High Yield Strategic Trust 2012 Management Report of Fund Performance

Transcription

1 New Horizons Master Fund 2012 Management Report of Fund Performance

2 IN PROFILE (the Trust ) is managed by Brookfield Investment Management (Canada) Inc. ( BIM Canada ). BIM Canada is a subsidiary of Brookfield Asset Management Inc., a global alternative asset manager with over $175 billion of assets under management and over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. Brookfield Investment Management Inc. is the investment manager of the Trust Management Report of Fund Performance 1

3 MANAGEMENT REPORT OF FUND PERFORMANCE This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the Trust. The annual financial statements may contain information not included in the management report of fund performance. You can get a copy of the annual 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 by viewing our filings on SEDAR at Unitholders 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 December 31, 2012 and expressed in Canadian dollars. None of the websites referred to in this annual management report of fund performance, nor any of the information on such websites, are incorporated by reference in this annual management report of fund performance. INVESTMENT OBJECTIVES AND STRATEGIES The Trust is an investment trust created to invest in a portfolio of securities (the Portfolio ) comprised primarily of North American high yield debt. Brookfield Investment Management (Canada) Inc. ( BIM Canada ) is the manager (the Manager ) of the Trust and Brookfield Investment Management Inc. ( BIM ) is the investment manager (the Investment Manager ) of the Trust. The investment objectives of the Trust are to maximize total return for holders of units ( Unitholders ) through capital appreciation and to preserve capital. RISK At December 31, 2012, the Portfolio was invested in high yield bonds and asset-backed and mortgagebacked securities of companies domiciled in the United States and to a lesser extent, Canada, Europe and the United Kingdom. The Trust seeks investments in securities that are exposed to various risks including risks related to the credit quality of the issuer of the securities, the trading liquidity of the securities and the currency in which the securities are denominated. The Trust seeks to minimize potentially adverse effects of these risks on the Trust s performance by employing experienced portfolio managers, by continuously monitoring the Trust s securities positions and markets, and by hedging the majority of the Trust s foreign currency exposure. Since the Trust s inception on June 19, 2012, there has been no material change in the overall level of risk created by the credit quality, trading liquidity or currency denomination of the investments employed by the Trust. The Trust uses leverage to finance the purchase of certain investments. Leverage in the Trust is restricted to 33% of the total assets of the Trust. As at December 31, 2012, the Trust had employed leverage equal to 23.15% of the total assets of the Trust. The Trust uses derivative instruments for hedging purposes to protect investment returns on the Portfolio from currency fluctuations. Not less than 70% of the Portfolio s investments denominated in currencies other than the Canadian dollar are hedged back to the Canadian dollar Management Report of Fund Performance 2

4 RESULTS OF OPERATIONS The Trust began operations on June 19, 2012 when it issued 12,502,069 units (the Units ) on June 19 and subsequently issued 427,936 Units pursuant to an over-allotment option on June 29 at $9.41 per Unit for gross proceeds of $121,671,348. The Trust s net asset value was $130.5 million as at December 31, 2012, an increase of $12.9 million from $117.6 million as at June 19, The increase in net asset value was largely comprised of net investment income of $4.1 million, net realized and unrealized investment gains of $6.8 million, and the issuance of Units through the over-allotment of $4.0 million offset by the redemption of 221,888 Units for $2.2 million. For the period from the commencement of investment operations on June 19, 2012 to December 31, 2012 (the Period ), the net asset value per Unit of the Trust was $10.27 compared to $9.41 on June 19, The Trust s total return was 9.11% for the Period. The Trust s total return of 9.11% over the Period was primarily driven by: (1) a general strengthening in corporate credit and (2) price changes in individual holdings of the Portfolio. The Portfolio was positioned to take advantage of attractive spreads in the high yield bond market and the positive trends in corporate credit by underweighting higher quality BB-rated securities and overweighting B-rated bonds. This quality weighting added to overall performance as B-rated bonds outperformed. Additionally, the Portfolio was slightly overweight in riskier CCC-rated bonds which also added to performance. The Portfolio was underweight in Banking and Financial Services due to a perceived structural risk in that sector. This added to overall performance due to a significant lag in the industry performance. The Portfolio was underweight in the Healthcare sector despite perceived positive fundamentals due to a perceived overvaluation of bonds in the sector. This underweight also added to overall performance. The Portfolio was also slightly underweight in the Energy sector, which resulted in a slight performance drag. Overweighted industries included Basic Industry, which benefited from stronger economic growth and improved corporate cash flows which benefited from strict cost controls on the part of many companies. This overweight added significant performance during the Period. The Automotive sector was also overweighted as the Manager perceived improved prospects for North American automobile sales resulting from increasing consumer confidence and an aging automobile fleet. This overweight added to performance. Finally, the Portfolio was overweighted in Asset Backed Securities; a nonbenchmark holding that outperformed the overall high yield market and added to performance. On a security holding level, the Portfolio benefited from holding the bonds of Ineos Group, a global petrochemical producer that benefited from stronger economic growth, Lowell Group, a UK debt purchaser which experienced very strong growth due to improved collections experience, and Cincinnati Bell, a telephone company whose bonds rose on the news of a corporate spin off which may improve financial liquidity. Underperforming securities included Albertson s, a supermarket company struggling with weak cash flow, Caesar s a casino company whose bonds, while higher, lagged the overall market, and Freescale Semiconductor, whose bonds also lagged the market. In August 2012, the Trust established the ability to borrow using a prime brokerage account. The Trust subsequently added leverage to the Portfolio through the margining of certain securities. Leverage is restricted to 33% of the total assets of the Trust. Accordingly, at the time of borrowing, the maximum amount of leverage that the Trust could employ is 1.50:1 (total long positions, including leveraged positions, divided by net assets of the Trust). As at December 31, 2012, the Trust had employed 2012 Management Report of Fund Performance 3

5 leverage equal to 23.15% of the total assets of the Trust, equating to $39.3 million. The minimum and maximum amount of borrowings outstanding during the Period was $0 and $39.3 million, respectively. The borrowings were used to grow the Trust s investments and for working capital needs. Adding a controlled amount of leverage to the Trust is consistent with the Trust s objectives. RECENT DEVELOPMENTS There have been no recent developments in the market, outlook, or operations of the Trust that represent a material change for investors. 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 Trust would adopt IFRS for its fiscal period beginning 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, 2013 and in December 2011, was further extended to January 1, Accordingly, the Trust will adopt IFRS no later than for the fiscal year beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, no later than for the period ending June 30, RELATED PARTY TRANSACTIONS The Manager and Investment Manager are wholly owned subsidiaries of Brookfield Asset Management Inc. ( Brookfield ) and the Investment Manager manages the investment and trading activities of the Trust pursuant to a management agreement. Due to Brookfield s ability to control the Trust, Brookfield, and its affiliates over which it has the ability to exercise control or significant influence, are related parties of the Trust by virtue of common control or common significant influence. 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 Trust. During the Period, the Trust entered into cross transactions with Brookfield Global High Yield UCITS Fund which is a related party of the Trust due to common control. The Investment Manager determined that these cross transactions complied with the Trust s investment restrictions and that owning such securities was consistent with the Trust s investment objectives. The Manager sought the approval of the Trust s Independent Review Committee (the IRC ) of the proposed cross transactions. The IRC provided its approval on the proposed cross transactions on the Manager s recommendation. There were no other transactions conducted with related parties during the Period. FINANCIAL HIGHLIGHTS The following tables provide selected key financial information about the Trust and are intended to help you understand the Trust s financial performance since inception: 2012 Management Report of Fund Performance 4

6 Period from June 19, 2012 (2) The Trust s Net Assets per Unit (1) through to December 31, 2012 Net assets, beginning of period (3) $ 9.41 Increase (decrease) from operations Total revenue 0.40 Total expenses (0.08) Realized gains (losses) for the period 0.32 Unrealized gains (losses) for the period 0.22 Total increase (decrease) from operations (4) 0.86 Net assets, end of period (4)(5) $ Notes: (1) This information is derived from the Trust s audited annual financial statements. The net assets per Unit presented in the Trust s 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 Trust s financial statements. (2) Commencement of investment operations. (3) The beginning period net assets per Unit in 2012 reflects the issue price of $10.00 less share issue expenses of $0.59 per Unit. (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. Accordingly, totals may not sum in the above table due to the different basis for computing the per Unit amounts. (5) This is not a reconciliation of the beginning and ending net assets per Unit. Period from June 19, 2012 Ratios and Supplemental Data through to December 31, 2012 Total net asset value (1) $ 130,474,156 Number of Units outstanding 12,708,117 Management expense ratio (2) 1.46% Management expense ratio before waivers and absorptions (2) 1.46% Trading expense ratio (3) 0.00% Portfolio turnover rate (4) 6.12% Net asset value per Unit $ Notes: (1) This information is provided as at December 31, The net asset value calculated for fund pricing purposes may differ from the net assets per Unit presented in the Trust's financial statements. An explanation of these differences can be found in the notes to the Trust's financial statements. (2) Management expense ratio is based on total expenses (excluding distributions, commissions and other portfolio transaction costs but including interest expense) for the stated period, and is expressed as an annualized percentage of daily average net asset value during the Period. (3) 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. (4) The Trust's portfolio turnover rate indicates how actively the Trust's portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Trust buying and selling all of the securities in its portfolio once in the course of the year. The higher a trust's portfolio turnover rate in a year, the greater the trading costs payable by the trust 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 trust. MANAGEMENT FEES The Manager and Investment Manager are responsible for providing or arranging for all investment advisory and portfolio management services required by the Trust including, without limitation, managing the Portfolio in a manner consistent with the investment objectives, guidelines and restrictions of the Trust and for arranging for the execution of all portfolio transactions. The Manager is also responsible for the operational and administrative functions of the Trust. As compensation for the management services rendered to the Trust, the Manager is entitled to receive an annual management 2012 Management Report of Fund Performance 5

7 fee of % of the net asset value of the Trust. The management fee is calculated daily and payable monthly in arrears, plus applicable taxes and totalled $709,814 for the Period. PAST PERFORMANCE Note that the performance information shown in this section assumes that all distributions made by the Trust in the period shown were reinvested in additional Units of the Trust. 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 Trust in the past does not necessarily indicate how it will perform in the future. Year-by-Year Returns and Annual Compound Returns The Trust has not yet been active for more than a year, so year over year comparisons and compounded return calculations are unavailable. Year-to-Date Returns The Trust s performance for the period from June 19, 2012 to December 31, 2012 resulted in an increase of 9.11% % 15.00% 10.00% 9.11% 5.00% 0.00% -5.00% 12/31/2012 (1) (1) Represents period from June 19, 2012 (inception date) to December 31, SUMMARY OF INVESTMENT PORTFOLIO The following is a summary of the Trust s Portfolio as December 31, This is a summary only and will change due to ongoing portfolio transactions of the Trust. Quarterly updates will be posted to Management Report of Fund Performance 6

8 As at December 31, 2012 Net Asset Average Cost Fair Value Value Quantity Security $ $ % BONDS United States Dollar Denominated 1,050,000 AAR Corp. 7.25% 01/15/2022 1,064,043 1,107, ,000 ADS Waste Holdings Inc. 8.25% 01/10/ , , ,675,000 AK Steel Corp. Callable 7.62% 05/15/2020 1,459,648 1,464, ,600,000 Alpha Natural Resources Inc. 6.25% 06/01/2021 1,382,269 1,456, ,500,000 American Axle & Manufacturing Holdings Inc. 7.88% 03/01/2017 1,599,463 1,550, ,000 American Axle & Manufacturing Inc. 7.75% 11/15/ , , ,450,000 ArcelorMittal 6.12% 06/01/2018 1,504,372 1,465, ,150,000 Arch Coal Inc. 8.75% 08/01/2016 1,127,611 1,190, ,000 Arch Coal Inc. 7.25% 06/15/ , , ,000 Associated Materials LLC 9.12% 11/01/ , , ,750,000 Avis Budget Car Rental LLC 8.25% 01/15/2019 1,915,921 1,934, ,110,000 Berry Plastics Corp. 9.75% 01/15/2021 1,227,216 1,258, ,600,000 Boyd Gaming Corp. 9.00% 07/01/2020 1,587,948 1,572, ,200,000 BreitBurn Energy Partners L.P. 8.62% 10/15/2020 1,319,750 1,302, ,450,000 Cablevision Systems Corp. 8.62% 09/15/2017 1,649,149 1,689, ,250,000 Caesars Entertainment Corp. 8.50% 02/15/2020 2,312,261 2,230, ,400,000 Cascades Inc. 7.75% 12/15/2017 1,453,437 1,481, ,900,000 Casella Waste Systems Inc. 7.75% 02/15/2019 1,841,837 1,823, ,750,000 CCO Holdings LLC. 6.62% 01/31/2022 1,905,960 1,903, ,950,000 CenturyLink Inc. 7.65% 03/15/2042 1,983,993 2,034, ,000 Cenveo Corp. 8.88% 02/01/ , , ,250,000 Chrysler Group LLC 8.14% 06/15/2021 2,354,645 2,469, ,550,000 Community Health Systems Inc. 7.12% 07/15/2020 1,636,920 1,639, ,275,000 Cincinnati Bell Inc. 8.75% 03/15/2018 2,248,751 2,344, ,450,000 CityCenter Holdings LLC 7.62% 01/15/2016 1,563,985 1,544, ,000 Clear Channel Communications Inc. 9.00% 03/01/ , , ,000 Coleman Cable Inc. 9.00% 02/15/ , , ,600,000 Crosstex Energy L.P. 8.88% 02/15/2018 1,731,899 1,724, ,500,000 Crown Cork & Seal Co. Inc. 7.38% 12/15/2026 1,615,466 1,661, ,125,000 Cumulus Media Holdings Inc. 7.75% 05/01/2019 1,070,949 1,100, ,400,000 DineEquity Inc. 9.50% 10/30/2018 1,573,829 1,589, ,000 DJO Finance LLC 9.88% 04/15/ , , ,500,000 EV Energy Partners L.P. 8.00% 04/15/2019 1,525,392 1,585, ,000 FMG Resources (August 2006) Pty Ltd. 6.88% 04/01/ , , ,925,000 Freescale Semiconductor Inc. 8.05% 02/01/2020 1,933,544 1,909, ,150,000 Frontier Communications Corp. 7.12% 03/15/2019 2,243,472 2,323, ,000 General Motors Financial Co. Inc. 4.75% 08/15/ , , ,675,000 HCA Inc. 8.00% 10/01/2018 1,919,030 1,933, ,615,000 Health Management Associates Inc. 7.38% 01/15/2020 1,766,253 1,736, ,875,000 Hexion US Finance Corp 9.00% 11/15/2020 1,657,992 1,710, ,655,000 inventiv Health Inc. 9.00% 01/15/2018 1,648,661 1,668, ,000 Iron Mountain Inc. 5.75% 08/15/ , , ,100,000 Iron Mountain Inc. 8.38% 08/15/2021 1,239,466 1,212, ,000 Isle of Capri Casinos Inc. 7.75% 03/15/ , , ,875,000 Jaguar Land Rover PLC 8.12% 05/15/2021 2,004,936 2,056, Management Report of Fund Performance 7

9 As at December 31, 2012 Net Asset Average Cost Fair Value Value Quantity Security $ $ % 750,000 Kindred Healthcare Inc. 8.25% 06/01/ , , ,200,000 Lamar Media Corp. 5.88% 02/01/2022 1,267,709 1,299, ,250,000 Legrand France SA 8.50% 02/15/2025 1,675,740 1,635, ,850,000 Level 3 Communications Inc. 8.88% 06/01/2019 1,913,763 1,961, ,450,000 Levi Strauss & Co. 6.88% 05/01/2022 1,522,618 1,562, ,000 Limited Brands Inc. 7.60% 07/15/ , , ,400,000 LINN Energy LLC 7.75% 02/01/2021 1,487,932 1,484, ,600,000 Masonite International Corp. 8.25% 04/15/2021 1,688,948 1,712, ,350,000 Mediacom Broadbank LLC 6.38% 04/21/2023 1,338,998 1,365, ,000 Mediacom Capital Corp. 9.12% 08/15/ , , ,000,000 Michaels Stores Inc. 7.75% 11/01/2018 1,053,620 1,095, ,350,000 Millar Western Forest Products Ltd. 8.50% 04/01/2021 1,057,266 1,223, ,504,250 MTR Gaming Group Inc % 08/01/2019 1,585,656 1,583, ,500,000 Mueller Water Products Inc. 7.38% 06/01/2017 1,546,244 1,538, ,000 New Albertsons Inc. 8.00% 05/01/ , , ,500,000 Niska Gas Storage US LLC 8.88% 03/15/2018 1,540,651 1,530, ,100,000 NRG Energy Inc. 8.50% 06/15/2019 1,165,238 1,211, ,000 Ply Gem Industries Inc. 8.25% 02/15/ , , ,200,000 Precision Drilling Corp. 6.62% 11/15/2020 1,285,752 1,290, ,000 PulteGroup Inc. 6.38% 05/15/ , , ,400,000 Reynolds Group Holdings Ltd. 7.12% 04/15/2019 1,506,033 1,512, ,475,000 Rite Aid Corp. 7.50% 03/01/2017 1,540,675 1,516, ,000 Sally Holdings LLC 6.88% 11/15/ , , ,100,000 Service Corp. International 8.00% 11/15/2021 1,294,767 1,349, ,500,000 Standard Pacific Corp. 8.38% 01/15/2021 1,676,048 1,736, ,125,000 Tekni-Plex Inc. 9.75% 06/01/2019 1,168,822 1,226, ,450,000 Tembec Industries Inc % 12/15/2018 1,484,590 1,537, ,000 Tenneco Inc. 6.88% 12/15/ , , ,325,000 Terex Corp. 6.00% 05/15/2021 1,322,284 1,395, ,000 Terex Corp. 6.50% 04/01/ , , ,100,000 Trinidad Drilling Ltd 7.88% 01/15/2019 1,216,724 1,169, ,875,000 United States Steel Corp. 7.38% 04/01/2020 1,883,564 1,988, ,800,000 USG Corp. 7.75% 01/15/2018 1,933,737 2,038, ,000 Verso Paper Holdings LLC 11.75% 01/15/ , , ,000 Visteon Corp. 6.75% 04/15/ , , ,310,000 W&T Offshore Inc. 8.50% 06/15/2019 1,401,214 1,407, ,200,000 Windstream Corp. 7.00% 03/15/2019 2,275,072 2,245, ,000 YCC Holdings LLC 10.25% 02/15/ , , ,048, ,536, Euro Denominated 800,000 Ardagh Packaging Finance PLC 9.25% 10/15/2020 1,007,751 1,145, ,000 ATU Auto-Teile-Unger Handels GmbH & Co % 05/15/2014 1,055,618 1,167, ,000 Carlson Wagonlit BV 7.50% 06/15/2019 1,008,389 1,119, ,000 Eileme 2 AB 11.75% 01/31/ ,939 1,058, ,000 Greif Luxembourg Finance SCA 7.38% 07/15/ ,750 1,048, ,200,000 Ineos Group Holdings Ltd. 7.88% 02/15/2016 1,329,136 1,564, ,000 Kerling PLC 10.62% 02/01/2017 1,184,290 1,200, Management Report of Fund Performance 8

10 As at December 31, 2012 Net Asset Average Cost Fair Value Value Quantity Security $ $ % 800,000 Lecta SA 8.88% 05/15/ ,860 1,126, ,000 Obrascon Huarte Lain SA 7.62% 03/15/2020 1,223,565 1,299, ,000 Orion Engineered Carbons Bondco GmbH 10.00% 06/15/ ,078 1,048, ,163 OXEA Finance & Cy SCA 9.62% 07/15/ , , ,000 Spie BondCo 3 SCA 11.00% 08/15/2019 1,213,548 1,289, ,000 Unitymedia Hessen GmbH & Co. 9.50% 03/15/ ,728 1,057, ,000 Wind Acquisition Finance SA 11.75% 07/15/2017 1,154,079 1,305, ,715,665 16,297, British Pounds Denominated 750,000 Cabot Financial (Luxembourg) SA 7.38% 10/01/2019 1,216,029 1,336, ,000 DFS Furniture Holdings PLC 9.75% 07/15/2017 1,057,134 1,098, ,000 Dixons Retail PLC 8.75% 09/15/2017 1,210,090 1,311, ,000 Lowell Group Financing PLC 10.75% 04/01/ ,475 1,062, ,000 Matalan Finance PLC 8.88% 04/29/2016 1,152,183 1,254, ,567,911 6,063, Swiss Franc Denominated 900,000 Matterhorn Mobile SA 6.75% 05/15/ ,803 1,023, ,803 1,023, PRIVATE PLACEMENTS United States Dollar Denominated 500,000 BreitBurn Enery Partners L.P. 7.88% 04/15/ , , ,460,000 Bumble Bee Acquisition Corp. 9.00% 12/15/2017 1,485,805 1,566, ,400,000 C&S Group Enterprises LLC 8.38% 05/01/2017 1,468,591 1,482, ,600,000 Calfrac Holdings L.P. 7.50% 12/01/2020 1,583,685 1,575, ,125,000 Clear Channel Worldwide Holdings Inc. 7.62% 03/15/2020 1,116,803 1,131, ,250,000 First Data Corp. 8.25% 01/15/2021 2,274,075 2,243, ,000 Frac Tech Services LLC 7.12% 11/15/ , , ,500,000 Hercules Offshore Inc % 10/15/2017 1,530,108 1,609, ,000 Key Energy Services Inc. 6.75% 03/01/ , , ,175,000 MGM Resorts International 8.62% 02/01/2019 2,386,308 2,414, ,500,000 Palace Entertainment Holdings LLC 8.88% 04/15/2017 1,579,260 1,575, ,600,000 Pittsburgh Glass Works LLC 8.50% 04/15/2016 1,520,427 1,465, ,500,000 Realogy Corp. 7.88% 02/15/2019 1,520,894 1,631, ,775,000 UR Financing Escrow Corp. 7.62% 04/22/2022 1,905,115 1,975, ,535,582 20,821, ASSET-BACKED AND MORTGAGE-BACKED SECURITIES United States Dollar Denominated 614,000 ACE Securities Corp Class A2D 0.48% 05/25/ , , ,346 GSAMP Trust Class A2B 0.31% 03/25/ , , ,731,000 GSAMP Trust Class A2C 0.36% 08/25/ , , ,882,047 MASTR Asset Backed Securities Trust Class A3 0.32% 08/25/ ,365 1,010, ,294,451 MASTR Asset Backed Securities Trust Class A5 0.45% 08/25/ , , ,136 MASTR Asset Backed Securities Trust Class A5 0.42% 10/25/ , , ,020,255 MASTR Asset Backed Securities Trust Class A3 0.37% 11/25/ ,663 1,069, Management Report of Fund Performance 9

11 As at December 31, 2012 Net Asset Average Cost Fair Value Value Quantity Security $ $ % 1,773,662 Natixis Real Estate Capital Trust Class A1 0.34% 07/25/ , , ,869,380 Natixis Real Estate Capital Trust Class A2 0.46% 07/25/ , , ,213 Natixis Real Estate Capital Trust Class A3 0.51% 07/25/ ,788 64, ,686 Natixis Real Estate Capital Trust Class A4 0.61% 07/25/ , , ,008 Securitized Asset Backed Receivables LLC Class A2C 0.36% 07/25/ , , ,302 Securitized Asset Backed Receivables LLC Class A2B 0.36% 12/25/ , , ,220,405 Securitized Asset Backed Receivables LLC Class A2 0.44% 02/25/ , , ,896,763 Securitized Asset Backed Receivables LLC Class A2C 0.42% 12/25/ , , ,135 Securitized Asset Backed Receivables LLC Class A2A 0.34% 05/25/ ,303 51, ,336,579 WaMu Mortgages Pass-Through Certificates Series 2006-AR9 Class 2A 2.51% 08/25/ , , ,045,569 WaMu Mortgages Pass-Through Certificates Series 2006-AR13 Class A1 1.04% 10/25/ , , ,529,973 10,444, EQUITIES United States Dollar Denominated 23,000 Huntsman Corp. 304, , , , Total investments 159,682, ,551, Transaction costs (908) 0.00 Unrealized loss on foreign exchange contracts (Schedule A) (1,973,554) (1.51) Total investments 159,681, ,578, Cash 4,194, Accrued investment income 3,268, Liabilities (39,566,873) (30.33) Net Asset Value of 130,474, Unrealized Schedule A Maturity Gains /(Losses) Foreign Exchange Contracts Date $ Bought CAD 138,906,150; Sold USD January 14, 2013 (1,521,156) Bought CAD 6,079,416; Sold GBP January 14, 2013 (120,766) Bought CAD 16,294,034; Sold EUR January 14, 2013 (304,518) Bought CAD 992,561; Sold CHF January 14, 2013 (19,552) Bought CAD 632,619; Sold USD January 14, 2013 (4,782) Bought CAD 893,564; Sold USD January 14, 2013 (2,780) Total (1,973,554) 2012 Management Report of Fund Performance 10

12 As at December 31, 2012 % of Net Asset Value Sector Allocation of the Trust Automotive 7.29 Basic Industry Building & Construction 0.28 Capital Goods Consumer Cyclical 9.92 Consumer Non-Cyclical 2.34 Energy Financial Services 1.84 Healthcare 7.66 Media 8.85 Mortgaged Backed Securities 8.01 Real Estate 1.25 Services Technology & Electronics 3.18 Telecommunications Utility 0.93 Cash 3.22 Unrealized loss on foreign exchange contract (1.51) Accrued income & other liabilities (27.84) Total Management Report of Fund Performance 11

13 TRUST INFORMATION MANAGER AND TRUSTEE Brookfield Investment Management (Canada) Inc. George E. Myhal Director, President & Chief Executive Officer Jonathan Tyras Managing Director, Chief Financial Officer, and General Counsel Gail Cecil Director, Managing Director Kim G. Redding Director INDEPENDENT REVIEW COMMITTEE John P. Barratt (Chair) Corporate Director James L. R. Kelly President Earth Power Inc. Frank Lochan Corporate Director CONTACT INFORMATION welcomes inquiries from Unitholders, analysts, media representatives or other interested parties. Investment Manager Brookfield Investment Management Inc. Brookfield Place 250 Vesey Street New York, New York t w. Transfer Agent and Registrar Unitholder inquiries relating to distributions, address changes and Unitholder account information should be directed to the Trust 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 Management Report of Fund Performance 12

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