Horizons NYMEX Crude Oil ETF (HUC:TSX)

Transcription

1 Interim Report June 30, 2016 Horizons NYMEX Crude Oil ETF (HUC:TSX) Innovation is our capital. Make it yours. ALPHA BENCHMARK BETAPRO

2 Contents MANAGEMENT REPORT OF FUND PERFORMANCE Management Discussion of Fund Performance...1 Financial Highlights...6 Past Performance...9 Summary of Investment Portfolio...10 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING...11 FINANCIAL STATEMENTS Statements of Financial Position...12 Statements of Comprehensive Income...13 Statements of Changes in Financial Position...14 Statements of Cash Flows...15 Schedule of Investments...16 Notes to Financial Statements...17

3 Letter from the Co-CEO: So far, 2016 has been a road to recovery for North American investors, as equity markets continue to bounce back from the lows of late January. In fact, the Canadian equity market, up more than 8% year-to-date has been one of the best-performing developed equity markets in the world. Additionally, we have seen the price of crude oil stabilize which we believe has been a leading contributor to the recovery and strengthening of the Canadian dollar relative to the U.S. dollar, up approximately 7% since the beginning of Overall, the first half of the year has been very successful for the North American ETF industry, with U.S. assets at US$2.2 trillion and Canadian ETF assets surpassing the CAD$100 billion mark in May. Equities and fixed income ETFs continue to make up the largest inflows for both Canada and the U.S. For Horizons ETFs, in particular, this has been a year of new milestones. In April, we surpassed more than $6 billion in assets under management and have continued to watch our active and benchmark lineup of ETFs grow. In fact, the Horizons Cdn High Dividend Index ETF ( HXH ) has been one of the largest launches on the Canadian side of the border, acquiring more than $100 million in assets within its first week of launch. With the regulatory landscape in North America, particularly Canada, shifting towards fee-based transparency, and fewer tax efficient products available to the retail investor, we ve focused on expanding our line-up of Total Return Index (TRI) ETFs. This includes the launch of HXH and the Horizons Nasdaq-100 Index ETF ( HXQ ), and lowering the cost of our flagship TRI ETFs like the Horizons S&P 500 Index ETF ( HXS ), reducing its management fee to 0.10% from 0.15%. We also launched the Horizons China High Dividend Yield Index ETF ( HCN ), the first benchmark ETF to provide Canadian investors with exposure to the Hang Seng High Dividend Yield Index. Looking to the remainder of 2016, it will be an interesting time for global markets. Many investors are watching every Federal Open Market Committee (FOMC) meeting closely, wondering whether or not the U.S. is in fact in a strong enough position economically to take on another rate hike. As well, the outcome of the June 23 referendum in the United Kingdom to leave the European Union could have far reaching implications in the markets, both locally and abroad, for the months and years to come. At Horizons ETFs we try and remain agnostic on the direction of the markets, however, we do think it s fair to say that investors can no longer rely on easy returns. Investors require more creative solutions that take advantage of volatility, such as covered call and alternative asset strategies. Knowing investors shouldn t rely on a single strategy for success, we believe that our diverse suite of ETF solutions provides investors with the tools they need for handling any of the market conditions that 2016 holds on the horizon. We remain proud to be a partner in your investment process. For more information on our strategies, please visit our website at where we offer a range of resources designed to help you become a skilled ETF investor. Wishing you the best for the remainder of 2016, Steven J. Hawkins, President & Co-CEO Horizons ETFs Management (Canada) Inc.

4 MANAGEMENT REPORT OF FUND PERFORMANCE This interim report management report of fund performance for Horizons NYMEX Crude Oil ETF ( Horizons HUC 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 investment fund 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, by calling (toll free) , or (416) , by writing to Horizons ETFs Management (Canada) Inc. ( Horizons Management or the Manager ), at 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, by visiting our website at or through 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, 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 simplified 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 Strategy Horizons HUC seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the performance of the NYMEX light sweet crude oil futures contract for the next December delivery month (the Referenced Futures Contract ). Horizons HUC is denominated in Canadian dollars. Any U.S. dollar gains or losses as a result of the ETF s investment will be hedged back to the Canadian dollar to the best of the ETF s ability. If Horizons HUC is successful in meeting its investment objective, its net asset value should gain approximately as much, on a percentage basis, as any increase in the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light sweet crude oil futures contract for the next December delivery month rises on a given day. Conversely, Horizons HUC s net asset value should lose approximately as much, on a percentage basis, as the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light sweet crude oil futures contract for the next December delivery month declines on a given day. Horizons HUC invests in financial instruments that have similar return characteristics as the performance of the NYMEX light sweet crude oil futures contract for the next December delivery month. Initially, Horizons HUC anticipates that it will roll the current December NYMEX light sweet crude oil futures contract to the next December NYMEX light sweet crude oil futures contract in June. In order to achieve this objective, the total underlying notional value of these instruments will typically not exceed one times the total assets of the ETF. Assets not invested in financial instruments may be invested in debt instruments or money market instruments with a term not to exceed 365 days, or repurchase agreements with a term not to exceed 30 days. 1

5 Management Discussion of Fund Performance (continued) Risk Value of the Referenced Futures Contract Horizons HUC will typically use the NYMEX light sweet crude oil futures contract for the next December delivery month as determined at approximately 2:30 p.m. (EST) as the reference for its investment objective. Currently, Horizons HUC tracks the NYMEX West Texas Intermediate Cushing Crude Oil December futures contract to achieve its investment objective. The performance of Horizons HUC is currently based on a rolling futures position of the NYMEX West Texas Intermediate Cushing Crude Oil futures contract for the next December delivery month. On a periodic basis, positions in the NYMEX light sweet crude oil futures contracts specifying delivery on a nearby date must be sold and the NYMEX light sweet crude oil futures contracts that have not yet reached the delivery period must be purchased. Initially, it is anticipated that the current NYMEX light sweet crude oil futures contract will be rolled to the next December NYMEX light sweet crude oil futures contract in June. By rolling, an investor with a rolling position in a NYMEX light sweet crude oil futures contract avoids delivering the underlying commodity while maintaining exposure to light sweet crude oil. About the Referenced Futures Contract A futures contract is a standardized financial contract where the parties agree to exchange currencies, financial instruments or other physical commodities at a future date at a future price. The future market is not a ready market like a spot market, does not involve primary activity, and is speculative in nature. In the future market, deals are struck at forward prices and give the holder the obligation to buy or sell the underlying asset. The futures date is called the delivery date and a final settlement date, and the pre-set price is called the futures price. The ETF uses the NYMEX light sweet crude oil futures contract for the next December delivery month as its Referenced Futures Contract. The NYMEX light sweet crude oil futures contract is the world s most liquid forum for crude oil trading, as well as the world s largest-volume futures contract trading on a physical commodity. Because of its excellent liquidity and price transparency, the contract is used as a principal international pricing benchmark. Investments in the units of the ETF are speculative, involve a high degree of risk and are suitable only for persons who are able to assume the risk of losing their entire investment. 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. 2 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 calling Horizons ETFs Management (Canada) Inc. at (toll free) , or at (416) Commodity risk Spot v. futures risk Aggressive investment technique risk Concentration risk Trading in derivatives is highly leveraged Corresponding net asset value risk Counterparty risk Correlation risk Liquidity risk Market risk Early closing risk Regulatory risk Commodity market risk No assurance of meeting investment objective Tax risk Conflicts of interest Price limit risk Liability of unitholders No assurance of continued participation Reliance on the manager Reverse repurchase transaction risk Designated broker/dealer risk Exchange risk Borrowing risk Foreign exchange risk Exchange rate risk Securities lending risk

6 Management Discussion of Fund Performance (continued) The degree of the price volatility risk will vary from period to period depending on the volatility of the Referenced Futures Contract. Please refer to the Results of Operations section for further discussion on the impact of price volatility on the performance of the ETF relative to its Referenced Futures Contract. Results of Operations For the six-month period ended June 30, 2016, units of the ETF returned 15.77%. This compares to a return of 17.95% for the Referenced Futures Contract for the same period. The above figures are adjusted for distributions, if any. The 1-month NYMEX crude oil futures contracts ( Oil Futures ) had a very strong first half of the year, returning 30.48% for the six-month period ended June 30, However, the Oil Futures returned 6.76% on continuous rolling basis. Oil Futures experienced a 54.74% annualized standard deviation for the six-month period ended June 30, NYMEX 1- and 2-month crude oil futures were in contango 100% of the time and were never in backwardation during the first half of Equity market volatility that had been dormant for most of 2015 reappeared in earnest to bookend the first half of January and February were marked by a couple of rapid selloffs as world equity markets digested the U.S. Federal Reserve s December 2015 interest rate hike. Oil Futures, which began the year at U.S.$37.04 per barrel of West Texas Intermediate crude oil (/BBl), sold off as well as investors feared the onset of renewed recession fears. After hitting a low closing price for the period of U.S.$27.45/BBl on February 10, a decline of 25.89% from the end of 2015, Oil Futures recovered in dramatic fashion as those recession fears ebbed away. From the February 10 low to the closing price at the end of the first quarter on March 31 at U.S.$38.34/BBl, Oil Futures experienced a 39.67% rally to incredibly finish the first quarter of 2016 with a positive return of 3.51%. The Oil Futures price strength continued into the second quarter of Oil Futures hit a period-high closing price of U.S. $51.23/BBl on June 8, 2016, up 33.62% from March 31, 2016 and an unbelievable 86.63% off of the February 10, 2016 low. Oil Futures sold off marginally into the end of June, finishing the first half of the year on June 30 at U.S.$48.33/BBl. The number of producing oil rigs has come down significantly from 2014, which finally started to make a dent in the level of world oil inventories. China was a large purchaser of oil as it aimed to take advantage of the low oil prices from the last couple of years to stock their strategic oil reserves. However, these tailwinds that contributed to the first half performance may turn to headwinds. As the price of oil has risen, a number of oil companies have restarted oil production at operations that had become uneconomic at lower oil prices. This threatens to re-ignite the oil supply glut that was prevalent over much of 2014 and In addition, now that China s strategic oil reserves are nearly full; those oil purchases will surely be reduced, removing a key driver of price support from the market. As we head into the second half of 2016, the U.S. economy appears to be one of the few globally showing any type of strength, and even that is tepid at best. Whether that will be enough to buttress against the continued economic weakness in China, potential recessions in many other parts of the world, and further instability in Europe, will likely play a big role in commodity prices in general and crude oil prices, more specifically. Horizons Management does not endeavour to predict market direction generally, or the changes that may occur in global fiscal and monetary policies, the effect of additional geopolitical concerns, or unforeseen other crises. Horizons Management and the ETF are agnostic as to their impact on global equity, fixed income, currency, and commodity markets generally, and the crude oil futures market specifically. They are only of concern to the ETF in so much as there is some minimal risk they could affect its ability to meet its investment objective. Please refer to the risk factors section in the ETF s prospectus for a more detailed discussion. The annualized volatility of each of the Referenced Futures Contract and the ETF was 37.39% and 34.35%, respectively, for the period ended June 30,

7 Management Discussion of Fund Performance (continued) The ETF may, at times, have very large purchase and redemption activity. However, the performance of the ETF is primarily affected by the performance of its forward agreement, which is rebalanced daily and is tied to the performance of the ETF s Referenced Futures Contract. The performance and liquidity of the ETF is unaffected by the asset size of the ETF, or by purchase and redemption activity, as these transactions are taken into account during the daily rebalancing of the forward agreement. Forward Agreement In order to achieve its investment objective, the ETF has entered into multiple forward agreements (the Forward Agreements ) with one or more bank counterparties (each a Forward Counterparty ). The Forward Agreements provide both positive exposure to the Referenced Futures Contract and negative exposure to the Referenced Futures Contract. The ETF seeks to achieve its investment objective through the net exposure of these Forward Agreements. The ETF generally invests its assets in interest bearing accounts and short-term Canadian federal or provincial treasury bills to earn prevailing short-term market interest rates. The one or more Forward Counterparties to any Forward Agreements entered into by the ETF must be a chartered Canadian bank or an affiliate of a chartered Canadian bank whose obligations are guaranteed by a chartered Canadian bank, and which has a designated rating. In respect of short-term securities or instruments (where the maturity date of the security or instrument is less than one year), Forward Counterparties must have a designated rating for Commercial Paper/Short-Term Debt no lower than (a) Dominion Bond Rating Service Limited ( DBRS ) - R-1(low) ; (b) Fitch Ratings ( Fitch ) - F1 ; (c) Moody s Investors Service ( Moody s ) - P-1 ; and (d) Standard & Poor s ( S&P ) - A-1(Low). In respect of long-term securities or instruments (where the maturity date of the security or instrument is equal to or greater than one year), Forward Counterparties must have a designated rating for Long-Term Debt no lower than (a) DBRS - A ; (b) Fitch - A ; (c) Moody s - A2 ; and (d) S&P - A. Forward Counterparties are subject to the applicable short-term or long-term designated rating restrictions listed above. The Forward Counterparty to the Forward Agreements meets those designated rating requirements. Each Forward Agreement has a remaining term to maturity at any point in time of less than five years which, with the consent of the ETF and the applicable Forward Counterparty, will be extended annually for a fixed number of years and, provided no default or event of default and no unresolved hedging event or disruption event has occurred and is continuing, the ETF has the ability to request the termination of its exposure under a Forward Agreement, in whole or in part, at any time. Since the Forward Agreements, like most forward agreements, may settle the obligations of each party on a net basis, the exposure of the ETF to the credit risk of the Forward Counterparty is limited to the positive mark-to-market of the Forward Agreements entered into with that Forward Counterparty, which is calculated and accrued on a daily basis. 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 for periods starting on or after January 1, 2013 is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS. Any information presented for periods prior to January 1, 2013 is in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ). 4

8 Management Discussion of Fund Performance (continued) Recent Developments Other than indicated below, there are no recent industry, management or ETF related developments that are pertinent to the present and future of the ETF. Unit Transaction The units of the ETF were consolidated on a one for two basis effective May 30, All relevant unit and per unit historical data prior to May 30, 2016 has been adjusted to reflect the consolidation. Change to the Expense Structure of the ETF A change to the expense structure of the ETF was approved at a meeting of the unitholders of the ETF on June 21, In order to bring the current fee structure of the ETF in line with generally prevailing Canadian industry practice for investment funds, unitholders approved a resolution to expand the scope of operating expenses payable by the ETF, and consequently indirectly borne by unitholders (the Amended Fee Structure ). The changes to the expense structure are detailed in the Management Fees section on page 8. Related Party Transactions There were no related party portfolio transactions during the current reporting period. 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., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, a corporation incorporated under the laws of Ontario. The Manager and its subsidiary, AlphaPro Management Inc., are members of the Mirae Asset Financial Group. For a complete description of services provided, please refer to the most recent prospectus of the ETF Duties and Services to be Provided by the Manager. National Bank of Canada Relationship While not a related party to the ETF, an affiliate of National Bank of Canada ( NBC ) and National Bank Financial Inc. ( NBF ) holds an indirect minority interest in AlphaPro Management Inc., a subsidiary of the Manager. NBF acts or may act as a designated broker, an underwriter and/or a registered trader (market maker). These relationships may create actual or perceived conflicts of interest which investors should consider in relation to an investment in the ETF. In particular, by virtue of these relationships, NBF may profit from the sale and trading of the ETF s units. NBF, as market maker of the ETF in the secondary market, may therefore have economic interests which differ from and may be adverse to those of the ETF s unitholders. NBF s potential roles as a designated broker and a dealer of the ETF are not as an underwriter of the ETF in connection with the primary distribution of units under the ETF s prospectus. NBF was not involved in the preparation of, nor did it perform any review of, the contents of the ETF s prospectus. 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, entering into derivative transactions or providing advisory or agency services. In addition, the relationship between NBF and its affiliates, and the Manager and its affiliates may extend to other activities, such as being part of a distribution syndicate for other funds sponsored by the Manager or its affiliates. 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 reporting period and for the past five fiscal years. This information is derived from the ETF s annual audited 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 Period Net assets, beginning of period (1) $ Increase (decrease) from operations: Total revenue Total expenses (0.07) (0.16) (0.28) (0.26) (0.18) (0.16) Realized gains (losses) for the period (0.05) (0.12) (7.72) 4.10 (3.88) (4.00) Unrealized gains (losses) for the period 2.59 (3.98) (1.86) (2.88) Total increase (decrease) from operations (2) 2.51 (4.16) (9.64) 1.00 (3.88) (1.18) Total distributions (3) Net assets, end of period (4) $ This information is derived from the ETF s unaudited interim financial statements as at June 30, 2016 and the audited annual financial statements as at December 31 of the other years shown. The ETF effectively began operations on June 24, Information from 2013 onwards is in accordance with IFRS. Information for years prior to 2013 is reported under Canadian GAAP. 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. Distributions, if any, were paid in cash, reinvested in additional units of the ETF, or both. 4. The Financial Highlights are not intended to act as a continuity of the opening and closing net assets per unit. 6

10 Financial Highlights (continued) Ratios and Supplemental Data Period (1) Total net asset value (000 s) $ 35,414 17,461 3,014 5,441 6,224 3,937 Number of units outstanding (000 s) 2,913 1, Management expense ratio (2) 0.86% 0.85% 0.87% 0.86% 0.78% 0.70% Management expense ratio before waivers and absorptions (2) 1.07% 1.11% 2.50% 1.27% 1.24% 1.59% Trading expense ratio (3) 0.41% 0.41% 0.40% 0.40% 0.47% 0.52% Portfolio turnover rate (4) 0.00% 0.00% 0.00% 70.65% % % Net asset value per unit, end of period $ Closing market price $ This information is provided as at June 30, 2016 and December 31 of the other years shown. The ETF effectively began operations on June 24, Information from 2013 onwards is in accordance with IFRS. Information for years prior to 2013 is reported under Canadian GAAP. 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 portfolio advisor compensation, administration, service fees and marketing. 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. 3. The trading expense ratio represents total commissions, forward agreement fees and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. 4. The ETF s portfolio turnover rate indicates how actively the ETF trades its portfolio investments. 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 a year. The higher an ETF s portfolio turnover rate in a year, 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 an ETF. 7

11 Financial Highlights (continued) Management Fees In consideration for management services and investment advice provided to the ETF, the Manager is entitled to a management fee. The management fee, inclusive of sales tax, is applied on a daily basis to the net asset value of the ETF. The management fees, exclusive of sales tax, are charged at the annual rate of 0.75%. Approximately 100% of management fees were used for investment management, other general administration and profit. Fees payable to the Investment Manager, which include the fees paid to the former portfolio manager, are paid from the management fees. Since the inception of the ETF, and ending July 31, 2016, the Manager has paid, from the management fee, substantially all of the costs and expenses relating to the operation of the business and affairs of the ETF including investment management, administration, legal, accounting, custody, audit, registrar and transfer agency fees, and applicable sales taxes as well as expenses associated with advertising, marketing, sponsoring and promoting the sale of units of the ETF. For the same period, the ETF, and not the Manager, was responsible for all brokerage expenses and commissions, income taxes, sales tax, costs associated with the Independent Review Committee of the ETF, filing fees, costs associated with delivering documents to unitholders, fees payable to the CDS Clearing and Depository Services Inc. ( CDS ), annual stock exchange fees, annual index licensing fees, if applicable, withholding taxes and extraordinary expenses. As described in the Recent Developments section, as of the implementation of the Amended Fee Structure on August 1, 2016, the ETF is now responsible for all of its operating expenses, unless waived or reimbursed by the Manager, 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; CDS fees; 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 tax; brokerage expenses and commissions; and withholding taxes. The Manager continues to bear the costs relating to the investment management, advertising, marketing, sponsorship and promotion of the ETF. The Manager, at its discretion, has waived or absorbed, and may continue to 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. Fees related to the operation of the Forward Agreements are not included in the management fees or other operating expenses of the ETF. Forward fees and applicable hedging costs related to the Forward Agreements, as described in the Fees and Expenses section of the ETF s prospectus, are incurred by way of a reduction in the forward price payable to the ETF by the Forward Counterparty. For the purposes of financial reporting, these expenses have been broken out and disclosed in transaction costs in the statements of comprehensive income and are included in the trading expense ratio in the management report of fund performance. 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. Marketing Portfolio management fees, general administrative costs and profit Waived/absorbed expenses of the ETF 5% 69% 26% 8

12 Past Performance Sales 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 returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution 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, if any, 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 the periods shown, and illustrates how the performance has changed from period to period. In percentage terms, the chart shows how much an investment made on the first day of each financial period (or, on the inception date, as the case may be) would have grown or decreased by the last day of the financial period % 10.00% 0.00% Rate of Return % % % % HUC 8.58% 4.83% -1.16% -7.79% 4.89% % % 15.77% The ETF effectively began operations on June 24, The ETF is rebalanced daily to ensure an investor s risk is limited to the current value of their investment. A perfect daily correlation of 100% of the daily return of the Referenced Futures Contract would be a correlation of 1.0. The ETF has achieved a perfect daily correlation to its stated Referenced Futures Contract since inception of

13 Summary of Investment Portfolio As at June 30, 2016 % of ETF s Asset Mix Net Asset Value Net Asset Value Investments $ 2,823, % Cash and Cash Equivalents held for Collateral 31,974, % Cash and Cash Equivalents - Other 614, % Other Assets less Liabilities 1, % $ 35,413, % Top Holdings % of ETF s Net Asset Value Cash and Cash Equivalents held for Collateral 90.29% Forward Agreements (net notional value US$27,293,766) 7.97% The summary of investment portfolio may change due to the ongoing portfolio transactions of the ETF. The most recent interim and annual reports are available at no cost by calling toll free , or (416) , by writing to us at Horizons ETFs Management (Canada) Inc., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, or by visiting our website at 10

14 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying unaudited interim financial statements of Horizons NYMEX Crude Oil ETF (the ETF ) are the responsibility of the manager and the 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 judgements. 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. 11

15 Statements of Financial Position (unaudited) As at June 30, 2016 and December 31, Assets Cash and cash equivalents held for collateral $ 31,974,990 $ 21,278,060 Cash and cash equivalents - other 614, ,604 Amounts receivable relating to accrued income 19,988 6,025 Amounts receivable relating to securities issued 303,980 Derivative assets (note 3) 2,823, ,455 Total assets 35,736,624 22,366,144 Liabilities Accrued expenses 25,062 11,674 Amounts payable for portfolio assets purchased 297,900 Derivative liabilities (note 3) 4,893,494 Total liabilities 322,962 4,905,168 Total net assets (note 2) $ 35,413,662 $ 17,460,976 Number of redeemable units outstanding, (note 10) 2,912,500 1,662,500 Total net assets per unit $ $ (See accompanying notes to financial statements) Approved on behalf of the Board of Directors of the Manager: Steven J. Hawkins Director Taeyong Lee Director Director 12

16 Statements of Comprehensive Income (unaudited) For the Periods Ended June 30, Income Interest income for distribution purposes $ 93,502 $ 44,442 Securities lending income (note 9) 4,941 1,557 Net realized loss on sale of investments and derivatives (145,154) (14,946) Net change in unrealized appreciation of investments and derivatives 7,112, ,488 7,065,956 1,015,541 Expenses Management fees (note 11) 119,604 49,919 Annual stock exchange listing fees 3,450 3,001 Index licensing fees 7,359 3,048 Filing fees 21,660 19,409 Independent Review Committee fees Securityholder reporting costs 3,748 3,302 Transaction costs 60,022 24, , ,179 Amounts that were payable by the investment fund that were paid or absorbed by the Manager (30,682) (27,863) 185,258 75,316 Increase in net assets for the period $ 6,880,698 $ 940,225 Increase in net assets per unit $ 2.51 $ 1.15 (See accompanying notes to financial statements) 13

17 Statements of Changes in Financial Position (unaudited) For the Periods Ended June 30, Total net assets at the beginning of the period $ 17,460,976 $ 3,013,846 Increase in net assets 6,880, ,225 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 15,994,348 12,557,745 Aggregate amounts paid on redemption of securities of the investment fund (4,922,360) (3,010,645) Total net assets at the end of the period $ 35,413,662 $ 13,501,171 (See accompanying notes to financial statements) 14

18 Statements of Cash Flows (unaudited) For the Periods Ended June 30, Cash flows from operating activities: Increase in net assets for the period $ 6,880,698 $ 940,225 Adjustments for: Net realized loss on sale of investments and derivatives 145,154 14,946 Net change in unrealized appreciation of investments and derivatives (7,112,667) (984,488) Purchase of investments 357,922 24,488 Proceeds from the sale of investments (145,154) (14,946) Amounts receivable relating to accrued income (13,963) (4,395) Accrued expenses 13,388 8,823 Net cash from (used in) operating activities 125,378 (15,347) Cash flows from financing activities: Amount received from the issuance of units 15,690,368 12,557,745 Amount paid on redemptions of units (4,922,360) (3,010,645) Net cash from financing activities 10,768,008 9,547,100 Net increase in cash and cash equivalents for the period 10,893,386 9,531,753 Cash and cash equivalents at beginning of period 21,695,664 3,111,947 Cash and cash equivalents at end of period $ 32,589,050 $ 12,643,700 Interest received $ 84,480 $ 40,810 Total Cash and Cash Equivalents are composed of: Cash and cash equivalents held for collateral $ 31,974,990 $ 12,388,714 Cash and cash equivalents - other 614, ,986 Cash and cash equivalents at end of period $ 32,589,050 $ 12,643,700 (See accompanying notes to financial statements) 15

19 Schedule of Investments (unaudited) As at June 30, 2016 Security Fair Value FORWARD AGREEMENTS (7.97%) Positive Exposure Forward Agreement (6.81%) NYMEX Crude Oil Forward Agreement Payment Date October 1, 2020 (notional value US$31,260,800) $ 2,412,990 Negative Exposure Forward Agreement (1.16%) NYMEX Crude Oil Forward Agreement Payment Date October 15, 2020 (notional value US$3,967,034) 410,616 TOTAL FORWARD AGREEMENTS 2,823,606 CASH AND CASH EQUIVALENTS HELD FOR COLLATERAL 31,974,990 TOTAL INVESTMENT PORTFOLIO (98.26%) (note 8) $ 34,798,596 Cash and cash equivalents - other (1.74%) 614,060 Other assets less liabilities (0.00%) 1,006 TOTAL NET ASSETS (100.00%) $ 35,413,662 (See accompanying notes to financial statements) 16

20 Notes to Financial Statements (unaudited) June 30, REPORTING ENTITY Horizons NYMEX Crude Oil ETF ( Horizons HUC 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 June 24, The address of the ETF s registered office is: c/o Horizons ETFs Management (Canada) Inc., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2. The ETF is offered for sale on a continuous basis by its prospectus in class A units which trade on the Toronto Stock Exchange ( TSX ) under the symbol HUC. 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. Horizons HUC seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the performance of the NYMEX light sweet crude oil futures contract for the next December delivery month (the Referenced Futures Contract ). Horizons HUC is denominated in Canadian dollars. Any U.S. dollar gains or losses as a result of the ETF s investment will be hedged back to the Canadian dollar to the best of the ETF s ability. If Horizons HUC is successful in meeting its investment objective, its net asset value should gain approximately as much, on a percentage basis, as any increase in the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light sweet crude oil futures contract for the next December delivery month rises on a given day. Conversely, Horizons HUC s net asset value should lose approximately as much, on a percentage basis, as the NYMEX light sweet crude oil futures contract for the next December delivery month when the NYMEX light sweet crude oil futures contract for the next December delivery month declines on a given day. Horizons ETFs Management (Canada) Inc. ( Horizons Management or the Manager, the Investment Manager, or the Trustee ) is the manager, investment manager and trustee of the ETF. The Investment Manager is responsible for implementing the ETF s investment strategies. Unit Transaction The units of the ETF were consolidated on a one for two basis effective May 30, All relevant unit and per unit historical data prior to May 30, 2016 has been adjusted to reflect the consolidation. 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 12, 2016 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. 17

21 Notes to Financial Statements (unaudited) (continued) June 30, 2016 (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 Financial assets and financial liabilities at fair value through profit or loss ( 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 at fair value through profit or loss: - Held for trading: derivative financial instruments - Designated as at fair value through profit or loss: debt securities and equity investments, if any Financial assets at amortized cost: All other financial assets are classified as loans and receivables Financial liabilities at fair value through profit or loss: - Held for trading: derivative financial instruments 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. 18 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 7.

22 Notes to Financial Statements (unaudited) (continued) June 30, 2016 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. (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. Cash and cash equivalents held for collateral consists of cash and short-term investments posted as collateral to the Forward Agreements as described in note 8. 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, if any, 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, if any, is recognized on the ex-dividend date. Distribution income from investments in other funds or ETFs, if any, 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 9). 19