UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22773
BROOKFIELD MORTGAGE OPPORTUNITY INCOME FUND INC.
(Exact name of registrant as specified in charter)
BROOKFIELD PLACE
250 VESEY STREET
NEW YORK, NEW YORK 10281-1023
(Address of principal executive offices) (Zip code)
BRIAN F. HURLEY, PRESIDENT
BROOKFIELD MORTGAGE OPPORTUNITY INCOME FUND INC.
BROOKFIELD PLACE
250 VESEY STREET
NEW YORK, NEW YORK 10281-1023
(Name and address of agent for service)
Registrant’s telephone number, including area code: (855) 777-8001
Date of fiscal year end: June 30, 2014
Date of reporting period: June 30, 2014
Item 1. Reports to Shareholders.
Portfolio Characteristics (Unaudited)
PORTFOLIO STATISTICS | |
Annualized distribution yield1 | 8.67% |
Weighted average coupon | 3.12% |
Weighted average life | 4.06 years |
Average portfolio dollar price (Excluding Interest-Only Securities) | $ 81.09 |
Percentage of fixed rate securities | 46.40% |
Percentage of floating rate securities | 53.60% |
Percentage of leveraged assets | 25.70% |
Total number of holdings | 172 |
ASSET BY COUPON TYPE DISTRIBUTION2 | |
Residential Mortgage Related Holdings - Fixed Rate | 9.1% |
Residential Mortgage Related Holdings - Floating Rate | 48.5% |
Commercial Mortgage Related Holdings - Fixed Rate | 18.6% |
Commercial Mortgage Related Holdings - Floating Rate | 0.6% |
Corporate Bonds - Fixed Rate | 12.8% |
Loans - Fixed Rate | 0.6% |
Loans - Floating Rate | 4.5% |
Equities | 3.0% |
Cash | 2.3% |
Total | 100.0% |
ASSET ALLOCATION3 | |
Residential Mortgage Related Holdings | 76.8% |
Commercial Mortgage Related Holdings | 32.8% |
Interest-Only Securities | 0.8% |
Corporate Bonds | 17.1% |
Equities | 4.1% |
Short Term Investment | 0.2% |
Liabilities in Excess of Other Assets | (31.8)% |
Total | 100.0% |
Schedule of Investments
Interest Rate | Maturity | Principal Amount (000s) | Value | |
RESIDENTIAL MORTGAGE RELATED HOLDINGS – 76.8% | ||||
Non-Agency Mortgage-Backed Securities – 76.8% | ||||
ACE Securities Corp Home Equity Loan Trust | ||||
Series 2006-OP1, Class A2D 1,2 | 0.39% | 04/25/36 | $ 6,740 | $ 4,692,219 |
Series 2005-ASP1, Class M1 1,2 | 0.83 | 09/25/35 | 12,106 | 9,569,321 |
Alternative Loan Trust | ||||
Series 2007-OA3, Class 1A1 1,2 | 0.29 | 04/25/47 | 12,498 | 10,578,469 |
Series 2006-OA21, Class A1 1,2,3 | 0.34 | 03/20/47 | 8,517 | 6,865,328 |
Series 2007-HY6, Class A1 1,2,3 | 0.36 | 08/25/47 | 8,812 | 7,186,657 |
Series 2005-50CB, Class 1A1 | 5.50 | 11/25/35 | 5,175 | 4,918,247 |
Series 2007-15CB, Class A5 | 5.75 | 07/25/37 | 2,716 | 2,450,751 |
Series 2006-45T1, Class 2A5 3 | 6.00 | 02/25/37 | 5,779 | 4,916,153 |
Series 2006-29T1, Class 2A6 | 6.50 | 10/25/36 | 6,068 | 5,469,559 |
Series 2006-23CB, Class 2A7 1,4 | 27.79 | 08/25/36 | 2,915 | 4,299,746 |
Asset-Backed Securities Corporation Home Equity Loan Trust | ||||
Series 2007-HE1, Class A4 1,2 | 0.29 | 12/25/36 | 5,975 | 4,629,227 |
BCAP LLC Trust | ||||
Series 2010-RR, Class 5A10 1,2,5,6 | 0.48 | 11/26/35 | 6,733 | 4,553,898 |
Series 2010-RR6, Class 1910 1,2,5,6 | 0.48 | 11/26/35 | 8,440 | 5,765,398 |
Series 2009-RR11, Class 3A2 1,5,6 | 4.73 | 01/26/36 | 4,017 | 3,659,675 |
Series 2013-RR2, Class 3A2 1 | 7.28 | 03/26/36 | 7,350 | 7,350,000 |
CHL Mortgage Pass-Through Trust | ||||
Series 2006-OA5, Class 2A1 1,2,3 | 0.35 | 04/25/46 | 9,208 | 7,365,826 |
Citigroup Mortgage Loan Trust | ||||
Series 2007-AR5, Class 1A2A 1,3 | 2.69 | 04/25/37 | 4,518 | 4,044,852 |
Series 2009-6, Class 19A2 5,6 | 6.00 | 03/25/36 | 5,090 | 3,474,363 |
Countrywide Home Loan Mortgage Pass-Through Trust | ||||
Series 2006-OA17, Class 1A1A 1,2,3 | 0.35 | 12/20/46 | 6,199 | 4,749,933 |
Series 2006-OA1, Class 2A1 1,2,3 | 0.36 | 03/20/46 | 6,056 | 4,675,445 |
Series 2006-OA2, Class A1 1,2,3 | 0.36 | 05/20/46 | 6,643 | 4,942,211 |
Credit Suisse Mortgage Trust | ||||
Series 2011, Class 3A2 1 | 2.62 | 09/27/36 | 5,361 | 4,235,666 |
DSLA Mortgage Loan Trust | ||||
Series 2007-AR1, Class 2A1A 1,2,3 | 0.30 | 04/19/47 | 1,025 | 850,960 |
First Horizon Alternative Mortgage Securities Trust | ||||
Series 2005-FA8, Class 1A6 1 | 0.80 | 11/25/35 | 5,587 | 4,279,441 |
Series 2005-FA9, Class A1 1 | 0.85 | 12/25/35 | 5,074 | 3,891,805 |
GSAA Home Equity Trust | ||||
Series 2006-20, Class 2A1A 1,2 | 0.20 | 12/25/46 | 2,819 | 1,959,425 |
Series 2007-3, Class 1A2 1,2 | 0.32 | 03/25/47 | 4,333 | 2,152,055 |
GSAMP Trust | ||||
Series 2006-NC2, Class A2C 1,2 | 0.30 | 06/25/36 | 1,003 | 613,994 |
Series 2006-HE8, Class A2C 1,2 | 0.32 | 01/25/37 | 9,417 | 7,425,032 |
Series 2007-HE2, Class A2B 1,2 | 0.36 | 03/25/47 | 3,888 | 3,271,994 |
Home Equity Asset Trust | ||||
Series 2006-7, Class 2A3 1,2 | 0.30 | 01/25/37 | 10,084 | 6,947,664 |
IndyMac INDA Mortgage Loan Trust | ||||
Series 2007-AR3, Class 1A1 1,3 | 2.80 | 07/25/37 | 4,411 | 3,991,261 |
Schedule of Investments (continued)
Interest Rate | Maturity | Principal Amount (000s) | Value | |
RESIDENTIAL MORTGAGE RELATED HOLDINGS (continued) | ||||
Series 2007-AR1, Class 1A1 1,3 | 2.82% | 03/25/37 | $ 4,260 | $ 3,900,982 |
IndyMac INDX Mortgage Loan Trust | ||||
Series 2006-AR6, Class 2A1A 1,2,3 | 0.35 | 06/25/47 | 7,066 | 5,478,162 |
IXIS Real Estate Capital Trust | ||||
Series 2007-HE1, Class A1 1,2 | 0.21 | 05/25/37 | 2,485 | 953,820 |
Series 2007-HE1, Class A2 1,2 | 0.26 | 05/25/37 | 5,530 | 2,138,564 |
Series 2006-HE2, Class A3 1,2 | 0.31 | 08/25/36 | 8,794 | 4,537,287 |
Series 2007-HE1, Class A3 1,2 | 0.31 | 05/25/37 | 1,705 | 664,015 |
Series 2007-HE1, Class A4 1,2 | 0.38 | 05/25/37 | 3,232 | 1,268,003 |
Series 2006-HE2, Class A4 1,2 | 0.41 | 08/25/36 | 1,516 | 796,132 |
Series 2006-HE1, Class A4 1,2 | 0.45 | 03/25/36 | 794 | 503,306 |
JP Morgan Alternative Loan Trust | ||||
Series 2007-A1, Class 2A1 1 | 2.53 | 03/25/37 | 5,845 | 4,605,734 |
JP Morgan Mortgage Acquisition Corp. | ||||
Series 2006-WMC1, Class A4 1,2 | 0.33 | 03/25/36 | 2,576 | 2,199,865 |
JP Morgan Mortgage Acquisition Trust | ||||
Series 2006-HE2, Class A4 1,2 | 0.30 | 07/25/36 | 4,090 | 3,612,149 |
JP Morgan Resecuritization Trust | ||||
Series 2012-2, Class 1A8 1 | 2.45 | 03/26/37 | 5,893 | 4,843,863 |
Master Asset Backed Securities Trust | ||||
Series 2006-NC2, Class A4 1,2 | 0.30 | 08/25/36 | 11,786 | 6,405,089 |
Series 2006-NC3, Class A4 1,2 | 0.31 | 10/25/36 | 9,155 | 5,613,733 |
Series 2006-HE5, Class A3 1,2 | 0.31 | 11/25/36 | 16,506 | 10,811,854 |
Series 2005-NC2, Class A4 1,2 | 0.50 | 11/25/35 | 8,747 | 5,576,866 |
Mid-State Trust X | ||||
Series 10, Class B | 7.54 | 02/15/36 | 3,629 | 3,901,156 |
Nomura Resecuritization Trust | ||||
Series 2014-1R, Class 2A6 5,6,7 | 0.00 | 02/26/37 | 43 | 4 |
Series 2014-1R, Class 2A11 1,5,6 | 0.28 | 02/26/37 | 15,919 | 7,163,375 |
Series 2013-1R, Class 3A12 1,2,5,6 | 0.31 | 10/26/36 | 9,053 | 6,178,673 |
Series 2014-2R, Class 1A7 | 2.66 | 01/26/36 | 3,521 | 2,552,981 |
RALI Trust | ||||
Series 2007-QO3, Class A1 1,2,3 | 0.31 | 03/25/47 | 5,452 | 4,439,644 |
Series 2006-QA9, Class A1 1,2,3 | 0.33 | 11/25/36 | 8,863 | 6,474,089 |
Series 2006-QO7, Class 2A1 1,3 | 0.97 | 09/25/46 | 11,772 | 8,465,143 |
RBSSP Resecuritization Trust | ||||
Series 2009-13, Class 7A2 5,6 | 5.75 | 01/26/36 | 1,500 | 1,440,501 |
Residential Asset Securitization Trust | ||||
Series 2005-A7, Class A1 1 | 0.40 | 06/25/35 | 4,048 | 3,183,945 |
Series 2005-A13, Class 1A1 1 | 0.85 | 10/25/35 | 4,710 | 3,640,234 |
RFMSI Trust | ||||
Series 2007-S3, Class 1A5 3 | 5.50 | 03/25/37 | 6,464 | 5,783,457 |
Securitized Asset Backed Receivables LLC | ||||
Series 2006-HE2, Class A2C 1,2 | 0.30 | 07/25/36 | 9,360 | 5,095,707 |
Series 2006-NC3, Class A2B 1,2 | 0.30 | 09/25/36 | 9,029 | 4,439,431 |
Series 2007-NC1, Class A2B 1,2 | 0.30 | 12/25/36 | 865 | 481,991 |
Series 2007-BR4, Class A2B 1,2 | 0.35 | 05/25/37 | 7,073 | 4,614,083 |
Series 2007-NC1, Class A2C 1,2 | 0.36 | 12/25/36 | 276 | 155,381 |
Series 2007-BR3, Class A2B 1,2 | 0.37 | 04/25/37 | 15,346 | 10,268,404 |
Schedule of Investments (continued)
Interest Rate | Maturity | Principal Amount (000s) | Value | |
RESIDENTIAL MORTGAGE RELATED HOLDINGS (continued) | ||||
Series 2007-BR4, Class A2C 1,2 | 0.44% | 05/25/37 | $ 7,936 | $ 5,215,820 |
Washington Mutual Mortgage Pass-Through Certificates | ||||
Series 2007-OA1, Class A1A 1,3 | 0.82 | 02/25/47 | 6,205 | 5,115,575 |
Series 2006-AR8, Class 2A 1,3 | 0.97 | 10/25/46 | 8,912 | 6,290,779 |
Series 2006-AR5, Class A1A 1 | 1.11 | 06/25/46 | 659 | 571,874 |
Series 2006-AR10, Class 1A2 | 2.34 | 09/25/36 | 2,973 | 2,667,740 |
Series 2006-AR12, Class 1A2 1 | 2.38 | 10/25/36 | 820 | 715,017 |
Series 2007-HY6, Class 2A1 1,3 | 2.56 | 06/25/37 | 8,113 | 7,067,974 |
Series 2006-AR18, Class 3A2 1 | 4.10 | 01/25/37 | 1,061 | 970,009 |
Series 2007-HY5, Class 3A1 1 | 4.64 | 05/25/37 | 2,620 | 2,490,082 |
Wells Fargo Mortgage Backed Securities | ||||
Series 2005-2, Class 1B1 | 5.50 | 04/25/35 | 7,062 | 5,657,788 |
Total Non-Agency Mortgage-Backed Securities | 334,726,856 | |||
Total RESIDENTIAL MORTGAGE RELATED HOLDINGS (Cost $331,494,734) | 334,726,856 | |||
COMMERCIAL MORTGAGE RELATED HOLDINGS – 32.8% | ||||
Commercial Mortgage-Backed Securities – 29.9% | ||||
Banc of America Commercial Mortgage Trust | ||||
Series 2006-6, Class AJ | 5.42 | 10/10/45 | 5,000 | 5,202,880 |
Series 2007-3, Class AJ | 5.77 | 06/10/49 | 5,000 | 5,220,260 |
Citigroup Commercial Mortgage Trust | ||||
Series 2008-C7, Class AJ | 6.34 | 12/10/49 | 14,000 | 14,386,190 |
Commercial Mortgage Trust | ||||
Series 2014-KYO, Class F 1 | 3.65 | 06/11/27 | 3,500 | 3,502,734 |
Series 2007-C9, Class F | 5.99 | 12/10/49 | 3,500 | 3,451,151 |
Series 2007-C9, Class G 5,6 | 5.99 | 12/10/49 | 5,000 | 4,927,600 |
Series 2007-GG11, Class AJ | 6.26 | 12/10/49 | 10,642 | 11,109,524 |
Series 2007-GG11, Class B | 6.36 | 12/10/49 | 3,724 | 3,380,774 |
Series 2007-GG11, Class C | 6.36 | 12/10/49 | 7,380 | 5,858,488 |
Credit Suisse First Boston Mortgage Securities Corp. | ||||
Series 1997-C1, Class I 5,6 | 7.50 | 06/20/29 | 4,238 | 4,459,563 |
Series 1997-C1, Class J 5,6 | 7.50 | 06/20/29 | 1,863 | 1,780,616 |
Del Coronado Trust | ||||
Series 2013-HDMZ, Class M 1,5,6 | 5.15 | 03/15/18 | 8,500 | 8,553,550 |
JP Morgan Chase Commercial Mortgage Securities Trust | ||||
Series 2013-JWMZ, Class M 1,2,5,6 | 6.15 | 04/15/18 | 9,052 | 9,118,797 |
LB-UBS Commercial Mortgage Trust | ||||
Series 2007-C1, Class D | 5.56 | 02/15/40 | 8,650 | 8,233,156 |
Series 2007-C7, Class AJ | 6.46 | 09/15/45 | 10,000 | 10,637,290 |
Series 2007-C7, Class B | 6.46 | 09/15/45 | 4,000 | 4,022,872 |
Morgan Stanley Capital I, Inc. | ||||
Series 1998-HF1, Class K 5,6 | 6.19 | 03/15/30 | 3,854 | 3,770,934 |
Wachovia Bank Commercial Mortgage Trust | ||||
Series 2007-C30, Class AJ 3 | 5.41 | 12/15/43 | 11,500 | 11,900,982 |
Series 2007-C33, Class AJ 3 | 6.14 | 02/15/51 | 10,250 | 10,786,075 |
Total Commercial Mortgage-Backed Securities | 130,303,436 |
Schedule of Investments (continued)
Interest Rate | Maturity | Principal Amount (000s) | Value | |
COMMERCIAL MORTGAGE RELATED HOLDINGS (continued) | ||||
Mezzanine Loans – 2.9% | ||||
BOCA Mezzanine | 8.17% | 08/15/15 | $ 9,074 | $ 9,073,867 |
Extended Stay America 2013 Mezzanine B | 9.63 | 12/01/19 | 3,380 | 3,481,018 |
Total Mezzanine Loans | 12,554,885 | |||
Total COMMERCIAL MORTGAGE RELATED HOLDINGS (Cost $136,324,617) | 142,858,321 | |||
INTEREST-ONLY SECURITIES – 0.8% | ||||
Federal Home Loan Mortgage Corporation | ||||
Class IO Strip 8 | 3.50 | 12/15/42 | 9,518 | 2,115,777 |
Federal National Mortgage Association | ||||
Series 2013-32, Class IG 8 | 3.50 | 04/25/33 | 8,352 | 1,533,427 |
Total INTEREST-ONLY SECURITIES (Cost $3,877,656) | 3,649,204 | |||
CORPORATE BONDS – 17.1% | ||||
Automotive – 0.6% | ||||
American Axle & Manufacturing, Inc. 3 | 6.63 | 10/15/22 | 1,300 | 1,423,500 |
Chrysler Group LLC 3 | 8.25 | 06/15/21 | 1,000 | 1,130,000 |
Total Automotive | 2,553,500 | |||
Basic Industry – 2.6% | ||||
Alpha Natural Resources, Inc. 3 | 6.25 | 06/01/21 | 1,650 | 1,167,375 |
Arch Coal, Inc. 3 | 7.25 | 06/15/21 | 1,750 | 1,277,500 |
Associated Materials LLC 3 | 9.13 | 11/01/17 | 1,100 | 1,141,250 |
Cascades, Inc. 3,9 | 7.88 | 01/15/20 | 800 | 850,000 |
FMG Resources August 2006 Property Ltd. 3,5,6,9 | 6.88 | 04/01/22 | 1,000 | 1,072,500 |
Hexion US Finance Corp. 3 | 9.00 | 11/15/20 | 1,350 | 1,377,000 |
INEOS Group Holdings SA 5,6,9 | 6.13 | 08/15/18 | 1,350 | 1,397,250 |
Trinseo Materials Operating SCA 3,9 | 8.75 | 02/01/19 | 1,375 | 1,481,562 |
Xerium Technologies, Inc. 3 | 8.88 | 06/15/18 | 1,400 | 1,487,500 |
Total Basic Industry | 11,251,937 | |||
Capital Goods – 0.7% | ||||
AAR Corp. 3 | 7.25 | 01/15/22 | 1,275 | 1,396,125 |
Reynolds Group Issuer, Inc. 3 | 9.00 | 04/15/19 | 850 | 899,937 |
Tekni-Plex, Inc. 3,5,6 | 9.75 | 06/01/19 | 469 | 524,108 |
Total Capital Goods | 2,820,170 | |||
Consumer Cyclical – 0.9% | ||||
ACCO Brands Corp. 3 | 6.75 | 04/30/20 | 1,350 | 1,414,125 |
Limited Brands, Inc. 3 | 7.60 | 07/15/37 | 900 | 996,750 |
New Albertsons, Inc. 3 | 7.75 | 06/15/26 | 850 | 833,000 |
Roundy's Supermarkets, Inc. 3,5,6 | 10.25 | 12/15/20 | 500 | 528,125 |
Total Consumer Cyclical | 3,772,000 | |||
Consumer Non-Cyclical – 0.3% | ||||
Post Holdings, Inc. 3 | 7.38 | 02/15/22 | 1,300 | 1,405,625 |
Energy – 2.4% | ||||
Basic Energy Services, Inc. 3 | 7.75 | 02/15/19 | 1,350 | 1,431,000 |
BreitBurn Energy Partners LP 3 | 7.88 | 04/15/22 | 1,325 | 1,434,312 |
Schedule of Investments (continued)
Interest Rate | Maturity | Principal Amount (000s) | Value | |
CORPORATE BONDS (continued) | ||||
Calfrac Holdings LP 3,5,6 | 7.50% | 12/01/20 | $ 1,350 | $ 1,451,250 |
EV Energy Partners LP 3 | 8.00 | 04/15/19 | 1,250 | 1,312,500 |
Ferrellgas Partners LP 3 | 8.63 | 06/15/20 | 700 | 747,250 |
Global Partners LP | 6.25 | 07/15/22 | 150 | 150,000 |
Key Energy Services, Inc. 3 | 6.75 | 03/01/21 | 1,000 | 1,040,000 |
Linn Energy LLC 3 | 7.75 | 02/01/21 | 1,000 | 1,078,750 |
RKI Exploration & Production LLC 3,5,6 | 8.50 | 08/01/21 | 450 | 488,250 |
W&T Offshore, Inc. 3 | 8.50 | 06/15/19 | 1,250 | 1,350,000 |
Total Energy | 10,483,312 | |||
Healthcare – 1.6% | ||||
CHS/Community Health Systems, Inc. 3 | 7.13 | 07/15/20 | 1,300 | 1,407,250 |
DJO Finance LLC 3 | 9.88 | 04/15/18 | 750 | 810,000 |
HCA, Inc. 3 | 5.88 | 05/01/23 | 1,350 | 1,412,438 |
inVentiv Health, Inc. 3,5,6 | 11.00 | 08/15/18 | 800 | 764,000 |
Kindred Healthcare, Inc. 3,5,6 | 6.38 | 04/15/22 | 1,150 | 1,155,750 |
Service Corporation International 3 | 8.00 | 11/15/21 | 1,200 | 1,410,000 |
Total Healthcare | 6,959,438 | |||
Media – 1.9% | ||||
Cenveo Corp. 3 | 8.88 | 02/01/18 | 1,000 | 1,049,770 |
Clear Channel Communications, Inc. 3 | 9.00 | 03/01/21 | 900 | 963,000 |
Cumulus Media Holdings, Inc. 3 | 7.75 | 05/01/19 | 850 | 895,687 |
Gannett Company, Inc. 3,5,6 | 6.38 | 10/15/23 | 1,300 | 1,387,750 |
Lamar Media Corp. 3,5,6 | 5.38 | 01/15/24 | 1,350 | 1,397,250 |
Mediacom Broadband LLC 3 | 6.38 | 04/01/23 | 1,300 | 1,371,500 |
National CineMedia LLC 3 | 6.00 | 04/15/22 | 1,325 | 1,381,313 |
Total Media | 8,446,270 | |||
Services – 3.2% | ||||
Avis Budget Car Rental LLC 3 | 5.50 | 04/01/23 | 1,400 | 1,431,500 |
Boyd Gaming Corp. 3 | 9.00 | 07/01/20 | 1,300 | 1,433,250 |
Casella Waste Systems, Inc. 3 | 7.75 | 02/15/19 | 1,350 | 1,410,750 |
Chester Downs & Marina LLC 3,5,6 | 9.25 | 02/01/20 | 1,050 | 1,029,000 |
Iron Mountain, Inc. 3 | 6.00 | 08/15/23 | 1,350 | 1,459,687 |
Isle of Capri Casinos, Inc. 3 | 5.88 | 03/15/21 | 850 | 859,563 |
MGM Resorts International 3 | 7.75 | 03/15/22 | 1,250 | 1,465,625 |
MTR Gaming Group, Inc. 3 | 11.50 | 08/01/19 | 925 | 1,039,469 |
Palace Entertainment Holdings LLC 3,5,6 | 8.88 | 04/15/17 | 1,250 | 1,296,875 |
PulteGroup, Inc. 3 | 6.38 | 05/15/33 | 1,000 | 1,005,000 |
The ADT Corp. 3 | 6.25 | 10/15/21 | 1,325 | 1,404,500 |
Total Services | 13,835,219 | |||
Technology & Electronics – 0.6% | ||||
First Data Corp. 3 | 11.25 | 01/15/21 | 1,350 | 1,576,125 |
Freescale Semiconductor, Inc. 3 | 8.05 | 02/01/20 | 613 | 662,040 |
ION Geophysical Corp. 3 | 8.13 | 05/15/18 | 500 | 500,000 |
Total Technology & Electronics | 2,738,165 | |||
Telecommunications – 2.3% | ||||
Altice SA 5,6,9 | 7.75 | 05/15/22 | 400 | 427,000 |
Schedule of Investments (continued)
Interest Rate | Maturity | Principal Amount (000s) | Value | |
CORPORATE BONDS (continued) | ||||
CenturyLink, Inc. 3 | 7.65% | 03/15/42 | $ 1,000 | $ 997,500 |
Cincinnati Bell, Inc. 3 | 8.75 | 03/15/18 | 1,325 | 1,389,594 |
Fairpoint Communications, Inc. 3,5,6 | 8.75 | 08/15/19 | 925 | 996,688 |
Frontier Communications Corp. 3 | 7.13 | 01/15/23 | 1,350 | 1,431,000 |
Intelsat Luxembourg SA 3,9 | 7.75 | 06/01/21 | 650 | 688,187 |
Level 3 Financing, Inc. 3 | 8.63 | 07/15/20 | 950 | 1,064,000 |
Qwest Capital Funding, Inc. 3 | 6.88 | 07/15/28 | 250 | 255,625 |
T-Mobile USA, Inc. 3 | 6.63 | 04/01/23 | 1,350 | 1,464,750 |
Wind Acquisition Finance SA 5,6,9 | 7.38 | 04/23/21 | 300 | 320,250 |
Windstream Corp. 3 | 7.50 | 06/01/22 | 1,000 | 1,088,750 |
Total Telecommunications | 10,123,344 | |||
Total CORPORATE BONDS (Cost $72,880,953) | 74,388,980 |
Shares | Value | |||
COMMON STOCK – 0.8% | ||||
Banking – 0.8% | ||||
Home Loan Servicing Solutions Ltd. 9 | 159,360 | $ 3,622,253 | ||
Total COMMON STOCK (Cost $3,726,520) | 3,622,253 | |||
PREFERRED STOCKS – 3.3% | ||||
Finance & Investment – 3.3% | ||||
Ally Financial, Inc., 7.00% | 7,500 | 7,556,484 | ||
Public Storage, 6.00% 10 | 200,000 | 4,964,000 | ||
Strategic Hotels & Resorts, Inc., 8.25% | 70,976 | 1,792,783 | ||
Total Finance & Investment | 14,313,267 | |||
Total PREFERRED STOCKS (Cost $14,133,832) | 14,313,267 |
Interest Rate | Maturity | Principal Amount (000s) | Value | |
SHORT TERM INVESTMENT – 0.2% | ||||
United States Treasury Bill 11 | 0.06% | 04/02/15 | $ 1,000 | $ 999,542 |
Total SHORT TERM INVESTMENT (Cost $999,255) | 999,542 | |||
Total Investments – 131.8% (Cost $563,437,567) | 574,558,423 | |||
Liabilities in Excess of Other Assets – (31.8)% | (138,574,751) | |||
TOTAL NET ASSETS – 100.0% | $ 435,983,672 |
Schedule of Investments (continued)
The following notes should be read in conjunction with the accompanying Schedule of Investments. | ||
1 | — Variable rate security – Interest rate shown is the rate in effect as of June 30, 2014. | |
2 | — Security is a “step up” bond where the coupon increases or steps up at a predetermined date. | |
3 | — Portion or entire principal amount delivered as collateral for reverse repurchase agreements. | |
4 | — Security is an inverse floating rate bond. | |
5 | — Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from registration, normally to qualified institutional buyers. As of June 30, 2014, the total value of all such securities was $79,082,993 or 18.1% of net assets. | |
6 | — Private Placement. | |
7 | — Zero-Coupon Note - Interest rate represents current yield to maturity. | |
8 | — Interest rate is based on the notional amount of the underlying mortgage pools. | |
9 | — Foreign security or a U.S. security of a foreign company. | |
10 | — Non-income producing security. | |
11 | — Portion or entire principal amount pledged as collateral for futures contracts. |
Statement of Assets and Liabilities
Assets: | |
Investments in securities, at value (cost $549,808,451) | $561,003,996 |
Investments in mezzanine loans, at value (cost $12,629,861) | 12,554,885 |
Investments in short-term securities, at value (cost $999,255) | 999,542 |
Total investments, at value (cost $563,437,567) (Note 2) | 574,558,423 |
Cash | 15,510,511 |
Cash on deposit with brokers for reverse repurchase agreements | 949,000 |
Interest and dividend receivable | 2,552,536 |
Prepaid expenses | 22,548 |
Total assets | 593,593,018 |
Liabilities: | |
Reverse repurchase agreements (Note 6) | 152,582,000 |
Interest payable for reverse repurchase agreements (Note 6) | 584,537 |
Payable for investments purchased | 3,650,977 |
Payable for variation margin | 77,051 |
Investment advisory fee payable (Note 4) | 483,844 |
Administration fee payable (Note 4) | 72,577 |
Directors' fee payable | 10,625 |
Accrued expenses | 147,735 |
Total liabilities | 157,609,346 |
Net Assets | $435,983,672 |
Composition of Net Assets: | |
Capital stock, at par value ($0.001 par value, 1,000,000,000 shares authorized) (Note 7) | $ 22,714 |
Additional paid-in capital (Note 7) | 426,795,143 |
Distributions in excess of net investment income | (70,629) |
Accumulated net realized loss on investment and futures transactions | (2,289,520) |
Net unrealized appreciation on investments and futures | 11,525,964 |
Net assets applicable to capital stock outstanding | $435,983,672 |
Shares Outstanding and Net Asset Value Per Share: | |
Common shares outstanding | 22,713,931 |
Net asset value per share | $ 19.19 |
Statement of Operations
Investment Income (Note 2): | |
Interest | $36,808,263 |
Dividends | 328,204 |
Total income | 37,136,467 |
Expenses: | |
Investment advisory fees (Note 4) | 4,909,042 |
Administration fees (Note 4) | 736,356 |
Directors' fees | 127,500 |
Fund accounting servicing fees | 124,963 |
Legal fees | 110,051 |
Audit and tax services | 70,417 |
Insurance | 53,090 |
Registration fees | 47,909 |
Reports to stockholders | 24,100 |
Custodian fees | 21,024 |
Miscellaneous | 20,894 |
Transfer agent fees | 14,754 |
Total operating expenses | 6,260,100 |
Interest expense on reverse repurchase agreements (Note 6) | 918,051 |
Total expenses | 7,178,151 |
Net investment income | 29,958,316 |
Realized and Unrealized Gain on Investments: | |
Net realized loss on: | |
Investment transactions | (187,484) |
Futures transactions | (1,605,793) |
Net realized loss | (1,793,277) |
Net change in unrealized appreciation on: | |
Investments | 26,045,775 |
Futures | 127,288 |
Net change in unrealized appreciation | 26,173,063 |
Net realized and unrealized gain (loss) | 24,379,786 |
Net increase in net assets resulting from operations | $54,338,102 |
Statements of Changes in Net Assets
For the Fiscal Year Ended June 30, 2014 | For the period March 26, 20131 through June 30, 2013 | ||
Increase (Decrease) in Net Assets Resulting from Operations: | |||
Net investment income | $ 29,958,316 | $ 3,675,525 | |
Net realized gain (loss) | (1,793,277) | 29,909 | |
Net change in unrealized appreciation (depreciation) | 26,173,063 | (14,647,099) | |
Net increase (decrease) in net assets resulting from operations | 54,338,102 | (10,941,665) | |
Distributions to Stockholders: | |||
Net investment income | (29,997,494) | (4,233,128) | |
Return of capital | (4,645,794) | (1,540,340) | |
Total distributions paid | (34,643,288) | (5,773,468) | |
Capital Stock Transactions: | |||
Proceeds from shares sold | — | 432,963,977 | |
Reinvestment of distributions | — | 40,014 | |
Net increase in net assets from capital stock transactions | — | 433,003,991 | |
Total increase in net assets | 19,694,814 | 416,288,858 | |
Net Assets: | |||
Beginning of period | 416,288,858 | — | |
End of period | $435,983,672 | $416,288,858 | |
Distributions in excess of net investment income | $ (70,629) | $ (238,652) | |
Share Transactions: | |||
Shares issued | — | 22,711,790 | |
Reinvested shares | — | 2,141 | |
Net increase in shares outstanding | — | 22,713,931 |
1 | Commencement of operations. |
Statement of Cash Flows
Increase (Decrease) in Cash: | ||
Cash flows provided by (used for) operating activities: | ||
Net increase in net assets resulting from operations | $ 54,338,102 | |
Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities: | ||
Purchases of long-term portfolio investments and principal payups | (314,434,098) | |
Proceeds from disposition of long-term portfolio investments and principal paydowns | 190,421,718 | |
Purchases of short-term portfolio investments, net | (998,708) | |
Return of capital distributions from portfolio investments | 99,480 | |
Decrease in cash on deposit with brokers for futures contracts | 147,025 | |
Increase in cash on deposit with brokers for reverse repurchase agreements | (949,000) | |
Increase in interest and dividend receivable | (331,726) | |
Decrease in dividend reinvestment receivable | 20,311 | |
Decrease in variation margin receivable | 5,312 | |
Increase in prepaid expenses | (613) | |
Decrease in payable for investments purchased | (5,653,259) | |
Increase in interest payable for reverse repurchase agreements | 580,506 | |
Increase in payable for variation margin | 74,543 | |
Increase in investment advisory fee payable | 134,097 | |
Increase in administration fee payable | 20,115 | |
Increase in accrued expenses | 13,135 | |
Net amortization on investments and paydown gains on investments | (24,846,203) | |
Unrealized appreciation on investments | (26,045,775) | |
Net realized loss on investment transactions | 187,484 | |
Net cash used for operating activities | (127,217,554) | |
Cash flows provided by (used for) financing activities: | ||
Net cash provided by reverse repurchase agreements | 148,144,000 | |
Distributions paid to stockholders | (34,643,288) | |
Net cash provided by financing activities | 113,500,712 | |
Net decrease in cash | (13,716,842) | |
Cash at beginning of year | 29,227,353 | |
Cash at end of year | $ 15,510,511 | |
Supplemental Disclosure of Cash Flow Information: | ||
Interest payments on reverse repurchase agreements for the fiscal year ended June 30, 2014 totaled $337,545. |
Financial Highlights
For the Fiscal Year Ended June 30, | Period from March 26, 20131 through June 30, | ||
2014 | 2013 | ||
Per Share Operating Performance: | |||
Net asset value, beginning of period | $ 18.33 | $ 19.102 | |
Net investment income | 1.32 | 0.17 | |
Net realized and unrealized gain (loss) on investment transactions and futures | 1.07 | (0.69) | |
Net increase (decrease) in net asset value resulting from operations | 2.39 | (0.52) | |
Distributions from net investment income | (1.32) | (0.18) | |
Return of capital distributions | (0.21) | (0.07) | |
Total distributions paid | (1.53) | (0.25) | |
Net asset value, end of period | $ 19.19 | $ 18.33 | |
Market price, end of period | $ 17.60 | $ 18.46 | |
Total Investment Return† | 4.32% | -6.44% 3 | |
Ratios to Average Net Assets/Supplementary Data: | |||
Net assets, end of period (000s) | $435,984 | $416,289 | |
Operating expenses | 1.48% | 1.44% 4 | |
Interest expense | 0.22% | 0.00% 4,5 | |
Total expenses | 1.70% | 1.44% | |
Net investment income | 7.10% | 3.36% 4 | |
Portfolio turnover rate | 41% | 2% 3 | |
Reverse repurchase agreements, end of period (000s) | $152,582 | $ 4,438 | |
Asset Coverage per $1,000 unit of senior indebtedness6 | $ 3,857 | $94,801 |
† | 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. Distributions are assumed to be reinvested at the prices obtained under the Fund's dividend reinvestment plan. | |
1 | Commencement of operations. | |
2 | Net asset value, beginning of period, reflects a deduction of $0.90 per share sales charge from the initial public offering price of $20.00 per share. | |
3 | Not annualized. | |
4 | Annualized. | |
5 | Interest expense ratio was less than 0.01%. | |
6 | Calculated by subtracting the Fund's total liabilities (not including borrowings) from the Fund's total assets and dividing by the total number of senior indebtedness units, where one unit equals $1,000 of senior indebtedness. |
Notes to Financial Statements
Notes to Financial Statements (continued)
• | Level 1 - | quoted prices in active markets for identical assets or liabilities |
• | Level 2 - | quoted prices in markets that are not active or other significant observable inputs (including, but not limited to: quoted prices for similar assets or liabilities, quoted prices based on recently executed transactions, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3 - | significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of assets or liabilities) |
Notes to Financial Statements (continued)
Valuation Inputs | Level 1 | Level 2 | Level 3(1) | Total | |||
Residential Mortgage Related Holdings | $ — | $ — | $ 334,726,856 | $ 334,726,856 | |||
Commercial Mortgage Related Holdings | — | — | 142,858,321 | 142,858,321 | |||
Interest-Only Securities | — | 3,649,204 | — | 3,649,204 | |||
Corporate Bonds | — | 74,388,980 | — | 74,388,980 | |||
Common Stock | 3,622,253 | — | — | 3,622,253 | |||
Preferred Stocks | 14,313,267 | — | — | 14,313,267 | |||
Short Term Investment | — | 999,542 | — | 999,542 | |||
Total | $ 17,935,520 | $ 79,037,726 | $ 477,585,177 | $ 574,558,423 |
Assets: | Level 1 | Level 2 | Level 3 | Total | |||
Other Financial Instruments(2) | $ 408,722 | — | — | $ 408,722 | |||
Total Assets - Other Financial Instruments | $ 408,722 | $ — | $ — | $ 408,722 |
Liabilities: | Level 1 | Level 2 | Level 3 | Total | |||
Other Financial Instruments(2) | $ (3,614) | $ — | $ — | $ (3,614) | |||
Total Liabilities - Other Financial Instruments | $ (3,614) | $ — | $ — | $ (3,614) |
(1) | The Fund generally uses evaluated bid prices provided by an independent pricing service on the valuation date as the primary basis for the fair value determinations. These evaluated bid prices are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of such Level 3 investments. |
(2) | Other financial instruments include exchange traded futures contracts. |
Notes to Financial Statements (continued)
Investments in Securities | Residential Mortgage Related Holdings | Commercial Mortgage Related Holdings | Total | ||
Balance as of June 30, 2013 | $ 177,335,807 | $150,261,162 | $ 327,596,969 | ||
Accrued Discounts (Premiums) | 11,118,765 | 355,059 | 11,473,824 | ||
Realized Gain (Loss) | 12,176,732 | 2,760 | 12,179,492 | ||
Change in Unrealized Appreciation (Depreciation) | 10,120,954 | 12,914,058 | 23,035,012 | ||
Purchases at cost | 224,380,655 | 34,860,543 | 259,241,198 | ||
Sales proceeds | (100,406,057) | (55,535,261) | (155,941,318) | ||
Balance as of June 30, 2014 | $ 334,726,856 | $142,858,321 | $ 477,585,177 | ||
Change in unrealized gains or losses relating to assets still held at the reporting date | $ 8,717,111 | $ 11,302,874 | $ 20,019,985 |
Notes to Financial Statements (continued)
Notes to Financial Statements (continued)
Equity Contracts Not Accounted for as Hedging Instruments | Statement of Assets and Liabilities | Fair Value as of June 30, 2014 |
Futures contracts | Payable for variation margin (liability) | $77,051 |
Equity Contracts Not Accounted for as Hedging Instruments | Location of Gains (Losses) on Derivatives Recognized in Income | Net Realized Loss on Futures Transactions | Net Change in Unrealized Appreciation on Futures | |
Futures contracts | Futures transactions | $(1,605,793) | $127,288 |
Notes to Financial Statements (continued)
Notes to Financial Statements (continued)
Face Value | Description | Maturity Amount |
$ 80,000 | JP Morgan Chase, 1.03%, dated 04/16/14, maturity 07/16/14 | $ 80,208 |
1,949,000 | RBC Capital Markets, 0.93%, dated 03/11/14, maturity 09/12/14 | 1,958,357 |
1,648,000 | RBC Capital Markets, 0.93%, dated 03/24/14, maturity 09/12/14 | 1,655,356 |
33,982,000 | RBC Capital Markets, 0.95%, dated 04/01/14, maturity 10/01/14 | 34,146,778 |
545,000 | RBC Capital Markets, 0.95%, dated 04/07/14, maturity 10/01/14 | 547,556 |
207,000 | RBC Capital Markets, 0.95%, dated 04/16/14, maturity 10/01/14 | 207,921 |
1,745,000 | RBC Capital Markets, 0.95%, dated 04/29/14, maturity 10/01/14 | 1,752,167 |
368,000 | RBC Capital Markets, 0.95%, dated 05/09/14, maturity 10/01/14 | 369,414 |
440,000 | RBC Capital Markets, 0.95%, dated 05/28/14, maturity 10/01/14 | 441,469 |
242,000 | RBC Capital Markets, 0.96%, dated 03/11/14, maturity 09/12/14 | 243,188 |
12,093,000 | RBC Capital Markets, 0.96%, dated 03/11/14, maturity 09/12/14 | 12,152,472 |
2,277,000 | RBC Capital Markets, 0.96%, dated 03/14/14, maturity 09/12/14 | 2,288,014 |
2,851,000 | RBC Capital Markets, 0.96%, dated 03/24/14, maturity 09/12/14 | 2,864,008 |
1,187,000 | RBC Capital Markets, 0.96%, dated 05/05/14, maturity 09/12/14 | 1,191,102 |
8,850,000 | RBC Capital Markets, 1.47%, dated 05/08/14, maturity 08/08/14 | 8,883,356 |
4,166,000 | RBC Capital Markets, 1.58%, dated 06/11/14, maturity 09/11/14 | 4,182,827 |
7,427,000 | RBC Capital Markets, 1.63%, dated 03/26/14, maturity 09/26/14 | 7,488,970 |
14,074,000 | RBC Capital Markets, 1.68%, dated 01/21/14, maturity 07/17/14 | 14,190,570 |
20,633,000 | RBC Capital Markets, 1.68%, dated 02/27/14, maturity 08/26/14 | 20,806,369 |
25,536,000 | RBC Capital Markets, 1.68%, dated 03/24/14, maturity 09/24/14 | 25,755,269 |
4,976,000 | RBC Capital Markets, 1.68%, dated 06/02/14, maturity 08/26/14 | 4,995,744 |
3,639,000 | RBC Capital Markets, 1.68%, dated 06/17/14, maturity 08/26/14 | 3,650,891 |
3,667,000 | RBC Capital Markets, 1.69%, dated 01/17/14, maturity 07/17/14 | 3,698,077 |
$152,582,000 | Maturity Amount, Including Interest Payable | $153,550,083 |
Market Value of Assets Pledged as Collateral for the Reverse Repurchase Agreements | $197,418,661 |
Notes to Financial Statements (continued)
Gross Amounts not offset in the Statement of Assets and Liabilities | ||||||
Gross Amounts of Recognized Assets & Liabilities | Gross Amounts Offset in the Statement of Assets and Liabilities | Net Amounts Presented in the Statement of Assets and Liabilities | Financial Instruments | Collateral Pledged (Received)* | Net Amount | |
Description | ||||||
Reverse Repurchase Agreements | $152,582,000 | $— | $152,582,000 | $(152,582,000) | $— | $— |
Notes to Financial Statements (continued)
Contracts | Type | Expiration Date | Notional at June 30, 2014 | Unrealized Appreciation/(Depreciation) | |
408 | 5 Year U.S. Treasury Note | September 2014 | $48,740,063 | $205,527 | |
336 | 10 Year U.S. Treasury Note | September 2014 | 42,057,750 | 203,195 | |
28 | U.S. Treasury Long Bond | September 2014 | 3,841,250 | (3,614) | |
Total | $94,639,063 | $405,108 |
Ordinary income (including short-term capital gains) | $29,997,494 |
Return of capital | 4,645,794 |
Total distributions | $34,643,288 |
Ordinary income (including short-term capital gains) | $4,233,128 |
Return of capital | 1,540,340 |
Total distributions | $5,773,468 |
Other accumulated losses | $ (70,629) |
Capital loss carryforward(1) | (1,541,028) |
Post-October capital loss deferral | (343,384) |
Tax basis unrealized appreciation on investments | 11,120,856 |
Total tax basis net accumulated gains | $ 9,165,815 |
Notes to Financial Statements (continued)
Cost of Investments | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation |
$563,437,567 | $16,762,240 | $(5,641,384) | $11,120,856 |
Distributions in Excess of Net Investment Income | Accumulated Net Realized Loss |
$207,201 | $(207,201) |
Dividend Per Share | Record Date | Payable Date |
$0.1271 | July 24, 2014 | July 31, 2014 |
$0.1271 | August 14, 2014 | August 28, 2014 |
Report of Independent Registered Public Accounting Firm
Tax Information (Unaudited)
Compliance Certification (Unaudited)
Information Concerning Directors and Officers (Unaudited)
Name, Address and Year of Birth | Position(s) Held with Funds and Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years and Other Directorships Held by Director | Number of Portfolios in Fund Complex Overseen by Director | |||
Interested Director Class I Director to serve until 2014 Annual Meeting of Stockholders: | ||||||
Heather S. Goldman* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1967 | Director Since 2013 | Director/Trustee of several investment companies advised by the Adviser (2013 – Present); Global Head of Marketing and Business Development of the Adviser (2011-2013); Managing Partner of Brookfield Financial (2009- 2011); Head of Investor Relations of Starwood Capital Group Global (2007-2009); Director and immediate past Board Chair of University Settlement House (2003-2013). Member of the Honorary Board of University Settlement House (2014-Present). | 11 | |||
Independent Directors Class II Directors to serve until 2015 Annual Meeting of Stockholders: | ||||||
Edward A. Kuczmarski c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1949 | Director and Chairman of the Board, Member of the Audit Committee, Chairman of the Nominating and Compensation Committee Since 2013 | Director/Trustee of several investment companies advised by the Adviser (2011-Present); Certified Public Accountant and Retired Partner of Crowe Horwath LLP (formerly Hays & Company before merger in 2009) (1980-2013); Director of ISI Funds (2007-Present); Trustee of the Daily Income Fund (2006-Present); Director of the California Daily Tax Free Income Fund, Inc. (2006-Present); Trustee of the Stralem Funds (2014-Present). | 11 | |||
Stuart A. McFarland c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1947 | Director, Member of the Audit Committee, Member of the Nominating and Compensation Committee Since 2013 | Director/Trustee of several investment companies advised by the Adviser (2006- Present); Director of New America High Income Fund (2013-Present); Director of United Guaranty Corporation (2011-Present); Director of Brandywine Funds (2003-2013); Director of New Castle Investment Corp. (2000-Present); Managing Partner of Federal City Capital Advisors (1997-Present). | 11 | |||
Independent Director Class III Director to serve until 2016 Annual Meeting of Stockholders: | ||||||
Louis P. Salvatore c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1946 | Director, Chairman of the Audit Committee, Member of the Nominating and Compensation Committee Since 2013 | Director/Trustee of several investment companies advised by the Adviser (2005-Present); Director of SP Fiber Technologies, Inc. (2012 - Present); Director of Chambers Street Properties (2012- Present); Director of Crystal River Capital, Inc. (2005-2010); Director of Turner Corp. (2003- Present); Director of Jackson Hewitt Tax Services, Inc. (2004-2011); Employee of Arthur Andersen LLP (2002-Present). | 11 |
Name, Address and Year of Birth | Position(s) Held with Funds and Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years and Other Directorships Held by Director | Number of Portfolios in Fund Complex Overseen by Director | |||
Interested Director Class III Director to serve until 2016 Annual Meeting of Stockholders: | ||||||
Jonathan C. Tyras* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1968 | Director Since 2014 | Director/Trustee of several investment companies advised by the Adviser (2014-Present);Managing Director and Chief Financial Officer of the Adviser (2010-Present); General Counsel and Secretary of the Adviser (2006-Present); Vice President and General Counsel (2006-2010) and Secretary (2007-2010) of Crystal River Capital, Inc.; Secretary of several investment companies advised by the Adviser (2006-2014); Vice President of Brookfield Investment Funds (2011-2014); Chief Financial Officer of Brookfield Investment Management (UK) Limited (2011-Present); Director of Brookfield Investment Management (UK) Limited (2013-Present); Chief Financial Officer of Brookfield Investment Management (Canada) Inc. (2011-Present); Chief Executive Officer of Brookfield Investment Management (US) LLC (2011-Present); Managing Director of AMP Capital Brookfield Pty Limited (2011-2012). | 11 |
Name, Address and Year of Birth | Position(s) Held with Funds | Term of Office and Length of Time Served | Principal Occupation(s) During Past 5 Years |
Brian F. Hurley* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1977 | President | Since 2014 | Managing Director (2014-present) and Assistant General Counsel (2010-present) of the Adviser; Director of the Adviser (2010-2014); Secretary of Brookfield Investment Funds (2011-2014); Associate at Paul, Hastings, Janofsky & Walker LLP (2002-2010). |
Angela W. Ghantous* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1975 | Treasurer | Since 2013 | Treasurer of several investment companies advised by the Adviser (2012-Present); Director of the Adviser (2012-Present); Vice President of the Adviser (2009-2012); Controller of Brookfield Redding LLC (2006-2009). |
Alexis I. Rieger* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1980 | Secretary | Since 2014 | Vice President and Associate General Counsel of the Adviser (2011-present); Associate at Kleinberg, Kaplan, Wolff & Cohen P.C. (2009-2011); Associate at Alston & Bird LLP (2007-2009). |
Seth Gelman* c/o Brookfield Place, 250 Vesey Street, New York, New York 10281-1023 Born: 1975 | Chief Compliance Officer (“CCO”) | Since 2013 | CCO of several investment companies advised by the Adviser (2009-Present); Director and CCO of the Adviser (2009- Present); Vice President of Oppenheimer Funds, Inc. (2004- 2009). |
Board Considerations Relating to the Investment Advisory Agreement (Unaudited)
Board Considerations Relating to the Investment Advisory Agreement (Unaudited) (continued)
Dividend Reinvestment Plan (Unaudited)
Joint Notice of Privacy Policy (Unaudited)
• | Information we receive from you in applications or other forms, correspondence or conversations, including but not limited to name, address, phone number, social security number, assets, income and date of birth. |
• | Information about transactions with us, our affiliates, or others, including but not limited to account number, balance and payment history, parties to transactions, cost basis information, and other financial information. |
• | Information we may receive from our due diligence, such as your creditworthiness and your credit history. |
• | Unaffiliated service providers (e.g. transfer agents, securities broker-dealers, administrators, investment advisors or other firms that assist us in maintaining and supporting financial products and services provided to you); |
• | Government agencies, other regulatory bodies and law enforcement officials (e.g. for reporting suspicious transactions); |
• | Other organizations, with your consent or as directed by you; and |
• | Other organizations, as permitted or required by law (e.g. for fraud protection) |
Item 2. Code of Ethics.
As of the end of the period covered by this report, the Registrant had adopted a Code of Ethics for Principal Executive and Principal Financial Officers (the “Code”). There were no amendments to or waivers from the Code during the period covered by this report. A copy of the Registrant’s Code will be provided upon request to any person without charge by contacting Investor Relations at (855) 777-8001 or by writing to Secretary, Brookfield Mortgage Opportunity Income Fund Inc., Brookfield Place, 250 Vesey Street, 15th Floor, New York, NY 10281-1023.
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Directors has determined that four members serving on the Registrant’s audit committee are audit committee financial experts. Their names are Stuart A. McFarland, Edward A. Kuczmarski and Louis P. Salvatore. Messrs. McFarland, Kuczmarski and Salvatore are each independent.
Item 4. Principal Accountant Fees and Services.
Audit Fees
For the fiscal years ended June 30, 2014 and June 30, 2013, Deloitte & Touche LLP billed the Registrant aggregate fees of $62,000 and $62,000, respectively for professional services rendered for the audit of the Registrant’s annual financial statements and review of financial statements included in the Registrant’s annual report to stockholders.
Tax Fees
For the fiscal years ended June 30, 2014 and June 30, 2013, Deloitte & Touche LLP billed the Registrant aggregate fees of $8,000 and $8,000, respectively for professional services rendered for tax compliance, tax advice and tax planning. The nature of the services comprising the Tax Fees was the review of the Registrant’s income tax returns and tax distributions requirements.
Audit-Related Fees
For the fiscal years ended June 30, 2014 and June 30, 2013, there were no Audit-related fees.
All Other Fees
For the fiscal years ended June 30, 2014 and June 30, 2013 there were no Other Fees.
2
Item 5. | Audit Committee of Listed Registrants. |
The Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Registrant’s Audit Committee members include Stuart A. McFarland, Edward A. Kuczmarski and Louis P. Salvatore.
Item 6. | Schedule of Investments. |
Please see Item 1.
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
BROOKFIELD INVESTMENT MANAGEMENT INC.
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES
May 2012
The Portfolio Proxy Voting Policies and Procedures (the “Policies and Procedures”) set forth the proxy voting policies, procedures and guidelines to be followed by Brookfield Investment Management Inc. and its subsidiaries and affiliates (collectively, “BIM”) in voting portfolio proxies relating to securities that are held in the portfolios of the investment companies or other clients (“Clients”) for which BIM has been delegated such proxy voting authority.
A. Proxy Voting Committee
BIM’s internal proxy voting committee (the “Committee”) is responsible for overseeing the proxy voting process and ensuring that BIM meets its regulatory and corporate governance obligations in voting of portfolio proxies.
The Committee shall oversee the proxy voting agent’s compliance with these Policies and Procedures, including any deviations by the proxy voting agent from the proxy voting guidelines (“Guidelines”).
B. Administration and Voting of Portfolio Proxies
1. Fiduciary Duty and Objective
As an investment adviser that has been granted the authority to vote on portfolio proxies, BIM owes a fiduciary duty to its Clients to monitor corporate events and to vote portfolio proxies consistent with the best interests of its Clients. In this regard, BIM seeks to ensure that all votes are free from unwarranted and inappropriate influences. Accordingly, BIM generally votes portfolio proxies in a uniform manner for its Clients and in accordance with these Policies and Procedures and the Guidelines.
3
In meeting its fiduciary duty, BIM generally view proxy voting as a way to enhance the value of the company’s stock held by the Clients. Similarly, when voting on matters for which the Guidelines dictate a vote be decided on a case-by-case basis, BIM’s primary consideration is the economic interests its Clients.
2. | Proxy Voting Agent |
BIM may retain an independent third party proxy voting agent to assist BIM in its proxy voting responsibilities in accordance with these Policies and Procedures and in particular, with the Guidelines. As discussed above, the Committee is responsible for monitoring the proxy voting agent.
In general, BIM may consider the proxy voting agent’s research and analysis as part of BIM’s own review of a proxy proposal in which the Guidelines recommend that the vote be considered on a case-by-case basis. BIM bears ultimate responsibility for how portfolio proxies are voted. Unless instructed otherwise by BIM, the proxy voting agent, when retained, will vote each portfolio proxy in accordance with the Guidelines. The proxy voting agent also will assist BIM in maintaining records of BIM’s portfolio proxy votes, including the appropriate records necessary for registered investment companies to meet their regulatory obligations regarding the annual filing of proxy voting records on Form N-PX with the Securities and Exchange Commission (“SEC”).
3. | Material Conflicts of Interest |
BIM votes portfolio proxies without regard to any other business relationship between BIM and the company to which the portfolio proxy relates. To this end, BIM must identify material conflicts of interest that may arise between a Client and BIM, such as the following relationships:
— | BIM provides significant investment advisory or other services to a portfolio company or its affiliates (the “Company”) whose management is soliciting proxies or BIM is seeking to provide such services; |
— | BIM serves as an investment adviser to the pension or other investment account of the Company or BIM is seeking to serve in that capacity; or |
— | BIM and the Company have a lending or other financial-related relationship. |
In each of these situations, voting against the Company management’s recommendation may cause BIM a loss of revenue or other benefit.
BIM generally seeks to avoid such material conflicts of interest by maintaining separate investment decision-making and proxy voting decision-making processes. To further minimize possible conflicts of interest, BIM and the Committee employ the following procedures, as long as BIM determines that the course of action is consistent with the best interests of the Clients:
— | If the proposal that gives rise to a material conflict is specifically addressed in the Guidelines, BIM will vote the portfolio proxy in accordance with the Guidelines, provided that the Guidelines do not provide discretion to BIM on how to vote on the matter (i.e., case-by-case); or |
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— | If the previous procedure does not provide an appropriate voting recommendation, BIM may retain an independent fiduciary for advice on how to vote the proposal or the Committee may direct BIM to abstain from voting because voting on the particular proposal is impracticable and/or is outweighed by the cost of voting. |
4. | Certain Foreign Securities |
Portfolio proxies relating to foreign securities held by Clients are subject to these Policies and Procedures. In certain foreign jurisdictions, however, the voting of portfolio proxies can result in additional restrictions that have an economic impact to the security, such as “share-blocking.” If BIM votes on the portfolio proxy, share-blocking may prevent BIM from selling the shares of the foreign security for a period of time. In determining whether to vote portfolio proxies subject to such restrictions, BIM, in consultation with the Committee, considers whether the vote, either in itself or together with the votes of other shareholders, is expected to affect the value of the security that outweighs the cost of voting. If BIM votes on a portfolio proxy and during the “share-blocking period,” BIM would like to sell the affected foreign security, BIM, in consultation with the Committee, will attempt to recall the shares (as allowable within the market time-frame and practices).
C. | Fund Board Reporting and Recordkeeping |
BIM will prepare periodic reports for submission to the Boards of Directors of its affiliated funds (the “Funds”) describing:
— | any issues arising under these Policies and Procedures since the last report to the Funds’ Boards of Directors/Trustees and the resolution of such issues, including but not limited to, information about conflicts of interest not addressed in the Policies and Procedures; and |
— | any proxy votes taken by BIM on behalf of the Funds since the last report to such Funds’ Boards of Directors/Trustees that deviated from these Policies and Procedures, with reasons for any such deviations. |
In addition, no less frequently than annually, BIM will provide the Boards of Directors/Trustees of the Funds with a written report of any recommended changes based upon BIM’s experience under these Policies and Procedures, evolving industry practices and developments in the applicable laws or regulations.
BIM will maintain all records that are required under, and in accordance with, all applicable regulations, including the Investment Company Act of 1940, as amended, and the Investment Advisers Act of 1940, which include, but not limited to:
— | these Policies and Procedures, as amended from time to time; |
— | records of votes cast with respect to portfolio proxies, reflecting the information required to be included in Form N-PX, as applicable; |
— | records of written client requests for proxy voting information and any written responses of BIM to such requests; and |
— | any written materials prepared by BIM that were material to making a decision in how to vote, or that memorialized the basis for the decision. |
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D. | Amendments to these Procedures |
The Committee shall periodically review and update these Policies and Procedures as necessary. Any amendments to these Procedures and Policies (including the Guidelines) shall be provided to the Board of Directors of BIM and to the Boards of Directors of the Funds for review and approval.
E. | Proxy Voting Guidelines |
Guidelines are available upon request.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Ms. Michelle L. Russell-Dowe – Managing Director
Ms. Russell-Dowe is a Portfolio Manager and Head of the Securitized Products Investment Team. In her role, Ms. Russell-Dowe is responsible for the firm’s Securitized Products Strategies and exposures. Ms. Russell-Dowe leads the securities analysis committee and also oversees research for structured products. Ms. Russell-Dowe has 20 years of investment experience in securitized products, including 15 years with the firm. She earned a Bachelor of Arts degree in Economics from Princeton University and holds an MBA from the Graduate School of Business at Columbia University, where she graduated as valedictorian.
Jeffrey Williams, CFA – Managing Director
Mr. Williams is a Portfolio Manager for Brookfield’s securitized products investment team. Mr. Williams maintains responsibility for portfolio management and business development related to the firm’s securitized product strategies, with a particular focus on CMBS and related assets. Mr. Williams has 27 years of experience as a commercial real estate portfolio manager, specializing in subordinate CMBS, investment grade CMBS, CDOs, derivatives and REITs. Mr. Williams holds the Chartered Financial Analyst designation and has an MBA from Georgia State University and a BA in Finance from the University of South Florida.
Anthony A. Breaks, CFA – Senior Director
Mr. Breaks is a Portfolio Manager on the Securitized Products Investments team. Mr. Breaks is a team leader in MBS/ABS and is a member of the team’s securities analysis committee. Mr. Breaks also has managed securitized product vehicles, such as SIV, ABCP and CDOs, for Brookfield and has experience in insurance company asset management. Mr. Breaks earned a Bachelor of Science degree in Electrical Engineering from the Massachusetts Institute of Technology. He holds the Chartered Financial Analyst designation.
Ms. Russell-Dowe leads the management of the Fund and Messrs. Breaks and Williams share equally the day-to-day portfolio management responsibilities.
Management of Other Accounts
Ms. Russell-Dowe manages other investment companies and/or investment vehicles and accounts in addition to the Registrant. The tables below show the number of other accounts managed by Ms. Russell-Dowe as of July 31, 2014 and the total assets in each of the following categories: (a) registered investment companies; (b) other pooled investment vehicles; and (c) other accounts. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
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Registered Investment Companies
| Other Investment Vehicles
| Other Accounts | ||||||||||
Number of Accounts Managed | 4 | 8 | 10 | |||||||||
Number of Accounts Managed with Performance-Based Advisory Fees | 0 | 1 | 1 | |||||||||
Assets Managed | $1,168 million |
| $896 million |
| $2,309 million | |||||||
Assets Managed with Performance-Based Advisory Fees | $0 | $35 million | $739 million | |||||||||
The following table provides information about the accounts managed by Jeffrey Williams, Co-Portfolio Manager for the Registrant, as of July 31, 2014:
Registered Investment Companies
| Other Investment Vehicles
| Other Accounts | ||||||||||
Number of Accounts Managed | 4 | 8 | 10 | |||||||||
Number of Accounts Managed with Performance-Based Advisory Fees | 0 | 1 | 1 | |||||||||
Assets Managed | $1,168 million | $896 million | $2,309 million | |||||||||
Assets Managed with Performance-Based Advisory Fees | $0 | $35 million | $739 million | |||||||||
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The following table provides information about the accounts managed by Anthony A. Breaks, Co-Portfolio Manager for the Registrant, as of July 31, 2014:
Registered Investment Companies
| Other Investment Vehicles
| Other Accounts | ||||||||||
Number of Accounts Managed | 4 | 8 | 10 | |||||||||
Number of Accounts Managed with Performance-Based Advisory Fees | 0 | 1 | 1 | |||||||||
Assets Managed | $1,168 million | $896 million | $2,309 million | |||||||||
Assets Managed with Performance-Based Advisory Fees | $0 | $35 million | $739 million | |||||||||
Share Ownership
The following table indicates the dollar range of securities of the Registrant owned by the Registrant’s portfolio managers as July 31, 2014.
Dollar Range of Securities Owned | ||
Michelle L. Russell-Dowe | Over $100,000 | |
Jeffrey Williams | $0 | |
Anthony A. Breaks | $0 |
Portfolio Manager Material Conflict of Interest
Potential conflicts of interest may arise when a fund’s portfolio manager has day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the portfolio managers of the Registrant.
These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as the case may be if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
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Allocation of Limited Investment Opportunities. If a portfolio manager identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s ability to take full advantage of the investment opportunity.
Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts.
Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the investment adviser’s management fee and/or the portfolio manager’s compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the investment adviser and/or its affiliates have interests. Similarly, the desire to maintain or raise assets under management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager to lend preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.
Related Business Opportunities. The investment adviser or its affiliates may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
The Adviser and the Registrants have adopted compliance policies and procedures that are designed to address the various conflicts of interest that may arise for the Adviser and the individuals that it employs. For example, the Adviser seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to manage funds and accounts that share a similar investment style. The Adviser has also adopted trade allocation procedures that are designed to facilitate the fair allocation of limited investment opportunities among multiple funds and accounts. There is, however, no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may appear.
Portfolio Manager Compensation
The Registrant’s portfolio manager is compensated by the Adviser. The compensation structure of the Adviser’s portfolio managers and other investment professionals has three primary components: (1) a base salary, (2) an annual cash bonus, and (3) if applicable, long-term stock-based compensation consisting generally of restricted stock units of the Adviser’s indirect parent company, Brookfield Asset Management, Inc. The portfolio managers also receive certain retirement, insurance and other benefits that are broadly available to all of the Adviser’s employees. Compensation of the portfolio managers is reviewed on an annual basis by senior management.
The Adviser compensates its portfolio managers based primarily on the scale and complexity of their portfolio responsibilities, the total return performance of funds and accounts managed by the portfolio manager on an
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absolute basis and versus appropriate peer groups of similar size and strategy, as well as the management skills displayed in managing their subordinates and the teamwork displayed in working with other members of the firm. Since the portfolio managers are responsible for multiple funds and accounts, investment performance is evaluated on an aggregate basis almost equally weighted among performance, management and teamwork. Base compensation for the Adviser’s portfolio managers varies in line with the portfolio manager’s seniority and position. The compensation of portfolio managers with other job responsibilities (such as acting as an executive officer of the Adviser and supervising various departments) will include consideration of the scope of such responsibilities and the portfolio manager’s performance in meeting them. The Adviser seeks to compensate portfolio managers commensurate with their responsibilities and performance, and competitive with other firms within the investment management industry. Salaries, bonuses and stock-based compensation are also influenced by the operating performance of the Adviser and its indirect parent. While the salaries of the Adviser’s portfolio managers are comparatively fixed, cash bonuses and stock-based compensation may fluctuate significantly from year to year, based on changes in the portfolio manager’s performance and other factors as described herein.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
None.
Item 10. | Submission of Matters to a Vote of Security Holders. |
None.
Item 11. | Controls and Procedures. |
(a) The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s Disclosure Controls and Procedures are effective, based on their evaluation of such Disclosure Controls and Procedures as of a date within 90 days of the filing of this report on Form N-CSR.
(b) As of the date of filing this Form N-CSR, the Registrant’s principal executive officer and principal financial officer are aware of no changes in the Registrant’s internal control over financial reporting that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected or is reasonably likely to materially affect the Registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) None.
(2) A separate certification for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940 is attached as an exhibit to this Form N-CSR.
(3) None.
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(b) A separate certification for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(b) under the Investment Company Act of 1940 is attached as an exhibit to this Form N-CSR.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BROOKFIELD MORTGAGE OPPORTUNITY INCOME FUND INC.
By: | /s/ Brian F. Hurley | |
Brian F. Hurley | ||
President and Principal Executive Officer |
Date: September 5, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Brian F. Hurley | |
Brian F. Hurley | ||
President and Principal Executive Officer |
Date: September 5, 2014
By: | /s/ Angela W. Ghantous | |
Angela W. Ghantous | ||
Treasurer and Principal Financial Officer |
Date: September 5, 2014
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