ANNUAL REPORT DYNAMIC VENTURE OPPORTUNITIES FUND LTD.

Transcription

1 ANNUAL REPORT DYNAMIC VENTURE OPPORTUNITIES FUND LTD. Period ended August 31, 2018 This annual report contains the annual management report of fund performance and the annual financial statements of the investment fund. You can get additional copies of these documents, at your request and at no cost, by calling toll-free , by writing to us at: 1832 Asset Management L.P., Dynamic Funds Tower, 1 Adelaide Street East, 28 th Floor, Toronto, ON, M5C 2V9 or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund s interim report, proxy voting policies and procedures or proxy voting disclosure record Asset Management L.P. is the manager (the Manager ) of the fund. In this document, we, us, our and the Manager refer to 1832 Asset Management L.P. and the Fund refers to Dynamic Venture Opportunities Fund Ltd. The term net asset value or net asset value per share in this document refers to the net asset value determined in accordance with Part 14 of National Instrument Investment Fund Continuous Disclosure ( National Instrument ); while the term net assets or net assets per share refers to total equity or net assets attributable to shareholders of the Fund as determined in accordance with International Financial Reporting Standards ( IFRS ).

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3 Dynamic Venture Opportunities Fund Ltd. MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements of Dynamic Venture Opportunities Fund Ltd. (the Fund ) have been prepared by 1832 Asset Management L.P., in its capacity as manager (the Manager ) of the Fund, and have been approved by the Board of Directors of the Fund. The Board of Directors of the Fund is responsible for the information and representations contained in these financial statements and the management report of fund performance. The Manager maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and include certain amounts that are based on estimates and judgments made by the Manager. The significant accounting policies which the Manager believes are appropriate for the Fund are described in Note 2 to the financial statements. The Board of Directors of the Fund has delegated responsibility for oversight of the financial reporting process to the Audit Committee of the Board of Directors of the Fund (the Audit Committee ). The Audit Committee is responsible for reviewing the financial statements and the management report of fund performance and recommending them to the Board of Directors of the Fund for approval, in addition to meeting with management, internal auditors and external auditors to discuss internal controls over the financial reporting process, auditing matters and financial reporting issues. PricewaterhouseCoopers LLP is the external auditor of the Fund, appointed by the shareholders. The auditor of the Fund has audited the financial statements in accordance with Canadian generally accepted auditing standards to enable it to express to the shareholders its opinion on the financial statements. The auditor s report is set out herein. 2OCT APR STEPHAN SMITH President Dynamic Venture Opportunities Fund Ltd. JUSTIN ASHLEY Chief Financial Officer Dynamic Venture Opportunities Fund Ltd. October 10, 2018

4 27JAN Dynamic Venture Opportunities Fund Ltd. Annual Management Report of Fund Performance For the year ended August 31, 2018 Caution Regarding Forward-Looking Statements performance, and that the forward-looking statements speak Certain portions of this report, including, but not limited to, only to the date of this management report of fund performance. Recent Developments, may contain forward-looking statements about the Fund and the underlying funds, as applicable, Investment Objective and Strategies including statements with respect to strategies, risks, expected The Fund seeks to achieve long-term capital appreciation by performance events and conditions. Forward-looking statements investing its assets in accordance with the requirements of the include statements that are predictive in nature, that depend Community Small Business Investment Funds Act (Ontario) and upon or refer to future events or conditions, or that include the Income Tax Act (Canada), each as amended from time to words such as expects, anticipates, intends, plans, time. The Fund utilizes a number of strategies when making believes, estimates, projects and similar forward-looking investment decisions. It diversifies its portfolio by investing in a expressions or negative versions thereof. variety of industries and stages of development including: In addition, any statement that may be made concerning future mature, expansion, acquisition, start-up, and turnaround stages. performance, strategies or prospects and possible future action by the Fund is also a forward-looking statement. Forwardlooking Risk statements are based on current expectations and The risks associated with investing in the Fund are as described projections about future general economic, political and in the Fund s most recent prospectus. Effective September 1, relevant market factors, such as interest rates, foreign exchange 2017, the Manager has implemented a new Risk Classification rates, equity and capital markets, and the general business Methodology recently mandated by the Canadian Securities environment, in each case assuming no changes to applicable Administrators, which is used to determine the investment risk tax or other laws or government regulation. Expectations and level of the Fund. There are no changes to the investment risk projections about future events are inherently subject to, among level, investment objectives or strategies of the Fund as a result other things, risks and uncertainties, some of which may be of the implementation. unforeseeable. Accordingly, current assumptions concerning future economic and other factors may prove to be incorrect at a future date. Results of Operations For the year ended at August 31, 2018 (the period ), the Class A, Forward-looking statements are not guarantees of future Series I and Class A, Series II shares of the Fund generated total performance and actual results or events could differ materially returns of 3.7% and 4.5%, respectively. Fund returns are from those expressed or implied in any forward-looking reported net of all management fees and expenses for all series, statements made by the Fund. Any number of important factors unlike the returns of the Fund s benchmark, which is based on could contribute to these digressions, including, but not limited the performance of an index that does not pay fees or incur to, general economic, political and market factors in North expenses. Any difference in performance between series is America and internationally, such as interest and foreign primarily due to different operating expenses and other expenses exchange rates, global equity and capital markets, business that are applicable to that particular series. competition, technological change, changes in government relations, unexpected judicial or regulatory proceedings and The Fund s broad-based benchmark, the S&P/TSX Composite catastrophic events. We stress that the above mentioned list of Index, returned 10.1% during the same period. In accordance important factors is not exhaustive. Some of these risks, with National Instrument , we have included a comparison uncertainties and other factors are described in the Fund s most to this broad-based index to help you understand the Fund s recent prospectus, under the heading Risk Factors. performance relative to the general performance of the market, but caution that the Fund s mandate is significantly different We encourage you to consider these and other factors carefully from the index shown. before making any investment decisions. Forward-looking statements should not be unduly relied upon. Further, you The Fund s relevant benchmark, the Globe Retail Venture Capital should be aware of the fact that the Fund has no specific Peer Index, returned 5.1% during the same period. We have intention of updating any forward-looking statements whether included this comparison, which more closely reflects the market as a result of new information, future events or otherwise, prior sectors and/or asset classes in which the investment fund invests, to the release of the next management report of fund to provide a more useful comparative to the performance of the Fund.

5 DYNAMIC VENTURE OPPORTUNITIES FUND LTD. The Fund underperformed its relevant benchmark primarily as a effective for the Fund for its fiscal year beginning September 1, result of its allocation to fixed income and stock selection within The Manager has evaluated the standard and has the Fund. determined that the impact to the Fund will include additional disclosures related to changes to the classification of certain The global equity markets moved higher during the period and financial instruments to align with the classifications under Canadian equities also ended the period higher as markets were IFRS 9. Adoption of the standard will not impact net assets widely in risk-on mode. Canadian markets were led higher by attributable to holders of redeemable shares. Health Care, Information Technology, Industrials and Real Estate stocks with 7 of the 11 GIC sectors increasing. Utilities, Materials and Telecommunication Services were the largest detractors Change in Manager from the Canadian market. The Fund s equity contribution was in On July 31, 2018, the Fund announced that the Board of aggregate negative as a result of two private investments, Ruby Directors of the Fund approved the entering into by the Manager, Corporation and ESM Corporation. The Fund benefited from the current investment fund manager and portfolio manager of investments in TeraGo Inc. and Spectra Inc., which were the the Fund, and B.E.S.T. Investment Counsel Limited ( BEST ), of largest positive contributors to the Fund during the period. an acquisition agreement providing for the acquisition by BEST of the management, services and principal distribution contracts Strong economic growth and job creation prompted the Bank of of the Fund from the Manager by way of assignment Canada to increase its benchmark rates four times during the (the Transaction ). Upon closing of the Transaction, BEST will period. The Canadian fixed income market saw the 10-year become the investment fund manager, portfolio manager and Government of Canada bond yields rise 78 bps to 2.0%, which principal distributor of the Fund. Following the completion of the represented a headwind for bond prices. The Fund s conservative Transaction, the name of the Fund will be changed from short duration fixed income holdings were a detractor during Dynamic Venture Opportunities Fund Ltd. to B.E.S.T. Venture the period. Opportunities Fund Inc. The completion of the Transaction is The Fund made minimal changes to its existing holdings during subject to the satisfaction of certain closing conditions, including the period. the approval of shareholders and applicable securities regulatory authorities, both of which were received. The Transaction is As at August 31, 2018, the investments in the Fund, excluding scheduled to close by the third business day following the day on cash and marketable securities, total 14 companies: 8 public which the closing conditions set out in the acquisition agreement companies totaling $2.0 million and 6 private companies totaling have been satisfied or waived, which is expected to occur in the $5.4 million for a total of $7.4 million at fair value. The Fund is fall of 2018, following the Special Meeting of Shareholders on well diversified by industry, maturity and investment structure. October 10, Pursuant to the acquisition agreement, none of The Fund s asset mix now stands at 25% venture investments, the costs of the Transaction will be borne by the Fund. 55% non-venture investments and 20% cash. The Fund currently has a high level of liquidity and maturity for an LSIF Fund with 81% of the net assets represented by publicly traded securities Related Party Transactions and cash. The Manager is a wholly-owned subsidiary of The Bank of Nova Scotia ( Scotiabank ). Scotiabank also owns, directly or The Fund s net asset value decreased by 25.4% to $29.0 million at indirectly, 100% of Scotia Securities Inc. and Tangerine August 31, 2018, from $38.9 million at August 31, This Investment Funds Limited, each a mutual fund dealer, and Scotia change was composed of net redemptions of $8.6 million and Capital Inc. (which includes ScotiaMcLeod and Scotia itrade), investment performance of $1.3 million. The investment an investment dealer. performance of the Fund includes income and expenses which vary year over year. The Fund s income and expenses changed The Manager, on behalf of the Fund, may enter into transactions compared to the previous year mainly as a result of fluctuations or arrangements with other members of Scotiabank or certain in average net assets, portfolio activity and changes in the Fund s other companies that are related or connected to the Manager income earning investments. (each a related party ). All transactions between the Fund and the related parties are in the normal course of business and are Recent Developments carried out at arm s length terms. IFRS 9, Financial Instruments The purpose of this section is to provide a brief description of The final version of IFRS 9, Financial Instruments was issued by any transaction involving the Fund and a related party. the International Accounting Standards Board ( IASB ) in July 2014 and will replace IAS 39, Financial Instruments: Management Fees Recognition and Measurement, related to the classification and The Manager is responsible for the day-to-day management and measurement of financial assets and financial liabilities. operations of the Fund. Each series of the Fund pays the Manager a management fee for its services as described in the IFRS 9 relates to the classification and measurement of financial Management Fee section later in this document. The assets and financial liabilities in the Fund. The new standard is

6 DYNAMIC VENTURE OPPORTUNITIES FUND LTD. management fee is an annualized rate based on the net asset value of each series of the Fund, accrued daily and paid monthly. Operating Expenses Each series of the Fund is allocated its proportionate share of the Fund s operating expenses that are common to all series. The expenses charged to the Fund in respect to operating expenses are disclosed in the Fund s financial statements. The Fund also pays the Manager an annual administration fee of $150,000 for providing administrative, sales and marketing and related support services to the Fund. The Manager, at its sole discretion, may waive or absorb a portion of a series expenses. These waivers or absorptions may be terminated at any time without notice. Performance Fees The Manager is entitled to an annual performance fee based on the performance of the Fund as compared to the performance of a benchmark. Service Fees The Fund pays to registered dealers an annual service fee of 0.5% of the net asset value of the Class A, Series I shares that were sold by them. A portion of this fee may be paid to registered dealers related to the Manager. Distribution Fees The Fund pays to the Manager an annual distribution fee of 1.25% of the net asset value of the Class A, Series II shares for marketing and arranging for distribution of the shares. Independent Review Committee The Manager has established an independent review committee (the IRC ) in accordance with National Instrument Independent Review Committee for Investment Funds ( NI ) with a mandate to review and provide recommendations or approval, as required, on conflict of interest matters referred to it by the Manager on behalf of the Fund. The IRC is responsible for overseeing the Manager s decisions in situations where the Manager is faced with any present or perceived conflicts of interest, all in accordance with NI The IRC may also approve certain mergers between the Fund and other funds, and any change of the auditor of the Fund. Subject to any corporate and securities law requirements, no securityholder approval will be obtained in such circumstances, but you will be sent a written notice at least 60 days before the effective date of any such transaction or change of auditor. In certain circumstances, securityholder approval may be required to approve certain mergers. The IRC has five members, Carol S. Perry (Chair), Stephen J. Griggs, Simon Hitzig, Heather A. T. Hunter and Jennifer L. Witterick, each of whom is independent of the Manager. On April 30, 2018, Brahm Gelfand and D. Murray Paton resigned as members of the IRC. On May 15, 2018, the IRC appointed Mr. Griggs and Ms. Hunter as members. The IRC prepares and files a report to the securityholders each fiscal year that describes the IRC and its activities for securityholders as well as contains a complete list of the standing instructions. These standing instructions enable the Manager to act in a particular conflict of interest matter on a continuing basis provided the Manager complies with its policies and procedures established to address that conflict of interest matter and reports periodically to the IRC on the matter. This report to the securityholders is available on the Manager s website or, at no cost, by contacting the Manager. The compensation and other reasonable expenses of the IRC will be paid out of the assets of the Fund as well as out of the assets of the other investment funds for which the IRC may act as the independent review committee. The main components of compensation are an annual retainer and a fee for each committee meeting attended. The chair of the IRC is entitled to an additional fee. Expenses of the IRC may include premiums for insurance coverage, travel expenses and reasonable out-of-pocket expenses. The Fund received the following standing instructions from the IRC with respect to related party transactions: Paying brokerage commissions and spreads to a related party for effecting security transactions on an agency and principal basis on behalf of the Fund; Purchases or sales of securities of an issuer from or to another investment fund managed by the Manager; Investments in the securities of issuers for which a related underwriter acted as an underwriter during the distribution of such securities and the 60-day period following the completion of such distribution; Executing foreign exchange transactions with a related party on behalf of the Fund; Purchases of securities of a related party; Entering into over-the-counter derivatives on behalf of the Fund with a related party; Outsourcing products and services to related parties which can be charged to the Fund; Acquisition of prohibited securities as defined by securities regulations; Trading in mortgages with a related party. The Manager is required to advise the IRC of any breach of a condition of the standing instructions. The standing instructions require, among other things, that the investment decision in respect to a related party transaction: (a) is made by the Manager free from any influence by an entity related to the Manager and without taking into account any consideration to any associate or affiliate of the Manager; (b) represents the

7 DYNAMIC VENTURE OPPORTUNITIES FUND LTD. business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund; and (c) is made in compliance with the Manager s written policies and procedures. Transactions made by the Manager under the standing instructions are subsequently reviewed by the IRC to monitor compliance. The Fund did not rely on IRC standing instructions regarding related party transactions during the period. Financial Highlights The following tables show selected key financial information about each series of the Fund and are intended to help you understand the Fund s financial performance for the periods indicated. The information on the following tables is based on prescribed regulations and as a result, is not expected to add down due to the increase (decrease) in net assets from operations being based on average shares outstanding during the period and all other numbers being based on actual units outstanding at the relevant point in time. Footnotes for the tables are found at the end of the Financial Highlights section. The Fund s Net Assets per Share ($) (1) Increase (decrease) from operations Distributions Realized Unrealized Total From net Net gains gains increase investment Net Assets, (losses) (losses) (decrease) income From Return Assets, beginning Total Total for the for the from (excluding From capital of Total end of For the period ended of period revenue expenses period period operations (2) dividends) dividends gains capital distributions period (1) Class A, Series I Aug. 31, (0.62) (0.81) 0.26 (0.44) Aug. 31, (0.71) 0.12 (0.31) (0.44) Aug. 31, (0.70) 0.18 (1.78) (1.87) Aug. 31, (0.64) 3.85 (3.72) Aug. 31, (0.58) Class A, Series II Aug. 31, (0.67) (0.70) 0.24 (0.45) Aug. 31, (0.77) 0.08 (0.24) (0.51) Aug. 31, (0.78) 0.17 (1.62) (1.83) Aug. 31, (0.78) 3.64 (3.48) Aug. 31, (0.70) (1) This information is derived from the Fund s audited annual financial statements. The net assets per share presented in the financial statements may differ from the net asset value calculated for Fund pricing purposes. An explanation of these differences can be found in note 2 of the Fund s financial statements. The net asset value per share at the end of the period is disclosed in Ratios and Supplemental Data. (2) Net assets per share is based on the actual number of shares outstanding for the relevant series at the relevant time. The increase (decrease) in net assets from operations per share is based on the weighted average number of shares outstanding for the relevant series over the period. Ratios and Supplemental Data Management MER before Total net asset Number of shares expense ratio waivers or Trading expense Portfolio turnover Net asset value As at value ($000s) (1) outstanding (1) ( MER )(%) (2) absorptions (%) (2) ratio (%) (3) rate (%) (4) per share ($) Class A, Series I Aug. 31, , , Aug. 31, , , Aug. 31, , , Aug. 31, , , Aug. 31, , , Class A, Series II Aug. 31, ,188 2,051, Aug. 31, ,047 2,675, Aug. 31, ,110 3,343, Aug. 31, ,014 4,247, Aug. 31, ,106 5,069, (1) This information is provided as at the period end of the years shown. (2) The management expense ratio is based on total expenses (including sales tax, and excluding commissions and other portfolio transaction costs) of each series of the Fund and a proportionate share of underlying fund expenses (mutual funds, ETFs and closed-end funds), where applicable, for the stated period and is expressed as an annualized percentage of the daily average net asset value during the period. (3) The trading expense ratio represents total commissions and other portfolio transaction costs of the Fund and the underlying funds, where applicable, expressed as an annualized percentage of daily average net asset value of the Fund during the period. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund s portfolio turnover rate in a period, the greater the trading costs payable by the fund in the period, 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 a fund.

8 Management Fee The management fee is an annualized rate based on the net asset value of each series of the Fund, accrued daily and paid monthly. 20 The management fees cover the costs of managing the Fund, 10 arranging for investment analysis, recommendations and investment decision making for the Fund, arranging for 0 distribution of the Fund, marketing and promotion of the Fund and providing or arranging for other services. -10 The breakdown of the services received in consideration of management fees for each series, as a percentage of management fees, is as follows: % Class A, Series II Shares DYNAMIC VENTURE OPPORTUNITIES FUND LTD Annual Compound Returns Management Dealer The annual compound returns table below compares each series fees compensation Other of the Fund s performance to one or more benchmarks. A (%) (%) (%) Class A, Series I benchmark is usually an index or a composite of more than one Class A, Series II index. Fund returns are reported net of all management fees and Relates to all services provided by the Manager described above except dealer expenses for all series, unlike the return of benchmarks which compensation. are based on the performance of an index that does not pay fees Past Performance or incur expenses. One Three Five Eight Ten The following shows the past performance for each series and Year Years Years Years Years will not necessarily indicate how the Fund will perform in the Class A, Series I % S&P/TSX Composite Index % future. In addition, the information does not take into account Globe Retail Venture Capital sales, redemption, distribution or other optional charges that Peer Index % would have reduced returns or performance. Class A, Series II % S&P/TSX Composite Index % Year-by-Year Returns Globe Retail Venture Capital Peer Index % The following charts show the performance for each series of the Fund and illustrate how performance has varied from year to year. The charts show, in percentage terms, how much an investment held on the first day of each fiscal year would have increased or decreased by the last day of each fiscal year for that series. (for fiscal years ended August 31) % Class A, Series I Shares Index Descriptions S&P/TSX Composite Index This is a broad economic sector index comprising approximately 95% of the market capitalization for Canadian-based, Toronto Stock Exchange listed companies. Globe Retail Venture Capital Peer Index This index is an equally weighted average of mutual funds within the stated asset class. These are Canadian funds which engage in venture capital investing, putting money into small- to medium-sized companies that are in a startup or expansion phase. A discussion of the performance of the Fund as compared to its 7.7% 2.3% 3.5% benchmarks is found in the Results of Operations section of 0 this report % 13.7% -0.6% 20.1% -12.0% -3.4% -3.7% % 6.9% 12.4% -1.6% 1.4% 19.1% Summary of Investment Portfolio The Summary of Investment Portfolio may change due to ongoing portfolio transactions. Updates are available semi-annually on our website at 60 days after the interim period end, or 90 days after the fiscal year end. Percentage of By Asset Type net asset value Bonds & Debentures 54.5 Equities 25.6 Cash 19.8 Other Net Assets (Liabilities) % -12.8% -4.3% -4.5%

9 DYNAMIC VENTURE OPPORTUNITIES FUND LTD. Percentage of By Country / Region (1) net asset value Canada 80.1 Cash 19.8 Percentage of By Industry (1)(2) net asset value Cash 19.8 Consumer Discretionary 18.5 Technology 3.9 Industrials 2.2 Health Care 0.6 Mining 0.4 Percentage of Top 25 Holdings* net asset value Province of Ontario, 4.40% Jun Cash 19.8 Ruby Corp Province of Ontario, 8.10% Sep Bell Canada, 3.35% Jun , Series M Enbridge Income Fund, 4.85% Feb , Series Spectra Inc. 2.2 Espial Group Inc. 2.2 EQ Inc. 0.9 Redline Communications Group Inc. 0.7 Ottawa Ontario, Promissory Note, Apr Northern Graphite Corporation 0.4 GeneNews Limited 0.2 Medcan Health Management Inc., Class B, Non-Voting 0.2 SQI Diagnostics Inc. 0.2 Titan Medical Inc. 0.1 CRS Electronics Inc.** 0.0 First Nickel Inc.** 0.0 Met-Tech Inc.** 0.0 Met-Tech Inc., 5.00% Dec ** 0.0 Rimon Therapeutics Ltd., Convertible Preferred** 0.0 (1) Excludes other net assets (liabilities) and derivatives. (2) Excludes bonds and debentures. Based on the net asset value, therefore, weightings presented in the Schedule of Investments may differ from the ones disclosed above. * Securities legislation requires the top 25 holdings of the Fund to be presented; however, the Fund currently has less than 25 holdings. ** Percentage of total net asset value is less than 0.05%.

10 Dynamic Venture Opportunities Fund Ltd. STATEMENTS OF FINANCIAL POSITION STATEMENTS OF CHANGES IN NET ASSETS As at ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES (in $000s except per share amounts) August 31, 2018 August 31, 2017 For the periods ended August 31 (note 1), ASSETS (in $000s) Current assets NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES, BEGINNING OF PERIOD Investments Class A, Series I 5,842 7,132 Non-derivative financial assets (venture) 7,424 15,363 Class A, Series II 33,047 43,110 Non-derivative financial assets (non-venture) 15,833 21,509 Cash 5,745 1,977 38,889 50,242 Accrued investment income and other ,248 39,184 INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES FROM OPERATIONS LIABILITIES Class A, Series I (173) (207) Current liabilities Class A, Series II (1,058) (1,533) Management fee payable Redemptions payable 3 41 (1,231) (1,740) Accrued expenses REDEEMABLE SHARE TRANSACTIONS Proceeds from issue Net assets attributable to holders of redeemable shares 29,023 38,889 Class A, Series II 7 Payments on redemption NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES PER SERIES Class A, Series I (834) (1,083) Class A, Series I 4,835 5,842 Class A, Series II (7,801) (8,537) Class A, Series II 24,188 33,047 (8,635) (9,613) NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES PER SHARE INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES Class A, Series I Class A, Series I (1,007) (1,290) Class A, Series II Class A, Series II (8,859) (10,063) (9,866) (11,353) NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES, END OF PERIOD Class A, Series I 4,835 5,842 STATEMENTS OF COMPREHENSIVE INCOME Class A, Series II 24,188 33,047 For the periods ended August 31 (note 1), 29,023 38,889 (in $000s except per share amounts and average shares) INCOME Net gain (loss) on investments Dividends STATEMENTS OF CASH FLOWS Interest for distribution purposes 923 1,098 Net realized gain (loss) on non-derivative financial assets (1,972) 334 For the periods ended August 31 (note 1), Change in unrealized gain (loss) on non-derivative financial assets 671 (888) (in $000s) Net gain (loss) on investments CASH FLOWS FROM OPERATING ACTIVITIES Net realized and unrealized foreign currency translation gain (loss) (17) Increase (decrease) in net assets attributable to holders of Total income (loss), net redeemable shares (1,231) (1,740) Adjustments for: Net realized (gain) loss on non-derivative financial assets 1,972 (334) EXPENSES Unrealized foreign currency translation (gain) loss (17) Management fees (note 5) 1,032 1,336 Change in unrealized (gain) loss on non-derivative financial Distribution fees, Class A, Series II (note 10) assets (671) 888 Service fees, Class A, Series I (note 10) Purchases of portfolio investments (125) Independent Review Committee fees 1 1 Proceeds from sale of portfolio investments 12,439 11,796 Custody and bank charges 1 2 Accrued investment income and other Audit fees Accrued expenses and other payables (32) (35) Directors fees Legal fees 150 Net cash provided by (used in) operating activities 12,441 10,606 Shareholder administration costs Shareholder reporting costs CASH FLOWS FROM FINANCING ACTIVITIES Harmonized Sales Tax/Goods and Services Tax Proceeds from issue of redeemable shares 7 Transaction costs Amounts paid on redemption of redeemable shares (8,673) (9,673) Total expenses 1,978 2,644 Net cash provided by (used in) financing activities (8,673) (9,666) Expenses absorbed by the Manager (149) Unrealized foreign currency translation gain (loss) 17 Net expenses 1,829 2,644 Net increase (decrease) in cash 3, Net increase (decrease) in net assets attributable to holders Cash (bank overdraft), beginning of period 1,977 1,020 of redeemable shares from operations (1,231) (1,740) CASH (BANK OVERDRAFT), END OF PERIOD 5,745 1,977 INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF Interest received (1) 1,023 1,126 REDEEMABLE SHARES FROM OPERATIONS PER SERIES Dividends received (1) Class A, Series I (173) (207) Class A, Series II (1,058) (1,533) (1) Classified as operating items. INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES FROM OPERATIONS PER SHARE Class A, Series I (0.44) (0.44) Class A, Series II (0.45) (0.51) WEIGHTED AVERAGE NUMBER OF SHARES PER SERIES Class A, Series I 403, ,375 Class A, Series II 2,356,307 3,005,941 The increase (decrease) in net assets attributable to holders of redeemable shares from operations per share is calculated by dividing the increase (decrease) in net assets attributable to holders of redeemable shares from operations per series by the weighted average number of shares per series. The accompanying notes are an integral part of these financial statements.

11 Dynamic Venture Opportunities Fund Ltd. SCHEDULE OF INVESTMENT PORTFOLIO As at August 31, 2018 Par Value Par Value ($000s)/ Average ($000s)/ Average Number of Cost Number of Cost Shares ($000s) Shares ($000s) VENTURE INVESTMENTS NON-VENTURE INVESTMENTS Equities Marketable Securities Government Bonds and Debentures Met-Tech Inc.* 836, Province of Ontario, 4.40% Jun ,000 7,892 CRS Electronics Inc.* 3,904,744 1,932 Ottawa Ontario, Promissory Note, 1.0% Apr EQ Inc. 352,500 2,601 Province of Ontario, 8.10% Sep ,750 5,477 Espial Group Inc. 429,000 3,003 13,494 First Nickel Inc.* 606, GeneNews Limited 1,211,105 1,620 Marketable Securities Corporate Bonds and Debentures Medcan Health Management Inc., Class B, Non-Voting* 30,000 Bell Canada, 3.35% Jun , Series M-25 1,920 1,987 Northern Graphite Corporation 400, Enbridge Income Fund, 4.85% Feb , Series 7 1,835 1,997 Redline Communications Group Inc. 104,250 2,711 3,984 Rimon Therapeutics Ltd., Convertible Preferred* 75, NON-VENTURE INVESTMENTS, AT AVERAGE COST 17,478 Ruby Corp.* 1,954,546 TRANSACTION COSTS (2) Spectra Inc. 18,133, SQI Diagnostics Inc. 364,000 1,001 TOTAL NON-VENTURE INVESTMENTS, AT AVERAGE COST 17,476 Titan Medical Inc. 14, UNREALIZED APPRECIATION (DEPRECIATION) OF NON-VENTURE INVESTMENTS (1,643) 15,049 TOTAL NON-VENTURE INVESTMENTS, AT CARRYING VALUE 15,833 Bonds and Debentures Met-Tech Inc., 5.00% Dec * 1,750 1,250 TOTAL VENTURE & NON-VENTURE INVESTMENTS, AT CARRYING VALUE 23,257 1,250 CARRYING VALUE OF CASH VENTURE INVESTMENTS, AT AVERAGE COST 16,299 Canadian 5,745 TRANSACTION COSTS OTHER NET ASSETS (LIABILITIES) 21 TOTAL VENTURE INVESTMENTS, AT AVERAGE COST 16,299 UNREALIZED APPRECIATION (DEPRECIATION) OF VENTURE NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE INVESTMENTS (8,875) SHARES 29,023 TOTAL VENTURE INVESTMENTS, AT CARRYING VALUE 7,424 Average cost of some securities may include non-zero amounts that are rounded to zero. * These securities have no quoted market values and are classified as Level 3 securities. Schedule of Stage of Development of Venture Investments % of Venture Number of Average Cost** Carrying Value Investments Stage of Development Holdings ($000s) ($000s) at Carrying Value Early Stage (1) 8 5,051 6, % Expansion Stage (2) 6 11,248 1, % 14 16,299 7, % ** Total average cost of investments excludes transaction costs adjustments. (1) An Early Stage or start-up investment is one in a company which has not fully commercialized its product or service. (2) An Expansion Stage investment is one in a company that has typically commercialized its product or service and is generating sales but requires financing to increase the working capital necessary to expand production facilities, increase its marketing activities, sell its product or service in new markets or launch a new product. Schedule of Industry Class of Venture Investments % of Venture Number of Average Cost** Carrying Value Investments Industry Class Holdings ($000s) ($000s) at Carrying Value Consumer Discretionary 1 5, % Health Care 4 2, % Industrials 3 3, % Mining % Technology 4 9,243 1, % 14 16,299 7, % ** Total average cost of investments excludes transaction costs adjustments. The accompanying notes are an integral part of these financial statements.

12 Dynamic Venture Opportunities Fund Ltd. SCHEDULE OF INVESTMENT PORTFOLIO As at August 31, 2018 Schedule of Fair Value of Public Investments Par Value ($000s)/ Average Carrying Number of Cost** Value Shares ($000s) ($000s) VENTURE PUBLIC INVESTMENTS Equities EQ Inc. 352,500 2, Espial Group Inc. 429,000 3, GeneNews Limited 1,211,105 1, Northern Graphite Corporation 400, Redline Communications Group Inc. 104,250 2, Spectra Inc. 18,133, SQI Diagnostics Inc. 364,000 1, Titan Medical Inc. 14, TOTAL VENTURE PUBLIC INVESTMENTS 12,000 1,986 NON-VENTURE PUBLIC INVESTMENTS Marketable Securities Government Bonds and Debentures Province of Ontario, 4.40% Jun ,000 7,892 7,128 Ottawa Ontario, Promissory Note, 1.0% Apr Province of Ontario, 8.10% Sep ,750 5,477 4,713 13,494 11,966 Marketable Securities Corporate Bonds and Debentures Bell Canada, 3.35% Jun , Series M-25 1,920 1,987 1,935 Enbridge Income Fund, 4.85% Feb , Series 7 1,835 1,997 1,932 3,984 3,867 TOTAL NON-VENTURE PUBLIC INVESTMENTS 17,478 15,833 TOTAL PUBLIC INVESTMENTS 29,478 17,819 ** Total average cost of investments excludes transaction costs adjustments. The accompanying notes are an integral part of these financial statements.

13 Dynamic Venture Opportunities Fund Ltd. FUND SPECIFIC NOTES For the periods indicated in note 1 The Fund (note 1) Credit risk The Fund seeks to achieve long-term capital appreciation by The table below summarizes the credit ratings of the bonds and investing its assets in accordance with the requirements of the debentures and preferred shares held by the Fund. Community Small Business Investment Funds Act (Ontario) and the August 31, 2018 August 31, 2017 Income Tax Act (Canada), each as amended from time to time. The Percentage of Percentage of Fund utilizes a number of strategies when making investment total credit total credit rated Percentage of rated Percentage of decisions. It diversifies its portfolio by investing in a variety of instruments net assets instruments net assets industries and stages of development including: mature, expansion, Credit ratings (%) (%) (%) (%) acquisition, start-up, and turnaround stages. A BBB Risks associated with financial instruments (note 4) Unrated Interest rate risk The table below summarizes the Fund s exposure to interest rate risk by the remaining term to maturity of the Fund s portfolio, excluding preferred shares, cash and overdrafts, as applicable. August 31, 2018 August 31, 2017 Interest rate exposure ($000s) ($000s) Less than 1 year 9,063 1, years , years 1,932 2, years 4,713 7,118 >10 years ,833 21,809 Concentration risk Concentration risk arises as a result of the concentration of financial instruments within the same category, geographical location, asset type or industry sector, as applicable. The table below is a summary of the Fund s concentration risk by carrying value as a percentage of net assets: August 31, 2018 August 31, 2017 VENTURE INVESTMENTS Equities Bonds and Debentures NON-VENTURE INVESTMENTS Marketable Securities Government Bonds and Debentures Marketable Securities Corporate Bonds and As at August 31, 2018, had the prevailing interest rates increased or decreased by 0.25%, assuming a parallel shift in the yield curve and Debentures all other variables held constant, net assets attributable to holders of CASH redeemable shares would have decreased or increased, respectively, by $79,000 or approximately 0.5% (August 31, 2017 $151,000 or approximately 0.4%). In practice, actual results may differ from this sensitivity analysis and the difference could be material. Currency risk The Fund did not have significant currency risk exposure as at August 31, 2018 or August 31, Fair value classification (note 2) The tables below illustrate the classification of the Fund s financial instruments within the fair value hierarchy. Level 1 Level 2 Level 3 Total August 31, 2018 ($000s) ($000s) ($000s) ($000s) Equities and preferred shares 1,986 5,438 7,424 Bonds and debentures 15,833 15,833 1,986 15,833 5,438 23,257 Price risk Level 1 Level 2 Level 3 Total Price risk is the risk that the carrying value of financial instruments August 31, 2017 ($000s) ($000s) ($000s) ($000s) Equities and preferred shares 5,947 9,112 15,059 will fluctuate as a result of changes in market prices (other than Bonds and debentures 1,221 20, ,809 those arising from interest rate risk or currency risk) caused by Warrants, rights and options 4 4 factors specific to a security, its issuer or all factors affecting a market or a market segment. Exposure to price risk is mainly in 7,172 20,288 9,412 36,872 equities. As at August 31, 2018, approximately 25.6% (August 31, Transfers between levels %) of the Fund s net assets were exposed to price risk. If During the periods ended August 31, 2018 and August 31, 2017, there prices of these investments had decreased or increased by 10%, with were no significant transfers between Level 1 and Level 2. all other variables held constant, net assets attributable to holders of redeemable shares of the Fund would have decreased or increased, Reconciliation of Level 3 financial instruments respectively, by approximately $742,000 (August 31, 2017 The following table presents the movement in the Fund s Level 3 $1,506,000). In practice, actual results may differ from this financial instruments for the periods ended: sensitivity analysis and the difference could be material. The accompanying notes are an integral part of these financial statements.

14 Dynamic Venture Opportunities Fund Ltd. FUND SPECIFIC NOTES For the periods indicated in note 1 Carrying August 31, 2018 August 31, 2017 value as at ($000s) ($000s) Significant August 31, Change in Beginning of period 9,412 9,949 unobservable 2017 valuation Purchases Security Valuation technique input ($000s) ($000s) Sales/Return of Capital (2,131) (200) Debt Fair value based on Transaction 300 n/a Transfers into Level 3 1,932 transaction price price Transfers out of Level 3 Equities Fundamental model analysis EBITDA 6, /(332) Net realized gains (losses) (2,801) based on financial data multiple Net change in unrealized gain (loss)* 958 (2,269) Equities Fundamental model analysis Discount to 1,013 16/(17) End of period 5,438 9,412 based on financial data company NAV * Net change in unrealized gain (loss) for Level 3 financial instruments held as at August 31, Equities Fair value based on Transaction 895 n/a 2018 and August 31, 2017 was ($1,466,000) and ($2,269,000), respectively. transaction price price Equities Fundamental model analysis Company NAV 63 n/a based on financial data During the periods ended August 31, 2018, investments of approximately nil (August 31, 2017 $1,932,000) were transferred based on financial data price and from Level 1 to 3 as the fair value of these securities are now discount rate Preferred Fundamental model analysis Transaction 300 determined using internal valuation models that required the use of 9,412 assumptions, of which one of the main ones was not observable in the market. Offsetting of financial assets and liabilities (note 2) Level 3 valuation techniques As at August 31, 2018 and August 31, 2017, the Fund did not enter into any agreement whereby the financial instruments were eligible The table below summarizes the valuation techniques and the for offset. significant unobservable inputs used in the fair value measurement of Level 3 financial instruments. The significant unobservable inputs Investments in unconsolidated subsidiaries, used in valuation of Level 3 financial instruments can vary associates and structured entities (note 2) considerably over time depending on company specific factors and economic or market conditions. The table also illustrates the The table below provides information about the Fund s interest, as potential impact on the Fund if the significant unobservable inputs applicable, in unconsolidated subsidiaries, associates and structured used in the valuation techniques had increased or decreased by 5%, entities, and the related ownership percentage of the underlying with all other variables held constant. Certain significant company. unobservable inputs used in the valuation techniques are not August 31, August 31, reasonably expected to shift and are indicated in the tables below as Type of n/a. Securities where the reasonable possible shift in the Name Relationship investment (Ownership %) (Ownership %) ESM International Inc. Associate Common 42.5 significant unobservable input did not result in a material impact on shares the Fund are indicated in the table below as nil. Spectra Inc. Associate Common shares Carrying Spectra Products Inc. Associate Common 45.6 value as at shares Significant August 31, Change in unobservable 2018 valuation Security Valuation technique input ($000s) ($000s) All of the companies listed above are incorporated in Canada and Equities Fundamental model analysis EBITDA 5, /(524) have their principal place of business in Canada. based on financial data multiple Equities Fundamental model analysis Cost of capital 63 4/(4) Comparison of net asset value per share and net based on financial data and liquidity discount rate assets per share (note 2) 5,438 As at August 31, 2018 and August 31, 2017, there were no differences between the net asset value per share and the net assets per share for any series of the Fund. The accompanying notes are an integral part of these financial statements.

15 Dynamic Venture Opportunities Fund Ltd. NOTES TO THE FINANCIAL STATEMENTS For the periods indicated in note 1 1. The Fund Class A: The Class A shares are issuable in series from treasury. Currently, there are two series of Class A 1832 Asset Management L.P., a wholly-owned subsidiary of The Bank shares authorized; Class A, Series I and Class A, of Nova Scotia ( Scotiabank ), is the manager of the fund. In this Series II. Effective December 31, 2003 Class A, document, we, us, our, the Manager, and 1832 Asset Series I shares are no longer available for sale. Management refer to 1832 Asset Management L.P. The registered Effective January 1, 2017 Class A, Series II shares are office of the Fund is Dynamic Funds Tower, 1 Adelaide Street East, no longer available for sale. Each Class A share 28th Floor, Toronto, Ontario, M5C 2V9. entitles the holder thereof to one vote per share. Dynamic Venture Opportunities Fund Ltd. (the Fund ) is Class A shares are entitled to receive dividends at the incorporated under the laws of Canada by articles of incorporation. discretion of the Board of Directors of the Fund The Fund is registered as a Labour Sponsored Investment Fund provided that no dividend will be declared or paid Corporation ( LSIF Corporation ) under the Community Small unless the same dividend per share is declared or Business Investment Funds Act (Ontario) as amended (the Ontario paid to holders of Class C shares. Shareholders are Act ) and is a prescribed labour-sponsored venture capital entitled to distributions when declared. Distributions corporation ( LSVCC ) for purposes of the Income Tax Act (Canada) on shares of the Fund are reinvested in additional (the Federal Act ). The sponsors of the Fund are the United Food shares of the Fund, or at the option of the and Commercial Workers International Union (Canadian Region), shareholder, paid in cash. the Labourers International Union of North America, UNITE HERE A shareholder may redeem all or part of the Class A Canada and the United Brotherhood of Carpenters and Joiners of shares held at the net asset value per Class A share, America (collectively, the Sponsors ). The Sponsors hold all the subject to certain restrictions. In any fiscal period, issued and outstanding Class B shares of the Fund. the Fund is not required to redeem Class A shares of The Statements of Financial Position are as at August 31, 2018 and any series having an aggregate redemption price 2017, and the Statements of Comprehensive Income, Changes in Net exceeding 20% of the net asset value of the Class A Assets Attributable to Holders of Redeemable Shares and Cash Flows Shares of that series calculated as at the last day of are for the years ended August 31, 2018 and The Schedule of the preceding fiscal period. If the Fund does not Investment Portfolio for the Fund is as at August 31, redeem Class A shares of a series in the fiscal period Throughout this document, reference to the periods refers to the requested, it will redeem those shares in the following reporting periods described above. fiscal period before it redeems any other Class A These financial statements were approved and authorized for issue shares that it has been requested to redeem. on October 10, 2018 by the Board of Directors of the Fund. If a shareholder of a Class A share redeems such The investment objective for the Fund is provided in the Fund s share before the eighth anniversary of the date of Fund Specific Notes. The commencement date for the Fund was issue of the share, a redemption fee will be charged. January 11, The redemption fee is calculated as 0.75% or 1.25% (depending on whether the Manager paid a 6% or 10% The authorized share capital of the Fund consists of an unlimited commission at the time of purchase) of the number of Class A shares issuable in series, 1,000 Class B shares and redemption amount times the number of years or part an unlimited number of Class C shares issuable in series. year remaining until the eighth anniversary date of A description of each series is provided below: issue of the share. After the eighth anniversary date of issue of the share, there is no redemption fee. Class B: The Class B shares may be issued only to the Sponsors and are not entitled to receive dividends. Each Class B share entitles the holder thereof to one vote per share. Shares are redeemable by the Fund at a redemption price equal to the issue price of the shares.