Horizons Active Floating Rate Senior Loan ETF (HSL, HSL.A:TSX)

Annual Report December 31, 2016 Horizons Active Floating Rate Senior Loan ETF (HSL, HSL.A:TSX) ALPHA BENCHMARK BETAPRO Innovation is our capital. Make it yours. www.horizonsetfs.com

Contents MANAGEMENT REPORT OF FUND PERFORMANCE Management Discussion of Fund Performance...1 Financial Highlights...7 Past Performance...11 Summary of Investment Portfolio...13 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING...15 INDEPENDENT AUDITORS REPORT...16 FINANCIAL STATEMENTS Statements of Financial Position...17 Statements of Comprehensive Income...18 Statements of Changes in Financial Position...19 Statements of Cash Flows...20 Schedule of Investments...21 Notes to Financial Statements...23

Letter from the President and Co-CEO: It was another noteworthy year in 2016 for both Horizons ETFs Management (Canada) Inc. ( Horizons ETFs ) and the Canadian ETF industry. The industry surpassed $100 billion in assets under management ( AUM ) with now more than 400 ETF listings. Meanwhile, our AUM surpassed $7.0 billion and we launched 10 new ETFs, giving us a total of 76 different tools available for our clients. It was gratifying that this success was spread out across all three of our ETF line-ups which include our benchmark index ETFs, actively managed ETFs and BetaPro ETFs for tactical investors. With the evolution of the investment landscape in Canada bringing greater fee 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 the Horizons Cdn High Dividend Index ETF ( HXH ), the Horizons NASDAQ-100 Index ETF ( HXQ ) and the Horizons EURO STOXX 50 Index ETF ( HXX ), which is the first ETF of its kind in Canada to provide investors with low-cost, tax-efficient exposure to the performance of 50 of the largest sector-leading companies in Europe. Along with these new offerings, we lowered the cost of the Horizons S&P 500 Index ETF ( HXS ), reducing its management fee from 0.15% to 0.10%. We also launched currency hedged versions of popular U.S.-focused index strategies, including the Horizons S&P 500 CAD Hedged Index ETF ( HSH ) and the Horizons US 7-10 Year Treasury Bond CAD Hedged ETF ( HTH ), which give investors access to U.S. asset classes with a hedge to protect returns from currency volatility between the Canadian and U.S. dollars. While most equity markets finished the year on a positive note something which has certainly helped the growth of our benchmark suite of index-replicating ETFs fixed income investors had a more difficult year in 2016. For the first time in more than a generation, we may be looking at a period of prolonged rising rather than falling interest rates. November was the worst month on record for bond losses globally, according to Bloomberg, as markets digested the unexpected results and ramifications of the U.S. presidential election. We believe that our low-cost family of actively managed fixed income ETFs have the flexibility to reduce duration and take advantage of these potentially seismic changes in the fixed income market. One of the primary beneficiaries of rising rates, for example, was in the Canadian preferred share asset class. The Horizons Active Preferred Share ETF ( HPR ) has been the top asset-gatherer in the preferred share space in Canada this year and was our top-selling actively managed ETF for the calendar year. HPR now has a solid six-year track record that demonstrates the value of active management in this asset class. Regardless of the direction of markets or interest rates, we have ETF solutions that allow investors of all types to customize their portfolio exposure. Markets do change, sometimes quickly, and our family of ETFs gives investors the tools they need to help meet their objectives. For more information on all our strategies, please visit our website at www.horizonsetfs.com where we offer a range of resources designed to help you become a more skilled ETF investor. Thank you for your continued support and wishing you strong returns in 2017, Steven J. Hawkins, President & Co-CEO Horizons ETFs Management (Canada) Inc.

MANAGEMENT REPORT OF FUND PERFORMANCE This annual management report of fund performance for Horizons Active Floating Rate Senior Loan ETF ( Horizons HSL or the ETF ) contains financial highlights and is included with the audited annual 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, AlphaPro Management Inc. ( AlphaPro or the Manager ), by calling toll free 1-866-641-5739, or locally (416) 933-5745, by writing to us at: 26 Wellington Street East, Suite 700, Toronto ON, M5E 1S2, or by visiting our website at www.horizonsetfs.com or SEDAR at www.sedar.com. 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 Horizons HSL is to seek to provide unitholders with a high level of current income by investing primarily in a diversified portfolio of U.S. senior secured floating rate loans, which are generally rated below investment grade (loans rated at or below BB+ by Standard & Poor s, or a similar rating by a designated rating organization) and debt securities, with capital appreciation as a secondary objective. Horizons HSL, to the best of its ability, seeks to hedge its non-canadian dollar currency exposure to the Canadian dollar at all times. To achieve its investment objectives, Horizons HSL principally invests in a portfolio of U.S. senior secured floating rate loans which are generally rated below investment grade (loans rated at or below BB+ by Standard & Poor s, or a similar rating by a designated rating organization) and debt securities. Horizons HSL may also invest in exchange traded funds that provide exposure to senior loans. Senior loans, compared to equivalently rated unsecured high yield bonds, typically offer a higher recovery rate because of the added protection offered by their secured nature. This security may be achieved by liens on physical or non-physical assets and, even if not realized through liquidation, can increase recovery in a reorganisation scenario. 1

Management Discussion of Fund Performance (continued) Horizons Active Floating Rate Senior Loan ETF Risk Under normal market conditions, Horizons HSL will have the majority of its net assets invested directly or indirectly in senior secured loans, which may include secured loans that have a lower than first lien priority on collateral of the borrower, secured loans to foreign borrowers, secured loans in foreign currencies and other secured loans with characteristics that the ETF s sub-advisor, AlphaFixe Capital Inc. ( AlphaFixe or the Sub-Advisor ), believes qualify as senior secured loans. AlphaFixe seeks to maintain borrower and industry diversification among Horizons HSL s senior loan portfolio. When selecting senior loans, AlphaFixe seeks to implement a fundamental analysis approach of risk/return characteristics. Senior loans may be purchased by the Sub-Advisor on the primary and secondary market as the opportunities for investment present themselves. Senior loans may be sold on the secondary market if, in the opinion of AlphaFixe, the risk-return profile deteriorates or to pursue more attractive investments. The ETF generally does not invest more than 5% of its assets in a single senior loan issue. Horizons HSL generally maintains an average rating for the senior loan portfolio of BB-/B+ rating and does not invest in securities of issuers rated below B- or in unrated securities. The ETF primarily invests in issues with a minimum tranche size of USD $400 million and does not invest in any issues where the tranche is less than USD $100 million. Horizons HSL may invest up to 20% of its net assets in cash, cash equivalents and/or other floating rate debt instruments. The ETF may also invest up to 20% of its net assets in investment grade corporate bonds and 20% of its net assets in high yield debt securities. Horizons HSL may make these investments by investing in exchange traded funds that provide exposure to the applicable asset classes. At all times, at least 10% of Horizons HSL s portfolio will be comprised of cash and/ or securities that settle within three business days. Horizons HSL, to the best of its ability, seeks to hedge its non-canadian dollar currency exposure to the Canadian dollar at all times. Please refer to the ETF s most recent prospectus for a complete description of Horizons HSL 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 the historical rolling ten-year standard deviation of its return, 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 www.horizonsetfs.com or from www.sedar.com, or by contacting AlphaPro Management Inc. directly via the contact information on the back page of this document. 2

Management Discussion of Fund Performance (continued) Horizons Active Floating Rate Senior Loan ETF 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 Multi-class risk No guaranteed return Derivatives and counterparty risk Interest rate risk Foreign currency risk Credit risk Income trust investment risk Foreign stock exchange risk High yield bond risk and risk of other lower rated investments Senior loan credit risk Senior loan risk Senior loan settlement risk Income risk Call risk Risk of difference between quoted and actionable market price Complexity Liquidity risk Results of Operations For the year ended December 31, 2016, the Class E units and Advisor Class units of the ETF returned 6.10% and 5.52%, respectively, when including distributions paid to unitholders. This compares to a return of 9.88% for the Credit Suisse Leveraged Loan Index (the Index ) for the same period. The Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. General Market Review Bank loan returns soared in 2016, mainly due to the increase in the demand for floating rate instruments and the recovery of the energy sector. At the beginning of the year, investors were hesitant due to weak incoming economic data and the price uncertainty of oil. In fact, only the first two months of the year experienced a decrease in bank loan issuance. In January and February 2016, loan supply was greater than demand which caused credit spreads to widen. This situation turned into an opportunity for institutional investors. Incidentally, there was an increase in the volume of collateralized loan obligations ( CLOs ) coming to market. Beginning in March, the bank loan market rallied until the end of 2016. Several socioeconomic events kept loan prices at high levels, namely the U.K. referendum on continued European Union participation, the U.S. presidential election, a steepening of the yield curve, and the more hawkish tone from the U.S. Federal Reserve. There was also a massive flow of funds from retail investors towards the bank loan market. At the same time, demand from institutional investors continued throughout the year and contributed significantly to the increase in bank loan prices. Companies took advantage of this opportunity to refinance their loans at lower spreads. 3

Management Discussion of Fund Performance (continued) Horizons Active Floating Rate Senior Loan ETF Since the beginning of the year, bank loan financing totalled $336.6 billion, an increase of 30% from 2015. Mergers and acquisitions ( M&A ) accounted for 48% of the activity in 2016 while refinancing (including dividend payments) represented 49%. CLO issuance was $72.3 billion in 2016. This volume represented a decrease of 27% compared to 2015. The last quarter of 2016 accounted for nearly 35% of the year s total issuance. Lower quality loans (CCC-rated) performed better throughout 2016. In fact, these loans are concentrated in sectors like energy and metals/minerals. The percentage of lower quality loans in the energy industry has nearly tripled since the beginning of the year. Portfolio Review Metals/minerals was the best performing sector in 2016, followed by energy. These two industries have been in a recovery phase since their significant difficulties in 2015. Given the ETF s strategy of having no exposure to cyclical industries like energy and metals/minerals, the ETF could not benefit from this recovery. The decision to have no exposure to these sectors aims to minimize volatility and increase capital preservation. On the other hand, the ETF s overweight positions in sectors like information technology and business and/or consumer services were beneficial to the 2016 performance. Outlook For 2017, AlphaFixe expects a period of rising interest rates, which will result in an increase in the demand for floating rate instruments like bank loans. We believe that refinancing activity will be stronger at the beginning of the year followed by an increase in mergers and acquisitions. Supply and demand imbalance for bank loans should stabilize following the increase in M&A activity. On the other hand, demand for banking products will continue to be important and pressure on spreads will be pervasive, which will be offset by the increase of the LIBOR rates. We are currently in the midst of a long credit cycle. Should the market correct, we don t want to be holding lower quality names as they will get hit first. Maintaining the ETF s disciplined investment strategy with a focus on quality will be all the more important in 2017. Other Operating Items and Changes in Net Assets Attributable to Holders of Redeemable Units For the year ended December 31, 2016, the ETF generated gross comprehensive income (loss) from investments and derivatives of $3,554,563. This compares to $431,636 for the year ended December 31, 2015. The ETF incurred management, operating and transaction expenses of $616,552 (2015 $524,537) of which $137,259 (2015 $106,365) 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 $1,762,982 to Class E unitholders and $7,037 to Advisor Class unitholders during the year (2015 Class E: $1,584,910, Advisor Class: $7,542). Unitholder Activity 4 An ETF is a stock exchange listed, open-ended, continuously offered fund. All orders to purchase units directly from the ETF must be placed by designated brokers and/or underwriters. On any trading day, a designated broker or an underwriter may place a subscription order for a prescribed number of units ( PNU ) or integral multiple PNU. The ETF reserves

Management Discussion of Fund Performance (continued) Horizons Active Floating Rate Senior Loan ETF the absolute right to reject any subscription order placed by a designated broker and/or an underwriter. No fees will be payable by the ETF to a designated broker or an underwriter in connection with the issuance of units. On the issuance of units, the Manager may, at its discretion, charge an administrative fee to an underwriter or designated broker to offset any expenses incurred in issuing the units. All unitholders of the ETF may exchange the applicable PNU (or an integral multiple thereof) of the ETF on any trading day for a prescribed basket of securities (as determined by the investment manager) and/or cash, subject to the requirement that a minimum PNU be exchanged. The Manager may, in its complete discretion, pay exchange proceeds consisting of cash only in an amount equal to the net asset value of the applicable PNU of the ETF next determined following the receipt of the exchange request. The Manager will, upon receipt of the exchange request, advise the unitholder submitting the request as to whether cash and/or a basket of securities will be delivered to satisfy the request. Investors are able to trade units of the ETF in the same way as other securities traded on the Toronto Stock Exchange ( TSX ), including by using market orders and limit orders. 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 may incur customary brokerage commissions when buying or selling units. 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. 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. Termination of Advisor Class Units On December 29, 2016, the Manager announced that it plans to eliminate the Advisor Class units of the ETF. As of January 31, 2017, investment professionals will no longer be able to purchase Advisor Class units on behalf of their clients and this class of units is expected to be fully eliminated by the end of April, 2017. 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 and trustee of the ETF is AlphaPro Management Inc., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, a corporation incorporated under the laws of Ontario specializing in actively managed ETFs. AlphaPro is a subsidiary of Horizons ETFs Management (Canada) Inc., which also serves as the ETF s investment manager ( Horizons Management or the Investment Manager ), and both entities are members of the Mirae Asset Financial Group. If the ETF invests in the Horizons Management ETFs, Horizons Management may receive management fees in respect of the ETF s 5

Management Discussion of Fund Performance (continued) Horizons Active Floating Rate Senior Loan ETF assets invested in such Horizons Management ETFs. The offices of the Manager and Investment Manager are the same. Other Related Parties An affiliate of National Bank of Canada ( NBC ) and National Bank Financial Inc. ( NBF ) holds an indirect minority interest in 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 unitholders. NBF s potential roles as a designated broker and a dealer of the ETF is 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, executing brokerage transactions, 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. The ETF, in its course of normal business in seeking to achieve its investment objective, may enter into portfolio transactions that involve an investment in securities of an issuer that is a related party to the Manager. The Manager is permitted to execute these transactions without seeking advance approval from the ETF s Independent Review Committee ( IRC ), provided the Manager complies with the predetermined list of requirements agreed upon with the IRC. For the years ended December 31, 2016 and 2015, the ETF paid $nil (2015 $43) to NBF and/or its affiliates in broker commissions on portfolio transactions. 6

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 since it effectively began operations on October 14, 2014. This information is derived from the ETF s audited annual 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 Year 2016 2015 2014 Net assets, beginning of year (1) $ 9.70 9.95 10.00 Increase from operations: Total revenue 0.40 0.42 0.09 Total expenses (0.09) (0.10) (0.02) Realized gains (losses) for the year 0.07 (0.41) (0.12) Unrealized gains for the year 0.20 0.09 0.09 Total increase from operations (2) 0.58 0.04 Distributions: From net investment income (excluding dividends) (0.31) (0.32) (0.03) From net realized capital gains (0.03) From return of capital (0.04) (0.06) Total annual distributions (3) (0.34) (0.36) (0.09) Net assets, end of year (4) $ 9.94 9.70 9.95 7

Financial Highlights (continued) Advisor Class Year 2016 2015 2014 Net assets, beginning of year (1) $ 9.69 9.94 10.00 Increase from operations: Total revenue 0.40 0.42 0.09 Total expenses (0.14) (0.15) (0.03) Realized gains (losses) for the year 0.07 (0.41) (0.12) Unrealized gains for the year 0.20 0.19 0.08 Total increase from operations (2) 0.53 0.05 0.02 Distributions: From net investment income (excluding dividends) (0.27) (0.27) (0.03) From net realized capital gains (0.01) From return of capital (0.03) (0.04) Total annual distributions (3) (0.28) (0.30) (0.07) Net assets, end of year (4) $ 9.94 9.69 9.94 1. This information is derived from the ETF s audited annual financial statements as at December 31 of the years shown. Class E units and Advisor Class units of the ETF have an initial net asset value of $10.00 as at October 14, 2014. 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. 8

Financial Highlights (continued) Ratios and Supplemental Data Class E Year (1) 2016 2015 2014 Total net asset value (000 s) $ 47,878 52,991 27,510 Number of units outstanding (000 s) 4,815 5,465 2,765 Management expense ratio (2) (5) 0.95% 0.92% 0.87% Management expense ratio excluding proportion of expenses from underlying investment funds 0.89% 0.86% 0.83% Management expense ratio before waivers and absorptions (3) 1.22% 1.16% 2.06% Trading expense ratio (4) (5) 0.01% 0.03% 0.03% Trading expense ratio excluding proportion of costs from underlying investment funds 0.01% 0.03% 0.03% Portfolio turnover rate (6) 49.45% 44.15% 0.09% Net asset value per unit, end of year $ 9.94 9.70 9.95 Closing market price $ 10.00 9.70 10.01 Advisor Class Year (1) 2016 2015 2014 Total net asset value (000 s) $ 248 242 249 Number of units outstanding (000 s) 25 25 25 Management expense ratio (2) (5) 1.50% 1.48% 1.43% Management expense ratio excluding proportion of expenses from underlying investment funds 1.44% 1.41% 1.39% Management expense ratio before waivers and absorptions (3) 1.77% 1.72% 2.63% Trading expense ratio (4) (5) 0.01% 0.03% 0.03% Trading expense ratio excluding proportion of costs from underlying investment funds 0.01% 0.03% 0.03% Portfolio turnover rate (6) 49.45% 44.15% 0.09% Net asset value per unit, end of year $ 9.94 9.69 9.94 Closing market price $ 9.97 9.71 9.99 1. This information is provided as at December 31 of the 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 year. 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 year. 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 year. 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

Financial Highlights (continued) Management Fees The Manager appoints the Investment Manager and 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 0.75%, plus applicable sales taxes, of the net asset value of the ETF s Class E units and 1.25%, 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. The Manager, and not the ETF, will pay 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 Investment Manager and Sub-Advisor are compensated for their 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. 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 year. Portfolio management fees, Waived/absorbed expenses general administrative costs of the ETF Marketing and profit 7% 62% 31% 10

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 and Advisor Class 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. 10.00% 8.00% Rate of Return 6.00% 4.00% 2.00% 0.00% 2014 2015 2016 Class E 0.34% 1.02% 6.10% Advisor Class 0.16% 0.45% 5.52% Class E units and Advisor Class units of the ETF have an initial net asset value of $10.00 as at October 14, 2014. 11

Past Performance (continued) Annual Compound Returns The following table presents the ETF s annual compound total return since inception and for the periods shown ended December 31, 2016 along with a comparable market index. The table is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the ETF or future returns on investments in the ETF. Period Class E Return % Advisor Class Return % Credit Suisse Leveraged Loan Index Return % 1 Year 6.10% 5.52% 9.88% Since Inception 3.34% 2.74% 4.08% Class E units and Advisor Class units of the ETF have an initial net asset value of $10.00 as at October 14, 2014. 12

Summary of Investment Portfolio As at December 31, 2016 % of ETF s Asset Mix Net Asset Value Net Asset Value U.S. Senior Loans $ 44,740,944 92.97% Canadian Senior Loans 1,713,499 3.56% Currency Forward Hedge* (178,279) -0.37% Cash and Cash Equivalents 1,893,479 3.93% Other Assets less Liabilities (43,184) -0.09% $ 48,126,459 100.00% % of ETF s Sector Mix Net Asset Value Net Asset Value Senior Loans $ 46,454,443 96.53% Currency Forward Hedge* (178,279) -0.37% Cash and Cash Equivalents 1,893,479 3.93% Other Assets less Liabilities (43,184) -0.09% $ 48,126,459 100.00% *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. 13

Summary of Investment Portfolio (continued) As at December 31, 2016 Top 25 Holdings* % of ETF s Net Asset Value PowerShares Senior Loan Portfolio 9.81% CHG Healthcare Services Inc. 4.70% PetSmart Inc. 4.69% Alliant Holdings I LLC 4.56% CHS / Community Health Systems Inc. 4.53% Albertsons LLC 4.30% Pharmaceutical Product Development LLC 4.18% Dell International LLC 4.12% CDS U.S. Intermediate Holdings Inc. 3.98% Hostess Brands LLC 3.90% Zebra Technologies Corp. 3.79% Alix Partners LLP 3.60% 1011778 BC ULC 3.56% Berry Plastics Group Inc. 3.10% Sterigenics-Nordion Holdings LLC 2.77% Prime Security Services Borrower LLC 2.74% Allison Transmission Inc. 2.68% Camelot Finance L.P. 2.47% HCA Inc. 2.39% 99 Cents Only Stores 2.26% Avis Budget Car Rental LLC 2.23% Pinnacle Foods Finance LLC 1.97% Gates Global LLC 1.89% HD Supply Inc. 1.53% MPH Acquisition Holdings LLC 1.48% * Note all of the Top 25 Holdings are senior loan instruments or provide exposure to senior loan instruments. 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 1-866-641-5739, by writing to us at 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, by visiting our website at www.horizonsetfs.com or through SEDAR at www.sedar.com. 14

MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying audited annual financial statements of Horizons Active Floating Rate Senior Loan ETF (the ETF ) are the responsibility of the manager and trustee to the ETF, AlphaPro Management 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 and have been audited by KPMG LLP, Chartered Professional Accountants, Licensed Public Accountants, on behalf of unitholders. The independent auditors report outlines the scope of their audit and their opinion on the financial statements. Steven J. Hawkins Director AlphaPro Management Inc. Taeyong Lee Director AlphaPro Management Inc. 15

INDEPENDENT AUDITORS REPORT To the Unitholders of Horizons Active Floating Rate Senior Loan ETF (the ETF ) We have audited the accompanying financial statements of the ETF, which comprise the statements of financial position as at December 31, 2016 and 2015, the statements of comprehensive income, changes in financial position and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the ETF s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the ETF as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants March 15, 2017 Toronto, Canada 16

Statements of Financial Position As at December 31, 2016 2015 Assets Cash and cash equivalents $ 1,893,479 $ 2,949,687 Investments 46,454,443 51,616,584 Amounts receivable relating to accrued income 129,218 144,060 Amounts receivable relating to portfolio assets sold 2,155,402 Total assets 48,477,140 56,865,733 Liabilities Accrued expenses 38,422 42,657 Amounts payable relating to securities redeemed 3,795 8,467 Amounts payable for portfolio assets purchased 3,011,649 Distribution payable 130,185 161,131 Derivative liabilities (note 3) 178,279 408,969 Total liabilities 350,681 3,632,873 Total net assets (note 2) $ 48,126,459 $ 53,232,860 Total net assets, Class E $ 47,878,034 $ 52,990,603 Number of redeemable units outstanding, Class E (note 9) 4,815,255 5,465,123 Total net assets per unit, Class E $ 9.94 $ 9.70 Total net assets, Advisor Class $ 248,425 $ 242,257 Number of redeemable units outstanding, Advisor Class (note 9) 25,000 25,000 Total net assets per unit, Advisor Class $ 9.94 $ 9.69 (See accompanying notes to financial statements) Approved on behalf of the Board of Directors of the Manager: Steven J. Hawkins Taeyong Lee 17

Statements of Comprehensive Income For the Years Ended December 31, 2016 2015 Income Dividend income $ 217,467 $ 180,860 Interest income for distribution purposes 1,909,497 1,671,365 Securities lending income (note 8) 5,121 Net realized gain (loss) on sale of investments and derivatives 2,848,489 (4,262,703) Net realized gain (loss) on foreign exchange (2,478,543) 2,477,106 Net change in unrealized appreciation (depreciation) of investments and derivatives (1,423,596) 3,755,358 Net change in unrealized appreciation (depreciation) of foreign exchange 2,476,128 (3,390,350) 3,554,563 431,636 Expenses Management fees (note 10) 444,404 375,381 Audit fees 11,985 11,744 Independent Review Committee fees 691 511 Custodial fees 4,488 7,443 Legal fees 20,319 1,369 Securityholder reporting costs 30,949 34,889 Administration fees 71,856 50,409 Transaction costs 7,267 11,934 Withholding taxes 9,469 30,670 Other expenses 15,124 187 616,552 524,537 Amounts that were payable by the investment fund that were paid or absorbed by the Manager (137,259) (106,365) 479,293 418,172 Increase in net assets for the year $ 3,075,270 $ 13,464 Increase in net assets, Class E $ 3,062,065 $ 12,249 Increase in net assets per unit, Class E 0.58 0.00 Increase in net assets, Advisor Class $ 13,205 $ 1,215 Increase in net assets per unit, Advisor Class 0.53 0.05 (See accompanying notes to financial statements) 18

Statements of Changes in Financial Position For the Years Ended December 31, 2016 2015 Total net assets at the beginning of the year $ 53,232,860 $ 27,758,299 Increase in net assets 3,075,270 13,464 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 9,815,783 32,047,440 Aggregate amounts paid on redemption of securities of the investment fund (16,228,810) (4,995,175) Securities issued on reinvestment of distributions 1,375 1,284 Distributions: From net investment income (1,651,193) (1,427,383) From net realized capital gains (118,826) Return of capital (165,069) Total net assets at the end of the year $ 48,126,459 $ 53,232,860 Total net assets at the beginning of the year, Class E $ 52,990,603 $ 27,509,715 Increase in net assets, Class E 3,062,065 12,249 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 9,815,783 32,047,440 Aggregate amounts paid on redemption of securities of the investment fund (16,228,810) (4,995,175) Securities issued on reinvestment of distributions 1,375 1,284 Distributions: From net investment income (1,644,522) (1,420,508) From net realized capital gains (118,460) Return of capital (164,402) Total net assets at the end of the year, Class E $ 47,878,034 $ 52,990,603 Total net assets at the beginning of the year, Advisor Class $ 242,257 $ 248,584 Increase in net assets, Advisor Class 13,205 1,215 Redeemable unit transactions Distributions: From net investment income (6,671) (6,875) From net realized capital gains (366) Return of capital (667) Total net assets at the end of the year, Advisor Class $ 248,425 $ 242,257 (See accompanying notes to financial statements) 19

Statements of Cash Flows For the Years Ended December 31, 2016 2015 Cash flows from operating activities: Increase in net assets for the year $ 3,075,270 $ 13,464 Adjustments for: Net realized loss (gain) on sale of investments and derivatives (2,848,489) 4,262,703 Net realized gain (loss) on currency forward contracts 1,276,450 (6,461,240) Net change in unrealized depreciation (appreciation) of investments and derivatives 1,423,596 (3,755,358) Net change in unrealized depreciation (appreciation) of foreign exchange (2,291,885) 3,340,600 Purchase of investments (27,602,411) (50,111,258) Proceeds from the sale of investments 31,826,058 16,588,621 Amounts receivable relating to accrued income 14,842 (92,424) Accrued expenses (4,235) 26,632 Net cash from (used in) operating activities 4,869,196 (36,188,260) Cash flows from financing activities: Amount received from the issuance of units 9,815,783 32,047,440 Amount paid on redemptions of units (16,233,482) (4,986,708) Distributions paid to unitholders (1,799,590) (1,524,609) Net cash from (used in) financing activities (8,217,289) 25,536,123 Net decrease in cash and cash equivalents during the year (3,348,093) (10,652,137) Effect of exchange rate fluctuations on cash and cash equivalents 2,291,885 (3,340,600) Cash and cash equivalents at beginning of year 2,949,687 16,942,424 Cash and cash equivalents at end of year $ 1,893,479 $ 2,949,687 Interest received, net of withholding taxes $ 1,924,339 $ 1,571,489 Dividends received, net of withholding taxes $ 207,998 $ 157,642 (See accompanying notes to financial statements) 20

Schedule of Investments As at December 31, 2016 Horizons Active Floating Rate Senior Loan ETF Par Value/ Average Fair Security Shares/Contracts Cost Value U.S. SENIOR LOANS (92.97%) Corporate Issuers (83.16%) 99 Cents Only Stores, Term Loan, 4.50%, 2019/01/11 972,773 $ 1,132,159 $ 1,087,323 Albertsons LLC, Term Loan, 3.77%, 2021/08/25 1,273,985 1,626,624 1,733,147 Albertsons LLC, Term Loan, 3.00%, 2022/12/21 248,752 316,836 338,871 Alix Partners LLP, Term Loan, 4.00%, 2022/07/28 1,278,795 1,675,138 1,734,298 Alliant Holdings I LLC, Term Loan, 4.75%, 2022/08/12 1,623,879 2,131,800 2,195,978 Allison Transmission Inc., Term Loan, 3.26%, 2019/08/23 948,349 1,253,268 1,291,764 Avis Budget Car Rental LLC, Term Loan, 3.50%, 2022/03/15 793,814 1,037,718 1,074,384 Berry Plastics Group Inc., Term Loan, 3.75%, 2022/10/03 1,096,853 1,421,576 1,489,492 Camelot Finance L.P., Term Loan, 4.75%, 2023/10/03 872,314 1,148,699 1,187,070 CBS Radio Inc., Term Loan, 4.50%, 2023/10/17 249,057 330,592 338,295 CDS U.S. Intermediate Holdings Inc., Term Loan, 5.00%, 2022/07/08 1,413,596 1,816,791 1,917,619 Charter Communications Operating LLC, Term Loan, 3.25%, 2021/08/24 497,500 647,192 672,354 CHG Healthcare Services Inc., Term Loan, 4.75%, 2023/06/07 1,661,407 2,155,145 2,259,966 Chobani LLC, Term Loan, 5.25%, 2023/10/09 100,000 130,564 136,447 CHS / Community Health Systems Inc., Term Loan, 3.75%, 2019/12/31 584,778 680,227 763,808 CHS / Community Health Systems Inc., Term Loan, 4.00%, 2021/01/27 1,083,768 1,260,663 1,413,591 DaVita HealthCare Partners Inc., Term Loan, 3.52%, 2021/06/24 492,424 632,053 668,922 Dell International LLC, Term Loan, 4.02%, 2023/09/07 1,450,000 1,858,560 1,982,703 Dollar Tree Inc., Term Loan, 3.25%, 2022/07/06 340,909 420,879 462,729 Gates Global LLC, Term Loan, 4.25%, 2021/07/05 674,318 760,978 907,401 HCA Inc., Term Loan, 4.02%, 2023/03/17 843,625 1,097,105 1,148,409 HD Supply Inc., Term Loan, 3.75%, 2021/08/13 544,131 704,834 735,487 Hostess Brands LLC, Term Loan, 4.00%, 2022/08/03 1,381,248 1,808,552 1,877,946 Live Nation Entertainment Inc., Term Loan, 3.31%, 2023/10/31 354,113 471,547 480,204 Media General Inc., Term Loan, 4.00%, 2020/07/31 256,024 299,487 344,236 Michaels Stores Inc., Term Loan, 3.75%, 2023/01/27 249,314 331,265 339,110 MPH Acquisition Holdings LLC, Term Loan, 5.00%, 2023/06/07 521,441 680,843 713,492 PetSmart Inc., Term Loan, 4.00%, 2022/03/11 1,672,995 2,128,975 2,255,692 Pharmaceutical Product Development LLC, Term Loan, 4.25%, 2022/08/18 1,480,605 1,942,283 2,012,783 Pinnacle Foods Finance LLC, Term Loan, 3.39%, 2020/04/29 700,000 810,074 949,254 Prime Security Services Borrower LLC, Term Loan, 3.25%, 2022/05/02 967,575 1,249,899 1,318,601 Revlon Consumer Products Corp., Term Loan, 4.29%, 2023/09/07 478,800 615,970 650,456 Sterigenics-Nordion Holdings LLC, Term Loan, 4.25%, 2022/05/15 987,500 1,222,026 1,334,989 Western Digital Corp., Term Loan, 4.52%, 2023/04/28 278,600 350,334 380,608 Zebra Technologies Corp., Term Loan, 3.45%, 2021/10/27 1,340,403 1,576,843 1,823,187 37,727,499 40,020,616 21