Brookfield Select Opportunities Income Fund/media/... · IN PROFILE Brookfield Select Opportunities...

2014Annual Management Report of Fund Performance

For the period from May 23, 2014 to December 31, 2014

Brookf ie ld Select Oppor tuni t ies Income FundBSO.UN

Brookfield Investment Management

Brookfield Select Opportunities Income Fund

2014 Annual Management Report of Fund Performance | 1

IN PROFILE

Brookfield Select Opportunities Income Fund (the “Fund”) is managed by BrookfieldInvestment Management (Canada) Inc. (“BIM Canada”). BIM Canada is a subsidiary ofBrookfield Asset Management Inc., a global alternative asset manager with overUS$200 billion of assets under management as at December 31, 2014 and over a 100-year history of owning and operating assets with a focus on property, renewableenergy, infrastructure and private equity.

BIM Canada is also the investment manager of the Fund.

BSO.UN (TSX LISTED) UNIT INFORMATION

Units Outstanding (December 31, 2014): 19,200,000 Units

Targeted Quarterly Distributions: The quarterly distributions are targeted to be $0.15per Unit ($0.60 per annum representing an annualcash distribution of 6.0% based on the $10.00 perUnit issue price). The Fund does not have a fixeddistribution.

Record Date: The last business day of each of March, June,September and December.

Payment Date: No later than the 15th business day of the monthfollowing the distribution Record Date.



LETTER TO UNITHOLDERS

Dear Unitholders,

We are pleased to provide this Annual Management Report of Fund Performance for Brookfield SelectOpportunities Income Fund (the “Fund”) for the period from May 23, 2014 to December 31, 2014 (the“Period”).

The Fund was created with the objectives to (i) provide holders of units (“Unitholders”) with quarterlycash distributions; (ii) maximize total return for Unitholders through distributions and capitalappreciation; and (iii) preserve capital. The quarterly distributions are currently targeted at $0.15 perUnit or $0.60 per annum. To achieve this level of income, the Fund invests primarily in fixed incomeand equity securities on a global basis (the “Portfolio”). The Fund focuses on, but is not limited to,investments in high yield corporate debt and publicly-listed equity securities of infrastructure and realestate companies.

As at December 31, 2014, the net asset value (“NAV”) per Unit was $7.64 compared to a net assetvalue per Unit of $9.43 at the Fund’s inception on May 23, 2014. For the period beginning May 23, 2014and ending December 31, 2014 (the “Period”), the Fund had a total return of -16.1% including assumedreinvestment of the Fund’s distributions to Unitholders during the Period of $0.30 per Unit. The Fund’sperformance in the Period was disappointing and was driven by three main factors as described below.

The first factor influencing the Fund’s performance was a severe drop in oil prices which negativelyimpacted the Fund’s holdings in energy and energy sensitive infrastructure securities. The price of oil,as measured by the price of West Texas Intermediate (WTI) Cushing crude oil, declined rapidly from its2014 high in June of $107.26/barrel to its year-end close of $53.27/barrel, a remarkable 50% drop.During this time, natural gas prices and prices of basic materials, including coal and copper, alsosuffered severe corrections. At July 31, 2014 (the first month-end when the Fund was fully invested)approximately 23.5% of the Fund’s NAV was invested in the energy sector and approximately 11.3% wasinvested in the basic materials sector. In addition to these investments, several of the Fund’sinvestments in infrastructure securities exhibited sensitivity to energy prices. These holdingsrepresented a further 14.4% of the Fund’s NAV as at July 31, 2014. Of the total of 49.2% of the Fund’sNAV with sensitivity to the energy and basic materials sector, 19.6% was in equities and 29.6% was infixed income securities. With the severe downturn in the price of oil, we made the decision to scaleback several equity positions as we believed the valuations of these companies and their dividendprospects would not be attractive without oil prices substantially higher than year-end levels. Wereinvested the proceeds of these equity dispositions primarily into high yielding fixed income securitiesof companies in the oil and gas sector that we believe have substantial asset coverage, even at low oilprices. We believe that the recent downward pressure on the price of oil offers particularly compellingrisk reward opportunities in energy sensitive high yield corporate bonds, especially when they aretrading at significant discounts to par and have high cash yields. As at December 31, 2014,approximately 22.7% of the Fund’s NAV was invested in the energy sector, 14.6% was invested in thebasic materials sector, and 16.7% was invested in energy-sensitive infrastructure securities for a totalof 53.9%. Of this amount, approximately 41.5% was invested in fixed income and 12.5% was invested inequities, a considerable shift from our fixed income and equity weightings in these sectors at July 31,2014.

The second factor that affected the Fund’s performance in the Period was a lack of trading liquidity inthe high yield corporate bond market which caused mark-to-market declines in a number of the Fund’sholdings. The BofA Merrill Lynch CCC & Lower High Yield Index was down approximately 4.7% in thefourth quarter of 2014. The Fund was exposed to this drop which we believe was exaggerated by poortrading liquidity in the high yield market. The decline in the price of high yield bonds led to increasedvolatility across the portion of the Portfolio that typically would be more stable during periods of largeequity market moves. The lack of trading liquidity experienced in the fourth quarter of 2014 was



partially due to the fact that dealers continued to hold low levels of inventory of fixed incomesecurities on their balance sheets compounded by a flight by investors out of the high yield market.The low level of dealer inventories was partially the result of stricter capital constraints imposed ondealers by banking regulators.

Against this backdrop of negative price performance, we believe that there is currently significantvalue in the high yield market. For this reason, as at December 31, 2014 approximately two-thirds ofthe Portfolio was invested in high yielding corporate bonds and one-third in high yielding equities, ascompared to holdings of 51% and 49% at July 31, 2014, respectively. During the month of December, weadded significantly to our holdings of fixed income energy bonds at what we believe to be veryattractive yields.

The third factor influencing the Fund’s NAV was the use of financial leverage. At December 31, theFund utilized leverage of 16.0% of net assets and this amplified the negative mark-to-market the Fundexperienced.

Partially offsetting the negative trends in the Fund’s energy sensitive investments was the performanceof fixed income holdings with minimal or no commodity exposure, including SuperMedia Inc. termloans, which rallied due to renewed strength in the company’s online advertising business and FirstData Corp. bonds, which benefitted from a large common equity injection. Similarly, the equitypositions in the Portfolio had some notable outperformers. Several investments including Man GroupPLC and China Mobile appreciated in value due in large part to renewed strength in emerging marketsfollowing a period of capital outflows that ended in March. Some profits were taken in these namesbefore global growth concerns began to take hold of the market.

Changes in foreign currency added approximately 1.0% to the Fund’s total return during the Period, netof hedges. As at December 31, 2014 approximately 16.0% of the Net Asset Value of the Fund hadexposure to the U.S. dollar, net of currency hedges.

For 2014, the MSCI World Index returned 5.5%1, although there was broad divergence in performanceacross regions and sectors. Among developed markets, the U.S. was clearly the bright spot, marked by5.0% annualized GDP growth rate in the third quarter of 2014 and a significant decrease in theunemployment rate from 6.7% at the end of 2013 to 5.6% at the end of the 2014.2 In contrast, Japanentered into a recession in April, and the Eurozone continued to struggle with both slow growth andthe risk of deflation. Acknowledging the ongoing weakness, the International Monetary Fund (IMF)lowered its global growth projections for 2014 in October to 3.4% from 3.8% earlier in the year.3

Falling crude oil prices and a broader decline of most commodity prices emerged as one of the mostsignificant macroeconomic stories of the year. Lower energy prices should benefit oil-importingcountries and hurt countries with heavy reliance on oil exports, as the IMF predicts that lower oil priceswill lead to a 0.3% to 0.7% stimulus for the global economy in 2015.4 However, during late 2014, thevolatility of oil prices led to investor caution.

Central banks continued to exert an outsized influence on global markets. The U.S. Federal Reserveended its final quantitative easing (QE) program in October. The yield on the 10-Year U.S. Treasurynote ended the year at 2.17%, after beginning the year at 3.0%5. The decline in U.S. interest ratesdefied consensus expectations, particularly as many market participants had assumed that interestrates would rise following the conclusion of QE; however, rates continued to remain low through theend of the year. In Europe, sluggish growth and a risk of deflation led European Central Bank PresidentMario Draghi to suggest that the Eurozone could embark on QE in 2015. As a result, European sharesrallied in November, but nonetheless ended the year down.

1 As measured by the MSCI World Index, a free float-adjusted market capitalization weighted index that is designed to measure the equity marketperformance of developed markets.2 Sources: U.S. Department of Commerce Bureau of Economic Analysis and U.S. Department of Labor Bureau of Labor Statistics3 http://www.imf.org/external/pubs/ft/weo/2014/02/index.htm4 http://blog-imfdirect.imf.org/2014/12/22/seven-questions-about-the-recent-oil-price-slump/5 Source: U.S. Department of Treasury.



Outlook

The following is our outlook for each of our three focus investment areas:

High yield corporate debt: The combination of lower government bond yields and the recent high yieldcorrection has pushed spreads substantially wider this year. At year-end, the high yield market spreadwas 500 basis points, a level that we believe represents substantial value given current creditconditions. While it is possible that lower energy prices could result in some credit difficulty in theenergy sector, we believe that such credit distress is likely to remain manageable in the near future.Outside of the energy sector, we continue to believe that the primary risks facing high yield investorstoday are worldwide geopolitical and macroeconomic risks rather than credit specific risks. Thesemacro risks include the potential for renewed economic turmoil in Europe, the risk of fiscal policyerror, and the unintended consequences of tapering on western world and emerging market economies.While we remain watchful of the possibility of a rise in long term interest rates, we believe theopportunity for credit tightening will help mitigate the negative impact of higher rates on the prices oflower-rated high yield bonds. We continue to invest in our highest conviction ideas in this space andare focused on lower grade credit stories with improving fundamentals, value in the energy sector andspecial situations that we believe to be undervalued by the broader market.

Publicly-listed infrastructure securities: The outlook for most infrastructure sectors is generallypositive. We believe that low oil prices will keep inflation under control, allowing central banks tokeep interest rates lower for longer. These low rates should be supportive of infrastructure valuations.From a regional perspective, lower oil prices should be positive for GDP growth for oil-importingcountries, but negative for countries that rely heavily on oil exports. From a sector perspective, wecontinue to monitor the potential impact of sustained lower oil prices on our energy infrastructureholdings. Energy infrastructure companies generally do not have significant direct commoditysensitivity, but we remain cognizant that prolonged lower oil prices will likely reduce the growthoutlooks and capital expenditures of E&P companies, which in turn will reduce the growth rate ofenergy infrastructure companies. We believe the Portfolio’s energy infrastructure holdings areattractively valued and will realize growth in an environment of lower oil prices. We continue to favorsecurities that offer a reasonable combination of yield and growth.

Publicly-listed real estate securities: Although we had no exposure to this sector at the end of thePeriod, we maintain our positive outlook for global real estate securities as we look ahead to 2015.Given an environment of improving economic growth and modestly rising interest rates, which weexpect over the medium term, we are focusing on potential investments with lower sensitivity tointerest rates and/or better prospects for growth. We are monitoring exposure to markets which couldbe affected by falling oil prices. We see potential value opportunities in certain sectors, such assecondary-quality malls, as well as opportunities that may arise from anticipated REIT conversionactivity. Additionally, we see opportunities in emerging markets, most of which are at an earlier stageof the growth cycle relative to the U.S. and offer attractive valuations.



We believe the Fund is currently well-positioned to generate its target distributions and we will seek tocontinue to take profits as appropriate and redeploy capital into other high yielding securities thathave attractive risk-reward characteristics.

We welcome your questions and comments, and encourage you to contact our Investor Relations teamat (855) 777-8001 or visit us at www.brookfieldim.com for more information. Thank you for yoursupport.

Gail Cecil, Managing DirectorOn behalf of the Manager and Investment Manager,Brookfield Investment Management (Canada) Inc.



MANAGEMENT REPORT OF FUND PERFORMANCE

This annual management report of fund performance contains financial highlights but does not containthe complete annual financial statements of Brookfield Select Opportunities Income Fund (the “Fund”).The annual financial statements may contain information not included in the management report offund performance. You can get a copy of the annual financial statements at your request, and at nocost, by contacting us (see contact information at end of this report) or by visiting our website atwww.brookfieldim.com or by viewing our filings on SEDAR at www.sedar.com. Unitholders may alsocontact us to request a free copy of the Fund’s proxy voting policies and procedures, proxy votingdisclosure record, or quarterly portfolio disclosure.

This report may contain forward-looking statements. The use of any of the words anticipate, may, will,expect, estimate, should, believe and similar expressions are intended to identify forward-lookingstatements. Such statements reflect the opinion of Brookfield Investment Management (Canada) Inc.(“Investment Manager” or “BIM Canada”) regarding factors that might be reasonably expected to affectthe performance and the distribution on units of the Fund and are based on information available atthe time of writing. The Investment Manager believes that the expectations reflected in these forward-looking statements and in the report are reasonable but no assurance can be given that theseexpectations or the report will prove to be correct and accordingly, they should not be unduly reliedupon. These statements speak only as at the date of the report. Actual events and outcomes may differmaterially from those described in these forward-looking statements or report.

Unless otherwise indicated, all information is presented as at December 31, 2014 and expressed inCanadian dollars.

None of the websites referred to in this annual management report of fund performance, or any of theinformation on such websites, are incorporated by reference in this annual management report of fundperformance.

INVESTMENT OBJECTIVES AND STRATEGIES

The Fund endeavours to (i) provide holders of units (“Unitholders”) with quarterly cash distributionscurrently targeted at $0.15 per unit ($0.60 per annum representing an annual cash distribution of 6.0%based on the $10.00 per unit issue price); (ii) maximize total return for Unitholders throughdistributions and capital appreciation; and (iii) preserve capital.

The Fund invests in a portfolio (the “Portfolio”) comprised primarily of fixed income and equitysecurities on a global basis. The Fund focuses on, but is not limited to, investments in high yieldcorporate debt and publicly-listed equity securities of infrastructure and real estate companies. BIMCanada is the manager (the “Manager”) and the investment manager of the Fund.

RISK

At December 31, 2014, approximately two-thirds of the Portfolio was invested in high yield fixedincome securities of companies domiciled in the United States and to a lesser extent, Canada, Mexicoand Brazil. The remainder of the Portfolio was invested in high yielding equities which representedapproximately one-third of the Portfolio holdings as at December 31, 2014, a decrease fromapproximately half of the Portfolio when the Fund became fully invested. The Portfolio holdings areexposed to various risks including risks related to the credit quality of the issuer of the securities, thetrading liquidity of the securities and the currency in which the securities are denominated. The Fundseeks to minimize potentially adverse effects of these risks on the Portfolio’s performance byemploying experienced portfolio managers and by continuously monitoring the Portfolio’s securitiespositions and markets. Over the period from the commencement of the Fund’s operations on May 23,2014 to December 31, 2014 (the “Period”) there was no material change in the overall level of risk



created by the credit quality, trading liquidity or currency denomination of the investments employedby the Fund.

As at December 31, 2014, the Fund had exposure to forward currency contracts and equity total returnswaps. The Investment Manager seeks to mitigate the counterparty risk arising from sucharrangements through the careful selection of its derivative contract counterparties. As at December31, 2014 the Fund held four positions through equity total return swaps representing $17.8 million ofgross exposure. The Fund also had US$70 million and £5.9 million of net forward currency contracts inplace to protect against a strengthening in the Canadian dollar against the U.S. dollar and the BritishPound, respectively.

For discussion of the Fund’s use of leverage, please see “Results of Operations”.

RESULTS OF OPERATIONS

The Fund began operations on May 23, 2014 when it completed an initial public offering of 19,200,000units (the “Units”) at $10.00 per Unit, for gross proceeds of $192.0 million and net proceeds of $181.1million after deducting issuance costs of approximately $10.9 million.

The Fund’s net asset value was $146.6 million as at December 31, 2014, a decrease of $34.5 millionfrom $181.1 million as at May 23, 2014. The decrease in net asset value was largely comprised of anoperating loss of $28.6 million less withholding taxes of $0.1 million. The Fund’s net asset value wasreduced by $5.8 million during 2014 through distributions to Unitholders.

As at December 31, 2014, the net asset value (“NAV”) per Unit was $7.64 compared to $9.43 at May 23,2014, the commencement of operations. The Fund’s total return was (16.08)% for the Period and wasinfluenced by three main factors discussed below.

The first factor influencing the Fund’s performance was a severe drop in oil prices which negativelyimpacted the Fund’s holdings in energy and energy sensitive infrastructure securities. The price of oil,as measured by the price of West Texas Intermediate (WTI) Cushing crude oil, declined rapidly from itsJune 20, 2014 high of $107.26 to its year-end close of $53.27/barrel, a remarkable 50% drop. Duringthis time, natural gas prices and prices of basic materials, including coal and copper, also sufferedmajor corrections. At July 31, 2014 (the first month-end when the Fund was fully invested)approximately 23.5% of the Fund’s NAV was invested in the energy sector and approximately 11.3% wasinvested in the basic materials sector. In addition to these investments, several investments ininfrastructure securities exhibited sensitivity to energy prices. These holdings represented a further14.4% of the Fund’s NAV as at July 31, 2014. Of the total of 49.2% of the Fund’s NAV with sensitivity tothe energy and basic materials sectors, 19.6% was in equities and 29.6% was in fixed income securities.During the Period, the Fund’s holdings in four energy-related equities (Lightstream Resources Ltd., EVEnergy Partners LP, Niska Gas Storage and Canadian Oil Sands Ltd.) together contributed a loss ofapproximately $0.77/unit. With the severe downturn in the price of oil, we made the decision to scaleback some of these equity positions considerably, where we believed the valuations of these companiesand their dividend prospects would not be attractive without oil prices substantially higher than year-end levels. We reinvested the proceeds of these equity dispositions primarily into high yielding fixedincome securities of companies in the oil and gas sector that we believe have solid asset coverage,even at low oil prices. In times of considerable pricing pressure, such as what we are currently seeingin the price of oil, we believe that fixed income securities can offer particularly compelling risk rewardopportunities. As at December 31, 2014 approximately 22.7% of the Fund’s NAV was invested in theenergy sector, 14.6% was invested in the basic materials sector, and 16.7% was invested in energysensitive infrastructure securities for a total of 53.9%. Of this amount, approximately 41.5% wasinvested in fixed income and 12.5% was invested in equities, a considerable shift from our weightings inthese sectors at July 31, 2014.



The second factor that affected the Fund’s performance in the Period was a lack of trading liquidity inthe high yield corporate bond market which caused mark-to-market declines in a number of holdings.CCC-rated bonds have recently underperformed and on average lost approximately 4.7% in the fourthquarter of 2014 as measured by the BofA Merrill Lynch CCC & Lower High Yield Index. The Fund wasexposed to this drop in prices which we believe was exaggerated by poor trading liquidity in the highyield market. This led to increased volatility across the portion of the Portfolio that typically would bemore stable during periods of large equity market moves. The lack of trading liquidity experienced inthe fourth quarter of 2014 was partially due to the fact that dealers continue to hold low levels offixed income securities on their balance sheets compounded by a flight by investors out of the highyield market. The low level of dealer inventories were partially the result of stricter capital constraintsimposed on them by banking regulators.

High yield issuers that were in the energy or related sectors, were particularly hard hit in the fourthquarter of 2014. A number of the Fund’s investments in high yield bonds had significant pricecorrections in the second half of 2014. In particular, the Fund’s performance was affected by pricedeclines in Lightstream Resources Ltd., Niska Gas Storage ULC, and Forbes Energy Services Ltd. We alsosaw pressure on the price of our high yield holdings in ICA SA, Mexico’s preeminent constructioncompany and concessions operator and Hexion US Finance Corp., a specialty chemicals company thathad been benefitting recently from sales to North American energy producers. During the second halfof the year, the fundamentals in the coal space continued to deteriorate and this was reflected insignificant drops in the prices of fixed income Portfolio holdings including Arch Coal, Inc. and WalterEnergy, Inc. For the year-ended December 31, 2014, the Fund’s holdings in fixed income securities withenergy or basic materials sector exposure generated a loss of approximately $0.53/unit partially offsetby approximately $0.05/unit in income generated by these holdings.

Against this backdrop of negative price performance, we believe that there is currently significantvalue in the high yield space and in particular, within the energy sector. For this reason, as atDecember 31, 2014 approximately two-thirds of the Portfolio was invested in high yielding corporatebonds and one-third in high yielding equities, as compared to 51% and 49% at July 31, 2014,respectively. During the month of December, we added significantly to our holdings of fixed incomeenergy bonds at what we believe to be very attractive yields.

The third factor influencing the NAV was the use of financial leverage. At December 31, the Fundutilized leverage of 16.0% of net assets and this amplified the negative mark-to-market the Fundexperienced.

Partially offsetting the negative trends in the Fund’s energy sensitive investments was the performanceof fixed income holdings with minimal or no commodity exposure, including SuperMedia Inc. termloans, which rallied due to renewed strength in the company’s online advertising business and FirstData Corp. bonds, which benefitted from a large common equity injection. These securities and othernon-energy related fixed income investments contributed approximately $0.10/Unit in total returnduring the Period.

Similarly, the equity positions in the Portfolio had some notable outperformers. Several investmentsincluding Man Group PLC and China Mobile appreciated in value due in a large part to renewed strengthin emerging markets following a period of capital outflows that ended in March. Some profits weretaken in these names before global growth concerns began to take hold of the market. Vector Groupbenefitted from strong operating performance in its cigarette business and favorable real estate pricesin its property development arm. Financial equities including JP Morgan Chase & Co. and Sun LifeFinancial Inc. also provided positive performance.

Changes in foreign currency added approximately 1.0% to the Fund’s total return during the Period, netof hedges. As at December 31, 2014 approximately 16.0% of the Net Asset Value of the Fund hadexposure to the U.S. dollar, net of currency hedges.



Leverage is restricted to 25% of the total assets of the Fund. Accordingly, at the time of borrowing, themaximum amount of leverage that the Fund could employ is 1.33:1 (total long positions, includingleveraged positions, divided by net assets of the Fund). As at December 31, 2014, the Fund hademployed leverage equal to 16.0% of the total net assets of the Fund, which equates to $23.4 million.The minimum and maximum amount of borrowings outstanding during the period May 23, 2014 toDecember 31, 2014 was $0 and $41.3 million, respectively. The borrowings were used to grow theFund’s investments and for working capital needs. Adding a controlled amount of leverage to the Fundis consistent with the Fund’s objectives.

RECENT DEVELOPMENTS

Consistent with the Investment Manager’s strategy, the Portfolio is focused on, but not limited to,investments in high yield corporate debt and publicly-listed securities in infrastructure and real estatecompanies across a global universe. Allocations across these asset classes are based on trends and riskand return expectations, and the Investment Manager’s assessment of the macro-economicenvironment and investment landscape. At the current time, of the three focus asset classes, theInvestment Manager believes that high yield corporate debt is exhibiting value and we will focus onhigh conviction ideas in lower grade credit stories with improving fundamentals, value in high yieldenergy sector, as well as special situations in debt and equities that we believe to be undervalued bythe broader market.

RELATED PARTY TRANSACTIONS

The Manager and the Investment Manager is a wholly owned subsidiary of Brookfield Asset ManagementInc. (“Brookfield”) and manages the investment and trading activities of the Fund pursuant to aportfolio management agreement. Due to Brookfield’s ability to control the Fund, Brookfield, and itsaffiliates over which it has the ability to exercise control or significant influence, are related parties ofthe Fund by virtue of common control or common significant influence.

Transactions with related parties, including investment transactions, are conducted in the normalcourse of operations and are recorded at exchange amounts, which are equivalent to normal marketterms. Please refer to the section titled “Management Fees”, which outlines the fees paid to theManager by the Fund.

During the Period, the Fund entered into inter-fund trades with New Horizons Master Fund (“NHMF”)which is a related party of the Fund due to common control. The Investment Manager determined thatthese inter-fund trades complied with the Fund’s and NHMF’s investment restrictions and that owningthe securities was consistent with the Fund’s and NHMF’s investment objectives. The Manager soughtthe approval of the Fund’s and NHMF’s Independent Review Committee (the “IRC”) of the proposedinter-fund trades. The IRC provided its approval on the proposed inter fund trades on the Manager’srecommendation.

As at December 31, 2014, Brookfield and its affiliates owned a 4.0% interest in the Fund.

FINANCIAL HIGHLIGHTS

The following tables provide selected key financial information about the Fund and are intended tohelp you understand the Fund’s financial performance since inception:



Notes:(1) This information is derived from the Fund’s annual financial statements.(2) Results are for the period from May 23, 2014 (the inception date of the Fund) to December 31, 2014.(3) Reflects the issue price of $10.00 less share issue expenses of $0.57 per Unit.(4) Net assets and distributions are based on the actual number of Units outstanding at the relevant time. The

increase/decrease from operations is based on the weighted average number of Units outstanding over the financialperiod. Accordingly, totals may not sum in the above table due to the different basis for computing the per unitamounts.

(5) Quarterly distributions were recorded as equal payments of $0.15/Unit. Cash payment of distributions occurs within 15business days of the record date.

(6) This is not a reconciliation of the beginning and ending net assets per Unit.

Notes:(1) The Fund commenced operations on May 23, 2014.(2) Management expense ratio (“MER”) is based on total expenses of the Fund (excluding distributions, commissions and

other portfolio transaction costs but including interest expense) for the stated period, and is expressed as anannualized percentage of daily average net asset value during the Period.

(3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as anannualized percentage of daily average net asset value during the period.

(4) The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio adviser manages its portfolioinvestments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all securities once in thecourse of the year. The higher a fund’s portfolio turn-over rate in a year, the greater the trading cost payable in theyear, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily arelationship between a high turnover rate and the performance of a fund.

For the period from

May 23, 2014 to

The Fund’s Net Assets per Unit(1) December 31, 2014 (2)

Net assets, beginning of period $9.43(3)

Increase (decrease) from operations

Total revenue 0.44

Total expenses (0.11)

Realized gains (losses) for the period (0.33)

Unrealized gains (losses) for the period (1.49)

Total decrease from operations (4) (1.49)

Distributions

Due to return of capital gains (0.24)

Due to return of capital (0.06)

Total distributions(5) (0.30)

Net assets, end of period(6) $7.64

For the period from

May 23, 2014 to

Ratios and Supplemental Data December 31, 2014 (1)

Total net asset value $146,619,401

Number of Units outstanding 19,200,000

Management expense ratio(2) 1.66%

Management expense ratio before waivers and absorptions 1.66%

Trading expense ratio(3) 0.26%

Portfolio turnover rate(4) 22.32%

Net asset value per Unit $7.64

Closing market price $7.04



MANAGEMENT FEES

The Manager and Investment Manager are responsible for providing or arranging for all investmentadvisory and management services required by the Fund including, without limitation, managing in amanner consistent with the investment objectives, guidelines and restrictions of the Fund and forarranging for the execution of all transactions. The Manager is also responsible for the operational andadministrative functions of the Fund.

An annual management fee equal to 1.25% per annum of the net asset value of the Fund, calculateddaily and payable monthly in arrears plus applicable taxes, is paid to the Manager. The annualmanagement fee totaled $1,318,385 for the Fund for the Period.

The Manager is also eligible in each fiscal year to receive from the Fund a performance fee (the"Performance Fee") that shall be calculated and accrued monthly and be paid annually, if applicable.The Performance Fee for a given year will, subject to some exceptions regarding redemptions andissuances of Units, be equal to 20% of the amount by which the net asset value per Unit (calculatedwithout taking into account any Performance Fee) exceeds 106.0% of the Threshold Amount. TheThreshold Amount is the greater of: (i) $10.00; and (ii) the net asset value per Unit at the end of thelast fiscal year in which a Performance Fee was paid (after payment of such Performance Fee). Pleaserefer to the Fund’s declaration of trust for additional information on the Performance Fee. ThePerformance Fee accrual totaled $0 at December 31, 2014.

PAST PERFORMANCE

Note that the performance information shown in this section assumes that all distributions made by theFund in the period shown were reinvested in additional Units. Also note that the performanceinformation does not take into account sales, redemption, distribution or other optional charges thatwould have reduced returns on performance. The performance of the Fund in the past does notnecessarily indicate how it will perform in the future.

Year-to-Date Returns

The following bar chart shows the Fund’s performance for the period from May 23, 2014 to December31, 2014. The bar chart shows, in percentage terms, how much an investment made on the first day ofthe Period would have increased or decreased by the last day of the Period.

(1) Represents the period from May 23, 2014 (the inception date) to December 31, 2014.

-16.08%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

12/31/2014 (1)



SUMMARY OF INVESTMENT PORTFOLIO

The following is a summary of the Fund as at December 31, 2014. This is a summary only and willchange due to ongoing portfolio transactions of the Fund. Quarterly updates will be posted towww.brookfieldim.com

As at December 31, 2014Top 25 Positions

Hexion US Finance Corp. Bonds 7.65

Lightstream Resources Ltd. Bonds 7.03

SuperMedia Inc. Term Loan 6.91

Niska Gas Storage Canada ULC Bonds 5.98

Just Energy Group Inc. Bonds 5.93

Banco do Brasil S.A. Bonds 5.67

New Albertson's Inc. Bonds 5.58

Imperial Metals Corp. Bonds 5.25

First Data Corp. Bonds 4.84

AGF Management Ltd. Equity 4.64

MBIA Inc. Bonds 4.54

Empresas ICA SAB de CV Bonds 4.42

Markwest Energy Partners LP Equity Total Return Swap 4.37

British American Tobacco PLC Equity 4.35

Unilever PLC Equity 4.01

Perpetual Energy Inc. Bonds 3.68

Forbes Energy Services Ltd. Bonds 3.61

Royal Dutch Shell PLC Equity 3.57

HSBC Holdings PLC Equity 3.28

Cash and Cash Equivalents 3.11

Aberdeen Asset Management PLC Equity 3.08

EV Energy Partners L.P. Bonds 3.07

EV Energy Partners LP Equity Total Return Swap 2.83

General Motors Co. Equity 2.59

JPMorgan Chase & Co. Equity 2.54

Total 112.53

% of Net Asset Value of the Fund



1 The Fund has notional exposure resulting from derivatives (excluding derivatives used for purposes of hedging) representing12.13% of Net Asset Value. Table includes this notional value of derivatives and therefore do not sum to 100% of the NetAsset Value.

As at December 31, 2014Sector AllocationBasic Materials 14.57

Cash and Cash Equivalents 3.11

Consumer Cyclical 2.59

Consumer Non-Cyclical 14.35

Energy 22.67

Financials 25.05

Infrastructure 29.94

Media 6.91

Technology 4.84

Other Liabilities and Accrued Investment Income (11.90)

Total (1) 112.13

% of Net Asset Value of the Fund



FUND INFORMATION

MANAGER AND TRUSTEE

Brookfield Investment Management (Canada) Inc.Gail CecilDirector, President & Chief Executive Officer

Jonathan TyrasDirector, Chief Financial Officer, Treasurer,and Secretary

Craig NobleDirector

INDEPENDENT REVIEW COMMITTEE

John P. Barratt (Chair)Corporate Director

James L. R. KellyPresidentEarth Power Inc.

Frank LochanCorporate Director

CONTACT INFORMATION

Brookfield Select Opportunities Income Fund welcomes inquiries from Unitholders, analysts, mediarepresentatives or other interested parties.

Manager, Investment Manager, and TrusteeBrookfield Investment Management (Canada) Inc.Brookfield Place

181 Bay Street, Suite 300Toronto, OntarioM5J 2T3t. 855.777.8001w. www.brookfieldim.com

Transfer Agent and RegistrarUnitholder inquiries relating to distributions,address changes and Unitholder accountinformation should be directed to the Fund’sTransfer Agent:

Valiant Trust Company710, 130 King Street WestToronto, Ontario M5X 1A9t. 866.313.1872 (toll-free North America)f. 855.375.6916 (toll-free North America)

International 416.360.1646e. [email protected]. www.valianttrust.com

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