Horizons ETFs Management (Canada) Inc. (Re), 2020 CanLII 111977

June 19, 2020

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)

AND

IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF HORIZONS ETFS MANAGEMENT (CANADA) INC. (the Filer)

AND

HORIZONS MORNINGSTAR HEDGE FUND INDEX ETF HORIZONS ABSOLUTE RETURN GLOBAL CURRENCY ETF (the Horizons ETFs)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of the Horizons ETFs, for:

(a) a decision under the securities legislation of the Jurisdiction (the Legislation) for approval under clause 5.5(1)(b) of National Instrument 81-102 Investment Funds (NI 81-102) of the proposed reorganization (the Proposed Reorganization) of each of the Horizons ETFs (the Existing Funds) into a corresponding class of shares (the Continuing Funds) of Horizons ETF Corp. (the Approval Sought); and

(b) an extension of the time limits for the renewal of the long form prospectus of the Horizons ETFs (dated May 9, 2019) (the Prospectus) to those time limits that would apply if the lapse date of the Prospectus was August 9, 2020 pursuant to subsection 62(5) of the Securities Act (Ontario) (the Act) (the Lapse Date Extension);

(c) an exemption from:

(i) item 17.2 of Form 41-101F2 Information Required in an Investment Fund Prospectus to permit the Continuing Funds to disclose the trading price and volume information required thereunder of the respective Existing Funds as their trading price and volume information (the Prior Sales Data);

(ii) section 3B.2 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) for the purposes of the relief requested herein from Form 41-101F4 Information Required in an ETF Facts Document (Form 41-101F4);

(iii) item 2 of Part 1 of Form 41-101F4 to permit the Continuing Funds to disclose the Quick Facts, Trading Information and Pricing Information of the respective Existing Funds as their Quick Facts, Trading Information and Pricing Information in the ETF facts document;

(iv) item 5 of Part 1 of Form 41-101F4 to permit the Continuing Funds to use performance data of the respective Existing Funds in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document;

(v) items 1.3 and 1.4 of Part 2 of Form 41-101F4 to permit the Continuing Funds to use the information about the expenses and fees of the respective Existing Funds in the ETF facts document;

(vi) sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d)(i), 15.8(2)(a), 15.8(3)(a) and 15.9(2)(d) of NI 81-102 to permit the Continuing Funds to use performance data of the respective Existing Funds in sales communications and reports to shareholders (collectively, the Fund Communications);

(vii) section 15.1.1(a) of NI 81-102 and items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (Appendix F) to permit the Continuing Funds to include performance data of the respective Existing Funds in determining its investment risk level in accordance with Appendix F;

(viii) section 15.1.1(b) of NI 81-102, item 4(2)(a) of Part I and the Instruction to Item 4, Part I of Form 41-101F4 to permit the Continuing Funds to disclose its investment risk level as determined by including performance data of the respective Existing Funds in accordance with Appendix F;

(ix) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of the relief requested from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1) for the Continuing Funds;

(x) sections 2.1 and 2.3 of NI 81-106 to permit the Continuing Funds to use the information required to be included in the financial statements of the Existing Funds in the Continuing Funds’ annual and interim financial statements;

(xi) items 3.1(1), 3.1(7), 3.1(8), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.9(2)(d) of NI 81-102, 4.1(2), 4.2(1), 4.2(2) and 4.3(1)(a) of Part B of Form 81-106F1 and items 3(1) and 4 of Part C of Form 81-106F1 to permit the Continuing Funds to include in their annual and interim management reports of fund performance (MRFP), the performance data and information derived from the financial statements, or otherwise derived, as applicable (collectively, the Financial Data) of their respective Existing Funds;

(collectively, the Past Performance Relief);

(xii) paragraph 2.2(1)(a) of NI 81-102 to permit each Continuing Fund to continue to hold securities of its corresponding Horizons Private Trust (as defined below) such that, following the Proposed Reorganization, a Continuing Fund would continue to hold securities representing 100% of: (a) the votes attaching to the outstanding voting securities of the corresponding Horizons Private Trust or (b) the outstanding equity securities of the corresponding Horizons Private Trust (the Control Relief); and

(xiii) paragraph 2.5(2)(a) of NI 81-102 (in respect of each Continuing Fund that is a mutual fund, other than an alternative mutual fund), paragraph 2.5(2)(a.1) of NI 81-102 (in respect of each Continuing Fund that is an alternative mutual fund) and paragraph 2.5(2)(c) of NI 81-102 to permit each Continuing Fund, following the Proposed Reorganization, to continue to hold the securities of its corresponding Horizons Private Trust after the Horizons Private Trust ceases to be a reporting issuer (the Fund of Fund Restriction Relief)

(together with the Lapse Date Extension, the Past Performance Relief, and the Control Relief, collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Canadian Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer and the Horizons ETFs

1. The Filer is a corporation existing under the laws of Canada, with its head office located in Toronto, Ontario. The Filer is a wholly-owned subsidiary of Mirae Asset Global Investments Co., Ltd.

2. The Filer is registered as (a) an investment fund manager in Newfoundland and Labrador, Ontario and Québec, (b) a portfolio manager in Alberta, British Columbia, Ontario and Québec (c) a dealer in the category of exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, (d) a commodity trading adviser in Ontario and (e) a commodity trading manager in Ontario.

3. The Filer is the investment fund manager and trustee of the Horizons ETFs and shall be the investment fund manager of the Continuing Funds.

4. The Filer’s primary business is to act as investment fund manager for the Horizons ETFs and other exchange traded funds in Canada.

5. Each of the Horizons ETFs is an exchange traded mutual fund or alternative mutual fund established under the laws of the Province of Ontario.

6. Securities of the Horizons ETFs are distributed in each of the Canadian Jurisdictions under the Prospectus and ETF facts documents prepared in accordance with the requirements of NI 41-101, Form 41-101F2, Form 41-101F4 and NI 81-102, as applicable.

7. Each Horizons ETF is a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.

8. The Horizons ETFs are subject to, among other laws and regulations, NI 81-102, NI 81-106 and National Instrument 81-107 Independent Review Committee for Investment Funds.

9. As the Filer intends to cease distribution of the Existing Funds following the Proposed Reorganization, it does not intend to renew the Existing Funds’ prospectus under subsection 62(2) of the Act.

10. None of the Filer or the Horizons ETFs are in default of applicable securities legislation in any of the Canadian Jurisdictions.

Horizons ETF Corp. and the Continuing Funds

11. Horizons ETF Corp. (Horizons MFC) is a mutual fund corporation established under the laws of Canada. The authorized capital of Horizons MFC includes an unlimited number of non-cumulative, redeemable, non-voting classes of shares (each, a Corporate Class), issuable in an unlimited number of series, and one class of voting shares designated as “Class J Shares”. As of the date hereof, Horizons MFC currently offers 47 Corporate Classes operating as exchange traded funds in Canada.

12. Each Continuing Fund will be established as a separate Corporate Class, consisting of a single series of exchange traded fund shares (ETF Shares) of Horizons MFC.

13. Securities of the Continuing Funds will be distributed in each of the Canadian Jurisdictions under long form prospectuses and ETF facts documents prepared in accordance with the requirements of NI 41-101, Form 41-101F2, Form 41-101F4 and NI 81-102, as applicable, subject to any exemptions obtained therefrom.

14. Each Continuing Fund will be a reporting issuer under the applicable securities legislation of each of the Canadian Jurisdictions.

15. The Continuing Funds will be subject to, among other laws and regulations, NI 81-102, NI 81-106 and NI 81-107 and any exemptions therefrom that have been granted by the securities regulatory authorities.

16. On May 26, 2020, the Filer filed preliminary prospectuses and preliminary ETF facts documents with respect to the Continuing Funds.

17. As the Continuing Funds are new, the funds will not have their own past performance, price or trading data on the date the Proposed Reorganization is implemented.

18. The Filer will not begin distribution of ETF Shares of the Continuing Funds prior to the completion of the Proposed Reorganization.

Horizons Private Trusts

19. As a result of the Proposed Reorganization and for the reasons described below, each Continuing Fund will become the holder of 100% of the outstanding voting units of its corresponding Horizons ETF, which following the Proposed Reorganization shall each be private investment trusts (each a Horizons Private Trust, collectively the Horizons Private Trusts).

20. Following the Proposed Reorganization, it is anticipated that each Horizons Private Trust will apply to cease to be a reporting issuer under the simplified procedure.

21. Each Continuing Fund wishes to have the ability to hold 100% of the outstanding voting units of its corresponding Horizons Private Trust once the Horizons Private Trusts cease to be reporting issuers.

22. Each Continuing Fund does not intend to hold more than 10% of its net asset value in a Horizons Private Trust, and the Filer does not anticipate that any Continuing Fund will hold more than 10% of its net asset value in securities of a Horizons Private Trust.

23. The holding by each Continuing Fund of securities of the corresponding Horizons Private Trust will be the result of the implementation of the Proposed Reorganization, which shall only proceed if the Approval Sought is granted and if approved by unitholders, and the continued holding by each Continuing Fund in securities of the corresponding Horizons Private Trust represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Continuing Funds and their shareholders.

24. Following the Proposed Reorganization:

(a) the Horizons Private Trusts shall cease to offer units to the public and holders of the Horizons ETFs structured as trusts shall become holders of shares of the corresponding Continuing Fund, and Horizons MFC (on behalf of the corresponding Continuing Fund) shall become the sole unitholder of each Horizons Private Trust;

(b) the Horizons Private Trusts will not carry on any active business;

(c) although units of the Horizons Private Trusts will not be listed or quoted on any public exchange or market, units of the Horizons Private Trusts will continue to be liquid as they are redeemable daily on demand by the Continuing Funds; and

(d) units of the Horizons Private Trusts will not be available for purchase or issuance and it is currently anticipated that no additional units of the Horizons Private Trusts shall be issued in the future.

25. As the Horizons Private Trusts will not carry on any business following the Proposed Reorganization, the Horizons Private Trusts will operate in compliance with NI 81-102, with the exception of Part 12 – Compliance Reports, and will not make any new investments.

26. As the Horizons Private Trusts will not charge any management fees or incentive fees following the Proposed Reorganization, no Continuing Fund will pay any management or incentive fees which to a reasonable person would duplicate a fee payable by the corresponding Horizons Private Trust for the same service.

27. If a Continuing Fund trades in securities of a Horizons Private Trust with or through the Filer acting as dealer, the Filer will comply with its obligations under NI 81-107 in respect of any proposed related party transactions. These related party transactions will be disclosed to shareholders of the applicable Continuing Fund in its MRFP.

28. In connection with the Proposed Reorganization, and as will be disclosed in the Circular (as defined below), the Filer will apply to the Canadian securities administrators for the Horizons Private Trusts to cease being reporting issuers to avoid the unnecessary costs associated with meeting certain continuous disclosure obligations.

Reason for Approval Sought

29. The Filer and the Existing Funds require regulatory approval of the Proposed Reorganization because they cannot rely on section 5.6(1) of NI 81-102 for the following reasons:

(a) contrary to section 5.6(1)(c), it is not anticipated that the Existing Funds will be wound-up after the Proposed Reorganization because the Filer believes that leaving the Existing Funds and their assets in place may be necessary to defer the unnecessary realization of taxable income or gains that might otherwise occur on a wind-up of an Existing Fund, and it may otherwise be beneficial to such Existing Funds’ unitholders not to wind them up. The Existing Funds that are not wound up following the effective date of the Proposed Reorganization will retain their current unit trust structure but will not be offered to the public and their continued existence will confer no direct benefit on the Filer; and

(b) contrary to sections 5.6(1)(f)(ii) and 5.6(1)(f)(iii)(A)(IV) and (V), the most recently filed ETF facts documents, the most recently filed annual financial statements and interim financial reports and the most recently filed annual and interim MRFPs for the Continuing Funds will not be sent to unitholders of the Existing Funds, since that information will not be available for the Continuing Funds as each Continuing Fund will be newly created. Instead, the Filer will make available to each unitholder of an Existing Fund the Circular (as defined below) containing information and documents necessary for investors of the Existing Funds to consider the Proposed Reorganization, including a full description of the Proposed Reorganization, the income tax considerations of the Proposed Reorganization to unitholders, the investment objectives and investment strategies of the Existing Funds and the Continuing Funds, as well as a summary of the decision of the Independent Review Committee (the IRC) with respect to the Proposed Reorganization.

30. Except for sections 5.6(1)(c), 5.6(1)(f)(ii) and 5.6(1)(f)(iii)(A)(IV) and (V), the Proposed Reorganization would satisfy the other criteria in section 5.6(1) of NI 81-102 for pre-approved reorganizations and transfers.

The Proposed Reorganization

31. On May 22, 2020, the Filer issued a press release and filed a material change report announcing the Proposed Reorganization and the special meetings of unitholders of the Horizons ETFs (the Meetings) that will be held to approve the Proposed Reorganization.

32. Each Continuing Fund will be structured as a separate Corporate Class of shares of Horizons MFC for purposes of implementing the Proposed Reorganization. As a result:

(a) the unitholders of the Existing Funds will have rights as shareholders of the Continuing Funds that are substantially similar in all material respects to the rights they had as unitholders of the Existing Funds;

(b) the unitholders of the Existing Funds will become holders of a corresponding Corporate Class of shares of the relevant Continuing Fund, with the same aggregate net asset value as they held before the Proposed Reorganization as unitholders of the relevant Existing Fund;

(c) the Proposed Reorganization is not expected to be a taxable event for Canadian income tax purposes for unitholders of the Existing Funds provided that, in the case of Canadian resident unitholders who hold units of the Existing Funds in taxable accounts (Section 85 Eligible Holders), such unitholders make a joint election with Horizons MFC under section 85 of the Income Tax Act (Canada) (the Tax Act) to defer recognition of any gain that may otherwise arise for Canadian income tax purposes on the exchange of their units of an Existing Fund for shares of a class of the Continuing Fund;

(d) the Continuing Funds will have fundamental investment objectives, as well as investment strategies, that are substantially similar in all material respects to the fundamental investment objectives and investment strategies of the corresponding Existing Funds;

(e) the Continuing Funds will have fee structures and valuation procedures that are substantially similar to the fee structures and valuation procedures of the corresponding Existing Funds; and

(f) The Filer will continue to be the investment fund manager of the Continuing Funds,

all of which is described in an information circular dated May 18, 2020 that was made available to unitholders of the Existing Funds (the Circular).

33. The Continuing Funds will be managed in a manner which is substantially similar to the manner in which the Existing Funds have been managed, and will be managed, to the effective date of the Proposed Reorganization.

34. It is anticipated that substantially all of the assets of each Existing Fund will be transferred to the corresponding Continuing Fund in connection with the implementation of the Proposed Reorganization, and/or may be left in the Existing Fund for the exclusive benefit of the corresponding Continuing Fund.

35. The Proposed Reorganization is expected to be completed before the end of June 2020, subject to receiving all necessary unitholder, regulatory and other third-party approvals.

36. As a result of the Proposed Reorganization, all material agreements regarding the administration of the Horizons ETFs will either be amended to include the Continuing Funds, or the Continuing Funds will enter into new agreements with the relevant service provider, as required.

37. The unitholders of each Existing Fund immediately before the Proposed Reorganization will be the shareholders of the corresponding Continuing Fund immediately after the Proposed Reorganization.

38. It is expected that the sole unitholder of each Existing Fund following the Proposed Reorganization will be Horizons MFC, on behalf of the applicable corresponding Continuing Fund and its shareholders (which shall be the same holders of units of such Existing Fund immediately prior to the Proposed Reorganization).

39. The Horizons ETFs’ IRC has reviewed the conflicts of interests matters associated with the Proposed Reorganization, including the process to be followed in connection with such Proposed Reorganization and the preservation of some or all of the Existing Funds for the benefit of the holders of the Continuing Funds, and after reasonable inquiry has advised Horizons that, in its determination, if implemented, the Proposed Reorganization achieves a fair and reasonable result for each of the Existing Funds.

40. In addition to the press release mentioned above and the corresponding material change report, investors in the Horizons ETFs will have been made aware of the Proposed Reorganization through amendments to the final prospectuses of the Horizons ETFs, which will be filed on the System for Electronic Document Analysis and Retrieval (SEDAR).

41. Pursuant to NI 81-102, the Meetings will be held on or about June 23, 2020. At the Meetings, unitholders of the Existing Funds will be asked to approve the Proposed Reorganization.

42. The Notice-and-Access Document and voting instruction forms or forms of proxy, as applicable, in respect of the Meetings (the Meeting Materials) describing the Proposed Reorganization was sent to unitholders of the Existing Funds on May 22, 2020 and copies thereof were filed on SEDAR following the mailing in accordance with applicable securities legislation and exemptive relief obtained by the Filer on November 4, 2016 permitting the Horizons ETFs to use Notice-and-Access to send proxy-related materials to beneficial unitholders.

43. The Meeting Materials contain a detailed description of the Proposed Reorganization, information about the Existing Funds and the Continuing Funds, income tax considerations for unitholders of the Horizons ETFs applicable to the Proposed Reorganization and the material differences between being a unitholder of a trust and a shareholder of a corporation.

44. The Meeting Materials contain sufficient information regarding the business, management and operations of the Horizons ETFs and all information necessary to allow unitholders to make an informed decision about the Proposed Reorganization. All other required information and documents necessary to comply with applicable proxy solicitation requirements of securities legislation for the Meetings will be mailed to applicable unitholders of the Horizons ETFs.

45. At each Meeting, the affirmative vote of not less than a majority of the votes cast by unitholders of the applicable Existing Fund present in person or represented by proxy at that Meeting is required for approval of the Proposed Reorganization. It is expected that the Proposed Reorganization will be implemented if approved by the unitholders of the applicable Existing Fund, regardless of whether the Proposed Reorganization is approved by unitholders of the other Existing Fund.

46. Subject to receipt of unitholder and regulatory approvals, the Proposed Reorganization will occur as soon as reasonably practicable following receipt of all required unitholder and regulatory approvals, subject to the discretion of the Filer to not proceed with the Proposed Reorganization for one or more Existing Funds if considered in the best interests of the Existing Funds. It is currently anticipated that the Proposed Reorganization will occur before the end of June 2020.

47. The reasons for the Proposed Reorganization are as follows:

(a) The Proposed Reorganization follows a lengthy and extensive review by the Filer of the activities and current tax positions of the Existing Funds, upon which the Filer has determined that it would be in the best interests of the unitholders of the Existing Funds, currently structured as trusts, to merge into Horizons MFC, which would permit the Continuing Funds to improve operational efficiency, aggregate all future gains and losses be they on income or capital account, and substantially reduce the likelihood of distributions.

(b) The Existing Funds currently incur significant annual expenses to maintain their status as separate mutual fund trusts, each of which is treated as a flow-through entity for tax purposes, but each of which is also required to separately comply with the tax rules applicable thereto. Horizons has determined that significant operational efficiencies can be achieved by combining the Existing Funds into Horizons MFC rather than incurring the foregoing duplicative annual expenses.

(c) Upon completion of the Proposed Reorganization, the Continuing Funds are expected to be on a level playing field with the tax and operational efficiencies currently enjoyed by Horizons MFC and other mutual fund corporations.

(d) Following completion of the Proposed Reorganization, the Continuing Funds are expected to preserve all of the benefits offered by the Existing Funds.

48. No commission or other fee will be charged to unitholders of an Existing Fund on the issue or exchange of securities of the applicable Continuing Fund.

49. The steps for implementing the Proposed Reorganization are substantially as follows:

(a) The declaration of trust governing each Existing Fund will be amended to, among other matters: (i) require that every unitholder of each Existing Fund transfer each of his or her units of such Existing Fund to Horizons MFC in return for an equivalent number of shares of an equivalent series of the corresponding Continuing Fund, (ii) otherwise facilitate the Proposed Reorganization and the implementation of the steps and transactions involved as described in the Circular, and (iii) authorize the Filer, as manager and trustee of each Existing Fund, to execute all such instruments as may be necessary or desirable to give effect to the Proposed Reorganization.

(b) Each Existing Fund will settle all or part of its outstanding swaps, forwards or other derivatives, as applicable.

(c) Each unitholder of an Existing Fund will transfer each of his or her units of that Existing Fund to Horizons MFC in exchange for an equivalent number of shares of an equivalent series of the corresponding Continuing Fund.

(d) Subsequent to the transfer of all the units of a particular Existing Fund to Horizons MFC per paragraph (d) above, such Existing Fund will transfer to Horizons MFC (for the benefit of the applicable Continuing Fund), as a return of capital or otherwise, all or part of its assets, and Horizons MFC will assume the Existing Fund’s remaining liabilities, if any.

(e) Once an Existing Fund has transferred all of its assets to Horizons MFC, per paragraph (e) above, that Existing Fund will be wound up. Assets retained within an Existing Fund following the Proposed Reorganization, if any, will be held for the exclusive benefit of the corresponding Continuing Fund and its shareholders.

Lapse Date Extension

50. Pursuant to subsection 62(1) of the Act, the lapse date of the Prospectus is May 9, 2020 (the Lapse Date). Accordingly, under subsection 62(2) of the Act, the distribution of securities of the Horizons ETFs would have to cease on the applicable Lapse Date unless: (i) each Horizons ETF files a pro forma prospectus at least 30 days prior to the Lapse Date; (ii) the final prospectus is filed no later than 10 days after the Lapse Date; and (iii) a receipt for the final prospectus is obtained within 20 days of the Lapse Date.

51. Pursuant to e-mail correspondence with the Principal Regulator on April 7, 2020, the Filer gave notice of its intention to rely on Ontario Instrument 81-503 Extension of Certain Filing, Delivery and Prospectus Renewal Requirements of Investment Funds to extend the lapse date of the Prospectus by 45 days. Accordingly, the revised lapse date of the Prospectus is June 23, 2020 (the Revised Lapse Date).

52. The Lapse Date Extension will allow the Filer to avoid incurring unnecessary costs in connection with preparing and filing a renewal prospectus for units of the Horizons ETFs (structured as trusts), since subject to regulatory, unitholder and other third party approvals, the Horizons ETFs are expected to shortly thereafter convert into the Corporate Classes of Horizons MFC, at which time they will be distributing ETF Shares under a separately filed prospectus and will not be relying on the Prospectus filed by the trusts.

53. There have been no material changes in the affairs of each Horizons ETF since the date of the Prospectus. Accordingly, the Prospectus and current ETF facts document of each Horizons ETF represents current information regarding such Horizons ETF.

54. Given the disclosure obligations of the Filer and the Horizons ETFs, should any material change in the business, operations or affairs of the Horizons ETFs occur, the Prospectus and the current ETF facts document of each Horizons ETF will be amended as required under the Legislation.

55. The Lapse Date Extension will not affect the accuracy of the information contained in the Prospectus and will therefore not be prejudicial to the public interest.

Past Performance Relief

56. The Continuing Funds will be new funds. However, while the Continuing Funds will each have the same underlying assets and liabilities as the corresponding Existing Funds, as new funds, they will not have their own Financial Data or Prior Sales Data as at the effective date of the Proposed Reorganization. In order for the Proposed Reorganization to be as seamless as possible for unitholders of the Existing Funds, the Filer proposes that:

(a) the Continuing Funds will prepare annual MRFPs commencing with the year ended December 31, 2020 and interim MRFPs commencing with the six-month period ended June 30, 2021 using the relevant Existing Funds’ historical Financial Data; and

(b) the Continuing Funds will prepare comparative annual financial statements commencing with the year ended December 31, 2020 under section 2.1 of NI 81-106 using the relevant Existing Funds’ historical Financial Data.

57. The Financial Data and Prior Sales Data of the Existing Funds is significant information which can assist investors in determining whether to purchase shares of the Continuing Funds. In the absence of the relief requested herein, investors will have no financial information (such as past performance) on which to base such an investment decision.

58. The Filer proposes to include the Prior Sales Data of the Existing Funds in the applicable final prospectuses for the Continuing Funds.

59. The Filer proposes to include the performance data of each of the Existing Funds in the corresponding Continuing Funds’ Fund Communications and ETF facts document because the investment objectives and investment strategies employed by the Existing Funds prior to the Proposed Reorganization and the Continuing Funds after the Proposed Reorganization are the same.

60. The Filer proposes to state that the Quick Facts, Trading Information and Pricing Information in the ETF facts document for each of the Continuing Funds is based upon the Quick Facts, Trading Information and Pricing Information of the corresponding Existing Fund.

61. The Filer proposes to use information of the Existing Funds for the purposes of performance data in the Year-by-year returns, Best and worst 3-month returns and Average return in the ETF facts document for each of the Continuing Funds.

62. The Filer proposes to use the information about the expenses and fees of the Existing Funds in the ETF facts document for each of the Continuing Funds.

63. The Filer proposes to use the performance data of the Existing Funds to determine its investment risk level and disclose it in the ETF facts document of each of the Continuing Funds.

64. Each Continuing Fund will be indistinguishable from its corresponding Existing Fund since the investment objectives, investment strategies and management fees attached to each continuing series of each Continuing Fund will be substantially similar in all material respects as the corresponding Existing Fund.

65. The Filer is seeking to make the Proposed Reorganization as seamless as possible for unitholders of the Existing Funds. Accordingly, the Filer submits that treating each Continuing Fund as a continuation of the Existing Fund for purposes of the above-mentioned information would be beneficial to investors and that to do otherwise would cause unnecessary confusion among investors concerning the differences between the Existing Funds and the Continuing Funds. Any such disclosure would note that the performance includes information from the time that the Continuing Fund operated as a trust prior to the Proposed Reorganization.

66. The Filer submits that investors will not be misled if the above mentioned information of each Continuing Fund reflects the information of the corresponding Existing Fund.

Control and Fund of Fund Restriction Relief

67. Following implementation of the Proposed Reorganization, the Filer anticipates applying on behalf of each Horizons Private Trust to cease to be a reporting issuer using the simplified procedure.

68. Absent the Control Relief, once the Horizons Private Trusts cease to be reporting issuers, the Continuing Funds would be prohibited under paragraph 2.2(1)(a) of NI 81-102 from maintaining their proposed holdings in the Horizons Private Trusts, because Horizons MFC (on behalf of each Continuing Fund) will hold, as a result of the Proposed Reorganization, 100% of the voting units of the Horizons Private Trusts, and would not qualify for the exemption contained in paragraph 2.2(1.1)(a) of NI 81-102, as not all of the requirements for a Continuing Fund to invest in a Horizons Private Trust pursuant to section 2.5 of NI 81-102 will be met.

69. Absent the Fund of Fund Restriction Relief, the Horizons Private Trusts cannot cease to be reporting issuers because the continued investment by Horizons MFC, on behalf of the Continuing Funds, in 100% of the outstanding voting securities of the Horizons Private Trusts would be prohibited under paragraph 2.5(2)(a.1) and under paragraph 2.5(2)(c) of NI 81-102, since the Horizons Private Trusts would no longer be subject to NI 81-102 and the Horizons Private Trusts would no longer be reporting issuers.

70. As will be disclosed in the Circular, preserving the existence of the Horizons Private Trusts is beneficial to investors in the Continuing Funds by deferring an unnecessary realization of taxable income or gains that may arise on a wind-up of a Horizons Private Trust and a distribution of its assets to the corresponding Continuing Fund, and/or by potentially preserving value in the Horizons Private Trust for the benefit of the shareholders of the corresponding Continuing Fund.

71. The Filer does not, and will not, obtain any direct benefit from the continued existence of the Horizons Private Trusts, or from the continued investment by Horizons MFC in the Horizons Private Trusts.

72. Any value that may ultimately be realized through the Horizons Private Trusts shall be for the benefit of the Continuing Funds and their respective shareholders.

73. There is limited or no downside risk to shareholders of the Continuing Funds in permitting the Continuing Funds to remain invested in the Horizons Private Trusts, because the Continuing Funds will remain the sole holders of voting units of the Horizons Private Trusts and the Horizons Private Trusts do not, and will not, carry on any business. Furthermore, in managing the affairs of the Horizons Private Trusts, the Filer will only be taking actions in accordance with its fiduciary obligations to the holders of units of the Horizons Private Trusts, being the Continuing Funds.

74. Each Continuing Fund is currently unable to divest itself, in a commercially reasonable manner, of the securities of its corresponding Horizons Private Trust held in excess of the limits described in paragraph 2.2(1)(a) of NI 81-102 in a manner that would preserve the deferral of any unnecessary realization of taxable income or gains that would arise on a disposition of those units, and/or otherwise preserve value in the Horizons Private Trust for the benefit of the shareholders of the corresponding Continuing Fund. As the Horizons Private Trusts (i) shall carry on no other business, (ii) shall have a single unitholder, and (iii) shall no longer issue any units following the Proposed Reorganization, there is no market for the units of the Horizons Private Trusts held by Horizons MFC.

75. While the Filer could maintain the reporting issuer status of each Horizons Private Trust if required to do so, doing so would not be beneficial to investors and would require the Filer to incur significant costs to satisfy the regulatory obligations associated with maintaining reporting issuer status.

76. The only material differences between a Horizons Private Trust and other types of mutual funds governed by NI 81-102 is that the Horizons Private Trusts (i) shall not be in continuous distribution, as they will not issue additional securities, (ii) shall not invest their portfolios in any securities and (iii) intend not to be reporting issuers.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Approval Sought is granted, provided that before implementing the Proposed Reorganization in respect of a particular Horizons ETF, the Filer obtains the prior approval of the unitholders of that Horizons ETF at a special meeting held for that purpose.

The decision of the principal regulator under the Legislation is that the Lapse Date Extension is granted.

The decision of the principal regulator under the Legislation is that the Past Performance Relief is granted, provided that:

(a) the Continuing Funds’ Fund Communications include the applicable performance data of the Existing Funds prepared in accordance with Part 15 of NI 81-102;

(b) the Continuing Funds’ prospectuses disclose that the Prior Sales Data is the Prior Sales Data of the corresponding Existing Fund;

(c) the ETF facts document of each Continuing Fund:

(i) states that the Quick Facts, Trading Information and Pricing Information of the Continuing Fund is the Quick Facts, Trading Information and Pricing Information of the corresponding Existing Fund and discloses the applicable Proposed Reorganization;

(ii) includes the performance data of the respective Existing Fund in the Year-by-year returns, Best and worst 3-month returns and Average return prepared in accordance with Part 15 of NI 81-102;

(iii) includes the investment risk level as determined by including the performance data of the respective Existing Fund in accordance with Appendix F;

(iv) includes the information about fees and expenses required by Form 41-101F4 of the respective Existing Fund; and

(d) the MRFPs for each Continuing Fund include the Financial Data of the Existing Funds, pertaining to the corresponding class of the Existing Funds, and disclose the Proposed Reorganization for the relevant time periods.

The decision of the principal regulator under the Legislation is that the Control Relief and the Fund of Fund Restriction Relief is granted, provided that:

(i) the Horizons Private Trusts do not issue any new securities;

(ii) the investment of the Continuing Funds in securities of the corresponding Horizons Private Trust otherwise complies with section 2.5 of NI 81-102, with the exception of paragraphs 2.5(2)(a), 2.5(2)(a.1) and 2.5(2)(c) of NI 81-102;

(iii) the Horizons Private Trusts will remain in compliance with NI 81-102, with the exception of Part 12 – Compliance Reports, and will not make any new investments; and

(iv) the prospectus of each Continuing Fund discloses, or will disclose at the time of its next renewal, the fact that a Continuing Fund has obtained the Control Relief and the Fund of Fund Restriction Relief to permit the relevant transactions on the terms described in this decision.

"Darren McKall"

Darren McKall Investment Funds and Structured Products Branch Ontario Securities Commission

App.#2020/0235 Sedar Project No. 3062907