New Horizons Master Fund. Interim Management Report of Fund Performance For the period April 1, 2011 to June 30, 2011

Transcription

1 New Horizons Master Fund Interim Management Report of Fund Performance For the period April 1, 2011 to

2 IN PROFILE New Horizons Master Fund (the Fund ) is managed by Brookfield Investment Management (Canada) Inc., a subsidiary of Brookfield Asset Management Inc., a global asset manager with over $150 billion of assets under management as of. Brookfield Asset Management Inc. has over 100 years of experience in property, power and infrastructure industries. The combination of access to this operational experience along with the breadth of our product offerings and depth of our investment teams provides enhanced opportunity for investment. Brookfield Investment Management (Canada) Inc. is the investment manager of the Fund.

3 This Interim Management Report of Fund Performance contains financial highlights but does not contain the complete Interim Financial Statements of the Fund. You may obtain a copy of the Interim Financial Statements at your request, and at no cost, by contacting us (see contact information at end of this report) or by visiting our website at or on SEDAR at Unit holders may also contact us to request a free copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. This report may contain forward looking statements. Forward looking statements involve risks and uncertainties and are predictive in nature and actual results could differ materially from those contemplated by the forward looking statements. Unless otherwise indicated, all information is presented as at. None of the websites that are referred to in this Interim Management Report of Fund Performance, nor any of the information on any such websites, are incorporated by reference in this Interim Management Report of Fund Performance. RESULTS OF OPERATIONS The New Horizons Master Fund (the Fund ) is an investment fund created to invest in a portfolio of securities (the Portfolio ) that focuses on, but is not limited to, investments in high yield corporate debt, and publicly-listed securities in infrastructure and real estate companies across a global universe. Brookfield Investment Management (Canada) Inc. ( BIM Canada ) is the manager (the Manager ) and the investment manager (the Investment Manager ) of the Fund. The Fund began operations on April 1, 2011 when it issued 12,910,000 units (the Units ) at $10.00 for gross proceeds of $129,100,000. The Fund s net asset value was $127,989,978 as at, a decrease from $129,100,000 million as at April 1, The largest factors contributing to this decrease were net investment income of $2,922,090 offset by net investment losses of $4,032,112. For the period ended, the net asset value per Unit of the Fund was $9.91 compared to $10.00 on April 1, 2011, the Fund s inception date. Total return for the Fund was -0.90% over the period. The Fund had a total return of -0.90% over the period for two main reasons: (1) a general weakening in corporate credit, and (2) price changes in individual holdings of the Portfolio. Over the period April 1, 2011 to, the U.S. corporate high yield debt market, as measured by the Merrill Lynch U.S. High Yield Master II Index, had a total return of 0.99% in U.S. dollar terms. Most of this return was generated by coupon payments as prices dropped 0.95% according to the same index, indicating a broad weakening in corporate credit. The Fund was exposed to this market decline. In addition to the impact of the broad market on the Portfolio, there were several outperformers and underperformers in the portfolio. The Master Fund s holdings in Rite Aid Corp., Cincinnati Bell Inc. and Edison Mission Energy benefited from positive company-specific performance. The Master Fund s holdings in housing related names such as Beazer Homes USA, Inc., Ainsworth Lumber Co. Ltd. and USG Corp. were notable underperformers due to the weakness in that sector. As the Units of the fund are denominated in Canadian dollars and most of the Portfolio is currently invested in US dollar denominated high yield corporate bonds the Fund is exposed to currency risk. This risk was unhedged during the period from April 1, 2011 to, but there was no material change in exchange rates. A material change that occurred in the Portfolio of the Fund during the period was the Fund s invested status. At approximately 2.2% of the Portfolio s assets were held in cash compared to approximately 17.5% held in cash at April 1, Interim Management Report of Fund Performance 1

4 RECENT DEVELOPMENTS Consistent with the Investment Manager s strategy, the Portfolio is focused on investments in high yield corporate debt and publicly-listed securities in infrastructure and real estate companies across a global universe. Allocations across these asset classes are based on trends and risk/return expectations, and the Investment Manager s assessment of the macro-economic environment and investment landscape. The large yield component of returns present across these asset classes has historically provided enhanced income and capital preservation of portfolios versus many other asset classes. The Manager believes recent market concerns over slowing global growth and overall market volatility will result in strong opportunities for the Fund as risk becomes more attractively priced. At the current time, of the three asset classes, the Manager believes that risk is most attractively priced in high yield corporate bonds although recent market volatility has created some opportunities in high yielding global equities. FUTURE ACCOUNTING CHANGES International Financial Reporting Standards ( IFRS ) will replace Canadian GAAP for publicly accountable enterprises, which include investment funds and other reporting issuers. Under the general transition rules for publicly accountable enterprises the Fund would adopt IFRS for its fiscal period beginning January 1, Canadian publicly accountable enterprises, which include investment funds, are required to prepare financial statements in accordance with IFRS, as issued by the International Accounting Standards Board ("IASB"), for years beginning on or after January 1, On September 7, 2010, the Canadian Accounting Standards Board ("AcSB") approved an optional one year deferral of IFRS adoption for investment companies applying Accounting Guideline AcG 18, Investment Companies until fiscal years beginning on or after January 1, On January 12, 2011, the AcSB approved an additional one year extension to the optional one year deferral until fiscal years beginning on or after January 1, Accordingly, the Fund will adopt IFRS no later than for the fiscal year beginning January 1, 2013, and will issue its initial financial statements in accordance with IFRS, including comparative information, no later than for the interim period ending June 30, RELATED PARTY TRANSACTIONS The Manager and the Fund are deemed to be related parties. Transactions with related parties, including investment transactions, are conducted in the normal course of operations and are recorded at exchange amounts, which are equivalent to normal market terms. Please refer to the section titled Management Fees, which outlines the fees paid to the Manager by the Fund. The Manager is a wholly owned subsidiary of Brookfield Asset Management Inc. ( Brookfield ) and it manages the investment and trading activities of the Fund pursuant to a management agreement. Due to Brookfield s ability to control the Fund, Brookfield, and its affiliates over which it has the ability to exercise control or significant influence, are related parties of the Fund by virtue of common control or common significant influence. The Fund entered into an agreement dated March 1, 2011 with three entities, two of which were related parties of the Fund (the Exchange Option Purchasers ) due to common control. Each of the Exchange Option Purchasers agreed to sell to the Fund on the Closing Date, April 1, 2011, a portfolio of securities (the Exchange Option Securities ). The Investment Manager determined that the Exchange Option Securities complied with the Fund s investment restrictions, that owning such securities was consistent with the Fund s investment objectives and that acquiring these securities on this basis was in the best interest of the Fund. The transaction was effected at the market price of the Exchange Option Securities on the day before the Closing Date (Closing Date being April 1, 2011). The total value of the Exchange Option Securities was $103.6 million. There were no other transactions conducted with related parties during the period. 2 New Horizons Master Fund

5 FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance since inception: The Fund s net assets per Unit (1) For the period ended (2) Net assets, beginning of period (3) $ Increase (decrease) from operations Total revenue 0.24 Total expenses (0.01) Realized gains (losses) for the period 0.07 Unrealized gains (losses) for the period (0.38) Total increase (decrease) from operations (4) (0.09) Net assets, end of period (5) $ 9.91 Notes: (1) This information is derived from the Fund s unaudited interim financial statements. The net assets per Unit presented in the financial statements may differ from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the Fund s interim financial statements. (2) Results for the period from April 1, 2011 (inception date) to. (3) Net assets per Unit reflects the issue price of $ (4) Net assets and distributions are based on the actual number of Units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of Units outstanding over the financial period. (5) This is not a reconciliation of the beginning and ending net assets per Unit. Ratios and Supplemental Data Total net asset value (1) $ 127,989,978 Number of Units outstanding 12,910,000 Management expense ratio (2) 0.43% Management expense ratio before waivers and absorptions (2) 0.43% Trading expense ratio (3) 0.00% Portfolio turnover rate (4) 67% Net asset value per Unit $ 9.91 (1) (2) (3) (4) This information is provided as at. The net asset value calculated for fund pricing purposes may differ from the net assets per Unit presented in the Fund s Interim Financial Statements. An explanation of these differences can be found in the notes to the Fund s Interim Financial Statements. Management expense ratio is based on total expenses (excluding commissions a nd other portfolio transaction costs) for the stated period, and is expressed as an annualized percentage of daily average net asset value during the period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher a fund s portfolio turnover rate in a year, the greater the trading costs payable by the fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. MANAGEMENT FEES The Manager is responsible for providing or arranging for all investment advisory and portfolio management services required by the Fund including, without limitation, managing the Portfolio in a manner consistent with the investment objectives, guidelines and restrictions of the Fund and for arranging for the execution of all portfolio transactions. The Manager is also responsible for the operational and administrative functions of the Fund. As 2011 Interim Management Report of Fund Performance 3

6 compensation for the management services rendered to the Fund, the Manager is entitled to receive an annual management fee of 0.30% of the net asset value of the Fund. The management fee is calculated daily and payable monthly in arrears, plus applicable taxes and totalled $109,751 for the period ending. PAST PERFORMANCE Note that the performance information shown in this section assumes that all distributions made by the Fund in the period shown were reinvested in additional Units of the Fund. Also note that the performance information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns on performance. The performance of the Fund in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns The Fund has not yet been active for more than a year, so year over year comparisons are unavailable. Year-to-Date Returns The Fund s performance for the period from April 1, 2011 to was a decline of 0.90%. The following bar chart shows the Fund s performance for the period April 1, 2011 to. The bar chart shows, in percentage terms, how much an investment made on the first day of the period would have grown or decreased by the last day of the period. 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 0.90% April 1, 2011 to SUMMARY OF INVESTMENT PORTFOLIO The following is a summary of the New Horizons Master Fund portfolio as at. This is a summary only and will change due to ongoing portfolio transactions of the Fund. Quarterly updates will be posted to 4 New Horizons Master Fund

7 Quantity Fixed Income Bonds United States Security Average Cost $ Fair Value $ % of Net Asset Value 9,562,289 Ainsworth Lumber Co. Ltd. 11% 07/29/2015 9,345,518 8,521, ,000 AS Americas, Inc % 01/15/ ,611 92, ,500,000 Beazer Homes USA, Inc % 05/15/2019 7,881,700 7,042, ,000,000 Cincinnati Bell Inc % 10/15/2020 1,907,211 1,921, ,000,000 Clear Channel Communications Inc. 9% 03/01/2021 5,851,867 5,534, ,000,000 Clearwire Communications 12% 12/01/2017 6,279,118 6,054, ,000,000 DineEquity Inc. 9.5% 10/30/2018 6,334,977 6,271, ,000,000 Dynegy Holdings Inc. 7.75% 06/01/2019 1,506,843 1,401, ,500,000 Edison Mission Energy 7% 05/15/2017 5,841,745 5,852, ,000,000 Essar Steel Algoma Inc % 03/15/2015 4,852,955 4,829, ,873,000 First Data Corp. 8.25% 01/15/ ,526,854 10,265, ,000,000 Forbes Energy Services Ltd. 9% 06/15/2019 9,750,712 9,489, ,500,000 Hovnanian Enterprises, Inc % 10/15/2016 7,734,398 7,207, ,000,000 Rite Aid Corp % 03/01/2015 5,339,139 5,404, ,500,000 Tembec Industries Inc % 12/15/2018 7,034,359 6,551, ,130,000 Trinidad Drilling Ltd % 01/15/2019 3,205,037 3,120, ,500,000 USG Corp. 7.75% (9.75%) 01/15/2018 7,625,206 7,117, Canada 101,121,250 96,680, ,000,000 North American Energy Partners Inc % 04/07/2017 4,068,750 4,060, ,068,750 4,060, Brazil 2,000,000 Companhia de Eletricidade do Estado da Bahia 11.75% 04/27/2016 1,330,146 1,327, ,330,146 1,327, Term Loans United States 7,000,000 Mitel Networks Corp. Adj% Term Loan B 08/16/2015 6,284,577 6,275, ,500,000 Realogy Corp. 13.5% Term Loan A 10/15/ ,896,847 11,760, ,775,450 Supermedia Inc. 11% Term Loan B 12/31/2015 3,062,258 2,747, ,243,682 20,784, Total investments 127,763, ,852, Cash and cash equivalents 2,632, Accrued investment income 2,628, Liabilities, net of other assets (122,812) (0.10) Net asset value of New Horizons Master Fund 127,989, Interim Management Report of Fund Performance 5

8 Sector Allocation % of Net Asset Value of the Master Fund Basic Industry Forestry/Paper Steel Producers/Products 3.77 Consumer Cyclical 4.97 Household & Leisure Products 0.07 Restaurants 4.90 Consumer Non-Cyclical 4.22 Food & Drug Retailers 4.22 Energy Energy Finance & Investment 9.19 Misc Financial Services - Real Estate 9.19 Media 6.47 Media - Broadcast 4.32 Publishing - Periodicals 2.15 Services Cyclical Building & Construction Technology & Electronics Software/Services Telecommunications 6.23 Telecom - Integrated/Services 6.23 Utility 6.71 Utilities and Electric Generation 6.71 Cash 2.06 Accrued Income & Other Liabilities 1.96 Total New Horizons Master Fund

9 FUND INFORMATION INDEPENDENT REVIEW COMMITTEE John P. Barratt (Chair) Corporate Director James L. R. Kelly President Earth Power Inc. Frank Lochan Corporate Director MANAGER AND INVESTMENT MANAGER Brookfield Investment Management (Canada) Inc. George E. Myhal Director, President & Chief Executive Officer Jonathan Tyras Chief Financial Officer, Treasurer and Secretary Gail Cecil Director Kim G. Redding Director CONTACT INFORMATION New Horizons Master Fund welcomes inquiries from unitholders, analysts, media representatives or other interested parties. Manager and Investment Manager Brookfield Investment Management (Canada) Inc. Brookfield Place 181 Bay Street, Suite 300 Toronto, Ontario M5J 2T3 t w. Transfer Agent and Registrar Unitholder inquiries relating to distributions, address changes and unitholder account information should be directed to the Fund s Transfer Agent: Valiant Trust Company 710, 130 King Street West Toronto, Ontario M5X 1A9 t (toll-free North America) f (toll-free North America) International e. inquiries@valianttrust.com w. Trustee Caledon Trust Company Suite Adelaide Street West Toronto, Ontario M5H 3P5 t Interim Management Report of Fund Performance 7

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