Horizons Futures

Overview

Horizons HMF, which trades on the TSX, seeks to replicate the return of a tailored index (the "Managed Futures Index"), which tracks the return resulting from going long or short various commodity, interest rate and currency futures contracts in accordance with a quantitative trading program. Horizons HMF accomplishes this result by entering into long or short forward contracts (the "HMF Forward Documents") with National Bank of Canada ("NBC") for forward prices which collectively track the Managed Futures Portfolio, which is a long-only portfolio held in a separate entity. A second older ETF described in the prospectus is not summarized here.

Direct investments

HMF Forward Documents. Horizons HMF has entered into multiple HMF Forward Documents with NBC. Each HMF Forward Document in which Horizons HMF is provided with exposure that corresponds positively with the exposure to the Managed Futures Portfolio requires Horizons HMF to pay NBC an agreed notional amount. In return, NBC pays Horizons HMF the value of the notional investment, plus an amount based upon any increase or decline in the notional exposure to the Managed Futures Portfolio. Each HMF Forward Document in which Horizons HMF is provided with exposure that corresponds negatively with the exposure to the Managed Futures Portfolio requires NBC to pay Horizons HMF an agreed notional amount. In return, Horizons HMF pays the Counterparty the value of the notional investment, plus an amount based upon any increase or decline in the notional exposure to the Managed Futures Portfolio.

Term of HMF Forward Documents

HMF Forward Documents have a remaining term to maturity at any point in time of less than five years which, with the consent of Horizons HMF and NBC, will be extended annually for a fixed number of years. Subject to default or other exceptions, Horizons HMF has the ability to request the termination of its exposure under an HMF Forward Document, in whole or in part, at any time.

Forward collateral

Horizons HMF invests the net proceeds of Unit subscriptions in interest bearing accounts and T-Bills to earn short-term money-market interest rates. The terms of the HMF Forward Documents require Horizons HMF to pledge substantially all of its interest bearing accounts and T-Bills to NBC to secure the payment of Horizons HMF's payment obligations under the HMF Forward Documents.

Managed Futures Index

The Auspices Managed Futures Excess Return Index (to use its full name) uses a rules-based quantitative methodology to track the prices of a diversified portfolio of futures contracts covering the energies, metals, and agricultural commodities sectors as well as interest rate and currency sectors. The determination of position size and whether to be long or short is based on the methodology and changes can occur on any day. The size of the position that the Managed Futures Index takes in any component is dependent only upon the individual component's volatility and the total value of the Managed Futures Index.

Managed Futures Portfolio

The Managed Futures Portfolio is comprised primarily of futures contracts, financial swaps, total return swaps, physical commodities and T-bills or short term interest rate derivatives, and may also include commodity futures, and currently is held by the HAP Managed Futures Fund, whose managers are as described below. Horizons HMF (directly or indirectly) and the HAP Managed Futures Fund (directly) seek to gain exposure to a currency hedged portfolio of the constituent securities and other instruments of the Managed Futures Index in substantially the same proportion as in the Managed Futures Index. The HAP Managed Futures Fund was established by declaration of trust on February 15, 2013.

Managers/Trustee

AlphaPro Management Inc. (the "Manager"), a Canadian corporation is advised by Horizons ETFs Management (Canada) Inc. (the "Investment Manager"), its Canadian parent, and subadvised by Auspice Capital Advisors Ltd. ("Auspice"), an Alberta corporation. The Manager also is trustee of Horizons HMF.

Distribution Policy

On an annual basis, the ETF will ensure that its income and net realized capital gains have been distributed to the Unitholders to such an extent that the ETF will not be liable for ordinary income tax thereon.

Redemption rights

On any trading day, Unitholders may redeem units for cash at a redemption price equal to 95% of the closing price on the TSX on the effective day of the redemption, or PNUs (prescribed numbers of units) for their NAV less any applicable redemption charge – subject to specified rights to suspend redemptions. Income or capital gains can be allocated to redeeming unitholders.

Canadian tax consequences

Holders. Holders may in certain circumstances elect for their units to be capital property under s. 39(4). A conversion of Advisor Units of the ETF into Class E Units should not constitute a disposition.

Non-resident ownership of Units

The ETF is prohibited from holding more than 10% of its property in "specified property" (as per draft s. 132(4)).

Income recognition

The ETF will each recognize income under a HMF Forward Documents when it is realized by the ETF upon partial settlements or upon maturity of the contract. This may result in significant gains being realized by the ETF at such times and such gains would be taxed as ordinary income. To the extent such income is not offset by any available deductions, it would be distributed to applicable Unitholders in the taxation year in which it is realized and included in such Unitholder's income for the year. There is a Risk Factor disclosure re potential application of the draft loss restriction event rules.