UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM N-Q QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-21206 AEW Real Estate Income Fund -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 399 Boylston Street, Boston, Massachusetts 02116 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Coleen Downs Dinneen, Esq. IXIS Asset Management Distributors, L.P. 399 Boylston Street Boston, Massachusetts 02116 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (617) 449-2810 Date of fiscal year end: January 31 Date of reporting period: April 30, 2006 ITEM I SCHEDULE OF INVESTMENTS -------------------------------------------------------------------------------- AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS -------------------------------------------------------------------------------- Investments as of April 30, 2006 (Unaudited) Shares Description Value (+)(b)(d) ------------------------------------------------------------------ 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 ----------- 10,745,925 ----------- 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 ----------- 13,213,855 ----------- REITs - Hotels -- 3.1% 63,000 Hospitality Properties Trust 2,715,300 ----------- 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 ----------- 5,989,716 ----------- 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 ----------- 18,701,971 ----------- 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 ----------- 6,496,722 ----------- REITs - Storage -- 0.8% 44,200 Extra Space Storage, Inc. 694,824 ----------- 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 ----------- 8,750,050 ----------- 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) ------------------------------------------------------------------ REITs - Triple Net Lease - continued 90,000 Trustreet Properties, Inc. $ 1,296,000 ----------- 12,607,720 ----------- Total Common Stocks (Identified Cost $53,489,692) 79,916,083 ----------- 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 ----------- 4,229,260 ----------- 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 ----------- 2,414,500 ----------- REITs - Factory Outlets -- 1.7% 35,500 Mills Corp. (The), Series B 852,000 25,000 Mills Corp. (The), Series E 600,000 ----------- 1,452,000 ----------- 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 ----------- 2,928,280 ----------- 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 ----------- 5,526,479 ----------- REITs - Industrial -- 2.0% 70,000 Duke Realty Corp., Series M 1,716,400 ----------- 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 ----------- 6,300,278 ----------- 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 ----------- 3,030,000 ----------- REITs - Shopping Centers -- 6.5% 27,000 Cedar Shopping Centers, Inc., Series A 716,850 -------------------------------------------------------------------------------- AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------------------------------------------- Investments as of April 30, 2006 (Unaudited) Shares Description Value (+)(b)(d) -------------------------------------------------------------------------- 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 ------------ 5,692,466 ------------ REITs - Triple Net Lease -- 0.3% 9,000 Realty Income Corp., Series D 225,000 ------------ Total Preferred Stocks (Identified Cost $33,408,172) 33,514,663 ------------ Principal Amount -------------------------------------------------------------------------- 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 ------------ Total Investments -- 131.3% (Identified Cost $87,617,740)(a) 114,150,622 ------------ Auction Rate Preferred Shares plus cumulative unpaid dividends -- (32.2)%(e) (28,021,466) Other Assets Less Liabilities -- 0.9% 818,942 ------------ Net Assets -- 100% $ 86,948,098 ============ (+) 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) ------------ Net unrealized appreciation $ 26,532,882 ============ (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. -------------------------------------------------------------------------------- AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- AEW REAL ESTATE INCOME FUND -- PORTFOLIO OF INVESTMENTS (continued) -------------------------------------------------------------------------------- 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. -------- $968,959 ======== ITEM 2. CONTROLS AND PROCEDURES. The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the registrant in this Form N-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 3. EXHIBITS (a)(1) Certification for the principal executive officer as required by Rule 30a-2(a) of the Investment Company Act of 1940, as amended (the "Act") filed herewith. (a)(2) Certification for the principal financial officer as required by Rule 30a-2(a) of the Act filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEW Real Estate Income Fund By: /s/ John T. Hailer ------------------ Name: John T. Hailer Title: President and Chief Executive Officer Date: 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 ------------------ Name: John T. Hailer Title: President and Chief Executive Officer Date: June 19, 2006 By: /s/ Michael C. Kardok --------------------- Name: Michael C. Kardok Title: Treasurer Date: June 19, 2006