes
confirmations of all acquisitions made for the participant. Common Shares in
the account of each Plan participant will be held by the Plan Agent on behalf
of the participant. Proxy material relating to shareholders' meetings of the
Fund will include those shares purchased as well as shares held pursuant to the
Plan.
In the case of shareholders, such as banks, brokers or nominees, which hold
Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are participants in the Plan.
The Plan Agent's fees for the handling of reinvestment of dividends and other
distributions will be paid by the Fund. Each participant will pay a pro rata
share of brokerage commissions incurred with respect to the Plan Agent's open
market purchases in connection with the reinvestment of distributions. There
are no other charges to participants for reinvesting dividends or capital gain
distributions; however, the Fund reserves the right to amend the Plan to
include a service charge payable by the participants.
The automatic reinvestment of dividends and other distributions will not
relieve participants of any income tax that may be payable or required to be
withheld on such dividends or distributions.
The Fund and the Plan Agent reserve the right to amend or terminate the Plan.
All correspondence concerning the Plan should be directed to the Plan Agent by
telephone at (800) 730-6001.
16
2007 U.S. TAX DISTRIBUTION INFORMATION TO SHAREHOLDERS (unaudited)
Capital Gains Distributions. Pursuant to Internal Revenue Section 852(b), the
Fund designated $8,138,841 as capital gains dividends paid during the year
ended January 31, 2007.
Corporate Dividends Received Deduction. For the fiscal year ended January 31,
2007, 3.63% of dividends distributed by the Fund qualify for the dividends
received deduction for corporate shareholders.
Qualified Dividend Income. A percentage of dividends distributed by the Fund
during the fiscal year ended January 31, 2007 are considered qualified dividend
income, and are eligible for reduced tax rates. These lower rates range from 5%
to 15% depending on an individual's tax bracket. The Fund's qualified dividend
income was 3.43%.
17
TRUSTEE AND OFFICER INFORMATION
The table below provides certain information regarding the Trustees and
Officers of AEW Real Estate Income Fund (the "Fund"). Unless otherwise
indicated, the address of all persons below is 399 Boylston Street, Boston, MA
02116.
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
---------------------- -------------------------- --------------------- ----------------------------
INDEPENDENT TRUSTEES
Graham T. Allison, Jr. Trustee Douglas Dillon Professor and 38
(3/23/40) since 2002 Director of the Belfer Center Director, Taubman Centers,
(Class I) Contract Review and for Science and International Inc. (real estate investment
Governance Committee Affairs, John F. Kennedy trust)
Member School of Government,
Harvard University
Charles D. Baker Trustee President and Chief Executive 38
(11/13/56) since 2005 Officer, Harvard Pilgrim None
(Class III) Audit Committee Member Health Care (health plan)
Edward A. Benjamin Trustee Retired 38
(5/30/38) since 2003 Director, Precision Optics
(Class II) Chairman of the Contract Corporation (optics
Review and Governance manufacturer)
Committee
Daniel M. Cain Trustee President and Chief Executive 38
(2/24/45) since 2002 Officer, Cain Brothers & Director, Sheridan
(Class II) Chairman of the Audit Company, Incorporated Healthcare Inc. (physician
Committee (investment banking) practice management);
Trustee, Lexington Strategic
Asset Corporation (realty
investment trust)
Richard Darman Trustee Partner, The Carlyle Group 38
(5/10/43) since 2002 (investments); formerly, Director and Chairman of
(Class I) Contract Review and Professor, John F. Kennedy Board of Directors, AES
Governance Committee School of Government, Corporation (international
Member Harvard University power company)
Sandra O. Moose Chairperson of the Board President, Strategic Advisory 38
(2/17/42) of Trustees Services (management Director, Verizon
(Class III) since November 2005 consulting); formerly, Senior Communications;
Trustee Vice President and Director, Director, Rohm and Haas
since 2002 The Boston Consulting Group, Company (specialty
Ex officio member of the Inc. (management consulting) chemicals);
Audit Committee and Director, AES Corporation
Contract Review and (international power
Governance Committee company)
Cynthia L. Walker Trustee Executive Dean for 38
(7/25/56) since 2005 Administration (formerly, None
(Class III) Audit Committee Member Dean for Finance and CFO),
Harvard Medical School
18
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
---------------------- -------------------------- --------------------- ----------------------------
INTERESTED TRUSTEES
Robert J. Blanding/1 Trustee President, Chairman, Director, 38
/(4/14/47) since 2003 and Chief Executive Officer, None
555 California Street Chief Executive Officer Loomis, Sayles & Company,
San Francisco, CA 94104 for Loomis Sayles L.P.; President and Chief
(Class I) Trust II Executive Officer -- Loomis
Sayles Funds I
John T. Hailer/2/ Trustee President and Chief Executive 38
(11/23/60) since 2002 Officer, IXIS Asset None
(Class II) President, Chief Executive Management Advisors, L.P.,
Officer IXIS Asset Management
Distributors, L.P., and IXIS
Asset Management Global
Associates, L.P.; Executive
Vice President, Loomis Sayles
Funds I; President, Loomis
Sayles Funds II; President and
Chief Executive Officer, IXIS
Advisor Cash Management
Trust, IXIS Advisor Funds
Trust I, IXIS Advisor Funds
Trust II, IXIS Advisor Funds
Trust III and IXIS Advisor
Funds Trust IV
OFFICERS
Coleen Downs Dinneen Secretary, Clerk and Senior Vice President, General Not Applicable
(12/16/60) Chief Legal Officer, Counsel, Secretary and Clerk
since 2004 (formerly, Deputy General
Counsel, Assistant Secretary
and Assistant Clerk), IXIS Asset
Management Distribution
Corporation, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.
James J. Finnegan Executive Vice President, General Counsel, Managing Not Applicable
(4/29/60) since 2004 Director, Vice President and
AEW Capital Management Clerk, AEW Management and
Two Seaport Lane Advisors, L.P.; General
Boston, MA 02110 Counsel and Vice President,
AEW Capital Management,
L.P.; Vice President and
Assistant Clerk, AEW
Investment Group, Inc.; Vice
President and Assistant Clerk,
AEW Real Estate
Advisors, Inc.
19
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
---------------------- -------------------------- --------------------- ----------------------------
OFFICERS
continued
Russell L. Kane Chief Compliance Officer, Chief Compliance Officer for Not Applicable
(7/23/69) since 2006, Mutual Funds, Vice President,
Assistant Secretary Associate General Counsel,
since 2004 Assistant Secretary and
Assistant Clerk, IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.; Vice President,
Associate General Counsel,
Assistant Secretary and
Assistant Clerk, IXIS Asset
Management Distribution
Corporation; formerly, Senior
Counsel, Columbia
Management Group.
Michael C. Kardok Treasurer, Principal Senior Vice President, IXIS Not Applicable
(7/17/59) Financial and Asset Management Advisors,
Accounting Officer, L.P. and IXIS Asset
since 2004 Management Distributors,
L.P.; formerly, Senior Director,
PFPC Inc.
Max J. Mahoney Anti-Money Laundering Senior Vice President, Deputy Not Applicable
(5/1/62) Officer and General Counsel, Assistant
Assistant Secretary, Secretary and Assistant Clerk,
since 2005 IXIS Asset Management
Distribution Corporation, IXIS
Asset Management
Distributors, L.P. and IXIS
Asset Management Advisors,
L.P.; Chief Compliance
Officer, IXIS Asset
Management Advisors, L.P.;
formerly, Senior Counsel,
MetLife, Inc.; formerly,
Associate Counsel, LPL
Financial Services, Inc.
20
TRUSTEE AND OFFICER INFORMATION
Position(s) Held with the Number of Portfolios in
Trust, Length of Time Principal Occupation(s) Fund Complex Overseen***
Name and Date of Birth Served and Term of Office* During Past 5 Years** and Other Directorships Held
---------------------- -------------------------- --------------------- ----------------------------
OFFICERS
continued
John E. Pelletier Chief Operating Officer, Executive Vice President and Not Applicable
(6/24/64) since 2004 Chief Operating Officer
(formerly, Senior Vice
President, General Counsel,
Secretary and Clerk), IXIS Asset
Management Distribution
Corporation; IXIS Asset
Management Distributors, L.P.
and IXIS Asset Management
Advisors, L.P.
* The Trustees are divided into three Classes and serve staggered three-year
terms, subject to their prior death, retirement, resignation,
disqualification or removal from the Board. The Terms of Class II Trustees
expire in 2007, the terms of the Class III Trustees expire in 2008 and the
Terms of Class I Trustees expire in 2009. The current retirement age is 72.
The position of Chairperson of the Board is appointed for a two-year term.
** Each person listed above, except as noted, holds the same position(s) with
the Trust. Previous positions during the past five years with IXIS Asset
Management Distributors, L.P. (the "Distributor"), IXIS Asset Management
Advisors, L.P. ("IXIS Advisors") or Loomis, Sayles & Company, L.P. are
omitted if not materially different from a Trustee's or officer's current
position with such entity.
***The Trustees of the Trust serve as Trustees of a fund complex that includes
all series of IXIS Advisor Funds Trust I, IXIS Advisor Funds Trust II, IXIS
Advisor Funds Trust III, IXIS Advisor Funds Trust IV, IXIS Advisor Cash
Management Trust, AEW Real Estate Income Fund, Loomis Sayles Funds I and
Loomis Sayles Funds II.
/1/ Mr. Blanding is deemed an "interested person" of the Trust because he
holds the following positions with affiliated persons of the Trust:
President, Chairman, Director and Chief Executive Officer of Loomis,
Sayles & Company, L.P.
/2/ Mr. Hailer is deemed an "interested person" of the Trust because he holds
the following positions with affiliated persons of the Trust: Director and
Executive Vice President of IXIS Asset Management Distribution
Corporation, President and Chief Executive Officer of IXIS Advisors and
IXIS Asset Management Global Associates, L.P.
21
[LOGO] AEW
CEAEW58-0107
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer and persons performing
similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Registrant has established an audit committee.
Ms. Cynthia L. Walker, Mr. Daniel M. Cain and Mr. Charles D. Baker are members
of the audit committee and have been designated as "audit committee financial
experts" by the Board of Trustees. Each of these individuals is also an
Independent Trustee of the Registrant.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees paid to Principal Accountant by the Fund.
The table below sets forth fees billed by the principal accountant,
PricewaterhouseCoopers LLP, for the past two fiscal years for professional
services rendered in connection with a) the audit of the Registrant's annual
financial statements and services provided in connection with regulatory
filings; b) audit-related services (including services that are reasonably
related to the performance of the audit of the Registrant's financial
statements and but not reported under "Audit Fees"); c) tax compliance, tax
advice and tax planning; and d) all other fees billed for professional services
rendered by the principal accountant to the Registrant, other than the services
provided reported as a part of (a) through (c) of this Item.
AUDIT-RELATED
AUDIT FEES FEES/1/ TAX FEES/2/ ALL OTHER FEES/3/
--------------- --------------- --------------- -----------------
2/1/05- 2/1/06- 2/1/05- 2/1/06- 2/1/05- 2/1/06- 2/1/05- 2/1/06-
1/31/06 1/31/07 1/31/06 1/31/07 1/31/06 1/31/07 1/31/06 1/31/07
------- ------- ------- ------- ------- ------- ------- -------
AEW Real Estate Income Fund $24,400 $36,674 $7,900 $5,000 $1,316 $1,313 $ 0 $2,755
--------
1. Audit-related fees consist of the performance of agreed upon procedures
relating to rating agency procedures reports (2006 and 2007) and the
performance of agreed upon procedures related to a change in the Trust's
custodian.
2. The tax fees consist of a review of year-end shareholder reporting.
3. Other fees consist of a review of income and expense allocation methods
in conjunction with the annual review of the Trust's management contract.
Aggregate fees billed to the Registrant for non-audit services during 2005 and
2006 were $9,216 and $9,068, respectively.
Fees paid to Principal Accountant By Adviser and Control Affiliates.
The following table sets forth the non-audit services provided by the Trust's
principal accountant to AEW Management and Advisors, L.P. and entities
controlling, controlled by or under common control with AEW Management and
Advisors, L.P. that provide ongoing services to the Trust ("Control
Affiliates") for the last two fiscal years.
AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
------------------ ----------------- ---------------
2/1/05- 2/1/06- 2/1/05- 2/1/06- 2/1/05- 2/1/06-
1/31/06 1/31/07 1/31/06 1/31/07 1/31/06 1/31/07
------- ------- -------- -------- ------- -------
Control Affiliates $24,000 $ 0 $129,060 $115,285 $ 0 $ 0
Aggregate fees billed to Control Affiliates for non-audit services during 2005
and 2006 were $153,060 and $115,285, respectively.
None of the services described above were approved pursuant to (c)(7)(i)(C) of
Regulation S-X.
Audit Committee Pre-Approval Policies.
Annually, the Registrant's Audit Committee reviews the audit, audit-related,
tax and other non-audit services together with the projected fees, for services
proposed to be rendered to the Trust and/or other entities for which
pre-approval is required during the upcoming year. Any subsequent revisions to
already pre-approved services or fees (including fee increases) and requests
for pre-approval of new services would be presented for consideration quarterly
as needed.
If, in the opinion of management, a proposed engagement by the Registrant's
independent accountants needs to commence before the next regularly scheduled
Audit Committee meeting, any member of the Audit Committee who is an
independent Board member is authorized to pre-approve the engagement, but only
for engagements to provide audit, audit-related and tax services. This approval
is subject to review of the full Audit Committee at its next quarterly meeting.
All other engagements require the approval of all the members of the audit
committee.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(58)(A)). Mr. Daniel M. Cain, Mr. Charles D. Baker and
Ms. Cynthia L. Walker are each independent trustees and collectively constitute
the entire Audit Committee.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the Report to Shareholders filed as Item 1 herewith.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
When voting proxies and responding to tender offers, AEW acts prudently, solely
in the best interest of its clients, and for the exclusive purpose of
maximizing value to its clients. AEW takes reasonable steps under the
circumstances to assure that it has actually received all of the proxies for
which it has voting authority. AEW considers those factors that would affect
the value of its clients' investments and may not, unless specifically directed
to do so by a client, consider unrelated objectives, such as social
considerations. In the event of any conflict of interest involving a proxy vote
AEW will vote in accordance with recommendations provided by an independent
party proxy service provider.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Portfolio Manager Information
Matthew A. Troxell, Principal and Portfolio Manager, has managed the AEW Real
Estate Income Fund since its inception. During the past 5 years, Mr. Troxell
has been employed by AEW Management and Advisors, L.P. ("AEW") and serves as
portfolio manager for all of AEW's real estate equity securities portfolios.
Portfolio Manager's Management of Other Accounts
As of January 31, 2007, Mr. Troxell managed the following other accounts in
addition to managing the AEW Real Estate Income Fund:
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
--------------------- ----------------------------- -----------------------------
ADVISORY FEE IS ADVISORY FEE IS ADVISORY FEE IS
OTHER ACCOUNTS BASED ON OTHER ACCOUNTS BASED ON OTHER ACCOUNTS BASED ON
MANAGED PERFORMANCE MANAGED PERFORMANCE MANAGED PERFORMANCE
-------------- --------------- -------------- -------------- -------------- --------------
# OF TOTAL # OF TOTAL # OF TOTAL # OF TOTAL # OF TOTAL # OF TOTAL
ACCTS ASSETS ACCTS ASSETS ACCTS ASSETS ACCTS ASSETS ACCTS ASSETS ACCTS ASSETS
----- -------- ----- ------ ----- -------- ----- -------- ----- -------- ----- --------
13 $ 2.6 $ 1.4 $ 172.5 $ 5.3 $ 1.3
billion 0 0 4 billion 1 million 38 billion 8 billion
One potential conflict of interest that may arise in connection with the
Portfolio Manager's management of the AEW Real Estate Income Fund and the
investments in the other accounts he manages, is when the Portfolio Manager
wants to short a stock in one of AEW's Long/Short strategy accounts that AEW
holds long in any of its accounts/funds. To address this potential conflict,
AEW has developed policies and procedures where the Portfolio Manager must get
prior approval from AEW's Chief Compliance Officer in order to short a stock
that is currently held long.
Portfolio Manager's Compensation
The following describes the structure of, and the method used to determine, the
compensation of the above listed portfolio manager as of January 31, 2007:
Compensation for all AEW professionals, including AEW REIT investment
professionals, is composed of two parts: base salary and incentive
compensation. The firm's base salary structure is designed to reflect market
rates for the various disciplines within the company, such as investment
management, asset management and accounting. To determine appropriate "market
ranges" for the various function areas (based on specific job characteristics
and years of experience), AEW uses the services of an independent consulting
firm which performs research into the compensation practices of firms similar
to AEW within the industry.
Base salaries are supplemented by year-end incentive compensation awards, which
account for a significant portion of total compensation. The awarding of
incentive compensation is based upon the achievement of corporate objectives
and specific individual goals, which are generally tied to the achievement of
client objectives. Performance is measured by comparing the Diversified
Composite returns over one-and three-year periods against the returns of the
Morgan Stanley REIT Index and some peer funds over those periods. AEW's
operating margins for the year determine the availability of funds for
incentive compensation. Additionally, AEW's senior professionals (Principals),
including the Portfolio Manager (Matthew Troxell) and his team of Assistant
Portfolio Managers, are eligible for participation in AEW's Equity Sharing
program, which gives Principals of the firm economic interests in a portion of
the firm's profits. This program is sponsored by AEW's parent company, IXIS
Asset Management US Group, L.P.
Neither base salary nor any other part of the investment team's compensation
structure is based on assets under management.
Portfolio Manager's Ownership of Fund Shares
As of January 31, 2007, Mr. Troxell did not own equity securities of the AEW
Real Estate Income Fund.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES AND AFFILIATED PURCHASERS.
(d)
Maximum Number
(or Approximate
(c) Dollar Value) of
Total Number of Shares (or Units)
(a) Shares (or Units) that May Yet Be
Total Number of (b) Purchased as Part Purchased Under
Shares (or Units) Average Price Paid of Publicly Announced the Plans or
Period Purchased per Share (or Unit) Plans or Programs Programs
------ ----------------- ------------------- --------------------- -----------------
February 1 through
February 28 1,209.490 19.13 1,209.490 N/A
March 1 through
March 31 1,168.106 19.63 1,168.106 N/A
April 1 through
April 30 936.779 19.81 936.779 N/A
May 1 through
May 31 996.556 19.17 996.556 N/A
June 1 through
June 30 971.019 18.69 971.019 N/A
July 1 through
July 31 946.351 19.29 946.351 N/A
August 1 through
August 31 1,784.179 20.36 1,784.179 N/A
September 1 through
September 30 -- -- -- N/A
October 1 through
October 31 833.573 21.23 833.573 N/A
November 1 through
November 30 1,600.361 22.53 1,600.361 N/A
December 1 through
December 31 -- -- -- N/A
January 1 through
January 31 13,103.06 21.90 13,103.06 N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
There were no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees.
ITEM 11. 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-CSR 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 of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics required by Item 2 hereof, filed herewith as
exhibit (a)(1).
(a) (2) Certifications of Principal Executive Officer and Principal
Financial Officer pursuant to Rule 30a-2(a) under the Investment
Company Act of 1940 (17 CFR 270.30a-2(a)), filed herewith as
exhibits (a)(2)(1) and (a)(2)(2), respectively.
(a) (3) Not applicable.
(b) Certifications of Principal Executive Officer and Principal
Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act
of 2002 are filed herewith as exhibit (b).
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: March 27, 2007
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: March 27, 2007
By:
/s/ Michael C. Kardok
-----------------------------
Name: Michael C. Kardok
Title: Treasurer
Date: March 27, 2007