Brookfield Investment Management 2013 New Horizons Master Fund Interim Financial Statements For the period from January 1, 2013 to June 30, 2013
Notice to Reader These interim financial statements and related notes of New Horizons Master Fund (the Fund ) for the six month period ended June 30, 2013 have been prepared by management of the Fund. The external auditors of the Fund have not audited or reviewed these interim financial statements. CONTENTS Financial Statements 2 Notes to Financial Statements 8 Fund Information 17 2013 Interim Financial Statements 1
Statements of Net Assets As at June 30, 2013 and December 31, 2012 (Unaudited, Expressed in Canadian Dollars) Assets Investments, at fair value (Cost $160,697,694; 2012 - $130,892,012) 173,984,424 134,549,936 Cash and cash equivalents 4,144,993 10,128,074 Accrued investment income 2,409,017 2,108,051 2013 $ 2012 $ 180,538,434 146,786,061 Liabilities Unrealized loss on forward currency contracts (Note 13) 251,084 Margin payable (Note 6) 24,489,823 2,374,891 Due to broker 2,148,244 Accounts payable and accrued liabilities 258,315 99,791 24,999,222 4,622,926 Net assets, representing Unitholders' equity 155,539,212 142,163,135 Number of Units outstanding (Note 11) 10,801,825 11,268,811 Net assets per Unit $ 14.40 $ 12.62 See accompanying notes to financial statements. Approved on behalf of the Manager, Brookfield Investment Management (Canada) Inc. George E. Myhal Director Gail Cecil Director 2013 Interim Financial Statements 2
Statements of Operations For the six months ended June 30 (Unaudited, Expressed in Canadian Dollars) 2013 2012 $ $ Investment income Interest 5,965,487 7,548,099 Dividends 656,896 63,036 6,622,383 7,611,135 Expenses (Note 8) Management fees 249,560 215,737 Interest expense 34,761 124,137 Brokerage commissions and other charges 34,491 11,566 Operating expenses 59,417 115,664 378,229 467,104 Net investment income 6,244,154 7,144,031 Net realized and unrealized gain (loss) on investments Net realized gain on sale of investments 3,549,828 347,279 Net realized foreign exchange gain 475,386 308,587 Net unrealized foreign exchange loss (111,015) (626,777) Change in unrealized depreciation on forward currency contracts (251,084) - Change in unrealized appreciation on investments 9,628,808 9,179,023 13,291,923 9,208,112 Increase in net assets from operations 19,536,077 16,352,143 Increase in net assets from operations per Unit 1.79 1.37 See accompanying notes to financial statements. 2013 Interim Financial Statements 3
Statements of Cash Flows For the six months ended June 30 (Unaudited, Expressed in Canadian Dollars) 2013 2012 $ $ Cash flows provided by (used for): Cash flows from operating activities Increase in net assets from operations 19,536,077 16,352,143 Items not affecting cash: Net realized gain on investments (3,549,828) (347,279) Change in unrealized appreciation of investments (9,628,808) (8,624,384) Change in unrealized depreciation of forward currency contracts 251,084 - Changes in non-cash operating accounts: Accrued investment income (300,966) 206,165 Accounts payable and accrued liabilities 158,524 329,969 6,466,083 7,916,614 Cash flows from investing activities Proceeds from sale of investments 36,488,515 49,340,687 Amounts paid for purchase of investments (64,892,611) (60,986,883) (28,404,096) (11,646,196) Cash flows from financing activities Margin payable, net (repayments) borrowings 22,114,932 7,539,400 Amounts paid for redemption of Units (6,160,000) (5,690,000) 15,954,932 1,849,400 Net decrease in cash and cash equivalents (5,983,081) (1,880,185) Cash and cash equivalents, beginning of period 10,128,074 2,563,293 Cash and cash equivalents, end of period $ 4,144,993 $ 683,108 See accompanying notes to financial statements. 2013 Interim Financial Statements 4
Statements of Changes in Net Assets For the six months ended June 30 (Unaudited, Expressed in Canadian Dollars) 2013 2012 $ $ Net assets, beginning of period 142,163,135 121,545,454 Increase in net assets from operations 19,536,077 16,352,143 Capital transactions Amounts paid for redemption of Units (6,160,000) (5,690,000) (6,160,000) (5,690,000) Net assets, end of period 155,539,212 132,207,597 See accompanying notes to financial statements 2013 Interim Financial Statements 5
Statement of Investments As at June 30, 2013 (Unaudited, Expressed in Canadian Dollars) Average Cost Fair Value % of Net Quantity Security $ $ Assets Bonds United States Dollar Denominated 4,000,000 American International Group 8.175% 05/15/2058 3,734,864 5,148,168 3.31 1,000,000 Arch Coal Inc. 06/15/2019 9.875% 962,613 1,002,204 0.64 10,000,000 Arch Coal Inc. 06/15/2021 7.25% 8,899,492 8,545,115 5.49 8,000,000 Banco Do Brasil S.A. 01/26/2022 5.875% 7,963,895 8,228,629 5.29 8,500,000 Beazer Homes USA, Inc. 9.125% 05/15/2019 7,866,763 9,370,615 6.03 2,000,000 Beazer Homes USA, Inc. 9.125% 06/15/2018 1,614,694 2,194,301 1.41 1,000,000 Beazer Homes USA, Inc. 7.25% 02/01/2023 1,001,101 1,065,502 0.69 1,630,000 Calfrac Holdings LP 7.5% 12/01/2020 1,639,439 1,702,376 1.09 10,000,000 Cemex Espana Luxemburg 9.25% 05/12/2020 8,228,891 11,129,749 7.16 6,000,000 Clear Channel Communications Inc. 9% 03/01/2021 5,833,449 6,013,229 3.87 7,500,000 Edison Mission Energy 7% 05/15/2017 5,841,745 4,440,691 2.86 5,000,000 Essar Steel Algoma Inc. 9.375% 03/15/2015 4,816,028 5,011,024 3.22 7,500,000 First Data Corp. 12.625% 01/15/2021 7,968,127 8,367,091 5.38 3,500,000 First Data Corp. 11.25% 01/15/2021 3,492,676 3,683,103 2.37 10,000,000 Forbes Energy Services Ltd. 9% 06/15/2019 9,799,624 10,391,282 6.68 3,000,000 Hovnanian Enterprises, Inc. 9.125% 11/15/2020 2,924,262 3,465,519 2.23 11,000,000 MBIA Inc. 7% 12/15/2025 9,173,012 11,372,388 7.31 8,000,000 Pittburgh Glass Works LLC 8.5% 04/15/2016 8,045,599 8,355,224 5.37 9,900,000 Tembec Industries Inc. 11.25% 12/15/2018 10,432,340 11,279,552 7.25 5,000,000 Texas Competitive Electric Holdings LLC 11.5% 10/01/2020 4,615,470 3,923,105 2.52 Canadian Dollar Denominated 114,854,084 124,688,867 80.17 13,100,000 North American Energy Partners. 9.125% 04/07/2017 12,575,750 13,362,000 8.59 12,575,750 13,362,000 8.59 Brazilian Real Denominated 2,000,000 Companhia De Eletricidade Do Estado Da Bahia 11.75% 04/27/2016 1,330,146 959,895 0.62 1,330,146 959,895 0.62 Equities 2013 Interim Financial Statements 6
United States Dollar Denominated 12,200 BP PLC, ADR 513,355 537,211 0.35 37,600 Royal Dutch Shell PLC, ADR 2,581,477 2,629,473 1.69 3,094,832 3,166,684 2.04 Canadian Dollar Denominated 633,135 AGF Management Ltd. Class B 6,635,124 7,084,781 4.55 310,000 Canadian Oil Sands Ltd. 5,990,751 6,035,700 3.88 191,100 Sun Life Financial Inc. 4,329,743 5,952,765 3.83 British Pound Denominated 16,955,618 19,073,246 12.26 529,018 Aviva PLC 2,903,071 2,872,025 1.85 3,260,645 Man Group PLC 4,536,567 4,338,101 2.79 7,439,638 7,210,126 4.64 Term loans United States Dollar Denominated 6,675,184 SuperMedia Inc. 11.6% Term Loan B 12/31/2016 4,482,117 5,523,606 3.55 4,482,117 5,523,606 3.55 Transaction costs (34,491) Total investments 160,697,694 173,984,424 111.86 See accompanying notes to financial statements 2013 Interim Financial Statements 7
Notes to Financial Statements 1. THE FUND New Horizons Master Fund (the Fund ) is an investment fund established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated March 1, 2011. 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 investment objective of the Fund is to provide holders of the Units ( Unitholders ) with the opportunity to preserve the net asset value of the Fund by investing in a portfolio (the Portfolio ) which 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 investment manager (the Investment Manager ) of the Fund. The Investment Manager makes all of the investment and trading decisions on behalf of the Fund. Pursuant to the terms of the declaration of trust, BIM Canada replaced Caledon Trust Company as trustee of the Fund effective June 1, 2013. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Part V of the Canadian Institute of Chartered Accountants ( CICA ) Handbook - Canadian generally accepted accounting principles ( GAAP ). The following is a summary of significant accounting policies followed by the Fund in the preparation of these financial statements: Valuation of investments Investments are deemed to be classified as held for trading in accordance with CICA Handbook Section 3855, Financial Instruments Recognition and Measurement ( Section 3855 ), and are recorded at their fair value. In the case of publicly traded securities, fair value means the closing bid price for long positions and the closing ask price for short positions. For bonds and bank debt, fair value means the bid price for long positions and the ask price for short positions, provided by independent security pricing services or broker quotes. Securities for which reliable quotations are not readily available or not traded in an active market are valued at fair value using established valuation procedures. All investment transactions are accounted for on the trade date. Realized gains and losses from investment transactions and unrealized appreciation or depreciation in the value of investments are calculated on an average cost basis, excluding transaction costs and the effect of foreign exchange fluctuations, which are disclosed separately. Other assets and liabilities For the purpose of categorization in accordance with Section 3855, accrued investment income is recorded at cost or amortized cost. Similarly, margin payable, payables for securities purchased, distributions payable and accounts payable and accrued liabilities are deemed to be other financial liabilities and reported at amortized cost. Investment transactions and income and expense recognition All investment transactions are accounted for on the trade date. Dividend income is recognized on the ex-dividend date and interest income is recognized as earned. Transaction costs Transaction costs, such as brokerage commissions incurred in the purchase and sale of securities by the Fund, are expensed and are included in operating expenses in the Statements of Operations. 2013 Interim Financial Statements 8
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Foreign currency translation Investments and other assets denominated in foreign currencies are translated into Canadian dollars using the rate of exchange prevailing on the trade date. Investment transactions and income and expenses are translated at the rate of exchange on the date of such transactions. The fair values of investments and other assets and liabilities in foreign currencies are translated at the period-end exchange rates. All realized and unrealized foreign exchange adjustments are recorded in the Statements of Operations. Forward foreign currency contracts Forward foreign currency contracts, if applicable, are valued at current market value on each valuation date. The value is determined as the gain or loss that would be realized, if on the valuation date, the position of the forward foreign currency contracts were closed out. Accounting estimates The preparation of the financial statements in accordance with Canadian GAAP requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates were used in the valuation of the investments. Actual results could differ from those estimates. 3. NET ASSETS PER UNIT The net assets per Unit are the net assets of the Fund divided by the number of Units outstanding as at the end of the financial period. Any difference between the net asset value per Unit used for pricing purposes and the net assets per Unit on the Statements of Net Assets is due to different pricing methodologies used to calculate the net assets for financial reporting purposes as described in Note 2 and the net asset value used for Fund pricing purposes. The following table reconciles the difference between the published net asset value per Unit and the net asset value per Unit reflected in the financial statements of the Fund as at June 30, 2013 and December 31, 2012: June 30, 2013 December 31, 2012 Total $ Per Unit $ Total $ Per Unit $ Net asset value 155,543,566 14.40 142,182,310 12.62 Section 3855 adjustments (4,354) (19,175) Net assets per Statements of Net Assets 155,539,212 14.40 142,163,135 12.62 4. MANAGEMENT OF FINANCIAL RISKS The Fund is exposed to various financial risks, including market risk (consisting of currency risk, interest rate risk, and other price risk), credit risk and liquidity risk. The Fund s overall risk management programme seeks to minimize potentially adverse effects of those risks on the Fund s financial performance by employing experienced portfolio managers and by continuous monitoring of the Fund s securities positions and markets. The Manager maintains a corporate governance structure that oversees the Fund s investment activities. The Fund may use derivative financial instruments to mitigate certain risk exposures. 2013 Interim Financial Statements 9
Currency risk Currency risk is the risk that the value of an investment will change due to fluctuations in foreign exchange rates. The Fund s net assets are measured in Canadian dollars and payments to Unitholders are made in Canadian dollars. The Fund is exposed to currency risks as it may hold assets or have liabilities denominated in currencies other than in Canadian dollars. As at June 30, 2013 and December 31, 2012, the Fund was exposed to currency risk as the value of any assets or liabilities denominated in currencies other than the Canadian dollar will vary due to changes in foreign exchange rates. Currency risks of the Fund can be mitigated with the use of forward foreign currency contracts. As at June 30, 2013 there were two contracts outstanding and at December 31, 2012 there were no such contracts outstanding. The following tables summarize the Fund s exposure to currency risks, as at June 30, 2013 and December 31, 2012: June 30, 2013 Investments Cash Other Net Assets/ (Liabilities) * Forward Currency Contracts Total $ $ $ $ $ % of Net Assets U.S. Dollar 133,379,157 1,206,195 (15,266,937) (31,452,000) 87,866,415 56.49 British Pound 7,210,126 (7,101,435) 108,691 0.07 Brazilian Real 959,895 19,016 978,911 0.63 Total 141,549,178 1,206,195 (22,349,356) (31,452,000) 88,954,017 57.19 *Other Net Assets includes borrowings of $24,489,823 December 31, 2012 Investments Cash Other Net Assets/ (Liabilities) * Forward Currency Contracts Total % of Net Assets $ $ $ $ $ U.S. Dollar 109,510,422 9,943,781 (299,943) 119,154,260 83.82 British Pound 2,910,665 (2,374,111) (10,052) 526,502 0.37 Brazilian Real 1,031,489 20,208 1,051,697 0.74 Total 113,452,576 7,569,670 (289,787) 120,732,459 84.93 *Other Net Assets includes borrowings of $2,374,891 As at June 30, 2013, had the Canadian dollar strengthened or weakened by 1% against each of the other currencies with all other variables remaining constant, net assets of the Fund would have decreased or increased by $889,540 (December 31, 2012 - $1,207,325). Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. 2013 Interim Financial Statements 10
The Fund is exposed to interest rate risk from its holdings of fixed-rate debt instruments, the values of which fluctuate due to changes in prevailing levels of market interest rates. As at June 30, 2013 and December 31, 2012, the Fund s debt instruments remaining terms to maturity were as follows: Debt Instruments $ % of Net Assets Less than 1 year 1 to 3 years 14,326,142 9.21 3 to 5 years 25,520,597 16.41 Greater than 5 years 104,687,629 67.30 Total 144,534,368 92.92 As at December 31, 2012, the Fund s debt instruments remaining terms to maturity were as follows: Debt Instruments $ % of Net Assets Less than 1 year 1 to 3 years 4,489,978 3.16 3 to 5 years 19,836,495 13.95 Greater than 5 years 96,011,187 67.54 Total 120,337,660 84.65 Interest rate risk of the Fund is currently mitigated by the relatively short duration and high credit spread of the high yield bonds and loans in the Portfolio. These characteristics make the Portfolio s sensitivity to interest rate risk relatively less than what would be experienced by a portfolio with longer duration investments that trade at tighter spreads to government-backed fixed income securities. It would also be possible to hedge interest rate risk by shorting government-backed fixed income securities or engaging in various interest rate derivatives. As at June 30, 2013 and December 31, 2012, the Fund had no such hedges in place. At June 30, 2013, if the prevailing interest rates had risen or declined by 0.25%, assuming a parallel shift in the yield curve, with all other variables held constant, the Fund s net assets would have decreased or increased, respectively, by approximately $1,582,110 (December 31, 2012 $1,297,319). The Fund s sensitivity to interest rate changes was estimated using the weighted average duration of the bonds. In practice, the actual results may differ from this sensitivity analysis and the differences could be material. Other price risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). Such changes may be the result of factors affecting multiple instruments traded in a market, market segment or asset class. The Fund is exposed to other price risk in the Portfolio. The Fund may take outright long or short positions in any of its investments, which may include derivative instruments for purposes consistent with its investment objectives and investment strategy and subject to its investment restrictions. As at June 30, 2013, the Fund had direct exposure to derivatives through its holdings in currency swaps (as at December 31, 2012 there was no direct exposure to derivatives). As of June 30, 2013 and December 31, 2012, the Fund had no securities sold short. All investments in securities present a risk of loss of capital. The Manager mitigates this risk through careful selection of securities and other financial instruments. 2013 Interim Financial Statements 11
Credit risk Credit risk is the risk of non-payment of scheduled interest and/or principal payments. The Fund is exposed to several types of credit risks including the risk that one or more investments in the Portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the security experiences a decline in its financial status. As at June 30, 2013, the maximum exposure to any one debt issuer in the Portfolio was $13,362,000 (December 31, 2012 - $10,893,158) representing 8.59% (December 31, 2012 7.66%) of net assets. The performance of the Fund is also subject to general economic and specific industry conditions that could impact the fair value of one or more debt securities in the Portfolio. Securities with lower ratings tend to be more sensitive to these kinds of risks. As at June 30, 2013 and December 31, 2012, the Fund was invested in debt securities with the following credit ratings: Debt Instruments by S&P Rating* June 30, 2013 December 31, 2012 % of Net Assets Total $ % of Net Assets Total $ BBB 16.53 25,709,080 8.00 11,370,842 B 46.00 71,549,170 54.04 76,810,485 CCC 27.54 42,835,428 19.12 27,188,554 Not rated** 2.85 4,440,690 3.49 4,967,779 Total 92.92 144,534,368 84.65 120,337,660 * Or, if not rated by S&P, the comparable rating from Moody s Investors Service ** Not rated by Standard & Poor s or Moody s Investors Service The Manager seeks to mitigate the above credit risk through the careful selection of investments, through the employment of experienced portfolio managers and through continuous monitoring of the Fund s securities positions and markets. Another type of credit risk is exposure to the creditworthiness of the Fund s trading counterparties. All securities transactions executed by the Fund are settled upon delivery using approved brokers. The risk of payment default on securities is considered negligible, as delivery of securities sold is only made once the broker has received payment on behalf of the Fund. Payment is not made on a purchase until the securities have been received by the broker on behalf of the Fund. The trade will fail if either party fails to meet its obligation. The Fund may enter into derivative contracts including options, futures, forwards and swaps for a variety of purposes. The Fund has entered into forward foreign currency exchange contracts primarily to hedge against foreign currency exchange rate risk on a portion of its U.S. dollar denominated investment securities. Derivative contracts involve risks arising from the possible inability of counterparties to meet the terms of their contracts due to movement in currency, security values and interest rates. The Fund seeks to mitigate this risk through the careful selection of its derivative counterparties. Liquidity risk Liquidity risk is the risk that the Fund may not be able to settle or meet its obligation on time or at a reasonable price. The Fund has current financial liabilities outstanding, including but not limited to, margin loans and interest payable on its margin loans, accounts payable and accrued liabilities. The Manager seeks to 2013 Interim Financial Statements 12
mitigate this liquidity risk by ensuring that a reasonable portion of the Fund s investments trade in active markets and can be sold readily. There can be no assurance that an adequate market for the investments will exist at all times, or that the prices at which the investments trade, accurately reflect their fair value. Low trading volumes of the investments could also make it difficult to liquidate holdings quickly. 5. FAIR VALUE OF FINANCIAL INSTRUMENTS The CICA Handbook Section 3862 Financial Instruments Disclosures ( Section 3862 ) requires enhanced disclosure of fair value and liquidity risk. This includes classification of the fair value measurements associated with the financial instruments held by a fund. The classifications use a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The hierarchy has the following levels: quoted prices in an active market (Level 1 unadjusted inputs); inputs other than quoted prices (Level 2 directly or indirectly derived from observational market data); and inputs not based on observable market data (Level 3 unobservable inputs). In addition to the above disclosure requirements, Section 3862 requires disclosure of significant transfers between Levels 1 and 2 since the prior reporting period, as well as reconciliation of Level 3 assets, disclosing separately changes during the reporting period attributable to i) total gains or losses recognized in net income, and a description of where they are presented in the income statement, ii) purchases, sales, issues and settlements, and iii) transfers into or out of Level 3 and the reasons for those transfers. Any significant transfers between Level 1 and Level 2 are disclosed. Further, for fair value measurements in Level 3, if changing one or more type of the inputs to reasonably possible alternative assumptions would change fair value significantly, the entity shall state this fact and disclose both the effect of those changes and how the effect was calculated. The following tables provide a summary of the inputs used as at June 30, 2013 and December 31, 2012 in valuing the Fund s investments carried at fair value: As at June 30, 2013 Level 1 Level 2 Level 3 Total $ $ $ $ Investments, at fair value: Equities 29,450,056 29,450,056 Fixed income Corporate bonds 139,010,762 139,010,762 Term loans 5,523,606 5,523,606 Forward currency contracts (251,084) (251,084) Total Investments, at fair value 29,450,056 144,283,284 173,733,340 As at December 31, 2012 Level 1 Level 2 Level 3 Total $ $ $ $ Investments, at fair value: Equities 14,212,276 14,212,276 Fixed income Corporate bonds 115,369,881 115,369,881 Term loans 4,967,779 4,967,779 Total Investments, at fair value 14,212,276 120,337,660 134,549,936 2013 Interim Financial Statements 13
During the period there were no Level 3 assets held by the Fund, nor were there movements in or out of the category. 6. BORROWINGS In the fourth quarter of 2011, the Fund established the ability to borrow using a prime brokerage account. The Fund subsequently added leverage to the Portfolio through the margining of certain securities. Leverage is restricted to 25% of the total assets of the Fund. Accordingly, at the time of borrowing, the maximum amount of leverage that the Fund could employ is 1.33:1 (total long positions, including leveraged positions, divided by net assets of the Fund). At June 30, 2013, the Fund had employed leverage equal to 15.75% (December 31, 201 2 1.67%) of the net assets of the Fund, equating to $24,489,823 (December 31, 2012 - $2,374,891). The minimum and maximum amount of borrowings outstanding during the twelve month period ended June 30, 2013 was $2,301,506 and $30,967,950, respectively. The minimum and maximum amount of borrowings outstanding for the year ended December 31, 2012 was $0 and $23,818,610, respectively. 7. INCOME TAXES The Fund is not subject to tax on that portion of its income, including net realized capital gains for its taxation year that is paid or payable to Unitholders. It is the intention of the Fund to pay all net taxable income and sufficient net taxable gains so that the Fund will not be subject to income taxes. No provision for income taxes has been recorded in the accompanying financial statements as all income and net realized capital gains are to be distributed to the Unitholders. Capital losses realized in excess of those utilized to offset realized capital gains in the current taxation year can be carried forward indefinitely and may be applied against future years capital gains. Non-capital losses may be carried forward for a period of 20 years and applied against future years taxable income. 8. EXPENSES OF THE FUND The Manager is entitled to an annual management fee equal to 0.30% per annum based on the net asset value of the Fund. These fees are calculated daily and payable monthly in arrears, plus applicable taxes. The management fee totalled $249,560 and $215,737 for the six months ended June 30, 2013 and six months ended June 30, 2012, respectively. The Fund pays for all ordinary expenses incurred in connection with its operation and administration, including, but not limited to, all costs of Portfolio transactions, fees payable to the Manager, administrator and other third party service providers, custodial fees, legal, accounting, audit and valuation fees, other administrative expenses and any extraordinary expenses that the Fund may incur. 9. RELATED PARTY DISCLOSURE 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. 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 Note 8, Expenses of the Fund, which outlines the fees paid to the Manager by the Fund. 2013 Interim Financial Statements 14
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 April 1, 2011 (the Closing Date ), a portfolio of securities (the Exchange Option Securities ). The Investment Manager determined that the Exchange Option Securities complied with the Fund s investment restrictions, and 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 Manager sought the approval of the Fund s Independent Review Committee (the IRC ) on the pricing mechanism that would be used to value the Exchange Option Securities. The IRC provided its approval on the Manager s recommendation. 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 related party transactions during the six months ended June 30, 2013. 10. UNITHOLDERS EQUITY The Fund is authorized to issue an unlimited number of redeemable and transferable Units of a single class, each of which represents an equal, undivided interest in the net assets of the Fund. Each Unit is entitled to one vote at all meetings of Unitholders and is entitled to participate equally with respect to any and all distributions made by the Fund. On the redemption of Units, however, the Fund may in its sole discretion designate payable to redeeming Unitholders, as part of the redemption price, any capital gains realized by the Fund in the taxation year in which the redemption occurred. On termination or liquidation of the Fund, the holders of outstanding Units of record are entitled to receive, on a pro rata basis, all of the assets of the Fund remaining after payment of all debts, liabilities and liquidation expenses of the Fund. The Declaration of Trust provides that the Fund may not issue additional Units except: i) for net proceeds not less than 100% of the net asset value per Unit calculated as of the close of business on the business day immediately prior to the pricing of such offering; or (ii) by way of Unit distributions. Unitholders are entitled to redeem Units outstanding on any business day and will receive a redemption price equal to the net asset value per Unit of the Fund. 11. CAPITAL TRANSACTIONS Changes in the number of Units outstanding for the Fund for the six month period ended June 30, 2013 and the year ended December 31, 2012 consisted of the following: For the six months ended For the year ended June 30, 2013 December 31, 2012 Beginning balance 11,268,811 12,303,740 Redemption of Units (466,986) (1,034,929) Number of Units outstanding, end of period 10,801,825 11,268,811 Capital management Units issued and outstanding represent the capital for the Fund. The Fund has no restrictions or specific capital requirements and is authorized to issue an unlimited number of transferable Units (see Note 10). Restrictions and specific requirements on the redemption of Units are described in Note 10. The Statements of Changes in Net Assets and the above table outline the relevant changes of the Fund s Units for the period. The Fund manages its capital in accordance with its investment objectives and strategies and the risk management practices outlined in Note 4 while maintaining sufficient liquidity to meet Unitholder redemptions. 2013 Interim Financial Statements 15
12. DISTRIBUTIONS Unitholders will be entitled to receive distributions if, as and when declared by the Fund from time to time. All distributions will be paid in Units. Immediately after any distribution in Units, the number of outstanding Units will be consolidated such that each Unitholder will hold after the consolidation the same number of Units as it held before the distribution. 13. FORWARD CURRENCY CONTRACTS As at June 30, 2013, the Fund had entered into forward currency contracts with a fair value of a loss of $251,084 to deliver currencies at specified future dates as follows: Unrealized Schedule A Maturity Gains /(Losses) Foreign Exchange Contracts Date $ Bought CAD 61,914,000; Sold USD 60,000,000 @ 1.032 6-Sep-13 1,238,660 Bought USD 30,000,000; Sold CAD 30,462,000 @ 0.985 6-Sep-13 (1,489,744) Total CAD (251,084) 14. FUTURE ACCOUNTING CHANGES International Financial Reporting Standards ( IFRS ) replaced Canadian GAAP for publicly accountable enterprises, other than investment funds. Under the general transition rules for publicly accountable enterprises other than investment funds, publicly accountable enterprises adopted IFRS for the fiscal period beginning January 1, 2011. 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, 2012. 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, 2014. Accordingly, the Fund 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, 2014. 2013 Interim Financial Statements 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 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 New Horizons Master Fund welcomes inquiries from Unitholders, analysts, media representatives or other interested parties. Manager, Investment Manager, Transfer Agent, Registrar, and Trustee Unitholder inquiries relating to distributions, address changes and Unitholder account information should be directed to the Fund s Transfer Agent: Brookfield Investment Management (Canada) Inc. Brookfield Place 181 Bay Street, Suite 300 Toronto, Ontario M5J 2T3 t. 416.363.9491 w. www.brookfieldim.com 2013 Interim Financial Statements 17