Horizons Active Preferred Share ETF (HPR:TSX)

Transcription

1 Interim Report June 30, 2018 Horizons Active Preferred Share ETF (HPR:TSX) Innovation is our capital. Make it yours. ACTIVE BENCHMARK BETAPRO

2 Contents MANAGEMENT REPORT OF FUND PERFORMANCE Management Discussion of Fund Performance...1 Financial Highlights...6 Past Performance...11 Summary of Investment Portfolio...12 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING...14 FINANCIAL STATEMENTS Statements of Financial Position...15 Statements of Comprehensive Income...16 Statements of Changes in Financial Position...17 Statements of Cash Flows...18 Schedule of Investments...19 Notes to Financial Statements...31

3 Letter from the President and Co-CEO The first half of 2018 has been remarkable for both the Canadian ETF industry and Horizons ETFs Management (Canada) Inc. ( Horizons ETFs ). The industry reached new heights, surpassing $156 billion in assets under management ( AUM ), as at June 30, Horizons ETFs reached a new pinnacle as well, surpassing more than $10 billion in AUM as at the same date. In addition, we have added two new, innovative ETFs so far this year, giving us a total of 80 different investment tools available for our clients. In February, we brought to market our second marijuana-focused ETF the Horizons Emerging Marijuana Growers Index ETF ( HMJR ). HMJR is the first ETF in Canada to give investors direct exposure to blossoming small-cap marijuana cultivation and distribution companies. HMJR provides direct, often referred to as pure-play, global exposure to the sector, by focusing on the smaller, emerging producers. Our first marijuana ETF the Horizons Marijuana Life Sciences Index ETF ( HMMJ ) gives investors broad diversified exposure to the North American marijuana sector. Speaking of HMMJ, futures on units of this ETF began trading on the Montreal Exchange in June. We view this listing as recognition by the Canadian investor marketplace that HMMJ is a key benchmark for marijuana investing in Canada. In June, we launched yet another highly innovative ETF the Horizons Blockchain Technology & Hardware Index ETF ( BKCH ). BKCH provides investors with diversified exposure to companies involved in the new, disruptive technology frontier: blockchain a shareable digital ledger that logs and tracks valuable information such as transactions or assets, offering virtually endless applications. BKCH provides a diversified way to invest in the blockchain ecosystem and infrastructure without taking on a lot of the risks of buying unknown, early stage technology companies. Regardless of market conditions, our extensive suite of ETFs gives investors the tools they need to help meet their financial objectives. For more information on all our strategies, please visit where we offer a range of resources designed to inform and educate ETF investors. Thank you for your continued support. Sincerely, Steven J. Hawkins, President & Co-CEO Horizons ETFs Management (Canada) Inc. P.S. On a personal note, I would like to extend my sincere appreciation to the fantastic team of professionals I work with at Horizons ETFs. They played a vital role in helping me win CEO of the Year at the 2018 Wealth Professional Awards.

4 MANAGEMENT REPORT OF FUND PERFORMANCE This interim management report of fund performance for Horizons Active Preferred Share ETF ( HPR or the ETF ) contains financial highlights and is included with the unaudited interim financial statements for the investment fund. You may request a copy of the ETF s unaudited interim or audited annual financial statements, interim or annual management report of fund performance, current proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosures, at no cost, from the ETF s manager, Horizons ETFs Management (Canada) Inc. ( Horizons Management or the Manager ), by calling toll free , or locally (416) , by writing to us at: 55 University Avenue, Suite 800, Toronto ON, M5J 2H7, or by visiting our website at or SEDAR at This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance, or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions, interest rates, regulatory and statutory developments, and the effects of competition in the geographic and business areas in which the ETF may invest and the risks detailed from time to time in the ETF s prospectus. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. We caution that the foregoing list of factors is not exhaustive, and that when relying on forward-looking statements to make decisions with respect to investing in the ETF, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, the Manager does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Management Discussion of Fund Performance Investment Objective and Strategies The investment objective of HPR is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. HPR may also invest in preferred shares of companies located in the United States, fixed-income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units ( Listed Funds ). HPR, to the best of its ability, seeks to hedge its non-canadian dollar currency exposure to the Canadian dollar at all times. To achieve HPR s investment objectives, the ETF s sub-advisor, Fiera Capital Corporation ( Fiera or the Sub-Advisor ), uses fundamental research to select companies that, based on the Sub-Advisor s view on the company s industry and growth prospects, should be included in the ETF s investment portfolio. An extensive credit analysis for each security as well as an assessment of each company s risk profile is completed in order to confirm the selection and relative weight of each security held by the ETF. HPR invests primarily in the preferred securities of Canadian issuers whose debt, generally, at a minimum, have an investment grade rating at the time of purchase. HPR may also invest in preferred shares of companies located in the United States, fixed-income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and Listed Funds. HPR may also invest in Canadian equity securities that have attractive dividend yields and Listed Funds that pay dividend income. 1

5 Management Discussion of Fund Performance (continued) Risk In anticipation of, or in response to, adverse conditions or for defensive purposes, HPR may temporarily hold a portion of its assets in cash, money market instruments, bonds or other debt securities generally not to exceed 20% of the ETF s net assets. In accordance with applicable securities rules, the Sub-Advisor may purchase, for HPR, securities of issuers that are related or connected to the Sub-Advisor. The Sub-Advisor may also rely on exemptions from the securities regulatory authorities allowing it to purchase debt securities of a related issuer of the Sub-Advisor which are not exchange traded if certain conditions are met. In particular, the investment must be consistent with, or necessary to meet, the investment objective of HPR. The investment must also be approved by the ETF s Independent Review Committee ( IRC ) and is subject to certain other provisions of National Instrument ( NI ). HPR may also invest in derivatives for currency hedging purposes only. Please refer to the ETF s most recent prospectus for a complete description of HPR s investment restrictions. The Manager performs a review of the ETF s risk rating at least annually, as well as when there is a material change in the ETF s investment objective or investment strategies. The current risk rating for the ETF is: low to medium. Risk ratings are determined based on the historical volatility of the ETF as measured by the standard deviation of its performance against its mean. The risk categorization of the ETF may change over time and historical volatility is not indicative of future volatility. Generally, a risk rating is assigned to the ETF based on a blend of the historical rolling 3-year and 5-year standard deviations of its return (or, generally, commencing with prospectus renewals after September 1, 2017, a rolling 10-year standard deviation), the return of an underlying index, or of an applicable proxy index. In cases where the Manager believes that this methodology produces a result that is not indicative of the ETF s future volatility, the risk rating may be determined by the ETF s category. Risk ratings are not intended for use as a substitute for undertaking a proper and complete suitability or financial assessment by an investment advisor. The Manager, as a summary for existing investors, is providing the list below of the risks to which an investment in the ETF may be subject. Prospective investors should read the ETF s most recent prospectus and consider the full description of the risks contained therein before purchasing units. The risks to which an investment in the ETF is subject are listed below and have not changed from the list of risks found in the ETF s most recent prospectus. A full description of each risk listed below may also be found in the most recent prospectus. The most recent prospectus is available at or from or by contacting Horizons ETFs Management (Canada) Inc. directly via the contact information on the back page of this document. 2 Stock market risk Specific issuer risk Legal and regulatory risk Exchange traded funds risk Reliance on historical data risk Corresponding net asset value risk Designated broker/dealer risk Cease trading of securities risk Exchange risk Early closing risk No assurance of meeting investment objective Tax risk Securities lending, repurchase and reverse repurchase transaction risk Loss of limited liability Reliance on key personnel Distributions risk Conflicts of interest No ownership interest Market for units Redemption price Net asset value fluctuation Restrictions on certain unitholders Highly volatile markets

6 Management Discussion of Fund Performance (continued) Multi-class risk (up to April 28, 2017) No guaranteed return Derivatives and counterparty risk Interest rate risk Foreign currency risk Credit risk Income trust investment risk Foreign stock exchange risk Call risk Risk of difference between quoted and actionable market price Liquidity risk Results of Operations For the six-month period ended June 30, 2018, units of the ETF returned 0.94%, when including distributions paid to unitholders. This compares to a return of 0.70% for the S&P/TSX Preferred Share Index (the Index ) on a total return basis for the same period. The Index is designed to track the performance of the Canadian preferred stock market. Preferred stocks pay dividends at a specified rate and receive preference over common stocks in terms of dividend payments and liquidation of assets. General Market Review Thanks to continued tightening monetary policy, including a rate hike by the Bank of Canada (the BoC ) in January, government bond yields were up across the board in the first quarter. During the equity market correction in late January and early February, Canadian federal bonds weathered the storm fairly well, losing 48 basis points (bps) from peak to trough, but provincial and municipal bonds suffered heavier losses. As expected, the BoC kept rates on hold at its April and May meetings targeting 1.25% as its benchmark lending rate but warned of coming rate hikes should inflation heat up. The bank said the economy was slightly weaker than expected to start the year reflecting a slowing housing market and reduced exports but expects a rebound in the second quarter. It added that temporary factors that have weighed on inflation have largely dissipated, and raised its estimate for potential growth by 0.4%. June saw benchmark rates in Canada drop significantly as traders began doubting a July rate hike by the BoC. Nearing the end of the first half, the specter of a looming trade battle with the U.S. had traders pricing-in about a 50% chance of a BoC rate hike at its July 11 meeting, though a release of a very robust Business Outlook Survey at the end of June moved those expectations up to an 85% chance of an increase. Government of Canada 5-year bond yields moved higher on strong economic data in January, only to stagnate for the rest of the first quarter. They then moved well higher in April and the first two weeks of May as bonds sold off, hitting a high of 2.338%, up 37 basis points ( bps ) from the beginning of the year. However, economic data in the latter half of the second quarter began pointing to a smaller chance of fast rate hikes by the BoC. After bottoming out below 2%, the Government of Canada 5-year yield finished the quarter at 2.068%, up 20bps during the first half of the year. Despite increasing Government of Canada 5-year rates in April, preferred shares didn t do very well for the month. That changed in May as the sector gained 97bps despite falling 5-year rates during the month. A relatively uneventful June left the Index up 0.70% for the first half of the year. By sector and type, floating rate diversified financial names were far and away the biggest drivers of the asset class performance in the first half of the year. Fixed-floating names in the media industry also did well, as did fixed-floating and floating rate preferreds in the telecommunication services sector. Perpetual preferred issues in the diversified financials and utilities sectors lost the most value. In general, floating rate issues did far better than fixed-floating and perpetual names in the first half. 3

7 Management Discussion of Fund Performance (continued) 4 Portfolio Review Security selection in the fixed-floating and in perpetual preferreds, particularly in the energy and bank sectors, and the ETF s overweight position in floating rate preferreds mainly explained the ETF s outperformance. Heading into the second half of 2018, the ETF continues to focus on fixed-reset and floating rate issues that trade at a discount to par. The ETF is slightly overweight the energy and telecommunication services sectors, while being underweight insurance companies and diversified financials. On a credit basis, the ETF is underweight P2-rated preferreds, while being overweight P3-rated securities. Outlook Setting aside the rising tide of protectionism, underlying momentum in the global economy remains healthy. The U.S. economy, Canada s largest trade partner, is operating near capacity and has been given a nice tailwind from fiscal stimulus. Canada s growth trajectory has slowed, but excess capacity continues to diminish and the Bank of Canada is leaning towards removing stimulus. Under these circumstances, Fiera would expect that the general direction of bond yields would be to move higher. However, the overhang of protectionism has placed some doubt on this outlook which has weighed on Canada bond yields. Unfortunately, there is no sign of a near-term accommodation and so markets will remain susceptible to further escalations in rhetoric. We do not believe tariffs imposed to date will have a meaningful impact on near-term activity, though continued escalation could threaten our otherwise constructive view on credit. Assuming no major deterioration in the trade war, the Canadian preferred share market performance should be higher than the coupon rate over the next 6 to 12 months. We expect demand for preferred shares to stay strong as investors should continue to seek the higher available yields of preferred shares versus high yield and investment grade corporate bonds and the tax advantages of dividend income relative to investment income. Fixed-reset and floating rate issues that trade at a discount should continue to outperform in this environment. The credit tone, the Government of Canada 5-year bond yield, supply and fund flows into preferred share ETFs will continue to bring volatility into the preferred share market. Other Operating Items and Changes in Net Assets Attributable to Holders of Redeemable Units For the six-month period ended June 30, 2018, the ETF generated gross comprehensive income (loss) from investments and derivatives (which includes changes in the fair value of the ETF s portfolio) of $20,179,697. This compares to $99,483,720 for the six-month period ended June 30, The ETF incurred management, operating and transaction expenses of $5,832,345 (2017 $3,868,710) of which $129,656 (2017 $39,190) was either paid or absorbed by the Manager on behalf of the ETF. The waiving and/or absorption of such fees and/or expenses by the Manager may be terminated at any time, or continued indefinitely, at the discretion of the Manager. The ETF distributed $31,234,406 to Class E unitholders during the period (2017 Class E: $22,259,844, Advisor Class: $136,940). Presentation The attached financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Any mention of total net assets, net assets, net asset value or increase (decrease) in net assets in the financial statements and/or management report of fund performance is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS.

8 Management Discussion of Fund Performance (continued) Recent Developments There are no recent industry, management or ETF related developments that are pertinent to the present and future of the ETF. Related Party Transactions Certain services have been provided to the ETF by related parties and those relationships are described below. Manager, Trustee and Investment Manager The manager, trustee and investment manager of the ETF is Horizons ETFs Management (Canada) Inc., 55 University Avenue, Suite 800, Toronto, Ontario, M5J 2H7, a corporation incorporated under the laws of Ontario. Horizons Management is a member of the Mirae Asset Financial Group based in Seoul, South Korea. If the ETF invests in other Horizons Management ETFs, Horizons Management may receive management fees in respect of the ETF s assets invested in such Horizons Management ETFs. In addition, any management fees paid to the Manager (described in detail on page 10) are related party transactions, as the Manager is considered to be a related party to the ETF. Fees paid to the Independent Review Committee are also considered to be related party transactions. Both the management fees and fees paid to the Independent Review Committee are disclosed in the statements of comprehensive income in the attached financial statements of the ETF. The management fees payable by the ETF as at June 30, 2018, and December 31, 2017, are disclosed in the statements of financial position. Other Related Parties Prior to June 30, 2017, an affiliate of National Bank of Canada ( NBC ) and National Bank Financial Inc. ( NBF ) held an indirect minority interest in AlphaPro Management Inc. ( AlphaPro ), the former manager of the ETF and, at the time, a subsidiary of Horizons Management. In addition, NBC holds an indirect minority interest in Fiera, the sub-advisor of the ETF. Effective June 30, 2017, Horizons Management acquired the minority interest of AlphaPro owned by the affiliate of NBC mentioned above and, as a result, became the sole shareholder of AlphaPro. Accordingly, as of June 30, 2017, NBC and NBF, along with Fiera, are no longer considered affiliates or related parties of the Manager. Effective September 30, 2017, AlphaPro amalgamated with its parent company, Horizons Management, and now the amalgamated companies carry on business as Horizons ETFs Management (Canada) Inc. For the period ended June 30, 2018, the ETF did not make any payments to related parties in broker commissions on portfolio transactions. For the period ended June 30, 2017, the ETF paid $6,800 to NBF and/or its affiliates, which were, at that time, related parties. 5

9 Financial Highlights The following tables show selected key financial information about the ETF and are intended to help you understand the ETF s financial performance for the current interim period and for the past five fiscal years. This information is derived from the ETF s audited annual financial statements and the current unaudited interim financial statements. Please see the front page for information on how you may obtain the ETF s annual or interim financial statements. The ETF s Net Assets per Unit Class E Period (1) Net assets, beginning of period $ Increase (decrease) from operations: Total revenue Total expenses (0.03) (0.07) (0.06) (0.07) (0.07) (0.08) Realized gains (losses) for the period (0.05) (0.27) (0.09) (0.05) Unrealized gains (losses) for the period (0.17) (1.26) 0.28 (0.50) Total increase (decrease) from operations (2) (1.15) 0.59 (0.14) Distributions: From net investment income (excluding dividends) (0.18) From dividends (0.32) (0.33) (0.34) (0.36) (0.36) From net realized capital gains (0.04) From return of capital (0.02) (0.05) (0.05) (0.05) (0.07) Total distributions (3) (0.18) (0.38) (0.38) (0.39) (0.41) (0.43) Net assets, end of period (4) $

10 Financial Highlights (continued) Advisor Class Period (1) Net assets, beginning of period $ Increase (decrease) from operations: Total revenue Total expenses (0.04) (0.11) (0.12) (0.13) (0.14) Realized gains (losses) for the period 0.02 (0.05) (0.28) (0.09) (0.05) Unrealized gains (losses) for the period (1.40) 0.29 (0.50) Total increase (decrease) from operations (2) (1.34) 0.54 (0.20) Distributions: From dividends (0.11) (0.29) (0.31) (0.30) (0.31) From return of capital (0.04) (0.03) (0.05) (0.06) Total distributions (3) (0.11) (0.33) (0.34) (0.35) (0.37) Net assets, end of period (4) $ This information is derived from the ETF s unaudited interim financial statements as at June 30, 2018, and the audited annual financial statements as at December 31 of the years shown. Advisor Class information for 2017 is presented as at the termination date of those units on April 28, Class E units and Advisor Class units of the ETF effectively began operations on November 22, 2010 and October 12, 2011, respectively. Information is presented in accordance with IFRS. 2. Net assets per unit and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. 3. Income, dividend and/or return of capital distributions, if any, are paid in cash, reinvested in additional units of the ETF, or both. Capital gains distributions, if any, may or may not be paid in cash. Noncash capital gains distributions are reinvested in additional units of the ETF and subsequently consolidated. They are reported as taxable distributions and increase each unitholder s adjusted cost base for their units. Neither the number of units held by the unitholder, nor the net asset per unit of the ETF change as a result of any non-cash capital gains distributions. Distributions classified as return of capital, if any, decrease each unitholder s adjusted cost base for their units. The characteristics of distributions, if any, are determined subsequent to the end of the ETF s tax year. Until such time, distributions are classified as from net investment income (excluding dividends) for reporting purposes. 4. The Financial Highlights are not intended to act as a continuity of the opening and closing net assets per unit. 7

11 Financial Highlights (continued) Ratios and Supplemental Data Class E Period (1) Total net asset value (000 s) $ 1,729,770 1,538, , , , ,241 Number of units outstanding (000 s) 180, , ,181 63,583 39,209 25,717 Management expense ratio (2)(5) 0.63% 0.65% 0.64% 0.64% 0.64% 0.64% Management expense ratio excluding proportion of expenses from underlying investment funds 0.63% 0.65% 0.64% 0.64% 0.64% 0.64% Management expense ratio before waivers and absorptions (3) 0.65% 0.65% 0.65% 0.65% 0.67% 0.70% Trading expense ratio (4)(5) 0.06% 0.07% 0.10% 0.10% 0.09% 0.14% Trading expense ratio excluding proportion of costs from underlying investment funds 0.06% 0.07% 0.10% 0.10% 0.09% 0.14% Portfolio turnover rate (6) 11.33% 23.99% 32.72% 37.22% 40.30% 45.62% Net asset value per unit, end of period $ Closing market price $

12 Financial Highlights (continued) Advisor Class Period (1) Total net asset value (000 s) $ 10,268 12,083 8,776 11,089 8,149 Number of units outstanding (000 s) 1,103 1,386 1,046 1, Management expense ratio (2)(5) 1.21% 1.20% 1.21% 1.20% 1.24% Management expense ratio excluding proportion of expenses from underlying investment funds 1.21% 1.20% 1.21% 1.20% 1.23% Management expense ratio before waivers and absorptions (3) 1.22% 1.22% 1.22% 1.24% 1.29% Trading expense ratio (4)(5) 0.07% 0.10% 0.10% 0.09% 0.14% Trading expense ratio excluding proportion of costs from underlying investment funds 0.07% 0.10% 0.10% 0.09% 0.14% Portfolio turnover rate (6) 23.99% 32.72% 37.22% 40.30% 45.62% Net asset value per unit, end of period $ Closing market price $ The information for Class E units is provided as at June 30, 2018, and December 31 of the other years shown. Advisor Class information is presented as at the termination date of those units on April 28, 2017, and December 31 of the other years shown. Information is presented in accordance with IFRS. 2. Management expense ratio is based on total expenses, including sales tax, (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. Out of its management fees, the Manager pays for such services to the ETF as investment manager compensation, service fees and marketing. 3. The Manager, at its discretion, may waive and/or absorb a portion of the fees and/or expenses otherwise payable by the ETF. The waiving and/or absorption of such fees and/or expenses by the Manager may be terminated at any time, or continued indefinitely, at the discretion of the Manager. 4. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. Transaction costs related to the purchase and/or sale of fixed income securities are typically imbedded in the price of those transactions and are therefore not included in the trading expense ratio. 5. The ETF s management expense ratio (MER) and trading expense ratio (TER) include an estimated proportion of the MER and TER for any underlying investment funds held in the ETF s portfolio during the period. 6. The ETF s portfolio turnover rate indicates how actively its portfolio investments are traded. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling all of the securities in its portfolio once in the course of the year. Generally, the higher the ETF s portfolio turnover rate in a year, the greater the trading costs payable by the ETF in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the ETF. 9

13 Financial Highlights (continued) Management Fees The Manager provides, or oversees the provision of, administrative services required by the ETF including, but not limited to: negotiating contracts with certain third-party service providers, such as portfolio managers, custodians, registrars, transfer agents, auditors and printers; authorizing the payment of operating expenses incurred on behalf of the ETF; arranging for the maintenance of accounting records for the ETF; preparing reports to unitholders and to the applicable securities regulatory authorities; calculating the amount and determining the frequency of distributions by the ETF; preparing financial statements, income tax returns and financial and accounting information as required by the ETF; ensuring that unitholders are provided with financial statements and other reports as are required from time to time by applicable law; ensuring that the ETF complies with all other regulatory requirements, including the continuous disclosure obligations of the ETF under applicable securities laws; administering purchases, redemptions and other transactions in units of the ETF; and dealing and communicating with unitholders of the ETF. The Manager provides office facilities and personnel to carry out these services, if not otherwise furnished by any other service provider to the ETF. The Manager also monitors the investment strategies of the ETF to ensure that the ETF complies with its investment objectives, investment strategies and investment restrictions and practices. In consideration for the provision of these services, the Manager receives a monthly management fee at the annual rate of 0.55%, plus applicable sales taxes, of the net asset value of the ETF s Class E units, calculated and accrued daily and payable monthly in arrears. The Sub-Advisor is compensated for its services out of the management fees without any further cost to the ETF. Any expenses of the ETF which are waived or absorbed by the Manager are paid out of the management fees received by the Manager. Up until the termination of the ETF s Advisor Class units on April 28, 2017, the ETF also received a monthly management fee at the annual rate of 1.05%, plus applicable sales taxes, of the net asset value of the ETF s Advisor Class units, calculated and accrued daily and payable monthly in arrears. In addition, up until the termination of the Advisor Class units, the Manager, and not the ETF, paid to registered dealers a service fee equal to 0.50% per year of the net asset value of Advisor Class units held by clients of the registered dealer. No service fees are paid to registered dealers in respect of Class E units. The table below details, in percentage terms, the services received by the ETF from the Manager in consideration of the management fees paid during the period. Portfolio management fees, Waived/absorbed expenses general administrative costs of the ETF Marketing and profit 6% 91% 3% 10

14 Past Performance Commissions, trailing commissions, management fees and expenses all may be associated with an investment in the ETF. Please read the prospectus before investing. The indicated rates of return are the historical total returns including changes in unit value and reinvestment of all distributions, and do not take into account sales, redemptions, distributions or optional charges or income taxes payable by any investor that would have reduced returns. An investment in the ETF is not guaranteed. Its value changes frequently and past performance may not be repeated. The ETF s performance numbers assume that all distributions are reinvested in additional units of the ETF. If you hold this ETF outside of a registered plan, income and capital gains distributions that are paid to you increase your income for tax purposes whether paid to you in cash or reinvested in additional units. The amount of the reinvested taxable distributions is added to the adjusted cost base of the units that you own. This would decrease your capital gain or increase your capital loss when you later redeem from the ETF, thereby ensuring that you are not taxed on this amount again. Please consult your tax advisor regarding your personal tax situation. Year-by-Year Returns The following chart presents the ETF s performance for its Class E units for the periods shown. In percentage terms, the chart shows how much an investment made on the first day of the financial period would have grown or decreased by the last day of the financial period % 15.00% 10.00% Rate of Return 5.00% 0.00% -5.00% % % HPR 0.34% 6.36% 6.36% -0.73% 6.42% % 8.82% 15.52% 0.94% The ETF effectively began operations on November 22, Former Advisor Class unitholders had their units converted to Class E units of the ETF at the close of business on April 28, Assuming the former Advisor Class unitholders continue to hold the Class E units they received as part of the conversion, the returns those unitholders would have experienced for the periods disclosed above would have been substantially similar to those of the Class E unitholders, when adjusted for the differences in the expenses of the ETF paid by each class. 11

15 Summary of Investment Portfolio As at June 30, 2018 % of ETF s Asset Mix Net Asset Value Net Asset Value Canadian Preferred Securities $ 1,681,525, % U.S. Fixed Income Securities 11,066, % Canadian Fixed Income Securities 10,434, % Short-Term Investments 4,086, % Global Fixed Income Securities 3,576, % U.S. Preferred Securities 1,250, % Global Preferred Securities 34, % Currency Forward Hedge* (698,149) -0.04% Cash and Cash Equivalents 20,285, % Other Assets less Liabilities (1,791,392) -0.10% $ 1,729,770, % % of ETF s Sector Mix Net Asset Value Net Asset Value Financials $ 958,276, % Energy 406,648, % Utilities 180,312, % Telecommunication Services 113,763, % Corporate Bonds 25,076, % Consumer Staples 10,898, % Industrials 9,033, % Treasury Bills 4,086, % Consumer Discretionary 3,879, % Currency Forward Hedge* (698,149) -0.04% Cash and Cash Equivalents 20,285, % Other Assets less Liabilities (1,791,392) -0.10% $ 1,729,770, % *Positions in forward contracts are disclosed as the gain/(loss) that would be realized if the contracts were closed out on the date of this report. 12

16 Summary of Investment Portfolio (continued) As at June 30, 2018 Top 25 Holdings* % of ETF s Net Asset Value Enbridge Inc. 9.60% Royal Bank of Canada 7.29% Toronto-Dominion Bank (The) 7.22% BCE Inc. 6.57% TransCanada Corp. 5.27% Canadian Imperial Bank of Commerce 5.13% Manulife Financial Corp. 4.88% Bank of Montreal 4.58% Bank of Nova Scotia (The) 4.40% Brookfield Asset Management Inc. 4.38% Pembina Pipeline Corp. 3.72% National Bank of Canada 3.58% Great-West Lifeco Inc. 3.12% AltaGas Ltd. 3.02% Sun Life Financial Inc. 2.81% Brookfield Office Properties Inc. 2.55% Brookfield Renewable Power Preferred Equity Inc. 2.44% Fortis Inc. 2.43% Husky Energy Inc. 2.19% Power Financial Corp. 1.95% Canadian Utilities Ltd. 1.43% Cash and Cash Equivalents 1.17% Fairfax Financial Holdings Ltd. 1.12% Intact Financial Corp. 0.93% Emera Inc. 0.79% * Note all of the Top 25 Holdings, excluding cash and cash equivalents, represent the aggregate preferred securities of that issuer in the ETF s portfolio. The summary of investment portfolio may change due to the ongoing portfolio transactions of the ETF. The most recent financial statements are available at no cost by calling , by writing to us at 55 University Avenue, Suite 800, Toronto, Ontario, M5J 2H7, by visiting our website at or through SEDAR at 13

17 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying unaudited interim financial statements of Horizons Active Preferred Share ETF (the ETF ) are the responsibility of the manager and trustee to the ETF, Horizons ETFs Management (Canada) Inc. (the Manager ). They have been prepared in accordance with International Financial Reporting Standards using information available and include certain amounts that are based on the Manager s best estimates and judgments. The Manager has developed and maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded and to produce relevant, reliable and timely financial information, including the accompanying financial statements. These financial statements have been approved by the Board of Directors of the Manager. Steven J. Hawkins Director Horizons ETFs Management (Canada) Inc. Taeyong Lee Director Horizons ETFs Management (Canada) Inc. NOTICE TO UNITHOLDERS The Auditors of the ETF have not reviewed these Financial Statements. Horizons ETFs Management (Canada) Inc., the Manager of the ETF, appoints an independent auditor to audit the ETF s annual financial statements. The ETF s independent auditors have not performed a review of these interim financial statements in accordance with Canadian generally accepted auditing standards. 14

18 Statements of Financial Position (unaudited) As at June 30, 2018 and December 31, Assets Cash and cash equivalents $ 20,285,814 $ 22,501,170 Investments 1,711,973,771 1,517,169,901 Amounts receivable relating to accrued income 3,822,860 2,818,775 Amounts receivable relating to portfolio assets sold 1,067, ,779 Accounts receivable relating to securities issued 5,499,120 2,171,595 Derivative assets (note 3) 18, ,930 Total assets 1,742,667,791 1,546,206,150 Liabilities Accrued management fees 855, ,259 Accrued operating expenses 78,981 59,386 Amounts payable for portfolio assets purchased 5,779,806 2,240,940 Distribution payable 5,466,949 4,887,915 Derivative liabilities (note 3) 716,602 Total liabilities 12,897,747 7,961,500 Total net assets (note 2) $ 1,729,770,044 $ 1,538,244,650 Number of redeemable units outstanding, Class E (note 8) 180,823, ,285,040 Total net assets per unit, Class E $ 9.57 $ 9.66 (See accompanying notes to financial statements) Approved on behalf of the Board of Directors of the Manager: Steven J. Hawkins Taeyong Lee 15

19 Statements of Comprehensive Income (unaudited) For the Periods Ended June 30, Income Dividend income $ 35,512,325 $ 23,586,414 Interest income for distribution purposes 656, ,469 Securities lending income (note 7) 15,299 8,960 Net realized gain on sale of investments and derivatives 12,108,224 3,110,037 Net realized gain (loss) on foreign exchange (50,207) 14,563 Net change in unrealized appreciation (depreciation) of investments and derivatives (28,068,274) 72,278,278 Net change in unrealized appreciation (depreciation) of foreign exchange 5,771 (6,001) 20,179,697 99,483,720 Expenses Management fees (note 9) 4,974,294 3,246,120 Audit fees 16,909 18,699 Independent Review Committee fees 389 4,363 Custodial fees 82,793 55,980 Securityholder reporting costs 60,260 62,345 Administration fees 184,010 89,774 Transaction costs 499, ,241 Withholding taxes 14,200 14,233 Other expenses 285 2,955 5,832,345 3,868,710 Amounts that were payable by the investment fund that were paid or absorbed by the Manager (129,656) (39,190) 5,702,689 3,829,520 Increase in net assets for the period $ 14,477,008 $ 95,654,200 Increase in net assets, Class E $ 14,477,008 $ 94,711,376 Increase in net assets per unit, Class E Increase in net assets, Advisor Class $ $ 942,824 Increase in net assets per unit, Advisor Class 0.74 (See accompanying notes to financial statements) 16

20 Statements of Changes in Financial Position (unaudited) For the Periods Ended June 30, Total net assets at the beginning of the period $ 1,538,244,650 $ 953,401,837 Increase in net assets 14,477,008 95,654,200 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 317,476, ,108,559 Aggregate amounts paid on redemption of securities of the investment fund (109,666,225) (123,089,964) Securities issued on reinvestment of distributions 472, ,320 Distributions: From net investment income (31,234,406) (22,396,784) Total net assets at the end of the period $ 1,729,770,044 $ 1,185,826,168 Total net assets at the beginning of the period, Class E $ 1,538,244,650 $ 941,318,794 Increase in net assets, Class E 14,477,008 94,711,376 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 317,476, ,108,559 Aggregate amounts paid on redemption of securities of the investment fund (109,666,225) (110,200,965) Securities issued on reinvestment of distributions 472, ,248 Distributions: From net investment income (31,234,406) (22,259,844) Total net assets at the end of the period, Class E $ 1,729,770,044 $ 1,185,826,168 Total net assets at the beginning of the period, Advisor Class $ $ 12,083,043 Increase in net assets, Advisor Class 942,824 Redeemable unit transactions Aggregate amounts paid on redemption of securities of the investment fund (12,888,999) Securities issued on reinvestment of distributions 72 Distributions: From net investment income (136,940) Total net assets at the end of the period, Advisor Class $ $ (See accompanying notes to financial statements) 17

21 Statements of Cash Flows (unaudited) For the Periods Ended June 30, Cash flows from operating activities: Increase in net assets for the period $ 14,477,008 $ 95,654,200 Adjustments for: Net realized gain on sale of investments and derivatives (12,108,224) (3,110,037) Net realized loss on currency forward contracts (605,455) (409,828) Net change in unrealized depreciation (appreciation) of investments and derivatives 28,068,274 (72,278,278) Net change in unrealized depreciation (appreciation) of foreign exchange (58) 14 Purchase of investments (388,957,033) (288,164,812) Proceeds from the sale of investments 183,512, ,683,264 Amounts receivable relating to accrued income (1,004,085) 437,548 Accrued expenses 101,745 92,402 Net cash used in operating activities (176,515,309) (139,095,527) Cash flows from financing activities: Amount received from the issuance of units 314,148, ,366,773 Amount paid on redemptions of units (109,666,225) (108,154,433) Distributions paid to unitholders (30,182,841) (21,563,817) Net cash from financing activities 174,299, ,648,523 Net decrease in cash and cash equivalents during the period (2,215,414) (8,447,004) Effect of exchange rate fluctuations on cash and cash equivalents 58 (14) Cash and cash equivalents at beginning of period 22,501,170 15,210,556 Cash and cash equivalents at end of period $ 20,285,814 $ 6,763,538 Interest received, net of withholding taxes $ 367,745 $ 568,248 Dividends received, net of withholding taxes $ 34,782,854 $ 23,932,951 (See accompanying notes to financial statements) 18

22 Schedule of Investments (unaudited) As at June 30, 2018 Horizons Active Preferred Share ETF Shares/ Average Fair Security Par Value/Contracts Cost Value CANADIAN PREFERRED SECURITIES (97.21%) Financials (55.33%) Artis REIT, Preferred, Series A, Variable Rate, Perpetual 37,982 $ 856,988 $ 857,634 Artis REIT, Preferred, Series E, Variable Rate, Perpetual 93,222 1,720,870 1,911,051 Artis REIT, Preferred, Series G, Variable Rate, Perpetual 5, , ,550 Artis REIT, Preferred, Series I, Variable Rate, Perpetual 205,600 5,144,159 5,228,408 Bank of Montreal, Preferred, Class B, Series 16, 5.20%, Perpetual 8, , ,117 Bank of Montreal, Preferred, Class B, Series 17, Floating Rate, Perpetual 419,328 9,885,854 10,516,746 Bank of Montreal, Preferred, Class B, Series 25, Variable Rate, Perpetual 297,888 6,346,892 6,884,192 Bank of Montreal, Preferred, Class B, Series 26, Floating Rate, Perpetual 4,032 86,645 94,308 Bank of Montreal, Preferred, Class B, Series 27, Variable Rate, Convertible, Perpetual 342,310 7,127,623 8,013,477 Bank of Montreal, Preferred, Class B, Series 29, Variable Rate, Perpetual 687,939 14,381,590 15,960,185 Bank of Montreal, Preferred, Class B, Series 31, Variable Rate, Perpetual 247,952 5,392,078 5,697,937 Bank of Montreal, Preferred, Class B, Series 33, Variable Rate, Perpetual 57,526 1,399,393 1,413,989 Bank of Montreal, Preferred, Class B, Series 35, 5.00%, Perpetual 14, , ,106 Bank of Montreal, Preferred, Class B, Series 38, Variable Rate, Perpetual 606,514 15,660,389 15,902,797 Bank of Montreal, Preferred, Class B, Series 40, Variable Rate, Perpetual 463,219 11,646,685 11,677,751 Bank of Montreal, Preferred, Class B, Series 42, Variable Rate, Perpetual 102,669 2,595,726 2,560,565 Bank of Nova Scotia (The), Preferred, Series 20, Variable Rate, Convertible, Perpetual 1,261 31,639 31,449 Bank of Nova Scotia (The), Preferred, Series 21, Variable Rate, Perpetual 400,434 9,328,670 9,950,785 Bank of Nova Scotia (The), Preferred, Series 22, Variable Rate, Convertible, Perpetual 2,400 60,261 59,832 Bank of Nova Scotia (The), Preferred, Series 23, Floating Rate, Perpetual 183,708 4,409,964 4,579,840 Bank of Nova Scotia (The), Preferred, Series 30, Variable Rate, Convertible, Perpetual ,163 10,109 Bank of Nova Scotia (The), Preferred, Series 31, Variable Rate, Convertible, Perpetual 208,566 4,643,361 4,953,442 Bank of Nova Scotia (The), Preferred, Series 32, Variable Rate, Convertible, Perpetual 1,048,938 23,265,974 24,345,851 Bank of Nova Scotia (The), Preferred, Series 33, Variable Rate, Perpetual 388,279 8,584,540 9,167,267 Bank of Nova Scotia (The), Preferred, Series 34, Variable Rate, Perpetual 26, , ,531 Bank of Nova Scotia (The), Preferred, Series 36, Variable Rate, Perpetual 1,233 32,753 32,379 Bank of Nova Scotia (The), Preferred, Series 38, Variable Rate, Perpetual 654,686 16,916,180 16,982,555 Brookfield Asset Management Inc., Preferred, Class A, Series 2, Variable Rate, Perpetual 247,924 3,919,921 4,229,583 Brookfield Asset Management Inc., Preferred, Class A, Series 4, Variable Rate, Perpetual 80,500 1,060,323 1,375,745 Brookfield Asset Management Inc., Preferred, Class A, Series 8, Variable Rate, Perpetual 152,345 2,666,920 3,247,995 Brookfield Asset Management Inc., Preferred, Class A, Series 9, Variable Rate, Perpetual 56, ,924 1,062,320 Brookfield Asset Management Inc., Preferred, Class A, Series 13, Floating Rate, Perpetual 184,560 2,528,487 3,165,204 Brookfield Asset Management Inc., Preferred, Class A, Series 17, 4.75%, Perpetual 37, , ,420 19

23 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value 20 Brookfield Asset Management Inc., Preferred, Class A, Series 18, 4.75%, Convertible, Perpetual 29, , ,082 Brookfield Asset Management Inc., Preferred, Class A, Series 24, Variable Rate, Perpetual 166,247 3,160,811 3,386,451 Brookfield Asset Management Inc., Preferred, Class A, Series 25, Variable Rate, Perpetual 14, , ,866 Brookfield Asset Management Inc., Preferred, Class A, Series 26, Variable Rate, Convertible, Perpetual 306,425 5,790,734 6,278,648 Brookfield Asset Management Inc., Preferred, Class A, Series 28-A, Variable Rate, Convertible, Perpetual 148,525 2,418,593 2,703,155 Brookfield Asset Management Inc., Preferred, Class A, Series 30, Variable Rate, Convertible, Perpetual 278,855 6,234,173 6,884,930 Brookfield Asset Management Inc., Preferred, Class A, Series 32, Variable Rate, Convertible, Perpetual 473,425 11,091,804 11,655,724 Brookfield Asset Management Inc., Preferred, Class A, Series 34, Variable Rate, Perpetual 312,247 6,841,247 7,287,845 Brookfield Asset Management Inc., Preferred, Class A, Series 36, 4.85%, Perpetual 75,049 1,592,887 1,617,306 Brookfield Asset Management Inc., Preferred, Class A, Series 37, 4.90%, Perpetual 16, , ,711 Brookfield Asset Management Inc., Preferred, Class A, Series 38, 4.40%, Perpetual 173,449 3,818,286 3,994,530 Brookfield Asset Management Inc., Preferred, Class A, Series 40, Variable Rate, Perpetual 379,861 8,914,756 9,287,601 Brookfield Asset Management Inc., Preferred, Class A, Series 42, Variable Rate, Perpetual 305,138 7,247,883 7,366,031 Brookfield Asset Management Inc., Preferred, Class A, Series 44, Variable Rate, Perpetual 1,517 39,259 39,336 Brookfield Asset Management Inc., Preferred, Class A, Series 46, Variable Rate, Perpetual 291 7,531 7,540 Brookfield Asset Management Inc., Preferred, Class A, Series 48, Variable Rate, Perpetual ,329 20,446 Brookfield Office Properties Inc., Preferred, Class AAA, Series N, Variable Rate, Perpetual 450,874 8,980,429 9,040,024 Brookfield Office Properties Inc., Preferred, Class AAA, Series P, Variable Rate, Convertible, Perpetual 317,652 6,499,606 6,400,688 Brookfield Office Properties Inc., Preferred, Class AAA, Series R, Variable Rate, Perpetual 421,574 8,467,929 9,143,940 Brookfield Office Properties Inc., Preferred, Class AAA, Series T, 4.60%, Perpetual 326,275 6,727,649 7,328,137 Brookfield Office Properties Inc., Preferred, Class AAA, Series AA, Variable Rate, Perpetual 467,714 10,154,848 10,383,251 Brookfield Office Properties Inc., Preferred, Class AAA, Series CC, Variable Rate, Perpetual 2,172 57,269 56,059 Brookfield Office Properties Inc., Preferred, Class AAA, Series EE, Variable Rate, Perpetual 25, , ,933 Brookfield Office Properties Inc., Preferred, Class AAA, Series GG, Variable Rate, Perpetual 52,224 1,293,782 1,223,608 Brookfield Office Properties Inc., Preferred, Class AAA, Series II, Variable Rate, Perpetual 2,492 60,320 58,089

24 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value Canadian Imperial Bank of Commerce, Preferred, Class A, Series 39, Variable Rate, Perpetual 674,508 14,087,068 15,709,291 Canadian Imperial Bank of Commerce, Preferred, Class A, Series 41, Variable Rate, Perpetual 392,008 8,339,857 8,988,743 Canadian Imperial Bank of Commerce, Preferred, Class A, Series 43, Variable Rate, Perpetual 872,661 20,601,585 21,074,763 Canadian Imperial Bank of Commerce, Preferred, Class A, Series 45, Variable Rate, Perpetual 1,719,533 43,245,806 42,885,153 Canadian Imperial Bank of Commerce, Preferred, Class A, Series 47, Variable Rate, Perpetual 3,360 81,986 80,741 Canadian Western Bank, Preferred, Series 5, Variable Rate, Perpetual 32, , ,542 Canadian Western Bank, Preferred, Series 7, Variable Rate, Perpetual 3,475 93,314 91,740 ECN Capital Corp., Preferred, Series A, Variable Rate, Perpetual ,012 16,307 ECN Capital Corp., Preferred, Series C, Variable Rate, Perpetual 378 8,836 8,101 E-L Financial Corp. Ltd., Preferred, Series 3, 5.50%, Perpetual 26, , ,685 Empire Life Insurance Co. (The), Preferred, Series 1, Variable Rate, Perpetual 2,997 79,381 78,327 Fairfax Financial Holdings Ltd., Preferred, Series C, Variable Rate, Convertible 66,790 1,418,269 1,592,942 Fairfax Financial Holdings Ltd., Preferred, Series D, Floating Rate, Perpetual 154,394 3,205,434 3,631,347 Fairfax Financial Holdings Ltd., Preferred, Series F, Variable Rate, Convertible, Perpetual 167,535 3,039,177 3,208,295 Fairfax Financial Holdings Ltd., Preferred, Series G, Variable Rate, Perpetual 38, , ,817 Fairfax Financial Holdings Ltd., Preferred, Series H, Variable Rate, Convertible, Perpetual 5,322 79, ,698 Fairfax Financial Holdings Ltd., Preferred, Series I, Variable Rate, Convertible, Perpetual 204,682 3,960,614 4,421,131 Fairfax Financial Holdings Ltd., Preferred, Series J, Variable Rate, Perpetual 13, , ,461 Fairfax Financial Holdings Ltd., Preferred, Series K, 5.00%, Perpetual 89,155 1,972,703 2,114,757 Fairfax Financial Holdings Ltd., Preferred, Series M, Variable Rate, Perpetual 117,710 2,725,236 2,942,750 Great-West Lifeco Inc., Preferred, Series F, 5.90%, Perpetual 40,903 1,033,874 1,058,570 Great-West Lifeco Inc., Preferred, Series G, 5.20%, Perpetual 322,241 7,847,368 7,730,562 Great-West Lifeco Inc., Preferred, Series H, 4.85%, Perpetual 543,570 12,615,462 12,420,574 Great-West Lifeco Inc., Preferred, Series I, 4.50%, Perpetual 43, , ,285 Great-West Lifeco Inc., Preferred, Series L, 5.65%, Perpetual 162,830 4,145,955 4,183,103 Great-West Lifeco Inc., Preferred, Series M, 5.80%, Perpetual 243,216 6,273,361 6,335,777 Great-West Lifeco Inc., Preferred, Series N, Variable Rate, Perpetual 34, , ,531 Great-West Lifeco Inc., Preferred, Series O, Floating Rate, Perpetual 28, , ,115 Great-West Lifeco Inc., Preferred, Series P, 5.40%, Perpetual 405,246 10,275,831 10,167,622 Great-West Lifeco Inc., Preferred, Series Q, 5.15%, Perpetual 241,029 5,879,838 5,734,080 Great-West Lifeco Inc., Preferred, Series R, 4.80%, Perpetual 86,194 2,016,916 1,948,846 Great-West Lifeco Inc., Preferred, Series S, 5.25%, Perpetual 94,945 2,330,042 2,328,051 Great-West Lifeco Inc., Preferred, Series T, 5.15%, Perpetual ,981 14,760 IGM Financial Inc., Preferred, Series B, 5.90%, Perpetual 176,401 4,530,934 4,487,641 21

25 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value 22 Industrial Alliance Insurance and Financial Services Inc., Preferred, Class A, Series G, Variable Rate, Convertible, Perpetual 120,997 2,811,880 2,856,739 Industrial Alliance Insurance and Financial Services Inc., Preferred, Class A, Series I, Variable Rate, Perpetual ,513 10,534 Intact Financial Corp., Preferred, Class A, Series 1, Variable Rate, Convertible, Perpetual 166,719 3,258,891 3,244,352 Intact Financial Corp., Preferred, Class A, Series 3, Variable Rate, Convertible, Perpetual 400,307 8,903,975 9,263,104 Intact Financial Corp., Preferred, Class A, Series 4, Floating Rate, Convertible, Perpetual 3,400 77,282 79,560 Intact Financial Corp., Preferred, Class A, Series 5, 5.20%, Perpetual 50,605 1,267,813 1,229,702 Intact Financial Corp., Preferred, Class A, Series 6, 5.30%, Perpetual 21, , ,619 Intact Financial Corp., Preferred, Class A, Series 7, Variable Rate, Convertible, Perpetual 66,938 1,656,007 1,656,716 Laurentian Bank of Canada, Preferred, Class A, Series 13, Variable Rate, Perpetual ,013 13,741 Laurentian Bank of Canada, Preferred, Class A, Series 15, Variable Rate, Perpetual 79,432 2,050,500 2,051,729 Manulife Financial Corp., Preferred, Class A, Series 2, 4.65%, Perpetual 340,824 7,728,245 7,498,128 Manulife Financial Corp., Preferred, Class A, Series 3, 4.50%, Perpetual 162,482 3,578,313 3,468,991 Manulife Financial Corp., Preferred, Class 1, Series 3, Variable Rate, Convertible, Perpetual 1,726 32,300 32,777 Manulife Financial Corp., Preferred, Class 1, Series 4, Floating Rate, Convertible, Perpetual 4,500 75,600 89,348 Manulife Financial Corp., Preferred, Class 1, Series 5, Variable Rate, Convertible, Perpetual 164,470 3,806,096 3,994,976 Manulife Financial Corp., Preferred, Class 1, Series 7, Variable Rate, Perpetual 291,236 6,782,636 7,330,410 Manulife Financial Corp., Preferred, Class 1, Series 9, Variable Rate, Convertible, Perpetual 312,893 7,325,706 7,775,391 Manulife Financial Corp., Preferred, Class 1, Series 11, Variable Rate, Perpetual 190,689 4,258,663 4,742,435 Manulife Financial Corp., Preferred, Class 1, Series 13, Variable Rate, Perpetual 168,187 3,487,702 3,792,617 Manulife Financial Corp., Preferred, Class 1, Series 15, Variable Rate, Perpetual 437,168 9,149,305 9,801,307 Manulife Financial Corp., Preferred, Class 1, Series 17, Variable Rate, Perpetual 498,898 10,754,531 11,569,445 Manulife Financial Corp., Preferred, Class 1, Series 19, Variable Rate, Perpetual 315,319 6,966,921 7,375,311 Manulife Financial Corp., Preferred, Class 1, Series 21, Variable Rate, Perpetual 81,386 2,162,511 2,168,123 Manulife Financial Corp., Preferred, Class 1, Series 23, Variable Rate, Perpetual 568,135 14,517,945 14,726,059 Manulife Financial Corp., Preferred, Class 1, Series 25, Variable Rate, Perpetual ,327 11,373 National Bank of Canada, Preferred, Series 30, Variable Rate, Perpetual 449,298 9,035,392 10,491,108 National Bank of Canada, Preferred, Series 32, Variable Rate, Perpetual 297,882 6,139,052 6,848,307 National Bank of Canada, Preferred, Series 34, Variable Rate, Perpetual 108,274 2,788,427 2,853,020 National Bank of Canada, Preferred, Series 36, Variable Rate, Perpetual 1,054,182 27,428,829 27,609,027

26 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Horizons Active Preferred Share ETF Shares/ Average Fair Security Par Value/Contracts Cost Value National Bank of Canada, Preferred, Series 38, Variable Rate, Perpetual 529,768 13,329,319 13,249,498 National Bank of Canada, Preferred, Series 40, Variable Rate, Perpetual 31, , ,557 National Bank of Canada, Preferred, Series 42, Variable Rate, Perpetual 317 7,918 7,922 Power Corp. of Canada, Preferred, Series A, 5.60%, Perpetual 38, , ,941 Power Corp. of Canada, Preferred, Series B, 5.35%, Perpetual 155,862 3,805,562 3,779,653 Power Corp. of Canada, Preferred, Series C, 5.80%, Perpetual 16, , ,327 Power Corp. of Canada, Preferred, Series D, 5.00%, Perpetual 3,497 83,358 80,361 Power Corp. of Canada, Preferred, Series G, 5.60%, Perpetual 192,922 4,947,949 4,846,201 Power Financial Corp., Preferred, Series D, 5.50%, Perpetual 25, , ,624 Power Financial Corp., Preferred, Series E, 5.25%, Perpetual 54,204 1,292,494 1,309,027 Power Financial Corp., Preferred, Series F, 5.90%, Perpetual 23, , ,261 Power Financial Corp., Preferred, Series H, 5.75%, Perpetual 105,000 2,641,448 2,685,900 Power Financial Corp., Preferred, Series I, 6.00%, Perpetual 4, , ,953 Power Financial Corp., Preferred, Series K, 4.95%, Perpetual 90,328 2,128,771 2,053,155 Power Financial Corp., Preferred, Series L, 5.10%, Perpetual 59,833 1,459,881 1,417,444 Power Financial Corp., Preferred, Series O, 5.80%, Perpetual 301,798 7,798,196 7,801,478 Power Financial Corp., Preferred, Series P, Variable Rate, Perpetual 232,043 4,133,656 4,529,479 Power Financial Corp., Preferred, Series R, 5.50%, Perpetual 337,418 8,554,404 8,486,063 Power Financial Corp., Preferred, Series S, 4.80%, Perpetual ,309 20,232 Power Financial Corp., Preferred, Series T, Variable Rate, Perpetual 155,036 3,643,779 3,756,522 Power Financial Corp., Preferred, Series V, 5.15%, Perpetual 8, , ,780 Royal Bank of Canada, Preferred, Series W, 4.90%, Convertible, Perpetual 63,249 1,528,509 1,559,720 Royal Bank of Canada, Preferred, Series AA, 4.45%, Perpetual 596,242 14,985,133 15,055,110 Royal Bank of Canada, Preferred, Series AC, 4.60%, Perpetual 381,044 9,653,374 9,621,361 Royal Bank of Canada, Preferred, Series AD, 4.50%, Perpetual 202,912 5,112,944 5,125,557 Royal Bank of Canada, Preferred, Series AE, 4.50%, Perpetual 385,712 9,749,884 9,746,942 Royal Bank of Canada, Preferred, Series AF, 4.45%, Perpetual 222,179 5,590,295 5,623,350 Royal Bank of Canada, Preferred, Series AG, 4.50%, Perpetual 187,919 4,730,882 4,748,713 Royal Bank of Canada, Preferred, Series AJ, 5.00%, Perpetual 130,221 3,170,940 3,265,943 Royal Bank of Canada, Preferred, Series AK, Variable Rate, Perpetual 87,979 2,109,503 2,200,355 Royal Bank of Canada, Preferred, Series AL, Variable Rate, Convertible, Perpetual 8, , ,722 Royal Bank of Canada, Preferred, Series AZ, Variable Rate, Perpetual 1,260 29,506 29,648 Royal Bank of Canada, Preferred, Series BB, Variable Rate, Perpetual 518,276 11,100,417 12,189,852 Royal Bank of Canada, Preferred, Series BD, Variable Rate, Perpetual 1,164,451 27,025,213 28,319,448 Royal Bank of Canada, Preferred, Series BF, Variable Rate, Perpetual 573,629 13,156,461 13,910,503 Royal Bank of Canada, Preferred, Series BH, 4.90%, Perpetual Royal Bank of Canada, Preferred, Series BI, 4.90%, Perpetual 13, , ,208 Royal Bank of Canada, Preferred, Series BJ, 5.25%, Perpetual 3,436 87,282 87,240 Royal Bank of Canada, Preferred, Series BK, Variable Rate, Perpetual 385,716 10,039,448 10,202,188 Royal Bank of Canada, Preferred, Series BM, Variable Rate, Perpetual 152,953 3,996,451 4,067,020 Sun Life Financial Inc., Preferred, Class A, Series 1, 4.75%, Perpetual 474,950 10,972,696 10,781,365 Sun Life Financial Inc., Preferred, Class A, Series 2, 4.80%, Perpetual 471,025 10,886,011 10,762,921 Sun Life Financial Inc., Preferred, Class A, Series 3, 4.45%, Perpetual 31, , ,183 Sun Life Financial Inc., Preferred, Class A, Series 4, 4.45%, Perpetual 154,870 3,421,901 3,360,679 Sun Life Financial Inc., Preferred, Class A, Series 5, 4.50%, Perpetual 147,881 3,206,107 3,213,454 23

27 Schedule of Investments (unaudited) (continued) As at June 30, Shares/ Average Fair Security Par Value/Contracts Cost Value Sun Life Financial Inc., Preferred, Class A, Series 8R, Variable Rate, Perpetual 45, , ,123 Sun Life Financial Inc., Preferred, Class A, Series 9QR, Variable Rate, Convertible, Perpetual 40, , ,738 Sun Life Financial Inc., Preferred, Class A, Series 10R, Variable Rate, Perpetual 258,969 5,227,002 5,552,295 Sun Life Financial Inc., Preferred, Class A, Series 11QR, Floating Rate, Perpetual 3,500 78,750 76,563 Sun Life Financial Inc., Preferred, Class A, Series 12R, Variable Rate, Perpetual 519,285 11,205,399 12,551,118 Toronto-Dominion Bank (The), Preferred, Class A, Series S, Variable Rate, Convertible, Perpetual 2,694 67,387 67,754 Toronto-Dominion Bank (The), Preferred, Class A, Series Y, Variable Rate, Convertible, Perpetual 3,239 80,851 81,218 Toronto-Dominion Bank (The), Preferred, Class A, Series Z, Variable Rate, Convertible, Perpetual 87,918 2,119,638 2,202,346 Toronto-Dominion Bank (The), Preferred, Series 1, Variable Rate, Convertible, Perpetual 553,240 12,034,152 12,934,751 Toronto-Dominion Bank (The), Preferred, Series 3, Variable Rate, Perpetual 810,609 17,878,794 18,984,463 Toronto-Dominion Bank (The), Preferred, Series 5, Variable Rate, Perpetual 973,648 21,060,411 22,676,262 Toronto-Dominion Bank (The), Preferred, Series 7, Variable Rate, Perpetual 1,249,990 29,800,965 30,637,255 Toronto-Dominion Bank (The), Preferred, Series 9, Variable Rate, Perpetual 490,517 11,900,343 12,096,149 Toronto-Dominion Bank (The), Preferred, Series 11, 4.90%, Perpetual 356 8,850 8,911 Toronto-Dominion Bank (The), Preferred, Series 12, Variable Rate, Perpetual 6, , ,363 Toronto-Dominion Bank (The), Preferred, Series 14, Variable Rate, Perpetual 932,400 23,887,568 24,307,668 Toronto-Dominion Bank (The), Preferred, Series 16, Variable Rate, Perpetual 30, , ,530 Toronto-Dominion Bank (The), Preferred, Series 18, Variable Rate, Perpetual 1,013 25,435 25, ,829, ,990,974 Energy (23.51%) AltaGas Ltd., Preferred, Series A, Variable Rate, Convertible, Perpetual 154,643 2,914,777 3,211,935 AltaGas Ltd., Preferred, Series B, Variable Rate, Convertible, Perpetual 408,240 8,289,234 8,630,194 AltaGas Ltd., Preferred, Series C, 4.40%, Convertible, Perpetual 361,205 10,591,650 11,866,705 AltaGas Ltd., Preferred, Series E, Variable Rate, Perpetual 44, ,024 1,050,046 AltaGas Ltd., Preferred, Series G, Variable Rate, Perpetual 527,146 12,179,029 12,361,574 AltaGas Ltd., Preferred, Series I, Variable Rate, Perpetual 164,318 4,161,312 4,129,311 AltaGas Ltd., Preferred, Series K, Variable Rate, Perpetual 432,775 10,915,908 10,841,014 Enbridge Inc., Preferred, Series A, 5.50%, Perpetual 252 6,300 6,124 Enbridge Inc., Preferred, Series B, Variable Rate, Perpetual 396,240 7,189,438 7,310,628 Enbridge Inc., Preferred, Series D, Variable Rate, Perpetual 449,772 8,693,619 8,815,531 Enbridge Inc., Preferred, Series F, Variable Rate, Perpetual 658,699 13,001,290 13,173,980 Enbridge Inc., Preferred, Series H, 4.00%, Perpetual 238,329 4,466,853 4,382,870 Enbridge Inc., Preferred, Series J, Variable Rate, Perpetual 40,347 1,019,306 1,172,232

28 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Horizons Active Preferred Share ETF Shares/ Average Fair Security Par Value/Contracts Cost Value Enbridge Inc., Preferred, Series L, Variable Rate, Perpetual 214,639 5,583,047 6,326,367 Enbridge Inc., Preferred, Series N, Variable Rate, Perpetual 577,888 11,532,105 11,846,704 Enbridge Inc., Preferred, Series P, Variable Rate, Perpetual 810,131 15,703,873 16,202,620 Enbridge Inc., Preferred, Series R, Variable Rate, Perpetual 958,046 18,826,448 19,065,115 Enbridge Inc., Preferred, Series 1, Variable Rate, Perpetual 422,794 11,409,370 13,256,453 Enbridge Inc., Preferred, Series 3, Variable Rate, Perpetual 1,266,682 23,827,935 24,636,965 Enbridge Inc., Preferred, Series 5, Variable Rate, Perpetual 251,501 6,481,157 7,406,242 Enbridge Inc., Preferred, Series 7, Variable Rate, Perpetual 98,558 1,902,983 2,005,655 Enbridge Inc., Preferred, Series 9, Variable Rate, Perpetual 231,165 4,594,444 4,713,454 Enbridge Inc., Preferred, Series 11, Variable Rate, Perpetual 694,823 13,954,659 14,104,907 Enbridge Inc., Preferred, Series 13, Variable Rate, Perpetual 173,064 3,318,223 3,554,735 Enbridge Inc., Preferred, Series 15, Variable Rate, Perpetual 113,849 2,173,369 2,330,489 Enbridge Inc., Preferred, Series 17, Variable Rate, Perpetual 27, , ,419 Enbridge Inc., Preferred, Series 19, Variable Rate, Convertible, Perpetual 5, , ,592 Husky Energy Inc., Preferred, Series 1, Variable Rate, Perpetual 351,871 5,861,651 6,182,373 Husky Energy Inc., Preferred, Series 2, Variable Rate, Perpetual 64, ,886 1,146,224 Husky Energy Inc., Preferred, Series 3, Variable Rate, Perpetual 619,909 13,939,160 15,497,725 Husky Energy Inc., Preferred, Series 5, Variable Rate, Perpetual 371,099 8,915,390 9,355,406 Husky Energy Inc., Preferred, Series 7, Variable Rate, Perpetual 216,798 5,150,375 5,467,646 Kinder Morgan Canada Ltd., Preferred, Series 1, Variable Rate, Perpetual ,312 18,331 Kinder Morgan Canada Ltd., Preferred, Series 3, Variable Rate, Perpetual ,831 17,896 Pembina Pipeline Corp., Preferred, Class A, Series 1, Variable Rate, Perpetual 464,727 8,925,022 9,935,863 Pembina Pipeline Corp., Preferred, Class A, Series 3, Variable Rate, Perpetual 94,705 1,666,829 2,088,245 Pembina Pipeline Corp., Preferred, Class A, Series 5, Variable Rate, Perpetual 91,551 1,855,886 2,218,281 Pembina Pipeline Corp., Preferred, Class A, Series 7, Variable Rate, Perpetual 671,649 14,634,337 15,944,947 Pembina Pipeline Corp., Preferred, Class A, Series 9, Variable Rate, Perpetual 627,398 15,336,381 15,810,430 Pembina Pipeline Corp., Preferred, Class A, Series 11, Variable Rate, Perpetual 1,832 48,178 47,879 Pembina Pipeline Corp., Preferred, Class A, Series 13, Variable Rate, Perpetual 54,930 1,436,286 1,444,659 Pembina Pipeline Corp., Preferred, Class A, Series 15, Variable Rate, Perpetual 268,810 5,398,877 6,271,337 Pembina Pipeline Corp., Preferred, Class A, Series 17, Variable Rate, Perpetual 91,546 2,149,311 2,183,372 Pembina Pipeline Corp., Preferred, Class A, Series 19, Variable Rate, Perpetual 93,824 2,365,495 2,385,006 Pembina Pipeline Corp., Preferred, Class A, Series 21, Variable Rate, Perpetual 245,150 6,135,878 6,163,071 TransCanada Corp., Preferred, Series 1, Variable Rate, Convertible, Perpetual 124,407 2,293,065 2,517,998 TransCanada Corp., Preferred, Series 2, Variable Rate, Perpetual 980,279 18,360,167 19,654,594 TransCanada Corp., Preferred, Series 3, Variable Rate, Convertible, Perpetual 194,728 3,095,701 3,325,954 25

29 Schedule of Investments (unaudited) (continued) As at June 30, Shares/ Average Fair Security Par Value/Contracts Cost Value TransCanada Corp., Preferred, Series 4, Variable Rate, Convertible, Perpetual 72,437 1,053,249 1,229,980 TransCanada Corp., Preferred, Series 5, Variable Rate, Convertible, Perpetual 395,373 6,723,650 6,986,241 TransCanada Corp., Preferred, Series 6, Floating Rate, Convertible, Perpetual 21, , ,548 TransCanada Corp., Preferred, Series 7, Variable Rate, Perpetual 928,301 19,752,540 20,961,037 TransCanada Corp., Preferred, Series 9, Variable Rate, Perpetual 451,930 10,006,396 10,163,906 TransCanada Corp., Preferred, Series 11, Variable Rate, Perpetual 464,094 10,787,178 11,101,128 TransCanada Corp., Preferred, Series 13, Variable Rate, Perpetual 13, , ,838 TransCanada Corp., Preferred, Series 15, Variable Rate, Perpetual 567,683 14,461,529 14,538, ,647, ,648,138 Utilities (10.42%) Algonquin Power & Utilities Corp., Preferred, Series A, Variable Rate, Convertible, Perpetual 295,861 6,819,808 6,861,017 Algonquin Power & Utilities Corp., Preferred, Series D, Variable Rate, Perpetual 42,703 1,030,278 1,067,575 Brookfield Infrastructure Partners L.P., Preferred, Class A, Series 1, Variable Rate, Perpetual 442,344 10,219,450 10,580,868 Brookfield Infrastructure Partners L.P., Preferred, Class A, Series 3, Variable Rate, Perpetual 35, , ,657 Brookfield Infrastructure Partners L.P., Preferred, Class A, Series 5, Variable Rate, Perpetual 18, , ,361 Brookfield Infrastructure Partners L.P., Preferred, Class A, Series 7, Variable Rate, Perpetual 5, , ,304 Brookfield Infrastructure Partners L.P., Preferred, Class A, Series 9, Variable Rate, Perpetual 1,037 26,053 25,904 Brookfield Renewable Partners L.P., Preferred, Class A, Series 7, Variable Rate, Perpetual 113,338 2,868,606 2,913,920 Brookfield Renewable Partners L.P., Preferred, Class A, Series 9, Variable Rate, Perpetual 157,674 3,947,738 4,060,105 Brookfield Renewable Partners L.P., Preferred, Class A, Series 11, Variable Rate, Perpetual 6, , ,757 Brookfield Renewable Partners L.P., Preferred, Class A, Series 13, Variable Rate, Perpetual 1,902 47,368 46,885 Brookfield Renewable Power Preferred Equity Inc., Preferred, Class A, Series 1, Variable Rate, Perpetual 316,177 6,665,744 6,861,041 Brookfield Renewable Power Preferred Equity Inc., Preferred, Class A, Series 2, Variable Rate, Convertible, Perpetual 327,511 6,484,259 7,310,045 Brookfield Renewable Power Preferred Equity Inc., Preferred, Class A, Series 3, Variable Rate, Convertible, Perpetual 796,750 17,149,487 18,882,975 Brookfield Renewable Power Preferred Equity Inc., Preferred, Class A, Series 5, 5.00%, Perpetual 87,902 1,885,265 1,933,844 Brookfield Renewable Power Preferred Equity Inc., Preferred, Class A, Series 6, 5.00%, Perpetual 328,215 6,733,636 7,207,601 Canadian Utilities Ltd., Preferred, Series Y, Variable Rate, Perpetual 496,012 10,360,629 11,190,031 Canadian Utilities Ltd., Preferred, Series AA, 4.90%, Perpetual 142,438 3,358,967 3,293,167 Canadian Utilities Ltd., Preferred, Series BB, 4.90%, Perpetual 92,145 2,142,327 2,116,571 Canadian Utilities Ltd., Preferred, Series CC, 4.50%, Perpetual 38, , ,492 Canadian Utilities Ltd., Preferred, Series DD, 4.50%, Perpetual 266,987 5,699,864 5,724,201

30 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value Canadian Utilities Ltd., Preferred, Series EE, 5.25%, Perpetual 60,461 1,436,840 1,484,317 Canadian Utilities Ltd., Preferred, Series FF, Variable Rate, Perpetual ,248 18,238 Capital Power Corp., Preferred, Series 1, Variable Rate, Convertible, Perpetual 8, , ,007 Capital Power Corp., Preferred, Series 3, Variable Rate, Convertible, Perpetual 62,539 1,267,031 1,404,001 Capital Power Corp., Preferred, Series 5, Variable Rate, Perpetual 68,538 1,274,930 1,521,544 Capital Power Corp., Preferred, Series 7, Variable Rate, Perpetual 4, , ,551 Capital Power Corp., Preferred, Series 9, Variable Rate, Perpetual 1,593 40,808 40,414 CU Inc., Preferred, Series 1, 4.60%, Perpetual 161,244 3,562,648 3,480,452 CU Inc., Preferred, Series 4, Variable Rate, Convertible, Perpetual 12, , ,679 Emera Inc., Preferred, Series A, Variable Rate, Convertible, Perpetual 71,503 1,310,478 1,356,412 Emera Inc., Preferred, Series B, Variable Rate, Convertible, Perpetual 126,527 2,248,445 2,410,339 Emera Inc., Preferred, Series C, Variable Rate, Convertible, Perpetual 261,879 5,799,775 6,222,245 Emera Inc., Preferred, Series E, 4.50%, Perpetual 3,800 84,368 80,370 Emera Inc., Preferred, Series F, Variable Rate, Perpetual 155,419 3,300,546 3,679,545 Emera Inc., Preferred, Series H, Variable Rate, Perpetual 343 8,661 8,620 Fortis Inc., Preferred, Series F, 4.90%, Perpetual 24, , ,075 Fortis Inc., Preferred, Series G, Variable Rate, Perpetual 532,343 11,311,184 11,658,312 Fortis Inc., Preferred, Series H, 4.25%, Perpetual 90,212 1,589,981 1,649,977 Fortis Inc., Preferred, Series I, Floating Rate, Perpetual 34, , ,372 Fortis Inc., Preferred, Series J, 4.75%, Perpetual 68,554 1,554,135 1,527,383 Fortis Inc., Preferred, Series K, Variable Rate, Perpetual 143,509 2,814,864 3,085,443 Fortis Inc., Preferred, Series M, Variable Rate, Perpetual 969,924 21,793,051 22,793,214 Northland Power Inc., Preferred, Series 1, Variable Rate, Convertible, Perpetual 14, , ,199 Northland Power Inc., Preferred, Series 3, Variable Rate, Perpetual 2,841 68,826 68,156 TransAlta Corp., Preferred, Series A, Variable Rate, Convertible, Perpetual 163,116 2,449,340 2,340,715 TransAlta Corp., Preferred, Series C, Variable Rate, Convertible, Perpetual 202,866 3,404,909 3,617,101 TransAlta Corp., Preferred, Series E, 5.00%, Perpetual 192,092 3,258,391 4,007,039 TransAlta Corp., Preferred, Series G, Variable Rate, Perpetual 24, , ,537 Valener Inc., Preferred, Series A, Variable Rate, Convertible, Perpetual 4,079 83, ,771 Westcoast Energy Inc., Preferred, Series 7, 5.50%, Perpetual 249,978 6,216,687 6,251,950 Westcoast Energy Inc., Preferred, Series 8, 5.60%, Perpetual 87,789 2,194,194 2,181,557 Westcoast Energy Inc., Preferred, Series 10, Variable Rate, Perpetual ,107 11,988 Westcoast Energy Inc., Preferred, Series 12, Variable Rate, Perpetual 164,713 4,184,452 4,226, ,522, ,312,380 Telecommunication Services (6.58%) BCE Inc., Preferred, Series R, Variable Rate, Perpetual 145,588 2,910,036 3,008,576 BCE Inc., Preferred, Series T, Variable Rate, Perpetual 556,195 10,163,051 10,751,249 BCE Inc., Preferred, Series Y, Variable Rate, Perpetual 8, , ,320 BCE Inc., Preferred, Series Z, Variable Rate, Perpetual 267,520 4,563,770 5,323,648 BCE Inc., Preferred, Series AA, Variable Rate, Perpetual 864,034 15,337,178 16,883,224 BCE Inc., Preferred, Series AB, Variable Rate, Perpetual 119,103 2,151,237 2,455,904 BCE Inc., Preferred, Series AC, Variable Rate, Perpetual 320,300 5,956,384 6,758,330 BCE Inc., Preferred, Series AD, Variable Rate, Perpetual 227,823 3,750,071 4,690,876 27

31 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value BCE Inc., Preferred, Series AE, Variable Rate, Perpetual 349,853 6,519,802 7,213,969 BCE Inc., Preferred, Series AF, Variable Rate, Perpetual 454,581 8,174,014 9,055,253 BCE Inc., Preferred, Series AG, Variable Rate, Perpetual 274,233 4,344,935 5,314,635 BCE Inc., Preferred, Series AH, Variable Rate, Perpetual 356,255 6,230,766 7,338,853 BCE Inc., Preferred, Series AI, Variable Rate, Perpetual 152,989 2,385,332 2,938,919 BCE Inc., Preferred, Series AJ, Variable Rate, Perpetual 524,673 8,767,481 10,803,017 BCE Inc., Preferred, Series AK, Variable Rate, Convertible, Perpetual 508,893 8,622,368 9,735,123 BCE Inc., Preferred, Series AL, Floating Rate, Convertible, Perpetual 137,680 2,424,225 2,640,014 BCE Inc., Preferred, Series AM, Variable Rate, Perpetual 362,312 6,474,782 7,057,838 BCE Inc., Preferred, Series AN, Variable Rate, Convertible, Perpetual 75,500 1,186,415 1,531,140 BCE Inc., Preferred, Series AO, Variable Rate, Perpetual 1,288 32,080 31,672 BCE Inc., Preferred, Series AQ, Variable Rate, Perpetual 2,474 60,520 60, ,215, ,763,099 Consumer Staples (0.63%) George Weston Ltd., Preferred, Series I, 5.80%, Perpetual 42,069 1,057,769 1,075,704 George Weston Ltd., Preferred, Series III, 5.20%, Perpetual 107,613 2,622,983 2,566,570 George Weston Ltd., Preferred, Series IV, 5.20%, Perpetual 162,616 3,927,325 3,886,522 Loblaw Cos. Ltd., Preferred, Series B, 5.30%, Perpetual 134,508 3,342,081 3,369,426 10,950,158 10,898,222 Industrials (0.52%) Element Fleet Management Corp., Preferred, Series A, Variable Rate, Perpetual ,477 17,252 Element Fleet Management Corp., Preferred, Series C, Variable Rate, Perpetual 339 7,091 7,458 Element Fleet Management Corp., Preferred, Series E, Variable Rate, Perpetual 427,207 10,699,428 8,971,347 Element Fleet Management Corp., Preferred, Series G, Variable Rate, Perpetual 1,040 22,056 23,036 Element Fleet Management Corp., Preferred, Series I, Variable Rate, Perpetual ,030 14,360 10,759,082 9,033,453 Consumer Discretionary (0.22%) Shaw Communications Inc., Preferred, Series A, Variable Rate, Perpetual 206,403 3,730,738 3,779,239 Shaw Communications Inc., Preferred, Series B, Floating Rate, Perpetual 5,000 87,250 94,625 Thomson Reuters Corp., Preferred, Series II, Floating Rate, Perpetual 263 5,197 5,194 3,823,185 3,879,058 TOTAL CANADIAN PREFERRED SECURITIES 1,605,747,979 1,681,525, U.S. FIXED INCOME SECURITIES (0.64%) Corporate Bonds (0.64%) Bank of America Corp., Series AA, Variable Rate, Perpetual, 6.10%, 2025/03/17 1,100,000 1,398,431 1,504,900 Citigroup Inc.,Series O, Variable Rate, Perpetual, Callable, 5.88%, 2020/03/27 900,000 1,151,845 1,213,474 Citigroup Inc., Variable Rate, Perpetual, 5.90%, 2023/02/15 1,830,000 2,436,315 2,453,926 Citigroup Inc., Series T, Variable Rate, Perpetual, 6.25%, 2026/08/15 3,422,000 4,544,741 4,673,058

32 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value Morgan Stanley, Series J, Variable Rate, Perpetual, 5.55%, 2020/07/15 400, , ,661 Wells Fargo & Co., Series U, Variable Rate, Perpetual, 5.88%, 2025/06/15 500, , ,688 10,638,452 11,066,707 TOTAL U.S. FIXED INCOME SECURITIES 10,638,452 11,066,707 CANADIAN FIXED INCOME SECURITIES (0.60%) Corporate Bonds (0.60%) Bank of Nova Scotia (The), Variable Rate, Perpetual, 4.65%, 2022/10/12 4,500,000 5,436,598 5,357,610 Enbridge Inc., Series C, Variable Rate, Callable, 6.63%, 2078/04/12 4,920,000 4,920,000 5,076,412 10,356,598 10,434,022 TOTAL CANADIAN FIXED INCOME SECURITIES 10,356,598 10,434,022 SHORT-TERM INVESTMENTS (0.24%) Government of Canada Treasury Bill, 1.25%, 2018/10/04 4,100,000 4,086,429 4,086,429 TOTAL SHORT-TERM INVESTMENTS 4,086,429 4,086,429 GLOBAL FIXED INCOME SECURITIES (0.21%) Corporate Bonds (0.21%) HSBC Holdings PLC, Variable Rate, Perpetual, 6.88%, 2021/06/01 2,625,000 3,449,659 3,576,053 TOTAL GLOBAL FIXED INCOME SECURITIES 3,449,659 3,576,053 U.S. PREFERRED SECURITIES (0.07%) Financials (0.07%) Citigroup Inc., Preferred, Series K, Variable Rate, Perpetual 24, , ,075 Morgan Stanley, Preferred, Series F, Variable Rate, Perpetual 2,834 98, ,010 Wells Fargo & Co., Preferred, Class A, Series R, Variable Rate, Perpetual 7, , ,208 1,181,839 1,250,293 TOTAL U.S. PREFERRED SECURITIES 1,181,839 1,250,293 GLOBAL PREFERRED SECURITIES (0.00%) Financials (0.00%) HSBC Holdings PLC, Preferred, Series A, 6.20%, Perpetual 1,000 32,822 34,943 TOTAL GLOBAL PREFERRED SECURITIES 32,822 34,943 29

33 Schedule of Investments (unaudited) (continued) As at June 30, 2018 Shares/ Average Fair Security Par Value/Contracts Cost Value DERIVATIVES (-0.04%) Currency Forwards (-0.04%) Currency forward contract to buy C$52,277,083 for US$40,350,000 maturing September 19, 2018 (698,149) TOTAL DERIVATIVES (698,149) Transaction Costs (938,062) TOTAL INVESTMENT PORTFOLIO (98.93%) $ 1,634,555,716 $ 1,711,275,622 Cash and cash equivalents (1.17%) 20,285,814 Other assets less liabilities (-0.10%) (1,791,392) TOTAL NET ASSETS (100.00%) $ 1,729,770,044 (See accompanying notes to financial statements) 30

34 Notes to Financial Statements (unaudited) June 30, REPORTING ENTITY Horizons Active Preferred Share ETF ( HPR or the ETF ) is an investment trust established under the laws of the Province of Ontario by Declaration of Trust and effectively began operations on November 22, The address of the ETF s registered office is: c/o Horizons ETFs Management (Canada) Inc., 55 University Avenue, Suite 800, Toronto, Ontario, M5J 2H7. The ETF is offered for sale on a continuous basis by its prospectus in Class E units ( Class E ) which trade on the Toronto Stock Exchange ( TSX ) under the symbol HPR. An investor may buy or sell units of the ETF on the TSX only through a registered broker or dealer in the province or territory where the investor resides. Investors are able to trade units of the ETF in the same way as other securities traded on the TSX, including by using market orders and limit orders and may incur customary brokerage commissions when buying or selling units. Prior to their termination on April 28, 2017 (see below), the ETF also offered for sale on a continuous basis, by its prospectus, advisor class units ( Advisor Class ) which traded on the TSX under the symbol HPR.A. Advisors were directly compensated with a service fee on a trailing quarterly basis (the Service Fee ). The only difference between the Advisor Class and Class E units of the ETF was that the Advisor Class charged higher management fees that included the Service Fees paid to the advisor (see note 9). The investment objective of HPR is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. HPR may also invest in preferred shares of companies located in the United States, fixed-income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units ( Listed Funds ). HPR, to the best of its ability, seeks to hedge its non-canadian dollar currency exposure to the Canadian dollar at all times. Horizons ETFs Management (Canada) Inc. is the manager, trustee and investment manager of the ETF ( Horizons Management, the Manager or the Investment Manager ). Prior to September 30, 2017, AlphaPro Management Inc. ( AlphaPro ), a wholly owned subsidiary of Horizons Management, acted as the manager and trustee of the ETF. Effective September 30, 2017, AlphaPro amalgamated with Horizons Management (the Amalgamation ). Post-Amalgamation, the duties of manager and trustee for the ETF previously performed by AlphaPro were assumed by Horizons Management, in addition to its role as investment manager for the ETF. There was no change to the to the ETF s investment objectives and strategies as result of the Amalgamation, nor to the day-to-day management of the ETF. The Investment Manager is responsible for implementing the ETF s investment strategies and for engaging the services of Fiera Capital Corporation ( Fiera or the Sub-Advisor ), to act as the sub-advisor to the ETF. The Manager is a member of the Mirae Asset Financial Group ( Mirae Asset ). Conversion and Termination of Advisor Class units The previously announced conversion (the Conversion ) of the ETF s advisor class units ( Advisor Class units ) into the ETF s common class units ( Class E units ) was completed at the close of business on April 28, 2017 (the Conversion Date ). The remaining unitholders of record of the Advisor Class units as at the Conversion Date received a number of whole Class E units of the ETF with an aggregate net asset value ( NAV ) equal to the aggregate NAV of the Advisor Class units converted, based on the respective NAVs of the two classes as at the Conversion Date (the Conversion Ratio ). The ETF s Conversion Ratio was , meaning, that for each Advisor Class unit of the ETF subject to the Conversion, the unitholder received Class E units of the ETF. 31

35 Notes to Financial Statements (unaudited) (continued) June 30, 2018 The conversion of Advisor Class units into whole Class E units of the ETF did not give rise to a disposition by unitholders of converting Advisor Class units for tax purposes on any whole units converted. Any remaining fractional Advisor Class units were redeemed for cash and such redemption is considered a disposition for tax purposes. Immediately following the completion of the Conversion, the Advisor Class units were terminated. 2. BASIS OF PREPARATION (i) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Any mention of total net assets, net assets, net asset value or increase (decrease) in net assets is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS. These financial statements were authorized for issue on August 15, 2018, by the Board of Directors of the Manager. (ii) Basis of measurement The financial statements have been prepared on the historical cost basis except for financial instruments at fair value though profit or loss, which are measured at fair value. (iii) Functional and presentation currency These financial statements are presented in Canadian dollars, which is the ETF s functional currency. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Financial instruments (i) Recognition, initial measurement and classification For fiscal years beginning January 1, 2018, IFRS 9, Financial Instruments ( IFRS 9 ) has replaced International Accounting Standard 39, Financial Instruments Recognition and Measurement ( IAS 39 ). IFRS 9 introduces new classification and measurement requirements for financial instruments, including impairment on financial assets and hedge accounting. This new standard requires assets to be classified based on the ETF s business model for managing the financial assets and contractual cash flow characteristics of the financial assets. The standard includes three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income, and fair value through profit and loss ( FVTPL ). It eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities There were no changes to the measurement basis of the ETF s financial instruments as a result of adopting IFRS 9, and consequently, there was no impact to net assets. 32

36 Notes to Financial Statements (unaudited) (continued) June 30, 2018 Financial assets and financial liabilities at FVTPL are initially recognized on the trade date, at fair value (see below), with transaction costs recognized in the statements of comprehensive income. Other financial assets and financial liabilities are recognized on the date on which they are originated at fair value. The ETF classifies financial assets and financial liabilities into the following categories: Financial assets mandatorily classified at fair value through profit or loss: debt securities, equity investments and derivative financial instruments Financial assets at amortized cost: All other financial assets are classified as loans and receivables Financial liabilities mandatorily classified at fair value through profit or loss: derivative financial instruments and securities sold short, if any Financial liabilities at amortized cost: all other financial liabilities are classified as other financial liabilities (ii) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the ETF has access at that date. The fair value of a liability reflects its non-performance risk. Investments are valued at fair value as of the close of business on each day upon which a session of the TSX is held ( Valuation Date ) and based on external pricing sources to the extent possible. Investments held that are traded in an active market through recognized public stock exchanges, over-the-counter markets, or through recognized investment dealers, are valued at their closing sale price. However, such prices may be adjusted if a more accurate value can be obtained from recent trading activity or by incorporating other relevant information that may not have been reflected in pricing obtained from external sources. Short-term investments, including notes and money market instruments, are valued at amortized cost which approximates fair value. Investments held that are not traded in an active market, including some derivative financial instruments, are valued using observable market inputs where possible, on such basis and in such manner as established by the Manager. Derivative financial instruments are recorded in the statements of financial position according to the gain or loss that would be realized if the contracts were closed out on the Valuation Date. Margin deposits, if any, are included in the schedule of investments as margin deposits. See also the summary of fair value measurements in note 6. Fair value policies used for financial reporting purposes are the same as those used to measure the net asset value ( NAV ) for transactions with unitholders. The fair value of other financial assets and liabilities approximates their carrying values due to the short-term nature of these instruments. (iii) Offsetting Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis for gains and losses from financial instruments at fair value through profit or loss and foreign exchange gains and losses. 33

37 Notes to Financial Statements (unaudited) (continued) June 30, 2018 (iv) Specific instruments Cash and cash equivalents Cash and cash equivalents consist of cash on deposit and short-term, interest bearing notes with a term to maturity of less than three months from the date of purchase. Forward foreign exchange contracts Forward foreign exchange contracts, if any, are valued at the current market value thereof on the Valuation Date. The value of these forward contracts is the gain or loss that would be realized if, on the Valuation Date, the positions were to be closed out and recorded as derivative assets and/or liabilities in the statements of financial position and as a net change in unrealized appreciation (depreciation) of investments and derivatives in the statements of comprehensive income. When the forward contracts are closed out or mature, realized gains or losses on forward contracts are recognized and are included in the statements of comprehensive income in net realized gain (loss) on sale of investments and derivatives. The Canadian dollar value of forward foreign exchange contracts is determined using forward currency exchange rates supplied by an independent service provider. Redeemable units The redeemable units are measured at the present value of the redemption amounts and are considered a residual amount of the net assets attributable to holders of redeemable units. They are classified as financial liabilities as a result of the ETF s requirement to distribute net income and capital gains to unitholders. (b) Investment income Investment transactions are accounted for as of the trade date. Realized gains and losses from investment transactions are calculated on a weighted average cost basis. The difference between fair value and average cost, as recorded in the financial statements, is included in the statements of comprehensive income as part of the net change in unrealized appreciation (depreciation) of investments and derivatives. Interest income for distribution purposes from investments in bonds and short-term investments represents the coupon interest received by the ETF accounted for on an accrual basis. The ETF does not amortize premiums paid or discounts received on the purchase of fixed income securities. The ETF does not use the effective interest method. Dividend income is recognized on the ex-dividend date. Distribution income from investments in other funds or ETFs is recognized when earned. Income from derivatives is shown in the statements of comprehensive income as net realized gain (loss) on sale of investments and derivatives; net change in unrealized appreciation (depreciation) of investments and derivatives; and, interest income for distribution purposes, in accordance with its nature. Income from securities lending, if any, is included in Securities lending income on the statements of comprehensive income and is recognized when earned. Any securities on loan continue to be displayed in the schedule of investments and the market value of the securities loaned and collateral held is determined daily (see note 7). If the ETF incurs withholding taxes imposed by certain countries on investment income and capital gains, such income and gains are recorded on a gross basis and the related withholding taxes are shown as a separate expense in the statements of comprehensive income. 34

38 Notes to Financial Statements (unaudited) (continued) June 30, 2018 (c) Foreign currency Transactions in foreign currencies are translated into the ETF s reporting currency using the exchange rate prevailing on the trade date. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the period-end exchange rate. Foreign exchange gains and losses are presented as Net realized gain (loss) on foreign exchange, except for those arising from financial instruments at fair value through profit or loss, which are recognized as a component within Net realized gain (loss) on sale of investments and derivatives and Net change in unrealized appreciation (depreciation) of investments and derivatives in the statements of comprehensive income. (d) Cost basis The cost of portfolio investments is determined on an average cost basis. (e) Increase (decrease) in net assets attributable to holders of redeemable units per unit The increase (decrease) in net assets per unit by class in the statements of comprehensive income represents the change in net assets attributable to holders of redeemable units from operations attributable to each class divided by the weighted average number of units of that class outstanding during the reporting period. Income, expenses other than management fees, and realized and unrealized capital gains (losses) are distributed amongst the different classes of units in proportion to the amount invested in them. For management fees please refer to note 9. (f) Unitholder transactions The value at which units are issued or redeemed is determined by dividing the net asset value of the class by the total number of units outstanding of that class on the Valuation Date. Amounts received on the issuance of units and amounts paid on the redemption of units are included in the statements of changes in financial position. (g) Amounts receivable (payable) relating to portfolio assets sold (purchased) In accordance with the ETF s policy of trade date accounting for sale and purchase transactions, sales/purchase transactions awaiting settlement represent amounts receivable/payable for securities sold/purchased, but not yet settled as at the reporting date. (h) Net assets attributable to holders of redeemable units per unit Net assets attributable to holders of redeemable units per unit is calculated for each class of units of the ETF by taking the respective class proportionate share of the ETF s net assets attributable to holders of redeemable units and dividing by the number of units of that class outstanding on the Valuation Date. (i) Transaction costs Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs are expensed and are included in Transaction costs in the statements of comprehensive income. 35

39 Notes to Financial Statements (unaudited) (continued) June 30, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In preparing these financial statements, the Manager has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. The ETF may hold financial instruments that are not quoted in active markets, including derivatives. The determination of the fair value of these instruments is the area with the most significant accounting judgements and estimates that the ETF has made in preparing the financial statements. See note 6 for more information on the fair value measurement of the ETF s financial instruments. 5. FINANCIAL INSTRUMENTS RISK In the normal course of business, the ETF s investment activities expose it to a variety of financial risks. The Manager seeks to minimize potential adverse effects of these risks for the ETF s performance by employing professional, experienced portfolio advisors, by daily monitoring of the ETF s positions and market events, and periodically may use derivatives to hedge certain risk exposures. To assist in managing risks, the Manager maintains a governance structure that oversees the ETF s investment activities and monitors compliance with the ETF s stated investment strategies, internal guidelines and securities regulations. Please refer to the most recent prospectus for a complete discussion of the risks attributed to an investment in the units of the ETF. Significant financial instrument risks that are relevant to the ETF and an analysis of how they are managed are presented below. (a) Market risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor s/issuer s credit standing) will affect the ETF s income or the fair value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. (i) Currency risk Currency risk is the risk that financial instruments which are denominated in currencies other than the ETF s reporting currency, the Canadian dollar, will fluctuate due to changes in exchange rates and adversely impact the ETF s income, cash flows or fair values of its investment holdings. The ETF may reduce its foreign currency exposure through the use of derivative arrangements such as foreign exchange forward contracts or futures contracts. As at June 30, 2018, and December 31, 2017, the ETF did not have any material net exposure to foreign currencies due to the ETF s hedging strategies. (ii) Interest rate risk 36 The ETF may be exposed to the risk that the fair value of future cash flows of its financial instruments will fluctuate as a result of changes in market interest rates. In general, the value of interest-bearing financial instruments will rise if interest rates fall, and conversely, will generally fall if interest rates rise. There is minimal sensitivity to interest rate fluctuation on cash and cash equivalents invested at short-term market rates since those securities are usually held to maturity and are short term in nature.

40 Notes to Financial Statements (unaudited) (continued) June 30, 2018 The majority of the ETF s assets and liabilities are non-interest bearing. However, in general, preferred shares tend to react to changes in the prevailing level of long-term interest rates in a similar manner as bonds. For example, if interest rates fall, preferred share prices tend to rise, and vice versa. As at June 30, 2018, approximately 99.0% (December 31, %) of the ETF s net assets were directly or indirectly exposed to interest rate risk. The amount by which the net assets of the ETF would have increased or decreased, as at June 30, 2018, had the prevailing interest rates been lowered or raised by 1%, assuming a parallel shift in the yield curve, with all other variables remaining constant, was $66,926,992 (December 31, $34,047,581). (iii) Other market risk Other market risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting all instruments traded in a market or market segment. The Manager has imposed internal risk management controls on the ETF which are intended to limit the loss on its trading activities. The table below shows the estimated impact on the ETF of a 1% increase or decrease in a broad-based market index, based on historical correlation, with all other factors remaining constant, as at the dates shown. In practice, actual results may differ from this sensitivity analysis and the difference could be material. The historical correlation may not be representative of future correlation. (b) Credit risk Comparative Index June 30, 2018 December 31, 2017 S&P/TSX Preferred Index $16,606,804 $14,777,489 Credit risk on financial instruments is the risk of a financial loss occurring as a result of the default of a counterparty on its obligation to the ETF. It arises principally from debt securities held, and also from derivative financial assets, cash and cash equivalents, and other receivables. The ETF s maximum credit risk exposure as at the reporting date is represented by the respective carrying amounts of the financial assets in the statements of financial position. The ETF s credit risk policy is to minimise its exposure to counterparties with perceived higher risk of default by dealing only with counterparties that meet the credit standards set out in the ETF s prospectus and by taking collateral. 37

41 Notes to Financial Statements (unaudited) (continued) June 30, 2018 Analysis of credit quality The ETF s credit risk exposure by designated rating of the invested portfolio as at June 30, 2018, and December 31, 2017, is listed as follows: Canadian Securities by Credit Rating Percentage of Net Asset Value (%) June 30, 2018 December 31, 2017 P-1 - Best credit P-2 - Second best credit 60.7% 61.8% P-3 - Third best credit 34.7% 35.1% Unrated 1.8% Total 97.2% 96.9% U.S. Securities by Credit Rating Percentage of Net Asset Value (%) June 30, 2018 December 31, 2017 BBB 0.8% 1.6% BB 1.0% 0.3% Total 1.8% 1.9% Designated ratings are obtained by Standard & Poor s, Moody s and/or Dominion Bond Rating Services. Where more than one rating is obtained for a security, the lowest rating has been used. Credit risk is managed by dealing with counterparties the ETF believes to be creditworthy and by regular monitoring of credit exposures. The maximum exposure to any one debt issuer as of June 30, 2018, was 9.6% (December 31, %) of the net assets of the ETF. (c) Liquidity risk Liquidity risk is the risk that the ETF will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The ETF s policy and the investment manager s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions, including estimated redemptions of shares, without incurring unacceptable losses or risking damage to the ETF s reputation. All financial liabilities are generally due within 90 days. Liquidity risk is managed by investing the majority of the ETF s assets in investments that are traded in an active market and can be readily disposed. The ETF aims to retain sufficient cash and cash equivalent positions to maintain liquidity; therefore, the liquidity risk for the ETF is considered minimal. 38

42 Notes to Financial Statements (unaudited) (continued) June 30, FAIR VALUE MEASUREMENT Below is a classification of fair value measurements of the ETF s investments based on a three level fair value hierarchy and a reconciliation of transactions and transfers within that hierarchy. The hierarchy of fair valuation inputs is summarized as follows: Level 1: securities that are valued based on quoted prices in active markets. Level 2: securities that are valued based on inputs other than quoted prices that are observable, either directly as prices, or indirectly as derived from prices. Level 3: securities that are valued with significant unobservable market data. Changes in valuation methods may result in transfers into or out of an investment s assigned level. The following is a summary of the inputs used as at June 30, 2018, and December 31, 2017, in valuing the ETF s investments and derivatives carried at fair values: June 30, 2018 December 31, 2017 Level 1 ($) Level 2 ($) Level 3 ($) Level 1 ($) Level 2 ($) Level 3 ($) Financial Assets Short-Term Investments 4,086,429 Bonds 25,076,782 8,727,006 Equities 1,682,810,560 1,508,442,895 Currency Forward Contracts 18, ,930 Total Financial Assets 1,682,810,560 29,181,664 1,508,442,895 9,689,936 Financial Liabilities Currency Forward Contracts (716,602) Total Financial Liabilities (716,602) Net Financial Assets and Liabilities 1,682,810,560 28,465,062 1,508,442,895 9,689,936 There were no significant transfers made between Levels 1 and 2 as a result of changes in the availability of quoted market prices or observable market inputs during the period or year shown. In addition, there were no investments or transactions classified in Level 3 for the period ended June 30, 2018, and for the year ended December 31, SECURITIES LENDING In order to generate additional returns, the ETF is authorized to enter into securities lending agreements with borrowers deemed acceptable in accordance with National Instrument Investment Funds ( NI ). Under a securities lending agreement, the borrower must pay the ETF a negotiated securities lending fee, provide compensation to the ETF equal to any distributions received by the borrower on the securities borrowed, and the ETF must receive an acceptable form of collateral in excess of the value of the securities loaned. Although such collateral is marked to market, the ETF may be exposed to the risk of loss should a borrower default on its obligations to return the borrowed securities and the collateral is insufficient to reconstitute the portfolio of loaned securities. Revenue, if any, earned on securities lending transactions during the period is disclosed in the ETF s statements of comprehensive income. 39

43 Notes to Financial Statements (unaudited) (continued) June 30, 2018 The aggregate closing market value of securities loaned and collateral received as at June 30, 2018, and December 31, 2017, was as follows: As at Securities Loaned Collateral Received June 30, 2018 $28,665,833 $30,185,279 December 31, 2017 $19,917,703 $20,920,989 Collateral may comprise, but is not limited to, cash and obligations of or guaranteed by the Government of Canada or a province thereof; by the United States government or its agencies; by some sovereign states; by permitted supranational agencies; and short-term debt of Canadian financial institutions, if, in each case, the evidence of indebtedness has a designated rating as defined by NI The table below presents a reconciliation of the securities lending income as presented in the statements of comprehensive income for the periods ended June 30, 2018 and It shows the gross amount of securities lending revenues generated from the securities lending transactions of the ETF, less any taxes withheld and amounts earned by parties entitled to receive payments out of the gross amount as part of any securities lending agreements. 40 For the periods ended June 30, 2018 % of Gross Income June 30, 2017 % of Gross Income Gross securities lending income $21,954 $12,965 Withholding taxes (116) 0.53% (172) 1.33% Lending Agents fees: Canadian Imperial Bank of Commerce (6,539) 29.78% (3,833) 29.56% Net securities lending income paid to the ETF $15, % $8, % 8. REDEEMABLE UNITS The ETF is authorized to issue an unlimited number of redeemable, transferable Class E units each of which represents an equal, undivided interest in the net assets of the ETF. Each unit entitles the owner to one vote at meetings of unitholders. Each unit is entitled to participate equally with all other units with respect to all payments made to unitholders, other than management fee distributions, whether by way of income or capital distributions and, on liquidation, to participate equally in the net assets of the ETF remaining after satisfaction of any outstanding liabilities that are attributable to units of that class of the ETF. All units will be fully paid and non-assessable, with no liability for future assessments, when issued and will not be transferable except by operation of law. Prior to the Conversion transaction and subsequent termination of the Advisor Class units described in note 1, the ETF was authorized to issue an unlimited number of redeemable, transferable Advisor Class units each of which had the same rights and privileges as the Class E units. The redeemable units issued by the ETF provide an investor with the right to require redemption for cash at a value proportionate to the investor s share in the ETF s net assets at each redemption date. They are classified as liabilities as a result of the ETF s requirement to distribute net income and capital gains to unitholders. The ETF s objectives in managing the redeemable units are to meet the ETF s investment objective, and to manage liquidity risk arising from redemptions. The ETF s management of liquidity risk arising from redeemable units is discussed in note 5.

44 Notes to Financial Statements (unaudited) (continued) June 30, 2018 On any trading day, which is defined as the day that a net asset value of the ETF is being struck, unitholders of the ETF may (i) redeem units of the ETF for cash at a redemption price per unit equal to 95% of the closing price for units of the ETF on the TSX on the effective day of the redemption, where the units being redeemed are not equal to a prescribed number of units ( PNU ) or a multiple PNU; or (ii) redeem, less any applicable redemption charge as determined by the Manager in its sole discretion from time to time, a PNU or a multiple PNU of the ETF for cash equal to the net asset value of that number of units. Subject to regulatory and other necessary third party approvals, a stock exchange sponsored execution program may become available which would allow investors to purchase and sell Class E units of the ETF based on transaction prices calculated as at the end-of-day net asset value, plus any fee payable to the investor s dealer for the dealer s facilitation of the purchase or sale. The Manager will issue a news release announcing the details of any such stock exchange sponsored execution program. Units of the ETF are issued or redeemed on a daily basis at the net asset value per security that is determined as at 4:00 p.m. (Eastern Time) each business day. Purchase and redemption orders are subject to a 9:30 a.m. (Eastern Time) cutoff time. The ETF is required to distribute any net income and capital gains that it has earned in the year. Income earned by the ETF is distributed to unitholders at least once per year, if necessary, and these distributions are either paid in cash or reinvested by unitholders into additional units of the ETF. Net realized capital gains, if any, are typically distributed in December of each year to unitholders. The annual capital gains distributions are not paid in cash but rather, are reinvested and reported as taxable distributions and used to increase each unitholder s adjusted cost base for the ETF. Distributions paid to holders of redeemable units are recognized in the statements of changes in financial position. Please consult the ETF s most recent prospectus for a full description of the subscription, exchange and redemption features of the ETF s units. For the periods ended June 30, 2018 and 2017, the number of units issued by subscription and/or distribution reinvestment, the number of units redeemed, the total and average number of units outstanding was as follows: Class of Units Period Beginning Units Outstanding Units Issued Units Redeemed Ending Units Outstanding Average Units Outstanding Class E ,285,040 32,863,863 (11,325,000) 180,823, ,051, ,180,722 30,670,201 (12,000,000) 126,850, ,712,155 Advisor Class ,386,474 8 (1,386,482) 1,267,261 The Class E units issued and Advisor Class units redeemed for the period ended June 30, 2017, include the units converted as part of any monthly conversion privileges as well as any converted as part of the Conversion transaction described in note 1. These non-cash conversion transactions were equal to $10,579,145 and have not been included in the statements of cash flows. Advisor Class units were terminated on April 28,

45 Notes to Financial Statements (unaudited) (continued) June 30, EXPENSES Management fees The Manager provides, or oversees the provision of, administrative services required by the ETF including, but not limited to: negotiating contracts with certain third-party service providers, such as portfolio managers, custodians, registrars, transfer agents, auditors and printers; authorizing the payment of operating expenses incurred on behalf of the ETF; arranging for the maintenance of accounting records for the ETF; preparing reports to unitholders and to the applicable securities regulatory authorities; calculating the amount and determining the frequency of distributions by the ETF; preparing financial statements, income tax returns and financial and accounting information as required by the ETF; ensuring that unitholders are provided with financial statements and other reports as are required from time to time by applicable law; ensuring that the ETF complies with all other regulatory requirements, including the continuous disclosure obligations of the ETF under applicable securities laws; administering purchases, redemptions and other transactions in units of the ETF; and dealing and communicating with unitholders of the ETF. The Manager provides office facilities and personnel to carry out these services, if not otherwise furnished by any other service provider to the ETF. The Manager also monitors the investment strategies of the ETF to ensure that the ETF complies with its investment objectives, investment strategies and investment restrictions and practices. In consideration for the provision of these services, the Manager receives a monthly management fee at the annual rate of 0.55%, plus applicable sales taxes, of the net asset value of the ETF s Class E units, calculated and accrued daily and payable monthly in arrears. The Sub-Advisor is compensated for its services out of the management fees without any further cost to the ETF. Any expenses of the ETF which are waived or absorbed by the Manager are paid out of the management fees received by the Manager. Up until the termination of the ETF s Advisor Class units on April 28, 2017, as described in note 1, the ETF also received a monthly management fee at the annual rate of 1.05%, plus applicable sales taxes, of the net asset value of the ETF s Advisor Class units, calculated and accrued daily and payable monthly in arrears. In addition, up until the termination of the Advisor Class units, the Manager, and not the ETF, paid to registered dealers a service fee equal to 0.50% per year of the net asset value of Advisor Class units held by clients of the registered dealer. No service fees are paid to registered dealers in respect of Class E units. Other expenses Unless otherwise waived or reimbursed by the Manager, the ETF pays all of its operating expenses, including but not limited to: audit fees; trustee and custodial expenses; valuation, accounting and record keeping costs; legal expenses; permitted prospectus preparation and filing expenses; costs associated with delivering documents to unitholders; listing and annual stock exchange fees; index licensing fees, if applicable; fees payable to CDS Clearing and Depository Services Inc.; bank related fees and interest charges; extraordinary expenses; unitholder reports and servicing costs; registrar and transfer agent fees; costs of the Independent Review Committee; income taxes; sales taxes; brokerage expenses and commissions; and withholding taxes. The Manager, at its discretion, may waive and/or absorb a portion of the fees and/or expenses otherwise payable by the ETF. The waiving and/or absorption of such fees and/or expenses by the Manager may be terminated at any time, or continued indefinitely, at the discretion of the Manager. 42

46 Notes to Financial Statements (unaudited) (continued) June 30, BROKER COMMISSIONS, SOFT DOLLARS AND RELATED PARTY TRANSACTIONS Prior to June 30, 2017, an affiliate of National Bank of Canada ( NBC ) and National Bank Financial Inc. ( NBF ) held an indirect minority interest in AlphaPro. NBF acted as a designated broker, an underwriter and/or a registered trader (market maker). NBC, NBF and its affiliates may, at present or in the future, engage in business with the ETF, the issuers of securities making up the investment portfolio of the ETF, or with the Manager or any funds sponsored by the Manager or its affiliates, including by making loans, executing brokerage transactions, entering into derivative transactions or providing advisory or agency services. Effective June 30, 2017, Horizons Management acquired the minority interest of AlphaPro owned by an affiliate of NBC and as a result, became the sole shareholder of AlphaPro. Accordingly, NBC and NBF, along with Fiera, are no longer considered affiliates or related parties of Horizons Management and, prior to the Amalgamation, AlphaPro. Brokerage commissions paid on securities transactions may include amounts paid to related parties of the Manager for brokerage services provided to the ETF. Research and system usage related services received in return for commissions generated with specific dealers are generally referred to as soft dollars. The Manager does not typically engage in soft dollar transactions. Soft dollars, if any, are generated by and for the ETF s Sub-Advisor Total brokerage commissions paid to dealers in connection with investment portfolio transactions, soft dollar transactions incurred and amounts paid to related parties of the Manager for the periods ended June 30, 2018 and 2017, were as follows: Period Ended Brokerage Commissions Paid Soft Dollar Transactions Amount Paid to Related Parties June 30, 2018 $317,723 $20,866 $nil June 30, 2017 $270,312 $14,684 $6,800 In addition to the information contained in the table above, the management fees paid to the Manager described in note 9 are related party transactions, as the Manager is considered to be a related party to the ETF. Fees paid to the Independent Review Committee are also considered to be related party transactions. Both the management fees and fees paid to the Independent Review Committee are disclosed in the statements of comprehensive income. The management fees payable by the ETF as at June 30, 2018, and December 31, 2017, are disclosed in the statements of financial position. The ETF may invest in other ETFs managed by the Manager or its affiliates, in accordance with the ETF s investment objectives and strategies. Such investments, if any, are disclosed in the schedule of investments. 11. INCOME TAX The ETF has qualified as a mutual fund trust under the Income Tax Act (Canada) (the Tax Act ) and accordingly, is not taxed on the portion of taxable income that is paid or allocated to unitholders. As well, tax refunds (based on redemptions and realized and unrealized gains during the year) may be available that would make it possible to retain some net capital gains in the ETF without incurring any income taxes. 43

47 Notes to Financial Statements (unaudited) (continued) June 30, TAX LOSSES CARRIED FORWARD Capital losses for income tax purposes may be carried forward indefinitely and applied against capital gains realized in future years. Non-capital losses carried forwards may be applied against future years taxable income. Non-capital losses that are realized in the current taxation year may be carried forward for 20 years. As at December 31, 2017, the ETF had net capital losses and/or non-capital losses, with the year of expiry of the non-capital losses as follows: Net Capital Losses Non-Capital Losses Year of Expiry $6,163, OFFSETTING OF FINANCIAL INSTRUMENTS In the normal course of business, the ETF may enter into various master netting arrangements or other similar agreements that do not meet the criteria for offsetting in the statements of financial position but still allow for the related amounts to be set off in certain circumstances, such as bankruptcy or termination of the contracts. The following table shows financial instruments that may be eligible for offset, if such conditions were to arise, as at June 30, 2018, and December 31, The Net column displays what the net impact would be on the ETF s statements of financial position if all amounts were set-off. Financial Assets and Liabilities as at June 30, 2018 Gross Assets (Liabilities) Amounts Offset ($) Amounts Not Offset ($) Net ($) Gross Assets (Liabilities) Offset Net Amounts Financial Instruments Cash Collateral Pledged Derivative assets 18,453 18,453 (18,453) Derivative liabilities (716,602) (716,602) 18,453 (698,149) Financial Assets and Liabilities as at December 31, 2017 Gross Assets (Liabilities) Amounts Offset ($) Amounts Not Offset ($) Net ($) Gross Assets (Liabilities) Offset Net Amounts Financial Instruments Cash Collateral Pledged Derivative assets 962, , ,930 Derivative liabilities 14. INTERESTS IN SUBSIDIARIES, ASSOCIATES AND UNCONSOLIDATED STRUCTURED ENTITIES The ETF may invest in units of other ETFs as part of its investment strategies ( Investee ETF(s) ). The nature and purpose of these Investee ETFs generally, is to manage assets on behalf of third party investors in accordance with their investment objectives, and are financed through the issue of units to investors. In determining whether the ETF has control or significant influence over an Investee ETF, the ETF assesses voting rights, the exposure to variable returns, and its ability to use the voting rights to affect the amount of the returns. In instances where the ETF has control over an Investee ETF, the ETF qualifies as an investment entity under IFRS 10 - Consolidated 44

48 Notes to Financial Statements (unaudited) (continued) June 30, 2018 Financial Statements, and therefore accounts for investments it controls at fair value through profit and loss. The ETF s primary purpose is defined by its investment objectives and uses the investment strategies available to it as defined in the ETF s prospectus to meet those objectives. The ETF also measures and evaluates the performance of any Investee ETFs on a fair value basis. Investee ETFs over which the ETF has control or significant influence are categorized as subsidiaries and associates, respectively. All other Investee ETFs are categorized as unconsolidated structured entities. Investee ETFs may be managed by the Manager, its affiliates, or by third-party managers. Investments in Investee ETFs are susceptible to market price risk arising from uncertainty about future values of those Investee ETFs. The maximum exposure to loss from interests in Investee ETFs is equal to the total fair value of the investment in those respective Investee ETFs at any given point in time. The fair value of Investee ETFs, if any, are disclosed in investments in the statements of financial position and listed in the schedule of investments. As at June 30, 2018, and December 31, 2017, the ETF had no exposure to subsidiaries, associates or unconsolidated structured entities. 15. COMPARATIVE FINANCIAL STATEMENTS Certain information in the comparative financial statements and/or notes to the financial statements for 2017 has been reclassified to conform to the financial statement presentation adopted for

49 Manager Horizons ETFs Management (Canada) Inc. 55 University Avenue, Suite 800 Toronto, Ontario M5J 2H7 Tel: Fax: Toll Free: Auditors KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto, Ontario M5H 2S5 Custodian CIBC Mellon Trust Company 1 York Street, Suite 900 Toronto, Ontario M5J 0B6 Registrar and Transfer Agent AST Trust Company (Canada) 1 Toronto Street, Suite 1200 Toronto, Ontario M5C 2V6 Innovation is our capital. Make it yours. Horizons Exchange Traded Funds 55 University Avenue, Suite 800 Toronto, Ontario, M5J 2H7 T TF w horizonsetfs.com ACTIVE BENCHMARK BETAPRO