Table of Contents
INVESTMENT COMPANIES
ING Clarion Global Real Estate Income Fund
259 N. Radnor-Chester Road
Radnor, PA 19087
Table of Contents
Table of Contents
Table of Contents
Dear Shareholder:
| The ING Clarion Global Real Estate Income Fund (“Fund”) delivered outstanding returns to its shareholders in 2006. During the year the Fund made distributions of $3.265 per common share and the Fund’s stock price closed at $24.68 per share and the net asset value (“NAV”) was $22.78 per share on 12/31/06. The NAV return for the Fund was 53.42%, the best NAV performance of any real estate closed-end fund in the market. The market return (share price appreciation plus dividends) was even better at 75.97% as the Fund’s share price moved from a 6.3% discount to a 8.4% premium to NAV during the year. In 2006, the S&P/Citigroup World Property Index (“WPI”) increased 40.25% and the Morgan Stanley REIT Preferred Index (“MSRP”) rose 9.73%. For reference, a blend of 80% WPI and 20% MSRP rose 33.66% in 2006, significantly less than both the fund’s NAV and market returns. | |
| The Fund made total distributions for the year of $3.265 per share equal to approximately 19% of the NAV at the beginning of the year. The Fund paid two special dividends (one in September and one in December) totaling $1.885 per share. The special distributions were equivalent to approximately 11% of the beginning of the year NAV. The Fund’s regular monthly dividend remained unchanged at $0.115 per share despite the substantial special distributions to shareholders. The Fund’s dividend level is established by the board with consideration of the expected level of investment income and the expectation that we might realize some part of the significant unrealized capital appreciation of the Fund’s investments over the course of time as part of the active management of the investment portfolio. Our goal is to establish a regular dividend which is supported by a combination of dividends and capital gains expected to be received from our portfolio investments during the year. In addition, we have made one or more special dividends (some substantial) each year since the fund’s inception. The current dividend policy reflects the board’s consideration of a range of market scenarios for global real estate stocks in 2007. We believe the Fund remains well positioned to meet its primary objective of delivering a high level of stable monthly income as well as its secondary objective of capital appreciation. The unrealized gains per share remain significant at $10.59 per share. | |
| The Fund’s investments were well diversified by property type and by geography as shown in the pie charts below. Over the course of the year, the Fund’s exposure to the U.S. declined markedly as holdings in U.S. Common Stocks was reduced by 8% and holdings in U.S. preferred stocks fell by 1%. Our choice to keep the preferred stock investments well below the 30% allowed in the prospectus was a good decision given the underperformance of preferred stock relative to common stock. During the year, we doubled the exposure of the Fund to Asia and increased the exposure to European stocks 6% to a total of 25% (including the U.K.). The Fund’s holdings in Canada and Australia were essentially unchanged. |
 |
 |
| Total preferred stock and debt of the Fund increased $229 million to $1.058 billion but leverage as a percentage of total assets actually fell slightly to 31% (versus 32% a year ago). Leverage remains well below the 35% discussed in the Fund’s offering documents. In May 2004, we chose to lock in attractive longer-term rates on $400 million by executing two interest rate swaps. The swaps have an average rate of 4.0% thus assuring an attractive low interest cost for the average remaining term of 1.5 years as of 12/31/06. Subsequent to year-end, we completed an offering of $200 million of additional trust preferred stock. The proceeds of the offering were used to reduce the outstanding debt of the Fund at an average rate cost savings of over 0.5% per annum. |
Table of Contents
| Global real estate companies recorded another exceptional year in 2006 with total return of 35.9% in local currency and 40.3% in U.S. Dollar (“USD”) exceeding the performance of broad equities of 20.7% (“MSCI World Index”) and bonds 5.9% (“JP Morgan Global Government Bond Index”) by a wide margin. The Fund’s significant exposure to international real estate company equities was a benefit to U.S. shareholders as the USD fell versus most other major currencies during the year. The USD weakened during 2006 by 13.7% versus the British pound, 11.5% versus the Euro, 8.4% versus the Singapore dollar and 7.7% versus the Australian dollar. An exception was a 1.0% strengthening versus the Japanese yen. The dollar weakness increased the WPI’s local currency returns by 4.4% in 2006. A weakening USD helps bolster the Fund’s NAV for non-USD investments as returns earned in local currencies translated back to USD are increased by the higher exchange rates. 2006 marked a return to a longer-term trend wherein the USD has weakened versus other major currencies after the rally by the dollar in 2005. Many observers expect the USD to continue to trend lower versus other major currencies in 2007. We had no currency hedges in place at year end. | |
| The Fund’s strong NAV performance last year was aided by its 25% investment in European property stocks. European property stocks were the best performers for the year as the European sub-index of the WPI increased 68.7%. Continental Europe has now been the top performing region in three of the past five years and was second best in 2005. Strong performance was broad based. Property stocks in Spain more than doubled for the year (up 123.5%), France and Finland were up 88.6% and 84.1%, respectively; the U.K. and Germany were each up approximately 70%, and Italy and the Netherlands slightly more than 40%. Catalysts included mergers and acquisitions (“M&A”) activity (especially in Spain), new company formation, strong funds flows and, in the U.K., the finalization of the REIT structure which has enabled property companies to elect REIT status beginning January 1, 2007. All of the large-cap U.K. property companies have converted to the REIT structure. The aggregate market capitalization of these companies alone approximates U.S. $70 billion which represents an approximate 10% increase to the universe of global property companies with a REIT structure. | |
| The Asia-Pacific region was a relative laggard but still up nicely for the year at 32.5%. The Fund benefited from our 11% investment in Australian property stocks which were good performers for the year advancing 43.0%. The Australian LPTs benefited by the diligent effort of many management teams to transform legacy business strategies to include the Funds management business as well as investing in property abroad. Our relative low weightings to Japan (3%) and Hong Kong (3%) were also positives as these countries underperformed relatively at 21.3% and 29.3% respectively. Japan “disappointed” despite office vacancies which are now less than 3% in Tokyo’s five central wards and office rents which are up on average 8% year-over-year. In Hong Kong, property companies continued to increase investments in mainland China to achieve sustainable high levels of growth, as local residential markets remain soft and office market fundamentals decelerate. | |
| Continuing a trend from last year, M&A activity increased in 2006 and had a material impact on the portfolio. In the U.S., a total of 24 M&A deals were announced in 2006, half of which were privatizations. The 12 privatizations, if all close per the terms proposed, represent $39 billion of equity removed from the public market and represent a staggering total of $68 billion of real estate assets, much of it acquired by respected savvy private market buyers. M&A activity affected several of our portfolio companies last year causing higher turnover and realized gains than normal. Two of the top 10 holdings of the Fund at the end of last year were taken over in 2006: Heritage Property Trust and Prentiss Properties. We realized significant gains on both these positions and several others in the portfolio during the year. M&A deals also occurred in Europe, Canada, and Asia. The active transaction pace continues to validate value in the publicly traded companies in relation to values in the private or direct property markets. |
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| We expect global property companies to deliver positive performance again in 2007 based on improving real estate market fundamentals which should lead to strong earnings growth. Property companies continue to offer attractive yields relative to other equities. The outsized gains in real estate stock prices experienced in 2006 mostly reflect the combination of higher earnings and continued declines in capitalization rates (i.e., the yields required by property investors on new investments). In 2007, we look for NAV growth tied much more closely to earnings growth. All the forces and trends from a year ago remain in place to expect positive total returns in 2007 including: continued reasonable valuations of the public companies versus private real estate valuations, continued strong funds flows, M&A activity, and new REIT company formation. There appears to be no shortage of capital seeking property investments as well as no shortage of companies which are contemplating entering the listed property stock arena, which should serve to expand and enrich the available investment opportunities. Continuing the trend of 2006, we look for several new public real estate companies in Europe and Asia. Real estate continues to be underrepresented in the public markets and thus we expect a long-term growth trend in the sector driven by the increased appetite for real estate by an increasingly income-focused investor base around the globe. With dividend yields of 3-4% and 7-9% earnings growth, real estate stocks can still deliver attractive positive returns even with some modest earnings multiple contraction. The Fund is well positioned to take advantage of the increasing globalization of real estate. | |
| We appreciate your continued faith and confidence. |
Sincerely,
 |
 |
|
| T. Ritson Ferguson | Steven D. Burton | |
|
President and
|
Co-Portfolio Manager | |
|
Chief Executive Officer
|
| Index Definitions: | |
| The S&P/Citigroup World Property Index is an unmanaged market-weighted total return index which consists of over 350 real estate companies from 18 developed markets with a free float total market capitalization of at least U.S. $100 million that derive more than 60% of their revenue from real estate development, management, rental and/or direct investment in physical property. | |
| The Morgan Stanley REIT Preferred Index is a preferred stock market capitalization weighted index of all exchange traded preferred securities of equity REITS. | |
| The MSCI World Index is an unmanaged market capitalization-weighted index of equity securities of companies domiciled in various countries. The Index is designed to represent the performance of developed stock markets throughout the world and excludes certain market segments unavailable to U.S. based investors. | |
| The JP Morgan Global Government Bond Index measures the performance of leading government bond markets based on total return in U.S. currency. |
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| U.S. $ | ||||||||
| Shares | Value | |||||||
| Common Stock – 125.3% | ||||||||
| Real Estate Investment Trusts (“REIT”) – 125.3% | ||||||||
| Australia – 15.8% | ||||||||
| 29,967,000 | DB RREEF Trust | $ | 41,925,465 | |||||
| 34,035,794 | Investa Property Group | 67,335,777 | ||||||
| 14,384,178 | Macquarie CountryWide Trust | 23,922,346 | ||||||
| 11,059,530 | Macquarie Goodman Industrial Trust | 66,250,099 | ||||||
| 28,584,000 | Macquarie ProLogis Trust | 28,275,025 | ||||||
| 8,484,633 | Westfield Group | 140,372,414 | ||||||
| 368,081,126 | ||||||||
| Canada – 10.1% | ||||||||
| 1,761,900 | Boardwalk Real Estate Investment Trust | 62,515,125 | ||||||
| 200,100 | Calloway Real Estate Investment Trust | 4,745,862 | ||||||
| 264,600 | Calloway Real Estate Investment Trust (a) | 6,275,638 | ||||||
| 500,000 | Crombie Real Estate Investment Trust (a) | 5,585,632 | ||||||
| 663,500 | Dundee Real Estate Investment Trust | 22,036,844 | ||||||
| 135,000 | Dundee Real Estate Investment Trust (a) | 4,483,759 | ||||||
| 884,800 | H&R Real Estate Investment Trust | 18,316,432 | ||||||
| 2,282,900 | InnVest Real Estate Investment Trust | 27,072,287 | ||||||
| 440,000 | InnVest Real Estate Investment Trust (a) | 5,217,840 | ||||||
| 700,000 | Primaris Retail Real Estate Investment Trust (a) | 11,356,879 | ||||||
| 879,900 | Retirement Residences Real Estate Investment Trust (a) | 6,260,696 | ||||||
| 2,447,000 | RioCan Real Estate Investment Trust | 52,884,807 | ||||||
| 1,040,300 | Sunrise Senior Living Real Estate Investment Trust (a) | 9,529,602 | ||||||
| 236,281,403 | ||||||||
| Finland – 0.6% | ||||||||
| 873,000 | Sponda Oyj | 13,814,184 | ||||||
| France – 8.2% | ||||||||
| 403,500 | Societe de la Tour Eiffel | 72,628,308 | ||||||
| 489,478 | Unibail | 119,472,880 | ||||||
| 192,101,188 | ||||||||
| Hong Kong – 4.8% | ||||||||
| 35,700,000 | Agile Property Holdings Ltd. | 33,509,274 | ||||||
| 12,988,000 | China Overseas Land & Investment Ltd. | 17,434,790 | ||||||
| 8,133,000 | Hang Lung Properties Ltd. | 20,391,977 | ||||||
| 2,258,900 | Hongkong Land Holdings Ltd. | 8,990,422 | ||||||
| 2,500,000 | Sun Hung Kai Properties Ltd. | 28,721,592 | ||||||
| 1,153,000 | The Link REIT | 2,372,047 | ||||||
| 111,420,102 | ||||||||
| Japan – 3.8% | ||||||||
| 2,388 | Japan Retail Fund Investment Corp. | 19,439,889 | ||||||
| 1,325,000 | Mitsubishi Estate Co., Ltd. | 34,249,507 | ||||||
| 968,000 | Mitsui Fudosan Co., Ltd. | 23,599,849 | ||||||
| 934 | Nippon Building Fund, Inc. | 12,384,877 | ||||||
| 89,674,122 | ||||||||
| Netherlands – 12.6% | ||||||||
| 116,780 | Corio NV | 9,532,106 | ||||||
| 357,401 | Eurocommercial Properties NV | 17,819,363 | ||||||
| 1,136,730 | Nieuwe Steen Investments NV | 33,516,515 | ||||||
| 494,786 | Rodamco Europe NV | 65,766,945 | ||||||
| 417,161 | VastNed Retail NV | 42,356,899 | ||||||
| 934,400 | Wereldhave NV | 124,323,644 | ||||||
| 293,315,472 | ||||||||
| New Zealand – 0.2% | ||||||||
| 3,500,000 | Macquarie Goodman Property Trust | 3,553,703 | ||||||
| United Kingdom – 11.4% | ||||||||
| 1,367,200 | British Land Co. Plc | 45,863,481 | ||||||
| 945,400 | Great Portland Estates Plc | 12,831,759 | ||||||
| 1,209,242 | Hammerson Plc | 37,322,357 | ||||||
| 1,902,400 | Land Securities Group Plc | 86,491,851 | ||||||
| 753,400 | Liberty International Plc | 20,584,256 | ||||||
| 45,000 | Mapeley Ltd. | 3,496,449 | ||||||
| 3,923,700 | Slough Estates Plc | 60,320,666 | ||||||
| 266,910,819 | ||||||||
| United States – 57.8% | ||||||||
| 197,300 | AMB Property Corp. | 11,563,753 | ||||||
| 115,300 | Acadia Realty Trust | 2,884,806 | ||||||
| 898,200 | American Campus Communities, Inc. | 25,571,754 | ||||||
| 259,800 | Apartment Investment & Management Co. – Class A | 14,553,996 | ||||||
| 1,213,100 | Archstone-Smith Trust | 70,614,551 | ||||||
| 104,600 | AvalonBay Communities, Inc. | 13,603,230 | ||||||
| 322,500 | BNP Residential Properties, Inc. | 7,788,375 | ||||||
| 285,800 | BioMed Realty Trust, Inc. | 8,173,880 | ||||||
| 505,200 | Boston Properties, Inc. | 56,521,776 | ||||||
| 1,215,230 | Brandywine Realty Trust | 40,406,398 | ||||||
| 1,198,300 | Camden Property Trust | 88,494,455 | ||||||
| 1,231,800 | Cedar Shopping Centers, Inc. | 19,597,938 | ||||||
| 402,900 | Colonial Properties Trust | 18,887,952 | ||||||
| 419,300 | Developers Diversified Realty Corp. | 26,394,935 | ||||||
| 219,900 | Douglas Emmett, Inc. (b) | 5,847,141 | ||||||
| 532,600 | Equity Office Properties Trust | 25,655,342 | ||||||
| 1,208,500 | Extra Space Storage, Inc. | 22,067,210 | ||||||
| 146,900 | Federal Realty Investment Trust | 12,486,500 | ||||||
| 1,211,100 | First Industrial Realty Trust, Inc. | 56,788,479 | ||||||
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| U.S. $ | ||||||||
| Shares | Value | |||||||
| Common Stock (continued) | ||||||||
| United States (continued) | ||||||||
| 1,655,400 | GMH Communities Trust | $ | 16,802,310 | |||||
| 675,000 | Gramercy Capital Corp. | 20,850,750 | ||||||
| 941,484 | HRPT Properties Trust | 11,627,327 | ||||||
| 856,200 | Health Care REIT, Inc. | 36,833,724 | ||||||
| 371,000 | Hersha Hospitality Trust | 4,207,140 | ||||||
| 25,000 | Highwoods Properties, Inc. | 1,019,000 | ||||||
| 308,000 | Hospitality Properties Trust | 14,639,240 | ||||||
| 755,400 | iStar Financial, Inc. | 36,123,228 | ||||||
| 1,580,990 | Liberty Property Trust | 77,689,849 | ||||||
| 2,808,400 | Maguire Properties, Inc. | 112,336,000 | ||||||
| 637,700 | Mid-America Apartment Communities, Inc. | 36,501,948 | ||||||
| 570,700 | National Retail Properties, Inc. | 13,097,565 | ||||||
| 2,650,300 | Nationwide Health Properties, Inc. | 80,092,066 | ||||||
| 170,700 | New Plan Excel Realty Trust | 4,690,836 | ||||||
| 215,000 | Newcastle Investment Corp. | 6,733,800 | ||||||
| 1,994,070 | OMEGA Healthcare Investors, Inc. | 35,334,920 | ||||||
| 994,000 | Pennsylvania Real Estate Investment Trust | 39,143,720 | ||||||
| 325,000 | ProLogis | 19,750,250 | ||||||
| 714,700 | Reckson Associates Realty Corp. | 32,590,320 | ||||||
| 364,700 | Regency Centers Corp. | 28,508,599 | ||||||
| 543,500 | SL Green Realty Corp. | 72,165,930 | ||||||
| 171,100 | Sovran Self Storage, Inc. | 9,800,608 | ||||||
| 1,144,100 | Spirit Finance Corp. | 14,266,927 | ||||||
| 770,000 | Strategic Hotels & Resorts, Inc. | 16,778,300 | ||||||
| 738,900 | The Macerich Co. | 63,966,573 | ||||||
| 800,000 | Trustreet Properties, Inc. | 13,480,000 | ||||||
| 200,000 | U-Store-It Trust | 4,110,000 | ||||||
| 1,351,043,401 | ||||||||
|
Total Common Stock (cost $1,881,436,575) |
2,926,195,520 | |||||||
| Master Limited Partnerships – 0.7% | ||||||||
| United States – 0.7% | ||||||||
| 484,848 |
Verde Realty MLP (b) (cost $15,999,984) |
15,999,984 |
||||||
| Preferred Stock – 14.8% | ||||||||
| Real Estate Investment Trusts (“REIT”) – 14.8% | ||||||||
| United States – 14.8% | ||||||||
| 125,800 | Affordable Residential Communities, Series A | 3,182,740 | ||||||
| 450,000 | Alexandria Real Estate Corp., Series C | 11,772,000 | ||||||
| 80,500 | Apartment Investment & Management Co., Series U | 2,054,360 | ||||||
| 400,000 | Apartment Investment & Management Co., Series V | 10,280,000 | ||||||
| 400,000 | Apartment Investment & Management Co., Series Y | 10,200,000 | ||||||
| 174,000 | Associated Estates Realty Corp. | 4,550,100 | ||||||
| 207,700 | Cedar Shopping Centers, Inc. | 5,531,051 | ||||||
| 125,000 | Digital Realty Trust, Inc., Series B | 3,214,850 | ||||||
| 200,800 | Duke Realty Corp., Series M | 5,216,784 | ||||||
| 126,800 | Eagle Hospitality Properties Trust, Inc., Series A | 3,235,936 | ||||||
| 337,500 | Equity Inns, Inc., Series C | 8,876,250 | ||||||
| 20,000 | FelCor Lodging Trust, Inc. | 504,200 | ||||||
| 430,700 | Glimcher Realty Trust, Series G | 10,918,245 | ||||||
| 520,000 | Health Care REIT, Inc., Series F | 13,452,400 | ||||||
| 905,600 | Host Marriot Corp, Series E | 24,079,904 | ||||||
| 222,600 | Innkeepers USA Trust, Series C | 5,611,746 | ||||||
| 1,015,000 | iStar Financial, Inc., Series I | 25,836,825 | ||||||
| 200,000 | LaSalle Hotel Properties, Series D | 5,125,000 | ||||||
| 523,200 | LaSalle Hotel Properties, Series E | 13,374,300 | ||||||
| 520,000 | LaSalle Hotel Properties, Series G | 13,234,000 | ||||||
| 36,000 | LBA Realty Fund II – WBP, Inc., Series A | 1,762,877 | ||||||
| 170,000 | LBA Realty Fund II – WBP, Inc., Series B | 3,536,000 | ||||||
| 1,000,000 | LTC Properties, Inc., Series F | 25,150,000 | ||||||
| 351,800 | Maguire Properties, Inc., Series A | 8,700,014 | ||||||
| 200,000 | Mid-America Apartment Communities, Inc., Series H | 5,260,000 | ||||||
| 237,100 | National Retail Properties, Inc., Series C | 6,034,195 | ||||||
| 120,000 | NorthStar Realty Finance Corp., Series A | 3,213,756 | ||||||
| 120,000 | OMEGA Healthcare Investors, Inc., Series D | 3,208,200 | ||||||
| 320,000 | PS Business Parks, Inc., Series O | 8,240,000 | ||||||
| 320,000 | Public Storage, Inc., Series K | 8,288,000 | ||||||
| 240,000 | RAIT Investment Trust, Series A | 6,060,000 | ||||||
| 160,000 | RAIT Investment Trust, Series B | 4,115,008 | ||||||
| 192,500 | SL Green Realty Corp., Series C | 4,931,850 | ||||||
| 200,000 | SL Green Realty Corp., Series D | 5,195,000 | ||||||
| 275,000 | Strategic Hotels & Resorts, Inc. (a) | 6,935,170 | ||||||
| 400,000 | Strategic Hotels & Resorts, Inc., Series B | 10,262,520 | ||||||
| 363,600 | Strategic Hotels & Resorts, Inc., Series C | 9,362,700 | ||||||
| 368,000 | Sunstone Hotel Investors, Inc., Series A | 9,384,000 | ||||||
| 342,600 | Taubman Centers, Inc., Series G | 9,010,380 | ||||||
| 573,500 | Taubman Centers, Inc., Series H | 15,312,450 | ||||||
| 464,400 | Winston Hotels, Inc., Series B | 11,765,574 | ||||||
|
Total Preferred Stock (cost $336,038,849) |
345,978,385 | |||||||
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| U.S. $ | ||||||||
| Shares | Value | |||||||
| Convertible Preferred Stock – 1.6% | ||||||||
| Real Estate Investment Trusts (“REIT”) – 1.6% | ||||||||
| United States – 1.6% | ||||||||
| 974,000 | FelCor Lodging Trust, Inc., Series A | $ | 24,340,260 | |||||
| 200,000 | Health Care REIT, Inc., 7.50%, Series G | 6,200,000 | ||||||
| 200,000 | Ramco-Gershenson Properties Trust, 7.95%, Series C | 7,600,000 | ||||||
|
Total Convertible Preferred Stock (cost $31,843,390) |
38,140,260 | |||||||
| Investment Companies – 3.4% | ||||||||
| United Kingdom – 3.4% | ||||||||
| 399,119 | Eurocastle Investment Ltd. | 20,315,122 | ||||||
| 15,495,600 | ING UK Real Estate Income Trust, Ltd. + | 35,786,115 | ||||||
| 4,620,000 | Insight Foundation Property Trust, Ltd. | 12,478,007 | ||||||
| 547,200 | ProLogis European Properties | 10,823,484 | ||||||
|
Total Investment Companies (cost $55,701,613) |
79,402,728 | |||||||
| Purchased Options (b) – 0.2% | ||||||||
| Brazil – 0.2% | ||||||||
| 438,400 |
Brascan Residential Properties SA expiring 10/22/07 @ $0 (cost $3,285,288) |
3,694,059 |
||||||
| Warrants (b) – 0.0% | ||||||||
| Hong Kong – 0.0% | ||||||||
| 1,623,500 |
China Overseas Land & Investment Ltd. expiring 7/18/07 |
|||||||
| (cost $0) | 1,252,499 | |||||||
|
Total Investments – 146.0% (cost $2,324,305,699) |
3,410,663,435 | |||||||
| Liabilities in Excess of Other Assets – (15.6%) | (364,608,780 | ) | ||||||
| Preferred shares, at redemption value – (30.4%) | (710,000,000 | ) | ||||||
| Net Assets Applicable to Common Shares – 100% (c) | $ | 2,336,054,655 | ||||||
| (a) | Securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. At December 31, 2006, the securities amounted to $48,710,046 or 2.1% of net assets. |
| (b) | Non-income producing security. |
| (c) | Portfolio percentages are calculated based on net assets applicable to Common Shares. |
| + | Investments in companies considered to be an affiliate of the Trust (such companies are defined as “Affiliated Companies” in Section 2(a)(3) of the Investment Company Act of 1940) were as follows: |
| Gross | Gross | |||||||||||
| Affiliate | Additions | Reductions | Dividend Income | |||||||||
|
ING UK Real Estate Income Trust, Ltd.
|
$ | — | $ | — | $ | 1,690,808 | ||||||
Table of Contents
|
Assets
|
||||||
|
Investments, at value (cost $2,296,799,553)
|
$ | 3,374,877,320 | ||||
|
Investment in affiliate (cost $27,506,146)
|
35,786,115 | |||||
|
Cash (including foreign currency of $441,958 with
a cost of $441,048)
|
438,837 | |||||
|
Receivable for capital shares sold
|
33,015,062 | |||||
|
Dividends receivable
|
20,676,377 | |||||
|
Receivable for investment securities sold
|
5,282,030 | |||||
|
Unrealized appreciation on swap contracts
|
5,219,108 | |||||
|
Dividend withholding reclaims receivable
|
439,524 | |||||
|
Deferred offering costs
|
282,400 | |||||
|
Other assets
|
120,746 | |||||
|
Total Assets
|
3,476,137,519 | |||||
|
Liabilities
|
||||||
|
Line of credit payable
|
347,519,500 | |||||
|
Payable for investment securities purchased
|
76,356,844 | |||||
|
Management fee payable
|
1,660,783 | |||||
|
Dividends payable — preferred shares
|
1,080,787 | |||||
|
Offering costs payable
|
262,541 | |||||
|
Accrued expenses and other liabilities
|
3,202,409 | |||||
|
Total Liabilities
|
430,082,864 | |||||
|
Preferred Shares, at redemption
value
|
||||||
|
$0.001 par value per share; 28,400 Auction
Preferred Shares authorized,
issued and outstanding at $25,000 per share liquidation preference |
710,000,000 | |||||
|
Net Assets Applicable to Common
Shares
|
$ | 2,336,054,655 | ||||
|
Composition of Net Assets Applicable to Common
Shares
|
||||||
|
Common Shares, $0.001 par value per share;
unlimited number of shares authorized, 102,569,779 shares issued and outstanding |
$ | 102,570 | ||||
|
Additional paid-in capital
|
1,472,300,287 | |||||
|
Distributions in excess of net investment income
|
(237,370,730 | ) | ||||
|
Accumulated net realized gain on investments,
swap contracts and foreign currency transactions
|
9,401,810 | |||||
|
Net unrealized appreciation on investments, swap
contracts and foreign currency denominated assets and liabilities
|
1,091,620,718 | |||||
|
Net Assets Applicable to Common
Shares
|
$ | 2,336,054,655 | ||||
|
Net Asset Value Applicable to Common
Shares
|
||||||
|
(based on 102,569,779 common shares outstanding)
|
$ | 22.78 | ||||
Table of Contents
|
Investment Income
|
||||||||||
|
Dividends (net of foreign withholding taxes of
$8,082,763)
|
$ | 128,697,587 | ||||||||
|
Dividends from affiliate
|
1,690,808 | |||||||||
|
Interest
|
39,896 | |||||||||
|
Total Investment Income
|
$ | 130,428,291 | ||||||||
|
Expenses
|
||||||||||
|
Management fees
|
24,883,221 | |||||||||
|
Interest expense on line of credit
|
9,530,386 | |||||||||
|
Auction agent fees — preferred shares
|
1,804,828 | |||||||||
|
Administration fees
|
600,856 | |||||||||
|
Transfer agent fees
|
444,116 | |||||||||
|
Custodian fees
|
443,829 | |||||||||
|
Printing fees
|
370,314 | |||||||||
|
Insurance fees
|
182,311 | |||||||||
|
Trustees’ fees and expenses
|
124,825 | |||||||||
|
Legal fees
|
123,436 | |||||||||
|
Professional fees
|
85,327 | |||||||||
|
AMEX listing fee
|
15,000 | |||||||||
|
Rating agency fees
|
11,800 | |||||||||
|
Miscellaneous expenses
|
17,184 | |||||||||
|
Total Expenses
|
38,637,433 | |||||||||
|
Management fee waived
|
(7,318,594 | ) | ||||||||
|
Net Expenses
|
31,318,839 | |||||||||
|
Net Investment Income
|
99,109,452 | |||||||||
|
Net Realized and Unrealized Gain (Loss) on
Investments, Swap Contracts and Foreign Currency
Transactions
|
||||||||||
|
Net realized gain on:
|
||||||||||
|
Investments
|
88,253,499 | |||||||||
|
Swap contracts
|
3,904,032 | |||||||||
|
Foreign currency transactions
|
439,613 | |||||||||
|
Total Net Realized Gain
|
92,597,144 | |||||||||
|
Net change in unrealized
appreciation/depreciation on:
|
||||||||||
|
Investments
|
734,551,114 | |||||||||
|
Swap contracts
|
(649,877 | ) | ||||||||
|
Foreign currency denominated assets and
liabilities
|
112,098 | |||||||||
|
Total Net Change in Unrealized
Appreciation/Depreciation
|
734,013,335 | |||||||||
|
Net Gain on Investments, Swap Contracts and
Foreign Currency Transactions
|
826,610,479 | |||||||||
|
Dividends and Distributions on Preferred
Shares from
|
||||||||||
|
Net investment income
|
(35,323,408 | ) | ||||||||
| Net Increase in Net Assets Applicable to Common Shares Resulting from Operations | $ | 890,396,523 | ||||||||
Table of Contents
| For the | For the | ||||||||
| Year Ended | Year Ended | ||||||||
| December 31, 2006 | December 31, 2005 | ||||||||
|
Change in Net Assets Applicable to Common
Shares Resulting from Operations
|
|||||||||
|
Net investment income
|
$ | 99,109,452 | $ | 110,561,522 | |||||
|
Net realized gain on investments, swap contracts
and foreign currency transactions
|
92,597,144 | 28,137,989 | |||||||
|
Net change in unrealized
appreciation/depreciation on investments, swap contracts and
foreign currency denominated assets and liabilities
|
734,013,335 | 18,561,414 | |||||||
|
Dividends and distributions on Preferred Shares
from net investment income
|
(35,323,408 | ) | (23,717,912 | ) | |||||
|
Net increase in net assets applicable to Common
Shares resulting from operations
|
890,396,523 | 133,543,013 | |||||||
|
Dividends and Distributions on Common
Shares
|
|||||||||
|
Distribution of net investment income
|
(230,141,928 | ) | (139,299,092 | ) | |||||
|
Distribution of capital gains
|
(100,149,675 | ) | (17,197,419 | ) | |||||
|
Total dividends and distributions on Common Shares
|
(330,291,603 | ) | (156,496,511 | ) | |||||
|
Capital Share Transactions
|
|||||||||
|
Net proceeds from the issuance of Common Shares
|
— | 88,896 | |||||||
|
Reinvestment of dividends
|
33,015,062 | — | |||||||
|
Net increase from capital share transactions
|
33,015,062 | 88,896 | |||||||
|
Net Increase (Decrease) in Net Assets
|
593,119,982 | (22,864,602 | ) | ||||||
|
Net Assets Applicable to Common
Shares
|
|||||||||
|
Beginning of year
|
1,742,934,673 | 1,765,799,275 | |||||||
|
End of year (net of distributions in excess of
net investment income of $237,370,730 and $76,686,744,
respectively)
|
$ | 2,336,054,655 | $ | 1,742,934,673 | |||||
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|
Cash Flows from Operating
Activities:
|
||||||
|
Net increase in net assets applicable to Common
Shares resulting from operations
|
$ | 890,396,523 | ||||
|
Adjustments to Reconcile Net Increase in Net
Assets Applicable to Common Shares Resulting From Operations to
Net Cash Provided by Operating and Investing
Activities:
|
||||||
|
Decrease in unrealized appreciation on swap
contracts
|
649,877 | |||||
|
Net change in unrealized
appreciation/depreciation on investments
|
(734,551,114 | ) | ||||
|
Net realized gain on investments
|
(88,253,499 | ) | ||||
|
Cost of long-term securities purchased
|
(437,610,656 | ) | ||||
|
Proceeds from sale of long-term securities
|
389,503,180 | |||||
|
Decrease in receivable for investment securities
sold
|
74,314,289 | |||||
|
Increase in dividends receivable
|
(1,987,802 | ) | ||||
|
Increase in receivable for capital shares sold
|
(33,015,062 | ) | ||||
|
Decrease in dividend withholding reclaims
receivable
|
667,989 | |||||
|
Increase in deferred offering costs
|
(282,400 | ) | ||||
|
Decrease in other assets
|
9,917 | |||||
|
Decrease in payable for investment securities
purchased
|
(5,993,887 | ) | ||||
|
Increase in offering costs payable
|
262,541 | |||||
|
Increase in management fee payable
|
372,799 | |||||
|
Increase in accrued expenses and other liabilities
|
2,610,869 | |||||
|
Net Cash Provided by Operating and Investing
Activities
|
57,093,564 | |||||
|
Cash Flows From Financing
Activities:
|
||||||
|
Net proceeds from the issuance of common shares
|
33,015,062 | |||||
|
Cash distributions paid on Common Shares
|
(330,291,603 | ) | ||||
|
Increase in line of credit payable
|
228,057,500 | |||||
|
Increase in dividends payable —
preferred shares
|
270,618 | |||||
|
Net Cash Used in Financing Activities
|
(68,948,423 | ) | ||||
|
Net decrease in cash
|
(11,854,859 | ) | ||||
|
Cash at Beginning of Year
|
12,293,696 | |||||
|
Cash at End of Year
|
$ | 438,837 | ||||
Table of Contents
| For the Period | ||||||||||||||
| For the | For the | February 18, 2004(1) | ||||||||||||
| Per share operating performance for a Common Share outstanding | Year Ended | Year Ended | through | |||||||||||
| throughout the period | December 31, 2006 | December 31, 2005 | December 31, 2004 | |||||||||||
| Net asset value, beginning of period | $ | 17.23 | $ | 17.46 | $ | 14.33 | (2) | |||||||
|
Income from investment operations
|
||||||||||||||
|
Net investment income(3)
|
0.98 | 1.09 | 0.84 | |||||||||||
|
Net realized and unrealized gain on investments,
swap contracts and foreign currency transactions
|
8.19 | 0.46 | 3.12 | |||||||||||
|
Dividends and distributions on Preferred Shares
from net investment income (common stock equivalent basis)
|
(0.35 | ) | (0.23 | ) | (0.08 | ) | ||||||||
|
Total from investment operations
|
8.82 | 1.32 | 3.88 | |||||||||||
|
Dividends and distributions on Common
Shares
|
||||||||||||||
|
Net investment income
|
(2.28 | ) | (1.38 | ) | (0.75 | ) | ||||||||
|
Capital gains
|
(0.99 | ) | (0.17 | ) | — | |||||||||
|
Total dividends and distributions to Common
Shareholders
|
(3.27 | ) | (1.55 | ) | (0.75 | ) | ||||||||
|
Net asset value, end of period
|
$ | 22.78 | $ | 17.23 | $ | 17.46 | ||||||||
|
Market value, end of period
|
$ | 24.68 | $ | 16.30 | $ | 15.21 | ||||||||
|
Total investment
return(5)
|
||||||||||||||
| Net asset value | 53.42 | % | 8.13 | % | 28.20 | %(4) | ||||||||
|
Market value
|
75.97 | % | 18.32 | % | 7.16 | %(4) | ||||||||
|
Ratios and supplemental data
|
||||||||||||||
|
Net assets, applicable to Common Shares, end of
period (thousands)
|
$ | 2,336,055 | $ | 1,742,935 | $ | 1,765,799 | ||||||||
|
Ratios to average net assets applicable to Common
Shares of:
|
||||||||||||||
|
Net expenses, after fee waiver+
|
1.53 | % | 1.34 | % | 1.17 | %(6) | ||||||||
|
Net expenses, before fee waiver+
|
1.89 | % | 1.71 | % | 1.53 | %(6) | ||||||||
|
Net expenses, after fee waiver excluding interest
on line of credit+
|
1.06 | % | 1.11 | % | 1.07 | %(6) | ||||||||
|
Net expenses, before fee waiver excluding
interest on line of credit+
|
1.42 | % | 1.48 | % | 1.42 | %(6) | ||||||||
| Net investment income, after preferred share dividends | 3.11 | % | 5.11 | % | 6.20 | %(6) | ||||||||
| Preferred share dividends | 1.73 | % | 1.39 | % | 0.66 | %(6) | ||||||||
|
Net investment income, before preferred share
dividends+
|
4.84 | % | 6.50 | % | 6.86 | %(6) | ||||||||
|
Ratios to average net assets applicable to
Common & Preferred Shares of:
|
||||||||||||||
|
Net expenses, after fee waiver+
|
1.07 | % | 0.91 | % | 0.82 | %(6) | ||||||||
|
Net expenses, before fee waiver+
|
1.32 | % | 1.16 | % | 1.07 | %(6) | ||||||||
|
Net expenses, after fee waiver excluding interest
on line of credit+
|
0.74 | % | 0.75 | % | 0.75 | %(6) | ||||||||
|
Net expenses, before fee waiver excluding
interest on line of credit+
|
0.99 | % | 1.00 | % | 1.00 | %(6) | ||||||||
| Net investment income, after preferred share dividends | 2.18 | % | 3.45 | % | 4.35 | %(6) | ||||||||
| Preferred share dividends | 1.21 | % | 0.94 | % | 0.46 | %(6) | ||||||||
|
Net investment income, before preferred share
dividends+
|
3.39 | % | 4.39 | % | 4.81 | %(6) | ||||||||
|
Portfolio turnover rate
|
13.23 | % | 21.79 | % | 21.54 | % | ||||||||
|
Leverage analysis:
|
||||||||||||||
|
Preferred shares, at redemption value, ($25,000
per share liquidation preference) (thousands)
|
$ | 710,000 | $ | 710,000 | $ | 710,000 | ||||||||
|
Net asset coverage per share of preferred shares
|
$ | 107,255 | $ | 86,368 | $ | 87,176 | ||||||||
| (1) | Commencement of operations. |
| (2) | Net asset value at February 18, 2004. |
| (3) | Based on average shares outstanding. |
| (4) | Total investment return on net asset value (“NAV”) is calculated assuming a purchase at the offering price of $15.00 (less $0.675 sales load) per share paid by the initial shareholder on the first day and a sale at NAV on the last day of the period reported. Total investment return based upon market value is calculated assuming a purchase of Common Shares at the then-current market price of $15.00 on February 25, 2004 (initial public offering). |
| (5) | Total investment return does not reflect brokerage commissions. A return calculated for a period of less than one year is not annualized. Dividends and distributions are assumed to be reinvested at the prices obtained under the Trust’s Dividend Reinvestment Plan. NAV total return is calculated assuming reinvestment of distributions at NAV on the date of the distribution. |
| (6) | Annualized. |
| + | Does not reflect the effects of dividends to Preferred Shareholders. |
Table of Contents
1. Fund Organization
2. Significant Accounting Policies
Securities Valuation – The net asset value of the common shares of the Trust will be computed based upon the value of the Trust’s portfolio securities and other assets. The Trust calculates net asset value per common share by subtracting the Trust’s liabilities (including accrued expenses, dividends payable and any borrowings of the Trust) and the liquidation value of any outstanding preferred shares from the Trust’s total assets (the value of the securities the Trust holds, plus cash or other assets, including interest accrued but not yet received) and dividing the result by the total number of common shares of the Trust outstanding. Net asset value per common share will be determined as of the close of the regular trading session (usually 4:00 p.m., EST) on the New York Stock Exchange (“NYSE”) on each business day on which the NYSE is open for trading.
For purposes of determining the net asset value of the Trust, readily marketable portfolio assets traded principally on an exchange, or on a similar regulated market reporting contemporaneous transaction prices, are valued, except as indicated below, at the last sale price for such assets on such principal markets on the business day on which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the closing bid and asked prices on such day. If no bid or asked prices are quoted on such day, then the security is valued by such method as the Trust’s Board of Trustees (the “Board”) shall determine in good faith to reflect its fair market value. Readily marketable assets not traded on such a market are valued at the current bid prices provided by dealers or other sources approved by the Board, including pricing services when such prices are believed by the Board to reflect the fair market value of such assets. The prices provided by a pricing service take into account institutional size trading in similar groups of assets and any developments related to specific assets. Foreign securities are valued based upon quotations from the primary market in which they are traded and are translated from the local currency into U.S. dollars using current exchange rates. In addition, if quotations are not readily available, or if the values have been materially affected by events occurring after the closing of a foreign market, assets may be valued by another method that the Board of Trustees believes accurately reflects fair value. Other assets are valued at fair value by or pursuant to guidelines approved by the Board.
Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities, which mature in 60 days or less are valued at, amortized cost, which approximates market value.
Foreign Currency Translation – The books and records of the Trust are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
| (i) | market value of investment securities, other assets and liabilities – at the current rates of exchange; |
| (ii) | purchases and sales of investment securities, income and expenses – at the rate of exchange prevailing on the respective dates of such transactions. |
Although the net assets of the Trust are presented at the foreign exchange rates and market values at the close of each fiscal period, the Trust does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of long-term securities held at the end of the fiscal period. Similarly, the Trust does not isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the fiscal period. Accordingly, realized foreign currency gains or losses will be included in the reported net realized gains or losses on investment transactions.
Net realized gains or losses on foreign currency transactions represent net foreign exchange gains or losses from the holding of foreign currencies, currency gains or losses realized between the trade date and settlement date on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Trust’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign currency denominated assets or liabilities (other than investments) at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation on investments and foreign currencies.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political or economic instability, or the level of governmental supervision and regulation of foreign securities markets.
Forward Exchange Currency Contracts – The Trust may enter into forward exchange currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on it foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency on a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contracts and the closing of such contracts would be included in net realized gain or loss on foreign currency transactions.
Fluctuations in the value of open forward exchange currency contracts are recorded for financial reporting purposes as unrealized appreciation and depreciation by the Trust.
The Trust’s custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Trust having a value at least equal
Table of Contents
to the aggregate amount of the Trust’s commitments under forward exchange currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Trust has in that particular currency contract. As of December 31, 2006, the Trust did not hold any forward exchange currency contracts.
Securities Transactions and Investment Income – Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost. Dividend income is recorded on the ex-dividend date. Distributions received from investments in REITs are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The portion of dividend attributable to the return of capital is recorded against the cost basis of the security. Withholding taxes on foreign dividends are recorded net of reclaimable amounts, at the time the related income is earned. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, including accretion of original issue discount, where applicable, and accretion of discount on short-term investments, is recorded on the accrual basis. Realized gains and losses from securities transactions are recorded on the basis of identified cost.
Swaps – The Trust may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Trust enters into interest rate swap agreements to manage its exposure to interest rate and credit risk. Interest rate swap agreements involve the exchange by the Trust with another party of their respective commitments to pay or receive interest. Dividends and interest on the securities in the swap are included in the value of the exchange. The swaps are valued daily at current market value and any unrealized gain or loss is included in the Statement of Assets and Liabilities. Gain or loss is realized on the periodic reset date or termination date of the swap and is equal to the difference between the Trust’s basis in the swap and the proceeds of the closing transaction, including any fees. During the period that the swap agreement is open, the Trust may be subject to risk from the potential inability of the counterparty to meet the terms of the agreement. The swaps involve elements of both market and credit risk in excess of the amounts reflected on the Statement of Assets and Liabilities.
The Trust entered into interest rate swap agreements for the year ended December 31, 2006. Details of the swap agreements outstanding as of December 31, 2006 were as follows:
| Notional | ||||||||||||||||||||
| Termination | Amount | Fixed | Floating | Unrealized | ||||||||||||||||
| Counterparty | Date | (000) | Rate | Rate | Appreciation | |||||||||||||||
|
Citigroup
|
07/01/2007 | $200,000 | 3.68% | 1 Month LIBOR | $ | 1,909,202 | ||||||||||||||
|
Royal Bank of Canada
|
07/01/2009 | 200,000 | 4.32% | 1 Month LIBOR | 3,309,906 | |||||||||||||||
| $ | 5,219,108 | |||||||||||||||||||
For each swap noted, the Trust pays a fixed rate and receives a floating rate.
Dividends and Distributions to Shareholders – Dividends from net investment income, if any, are declared and paid on a monthly basis. Distributions from net realized capital gains, if any, are normally distributed in December. Income dividends and capital gain distributions to common shareholders are recorded on the ex-dividend date. To the extent the Trust’s net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of the Trust not to distribute such gains.
The current monthly rate is $0.115 per share. The Trust continues to evaluate its monthly distribution policy in light of ongoing economic and market conditions and may change the amount of the monthly distributions in the future.
Use of Estimates – The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
3. Concentration of Risk
4. Investment Management Agreement and Other Agreements
Table of Contents
managed assets plus certain direct and allocated expenses of the Advisor incurred on the Trust’s behalf. The Advisor has agreed to waive a portion of its management fee in the amount of 0.25% of the average weekly values of the Trust’s managed assets for the first five years of the Trust’s operations (through February, 2009), and for a declining amount for an additional four years (through February, 2013). During the year ended December 31, 2006, the Trust incurred management fees of $17,564,627, which are net of $7,318,594 in management fees waived by the Advisor.
The Trust has multiple service agreements with The Bank of New York (“BNY”). Under the servicing agreements, BNY will perform custodial, fund accounting, certain administrative services, and transfer agency services for the Trust. As custodian, BNY is responsible for the custody of the Trust’s assets. As administrator, BNY is responsible for maintaining the books and records of the Trust’s securities and cash. As transfer agent, BNY is responsible for performing transfer agency services for the Trust.
5. Portfolio Securities
In 2005, the Trust received 303,030 in call options for Verde Realty MLP in connection with its purchase of shares in Verde Realty MLP. These options expire in January 2007 at $33.00 per share. There were no dollars expended for acquiring these options and there is no value to the options at December 31, 2006.
6. Federal Income Taxes
The Trust distinguishes between dividends on a tax basis and on a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized gains in the components of net assets on the Statement of Assets and Liabilities.
In order to present paid-in capital in excess of par and accumulated net realized gains or losses on the Statement of Assets and Liabilities that more closely represent their tax character, certain adjustments have been made to additional paid-in capital, undistributed net investment income and accumulated net realized gains or losses on investments. For the year ended December 31, 2006, the adjustments were to decrease accumulated net realized gain on investments by $5,671,898 and increase undistributed net investment income by $5,671,898 due to the difference in the treatment for book and tax purposes of certain investments.
Information on the tax components of net assets as of December 31, 2006 is as follows:
| Net Tax | ||||||||||||||
| Unrealized | ||||||||||||||
| Net Tax | Appreciation | Undistributed | Undistributed | |||||||||||
| Cost of | Unrealized | on Swap | Ordinary | Long-Term | ||||||||||
| Investments | Gross Tax | Gross Tax | Appreciation | Contracts and | Income/ | Other | Capital Gains/ | |||||||
| for Tax | Unrealized | Unrealized | on | Foreign | (Accumulated | Temporary | (Accumulated | |||||||
| Purposes | Appreciation | Depreciation | Investments | Currency | Ordinary Loss) | Differences | Capital Loss) | |||||||
|
$2,652,664,521
|
$779,787,941 | $(21,789,027) | $757,998,914 | $5,262,982 | $90,830,546 | $(15,061) | $9,574,417 | |||||||
For the year ended December 31, 2006 and December 31, 2005, the tax character of distributions paid, as reflected in the Statements of Changes in Net Assets, were $265,465,336 and $163,017,004 of ordinary income and $100,149,675 and $17,197,419 of long-term capital gain, respectively.
7. Borrowings
The Trust has access to a secured line of credit up to $500,000,000 from BNY for borrowing purposes. Borrowings under this arrangement bear interest at the Federal funds rate plus 50 basis points. At December 31, 2006, there was an outstanding borrowing of $347,519,500 in connection with the Trust’s line of credit.
The average daily amount of borrowings during the year ended December 31, 2006 was $169,801,262, with a related weighted average interest rate of 5.61%. The maximum amount outstanding for the year ended December 31, 2006, was $347,519,500.
8. Capital
On February 26, 2004, the Trust’s Board authorized the issuance of preferred shares, in addition to the existing common shares, as part of its leverage strategy. Preferred shares issued by the Trust have seniority over the common shares.
The Trust issued 4,000 shares of Preferred Shares Series T28A, 4,000 shares of Preferred Shares Series W28B, 4,000 shares of Preferred Shares Series T28C, 4,000 shares of Preferred Shares Series W28D, 6,200 shares of Preferred Shares Series T7 and 6,200 shares of Preferred Shares Series W7, each with a liquidation value of $25,000 per share plus accumulated and unpaid dividends. Dividends
Table of Contents
will be accumulated daily at an annual rate set through auction procedures. Distributions of net realized capital gains, if any, will be paid annually.
For the year ended December 31, 2006, the annualized dividend rates ranged from:
| High | Low | At December 31, 2006 | ||||||||||||
|
Series T28A
|
5.30 | % | 4.36 | % | 5.25 | % | ||||||||
|
Series W28B
|
5.35 | 4.37 | 5.20 | |||||||||||
|
Series T28C
|
5.27 | 4.38 | 5.27 | |||||||||||
|
Series W28D
|
5.35 | 4.24 | 5.29 | |||||||||||
|
Series T7
|
5.29 | 4.15 | 5.29 | |||||||||||
|
Series W7
|
5.29 | 3.96 | 5.29 | |||||||||||
The Trust is subject to certain limitations and restrictions while preferred shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Trust from declaring any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of preferred shares at their liquidation value.
The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares, voting as a separate class, are also entitled to elect two Trustees. In addition, the Investment Company Act of 1940, as amended, requires that, along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the preferred shares, (b) change a Trust’s sub-classification as a closed-end investment company or change its fundamental investment restrictions and (c) change the nature of its business so as to cease to be an investment company.
9. Indemnifications
10. New Accounting Pronouncements
On September 15, 2006, the FASB released Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”) which provides enhanced guidance for measuring fair value. The standard requires companies to provide expanded information about the assets and liabilities measured at fair value and the potential effect of these fair valuations on an entity’s financial performance. The standard does not expand the use of fair value in any new circumstances, but provides clarification on acceptable fair valuation methods and applications. Adoption of FAS 157 is required for fiscal years beginning after November 15, 2007. At this time, management is evaluating the implications of FAS 157 and its impact in the financial statements has not yet been determined.
11. Subsequent Event
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To the Shareholders and Board of Trustees of
| We have audited the accompanying statement of assets and liabilities of the ING Clarion Global Real Estate Income Fund (the “Trust”), including the portfolio of investments, as of December 31, 2006, and the related statements of operations and cash flows for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. | |
| We conducted our audits 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Trust’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the Trust’s custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. | |
| In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Trust at December 31, 2006, the results of its operations and its cash flows for the year then ended, and the changes in its net assets for each of the two years in the period then ended and financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. | |
 |
PHILADELPHIA, PENNSYLVANIA
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Federal Income Tax Information
For corporate shareholders, $1,095,985 of investment income qualified for the dividends-received deduction.
In February 2007, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2006.
Trustees
| Number of | ||||||||||||
| Portfolios in | ||||||||||||
| the Fund | ||||||||||||
| Term of Office | Principal Occupations | Complex | Other Directorships | |||||||||
| Name, Address | and Length of | During The Past | Overseen | Held by | ||||||||
| and Age | Time Served(1) | Title | Five Years | by Trustee | Trustee | |||||||
| Interested Trustees: | ||||||||||||
|
T. Ritson Ferguson* 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 47 |
3 years/since inception | Trustee, President and Chief Executive Officer | Managing Director and Chief Investment Officer of ING Clarion Real Estate Securities, L.P. (since 1995). | 2 | Board member of the Community Coalition of Chester County (since 2005) and board member of ING Business Select Ltd. (UK) (2007-present). | |||||||
|
Jarrett B. Kling* 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 63 |
2 years/since inception | Trustee | Managing Director of ING Clarion Real Estate Securities, L.P., member of the Investment Advisory Committee of the TDH Group of venture funds. | 2 | Trustee of The Hirtle and Callaghan Trust (1995-present); National Trustee of the Boys and Girls Clubs of America (1997-present); Board of Old Mutual Advisor Funds (since 2005). | |||||||
| Independent Trustees: | ||||||||||||
|
Asuka Nakahara 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 51 |
2 years/since inception | Trustee | Associate Director of the Zell-Lurie Real Estate Center at the Wharton School, University of Pennsylvania (since July 1999); Lecturer of Real Estate at the Wharton School, University of Pennsylvania; Chief Financial Officer of Trammell Crow Co. (January 1, 1996-September 1, 1998); Chief Knowledge Officer of Trammell Crow Co. (September 1, 1998-December 31, 1999). | 2 | Serves on the Advisory board of the HBS Club of Philadelphia (2000-present); the board of The Philadelphia Foundation (2004-present) and the board of the Children’s Hospital of Philadelphia (2006-present). Former Trustee of Ardmore Presbyterian Church (2002-2004). | |||||||
|
Frederick S. Hammer 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 70 |
3 years/since inception | Trustee | Co-Chairman of Inter-Atlantic Group (since 1994) and a member of its investment committee; Co-Chairman of Guggenheim Securities Holdings, LLC (2002-2003); non-executive. | 2 | Serves on the Boards of E-Duction, Inc. (2005-present), Avalon Insurance Holdings, Inc. (2006-present) and Homeowners Insurance Corp. (2006-present). Trustee of the Madison Square Boys and Girls Club (1978-present). Chairman of the Board of Annuity and Life Re (Holdings), Ltd. (1998-2005); Director on the Boards of Tri-Arc Financial Services, Inc. (1989-2004) and Magellan Insurance Co., Ltd. (1995-2004); former Director of Medallion Financial Corp. (1999-2002), IKON Office Solutions, Inc. (1986-1999) and VISA International (1978-1989). | |||||||
|
Richard L. Sutton 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 71 |
3 years/since inception | Trustee | Of Counsel, Morris, Nichols, Arsht & Tunnell (2000-present); Partner, Morris, Nichols, Arsht & Tunnel (1966-2000). | 2 | Trustee of the Unidel Foundation, Inc. (since 2000); Board of Directors of ING Global Real Estate Securities Ltd. (2006-present), Wilmington Country Club (1999-2004), Grand Opera House, Inc., (1976-1992), University of Delaware Library Associates, Inc. (1981-1999), Wilmington Club (1987- 2003), American Judicature Society (1995-1999). | |||||||
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| Number of | ||||||||||||
| Portfolios in | ||||||||||||
| the Fund | ||||||||||||
| Term of Office | Principal Occupations | Complex | Other Directorships | |||||||||
| Name, Address | and Length of | During The Past | Overseen | Held by | ||||||||
| and Age | Time Served(1) | Title | Five Years | by Trustee | Trustee | |||||||
|
John Bartholdson 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 62 |
3 years/2 years | Trustee/Audit Committee Financial Expert | Senior Vice President, CFO and Treasurer, and a Director of Triumph Group, Inc. (1993-present). | 2 | Serves on the Board of Old Mutual Advisor Funds, Old Mutual Advisor Funds II and Old Mutual Insurance Series Fund (since 2004); and the Philadelphia/Washington Advisory Board of FM Global (since 2004). | |||||||
| (1) | After a Trustee’s initial term, each Trustee is expected to serve a three-year term concurrent with the class of Trustees for which he serves. Messrs. Sutton and Bartholdson, as Class III Trustees, are expected to stand for re-election at the Trust’s 2007 annual meeting of shareholders; Messrs. Ferguson and Hammer, as Class I Trustees, are expected to stand for re-election at the Trust’s 2008 annual meeting of shareholders; Messrs. Kling and Nakahara, as Class II Trustees, are expected to stand for re-election at the Trust’s 2009 annual meeting of shareholders. |
| * | Messrs. Ferguson and Kling are deemed to be interested persons of the Trust as defined in the Investment Company Act of 1940, as amended, due to their positions with the Advisor. |
Officers
| Name, Address, Age | Principal Occupations | |||
| and Position(s) Held | Length of | During the Past | ||
| with Registrant | Time Served | Five Years and Other Affiliations | ||
| Officers: | ||||
|
Jonathan A. Blome 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 29 Chief Financial Officer |
since 2006 | Senior Vice President of ING Clarion Real Estate Securities, L.P. since 2005 | ||
|
Vincent P. McDevitt 259 N. Radnor-Chester Road Radnor, PA 19087 Age: 40 Chief Compliance Officer and Secretary |
since 2006 | Chief Compliance Officer of ING Clarion Real Estate Securities, L.P. since 2006 | ||
Additional Information
The Trust has delegated the voting of the Trust’s voting securities to the Trust’s advisor pursuant to the proxy voting policies and procedures of the advisor. You may obtain a copy of these policies and procedures by calling 1-888-711-4272. The policies may also be found on the website of the Securities and Exchange Commission (http://www.sec.gov).
Information regarding how the Trust voted proxies for portfolio securities, if applicable, during the most recent 12-month period ended June 30, is also available, without charge and upon request by calling the Trust at 1-888-711-4272 or by accessing the Trust’s Form N-PX on the Commission’s website at http://www.sec.gov.
The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Q are available on the SEC website at http://www.sec.gov. The Trust’s Form N-Q may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
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Board Considerations in Approving the Advisory Agreement
In particular, the Board of Trustees considered the nature, extent and quality of advisory services provided by the Advisor. The Board of Trustees considered both the performance of the Trust, as well as other services provided to the Trust by the Advisor. In concluding that the services provided by the Advisor were satisfactory and supported continuation of the investment management agreement, the Board of Trustees evaluated the Advisor’s personnel, experience, investment process (including brokerage practices), track record, and compliance program, as well as the administrative oversight of the Trust’s operations provided by the Advisor and the resources the Advisor devoted to the Trust, including the additional personnel added to support the Trust’s operations. In making its conclusion, the Board of Trustees found that the nature, extent and quality of these services provided by the Advisor to the Trust supported renewal of the investment management agreement. Based on the Board of Trustees’ evaluation of the Trust’s recent and long-term performance relative to its peer groups and appropriate indices/benchmarks, in light of total return, yield and economic and market trends and market risk expectations, the Board of Trustees concluded that the Trust’s performance (both actual performance and comparable performance), particularly in light of the Trust’s income objective was satisfactory, and generally above average as compared to the performance achieved by a peer group of investment companies similarly managed by third parties and other accounts managed by the Advisor, as well as appropriate performance indices, and supported renewal of the investment management agreement.
The Board of Trustees also considered the level of compensation and other benefits received by the Advisor as a result of its relationship with the Trust. The Board of Trustees took into account the quality of the Advisor’s services as well as advisory fees charged to other comparable closed-end global real estate funds, which fell within a relatively tight band, and other assets comparably managed by the Advisor. Based on this review, the Board of Trustees concluded that the advisory fee structure under the investment management agreement was reasonable and supports renewal of the investment management agreement. During the course of its review, the Board of Trustees also considered information relating to the costs incurred by the Advisor in connection with the provision of services to the Trust and the potential that the Advisor may realize “fall out benefits” as a result of its relationship with the Trust. The Board of Trustees concluded that, based on the profit levels reported by the Advisor and in light of the specific circumstances of the Trust, the advisory fees paid to the Advisor has not resulted in a profit (including allowance for return on entrepreneurial risk) to the Advisor that is excessive or beyond the range that would have been negotiated at arm’s length. In this regard, the Board of Trustees did not specifically consider the potential for realization of economies of scale because the Trust is a closed-end vehicle with limited potential for asset growth. The Board of Trustees further concluded that the Advisor has sufficient profitability to remain a sustainable business and to attract and retain talented employees supported renewal of the investment management agreement.
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Pursuant to the Trust’s Dividend Reinvestment Plan (the “Plan”), shareholders of the Trust are automatically enrolled, to have all distributions of dividends and capital gains reinvested by The Bank of New York (the “Plan Agent”) in the Trust’s shares pursuant to the Plan. You may elect not to participate in the Plan and to receive all dividends in cash by sending written instructions or by contacting The Bank of New York, as dividend disbursing agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, which serves as agent for the shareholders in administering the Plan.
After the Trust declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ account, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Trust (“newly issued shares”) or (ii) by open market purchases. If, on the dividend payment date, the NAV is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as “market premium”), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the payment date, the dollar amount of the dividend will be divided by 95% of the market price on the payment date. If, on the dividend payment date, the NAV is greater than the market value per share plus estimated brokerage commissions (such condition being referred to herein as “market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases.
The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, 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 dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal income tax that may be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Trust reserves the right to amend the Plan to include a service charge payable by the participants. Participants that request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commission. All correspondence concerning the Plan should be directed to the Plan Agent at The Bank of New York, Attention: Stock Transfer Department, P.O. Box 11258, New York, NY 10286-1258, Phone Number: (800) 432-8224.
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| ING Clarion Global Real Estate Income Fund |
| Fund Information | |
| Board of Trustees | |
| T. Ritson Ferguson | |
| Jarrett B. Kling | |
| Asuka Nakahara | |
| Frederick S. Hammer | |
| Richard L. Sutton | |
| John Bartholdson | |
| Officers | |
| T. Ritson Ferguson | |
| President and | |
| Chief Executive Officer | |
| Jonathan A. Blome | |
| Chief Financial Officer | |
| Vincent P. McDevitt | |
| Chief Compliance Officer and | |
| Secretary | |
| Investment Advisor | |
| ING Clarion Real Estate Securities, L.P. | |
| 259 N. Radnor-Chester Road | |
| Radnor, PA 19087 | |
| Administrator, Custodian and | |
| Transfer Agent | |
| The Bank of New York | |
| New York, New York | |
| Preferred Shares – Dividend Paying Agent | |
| The Bank of New York | |
| New York, New York | |
| Legal Counsel | |
| Morgan, Lewis & Bockius, LLP | |
| Washington, DC | |
| Independent Registered Public Accounting Firm | |
| Ernst & Young LLP | |
| Philadelphia, Pennsylvania |
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2005: $37,000
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2005: $0
2005: $21,500
2005: $0
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2005: $37,190
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14 years
Experience during past 5 years has been with ING Clarion Real Estate Securities, L.P.
Managing Director and Lead Global Portfolio Manager
11 years
Experience during past 5 years has been with ING Clarion Real Estate Securities, L.P.
Managing Director and Portfolio Manager
16 years
Experience during past 5 years has been with ING Clarion Real Estate Securities, L.P.
| Number of Accounts | ||||||||||||||
| Number of | Managed with | Total Assets in Accounts | ||||||||||||
| Name of Portfolio | Type of | Accounts | Total Assets | Advisory Fee Based | Managed with Advisory Fee | |||||||||
| Managers | Accounts | Managed | in the Accounts | on Performance | Based on Performance | |||||||||
T. Ritson Ferguson |
Registered | 19 | $ | 12,543,600,000 | 1 | $ | 272,500,000 | |||||||
| Investment | ||||||||||||||
| Companies | ||||||||||||||
| Other Pooled | 6 | $ | 395,400,000 | 6 | $ | 395,400,000 | ||||||||
| Investment | ||||||||||||||
| Vehicles | ||||||||||||||
| Other | 54 | $ | 3,022,600,000 | 5 | $ | 832,800,000 | ||||||||
| Accounts | ||||||||||||||
Steven D. Burton |
Registered | 15 | $ | 11,703,900,000 | 1 | $ | 272,500,000 | |||||||
| Investment | ||||||||||||||
| Companies | ||||||||||||||
| Other Pooled | 0 | $ | 0 | 0 | $ | 0 | ||||||||
| Investment | ||||||||||||||
| Vehicles | ||||||||||||||
| Other | 25 | $ | 1,861,600,000 | 2 | $ | 740,800,000 | ||||||||
| Accounts | ||||||||||||||
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| Number of Accounts | ||||||||||||||
| Number of | Managed with | Total Assets in Accounts | ||||||||||||
| Name of Portfolio | Type of | Accounts | Total Assets | Advisory Fee Based | Managed with Advisory Fee | |||||||||
| Managers | Accounts | Managed | in the Accounts | on Performance | Based on Performance | |||||||||
Joseph P. Smith |
Registered | 4 | $ | 839,700,000 | 0 | $ | 0 | |||||||
| Investment | ||||||||||||||
| Companies | ||||||||||||||
| Other Pooled | 6 | $ | 395,400,000 | 6 | $ | 395,400,000 | ||||||||
| Investment Vehicles | ||||||||||||||
| Other | 29 | $ | 1,161,000,000 | 3 | $ | 92,000,000 | ||||||||
| Accounts | ||||||||||||||
| Name of Portfolio Managers | Dollar Value of Trust Shares Beneficially Owned | |
T. Ritson Ferguson |
$500,001-$1,000,000 | |
Steven D. Burton |
$100,001-$500,000 | |
Joseph P. Smith |
$10,001-$50,000 |
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By:
|
/s/ T. Ritson Ferguson | |||
| Name: T. Ritson Ferguson | ||||
| Title: President and Chief Executive Officer | ||||
| Date: March 1, 2007 | ||||
By:
|
/s/ T. Ritson Ferguson | |||
| Name: T. Ritson Ferguson | ||||
| Title: President and Chief Executive Officer | ||||
| Date: March 1, 2007 | ||||
By:
|
/s/ Jonathan A. Blome | |||
| Name: Jonathan A. Blome | ||||
| Title: Treasurer and Chief Financial Officer | ||||
| Date: March 1, 2007 | ||||