Brookfield Investment Management

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1 Brookfield Investment Management 2014 Brookfield New Horizons Income Fund BIF.UN Interim Management Report of Fund Performance For the period from January 1, 2014 to June 30, 2014

2 In Profile Brookfield New Horizons Income Fund (the Fund ) 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 approximately US$200 billion of assets under management as at June 30, 2014 and over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. BIM Canada is also the investment manager of the Fund. BIF.UN (CSE listed) Unit Information Units Outstanding (June 30, 2014): Targeted Quarterly Distributions: Record Date: Payment Date: 12,958,260 Units The quarterly distributions are targeted to be $0.20 per Unit. The Fund does not have a fixed distribution. The last business day of each of March, June, September and December. No later than the 15th business day of the month following the distribution Record Date Interim Management Report of Fund Performance 1

3 LETTER TO UNITHOLDERS Dear Unitholders, We are pleased to provide this Interim Management Report of Fund Performance for Brookfield New Horizons Income Fund (the Fund ) for the six months ended June 30, 2014 (the Period ). Brookfield New Horizons Income Fund was created with the objective of providing holders of Units ( Unitholders ) with high current income through the payment of quarterly cash distributions while preserving the net asset value of the Fund. The quarterly distributions are currently targeted at $0.20 per Unit or $0.80 per annum. To achieve this level of income, the Fund obtains economic exposure to a portfolio (the Portfolio ) held by New Horizons Master Fund through the utilization of a forward agreement. The Portfolio investments focus on, but are not limited to, investments in high yield corporate debt, and publicly-listed securities in infrastructure and real estate companies across a global universe. As at June 30, 2014, the net asset value per Unit of the Fund was $14.70 compared to a net asset value per Unit of $12.69 on December 31, For the six month period ended June 30, 2014, we are pleased to report that your Fund had a total return of 19.2% including assumed reinvestment of the Fund s distributions to Unitholders during the Period of $0.40 per Unit. These returns compare favorably to the broad market as measured by the S&P/Toronto Stock Exchange Composite Index which returned 12.9% year-to-date. While we remain optimistic going into the second half of 2014, we do not expect to repeat this performance easily and continue to target an annual return of inflation plus 4.00%. Performance Review The Fund s return of 19.2% for the Period was primarily driven by strong price appreciation of the Portfolio s lower-rated corporate bonds and high yielding equities, the high income generated by these securities and to a much lesser extent, the impact of fluctuations in foreign currencies. Income generated by the Portfolio provided 4.4 percentage points of the return in the Period while capital appreciation and currency effects contributed 14.8 percentage points. As at June 30, 48% of the Portfolio was invested in equities, up from 26% at the beginning of the year. During the Period, we shifted the asset mix in the Portfolio to a higher weighting in equities and realized profits on a number of our investments in high yield corporate bonds. For example, we sold Beazer Homes USA, Inc. and Hovnanian Enterprises Inc. bonds at prices well above par as the housing recovery in the U.S. was being reflected in the prices of these securities and we believed them to be fully valued at such levels. Some of the most notable outperformers during the Period within our fixed income investments included: BlackBerry Ltd. convertible bonds which experienced significant price appreciation as the company s stock price rebounded amid restructuring progress made by new management; SuperMedia Inc. loans, which rallied on the back of renewed strength in its online advertising business; First Data Corp. bonds, which benefitted from a large common equity injection; and, Edison Mission Energy and Texas Competitive Electric Holdings Co. LLC bonds, which despite being in bankruptcy, experienced strong price appreciation as the attractiveness of power generating assets became more evident to potential suitors. These 2014 Interim Management Report of Fund Performance 2

4 company-specific events were important contributors to the Portfolio s performance. Fixed income investments which lagged during the Period were Arch Coal Inc. and Walter Energy Inc. Weak power prices in the U.S. and low demand for steel negatively impacted demand for the thermal and metallurgical coal produced by Arch and Walter, respectively. We believe that Arch Coal and Walter Energy bonds continue to offer an attractive risk / reward profile. The equity positions in the Portfolio also had some notable outperformers. Several investments including Man Group PLC, Banco do Brasil S.A. and British American Tobacco PLC appreciated in value due in a large part to renewed strength in emerging markets following a period of capital outflows that ended in March. In addition, Canadian Oil Sands Ltd. stock exhibited strength, benefitting from a higher oil price realization as the discount between Alberta and West Texas oil prices narrowed. Our investment in AGF Management Ltd. was a relative laggard in the Portfolio with weak stock performance over the Period; however, the stock s high dividend yield significantly mitigated the weaker stock performance. The Portfolio continues to have a high degree of exposure to investments denominated in U.S. dollars. During the first quarter of 2014, the Canadian dollar weakened against the U.S. dollar by almost 6% but in the second quarter, reversed its trend and ended the Period essentially flat. We elected to take advantage of the weakness in the Canadian dollar in March and began to hedge a proportion of the Portfolio s exposure to U.S. dollar denominated investments. Changes in foreign currency added approximately 0.9% to the Fund s total return during the Period. As at June 30, 2014 the Fund had hedged approximately two-thirds of its U.S. dollar exposure. Outlook Following uneven performance during the first few months of the year, global equity markets regained momentum in the second quarter amid signs of rebounding economic growth and ongoing central bank liquidity. In particular, economic data-points in the U.S. demonstrated signs of renewed growth, as employment, manufacturing activity, home sales and consumer confidence exceeded expectations. While the U.S. economy contracted by nearly 3% during the first quarter of the year due to extreme winter weather conditions, investors remained firmly focused on the forward outlook. Furthermore, during her June 18 th speech, Federal Reserve Chairwoman Janet Yellen stated that interest rates are likely to stay low for a considerable time. Accordingly, investors now expect that the U.S. Federal Reserve will remain accommodative for a longer period of time in order to protect the health of the economic recovery. Investor confidence during the second quarter was also supported by further easing of monetary policy by the European Central Bank as well as continued signs of economic stabilization within China. Chinese government officials expressed confidence that the country would achieve the 7.5% annual GDP growth target established late last year. Although geopolitical volatility in Ukraine and the Middle East challenged investor confidence in the period, market performance was not significantly impacted by these concerns. As the first half came to a close, investors remained keenly focused on the outlook for global economic growth, early signs of inflation and the forward trajectory of interest rates. Within this environment, corporate bonds have performed well as credit strength boosted riskier bonds, and declining interest rates boosted safer bonds. Recent announcements and 2014 Interim Management Report of Fund Performance 3

5 policy activity by central banks across the globe indicate that interest rates are likely to remain low in the near term, particularly as the global economic recovery gains momentum. This environment of low rates and improving growth is expected to continue to benefit income-producing asset classes, particularly those with upside potential and exposure to the broader economy. However, over time, we do not believe that rates in the United States can stay at these low levels. We expect that rates will rise over the medium term, and when they do, there is a risk that rates could rise at a very rapid pace. We believe that investors should be positioned for this eventual rise in rates as seemingly safe investments, such as investment grade corporate bonds, could suddenly produce negative returns. The following is our outlook for each of our three focus investment areas: High yield corporate debt: Due to strong credit conditions, low defaults, and modest leverage, the high yield debt market is trading at historically low credit spreads. Nevertheless, we believe that the high yield market is still in the early stages of the re-risking phase of the credit cycle and we maintain our constructive view of the market. Overall yields are beginning to approach the historical lows seen in May 2013, as such, our expectations for broad market returns continue to be tempered given the multi-year rally this asset class has enjoyed. As long as global confidence remains intact, we believe that this cycle appears to have room to run, suggesting that investors may be able to clip the coupon for some time to come. We continue to believe that the primary risk facing high-yield investors today are worldwide geopolitical and macroeconomic risks rather than credit specific risks. These macro risks include the potential for renewed economic turmoil in Europe, the risk of fiscal policy error as countries seek to reign in ballooning budget deficits, and the unintended consequences of tapering on western world and emerging market economies. While we remain watchful of the possibility of a continued rise in long term interest rates, we believe the opportunity for credit tightening will help mitigate the negative impact of higher rates on the prices of lower-rated high yield bonds. We continue to invest in our highest conviction ideas in this space and are focused on lower grade credit stories with improving fundamentals and special situations that we believe to be undervalued by the broader market. Publicly-listed infrastructure securities: We maintain our positive outlook for global infrastructure securities for the remainder of We believe a number of positive trends, particularly investor demand for the asset class as well as rapid growth in the investible universe, remain supportive. Importantly, we believe these securities are well-positioned to benefit from an improving macro economy while offering capital preservation against market volatility. While a steep increase in interest rates would present a near-term downside risk for infrastructure securities, our expectations are for a modest rise in long-term interest rates at a moderate pace. We will continue to focus on investing in high yielding securities in infrastructure with a continued focus on MLPs and other energy sector-related infrastructure providers. These energy-related securities stand to benefit from the ongoing technological renaissance around shale gas and provide a natural hedge against geopolitical risk. Publicly-listed real estate securities: Although we have not added any exposure to this sector to date, we maintain our positive outlook for global real estate securities for the remainder of We recognize that the outperformance of the asset class during the second quarter occurred during a period of rapidly falling interest rates and that rates are likely to normalize over the medium term. However, we remain positive on real estate fundamentals and believe continued growth in rental rates and cash flow will help to offset any impact from higher rates. Accordingly, we believe that real estate securities are well-positioned to benefit from 2014 Interim Management Report of Fund Performance 4

6 an improving macro economy while offering current income and capital preservation to guard against market volatility. We continue to selectively review markets and sectors that have exhibited weakness in recent months to identify potential opportunities. We believe the Fund is currently well-positioned to generate its target distributions while protecting its net asset value. We will seek to continue to take profits as appropriate in our high yield debt positions and redeploy capital into other high yielding securities that have attractive risk-reward characteristics. We welcome your questions and comments, and encourage you to contact our Investor Relations team at (800) or visit us at for more information. Thank you for your support. Gail Cecil, Managing Director On behalf of the Manager and Investment Manager, Brookfield Investment Management (Canada) Inc Interim Management Report of Fund Performance 5

7 MANAGEMENT REPORT OF FUND PERFORMANCE This interim management report of fund performance contains financial highlights but does not contain the complete interim financial statements of Brookfield New Horizons Income Fund ( the Fund ). The interim financial statements may contain information not included in the management report of fund performance. You can get 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 by viewing our filings on SEDAR at Unitholders may also contact us to request a free copy of the Fund s interim financial report, proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. This report may contain forward-looking statements. The use of any of the words anticipate, may, will, expect, estimate, should, believe and similar expressions are intended to identify forward-looking statements. Such statements reflect the opinion of Brookfield Investment Management (Canada) Inc. ( Investment Manager or BIM Canada ) regarding factors that might be reasonably expected to affect the performance and the distribution on units of the Fund and are based on information available at the time of writing. The Investment Manager believes that the expectations reflected in these forwardlooking statements and in the report are reasonable but no assurance can be given that these expectations or the report will prove to be correct and accordingly, they should not be unduly relied on. These statements speak only as at the date of the report. Actual events and outcomes may differ materially from those described in these forward-looking statements or report. Unless otherwise indicated, all information is presented as at June 30, 2014 and expressed in Canadian dollars. None of the websites referred to in this interim management report of fund performance, nor any of the information on such websites, are incorporated by reference in this interim management report of fund performance. INVESTMENT OBJECTIVES AND STRATEGIES The Fund endeavours to provide holders of units ( Unitholders ) with quarterly cash distributions currently targeted at $0.20 per unit while preserving the net asset value ( NAV ) of the Fund. The Fund was created with the objective of producing a high income return by obtaining economic exposure to a portfolio (the Portfolio ) held by New Horizons Master Fund (the Master Fund ), through the utilization of a forward agreement. The investments in the Portfolio focus on, but are not limited to, investments in high yield corporate debt and publicly-listed securities in infrastructure and real estate companies across a global universe. BIM Canada is the manager (the Manager ) and the investment manager of the Fund and the Master Fund (together, the Funds ). RISK At June 30, 2014, approximately 52% of the Portfolio was invested in high yield fixed income securities of companies domiciled in the United States and to a lesser extent, Canada, Mexico and Brazil. The remainder of the Portfolio was invested in high yielding equities which represented approximately 48% of the Portfolio holdings as at June 30, 2014, an increase from approximately 26% at December 31, The Portfolio holdings 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 Master Fund seeks to minimize potentially adverse effects of these risks on the Portfolio s performance by employing experienced portfolio managers and by continuously monitoring the Portfolio s securities positions and markets. Over the period ended June 30, 2014 there was 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 Master Fund Interim Management Report of Fund Performance 6

8 As at June 30, 2014, the Master Fund had exposure to forward currency contracts and equity total return swaps. The Investment Manager seeks to mitigate the counterparty risk arising from such arrangements through the careful selection of its derivative contract counterparties. As at June 30, 2014 the Master Fund held five positions through equity total return swaps representing $22.4 million of gross exposure, compared to two positions representing $7.85 million of gross exposure at December 31, The Master Fund also had US$80 million and 6.2 million of forward currency contracts in place to protect against a strengthening in the Canadian dollar against the U.S. dollar and the British Pound, respectively. At December 31, 2013 there were no forward currency contracts in place. For discussion of the Master Fund s use of leverage, please see Results of Operations. RESULTS OF OPERATIONS The following Manager s commentary relates to the Fund s exposure to the performance of the Portfolio held by the Master Fund: The Fund s net asset value was $190.5 million as at June 30, 2014, an increase of $26.1 million from $164.4 million as at December 31, The increase in net asset value was largely comprised of operating profit generated by the Master Fund of approximately $32.0 million (including currency gains of approximately $1.5 million). The Fund s net asset value was reduced by $5.2 million during the Period through distributions to Unitholders, and a further $0.7 million by expenses. As at June 30, 2014, the net asset value per Unit of the Fund was $14.70, after recording distributions to Unitholders of $0.40 per Unit for the Period, compared to $12.69 per Unit on December 31, The total return for the Fund was 19.23% for the six months ended June 30, Following uneven performance during the first few months of the year, global equity markets regained momentum in the second quarter amid signs of rebounding economic growth and ongoing central bank liquidity. In particular, economic data-points in the U.S. demonstrated signs of renewed growth, as employment, manufacturing activity, home sales and consumer confidence exceeded expectations. While the U.S. economy contracted by nearly 3% during the first quarter of the year due to extreme winter weather conditions, investors remained firmly focused on the forward outlook. Furthermore, during her June 18 th speech, Federal Reserve Chairwoman Janet Yellen stated that interest rates are likely to stay low for a considerable time. Accordingly, investors now expect that the U.S. Federal Reserve will remain accommodative for a longer period of time in order to protect the health of the economic recovery. Investor confidence during the second quarter was also supported by further easing of monetary policy by the European Central Bank as well as continued signs of economic stabilization within China. Chinese government officials expressed confidence that the country would achieve the 7.5% annual GDP growth target established late last year. Although geopolitical volatility in Ukraine and the Middle East challenged investor confidence in the period, market performance was not significantly impacted by these concerns. As the first half came to a close, investors remained keenly focused on the outlook for global economic growth, early signs of inflation and the forward trajectory of interest rates. Within this environment, both high and low yielding instruments have performed well as credit strength boosted riskier bonds, and declining interest rates boosted safer bonds. Recent announcements and policy activity by central banks across the globe indicate that interest rates are likely to remain low in the near term, particularly as the global economic recovery gains momentum. This environment of low rates and improving growth is expected to continue to benefit income-producing asset classes, particularly those with upside potential and exposure to the broader economy. However, over time, we do not believe that rates in the United States can stay at these low levels. We expect that rates will rise over the medium term, and when they do, there is a risk that rates could rise at a very rapid pace Interim Management Report of Fund Performance 7

9 We believe that investors should be positioned for this eventual rise in rates as seemingly safe investments, such as investment grade corporate bonds, could suddenly produce negative returns. The Fund s total return of 19.23% over the period was primarily driven by: (1) investment income generated in the Portfolio, (2) price changes in individual holdings of the Portfolio, and (3) the positive impact of currency translation. The Portfolio, as at June 30, 2014, was comprised of 52% fixed income securities and 48% high yielding equities. While the Fund does not have a specific benchmark index due to its ability to obtain exposure to a variety of asset classes, the performance of the Merrill Lynch Global High Yield Index and the S&P/Toronto Stock Exchange Composite Index help to explain general trends in high yielding corporate credit and Canadian equities, respectively. For the six months ended June 30, 2014, the corporate high yield debt market, as measured by the Merrill Lynch Global High Yield Index, had a total return of 6.11% in Canadian dollar terms. The index return was comprised of a 2.39% impact from price increases, coupon payments of 3.47% and a positive impact of 0.26% from the weakening of the Canadian dollar. The S&P/Toronto Stock Exchange Composite Index had a total return 12.9% over the Period. The Portfolio s holdings of high yield corporate bonds and equities had a greater average income return than these indices and also had stronger price performance due to some single name outperformers. Some of the most notable outperformers during the Period within our fixed income investments included: BlackBerry Ltd. convertible bonds which experienced significant price appreciation as the company s stock price rebounded amid restructuring progress made by new management; SuperMedia Inc. loans, which rallied on the back of renewed strength in its online advertising business; First Data Corp. bonds, which benefitted from a large common equity injection; and, Edison Mission Energy and Texas Competitive Electric Holdings Co. LLC bonds, which despite being in bankruptcy, experienced strong price appreciation as the attractiveness of power generating assets became more evident to potential suitors. These company-specific events were important contributors to the Portfolio s performance. Fixed income investments which lagged during the Period were Arch Coal Inc. and Walter Energy Inc. Weak power prices in the U.S. and low demand for steel negatively impacted demand for the thermal and metallurgical coal produced by Arch and Walter, respectively. We believe that Arch Coal and Walter Energy bonds continue to offer an attractive risk / reward profile. The equity positions in the Portfolio also had some notable outperformers. Several investments including Man Group PLC, Banco do Brasil S.A. and British American Tobacco PLC appreciated in value due in a large part to renewed strength in emerging markets following a period of capital outflows that ended in March. In addition, Canadian Oil Sands Ltd. stock exhibited strength, benefitting from a higher oil price realization as the discount between Alberta and West Texas oil prices narrowed. Our investment in AGF Management Ltd. was a relative laggard in the Portfolio with weak stock performance over the Period; however, the stock s high dividend yield significantly mitigated the weaker stock performance. The Fund is exposed to currency risk as the Units of the Fund are denominated in Canadian dollars and the investments in the Portfolio may be in currencies other than the Canadian dollar. The Investment Manager may hedge such currency exposures from time to time. As at June 30, 2014 the Portfolio held forward currency contracts to protect against a rise in the Canadian dollar covering US$80 million (or approximately two-thirds) of its U.S. Dollar exposure (at December 31, 2013 there were no forward currency contracts in place). During the Period the Canadian dollar dropped slightly in value relative to the U.S. dollar from CAD/USD to CAD/USD. The weakness in the Canadian dollar relative to the U.S dollar, netted with the currency hedging activities undertaken by the Fund, had a positive impact on the Portfolio with realized and unrealized foreign exchange gains of approximately $1.5 million for the Period. This tailwind added approximately 0.9% to the Master Fund s total return during the Period Interim Management Report of Fund Performance 8

10 Leverage is restricted to 25.00% of the total assets of the Master Fund. Accordingly, at the time of borrowing, the maximum amount of leverage that the Master Fund could employ is 1.33:1 (total long positions, including leveraged positions, divided by net assets of the Master Fund). As at June 30, 2014, the Master Fund had employed leverage equal to 17.98% (December 31, %) of the net assets of the Master Fund, equating to $34.8 million (December 31, $31.6 million) which includes both margin payable and leverage obtained through derivatives. The minimum and maximum amounts of borrowings outstanding during the six month period ended June 30, 2014 were $14,320,121 and $39,348,069 million, respectively. The borrowings were used to grow the Master Fund s investments and for working capital needs. Adding leverage to the Master Fund is consistent with the Master Fund s objectives. RECENT DEVELOPMENTS Consistent with the Investment Manager s strategy, the Portfolio is focused on, but not limited to, 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 and return expectations, and the Investment Manager s assessment of the macro-economic environment and investment landscape. At the current time, of the three focus asset classes, the Investment Manager believes that equities are becoming increasingly attractive relative to high yield corporate debt. We intend to continue to take profits as appropriate in our high yield debt positions and redeploy capital into other high yielding securities that have attractive risk-reward characteristics. Federal Budget Announcement The Fund, like many closed-end funds in Canada, utilizes a forward agreement that is considered to be a tax advanced strategy. On March 21, 2013, the Government of Canada introduced a budget proposal that will have a significant impact on investment funds that employ such tax advantages strategies referred to as character conversions in the budget. The Fund will monitor guidance as issued by the Federal Government with respect to the implementation of the budget proposals as certain grandfathering provisions were proposed for forward agreements entered into prior to March 21, 2013 provided the term of the forward agreement is not extended thereafter. Transition to IFRS In accordance with IAS 34, Interim Financial Reporting, the financial statements for the fiscal year beginning January 1, 2014 have been prepared in accordance with International Financial Reporting Standards. The Fund adopted this basis of accounting as required by Canadian securities legislation and the Canadian Accounting Standards. Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in Part V of the Chartered Professional Accountants of Canada Handbook. Under Canadian GAAP, the Master Fund measured the fair value of its investments in accordance with Section 3855, Financial Instruments Recognition and Measurement, which required the use of bid prices for long positions and ask prices for short positions; to the extent such prices are available. Under IFRS, the Master Fund measures the fair values of its investments using the guidance in IFRS 13, Fair Value Measurement ( IFRS 13 ), which requires that if an asset or a liability has a bid price and an ask price, then its fair value is to be based on a price within the big-ask spread that is most representative of fair value. It also allows the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurements within a bidask spread. As a result, upon adoption of IFRS an adjustment was recognized. Please refer to Note 15 in the financial statements Interim Management Report of Fund Performance 9

11 RELATED PARTY TRANSACTIONS The Manager is a wholly owned subsidiary of Brookfield Asset Management Inc. ( Brookfield ) and it manages the investment and trading activities of the Funds pursuant to a management agreement. Due to Brookfield s ability to control the Funds, 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. 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 Funds. Brookfield and its affiliates own a 44.5% interest in the Fund. An additional 47.1% of the Fund s Units are held by Partners Value Fund Inc. (formerly BAM Investments Corp.) which is a related party due to its ability to exercise significant influence over the Fund resulting from its ownership interest. In the fourth quarter of 2013, Brookfield sold 3.4% of its interest in the market. During the Period, the Master Fund entered into inter-fund trades with Brookfield Select Opportunities Income Fund ( BSO ) which is a related party of the Master Fund due t o common control. The Investment Manager determined that these inter fund trades complied with the Master Fund s and BSO s investment restrictions and that owning the securities was consistent with the Master Fund s and BSO s investment objectives. The Manager sought the approval of the Master Fund s and BSO s Independent Review Committee (the IRC ) of the proposed inter-fund trades. The IRC provided its approval on the proposed inter fund trades on the Manager s recommendation. FINANCIAL HIGHLIGHTS The following tables provide 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 attributable to For the six months ended For the twelve months ended For the twelve months ended For the nine months ended Holders of redeemable units per unit (1) June 30, 2014 December 31, 2013 December 31, 2012 December 31, 2011 (2) Net assets, beginning of period (3) $12.69 $10.71 $9.10 $9.93 Increase (decrease) from operations Total revenue $0.01 $0.00 Total expenses (0.05) (0.09) (0.08) (0.07) Realized gains (losses) for the period (0.11) (0.02) Unrealized gains (losses) for the period (0.14) Total increase (decrease) from operations $2.42 $2.77 $2.38 (0.23) Distributions Due to return of capital (4) (0.40) (0.80) (0.80) (0.60) Total distributions (5) (0.40) (0.80) (0.80) (0.60) Net assets attributable to holders of redeemable units per unit, end of period (4)(6) $14.70 $12.69 $10.68 $ Interim Management Report of Fund Performance 10

12 Notes: (1) This information is derived from the Fund s unaudited condensed interim financial statements and the audited financial statements as at December 31 of the year, with the exception of 2013 information, which was re-stated in accordance with the IFRS requirements. (2) Results are for the period from April 1, 2011 (the inception date of the Fund) to December 31, (3) The beginning of period net assets per Unit in 2011 reflects the issue price of $10.00 less share issue expenses of $0.07 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) Distributions were recorded as equal payments of $0.20/unit. Cash payment of distributions occurs within 15 business days of the record date. (6) This is not a reconciliation of the beginning and ending net assets per Unit. For the six For the twelve months For the twelve For the nine months ended ended months ended months ended Ratios and Supplemental Data June 30, 2014 December 31, 2013 December 31, 2012 December 31, 2011 (2) Total net asset value (1) $190,524,778 $164,403,981 $139,293,781 $118,669,901 Number of Units outstanding 12,958,260 12,959,400 13,000,000 13,000,000 Management expense ratio (3) 1.35% 1.29% 1.41% 2.16% Management expense ratio before waivers and absorptions (3) 1.35% 1.29% 1.41% 2.16% Trading expense ratio (4) N/A N/A N/A N/A Portfolio turnover rate (4) N/A N/A N/A N/A Net asset value per Unit $14.70 $12.69 $10.71 $9.13 Bid price (5) $12.91 $12.72 $9.74 $9.00 Notes: (1) This information is provided as at June 30, 2014, December 31, 2013, December 31, 2012 and December 31, (2) Results are for the period from April 1, 2011 (the inception date of the Fund) to December 31, (3) Management expense ratio ( MER ) is based on total expenses (excluding commissions and other portfolio transaction costs, but including interest expense and management fees from the Master Fund) for the stated period, except as stated in the following sentence, and is expressed as an annualized percentage of daily average net asset value during the period. The MER for the period ended December 31, 2011, includes agents fees and other offering expenses, which are one-time expenses and therefore are not annualized. The MER for the nine month period ended December 31, 2011, excluding agents fees and offering expenses, is 1.42%. (4) The Fund s return is linked, by virtue of a forward agreement, to the performance of the Portfolio and consequently, the portfolio turnover rate and trading expense ratio do not apply to the Fund. (5) Bid price of BIF.UN on the CSE as of June 30, 2014, December 31, 2013, December 31, 2012 and December 31, 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 compensation for the management services rendered to the Fund, the Manager is entitled to an annual management fee equal to 0.10% per annum based on the net asset value of the Fund as well as an annual fee of 0.30% based on the net asset value of the Master Fund (total overall management fee of 0.40%). These management fees are calculated daily and payable monthly in arrears, plus applicable taxes. The management fees totaled $100, Interim Management Report of Fund Performance 11

13 and $83,026 for the Fund and $302,682 and $249,560 for the Master Fund for the six months ended June 30, 2014 and 2013 respectively. 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 bar chart below shows the Fund s performance for the periods shown. 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 % 26.81% 26.52% 25.00% 20.00% 19.23% 15.00% 10.00% 5.00% 0.00% -5.00% -2.72% 12/31/2011 (1) 12/31/2012 (2) 12/31/2013 (3) (4) 6/30/2014 Notes: (1) Represents period from April 1, 2011 (the Fund s inception date) to December 31, This calculation is based on the $10.00 per Unit offering price and includes offering expenses of $0.07 per Unit which are not recurring. If offering expenses are excluded from the calculation the total return for the period would be negative 1.94%. (2) Represents period from January 1, 2012 to December 31, (3) Represents period from January 1, 2013 to December 31, (4) Represents period from January 1, 2014 to June 30, Interim Management Report of Fund Performance 12

14 SUMMARY OF INVESTMENT PORTFOLIO The Fund has entered into forward agreement whereby the Fund obtains economic exposure to the performance of the Portfolio. Accordingly, this management report of fund performance should be read in conjunction with the management report of fund performance and financial statements of the New Horizons Master Fund. The management report of fund performance and financial statements for the New Horizons Master Fund are available to Unitholders and may be obtained by visiting our website at or by writing to the Investor Relations group of Brookfield Investment Management (Canada) Inc., Brookfield Place, 181 Bay Street, Suite 300, Toronto, Ontario, Canada, M5J 2T3. The following is a summary of the Master Fund portfolio as at June 30, This is a summary only and will change due to ongoing portfolio transactions of the Master Fund. Quarterly updates will be posted to As at June 30, 2014 Top 25 Positions Cash and cash equivalents 1 % of Net Asset Value of the Fund BlackBerry Ltd. Bonds 7.16 First Data Corp. Bonds 6.53 M an Group PLC Equity 5.61 Lightstream Resources Ltd. Bonds 5.21 Niska Gas Storage Canada ULC Bonds 4.99 SuperM edia Inc. Term Loan 4.92 AGF M anagement Ltd. Class B Equity 4.67 Forbes Energy Services Ltd. Bonds 4.23 Hexion US Finance Corp. Bonds 4.16 EV Energy Partners LP Equity Total Return Swap 4.07 Canadian Oil Sands Ltd. Bonds 3.88 Sun Life Financial Inc. Bonds 3.88 Just Energy Group Inc. Bonds 3.57 Lightstream Resources Ltd. Equity 3.51 British American Tobacco PLC Equity 3.47 M ark West Energy Partners LP Equity Total Return Swap 3.38 M BIA Inc. Bonds 3.30 Unilever PLC Equity 3.25 Walter Energy Inc. Bonds 2.91 China M obile LTD., ADR Equity 2.84 Arch Coal Inc. Bonds 2.81 Banco Do Brasil S.A. Bonds 2.72 Empresas ICA SAB de CV Bonds 2.49 Texas Competitive Electric Holdings Co LLC Bonds 2.44 Total Cash and cash equivalents was impacted by pending trade settlements and margin loan repayments. As at June 30, 2014, the Fund had employed leverage of 17.98% of net assets Interim Management Report of Fund Performance 13

15 As at June 30, 2014 % of Net Asset Value Sector Allocation of the Fund Basic M aterials 9.88 Consumer Cyclical 1.97 Consumer Non-Cyclical 8.77 Energy & Infrastructure Financials M edia 4.92 Technology Telecom 2.84 Cash and cash equivalents Other Liabilities and Accrued Investment Income (19.41) Total Cash and cash equivalents was impacted by pending trade settlements and margin loan repayments. As at June 30, 2014, the Fund had employed leverage of 17.98% of net assets. 2 Table includes notional value of equity derivatives therefore total does not sum to 100% of NAV Interim Management Report of Fund Performance 14

16 FUND INFORMATION MANAGER AND INVESTMENT MANAGER 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 INDEPENDENT REVIEW COMMITTEE John P. Barratt (Chair) Corporate Director James L. R. Kelly President Earth Power Inc. Frank Lochan Corporate Director Craig Noble Director CONTACT INFORMATION Brookfield New Horizons Income Fund welcomes inquiries from Unitholders, analysts, media representatives or other interested parties. Manager, Investment Manager, and Trustee 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 Interim Management Report of Fund Performance 15

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