MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended November 30, 2013, Brookfield Total Return Fund Inc.
(NYSE: HTR) (the “Fund”) had a total return based on net asset value of 16.22% and a total return based on market price of 6.41%, which assumes the reinvestment of dividends and is exclusive of brokerage commissions. Based on the NYSE
closing price of $23.31 on November 30, 2013, the Fund’s shares had a dividend yield of 9.78%. The dividend yield is calculated as the annualized amount of the reporting period’s most recent monthly dividend declared divided by the
stated stock price. The 5-Year U.S. Treasury was down 1.34% over the twelve-month period.
The Fund’s performance over the period
was driven by income and by yield spread tightening driven by the continued improvement in fundamental performance within the portfolios exposures to residential and commercial real estate. The Fund’s allocations to credit outperformed, as
non-Agency Residential Mortgage-Backed Securities (“MBS”) and Commercial MBS (“CMBS”) were among the best performing asset classes in 2012 and 2013. The Fund’s allocation to credit more than offset the impact of duration
during a period of rising rates.
As of November 30, 2013, the Fund had approximately 8% invested in Agency MBS, including agency
Interest-Only securities. The majority of the Fund’s Agency MBS is allocated to seasoned, higher coupon securities that we expect to fare better through this period of reduction in the asset purchase program. Within the Fund’s portfolio,
the exposure to asset-backed securities (“ABS”), non-Agency MBS and CMBS represented approximately 79% of gross assets as of November 30, 2013. We believe that to the extent the economy remains on track, we will likely see continued
improvement in our non-Agency MBS, CMBS and ABS assets, many of which remain at discount dollar prices. The current market price average was $91 for CMBS and $70 for non-Agency MBS as of November 30, 2013.
Our strategy for the Fund’s portfolio remains focused on income and on capturing the upside in the private label Residential MBS and CMBS
universe. We believe these sectors remain good places to hide from rising rates, given their excess spread and their positive fundamentals. And unlike other sectors there is differentiated upside available in these sectors where expectations for
mortgage losses remain higher than the likely end result. As such, we think a focus on a better than expected housing market will continue to add value.
2 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
MARKET ENVIRONMENT
Real estate markets in the U.S. improved significantly over the past 12 months. Prices of single family homes were up 12% over the last 12 months, as measured by the CoreLogic Home Price Index. Moody’s CPPI
index which measures changes in commercial property prices also showed an increase of 14% over the last 12 months, ending in October. Within commercial real estate, top tier properties in major markets have enjoyed a significant recovery over the
past several months but the secondary markets have outperformed major markets. This evidences the expansion of the commercial real estate recovery that we discussed in the Fund’s semi-annual report. These improvements in residential housing
markets and commercial real estate markets are additive to the U.S. economy. Many of the fundamental underpinnings for housing, such as demand, inventory levels and delinquency rates are showing marked improvement. Excess inventory has been reduced
significantly. Moreover, homeowners’ equity has improved substantially, with the home price appreciation in 2012 and 2013. At the peak of the crisis in 2009, CoreLogic noted 26% of all mortgages were underwater and that number has since been
reduced to 13% at the end of the period.
The survey of bank lending officers, the Senior Loan Officer Survey, has shown slight
improvements in credit provision by banks, though more limited access to credit for non-Agency borrowers with weaker credit or non-Agency borrowers with higher loan-to-value ratios, remains a notable constraint. We still look to an expansion in
credit that is likely to provide additional positive support to growth in home prices and to the economy overall, particularly as interest rates and as mortgage rates rise.
With the U.S. housing market now an area of strength, we believe overall economic recovery will begin to progress at a better than expected pace. Increased prices on homes and higher equity markets have contributed
to a significant improvement in household net worth. Improved payroll and unemployment numbers and continued strength in housing, even in the face of increases in mortgage rates, have resulted in enough economic confidence for the Federal Reserve
Open Market Committee (FOMC) to begin reducing their Asset Purchase Program (“QE”), albeit slowly. The beginning of the “Taper” in December has come with markedly less interest rate volatility than we saw when Taper discussion
began back in May 2013, and in our view its implementation reduces uncertainty going forward.
Progress has continued with changes to
Fannie Mae and Freddie Mac, both Government-Sponsored Enterprises (“GSE”). Through November 2013, sales of less liquid securities from the GSE balance sheet totals over $18.5 billion. Fannie Mae and Freddie Mac have also sold risk related
to newly guaranteed loans. There have been three “risk sharing” transactions, two for Freddie Mac and one for Fannie Mae that have been issued this year. As well, Fannie Mae has also sold risk on its new guarantee book through a
transaction directly with an insurer. These are important early efforts to reduce the risk owned by the GSEs. Lastly, the long awaited replacement of FHFA “Interim” Director, Ed Dimarco, has been made with Mel Watt confirmed by the Senate.
DiMarco’s last act was to increase the guarantee fee again, which continues to reduce the GSE footprint, and making the bank bid for whole loans more competitive.
The impacts of sweeping bank regulation in the form of Basel II (Europe only), Basel III and Dodd-Frank Wall Street Reform, Solvency II (Europe) and the Volcker Rule remain a key issue. These bills have had several
significant effects, not the least of which is a shrinking of broker dealer balance sheets across most products. And at times changing, or limiting, the buyer base for particular security types. Overall, as these regulations change and go thru
comment periods, the impact, particularly on liquidity can be significant.
Forward-Looking Information
This management discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements that are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or
by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” “should,” “intend,” or similar terms or variations on
those terms or the negative of those terms. Although we believe that the expectations contained in any forward-looking statement
2013 Annual
Report
3
BROOKFIELD TOTAL RETURN FUND INC.
are based on reasonable assumptions, we can give no assurance that our expectations will be attained. We do not undertake, and specifically disclaim any obligation, to publicly release any update
or supplement to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Disclosure
The Fund’s portfolio holdings are subject to change without notice. The
mention of specific securities is not a recommendation or solicitation for any person to buy, sell or hold any particular security. There is no assurance that the Fund currently holds these securities.
The Fund may utilize leverage to seek to enhance the yield and net asset value of its common stock, through bank borrowings, issuance of short-term
debt securities or shares of preferred stock, or a combination thereof. However, these objectives cannot be achieved in all interest rate environments. While leverage may result in a higher yield for the Fund, the use of leverage involves risk,
including the potential for higher volatility of the NAV, fluctuations of dividends and other distributions paid by the Fund and the market price of the Fund’s common stock, among others. The Fund may invest assets in securities of issuers
domiciled outside the United States, including issuers from emerging markets. Foreign investing involves special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other
developments.
Performance data quoted represents past performance results and does not guarantee future results. Current performance
may be lower or higher than the performance data quoted.
These views represent the opinions of Brookfield Investment Management Inc.
and are not intended to predict or depict the performance of any investment. These views are as of the close of business on November 30, 2013 and subject to change based on subsequent developments.
4 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Portfolio Characteristics (Unaudited)
November 30, 2013
|
|
|
|
|
|
|
PORTFOLIO STATISTICS
|
|
|
|
|
|
|
|
|
Annualized dividend
yield
1
|
|
|
9.78
|
%
|
|
Weighted average coupon
|
|
|
3.36
|
%
|
|
Weighted average life
|
|
|
8.15 years
|
|
|
Average dollar price (Excluding Interest-Only Securities)
|
|
$
|
87.12
|
|
|
Percentage of Fixed Securites
|
|
|
31.2
|
%
|
|
Percentage of Floating Securites
|
|
|
64.5
|
%
|
|
Percentage of leveraged assets
|
|
|
30.74
|
%
|
|
Total number of holdings
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
CREDIT QUALITY
|
|
|
|
|
|
AAA
|
|
|
17
|
%
|
|
AA
|
|
|
3
|
%
|
|
A
|
|
|
7
|
%
|
|
BBB
|
|
|
8
|
%
|
|
BB
|
|
|
8
|
%
|
|
B
|
|
|
25
|
%
|
|
Below B
|
|
|
32
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
ASSET
ALLOCATION
2
|
|
|
|
|
|
U.S. Government & Agency Obligations
|
|
|
4
|
%
|
|
Asset-Backed Securities
|
|
|
5
|
%
|
|
Residential Mortgage Related Holdings
|
|
|
26
|
%
|
|
Commercial Mortgage Related Holdings
|
|
|
50
|
%
|
|
Interest-Only Securities
|
|
|
4
|
%
|
|
Investment Grade Corporate Bonds
|
|
|
0
|
%
|
|
High Yield Corporate Bonds
|
|
|
11
|
%
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
|
|
|
|
|
1
|
Dividends may include net investment income, capital gains and/or return of capital. The dividend yield referenced above is calculated as the annualized
amount of the most recent monthly dividend declared divided by November 30, 2013 stock price.
|
|
2
|
Percentages are based on total investments.
|
BROOKFIELD TOTAL RETURN FUND INC.
Statement of Assets and Liabilities
November 30, 2013
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Investments in securities, at value (cost $469,572,606) (Note 2)
|
|
$
|
481,379,808
|
|
|
Investments in mezzanine loan, at value (cost $20,451,970)
|
|
|
20,250,000
|
|
|
|
|
|
|
|
|
Total investments, at value (cost $490,024,576)
|
|
|
501,629,808
|
|
|
Cash
|
|
|
24,268,225
|
|
|
Cash collateral for reverse repurchase agreements
|
|
|
315,448
|
|
|
Interest receivable
|
|
|
2,976,452
|
|
|
Receivable for investments sold
|
|
|
2,734,371
|
|
|
Principal paydown receivable
|
|
|
8,267
|
|
|
Prepaid expenses
|
|
|
37,671
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
531,970,242
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Reverse repurchase agreements (Note 6)
|
|
|
163,539,840
|
|
|
Interest payable for reverse repurchase agreements (Note 6)
|
|
|
316,641
|
|
|
Payable for TBA transactions
|
|
|
4,073,264
|
|
|
Payable for investments purchased
|
|
|
262,148
|
|
|
Investment advisory fee payable (Note 4)
|
|
|
193,559
|
|
|
Administration fee payable (Note 4)
|
|
|
59,557
|
|
|
Accrued expenses
|
|
|
124,200
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
168,569,209
|
|
|
|
|
|
|
|
|
Net Assets
|
|
$
|
363,401,033
|
|
|
|
|
|
|
|
|
Composition of Net Assets:
|
|
|
|
|
|
Capital stock, at par value ($0.01 par value, 50,000,000 shares authorized) (Note 7)
|
|
$
|
139,607
|
|
|
Additional paid-in capital (Note 7)
|
|
|
440,871,438
|
|
|
Accumulated net realized loss on investment transactions and futures transactions
|
|
|
(89,215,244
|
)
|
|
Net unrealized appreciation on investments
|
|
|
11,605,232
|
|
|
|
|
|
|
|
|
Net assets applicable to capital stock outstanding
|
|
$
|
363,401,033
|
|
|
|
|
|
|
|
|
Shares Outstanding and Net Asset Value Per Share:
|
|
|
|
|
|
Common shares outstanding
|
|
|
13,960,683
|
|
|
Net asset value per share
|
|
$
|
26.03
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
2013 Annual
Report
17
BROOKFIELD TOTAL RETURN FUND INC.
Statement of Operations
For the Fiscal Year Ended November 30, 2013
|
|
|
|
|
|
|
Investment Income (Note 2)
|
|
|
|
|
|
Interest
|
|
$
|
34,170,687
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Investment advisory fees (Note 4)
|
|
|
2,321,859
|
|
|
Administration fees (Note 4)
|
|
|
714,418
|
|
|
Directors’ fees
|
|
|
108,370
|
|
|
Legal fees
|
|
|
107,172
|
|
|
Reports to stockholders
|
|
|
89,929
|
|
|
Insurance
|
|
|
87,013
|
|
|
Fund accounting servicing fees
|
|
|
86,310
|
|
|
Audit and tax services
|
|
|
65,000
|
|
|
Transfer agent fees
|
|
|
47,268
|
|
|
Custodian fees
|
|
|
45,189
|
|
|
Registration fees
|
|
|
31,306
|
|
|
Miscellaneous
|
|
|
21,500
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,725,334
|
|
|
Interest expense on reverse repurchase agreements (Note 6)
|
|
|
1,401,310
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,126,644
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
29,044,043
|
|
|
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments (Notes 2 and 8):
|
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
Investment transactions
|
|
|
(4,673,748
|
)
|
|
Futures transactions
|
|
|
26,415
|
|
|
|
|
|
|
|
|
Net realized loss on investment transactions and futures transactions
|
|
|
(4,647,333
|
)
|
|
|
|
|
|
|
|
Net change in unrealized appreciation on:
|
|
|
|
|
|
Investments
|
|
|
27,414,212
|
|
|
Futures
|
|
|
13,123
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation on investments and futures
|
|
|
27,427,335
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain on investment transactions and futures transactions
|
|
|
22,780,002
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
51,824,045
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
18 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
St
atements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal
Year Ended
November 30,
2013
|
|
|
For the Fiscal
Year Ended
November 30,
2012
|
|
|
Increase (Decrease) in Net Assets Resulting from Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
29,044,043
|
|
|
$
|
21,752,374
|
|
|
Net realized loss on investment transactions and futures transactions
|
|
|
(4,647,333
|
)
|
|
|
(628,801
|
)
|
|
Net change in unrealized appreciation on investments and futures
|
|
|
27,427,335
|
|
|
|
31,204,597
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
51,824,045
|
|
|
|
52,328,170
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Stockholders (Note 2):
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(29,305,886
|
)
|
|
|
(22,081,984
|
)
|
|
Return of capital
|
|
|
(2,523,318
|
)
|
|
|
(413,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions paid
|
|
|
(31,829,204
|
)
|
|
|
(22,495,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock Transactions (Note 7):
|
|
|
|
|
|
|
|
|
|
Proceeds from rights offering, net of offering costs
|
|
|
73,021
|
*
|
|
|
72,097,601
|
|
|
Reinvestment of dividends and distributions
|
|
|
29,572
|
|
|
|
254,361
|
|
|
Capital received as a result of shares issued due to fund merger
|
|
|
—
|
|
|
|
64,656,398
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets from capital stock transactions
|
|
|
102,593
|
|
|
|
137,008,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in net assets
|
|
|
20,097,434
|
|
|
|
166,840,571
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
343,303,599
|
|
|
|
176,463,028
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
363,401,033
|
|
|
$
|
343,303,599
|
|
|
|
|
|
|
|
|
|
|
|
|
(including undistributed (distributions in excess of) net investment income of)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
|
|
|
Shares issued or sold as result of rights offering
|
|
|
—
|
|
|
|
3,500,000
|
|
|
Reinvested shares
|
|
|
1,122
|
|
|
|
10,789
|
#
|
|
Shares issued due to fund merger
|
|
|
—
|
|
|
|
2,710,279
|
#
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
1,122
|
|
|
|
6,221,068
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
This amount represents an adjustment to the offering costs that were charged to paid-in capital in connection with the rights offering.
|
|
#
|
Share amounts have been adjusted to reflect the 1:4 reverse stock split that occurred effective August 22, 2012.
|
See Notes to Financial
Statements.
2013 Annual
Report
19
BROOKFIELD TOTAL RETURN FUND INC.
S
tatement of Cash Flows
For the Fiscal Year Ended November 30, 2013
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) operating activities:
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
51,824,045
|
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities:
|
|
|
|
|
|
Purchases of long-term portfolio investments
|
|
|
(205,676,419
|
)
|
|
Proceeds from disposition of long-term portfolio investments and principal paydowns
|
|
|
178,727,293
|
|
|
Sales of short-term portfolio investments, net
|
|
|
30
|
|
|
Purchases of TBA transactions, net
|
|
|
(918,055
|
)
|
|
Increase in interest receivable
|
|
|
(153,151
|
)
|
|
Increase in receivable for investments sold
|
|
|
(2,734,371
|
)
|
|
Decrease in principal paydown receivable
|
|
|
74,343
|
|
|
Decrease in prepaid expenses
|
|
|
90,807
|
|
|
Decrease in payable for investments purchased
|
|
|
(6,004,431
|
)
|
|
Decrease in payable for variation margin
|
|
|
(6,344
|
)
|
|
Increase in interest payable for reverse repurchase agreements
|
|
|
256,470
|
|
|
Increase in investment advisory fee payable
|
|
|
13,757
|
|
|
Increase in administration fee payable
|
|
|
4,237
|
|
|
Decrease in payable due to rights offering
|
|
|
(561,774
|
)
|
|
Decrease in accrued expenses
|
|
|
(81,919
|
)
|
|
Net accretion or amortization on investments and paydown gains or losses on investments
|
|
|
(12,661,201
|
)
|
|
Unrealized appreciation on investments
|
|
|
(27,414,212
|
)
|
|
Net realized loss on investment transactions
|
|
|
4,673,748
|
|
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
(20,547,147
|
)
|
|
|
|
|
|
|
|
Cash flows provided by financing activities:
|
|
|
|
|
|
Net cash provided by reverse repurchase agreements
|
|
|
60,049,512
|
|
|
Net cash provided by rights offering
|
|
|
73,021
|
|
|
Distributions paid to stockholders, net of reinvestments
|
|
|
(31,799,632
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
28,322,901
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
7,775,754
|
|
|
Cash at beginning of year
|
|
|
16,807,919
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
24,583,673
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
Interest payments on the reverse repurchase agreements for the year ended November 30, 2013, totaled $1,144,840.
Non-cash financing activities included reinvestment of distributions of $29,572.
Cash at the end of the year includes $315,448 for collateral for reverse repurchase agreements.
See Notes to Financial
Statements.
20 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Finan
cial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended November 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
2
|
|
|
2010
2
|
|
|
2009
2
|
|
|
Per Share Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$
|
24.59
|
|
|
$
|
22.80
|
|
|
$
|
24.80
|
|
|
$
|
21.84
|
|
|
$
|
19.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2.08
|
|
|
|
2.24
|
|
|
|
1.68
|
|
|
|
2.12
|
|
|
|
2.04
|
|
|
Net realized and unrealized gain (loss) on investment transactions
|
|
|
1.64
|
|
|
|
3.01
|
|
|
|
(1.20
|
)
|
|
|
2.92
|
|
|
|
2.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net asset value resulting from operations
|
|
|
3.72
|
|
|
|
5.25
|
|
|
|
0.48
|
|
|
|
5.04
|
|
|
|
4.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from net investment income
|
|
|
(2.10
|
)
|
|
|
(2.24
|
)
|
|
|
(1.84
|
)
|
|
|
(2.08
|
)
|
|
|
(2.28
|
)
|
|
Return of capital distributions
|
|
|
(0.18
|
)
|
|
|
(0.04
|
)
|
|
|
(0.64
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions paid
|
|
|
(2.28
|
)
|
|
|
(2.28
|
)
|
|
|
(2.48
|
)
|
|
|
(2.08
|
)
|
|
|
(2.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change due to rights offering
1
|
|
|
—
|
|
|
|
(1.18
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
26.03
|
|
|
$
|
24.59
|
|
|
$
|
22.80
|
|
|
$
|
24.80
|
|
|
$
|
21.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
23.31
|
|
|
$
|
24.05
|
|
|
$
|
22.56
|
|
|
$
|
24.04
|
|
|
$
|
20.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment
Return
†
|
|
|
6.41
|
%
|
|
|
17.29
|
%
|
|
|
4.11
|
%
|
|
|
26.63
|
%
|
|
|
32.45
|
%
|
|
Ratios to Average Net Assets/
Supplementary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s)
|
|
$
|
363,401
|
|
|
$
|
343,304
|
|
|
$
|
176,463
|
|
|
$
|
191,738
|
|
|
$
|
168,907
|
|
|
Operating expenses
|
|
|
1.04
|
%
|
|
|
1.30
|
%
|
|
|
1.18
|
%
|
|
|
1.23
|
%
|
|
|
1.29
|
%
|
|
Interest expense
|
|
|
0.39
|
%
|
|
|
0.41
|
%
|
|
|
0.53
|
%
|
|
|
0.31
|
%
|
|
|
0.14
|
%
|
|
Total expenses
|
|
|
1.43
|
%
|
|
|
1.71
|
%
|
|
|
1.71
|
%
|
|
|
1.54
|
%
|
|
|
1.43
|
%
|
|
Net investment income
|
|
|
8.13
|
%
|
|
|
9.19
|
%
|
|
|
6.83
|
%
|
|
|
9.34
|
%
|
|
|
10.01
|
%
|
|
Portfolio turnover rate
|
|
|
38
|
%
|
|
|
75
|
%
|
|
|
43
|
%
|
|
|
204
|
%
|
|
|
73
|
%
|
|
†
|
Total investment return is computed based upon the New York Stock Exchange market price of the Fund’s shares and excludes the effect of broker
commissions. Dividends and distributions are assumed to be reinvested at the prices obtained under the Fund’s dividend reinvestment plan.
|
|
1
|
Effective as of the close of business on September 20, 2012, the Fund issued transferrable rights to its stockholders to subscribe for up to 3,500,000
shares of common stock at a rate of one share for every 3 rights held. The subscription price was set at 90% of the average closing price for the last 5 trading days of the offering period. The shares were subscribed at a price of $ 21.50 which was
less than the NAV of $25.35 thus creating a dilutive effect on the NAV.
|
|
2
|
The Fund had a 1:4 reverse stock split with ex-dividend and payable dates of August 21, 2012 and August 22, 2012, respectively. Prior year net asset
values and per share amounts have been restated to reflect the impact of the reverse stock split. (See Notes to Financial Statements). The net asset value and market price reported at the original dates prior to the reverse stock split were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended November 30,
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net Asset Value (prior to reverse stock split)
|
|
$
|
5.70
|
|
|
$
|
6.20
|
|
|
$
|
5.46
|
|
|
Market Price (prior to reverse stock split)
|
|
$
|
5.64
|
|
|
$
|
6.01
|
|
|
$
|
5.20
|
|
See Notes to Financial Statements.
2013 Annual
Report
21
BROOKFIELD TOTAL RETURN FUND INC.
Notes to
Financial Statements
November 30, 2013
1. The Fund
Brookfield Total Return Fund Inc. (formerly Helios Total Return Fund, Inc.) (the
“Fund”) was incorporated under the laws of the State of Maryland on May 26, 1989. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, closed-end management
investment company with its own investment objective.
Brookfield Investment Management Inc. (“BIM” or “Adviser”), a
wholly-owned subsidiary of Brookfield Asset Management Inc., is registered as an investment advisor under the Investment Advisers Act of 1940, as amended, and serves as investment advisor to the Fund.
The investment objective of the Fund is to provide a high total return, including short and long-term capital gains and a high level of current
income, through the management of a portfolio of securities. No assurances can be given that the Fund’s investment objective will be achieved.
2. Significant Accounting Policies
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Valuation of Investments:
Debt securities, including U.S. government securities, listed corporate bonds, other fixed income and asset-backed
securities, and unlisted securities and private placement securities, are generally valued at the bid prices furnished by an independent pricing service or, if not valued by an independent pricing service, using bid prices obtained from active and
reliable market makers in any such security or a broker-dealer. The broker-dealers or pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the broker-dealers or pricing
services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the broker-dealers or pricing services also utilize
proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or market characteristics such as benchmark yield curves, option-adjusted
spreads, credit spreads, estimated default rates, coupon-rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to
calculate the fair values. Short-term debt securities with remaining maturities of sixty days or less are valued at cost with interest accrued or discount accreted to the date of maturity, unless such valuation, in the judgment of the Adviser’s
Valuation Committee, does not represent market value.
Investments in equity securities listed or traded on any securities exchange or
traded in the over-the-counter market are valued at the last trade price as of the close of business on the valuation date. Equity securities for which no sales were reported for that date are valued at “fair value” as determined in good
faith by the Adviser’s Valuation Committee. Investments in open-end registered investment companies, if any, are valued at the net asset value (“NAV”) as reported by those investment companies.
The Board of Directors (the “Board”) has adopted procedures for the valuation of the Fund’s securities and has designated the day to
day responsibilities for valuation determinations under these procedures to the Adviser. The Board has reviewed and approved the valuation procedures utilized by the Adviser and regularly reviews the application of the procedures to the securities
in the Fund’s portfolio. Securities are valued using unadjusted quoted market prices, when available, as supplied primarily by third party pricing services or dealers. When price quotations for certain securities are not readily available or
cannot be determined, a significant event has occurred that would materially affect the value of the security, or if the available quotations are not believed to be reflective of the market value by the Adviser, those securities will be valued at
“fair value” as determined in good faith by the
22 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
Adviser’s Valuation Committee using procedures adopted by and under the supervision of the Fund’s Board. The Valuation Committee is comprised of senior members of the Adviser’s
management team. There can be no assurance that the Fund could purchase or sell a portfolio security at the price used to calculate the Fund’s NAV.
Fair valuation procedures may be used to value a substantial portion of the assets of the Fund. The Fund may use the fair value of a security to calculate its NAV when, for example, (1) a portfolio security is
not traded in a public market or the principal market in which the security trades is closed, (2) trading in a portfolio security is suspended and not resumed prior to the normal market close, (3) a portfolio security is not traded in
significant volume for a substantial period, or (4) the Adviser determines that the quotation or price for a portfolio security provided by a broker-dealer or an independent pricing service is inaccurate.
The “fair value” of securities may be difficult to determine and thus judgment plays a greater role in the valuation process. The fair
valuation methodology may include or consider the following guidelines, as appropriate: (1) evaluation of all relevant factors, including but not limited to, pricing history, current market level, supply and demand of the respective security;
(2) comparison to the values and current pricing of securities that have comparable characteristics; (3) knowledge of historical market information with respect to the security; (4) other factors relevant to the security which would
include, but not be limited to, duration, yield, fundamental analytical data, the Treasury yield curve, and credit quality.
The values
assigned to fair valued investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Changes in the
fair valuation of portfolio securities may be less frequent and of greater magnitude than changes in the price of portfolio securities valued at their last sale price, by an independent pricing service, or based on market quotations. Imprecision in
estimating fair value can also impact the amount of unrealized appreciation or depreciation recorded for a particular portfolio security and differences in the assumptions used could result in a different determination of fair value, and those
differences could be material.
The Fund has established methods of fair value measurements in accordance with GAAP. Fair value denotes
the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. A three-tier hierarchy has been established to maximize the use of
observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may
be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.
Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The
three-tier hierarchy of inputs is summarized in the three broad levels listed below.
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Level 1 -
|
|
quoted prices in active markets for identical investments
|
|
|
|
|
|
|
|
|
•
|
|
Level 2 -
|
|
quoted prices in markets that are not active or other significant observable inputs (including, but not limited to: quoted prices for similar investments, quoted prices
based on recently executed transactions, interest rates, prepayment speeds, credit risk, etc.)
|
|
|
|
|
|
|
|
|
•
|
|
Level 3 -
|
|
significant unobservable inputs (including each Fund’s own assumptions in determining the fair value of investments)
|
The Adviser’s valuation policy, as previously stated, establishes parameters for the sources and types of
valuation analysis, as well as, the methodologies and inputs the Adviser uses in determining fair value, including the use of the Adviser’s Valuation Committee. If the Valuation Committee determines that additional techniques, sources or inputs
are appropriate or necessary in a given situation, such additional work will be undertaken.
2013 Annual
Report
23
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
To assess the continuing appropriateness of security valuations, the Adviser (or its third party
service provider who is subject to oversight by the Adviser), compares weekly its prior week prices, prices on comparable securities and sales prices and challenges those prices that either remain unchanged or exceeds certain tolerance levels with
the third party pricing service or broker source. For those securities valued by fair valuations, the Valuation Committee reviews and affirms the reasonableness of the valuations based on such methodologies and fair valuation determinations on a
regular basis after considering all relevant information that is reasonably available.
The inputs or methodology used for valuing
investments are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes
the Fund’s investments categorized in the disclosure hierarchy as of November 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Inputs
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
U.S. Government & Agency Obligations
|
|
$
|
—
|
|
|
$
|
22,302,086
|
|
|
$
|
6,139
|
|
|
$
|
22,308,225
|
|
|
Asset-Backed Securities
|
|
|
—
|
|
|
|
21,047,680
|
|
|
|
2,673,331
|
|
|
|
23,721,011
|
|
|
Residential Mortgage Related Holdings
|
|
|
—
|
|
|
|
2,416,369
|
|
|
|
126,680,108
|
|
|
|
129,096,477
|
|
|
Commercial Mortgage Related Holdings
|
|
|
—
|
|
|
|
—
|
|
|
|
253,310,599
|
|
|
|
253,310,599
|
|
|
Interest-Only Securities
|
|
|
—
|
|
|
|
907,848
|
|
|
|
18,000,567
|
|
|
|
18,908,415
|
|
|
Investment Grade Corporate Bonds
|
|
|
—
|
|
|
|
274,500
|
|
|
|
—
|
|
|
|
274,500
|
|
|
High Yield Corporate Bonds
|
|
|
—
|
|
|
|
54,010,581
|
|
|
|
—
|
|
|
|
54,010,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
100,959,064
|
|
|
$
|
400,670,744
|
|
|
$
|
501,629,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides quantitative information about the Fund’s Level 3 values, as well as their
inputs, as of November 30, 2013. The table is not all-inclusive, but provides information on the significant Level 3 inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements*
|
|
|
Assets
|
|
Fair Value as of
November 30, 2013
|
|
|
Valuation
Methodology
|
|
Significant
Unobservable
Input
|
|
Price
|
|
|
Residential Mortgage Related Holdings
|
|
$
|
9,644
|
|
|
Broker Pricing
|
|
Discounted
Cash Flow
|
|
$
|
10.00
|
|
|
Commercial Mortgage Related Holdings
|
|
|
560,964
|
|
|
Market comparable
companies
|
|
Implied
Spread to
Index
|
|
|
105.00
|
|
|
*
|
The table above does not include level 3 securities that are valued by brokers and pricing services. At November 30, 2013, the value of these securities
was approximately $400,100,136. The inputs for these securities are not readily available or cannot be reasonably estimated and are generally those inputs described in Note 2. The appropriateness of fair values for these securities is monitored on
an ongoing basis which may include results of back testing, unchanged price review, results of broker and vendor due diligence and consideration of macro or security specific events.
|
24 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
The following is a reconciliation of assets in which significant unobservable inputs (Level 3)
were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in
Securities
|
|
U.S.
Government
& Agency
Obligations
|
|
|
Asset-
Backed
Securities
|
|
|
Residential
Mortgage
Related
Holdings
|
|
|
Commercial
Mortgage
Related
Holdings
|
|
|
Interest-
Only
Securities
|
|
|
High Yield
Corporate
Bonds
|
|
|
Total
|
|
|
Balance as of November 30, 2012
|
|
$
|
—
|
|
|
$
|
10,741,144
|
|
|
$
|
164,634,656
|
|
|
$
|
145,767,740
|
|
|
$
|
14,507,895
|
|
|
$
|
2,555,850
|
|
|
$
|
338,207,285
|
|
|
Accrued Discounts (Premiums)
|
|
|
—
|
|
|
|
(678
|
)
|
|
|
1,554,185
|
|
|
|
1,634,713
|
|
|
|
(1,340,792
|
)
|
|
|
(10,279
|
)
|
|
|
1,837,149
|
|
|
Realized Gain (Loss)
|
|
|
—
|
|
|
|
296,267
|
|
|
|
11,398,051
|
|
|
|
104,973
|
|
|
|
64,725,106
|
|
|
|
(1,750
|
)
|
|
|
76,522,647
|
|
|
Change in Unrealized Appreciation (Depreciation)
|
|
|
—
|
|
|
|
739,515
|
|
|
|
2,214,842
|
|
|
|
25,654,221
|
|
|
|
44,208
|
|
|
|
12,031
|
|
|
|
28,664,617
|
|
|
Purchases at cost
|
|
|
—
|
|
|
|
5,084,479
|
|
|
|
35,314,243
|
|
|
|
107,475,448
|
|
|
|
6,048,044
|
|
|
|
305,625
|
|
|
|
154,227,839
|
|
|
Sales proceeds
|
|
|
—
|
|
|
|
(11,473,047
|
)
|
|
|
(88,435,869
|
)
|
|
|
(27,326,496
|
)
|
|
|
(65,988,270
|
)
|
|
|
(1,289,804
|
)
|
|
|
(194,513,486
|
)
|
|
Transfers into Level 3
|
|
|
6,139
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,376
|
|
|
|
—
|
|
|
|
10,515
|
(a)
|
|
Transfers out of Level 3
|
|
|
—
|
|
|
|
(2,714,149
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,571,673
|
)
|
|
|
(4,285,822
|
)
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2013
|
|
$
|
6,139
|
|
|
$
|
2,673,331
|
|
|
$
|
126,680,108
|
|
|
$
|
253,310,599
|
|
|
$
|
18,000,567
|
|
|
$
|
—
|
|
|
$
|
400,670,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses relating to assets still held at reporting date
|
|
$
|
—
|
|
|
$
|
20,617
|
|
|
$
|
5,793,454
|
|
|
$
|
14,172,947
|
|
|
$
|
44,208
|
|
|
$
|
—
|
|
|
$
|
20,031,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Transfers in and out of Level 3 are due to a decline or an increase in market activity (e.g. frequency of trades), which resulted in a lack of or an increase
in available market inputs to determine price.
|
For the fiscal year ended November 30, 2013, there was no
security transfer activity between Level 1 and Level 2. The basis for recognizing and valuing transfers is as of the end of the period in which the transfers occur.
Investment Transactions and Investment Income:
Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are calculated on the identified cost basis.
Interest income is recorded on the accrual basis. Discounts and premiums on securities are accreted and amortized, respectively, on a daily basis, using the effective yield to maturity method adjusted based on management’s assessment of the
collectability of such interest. Dividend income is recorded on the ex-dividend date.
Taxes:
The Fund intends to continue to
meet the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income to its stockholders. Therefore, no federal income or excise tax provision
is required. The Fund may incur an excise tax to the extent it has not distributed all of its taxable income on a calendar year basis.
GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. An
evaluation of tax positions taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the taxing authority is required. Tax benefits of positions
not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of a deferred tax
asset; an increase in deferred tax liability; or a combination thereof. As of November 30, 2013, the Fund has determined that there are no uncertain tax positions or tax liabilities required to be accrued.
The Fund has reviewed all taxable years that are open for examination (i.
e.
, not barred by the applicable statute of limitations) by taxing
authorities of all major jurisdictions, including the Internal Revenue Service. As of November 30, 2013, open taxable years consisted of the taxable years ended November 30, 2010 through November 30, 2013. No examination of the
Fund’s tax returns is currently in progress.
Expenses:
Expenses directly attributable to the Fund are charged directly to
the Fund, while expenses which are attributable to the Fund and other investment companies advised by the Adviser are allocated among the respective investment companies, including the Fund, based upon relative net assets.
2013 Annual
Report
25
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
Dividends and Distributions:
The Fund declares and pays dividends monthly from net
investment income. To the extent these distributions exceed net investment income, they may be classified as return of capital. The Fund also pays distributions at least annually from its net realized capital gains, if any. Dividends and
distributions are recorded on the ex-dividend date. All common shares have equal dividend and other distribution rights. A notice disclosing the source(s) of a distribution will be provided if payment is made from any source other than net
investment income. Any such notice would be provided only for informational purposes in order to comply with the requirements of Section 19(a) of the 1940 Act and not for tax reporting purposes. The tax composition of the Fund’s
distributions for each calendar year is reported on IRS Form 1099-DIV.
Dividends from net investment income and distributions from
realized gains from investment transactions have been determined in accordance with Federal income tax regulations and may differ from net investment income and realized gains recorded by the Fund for financial reporting purposes. These differences,
which could be temporary or permanent in nature, may result in reclassification of distributions; however, net investment income, net realized gains and losses and net assets are not affected.
When-Issued Purchases and Forward Commitments:
The Fund may purchase securities on a “when-issued” basis and may purchase or sell
securities on a “forward commitment” basis in order to hedge against anticipated changes in interest rates and prices and secure a favorable rate of return. When such transactions are negotiated, the price, which is generally expressed in
yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date, which can be a month or more after the date of the transaction. At the time the Fund makes the commitment to purchase
securities on a when-issued or forward commitment basis, the Fund will record the transactions and thereafter reflect the values of such securities in determining its net asset value. At the time the Fund enters into a transaction on a when-issued
or forward commitment basis, the Adviser will identify collateral consisting of cash or liquid securities equal to the value of the when-issued or forward commitment securities and will monitor the adequacy of such collateral on a daily basis. On
the delivery date, the Fund will meet its obligations from securities that are then maturing or sales of the securities identified as collateral by the Adviser and/or from then available cash flow. When-issued securities and forward commitments may
be sold prior to the settlement date. If the Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of the right to deliver or receive against a forward commitment, it can incur a gain or loss due to market
fluctuation. There is always a risk that the securities may not be delivered and that the Fund may incur a loss. Settlements in the ordinary course are not treated by the Fund as when-issued or forward commitment transactions and, accordingly, are
not subject to the foregoing limitations even though some of the risks described above may be present in such transactions.
TBA
Transactions:
The Fund may enter into to-be-announced (“TBA”) transactions to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. A TBA transaction is a purchase or sale of a
U.S. government agency mortgage pass-through security for future settlement at an agreed upon date. The term “U.S. government agency mortgage pass-through security” refers to a category of passthrough securities backed by pools of
mortgages and issued by one of several U.S. government-sponsored enterprises: the Government National Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae), or Federal Home Loan Mortgage Corporation (Freddie Mac). In
the basic pass-through structure, mortgages with similar issuer, term and coupon characteristics are collected and aggregated into a pool. The pool is assigned a CUSIP number and undivided interests in the pool are traded and sold as pass-through
securities. The holder of the security is entitled to a pro rata share of principal and interest payments (including unscheduled prepayments) from the pool of mortgage loans. TBA transactions increase the liquidity and pricing efficiency of
transactions in such mortgage-backed securities since they permit similar mortgage-backed securities to be traded interchangeably pursuant to commonly observed settlement and delivery requirements. Proceeds of TBA transactions are not received until
the contractual settlement date. The Fund may use TBA transactions to acquire and maintain exposure to mortgage-backed securities in either of two ways. Typically, the Fund will enter into TBA agreements and “roll over” such agreements
prior to the settlement date stipulated in such agreements. This type of TBA transaction is commonly known as a “TBA roll.” In a “TBA roll,” the Fund generally will sell the obligation to purchase the pools stipulated in the TBA
agreement prior to the stipulated settlement date and will enter into a
26 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
new TBA agreement for future delivery of pools of mortgage pass-through securities. Alternatively,
the Fund will enter into TBA agreements and settle such transactions on the stipulated settlement date by actual receipt or delivery of the pools of mortgage pass-through securities stipulated in the TBA agreement. Unsettled TBA agreements are
valued at the current market value of the underlying securities, according to the procedures described above under “Valuation of Investments.” Each TBA position is marked-to-market daily and the change in market value is recorded by the
Fund as an unrealized gain or loss.
TBA transactions outstanding at November 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Name
|
|
Interest Rate
|
|
|
Principal Amount
|
|
|
Current Payable
|
|
|
Federal National Mortgage Association
|
|
|
3.50
|
%
|
|
$
|
4,000,000
|
|
|
$
|
4,073,264
|
|
Cash Flow Information:
The Fund invests in securities and distributes dividends and distributions which are
paid in cash or are reinvested at the discretion of stockholders. These activities are reported in the Statement of Changes in Net Assets. Additional information on cash receipts and cash payments is presented in the Statement of Cash Flows.
Financial Futures Contracts:
A futures contract is an agreement between two parties to buy and sell a financial instrument for a
set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized
gains or losses by “marking-to-market” on a daily basis to reflect the market value of the contract at the end of each day’s trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses
are incurred. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract.
The Fund invests in financial futures contracts to hedge against fluctuations in the value of portfolio securities caused by changes in prevailing
market interest rates. Should interest rates move unexpectedly, a Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying hedged assets. The Fund is at risk that it may not be able to close out a transaction because of an illiquid market.
The following table sets forth the effect of derivative instruments on the Statement of Operations for the fiscal year ended November 30,
2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Accounted for
as Hedging Instruments
|
|
Location of Gains (Losses) on
Derivatives Recognized in Income
|
|
Net Realized Gain on
Futures Transactions
|
|
|
Net Change in
Unrealized Appreciation
on Futures
|
|
|
Futures contracts
|
|
Futures transactions
|
|
$
|
26,415
|
|
|
$
|
13,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 30, 2013, there were no futures contracts outstanding.
The average notional value of futures contracts outstanding during the fiscal year ended November 30, 2013 was $5,753,939, which represents
the volume activity during the fiscal year.
3. Risks of Investing in Asset-Backed Securities and Below-Investment Grade Securities
The value of asset-backed securities may be affected by, among other factors, changes in: interest rates, the market’s assessment of the
quality of the underlying assets, the creditworthiness of the servicer for the underlying assets, information concerning the originator of the underlying assets, or the creditworthiness or rating of the entities that provide any supporting letters
of credit, surety bonds, derivative instruments or other credit enhancement.
2013 Annual
Report
27
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
The value of asset-backed securities also will be affected by the exhaustion, termination or
expiration of any credit enhancement. The Fund has investments in below-investment grade debt securities, including mortgage-backed and asset-backed securities. Below-investment grade securities involve a higher degree of credit risk than investment
grade debt securities. In the event of an unanticipated default, the Fund would experience a reduction in its income, a decline in the market value of the securities so affected and a decline in the NAV of its shares. During an economic downturn or
period of rising interest rates, highly leveraged and other below-investment grade issuers frequently experience financial stress that could adversely affect its ability to service principal and interest payment obligations, to meet projected
business goals and to obtain additional financing.
The market prices of below-investment grade debt securities are generally less
sensitive to interest rate changes than higher-rated investments but are more sensitive to adverse economic or political changes or individual developments specific to the issuer than higher-rated investments. Periods of economic or political
uncertainty and change can be expected to result in significant volatility of prices for these securities. Rating services consider these securities to be speculative in nature.
Below-investment grade securities may be subject to market conditions, events of default or other circumstances which cause them to be considered
“distressed securities.” Distressed securities frequently do not produce income while they are outstanding. The Fund may be required to bear certain extraordinary expenses in order to protect and recover its investments in certain
distressed securities. Therefore, to the extent the Fund seeks capital growth through investment in such securities, the Fund’s ability to achieve current income for its stockholders may be diminished. The Fund is also subject to significant
uncertainty as to when and in what manner and for what value the obligations evidenced by distressed securities will eventually be satisfied (e.
g.
, through a liquidation of the obligor’s assets, an exchange offer or plan of
reorganization involving the securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or a plan of reorganization is adopted with respect to distressed securities held by the Fund,
there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment
was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Fund’s participation in negotiations with respect to any exchange offer or
plan of reorganization with respect to an issuer of such securities, the Fund may be restricted from disposing of distressed securities.
4.
Investment Advisory Agreement and Affiliated Transactions
The Fund has entered into an Investment Advisory Agreement (the
“Advisory Agreement”) with the Adviser under which the Adviser is responsible for the management of the Fund’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the
operations of the Fund. The Advisory Agreement provides, among other things, that the Adviser will bear all expenses of its employees and overhead incurred in connection with the performance of its duties under the Advisory Agreement, and will pay
all salaries of the Fund’s directors and officers who are affiliated persons (as such term is defined in the 1940 Act) of the Adviser. The Advisory Agreement provides that the Fund shall pay the Adviser a monthly fee for its services at an
annual rate of 0.65% of the Fund’s average weekly net assets. During the fiscal year ended November 30, 2013, the Adviser earned $2,321,859 in investment advisory fees from the Fund.
The Fund has entered into an Administration Agreement with the Adviser. The Adviser has entered into a sub-administration agreement with U.S.
Bancorp Fund Services, LLC (“Sub-Administrator”). The Adviser and Sub-Administrator perform administrative services necessary for the operation of the Fund, including maintaining certain books and records of the Fund and preparing reports
and other documents required by federal, state, and other applicable laws and regulations, and providing the Fund with administrative office facilities. For these services, the Fund shall pay to the Adviser a monthly fee at an annual rate of 0.20%
of the Fund’s average weekly net assets. During the fiscal year ended November 30, 2013, the Adviser earned $714,418 in administration fees from the Fund. The Adviser is responsible for any fees due to the Sub-Administrator.
28 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
5. Purchases and Sales of Investments
Purchases and sales of investments, excluding short-term securities, TBA transactions and reverse repurchase agreements, for the fiscal year ended
November 30, 2013, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Securities (excluding
U.S. Government Securities)
|
|
|
U.S. Government Securities
|
|
|
Purchases
|
|
|
Sales
|
|
|
Purchases
|
|
|
Sales
|
|
|
$
|
199,628,375
|
|
|
$
|
170,600,020
|
|
|
$
|
6,048,044
|
|
|
$
|
8,127,273
|
|
For purposes of this note, U.S. Government securities may include securities issued by the U.S. Treasury, Federal
Home Loan Mortgage Corporation and Federal National Mortgage Association.
6. Borrowings
The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund sells securities and agrees to repurchase them
at a mutually agreed upon date and price. Under the 1940 Act, reverse repurchase agreements will be regarded as a form of borrowing by the Fund unless, at the time it enters into a reverse repurchase agreement, it establishes and maintains a
segregated account with its custodian containing securities from its portfolio having a value not less than the repurchase price (including accrued interest). The Fund has established and maintained such accounts for its reverse repurchase
agreements.
Reverse repurchase agreements involve the risk that the market value of the securities retained in lieu of sale by the Fund
may decline below the price of the securities the Fund has sold but is obligated to repurchase. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or
receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreements.
2013 Annual
Report
29
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
At November 30, 2013, the Fund had the following reverse repurchase agreements outstanding:
|
|
|
|
|
|
|
|
|
|
|
Face Value
|
|
|
Description
|
|
Maturity Amount
|
|
|
|
$2,394,936
|
|
|
Bank of America, 1.99%, dated 11/08/13, maturity date 02/07/14
|
|
$
|
2,406,983
|
|
|
|
4,988,000
|
|
|
Bank of America, 2.09%, dated 10/21/13, maturity date 01/21/14
|
|
|
5,014,641
|
|
|
|
883,000
|
|
|
Credit Suisse, 0.44%, dated 11/04/13, maturity date 02/04/14
|
|
|
883,993
|
|
|
|
10,140,934
|
|
|
Goldman Sachs, 0.40%, dated 11/06/13, maturity 02/06/14
|
|
|
10,151,301
|
|
|
|
3,943,000
|
|
|
JP Morgan Chase, 0.42%, dated 10/11/13, maturity 01/09/14
|
|
|
3,947,140
|
|
|
|
2,989,000
|
|
|
JP Morgan Chase, 0.42%, dated 10/16/13, maturity 01/09/14
|
|
|
2,991,964
|
|
|
|
1,760,000
|
|
|
JP Morgan Chase, 1.02%, dated 10/16/13, maturity 01/16/14
|
|
|
1,764,588
|
|
|
|
2,744,000
|
|
|
JP Morgan Chase, 1.15%, dated 10/16/13, maturity 01/16/14
|
|
|
2,752,037
|
|
|
|
11,931,000
|
|
|
JP Morgan Chase, 1.20%, dated 10/16/13, maturity 01/16/14
|
|
|
11,967,468
|
|
|
|
2,139,000
|
|
|
JP Morgan Chase, 1.24%, dated 10/23/13, maturity 01/23/14
|
|
|
2,145,769
|
|
|
|
3,384,000
|
|
|
JP Morgan Chase, 1.24%, dated 10/30/13, maturity 01/30/14
|
|
|
3,394,740
|
|
|
|
6,339,000
|
|
|
JP Morgan Chase, 1.24%, dated 11/08/13, maturity 02/07/14
|
|
|
6,358,852
|
|
|
|
6,197,000
|
|
|
JP Morgan Chase, 1.60%, dated 10/01/13, maturity 12/30/13
|
|
|
6,221,771
|
|
|
|
3,899,000
|
|
|
Nomura Securities, 1.61%, dated 09/04/13, maturity 12/04/13
|
|
|
3,914,858
|
|
|
|
3,077,800
|
|
|
RBC Capital Markets, 0.98%, dated 10/23/13, maturity 04/01/14
|
|
|
3,091,259
|
|
|
|
3,771,490
|
|
|
RBC Capital Markets, 0.99%, dated 10/03/13, maturity 04/01/14
|
|
|
3,790,206
|
|
|
|
9,263,900
|
|
|
RBC Capital Markets, 0.99%, dated 10/11/13, maturity 04/01/14
|
|
|
9,307,880
|
|
|
|
18,836,400
|
|
|
RBC Capital Markets, 0.99%, dated 10/16/13, maturity 04/01/14
|
|
|
18,922,854
|
|
|
|
4,978,000
|
|
|
RBC Capital Markets, 0.99%, dated 10/18/13, maturity 04/01/14
|
|
|
5,000,574
|
|
|
|
434,570
|
|
|
RBC Capital Markets, 0.99%, dated 10/16/13, maturity 04/01/14
|
|
|
436,573
|
|
|
|
257,810
|
|
|
RBC Capital Markets, 0.99%, dated 10/30/13, maturity 04/01/14
|
|
|
258,899
|
|
|
|
5,643,000
|
|
|
RBC Capital Markets, 1.11%, dated 10/16/13, maturity 04/16/14
|
|
|
5,674,792
|
|
|
|
4,610,000
|
|
|
RBC Capital Markets, 1.26%, dated 10/16/13, maturity 04/16/14
|
|
|
4,639,468
|
|
|
|
4,726,000
|
|
|
RBC Capital Markets, 1.50%, dated 09/27/13, maturity 12/17/13
|
|
|
4,741,925
|
|
|
|
4,872,000
|
|
|
RBC Capital Markets, 1.70%, dated 10/01/13, maturity 01/02/14
|
|
|
4,893,376
|
|
|
|
7,655,000
|
|
|
RBC Capital Markets, 1.76%, dated 10/17/13, maturity 04/16/14
|
|
|
7,722,869
|
|
|
|
3,261,000
|
|
|
RBC Capital Markets, 1.76%, dated 10/23/13, maturity 04/16/14
|
|
|
3,288,513
|
|
|
|
28,421,000
|
|
|
RBC Capital Markets, 1.80%, dated 09/16/13, maturity 12/17/13
|
|
|
28,552,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$163,539,840
|
|
|
Maturity Amount, Including Interest Payable
|
|
$
|
164,237,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value of Assets Sold Under Agreements
|
|
$
|
210,583,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Interest Rate
|
|
|
1.31
|
%
|
|
|
|
|
|
|
|
|
|
|
The average daily balance of reverse repurchase agreements outstanding for the Fund during the fiscal year ended
November 30, 2013, was approximately $126,993,353 at a weighted average interest rate of 1.10%.
The maximum amount of reverse
repurchase agreements outstanding at any time during the fiscal year was $166,824,787, which was 30.58% of total assets for the Fund.
7. Capital
Stock
The Fund has 50 million shares of $0.01 par value common stock authorized. Of the 13,960,683 shares outstanding at
November 30, 2013 for the Fund, the Adviser owned 4,647 shares.
The Fund is continuing its stock repurchase program, whereby an
amount of up to 15% of the original outstanding common stock of the Fund, or approximately 3.7 million of the Fund’s shares, is authorized for repurchase. The purchase prices may not exceed the then-current net asset value.
For the fiscal years ended November 30, 2013 and November 30, 2012, no shares were repurchased by the Fund. Since inception of the stock
repurchase program for the Fund, 2,119,740 shares have been repurchased at an aggregate cost of $18,809,905 and at an average discount of 13.20% to net asset value. All shares repurchased have been retired.
30 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
As of the close of business on March 30, 2012, pursuant to an Agreement and Plan of
Reorganization previously approved by the Funds’ Board of Directors, all of the assets, subject to the liabilities, of the Helios Strategic Mortgage Income Fund, Inc. were transferred to the Brookfield Total Return Fund Inc. in exchange for
corresponding shares of the Brookfield Total Return Fund Inc. of equal value. The purpose of the transaction was to combine two funds with comparable investment objectives and strategies. The exchange ratio was 1.0657. The net asset value of the
Brookfield Total Return Fund Inc. shares on the close of business March 30, 2012, after the reorganization was $5.96, and a total of 10,841,114 shares were issued to shareholders of the Helios Strategic Mortgage Income Fund, Inc. in the
exchange. The exchange was a tax-free event to Helios Strategic Mortgage Income Fund, Inc. stockholders. For financial reporting purposes, assets received and shares issued by the Brookfield Total Return Fund, Inc. were recorded at fair value;
however the cost basis of investments received from Helios Strategic Mortgage Income Fund, Inc. was carried forward to align ongoing reporting of the Brookfield Total Return Fund Inc’s. realized and unrealized gains and losses with amounts
distributable to stockholders for tax purposes.
The components of net assets immediately before the acquisition were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
|
|
|
Accumulated net
investment loss
|
|
|
Accumulated net
realized loss on
investments
|
|
|
Net Unrealized
Depreciation
|
|
|
Net Assets
|
|
|
Helios Strategic Mortgage Income Fund, Inc.
|
|
$
|
135,113,490
|
|
|
$
|
(2,383,501
|
)
|
|
$
|
(51,684,861
|
)*
|
|
$
|
(16,388,730
|
)
|
|
$
|
64,656,398
|
|
|
Brookfield Total Return Fund Inc.
|
|
|
277,545,747
|
|
|
|
(3,345,197
|
)
|
|
|
(65,951,648
|
)
|
|
|
(23,549,900
|
)
|
|
|
184,698,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
412,659,237
|
|
|
$
|
(5,728,698
|
)
|
|
$
|
(117,636,809
|
)
|
|
$
|
(39,938,630
|
)
|
|
$
|
249,355,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Due to rules under section 381 and 382 of the Internal Revenue Code, the combined fund will only be able to utilize $15,205,249 of the $51,336,999 capital
loss carryforward and the losses will be limited to $2,279,853 each year ($1,526,131 in the first short year) over the next 7 years. The combined fund may not utilize the remaining $36,131,750.
|
Effective August 22, 2012, the Fund affected a 1 for 4 reverse stock split for its shares. All share transactions in capital stock and per
share data prior to August 22, 2012 have been restated to give effect to the reverse stock split. The reverse stock split had no impact on the overall value of a stockholder’s investment in the Fund.
The Fund issued to its stockholders of record as of the close of business on September 20, 2012, transferrable rights to subscribe for up to
an aggregate of 3,500,000 shares of common stock of the Fund at a rate of one share of common stock for 3 rights held. The issue was fully subscribed at the subscription price of $21.50. The rights offering costs of approximately $675,947 and
brokerage and dealer-management commissions were charged directly against the proceeds of the rights offering. The Fund increased its capital by $72,097,601.
8. Financial Instruments
The Fund regularly trades in financial instruments with off-balance
sheet risk in the normal course of its investing activities to assist in managing exposure to various market risks. These financial instruments include futures contracts and may involve, to a varying degree, elements of risk in excess of the amounts
recognized for financial statement purposes. The notional or contractual amounts of these instruments represent the investment the Fund has in particular classes of financial instruments and does not necessarily represent the amounts potentially
subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. During the year ended November 30, 2013, the Fund had segregated sufficient cash
and/or securities to cover any commitments under these contracts.
2013 Annual
Report
31
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
9. Federal Income Tax Information
Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
The tax character of distributions paid for the fiscal year ended November 30, 2013 was as follows:
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
29,305,886
|
|
|
Return of capital
|
|
|
2,523,318
|
|
|
|
|
|
|
|
|
Total distributions
|
|
$
|
31,829,204
|
|
|
|
|
|
|
|
During the fiscal year ended November 30, 2012, the tax character of $22,495,959 of distributions paid was
$22,081,984 from ordinary income and $413,975 from return of capital.
At November 30, 2013, the Fund’s most recently
completed tax year-end, the components of net assets (excluding paid-in capital) on a tax basis were as follows:
|
|
|
|
|
|
|
Capital loss
carryforward
(1)
|
|
$
|
(89,063,840
|
)
|
|
Post-October capital loss deferral
|
|
|
(151,404
|
)
|
|
Book basis unrealized appreciation
|
|
|
11,605,232
|
|
|
Plus: Cumulative timing difference
|
|
|
—
|
|
|
|
|
|
|
|
|
Tax basis unrealized appreciation on investments
|
|
|
11,605,232
|
|
|
|
|
|
|
|
|
Total tax basis net accumulated losses
|
|
$
|
(77,610,012
|
)
|
|
|
|
|
|
|
|
(1)
|
To the extent that future capital gains are offset by capital loss carryforwards, such gains will not be distributed.
|
As of November 30, 2013, the Fund’s capital loss carryforwards were as follows:
|
|
|
|
|
|
|
Expiring In:
|
|
|
|
|
2014
|
|
$
|
1,719,287
|
|
|
2015
|
|
|
3,792,571
|
|
|
2016
|
|
|
7,710,904
|
|
|
2017
|
|
|
38,404,880
|
|
|
2018
|
|
|
18,161,948
|
|
|
2019
|
|
|
12,712,591
|
|
|
Infinite
|
|
|
6,561,659
|
|
Federal Income Tax Basis:
The federal income tax basis of the Fund’s investments at November 30,
2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Investments
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net Unrealized
Appreciation
|
|
|
$
|
490,024,576
|
|
|
$
|
34,311,957
|
|
|
$
|
(22,706,725
|
)
|
|
$
|
11,605,232
|
|
Capital Account Reclassifications:
Because federal income tax regulations differ in certain respects from
GAAP, income and capital gain distributions, if any, determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. These differences are primarily due to differing
treatments for gains/losses on principal payments of mortgage-backed and asset-backed securities, distribution reclassifications, and return of capital. Permanent book and tax differences, if any, relating to stockholder distributions will result in
reclassifications to paid-in-capital or to undistributed capital gains. These reclassifications have no effect on net assets or NAV per share. Any undistributed net income and realized gain remaining at fiscal year-end is distributed in the
following year.
32 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
GAAP requires that certain components of net assets relating to permanent differences be
reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the fiscal year ended November 30, 2013, the following table shows the reclassifications made:
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital
|
|
|
Distributions in
Excess of Net
Investment Income
|
|
|
Accumulated
Net Realized
Loss
|
|
|
$
|
(2,216,675
|
)
|
|
$
|
261,843
|
|
|
$
|
1,954,832
|
|
10. Indemnification
Under the Fund’s organizational documents, its officers and directors are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course
of business, the Fund enters into contracts with its vendors and others that provide for indemnification. The Fund’s maximum exposure under these arrangements is unknown, since this would involve the resolution of certain claims, as well as
future claims that may be made, against the Fund. Thus, an estimate of the financial impact, if any, of these arrangements cannot be made at this time. However, based on experience, the Fund expects the risk of loss due to these warranties and
indemnities to be unlikely.
11. New Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11 “Disclosures about Offsetting Assets and Liabilities.”
ASU No. 2011-11 requires disclosures to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under IFRS. The new disclosure requirements mandate that entities disclose both gross and net information
about instruments and transactions eligible for offset in the Statement of Assets and Liabilities as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, ASU No. 2011-11 requires
disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. New disclosures are required for annual reporting periods beginning on or after January 1, 2013, and interim periods within those
annual periods.
In January 2013, the FASB issued ASU No. 2013-01 “Clarifying the Scope of Disclosures about Offsetting Assets
and Liabilities.” ASU No. 2013-01 clarifies that ordinary trade receivables and payables are not included in the scope of ASU No. 2011-11. ASU No. 2011-11 applies only to derivatives, repurchase agreements and reverse repurchase
agreements, and securities borrowing and lending that are offset in accordance with specific criteria contained in the FASB Accounting Standards codification.
Management is currently evaluating the impact these amendments will have on the Fund’s financial statements and disclosures.
12. Exclusion from Definition of Commodity Pool Operator
Pursuant to amendments by the
Commodity Futures Trading Commission to Rule 4.5 under the Commodity Exchange Act (“CEA”), the Adviser has filed a notice of exemption from registering as a “commodity pool operator” with respect to the Fund. The Fund and the
Adviser are therefore not subject to registration or regulation as a pool operator under the CEA. Effective December 31, 2012, in order to claim the Rule 4.5 exemption, the Fund is limited in its ability to invest in commodity futures, options,
swaps (including securities futures, broad-based stock index futures and financial futures contracts). The Fund will limit its transactions in such instruments (excluding transactions entered into for “bona fide hedging purposes,” as
defined under the Commodity Futures Trading Commission regulations) such that either: (i) the aggregate initial margin and premiums required to establish its futures, options on futures and swaps do not exceed 5% of the liquidation value of the
Fund’s portfolio, after taking into account unrealized profits and losses on such positions; or (ii) the aggregate net notional value of its futures, options on futures and swaps does not exceed 100% of the liquidation value of the
Fund’s portfolio, after taking into account unrealized profits and losses on such positions. The Fund and the Adviser do not believe that complying with the amended rule will limit the Fund’s ability to use commodity futures, options and
swaps to the extent that it has used them in the past. These limitations, however, may have an impact on the ability of the Adviser to manage the Fund in the future and on the Fund’s performance.
2013 Annual
Report
33
BROOKFIELD TOTAL RETURN FUND INC.
Notes to Financial Statements
November 30, 2013
13. Subsequent Events
GAAP requires recognition in the financial statements of the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the Statement of Assets and Liabilities.
For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, the Fund is required to disclose the nature of the event as well as an estimate of its financial effect, or a statement that such an
estimate cannot be made.
Dividends:
The Fund’s Board of Directors declared the following monthly dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per Share
|
|
|
Record Date
|
|
|
Payable Date
|
|
|
$
|
0.1900
|
|
|
|
December 19, 2013
|
|
|
|
December 27, 2013
|
|
|
$
|
0.1900
|
|
|
|
January 16, 2014
|
|
|
|
January 30, 2014
|
|
Management has evaluated subsequent events in the preparation of the Fund’s financial statements and has
determined that other than the items listed herein, there are no events that require recognition or disclosure in the financial statements.
34 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.
R
eport of Independent Registered Public Accounting Firm
November 30, 2013
To the Stockholders and Board of Directors of
Brookfield Total Return Fund Inc.
We have audited the accompanying statement of assets and liabilities, including the schedule of investments of Brookfield Total Return Fund Inc.
(formerly Helios Total Return Fund, Inc.) as of November 30, 2013, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2013, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the
financial position of Brookfield Total Return Fund Inc. as of November 30, 2013, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
January 29, 2014
2013 Annual
Report
35
BROOKFIELD TOTAL RETURN FUND INC.
Tax In
formation (Unaudited)
November 30, 2013
The Fund is required by subchapter M of the Internal Revenue Code of 1986, as amended, to advise you within 60 days of the Fund’s fiscal year end (November 30, 2013) as to the federal tax status of
distributions received by stockholders during such fiscal year. Accordingly, we are advising you that 7.93% of the distributions paid from net investment income for the Fund was reclassified as return of capital and are reflected as such in the
Fund’s Statements of Changes in Net Assets and Financial Highlights.
Because the Fund’s fiscal year is not a calendar year,
another notification will be sent with respect to calendar 2013. The second notification, which will reflect the amount to be used by calendar year taxpayers on their federal, state and local income tax returns, will be made in conjunction with Form
1099-DIV and will be mailed in January 2014. Stockholders are advised to consult their own tax advisors with respect to the tax consequences of their investments in the Fund.
36 Brookfield
Investment Management Inc.
BROOKFIELD TOTAL RETURN FUND INC.