Davis + Henderson Income Fund Reports Growth in Revenue and Cash Flow in Fourth Quarter; Announces Intention to Increase Distributions

TORONTO, Feb. 27, 2007 (Canada NewsWire via COMTEX News Network) — TSX Stock Symbol: “DHF.UN”.

Website: www.dhltd.com

Davis + Henderson Income Fund today reported year-over-year growth in revenue and cash flow for the three and twelve months ended December 31, 2006.

The Trustees of the Fund also announced their intention to increase distributions for the month of March 2007, payable on April 30, 2007, to $0.132 per unit (equivalent to $1.58 per unit annualized), subject to normal course regulatory requirements. This represents a 3.1% increase over distributions declared for the month of February 2007, which were equivalent to $1.54 per unit annualized.

    <<
    Fourth Quarter Highlights

        -  Revenue increased by $18.7 million, or 27.0%, compared to the same
           quarter in 2005. Of this increase, $13.2 million, related to the
           inclusion of Filogix mortgage and real estate technology services
           with the balance of the increase attributable to organic growth.

        -  Net income increased by $1.5 million, or 9.9% to $16.5 million
           compared to the fourth quarter of 2005. This increase reflected
           the benefit of higher revenue, largely offset by a $2.5 million
           ($0.057 per unit) increase in amortization of intangible assets
           related to the Filogix acquisition completed June 15, 2006. Net
           income per unit decreased by 5.2%, or $0.020 to $0.375.

        -  Declared distributions in the fourth quarter of 2006 of $0.381 per
           unit were 4.1% higher than in the fourth quarter of 2005.

    2006 Highlights

        -  Revenue increased by $47.2 million, or 17.1%, compared to 2005
           with $30.7 million of this growth related to the addition of
           Filogix and the remaining $16.5 million related to organic growth.

        -  Net income increased by $5.8 million, or 9.5%, compared to 2005.
           Net income per unit increased 0.4% to $1.608 per unit. Net income
           included an increase in expense related to amortization of
           intangible assets recorded upon the acquisition of Filogix of
           $5.4 million, or $0.122 per unit.

        -  Declared distributions for 2006 of $1.50 per unit were 3.4% higher
           than 2005.
    >>

Management Commentary

“We’re very pleased with the results of both the fourth quarter and all of 2006,” said Bob Cronin, Chief Executive Officer, “and the fact that these results enabled the Trustees to announce an increase in the Fund’s distributions – the ninth increase since 2001. Looking at these results from a strategic perspective, we made good progress in evolving our programs to the chequing account and, in the case of Filogix, adding important service capabilities that are highly relevant to Canada’s financial services industry.

“From a performance perspective, we benefited from the inclusion of the Filogix results and from several important organic initiatives. Organic growth in sales and cash flow for 2006 was driven by positive results from our iDefense(R) and BizAssist(TM) programs, stronger than expected cheque order volumes and improvements in margins gained through effective cost management.”

Looking forward, Mr. Cronin said, “Davis + Henderson remains committed to our financial objective of delivering stable and modestly growing distributions. The addition of Filogix and AVS, together with the progression of our programs to the chequing account, have significantly strengthened our capabilities and the breadth of services we offer to the Canadian financial services marketplace. From these strong and established platforms, we look to increase value for our customers and owners as we seek to build these leading capabilities.”

For a more detailed discussion of fourth quarter results and management’s outlook for 2007, please see Management’s Discussion and Analysis.

Caution Concerning Forward-Looking Statements

Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. Davis + Henderson cautions you not to place undue reliance upon any such forward- looking statements, which speak only as of the date they are made. Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund’s dependence on a limited number of large financial institutions and dependence on their acceptance of new programs; exposure to fluctuations in residential real estate and mortgage activity; strategic initiatives being undertaken to meet the Fund’s financial objective as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to income trusts.

Forward-looking statements are based on management’s current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

Conference Call

Davis + Henderson will discuss its financial results for the fourth quarter ended December 31, 2006 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday February 28, 2007. The number to use for this call is 416- 644-3414 for Toronto area callers or 1-800-796-7558 for all other callers. The conference call will be hosted by Bob Cronin, Chief Executive Officer and by Catherine Martin, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group’s website www.newswire.ca/webcast/. For anyone unable to listen to the scheduled call, the rebroadcast number is: 416-640-1917 for Toronto area callers, or 1-877-289-8525 for all other callers, with reservation number 21208571 followed by the number sign. The rebroadcast will be available until Wednesday March 14, 2007. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com

ADDITIONAL INFORMATION

Additional information relating to the Fund, including the Fund’s most recently filed Annual Information Form and the Short Form Prospectus dated May 30, 2006, is available on SEDAR at www.sedar.com.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis (“MD&A”) for the fourth quarter of 2006 should be read in conjunction with MD&A in the Fund’s Annual Report for the year ended December 31, 2005, dated February 28, 2006, the Short Form Prospectus, dated May 30, 2006, and the attached unaudited consolidated financial statements. External economic and industry factors remain substantially unchanged from the annual MD&A and the Short Form Prospectus, unless otherwise stated.

STRATEGY

The Fund’s financial goal is to deliver stable and modestly growing cash distributions to unitholders by targeting annual revenue growth in the range of 3% to 5% and maintaining margins. The Fund has three primary strategies to meet this financial goal. These are to: enhance the value of the Business’ cheque supply program; offer additional programs to serve the chequing account; and deliver programs within the lending services market. The Fund advances its strategies through internal (or organic) initiatives, as well as by partnering with third parties and by way of selective acquisitions.

In growing its cheque supply program, Davis + Henderson is focused on increasing value by continuously introducing product design alternatives, enhancing security components and combining other logical products and services into convenient and valuable packages for chequing account holders.

Other Davis + Henderson programs that serve the chequing account include a deposit program, which is directed towards small business account holders, and eSwitch(R), a service that allows financial institutions to more easily move electronic pre-authorized payments and direct deposit authorizations between chequing accounts on behalf of account holders at the time of new account openings.

To advance its third key strategy, the Business acquired Filogix and Advanced Validation Systems Limited Partnership (“AVS” or “AVS L.P.”). Among other services, Filogix provides processing services related to the origination and underwriting of mortgages in Canada. AVS provides lenders with, among other offerings, personal property search and registration programs across Canada. The addition of these business interests has created another business platform for Davis + Henderson. For a more detailed description of the Filogix business, see the Short Form Prospectus dated May 30, 2006, filed on SEDAR in connection with the Fund’s offering of units in June 2006.

Late in 2006, the Minister of Finance released draft legislation which, if enacted, would result in certain income trusts, including the Fund, paying taxes after fiscal 2010, similar to those paid by Canadian taxable corporations. The payment of such taxes would reduce the cash flow of the Fund, thereby reducing the amount available for distributions to unitholders.

The proposed changes, at the time of the report, have caused uncertainty in the capital markets and have negatively impacted the unit prices of many income trusts, including the Fund. This uncertainty and the related impacts may affect the Fund’s ability to make future acquisitions.

Since the announcement of the proposed changes, management and the Trustees have been monitoring the changes in the income trust environment and are continuing to review potential impacts on the Fund’s current strategy and the alternatives available to the Fund, consistent with protecting and enhancing unitholder value. The tax proposals are not law, but may become law at any time.

FINANCIAL INFORMATION PRESENTATION

The Fund’s results for the year ended December 31, 2006, include the results of the Filogix business acquired on June 15, 2006. The inclusion of Filogix had a significant impact on the financial results and has also resulted in changes to the form of Davis + Henderson’s disclosures.

Historically, the Fund has reported expenses related to cost of sales and operating expenditures separately within the income statement. This classification was reflective of the historical product manufacturing orientation of the cheque programs offered to customers. With the evolution of the Business, including the offering of electronic services introduced through the acquisitions of AVS and Filogix, management believes this historical presentation is no longer appropriate. Starting in the third quarter of 2006, costs of sales and operating expenditures have been combined and amortization of depreciable and other assets and amortization of intangible assets have been presented separately within the income statement. The comparative numbers for previous periods have been reclassified to conform to this new presentation format. There is no impact on net income related to the new expense classifications.

With the acquisition of Filogix, the Fund now operates in two business segments, the “Davis + Henderson Segment” and the “Filogix Segment”. The Davis + Henderson Segment includes the cheque supply program, deposit program, eSwitch and the personal property search and registration programs, among other offerings. The Filogix Segment includes services related to the origination and underwriting of mortgages in Canada, among other offerings. Corporate expenses have also been segmented and include expenditures related to public company activities, a share of executive corporate management costs and certain other corporation-wide costs.

    <<
    OPERATING RESULTS FOR THE FOURTH QUARTER

    Consolidated Statement of Income
    (in thousands of Canadian dollars, except per unit amounts, unaudited)

                                                   Quarter ended December 31,
                                                             2006       2005
    -------------------------------------------------------------------------
    Revenue                                             $  87,932  $  69,232
    Cost of sales and operating expenses                   62,034     49,586
    Amortization of capital and other assets                3,902      3,258
    -------------------------------------------------------------------------
                                                           21,996     16,388

    Interest expense                                        2,186        760
    Amortization of intangible assets                       3,254        646
    Minority interest                                          89          -
    -------------------------------------------------------------------------
    Net income                                          $  16,467  $  14,982
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit, basic and diluted              $  0.3747  $  0.3951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating Results by Business Segment
    (in thousands of Canadian dollars, unaudited)

                                             Quarter ended December 31, 2006
    -------------------------------------------------------------------------
                          Davis + Henderson    Filogix              Consoli-
                                    Segment    Segment  Corporate      dated
    -------------------------------------------------------------------------
    Revenue                       $  74,730  $  13,202  $       -  $  87,932
    Cost of sales and operating
    expenses                         52,720      8,794        520     62,034
    Amortization of capital and
     other assets                     2,421      1,481          -      3,902
    -------------------------------------------------------------------------
                                     19,589      2,927       (520)    21,996

    Interest expense                      -          -      2,186      2,186
    Amortization of intangible
     assets                             771      2,483          -      3,254
    Minority interest                    89          -          -         89
    -------------------------------------------------------------------------
    Net income                    $  18,729  $     444  $  (2,706) $  16,467
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Revenue

Revenue for the fourth quarter of 2006 was $87.9 million, an increase of $18.7 million, or 27.0%, when compared to the fourth quarter of 2005. The inclusion of the Filogix Segment accounted for $13.2 million of the increase with the balance of the increase, $5.5 million, attributable to the Davis + Henderson Segment.

Revenue for the Davis + Henderson Segment increased by 7.9% year-over- year. This is higher than the Business’ overall long-term objective of growing revenue in the 3% to 5% range and is a result of successful program initiatives, including products and service enhancements such as iDefence and BizAssist, and stronger than expected cheque order volume.

Historically, cheque order volumes have, on average, been declining by low single digit percentages annually as a result of declining cheque usage. In 2006, the Davis + Henderson Segment did not experience this decline and overall cheque order volume was comparable to 2005 levels. These stronger than anticipated order volumes are believed to be the result of increased customer promotional activities and programs, the continuing movement of consumers to orders with fewer cheques and increased orders related to branch mergers or system conversion activities. These items combined, largely mitigated the impact of reduced cheque usage. Management continues to believe that declining cheque usage will continue to contribute to declining cheque orders as it has in the past.

As well, during the fourth quarter of 2006, the Business benefited from its increased ownership of the AVS business, the expansion of the personal property search and registration programs to two additional financial institutions, and continued growth in eSwitch volume related to customer promotional programs. These initiatives, while still small relative to the cheque program and Filogix revenue, continue to grow and enhance the value of the Business’ service offerings.

Revenue for the Filogix Segment was consistent with management’s expectations and, as compared to the third quarter of 2006, reflected reduced customer implementation revenues and normal seasonality.

Cost of Sales and Operating Expenses

Cost of sales and operating expenses for the fourth quarter of 2006 were $62.0 million, an increase of $12.4 million, or 25.1%, over the comparable prior year period. The Filogix Segment accounted for $8.8 million of the increase, with the balance of $3.6 million attributable to the Davis + Henderson Segment and corporate expenses. The increase in the Davis + Henderson Segment and corporate expenses represents an increase of 7.4% year- over-year of which more than half of the increase can be attributable to direct costs associated with the increase in revenue, as previously described. The balance of the increase was primarily related to increased spending on information technology in support of the infrastructure upgrade, including increased support costs to enhance the Business’ computing environment, partially offset by savings on the purchase of third-party products and services. The infrastructure upgrade project is expected to continue until mid-year of 2007.

Cost of sales and operating expenses of the Filogix Segment during the fourth quarter were consistent with expectations and reflected decreased spending on customer implementations as compared to the third quarter of 2006, which had the net impact of increasing margins as compared to the third quarter of 2006.

Other Expenses and Net Income

Amortization of capital and other assets increased by $0.6 million when comparing the fourth quarters of 2006 and 2005. Approximately $1.5 million in additional amortization as a result of the inclusion of the Filogix Segment was partially offset by a $0.8 million decrease in the Davis + Henderson Segment as certain capital and other assets became fully amortized.

Net interest expense increased by $1.4 million in the fourth quarter of 2006 compared to the fourth quarter of 2005. This increase reflected the net drawdown of additional debt for the acquisition of the Filogix business later in the second quarter of 2006.

Amortization of intangibles increased by $2.6 million to $3.3 million for the fourth quarter of 2006 when compared to the same period in 2005. This increase was primarily related to incremental intangible assets arising on the purchase of the Filogix business. These intangible assets consist of rights related to customer relationships, brand names and proprietary software and are amortized on a straight-line basis over periods ranging from 10 to 15 years.

The minority interest recognized in the fourth quarter of 2006 represents the 25% interest in the earnings of AVS that do not accrue to the Business. This minority interest was recognized by the Fund with the increase in its ownership of AVS to 75% during the second quarter of 2006.

Net income of $16.5 million for the quarter ended December 31, 2006, represents an increase of $1.5 million, or 9.9%, when compared to the same quarter in the previous year. On a per unit basis, net income decreased by $0.020 per unit to $0.375 per unit. The per unit decrease is attributable to an increase in amortization of intangible assets of $0.057 per unit related to the acquisition of Filogix.

CASH FLOW AND LIQUIDITY FOR THE FOURTH QUARTER

Non-GAAP Measures

The following table is derived from, and should be read in conjunction with, the consolidated statement of cash flows. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Business including the amount of cash available for distribution to unitholders, repayment of debt and other investing activities. Certain subtotals presented within the cash flows table below, such as “Adjusted cash flows from operating activities”, “Distributable cash after maintenance capital and contract payments”, “Distributable cash after all capital and contract payments” and “Distributable cash after all capital, contract payments and distributions paid”, are not defined terms under Canadian generally accepted accounting principles (“GAAP”). These subtotals are used by management as measures of internal performance and as a supplement to the statement of cash flows. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the GAAP statement of cash flows. Further, the Fund’s method of calculating each measure may not be comparable to calculations used by other income trusts bearing the same description. In prior periods, the Fund provided a table entitled Distributable Cash, which reconciled net income and cash flow from operating activities to Distributable Cash. The supplementary table below replaces the Distributable Cash table previously presented and provides a full reconciliation to GAAP measures.

    <<
    Summary of Cash Flows

                                                   Quarter ended December 31,
    (in thousands of Canadian dollars, unaudited)            2006       2005
    -------------------------------------------------------------------------

    Cash flows from operating activities                $  22,110  $  19,631

    Add (deduct):
      Changes in non-cash working capital and
       other items                                          1,512       (745)
    -------------------------------------------------------------------------

    Adjusted cash flows from operating activities(2)       23,622     18,886

    Less:
      Expenditures on maintenance capital                   1,911      1,828
      Contract payments, maintenance                           20        645
    -------------------------------------------------------------------------

    Distributable cash after maintenance capital
     and contract payments(1)                              21,691     16,413

    Less:
      Expenditures on growth capital                           34          -
      Contract payments, non-maintenance                        -        200
    -------------------------------------------------------------------------

    Distributable cash after all capital and
     contract payments(1)                                  21,657     16,213

    Less:
      Distributions paid during period                     16,732     13,880
    -------------------------------------------------------------------------

    Distributable cash after all capital, contract
     payments and distributions paid                        4,925      2,333

    Changes in non-cash working capital and
     other items(2)                                        (1,512)       745
    Cash flows used in repayment of long-term
     indebtedness                                          (5,000)    (4,000)
    Cash flows used in acquisition of businesses           (1,518)      (448)
    -------------------------------------------------------------------------

    Decrease in cash and cash equivalents
     for the period                                     $  (3,105) $  (1,370)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Maintenance capital expenditures are defined by the Fund as capital
        expenditures necessary to maintain and sustain the current productive
        capacity of the Business or generally improve the efficiency of the
        Business. Maintenance expenditures also include recurring fixed
        customer contract payments that are made annually over the life of
        the contract. Growth capital expenditures are defined by the Fund as
        capital expenditures that increase the productive capacity of the
        Business with a reasonable expectation of an increase in cash flow.
        Non-maintenance capital expenditures are defined as expenditures,
        which are expected to increase future operating cash flows of the
        Business, that are infrequent and include non-maintenance contract
        payments, which are payment obligations under certain long-term
        customer contracts.

    (2) Changes in non-cash working capital and certain other balance sheet
        items have been excluded from cash flows from operating activities so
        as to remove the effects of timing differences in cash receipts and
        cash disbursements, which generally reverse themselves but can vary
        significantly across quarters. Minority interest, future income taxes
        and changes to other long-term liabilities are deducted from adjusted
        cash flow from operations. For details, see Changes in Non-Cash
        Working Capital and Other Items.

    Summary of Cash Flows per Unit
    (in Canadian dollars, unaudited)
                                        Quarter ended December 31,
                                                  2006       2005   % Change
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                              $  0.5375  $  0.4980       7.9%
    Distributable cash after maintenance
     capital and contract payments           $  0.4936  $  0.4328      14.0%
    Distributable cash after all capital
     and contract payments                   $  0.4928  $  0.4275      15.3%
    Distributions paid during period         $  0.3780  $  0.3660       3.3%
    Distributions declared during period     $  0.3810  $  0.3660       4.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

During the fourth quarter of 2006, the Business generated $23.6 million in adjusted cash flow from operating activities, an increase of $4.7 million, or 25.1%, compared to the same quarter in 2005. This increase is primarily due to the inclusion of the Filogix business and, in general, increases in cash flow from the organic growth initiatives of the Davis + Henderson Segment. On a per unit basis, adjusted cash flow from operating activities increased by 7.9% over the same period in 2005.

Summary of Capital Expenditures by Segment

Capital expenditures presented in the table below are part of the 2006 capital program for the full year.

    <<
                                                   Quarter ended December 31,
    (in thousands of Canadian dollars, unaudited)            2006       2005
    -------------------------------------------------------------------------
    DAVIS + HENDERSON SEGMENT
      Maintenance capital expenditures                  $   1,057  $   1,828
      Maintenance contract payments                            20        645
      Growth capital expenditures                               -          -
      Non-maintenance capital expenditures                      -          -
      Non-maintenance contract payments                         -        200
    -------------------------------------------------------------------------
                                                        $   1,077  $   2,673
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FILOGIX SEGMENT
      Maintenance capital expenditures                  $     854  $       -
      Maintenance contract payments                             -          -
      Growth capital expenditures                              34          -
      Non-maintenance capital expenditures                      -          -
      Non-maintenance contract payments                         -          -
    -------------------------------------------------------------------------
                                                        $     888  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONSOLIDATED
      Maintenance capital expenditures                  $   1,911  $   1,828
      Maintenance contract payments                            20        645
      Growth capital expenditures                              34          -
      Non-maintenance capital expenditures                      -          -
      Non-maintenance contract payments                         -        200
    -------------------------------------------------------------------------
                                                        $   1,965  $   2,673
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The table above sets out capital expenditures and payments under customer contracts. The Business has various payment obligations under customer contracts. Certain long-term customer contracts provide for fixed contract or program initiation payments to be made and these are treated as non- maintenance capital because they are not regularly recurring disbursements. Other fixed customer contract payments are made annually over the life of the contract and therefore are treated as recurring maintenance capital. The aggregate of all contract payments, both fixed and variable, reflects, among other things, the high degree of integration and sharing between Davis + Henderson and the financial institutions of the many activities related to ordering, data handling, customer service and other activities undertaken by financial institutions related to the operation of the cheque supply and other programs.

For the Davis + Henderson Segment, the fourth quarter expenditures were significantly less than in the comparable 2005 period. This is consistent with the full-year expenditure program, which was $7.2 million in fiscal 2006 compared with $10.7 million in 2005. For a more complete description of the changes in the annual capital program, see Summary of Capital Expenditures by Segment in the 2006 Cash Flow and Liquidity section. Including the Filogix Segment, the full 2006 capital program was $9.9 million. The Business’ 2007 capital program is expected to be approximately $12.0 million to $13.0 million, of which $2.0 million to $3.0 million is expected to be growth capital. Most of the increase arises as a result of including a full-year capital program for the Filogix business.

Distributions

During the fourth quarter of 2006, the Business paid distributions of $16.7 million. On a per unit basis, distributions paid were $0.378 compared to $0.366 paid during the fourth quarter of 2005, representing a 3.3% year-over- year increase.

    <<
    Changes in Non-Cash Working Capital and Other Items

                                                   Quarter ended December 31,
    (in thousands of Canadian dollars, unaudited)            2006       2005
    -------------------------------------------------------------------------
    Minority interest                                   $      89  $       -
    Decrease (increase) in non-cash
     working capital items                                 (1,671)       719
    Changes in other operating assets and liabilities          70         26
    -------------------------------------------------------------------------
    Changes in non-cash working
     capital and other items                            $  (1,512) $     745
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Changes in non-cash working capital for the quarter ended December 31, 2006, reflect the settlement of certain purchase price obligations and the reversal of timing differences from earlier quarters.

Cash Flows Provided by Financings and Used in Business Acquisitions

Cash flows used in other financing activities reflect a $5.0 million paydown of debt. Cash flows used in investing activities relate to a $1.0 million purchase price adjustment for the increased investment in AVS, a $1.8 million (of which $1.1 million are current receivables which have been collected) relating to the acquisition of customer contracts to provide personal property search and registration programs, partially offset by a final purchase price adjustment for the acquisition of the Filogix business of $1.3 million.

    <<
    2006 OPERATING RESULTS

    Consolidated Statement of Income
    (in thousands of Canadian dollars, except per unit amounts)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------
    Revenue                                  $ 323,716  $ 276,537  $ 275,586
    Cost of sales and operating expenses       228,793    196,956    196,789
    Amortization of capital and other assets    13,940     13,107     13,509
    -------------------------------------------------------------------------
                                                80,983     66,474     65,288

    Interest expense                             6,016      3,301      4,193
    Amortization of intangible assets            8,236      2,422      2,333
    Income taxes                                     -          -      4,494
    Minority interest                              202          -          -
    -------------------------------------------------------------------------
    Net income                               $  66,529  $  60,751  $  54,268
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit, basic and diluted   $  1.6081  $  1.6020  $  1.4311
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating Results by Business Segment
    (in thousands of Canadian dollars)

                                                Year ended December 31, 2006
    -------------------------------------------------------------------------
                          Davis + Henderson    Filogix              Consoli-
                                    Segment  Segment(1) Corporate      dated
    -------------------------------------------------------------------------
    Revenue                       $ 292,981  $  30,735  $       -  $ 323,716
    Cost of sales and
     operating expenses             205,442     21,365      1,986    228,793
    Amortization of capital
     and other assets                11,168      2,772          -     13,940
    -------------------------------------------------------------------------
                                     76,371      6,598     (1,986)    80,983

    Interest expense                      -          -      6,016      6,016
    Amortization of
     intangible assets                2,884      5,352          -      8,236
    Minority interest                   202          -          -        202
    -------------------------------------------------------------------------
    Net Income                    $  73,285  $   1,246  $  (8,002) $  66,529
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Filogix Segment includes results for the Filogix business from date
        of acquisition June 15, 2006 to December 31, 2006.
    >>

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenue

Total revenue for the year ended December 31, 2006 was $323.7 million, an increase of $47.2 million, or 17.1%, compared to 2005. The inclusion of the Filogix Segment accounted for $30.7 million of the increase, with the balance of the increase, $16.5 million, attributable to the Davis + Henderson Segment.

Revenue for the Davis + Henderson Segment increased by 5.9% year-over- year. This is higher than the Business’ overall long-term objective of growing revenue in the 3% to 5% range and is a result of successful program initiatives introduced late in 2005 and early 2006, including products and service enhancements such as iDefence(R) and BizAssist(TM) and stronger than expected cheque order volume.

Historically, cheque order volumes have, on average, been declining by low single digit percentages annually as a result of declining cheque usage. In 2006, the Davis + Henderson Segment did not experience this decline and overall cheque order volume was comparable to 2005 levels. These stronger than anticipated order volumes are believed to be the result of increased customer promotional activities and programs, the continuing movement of consumers to orders with fewer cheques and increased orders related to branch mergers or system conversion activities. These items combined, largely mitigated the impact of reduced cheque usage. Management continues to believe that declining cheque usage will continue to contribute to declining cheque orders as it has in the past.

As well, during 2006, the Business also benefited from its increased ownership of the AVS business, the expansion of the personal property search and registration programs to two additional financial institutions and continued growth in eSwitch volume related to customer promotional programs. These initiatives, while still small relative to the cheque program and Filogix revenue, continue to grow and enhance the value of the Business’ service offerings.

Revenue for the Filogix Segment was consistent with management’s expectations and continued to reflect increasing fees related to mortgage origination and underwriting services, including fees for implementation services. Including 2006 revenue prior to its acquisition by Davis + Henderson, total 2006 revenue for the Filogix business was $51.7 million, which represents an increase of $10.9 million, or 26.6%, over the prior year. Origination services revenue, which makes up more than 70% of Filogix revenue, increased by 18% year-over-year.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses for 2006 increased by $31.8 million, or 16.2%, when compared to 2005. The addition of the Filogix Segment accounted for $21.4 million of the increase. The remaining $10.4 million is related to the Davis + Henderson Segment and to corporate expenses.

Of the 5.3% year-over-year increase for the Davis + Henderson Segment and corporate expenses, approximately half were related to increased revenues as described above. The balance of the increase was primarily a result of increased spending on information technology, increased performance-based compensation expenses and a specific compensation charge of $1.1 million. Increased technology costs related to infrastructure upgrade initiatives and increased support costs related to enhancing the Business’ overall computing environment. Partially offsetting these increases were efficiency improvements related to the purchasing of third party products and services.

Cost of sales and operating expenses of the Filogix Segment during the period since acquisition were consistent with expectations and reflected increased spending on product enhancement and deployment and on customer implementations in support of revenue growth.

While Davis + Henderson operates primarily in Canada, the Business also services a U.S. subsidiary of one of our Canadian customers. All revenue and substantially all expenses relating to our U.S. cheque supply program are contracted for in U.S. dollars. As the net U.S. dollar contribution from this activity is relatively modest, the change in relative dollar valuations has not had a meaningful impact on the results of the Business.

Other Expenses and Net Income

Amortization of capital and other assets on a consolidated level increased by $0.8 million, or 6.4%, to $13.9 million when comparing 2006 to 2005. The inclusion of the Filogix Segment, which contributed $2.8 million to the increase, was partially offset by a decline in expense in the Davis + Henderson Segment of $1.9 million, relating to certain capital and other assets having become fully amortized.

Net interest expense of $6.0 million incurred in 2006 increased by $2.7 million compared to 2005. This increase reflected the drawdown of additional debt for the acquisition of the Filogix business late in the second quarter of 2006. The incremental interest expense related to the acquisition was partially offset by reduced interest expense associated with lower average loan balances outstanding during the first five months of 2006 compared to 2005.

Amortization of intangibles increased by $5.8 million to $8.2 million when comparing 2006 to 2005. This increase was primarily related to incremental intangible assets arising on the purchase of the Filogix business. These intangible assets consist of rights related to customer relationships, brand names and proprietary software and are amortized on a straight-line basis over periods ranging between 10 and 15 years. For more information on the acquisition of Filogix, see note 1 to the consolidated financial statements.

Income earned by the Business and distributed annually to unitholders is not subject to taxation in the Business, but is taxed at the individual unitholder level. The Fund and its subsidiaries are not anticipated to be subject to taxes as long as all taxable income generated by the Fund is paid to unitholders in the form of distributions. Accordingly, there are no provisions for income taxes recorded. In 2006, the Ministry of Finance released draft legislation that could result in the Fund paying taxes on distributions made, starting in 2011.

With respect to delivery of products and services under its U.S. cheque supply contract, the Business does not have a permanent establishment in the U.S. for the purposes of determining tax liability and therefore does not have U.S. income tax liability.

During the second quarter of 2006, the Fund increased its ownership in AVS to 75%. The acceleration of the ownership interest in AVS was initiated by the Business so as to better serve customers on an integrated basis. With the increased ownership, the Business now fully consolidates the results of AVS. The minority interest recorded in the consolidated statement of income represents the 25% interest in the earnings of AVS that do not accrue to the Business.

Net income of $66.5 million for 2006 represents an increase of $5.8 million, or 9.5%, when compared to 2005. On a per unit basis, net income increased by $0.006 per unit to $1.608 per unit. The per unit increase is negatively affected by an increase in amortization of intangible assets of $0.122 per unit related to intangible assets recorded on the acquisition of Filogix.

    <<
    EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY
    (in thousands of Canadian dollars, except per unit amounts, unaudited)

                                                                        2006
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------
    Revenue                       $  87,932  $  87,966  $  75,900    $71,918
    Cost of sales and
     operating expenses              62,034     62,754     52,989     51,016
    Amortization of capital
     and other assets                 3,902      3,752      3,286      3,000
    -------------------------------------------------------------------------
                                     21,996     21,460     19,625     17,902
    Interest expense                  2,186      2,248        887        695
    Amortization of
      intangible assets               3,254      3,339        996        647
    Minority interest                    89         88         25          -
    -------------------------------------------------------------------------
    Net income                    $  16,467  $  15,785  $  17,717  $  16,560
    -------------------------------------------------------------------------
    Net income per unit           $  0.3747  $  0.3592  $  0.4477  $  0.4367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     units outstanding               43,947     43,947     39,576     37,921
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                        2005
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------
    Revenue                       $  69,232  $  69,845  $  71,226  $  66,234
    Cost of sales and
     operating expenses              49,586     49,791     50,585     46,994
    Amortization of capital
     and other assets                 3,258      3,339      3,298      3,212
    -------------------------------------------------------------------------
                                     16,388     16,715     17,343     16,028
    Interest expense                    760        813        839        889
    Amortization of
      intangible assets                 646        610        582        584
    Minority interest                     -          -          -          -
    -------------------------------------------------------------------------
    Net income                    $  14,982  $  15,292  $  15,922  $  14,555
    -------------------------------------------------------------------------
    Net income per unit           $  0.3951  $  0.4033  $  0.4199  $  0.3838
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     units outstanding               37,921     37,921     37,921     37,921
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The Fund has generally reported quarterly revenues that are stable and growing on a year-over-year basis. The significant increases in revenue in the third and fourth quarter of 2006 are primarily a result of the inclusion of the Filogix Segment revenue beginning in mid-June 2006.

Net income has been trending consistently with changing revenue. Net income per unit has generally increased consistent with increases in revenue, except, commencing in the third quarter of 2006 and continuing thereafter, when as a result of the acquisition of Filogix, as previously described, the Business incurred increased amortization of intangible assets expense.

Going forward, management believes that the combined Davis + Henderson results will be subject to seasonality with the inclusion of revenue from the Filogix Segment. Historically, Filogix has recorded stronger results in the second and third quarters, with lower results in the first quarter of each year.

    <<
    SELECTED BALANCE SHEET INFORMATION
    (in thousands of Canadian dollars, unaudited)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------
    Total assets                             $ 642,273  $ 425,303  $ 430,595
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total long-term liabilities              $ 149,715  $  55,302  $  67,603
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Total assets of $642.3 million at December 31, 2006 increased by $217.0 million compared with these at December 31, 2005, primarily as a result of the acquisition of the Filogix business and the increased investment in AVS. The decrease in total assets between December 31, 2005 and December 31, 2004 was primarily a result of a reduction in the balances for capital and other assets.

Long-term liabilities increased by $94.4 million as $100.0 million of debt was drawn during 2006 to finance the acquisition of the Filogix business. This was partially offset by $5.0 million of repayments of debt made subsequent to the drawdown in June 2006. The change between December 31, 2005 and December 31, 2004 was a result of repayments made totalling $10.0 million during 2005 and a reduction in disbursement obligations under long-term customer contracts.

Disbursement obligations under long-term customer contracts are future fixed payment obligations. When a customer contract is entered into or renewed, any contractual payment obligation is recorded on the consolidated balance sheet both as a liability and as an asset. The asset is amortized over the term of the contract and the liability is reduced as payments are made in accordance with the contract.

    <<
    2006 CASH FLOW AND LIQUIDITY

    Summary of Cash Flows
    (in thousands of Canadian dollars, unaudited)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------
    Cash flows from operating activities     $  89,753  $  76,844  $  77,271

    Less:
      Changes in non-cash working capital
       and other items                           1,048        564      3,616
    -------------------------------------------------------------------------

    Adjusted cash flows from
     operating activities(2)                    88,705     76,280     73,655

    Less:
      Expenditures on maintenance capital        5,831      6,729      7,179
      Contract payments, maintenance             2,695      3,145      3,145
    -------------------------------------------------------------------------

    Distributable cash after maintenance
     capital and contract payments(1)           80,179     66,406     63,331

    Less:
      Expenditures on growth capital             1,329          -          -
      Expenditures on other
       non-maintenance capital                       -          -        354
      Contract payments, non-maintenance             -        800      1,250
    -------------------------------------------------------------------------

    Distributable cash after all capital
     and contract payments(1)                   78,850     65,606     61,727

    Less:
      Distributions paid during year            61,311     54,910     53,066
    -------------------------------------------------------------------------

    Distributable cash after all capital,
     contract payments and distributions paid   17,539     10,696      8,661

    Changes in non-cash working capital
     and other items(2)                          1,048        564      3,616
    Cash flows provided by (used in) other
     financing activities                      202,749    (10,000)    (7,000)
    Cash flows used in acquisition
     of businesses                            (223,852)    (3,214)         -
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash
     equivalents for the year                $  (2,516) $  (1,954) $   5,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 1: Maintenance capital expenditures are defined by the Fund as
            capital expenditures necessary to maintain and sustain the
            current productive capacity of the Business or generally improve
            the efficiency of the Business. Maintenance expenditures also
            include recurring fixed customer contract payments that are made
            annually over the life of the contract. Growth capital
            expenditures are defined by the Fund as capital expenditures that
            increase the productive capacity of the Business with a
            reasonable expectation of an increase in cash flow. Non-
            maintenance capital expenditures are defined as expenditures,
            which are expected to increase future operating cash flows of the
            Business, that are infrequent and include non-maintenance
            contract payments, which are payment obligations under certain
            long-term customer contracts.

    Note 2: Changes in non-cash working capital and certain other balance
            sheet items have been excluded from cash flows from operating
            activities so as to remove the effects of timing differences in
            cash receipts and cash disbursements, which generally reverse
            themselves but can vary significantly across quarters. Minority
            interest, future income taxes and changes to other long-term
            liabilities are deducted from adjusted cash flow from operations.

    Summary of Cash Flows Per Unit
    (in Canadian dollars, unaudited)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------
    Adjusted cash flows from
     operating activities                    $  2.1441  $  2.0116  $  1.9423
    Distributable cash after maintenance
     capital and contract payments           $  1.9380  $  1.7512  $  1.6701
    Distributable cash after all
     capital and contract payments           $  1.9059  $  1.7301  $  1.6278
    Distributions paid during year           $  1.4940  $  1.4480  $  1.3994
    Distributions declared during year       $  1.5000  $  1.4500  $  1.4044
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                             2006       2005
                                                         vs. 2005   vs. 2004
                                                         % Change   % Change
    -------------------------------------------------------------------------
    Adjusted cash flows from operating activities             6.6%       3.6%
    Distributable cash after maintenance
     capital and contract payments                           10.7%       4.9%
    Distributable cash after all capital
     and contract payments                                   10.2%       6.3%
    Distributions paid during year                            3.2%       3.5%
    Distributions declared during year                        3.4%       3.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

During 2006, the Business generated $88.7 million in adjusted cash flow from operating activities, an increase of $12.4 million compared to 2005. This increase is primarily due to the inclusion of the Filogix business and, in general, increases in cash flow from the organic growth initiatives of the Davis + Henderson Segment, as previously discussed. On a per unit basis, after reflecting the impact of additional units issued on acquiring Filogix, adjusted cash flow from operating activities increased by 6.6% over the same period in 2005.

    <<
    Summary of Capital Expenditures by Segment
    (in thousands of Canadian dollars, unaudited)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------

    DAVIS + HENDERSON SEGMENT
      Maintenance capital expenditures       $   4,551  $   6,729  $   7,179
      Maintenance contract payments              2,695      3,145      3,145
      Growth capital expenditures                    -          -          -
      Non-maintenance capital expenditures           -          -        354
      Non-maintenance contract payments              -        800      1,250
    -------------------------------------------------------------------------
                                             $   7,246  $  10,674  $  11,928
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FILOGIX SEGMENT
      Maintenance capital expenditures       $   1,280  $       -  $       -
      Maintenance contract payments                  -          -          -
      Growth capital expenditures                1,329          -          -
      Non-maintenance capital expenditures           -          -          -
      Non-maintenance contract payments              -          -          -
    -------------------------------------------------------------------------
                                             $   2,609  $       -  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONSOLIDATED
      Maintenance capital expenditures       $   5,831  $   6,729  $   7,179
      Maintenance contract payments              2,695      3,145      3,145
      Growth capital expenditures                1,329          -          -
      Non-maintenance capital expenditures           -          -        354
      Non-maintenance contract payments              -        800      1,250
    -------------------------------------------------------------------------
                                             $   9,855  $  10,674  $  11,928
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The table above sets out capital expenditures and payments under customer contracts. The Business has various payment obligations under customer contracts. Certain long-term customer contracts provide for fixed contract or program initiation payments to be made, and these are treated as non- maintenance capital because they are not regularly recurring disbursements. Other fixed customer contract payments are made annually over the life of the contract and therefore are treated as recurring maintenance capital. The aggregate of all contract payments, both fixed and variable, reflects, among other things, the high degree of integration and sharing between Davis + Henderson and the financial institutions of the many activities related to ordering, data handling, customer service and other activities undertaken by financial institutions related to the operation of the cheque supply and other programs.

Maintenance capital expenditures in the Davis + Henderson Segment for the year ended December, 31, 2006 have decreased year-over-year by $2.2 million, due to the substantial completion of the capital component of an infrastructure upgrade project and a reduction of expenditures applied to our call centre technology infrastructure. Maintenance capital expenditures in the Filogix Segment for the period since acquisition were consistent with expectations.

Growth expenditures of $1.3 million made in the Filogix Segment in 2006 relates to hardware and software acquired to support the implementation of new underwriting service customers and to develop new service offerings for existing customers.

The Business’ capital program provides for continued expenditures to be funded by cash flows from operations. The Business’ 2007 capital program is expected to be approximately $12 million to $13 million of which $2 million to $3 million is expected to be growth capital. Most of the increase arises as a result of including a full-year capital program for the Filogix business. The level of investment in 2007 to maintain and sustain the productive capacity of the Business is expected to be comparable to the annualized expenditures in 2006.

Distributions

The Fund paid distributions of $61.2 million ($1.494 per unit) during 2006 compared to $54.9 million ($1.448 per unit) in 2005. In June 2006, the Fund issued 6,026,000 additional units to finance the Filogix acquisition. On a per unit basis, distributions paid increased by 3.2% when comparing 2006 to 2005.

Distributions paid can be different than distributions declared during a period. Monthly distributions are declared by the Fund for unitholders of record on the last business day of each month and are paid within 31 days following each month end. On a declared basis, the year-over-year increase in distributions per unit was 3.4% for year ended December 31, 2006.

On an annualized basis, the monthly distribution rate for December 2006 was $1.54 per unit as compared to $1.46 per unit annualized in December 2005, representing an increase of 4.9%.

The estimated tax allocation of distributions declared for 2006 is 100% “other income.” The 2005 tax allocation was 91.6% “other income,” and 8.4% return of capital.

The Fund may issue an unlimited number of trust units. Each trust unit is transferable and represents an equal, undivided beneficial interest in any distribution from the Fund and the net assets of the Fund. All units are of the same class with equal rights and privileges and are not subject to future calls or assessments. Each unit entitles the holder to one vote at all meetings of unitholders.

As at December 31, 2006 and February 27, 2007, 43,946,792 trust units were outstanding. This reflects an issuance of an additional 6,026,000 trust units on June 15, 2006 in exchange for subscription receipts issued on June 6, 2006, which was the first new issuance of units by the Fund since April 2, 2002.

    <<
    Changes in Non-Cash Working Capital and Other Items
    (in thousands of Canadian dollars, unaudited)

                                                      Year ended December 31,
                                                  2006       2005       2004
    -------------------------------------------------------------------------
    Minority interest                        $     202  $       -  $       -
    Increase in non-cash working capital items     610        220      2,803
    Changes in other operating
     assets and liabilities                        236        344        813
    -------------------------------------------------------------------------
    Changes in non-cash working
     capital and other items                 $   1,048  $     564  $   3,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

In 2004, working capital levels decreased primarily due to a decline in inventory levels of $1.1 million. In 2005 and 2006, working capital levels continued to improve slightly.

Cash Flows Provided by (Used in) Other Financing Activities

During the year ended December 31, 2006, the Fund received $109.2 million of net proceeds from issuance of new trust units and $98.5 million from a new debt facility, net of financing fees, to fund the acquisition of Filogix. This drawdown of debt was partially offset by a $5.0 million repayment late in 2006. For the year ended December 31, 2005, the Fund repaid $10.0 million of long-term indebtedness. Repayments of the debt facility are not subject to penalties.

Cash Flows Used in Acquisition of Business

In June 2006, the Fund significantly advanced its strategy of providing services to the consumer-lending marketplace by acquiring 100% of Filogix Inc. for total cash consideration of $212.5 million plus $1.7 million of balance sheet adjustments. As described above, the cash required to fund this acquisition was raised by drawing $100.0 million from a newly expanded credit facility and $109.2 million from net proceeds on the issuance of new trust units, with the balance funded from cash generated by the operating activities of the Business.

In May 2006, the Fund entered into an amending agreement to accelerate its purchase obligation and its first option related to partnership units of AVS. The Fund now has a 75% interest in AVS. The purchase price paid for both the accelerated purchases and the option are based on a formula that references the earnings of AVS up to and including earnings for the year ended December 31, 2006.

Cash Balances and Long-term Indebtedness

The Business has continued to generate operating cash flow in excess of distributions. For 2006, this excess cash flow, together with cash on hand, was applied to make voluntary repayments of bank debt and to fund the AVS acquisition obligations and some of the Filogix purchase. Management expects to continue to use excess cash flow to pay down debt during 2007.

At December 31, 2006, cash and cash equivalents totalled $5.8 million, compared to $8.3 million at December 31, 2005.

Total debt facilities available at December 31, 2006 were $170.0 million and include a $120.0 million non-revolving term loan and a $50.0 million revolving term credit facility. As of December 31, 2006, the Business had drawn $120.0 million under the non-revolving term loan and $25.0 million under the revolving term credit facility. The Business is permitted to draw on the revolving facility’s available balance of $25.0 million to fund capital expenditures or for other general corporate purposes.

The Credit Agreement for the Business contains a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests. The financial covenants include a leverage test, a fixed charge coverage ratio test, a minimum net worth test and a limit on the maximum amount of distributions that may be made by Davis + Henderson L.P. to the Fund during each rolling, four-quarter period. Davis + Henderson was in compliance with all of its financial covenants and financial condition tests as of the end of its latest quarterly period. A copy of the Credit Agreement is available at www.sedar.com.

As of December 31, 2006, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 91% of outstanding indebtedness are effectively fixed at the interest rates and for the time periods ending as follows:

    <<
     (in thousands of Canadian dollars, unaudited)

                                              Notional       Fair   Interest
    Maturity Date                               Amount      Value     Rate(1)
    -------------------------------------------------------------------------
    June 30, 2007                            $  12,000  $      25      5.140%
    June 30, 2008                               12,000          5      5.410%
    January 4, 2009                             10,000        122      4.880%
    July 15, 2009                               20,000       (328)     6.063%
    July 15, 2010                               33,000       (719)     6.065%
    June 15, 2011                               45,000       (913)     5.935%
    -------------------------------------------------------------------------
                                             $ 132,000  $  (1,808)         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) The listed interest rates are inclusive of banker's acceptance fees
        currently in effect. Such fees could increase or decrease depending
        on the Fund's financial leverage as compared to certain levels
        specified in the Credit Agreement.
    >>

The Fund would have to pay the fair value of $1.8 million if it were to close out the contracts as at December 31, 2006, compared to $0.1 million as at December 31, 2005. It is not the present intention of the Fund to close out these contracts.

The Fund’s remaining indebtedness is subject to floating interest rates that may be funded either by way of prime-rate loans or through the issuance of banker’s acceptance with maturities, and thus interest rates, resetting typically in the one-month to three-month range. The average effective interest rate applicable to the Fund’s total indebtedness was 5.77% as at December 31, 2006.

Cash flows from operations together with cash balances on hand and unutilized term credit facilities are expected to be sufficient to fund the Business’ operating requirements, capital expenditures, contractual obligations and anticipated distributions.

Contractual Obligations – Payments Due by Period

The table below presents the contractual obligations of the Business as at December 31, 2006 and the timing of the expected payments.

    <<
    (in thousands of
     Canadian dollars,            Less than      1 - 3      4 - 5    After 5
     unaudited)            Total     1 year      years      years      years
    -------------------------------------------------------------------------

    Long-term
     indebtedness      $ 145,000  $       -  $       -  $ 145,000  $       -

    Disbursement
     obligations on
     customer contracts    4,390      2,195      2,195          -          -

    Operating leases      14,493      4,267      8,571      1,072        583

    Employee future
     benefits                861        147        294        294        126

    Obligations relating
     to a deferred
     compensation
     program               1,659          -      1,659          -          -
    -------------------------------------------------------------------------
                       $ 166,403  $   6,609  $  12,719  $ 146,366  $     709
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cumulative Summary of Cash Flows

    The table below provides an analysis of cash flows of the Fund since
inception through December 31, 2006, excluding the transactions pertaining to
the purchase of the original Davis + Henderson business by the Fund.

                                                        December 20, 2001 to
    (in thousands of Canadian dollars, unaudited)          December 31, 2006
    -------------------------------------------------------------------------

    Cash flows from operating activities                           $ 385,038

    Less:
      Expenditures on maintenance capital and contract payments       45,278
    -------------------------------------------------------------------------

    Distributable cash after maintenance
     capital and contract payments                                   339,760

    Less:
      Expenditures on growth capital and non-maintenance
       capital and contract payments                                  11,050
    -------------------------------------------------------------------------

    Distributable cash after all capital and contract payments       328,710

    Less:
      Distributions paid to unitholders
       and non-controlling interest                                  268,556
    -------------------------------------------------------------------------

    Distributable cash after all capital,
     contract payments and distributions paid                         60,154

    Cash flows provided by (used in) other financing activities
      Net proceeds from issuance of trust units                      109,200
      Proceeds from long-term indebtedness net of issuance costs      98,549
      Repayments of long-term indebtedness                           (35,000)
    -------------------------------------------------------------------------
                                                                     172,749

    Cash flows used in acquisition of businesses
      Acquisition of Filogix business                               (214,150)
      Acquisition of other businesses                                (12,965)
    -------------------------------------------------------------------------
                                                                    (227,115)
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents for the period               5,788
    Cash and cash equivalents, beginning of period                         -
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period                       $   5,788
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cumulative Distributions paid as a % of Distributable
     cash after maintenance and contract payments                       79.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cumulative Distributions paid as a % of Distributable
     cash after all capital and contract payments                       81.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Distributable cash, after deducting all capital expenditures and all distributions, of $60.2 million was retained by the Business and used to contribute to the funding of acquisitions and to pay down debt.

In general, mutual fund trusts, like the Fund, must distribute all their taxable income to their unitholders in order not to pay income taxes in the trust. Taxable income may be less than distributable cash if the Business has excess tax deductions it can utilize to reduce taxable income.

The Fund intends to make monthly cash distributions of its distributable cash, as defined in the Fund’s Declaration of Trust, subject to working capital requirements, debt repayments and other reserves. On a cumulative basis since inception, Davis + Henderson has distributed approximately 82% of distributable cash generated. It has been possible to pay less than 100% of its distributable cash generated to unitholders and not pay taxes within the trust as the Business had excess tax deductions available to reduce taxable income. These excess tax deductions diminish each year and if the Business continues to generate growing cash flow, the Fund will need to pay out a higher proportion of the distributable cash it generates to unitholders in order not to pay taxes in the trust.

At December 31, 2006, the tax value of the Fund’s assets and liabilities exceeds book value by $45.8 million. For more information see note 2 to the consolidated financial statements.

OUTLOOK

Davis + Henderson’s overall long-term objective is to deliver stable and modestly growing distributions through growing revenue in the 3% to 5% range and maintaining margins. In 2007, revenues are expected to grow in excess of the targeted range as a result of the consolidation of the Filogix business acquired on June 15, 2006.

As set out in the Fund’s statement of strategy, the objective is to grow profits and cash flow by enhancing the value of our cheque supply program, offering additional programs to serve the chequing account and delivering programs within the lending services market.

In 2006, Davis + Henderson made a significant investment with the acquisition of the Filogix business. This strategically aligned acquisition adds another significant platform for the Business and is expected to contribute to growth in the overall business of the Fund.

The Business’ operational plans include many initiatives which, when combined, are intended to allow us to meet our objectives. Examples include further implementations and enhancements of our iDefence, BizAssist and eSwitch programs relating to the chequing account. Relating to lending markets, the Business looks to gain market share from its personal property search and registration programs and by increasing volumes related to mortgage origination and underwriting services.

The Business’ capital program provides for continued expenditures to be funded by cash flows from operations. The Business’ 2007 capital program is expected to be approximately $12 million to $13 million, of which $2 million to $3 million is expected to be growth capital. Most of the increase over the 2006 expenditures of $9.9 million arises as a result of including a full year capital program for the Filogix business.

Davis + Henderson intends to increase its distributions for the month of March 2007, payable on April 30, 2007, to $0.132 per unit (equivalent to $1.584 per unit annualized), subject to normal course regulatory requirements. This represents a 3.1% increase over distributions declared for the month of February 2007, which were equivalent to $1.536 per unit annualized.

Late in 2006, the Minister of Finance released draft legislation which, if enacted, would result in certain income trusts, including the Fund, paying taxes after fiscal 2010, similar to those paid by Canadian taxable corporations. The payment of such taxes would reduce the cash flow of the Fund, thereby reducing the amount available for distributions to unitholders.

The proposed changes, at the time of the report, have caused uncertainty in the capital markets and have negatively impacted the unit prices of many income trusts, including the Fund. This uncertainty and the related impacts may affect the Fund’s ability to make future acquisitions.

Since the announcement of the proposed changes, management and the Trustees have been monitoring the changes in the income trust environment and are continuing to review potential impacts on the Fund’s current strategy and the alternatives available to the Fund, consistent with protecting and enhancing unitholder value. The tax proposals are not law, but may become law at any time.

Caution Concerning Forward-looking Statements

This MD&A contains certain statements that constitute forward-looking information within the meaning of applicable securities laws (“forward-looking statements”) including those set out in the Outlook above. Such forward- looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Business, or developments in Davis + Henderson’s industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward- looking statements include all disclosure regarding possible events, conditions or results of operations that are based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. Davis + Henderson cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made.

Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund’s dependence on a limited number of large financial institutions and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund’s financial objective, as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to income trusts. Forward- looking statements are based on management’s current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

ADDITIONAL INFORMATION

Additional information relating to the Fund, including the Fund’s most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.

    <<
    Davis + Henderson Income Fund
    Consolidated Balance Sheets
    December 31, 2006 and 2005
    (in thousands of Canadian dollars, unaudited)

    -------------------------------------------------------------------------
                                                             2006       2005
    -------------------------------------------------------------------------

    ASSETS
    Current Assets:
      Cash and cash equivalents                         $   5,788  $   8,304
      Accounts receivable                                  18,299     10,232
      Inventory                                             5,238      5,158
      Prepaid expenses                                      3,920      1,686
    -------------------------------------------------------------------------
                                                           33,245     25,380
    Capital assets (note 3)                                32,567     22,376
    Other assets (note 4)                                   7,369      8,297
    Intangible assets (note 5)                            130,546      7,962
    Goodwill (note 6)                                     438,546    361,288
    -------------------------------------------------------------------------
                                                        $ 642,273  $ 425,303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable and accrued liabilities          $  36,600  $  27,894
      Distributions payable to unitholders                  5,625      4,626
      Current portion of disbursement
       obligations on customer contracts (note 7)           2,195      3,145
    -------------------------------------------------------------------------
                                                           44,420     35,665
    Disbursement obligations on
     customer contracts (note 7)                            2,195      2,790
    Long-term indebtedness (note 8)                       145,000     50,000
    Other long-term liabilities (note 9)                    2,520      2,512
    Minority interest                                         263          -
    -------------------------------------------------------------------------
                                                          194,398     90,967
    Unitholders' Equity:
      Trust units (note 10)                               474,585    365,385
      Deficit                                             (26,710)   (31,049)
    -------------------------------------------------------------------------
                                                          447,875    334,336
    Commitments (note 11)
    -------------------------------------------------------------------------
                                                        $ 642,273  $ 425,303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Consolidated Statements of Income
    (in thousands of Canadian dollars, except per unit amounts, unaudited)

    -------------------------------------------------------------------------
                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2006       2005       2006       2005
    -------------------------------------------------------------------------

    Revenue                       $  87,932  $  69,232  $ 323,716  $ 276,537
    Cost of sales and
     operating expenses              62,034     49,586    228,793    196,956
    Amortization of capital
     and other assets                 3,902      3,258     13,940     13,107
    -------------------------------------------------------------------------
                                     21,996     16,388     80,983     66,474

    Interest expense                  2,186        760      6,016      3,301
    Amortization of
     intangible assets                3,254        646      8,236      2,422
    Minority interest                    89          -        202          -
    -------------------------------------------------------------------------
    Net income                    $  16,467  $  14,982  $  66,529  $  60,751
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit,
     basic and diluted            $  0.3747  $  0.3951  $  1.6081  $  1.6020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Consolidated Statements of Deficit
    (in thousands of Canadian dollars, unaudited)
    -------------------------------------------------------------------------
                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2006       2005       2006       2005
    -------------------------------------------------------------------------

    Deficit, beginning of period  $ (26,433) $ (32,151) $ (31,049) $ (36,815)
    Net income                       16,467     14,982     66,529     60,751
    Distributions                   (16,744)   (13,880)   (62,190)   (54,985)
    -------------------------------------------------------------------------
    Deficit, end of period        $ (26,710) $ (31,049) $ (26,710) $ (31,049)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Consolidated Statements of Cash Flows
    (in thousands of Canadian dollars, unaudited)

    -------------------------------------------------------------------------
                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2006       2005       2006       2005
    -------------------------------------------------------------------------

    Cash and cash equivalents
     provided by (used in):

    OPERATING ACTIVITIES
    Net income                    $  16,467  $  14,982  $  66,529  $  60,751
    Add:
      Amortization of
       capital assets                 3,442      2,177     10,639      8,692
      Amortization of
       other assets                     459      1,081      3,301      4,415
      Amortization of
       intangible assets              3,254        646      8,236      2,422
      Minority interest                  89          -        202          -
    -------------------------------------------------------------------------
                                     23,711     18,886     88,907     76,280

    Decrease in non-cash
     working capital items           (1,671)       719        610        220
    Changes in other operating
     assets and liabilities              70         26        236        344
    -------------------------------------------------------------------------
                                     22,110     19,631     89,753     76,844
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Gross proceeds from
     issuance of trust units              -          -    116,000          -
    Issuance costs                        -          -     (6,800)         -
    Proceeds from (repayment of)
     long-term indebtedness          (5,000)    (4,000)    95,000    (10,000)
    Financing fees                        -          -     (1,451)         -
    Distributions paid to
     non-controlling interest          (120)         -       (120)         -
    Distributions paid
     to unitholders                 (16,612)   (13,880)   (61,191)   (54,910)
    -------------------------------------------------------------------------
                                    (21,732)   (17,880)   141,438    (64,910)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Expenditures on capital assets   (1,945)    (1,828)    (7,160)    (6,729)
    Payments pursuant to
     long-term supply contracts         (20)      (845)    (2,695)    (3,945)
    Acquisition of Filogix
     business (note 1a)               1,290          -   (214,150)         -
    Acquisition of AVS
     business (note 1b)              (1,043)      (448)    (7,937)    (3,214)
    Acquisition of customer
     service contracts               (1,765)         -     (1,765)         -
    -------------------------------------------------------------------------
                                     (3,483)    (3,121)  (233,707)   (13,888)
    Decrease in cash and cash
     equivalents for the period      (3,105)    (1,370)    (2,516)    (1,954)
    Cash and cash equivalents,
     beginning of period              8,893      9,674      8,304     10,258
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $   5,788  $   8,304  $   5,788 $    8,304
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplementary information:
      Cash interest paid          $   2,058  $     517  $   6,526 $    3,807
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Notes to Consolidated Financial Statements
    Three Months and Years ended December 31, 2006 and 2005
    (in thousands of Canadian dollars, except unit and per unit amounts,
    unaudited)

    1.  ACQUISITION

    a.  FILOGIX BUSINESS

    On June 15, 2006, the Fund completed an agreement to indirectly acquire
    all the outstanding partnership units of Filogix L.P. through the
    acquisition of Filogix Holdings Inc. The Filogix L.P. provides, among
    other offerings, processing services related to the origination and
    underwriting of mortgages in Canada. The assets acquired and
    consideration given were as follows:

                                                                        2006
    -------------------------------------------------------------------------
    Net assets acquired, at fair value:
      Assets                                                      $   22,704
      Intangibles                                                    128,087
      Liabilities                                                     (8,581)
    -------------------------------------------------------------------------
                                                                     142,210
    Goodwill                                                          71,940
    -------------------------------------------------------------------------
    Total                                                         $  214,150
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Consideration for 100% ownership:
      Cash                                                        $  214,150
    -------------------------------------------------------------------------
    Total                                                         $  214,150
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Intangibles consist of proprietary software, brand names and customer
    relationships. The purchase price and related transaction costs were
    financed with net proceeds of $109.2 million from the issuance of Trust
    units and $98.5 million from the drawdown of debt net of financing fees,
    with the balance from cash on hand.

    b. AVS BUSINESS

    On April 28, 2005, the Fund entered into an agreement to acquire a 50%
    interest in AVS through a step-by-step acquisition over 20 months ending
    January 2007. On May 25, 2006, the Fund entered into an amending
    agreement to accelerate its remaining obligation as well as exercising
    its option to acquire a further 25% interest in the AVS business. As at
    December 31, 2006, the Fund owns a 75% interest in AVS. The purchase
    price paid for the additional ownership was based on a formula that
    reference the earnings of AVS up to and including earnings for the year
    ended December 31, 2006. The Fund has adopted the consolidation method of
    accounting in respect of AVS. The remaining 25% of the outstanding
    partnership units is recognized as minority interest. The assets acquired
    and consideration given were as follows:

                                                           2006         2005
    -------------------------------------------------------------------------
    Net assets acquired, at fair value:
      Assets                                         $    1,005   $      197
      Intangibles                                         3,498        1,129
      Liabilities                                          (335)         (15)
      Minority interest                                    (238)           -
    -------------------------------------------------------------------------
                                                          3,930        1,311
    Goodwill                                              7,221        1,903
    -------------------------------------------------------------------------
    Total                                            $   11,151   $    3,214
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration for 75% ownership
     (2005 - 22.5%):
      Cash                                           $   11,151   $    3,214
    -------------------------------------------------------------------------
    Total                                            $   11,151   $    3,214
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Intangibles include proprietary software and customer service contracts.
    The purchases were made with available cash on hand.

    2.  INCOME TAXES

    Income earned by the Fund that is distributed annually to unitholders is
    not subject to taxation in the Fund, but is taxed at the individual
    unitholder level.

    The Fund does not recognize any future tax assets or liabilities on
    temporary differences between the carrying amount of the balance sheet
    items and their corresponding tax basis because the Fund is committed to
    distribute to its unitholders, all or virtually all of its taxable income
    and taxable gains. The Fund intends to continue to meet the "mutual fund
    trust" requirements under the Income Tax Act (Canada) and there is no
    indication that the Fund will fail to meet those requirements. As at
    December 31, 2006, the excess of the carrying value of the Fund's assets
    and liabilities, excluding goodwill, over their tax basis is
    approximately $112.0 million (2005 - ($6.3) million) of which
    $130.5 million (2005 - $6.9 million) is related to the carrying value of
    intangible assets over their tax basis. The tax basis of goodwill as at
    December 31, 2006 was $157.8 million (2005 - $169.7 million).

    On December 21, 2006 the Minister of Finance (Canada) released draft
    legislation (the "Proposals") relating to the federal income taxation of
    publicly-traded trusts and partnerships.  The Proposals are contemplated
    to apply to a publicly-traded trust that is a specified investment flow-
    through entity (a "SIFT") which existed before November 1, 2006
    ("Existing Trust") commencing with taxation years ending in or after
    2011.

    Certain distributions attributable to a SIFT will not be deductible in
    computing the SIFT's taxable income, and the SIFT will be subject to tax
    on such distributions at a rate that is substantially equivalent to the
    general tax rate applicable to Canadian corporations. Distributions paid
    by a SIFT as returns of capital will not be subject to this tax. There
    will be circumstances where an Existing Trust may lose its transitional
    relief where its equity capital grows beyond certain dollar limits
    measured by reference to the Existing Trust's market capitalization at
    the close of trading on October 31, 2006.

    The Fund is a SIFT as defined in the Proposals.  If enacted, the Fund
    would be subject to taxes on certain income earned from investments in
    its subsidiaries.  The Fund would also be required to recognize future
    income tax assets and liabilities with respect to the temporary
    differences of its assets and liabilities and those of its subsidiaries
    that are expected to reverse in or after 2011.

    3.  CAPITAL ASSETS

                                                                        2006
    -------------------------------------------------------------------------
                                                    Accumulated
                                              Cost amortization          Net
    -------------------------------------------------------------------------
    Machinery and equipment             $   15,014   $    6,689   $    8,325
    Computer equipment and software         36,211       14,827       21,384
    Furniture, fixtures and leasehold
     improvements                            7,774        4,916        2,858
    -------------------------------------------------------------------------
                                        $   58,999   $   26,432   $   32,567
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                        2005
    -------------------------------------------------------------------------
                                                    Accumulated
                                              Cost amortization          Net
    -------------------------------------------------------------------------
    Machinery and equipment             $   14,289   $    5,502   $    8,787
    Computer equipment and software         22,917       11,353       11,564
    Furniture, fixtures and leasehold
     improvements                            6,199        4,174        2,025
    -------------------------------------------------------------------------
                                        $   43,405   $   21,029   $   22,376
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended December 31, 2006 was $3,442
    (Q4 2005 - $2,177) and during the year ended December 31, 2006 was
    $10,639 (2005 - $8,692). Fully amortized capital assets totalling $5,236
    were removed from the accounts during the year ended December 31, 2006
    (2005 - $5,897).

    4.  OTHER ASSETS

                                                           2006         2005
    -------------------------------------------------------------------------
    Cost:
      Long-term supply contracts                     $    9,750   $   12,903
      Deferred finance costs                              1,451            -
      Other                                                 370          370
    -------------------------------------------------------------------------
                                                         11,571       13,273

    Accumulated amortization                             (4,202)      (4,976)
    -------------------------------------------------------------------------
                                                     $    7,369   $    8,297
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended December 31, 2006 on long-term
    supply contracts and deferred finance fees was $459 (Q4 2005 - $1,081)
    and $131 (Q4 2005 - nil) respectively and during the year ended
    December 31, 2006 was $3,301 (2005 - $4,415) and $228 (2005 - nil),
    respectively. Amortization of deferred finance fees is recognized as
    interest expense. Fully amortized other assets totalling $4,303 were
    removed from the accounts during the year ended December 31, 2006 (2005 -
    $5,584).

    5. INTANGIBLE ASSETS

                                                           2006         2005
    -------------------------------------------------------------------------
    Cost:
      Cheque supply outsourcing contracts            $   16,329   $   16,329
      Customer service contracts                          3,669        1,059
      Proprietary software                               41,993           70
      Brand names                                         8,400            -
      Customer relationships                             77,887            -
    -------------------------------------------------------------------------
                                                        148,278       17,458
    Accumulated amortization                            (17,732)      (9,496)
    -------------------------------------------------------------------------
                                                     $  130,546   $    7,962
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended December 31, 2006 was $3,254
    (Q4 2005 - $646) and during the year ended December 31, 2006 was $ 8,236
    (2005 - $2,422).

    6. GOODWILL

                                                           2006         2005
    -------------------------------------------------------------------------
    Balance, beginning of year                       $  361,288   $  359,385
    Goodwill acquired during the year:
      AVS acquistion                                      5,318        1,903
      Filogix acquistion                                 71,940            -

    -------------------------------------------------------------------------
    Balance, end of year                             $  438,546   $  361,288
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7. DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

                                                           2006         2005
    -------------------------------------------------------------------------
    Current portion                                  $    2,195   $    3,145
    Long-term portion                                     2,195        2,790
    -------------------------------------------------------------------------
    Total disbursement obligations on customer
     contracts                                       $    4,390   $    5,935
    -------------------------------------------------------------------------

    The Fund has fixed customer contract disbursement obligations payable as
    of December 31, 2006 as follows:

    2007                                                          $    2,195
    2008                                                               2,195
    -------------------------------------------------------------------------
                                                                  $    4,390
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8. LONG-TERM INDEBTEDNESS

                                                           2006         2005
    -------------------------------------------------------------------------
    Non-revolving term loan                          $  120,000   $   50,000
    Revolving credit facility                            25,000            -
    -------------------------------------------------------------------------
                                                     $  145,000   $   50,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund has $170.0 million of available term credit facilities due
    June 15, 2011 (December 31, 2005 - $90.0 million), consisting of a
    $120.0 million non-revolving term loan and a $50.0 million revolving
    credit facility. The facilities bear interest at rates that depend on
    certain financial ratios of the Fund and vary in accordance with
    borrowing rates in Canada and the United States. The credit facilities,
    including any hedge contracts with the lenders, are secured in first
    priority by a pledge of substantially all of the Fund's assets and by a
    pledge of the Fund's indirect ownership interests in Davis + Henderson
    L.P. The fair value of long-term indebtedness approximates its carrying
    value.

    The Credit Agreement for the Fund contains a number of covenants and
    restrictions including the requirement to meet certain financial ratios
    and financial condition tests. As at December 31, 2006, the Fund was in
    compliance with all of its financial covenants and financial condition
    tests. As of December 31, 2006, the Fund has entered into interest-rate
    swap hedge contracts with its lenders, such that the borrowing rates on
    $132.0 million, or 91.0%, of its outstanding term indebtedness are
    effectively fixed at interest rates of between 4.880% and 6.065% per
    annum for terms ending between June 30, 2007 and June 15, 2011.

    As of December 31, 2006, the net unrealized and unrecorded loss on the
    outstanding interest-rate swaps was approximately $2.2 million, and the
    net fair value was $1.8 million, which the Fund would have to pay if it
    were to close out the contracts (December 31, 2005 - the net fair value
    of the outstanding interest-rate swaps was approximately $0.1 million,
    which the Fund would be required to pay if it were to close out the
    contracts).

    9. OTHER LONG-TERM LIABILITIES

                                                           2006         2005
    -------------------------------------------------------------------------
    Deferred compensation program                    $    1,659   $    1,373
    Employee future benefits                                861        1,139

    -------------------------------------------------------------------------
                                                     $    2,520   $    2,512
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The deferred compensation program is a five-year long-term incentive plan
    for management, subject to certain performance criteria and vesting
    terms, payable after December 31, 2008.

    Employee future benefits consist of defined contribution pension plans
    and a non-pension postretirement benefit plan. Obligations relating to
    employee future benefits relate to the non-pension postretirement benefit
    plan.

    The Fund's principal pension plans are defined contribution pension plans
    that provide pensions to substantially all eligible employees. Total
    expense for the Fund's defined contribution pension plan for the year
    ended December 31, 2006 was $1.3 million (2005 - $1.1 million).

    The Fund's non-pension post-retirement benefit plan provides certain
    health care, life insurance and dental benefits to eligible employees.
    Terms of the plan were amended effective January 1, 2005, resulting in a
    reduction in obligations of $1.8 million and actuarial losses of
    $1.6 million. Reductions in obligations from the plan amendment are being
    amortized over three-and-one- half years and the actuarial losses are
    being amortized over six years.

    10. TRUST UNITS

    An unlimited number of trust units may be issued by the Fund pursuant to
    the Fund's Declaration of Trust. Each unit is transferable and represents
    an equal, undivided beneficial interest in any distributions from the
    Fund and in the net assets of the Fund. All units are of the same class
    with equal rights and privileges and are not subject to future calls or
    assessments. Each unit entitles the holder to one vote at all meetings of
    unitholders and a pro rata share of distributions declared by the Fund.

    The Fund intends to make monthly cash distributions of its distributable
    cash, as defined in the Fund's Declaration of Trust, subject to working
    capital requirements and other reserves. The net proceeds from the
    issuance of trust units and the number of units outstanding is as
    follows:

                                                           2006         2005
    -------------------------------------------------------------------------

    Balance, beginning of year                       $  365,385   $  365,385
    Units issued                                        109,200            -
    -------------------------------------------------------------------------
    Balance, end of year                             $  474,585   $  365,385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Units outstanding, end of year                   43,946,792   37,920,792
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The weighted average number of units outstanding during 2006 was
    41,371,297 (2005 - 37,920,792).

    11. COMMITMENTS

    As of December 31, 2006, the Fund has annual lease obligations with
    respect to real estate, vehicles and equipment as follows for the years
    ending:

    2007                                                          $    4,267
    2008                                                               3,405
    2009                                                               2,589
    2010                                                               2,577
    2011                                                               1,072
    Thereafter                                                           583
    -------------------------------------------------------------------------
                                                                  $   14,493
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. RELATED PARTY TRANSACTIONS

    A Trustee of the Fund serves as Chairman of the Board of Canada Post
    Corporation, one of the Company's major suppliers. Total purchases from
    this supplier during the quarter ended December 31, 2006 were $6,005 (Q4
    2005 - $6,484) and during the year ended December 31, 2006 were $23,504
    (2005 - $25,162). As at December 31, 2006, $1,285 (December 31, 2005 -
    $2,123) was owing to Canada Post Corporation. This amount has been
    included in accounts payable and accrued liabilities.

    13. SIGNIFICANT CUSTOMERS

    For the year ended December 31, 2006, the Fund earned 79% (2005 - 83%) of
    its revenue from its seven largest customers.

    Four of these customers individually accounted for greater than 10% but
    not more than 17% of the Fund's total revenue.

    14. SEGMENTED INFORMATION

    The Fund operates its business in two segments, organized on the basis of
    products, services and markets served. The Davis + Henderson Segment
    includes the cheque supply program, deposit bags program, eSwitch(R) and
    the personal property search and registration programs, among other
    offerings. The Filogix Segment includes services related to the
    origination and underwriting of mortgages in Canada, among other
    offerings.

    Segment assets include goodwill and intangible assets recognized with the
    acquisition of businesses included with each respective Segment.

    Corporate costs include costs incurred by the Fund for the operation of a
    public entity. Corporate assets consist primarily of cash and cash
    equivalents.

    Prior to June 15, 2006, the Fund operated in one segment, the Davis +
    Henderson Segment. Summarized financial information for the quarter and
    year ended December 31, 2006 are as follows:

                                             Quarter ended December 31, 2006
    -------------------------------------------------------------------------
                      Davis+Henderson      Filogix
                              Segment      Segment    Corporate Consolidated
    -------------------------------------------------------------------------
    Revenue                $   74,730   $   13,202   $        -   $   87,932
    Cost of sales and
     operating expenses        52,720        8,794          520       62,034
    Amortization of capital
     and other assets           2,421        1,481            -        3,902
    -------------------------------------------------------------------------
                               19,589        2,927         (520)      21,996

    Interest expense                -            -        2,186        2,186
    Amortization of
     intangible assets            771        2,483            -        3,254
    Minority interest              89            -            -           89
    -------------------------------------------------------------------------
    Net income             $   18,729   $      444   $   (2,706)  $   16,467
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital and other
     assets expenditures   $    1,077   $      888   $        -   $    1,965
    Intangible assets      $    7,810   $  122,736   $        -   $  130,546
    Goodwill               $  366,606   $   71,940   $        -   $  438,546
    Total assets           $  419,594   $  216,891   $    5,788   $  642,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                Year Ended December 31, 2006
    -------------------------------------------------------------------------
                      Davis+Henderson      Filogix
                              Segment      Segment    Corporate Consolidated
    -------------------------------------------------------------------------
    Revenue                $  292,981   $   30,735   $        -   $  323,716
    Cost of sales and
     operating expenses       205,442       21,365        1,986      228,793
    Amortization of capital
     and other assets          11,168        2,772            -       13,940
    -------------------------------------------------------------------------
                               76,371        6,598       (1,986)      80,983
    Interest expense                -            -        6,016        6,016
    Amortization of
     intangible assets          2,884        5,352            -        8,236
    Minority interest             202            -            -          202
    -------------------------------------------------------------------------
    Net income             $   73,285   $    1,246   $   (8,002)  $   66,529
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Capital and other
     assets expenditures   $    7,246   $    2,609   $        -   $    9,855
    Intangible assets      $    7,810   $  122,736   $        -   $  130,546
    Goodwill               $  366,606   $   71,940   $        -   $  438,546
    Total assets           $  419,594   $  216,891   $    5,788   $  642,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the Davis + Henderson Segment, five customers individually accounted
    for greater than 10% but not more than 19% of the Davis + Henderson
    Segment revenue.  For the Filogix Segment, two customers individually
    accounted for greater than 10% but not more than 13% of the Filogix
    Segment revenue.

    SUPPLEMENTARY FINANCIAL INFORMATION

    Consolidated Operating Results by Period
    -------------------------------------------------------------------------
    (in thousands of                  Three      Three      Three      Three
     Canadian dollars,      Year     months     months     months     months
     except per unit       ended      ended      ended      ended      ended
     amounts,           December   December  September       June      March
     unaudited)         31, 2006   31, 2006   30, 2006   30, 2006   31, 2006
    -------------------------------------------------------------------------

    Revenue            $ 323,716  $  87,932  $  87,966  $  75,900  $  71,918
    Cost of sales and
     operating
     expenses            228,793     62,034     62,754     52,989     51,016
    Amortization of
     capital and other
     assets               13,940      3,902      3,752      3,286      3,000
    -------------------------------------------------------------------------
                          80,983     21,996     21,460     19,625     17,902
    Interest expense       6,016      2,186      2,248        887        695
    Amortization of
     intangible assets     8,236      3,254      3,339        996        647
    Income Taxes               -          -          -          -          -
    Minority interest        202         89         88         25          -
    -------------------------------------------------------------------------
    Net income         $  66,529  $  16,467  $  15,785  $  17,717  $  16,560
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities        $  89,753  $  22,110  $  22,786  $  26,498  $  18,359
    Change in non-cash
     working capital
     items                  (610)     1,671        268     (4,424)     1,875
    Minority interest       (202)       (89)       (88)       (25)         -
    Changes in other
     operating assets
     and liabilities        (236)       (70)       (90)       (50)       (26)
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operations(2)   88,705     23,622     22,876     21,999     20,208
    Less:
      Expenditures on
       maintenance
       capital             5,831      1,911        997      1,377      1,546
      Contract payments,
       maintenance         2,695         20        800        625      1,250
    -------------------------------------------------------------------------
    Distributable cash
     after maintenance
     capital and
     contract
     payments(1)          80,179     21,691     21,079     19,997     17,412
    Less:
      Expenditures on
       growth capital(3)   1,329         34        884        411          -
      Expenditures on
       non-maintenance
       capital                 -          -          -          -          -
      Contract payments,
       non-maintenance         -          -          -          -          -
    -------------------------------------------------------------------------
    Distributable cash
     after all capital
     and contract
     payments          $  78,850  $  21,657  $  20,195  $  19,586  $  17,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of Cash Flows Per Unit

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities        $  2.1441  $  0.5375  $  0.5205  $  0.5559  $  0.5329
    Distributable cash
     after maintenance
     capital and
     contract payments $  1.9380  $  0.4936  $  0.4796  $  0.5053  $  0.4592
    Distributable cash
     after all capital
     and contract
     payments          $  1.9059  $  0.4928  $  0.4595  $  0.4949  $  0.4592
    Distributions
     paid during
     period            $  1.4940  $  0.3780  $  0.3750  $  0.3750  $  0.3660
    Distributions
     declared during
     period            $  1.5000  $  0.3810  $  0.3750  $  0.3750  $  0.3690
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (in thousands of                  Three      Three      Three      Three
     Canadian dollars,      Year     months     months     months     months
     except per unit       ended      ended      ended      ended      ended
     amounts,           December   December  September       June      March
     unaudited)         31, 2005   31, 2005   30, 2005   30, 2005   31, 2005
    -------------------------------------------------------------------------

    Revenue            $ 276,537  $  69,232  $  69,845  $  71,226  $  66,234
    Cost of sales and
     operating
     expenses            196,956     49,586     49,791     50,585     46,994
    Amortization of
     capital and other
     assets               13,107      3,258      3,339      3,298      3,212
    -------------------------------------------------------------------------
                          66,474     16,388     16,715     17,343     16,028
    Interest expense       3,301        760        813        839        889
    Amortization of
     intangible assets     2,422        646        610        582        584
    Income Taxes               -          -          -          -          -
    Minority interest          -          -          -          -          -
    -------------------------------------------------------------------------
    Net income         $  60,751  $  14,982  $  15,292  $  15,922  $  14,555
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities        $  76,844  $  19,629  $  19,634  $  24,175     13,406
    Change in non-cash
     working capital
     items                  (220)      (717)      (293)    (4,232)     5,022
    Minority interest          -          -          -          -          -
    Changes in other
     operating assets
     and liabilities         (344)      (26)      (100)      (141)       (77)
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operations(2)    76,280    18,886     19,241     19,802     18,351
    Less:
      Expenditures on
       maintenance
       capital              6,729     1,828      1,645      1,737      1,519
      Contract payments,
       maintenance          3,145       645        625        625      1,250
    -------------------------------------------------------------------------
    Distributable cash
     after maintenance
     capital and
     contract
     payments(1)           66,406    16,413     16,971     17,440     15,582
    Less:
      Expenditures on
       growth capital(3)        -         -          -          -          -
      Expenditures on
       non-maintenance
       capital                 -          -          -          -          -
      Contract payments,
       non-maintenance       800        200          -        600          -
    -------------------------------------------------------------------------
    Distributable cash
     after all capital
     and contract
     payments          $  65,606  $  16,213  $  16,971  $  16,840  $  15,582
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of Cash Flows Per Unit

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities        $  2.0116  $  0.4980  $  0.5074  $  0.5222  $  0.4839
    Distributable cash
     after maintenance
     capital and
     contract payments $  1.7512  $  0.4328  $  0.4475  $  0.4599  $  0.4109
    Distributable cash
     after all capital
     and contract
     payments          $  1.7301  $  0.4276  $  0.4475  $  0.4441  $  0.4109
    Distributions
     paid during
     period            $  1.4480  $  0.3660  $  0.3620  $  0.3600  $  0.3600
    Distributions
     declared during
     period            $  1.4500  $  0.3660  $  0.3640  $  0.3600  $  0.3600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    (in thousands of                  Three      Three      Three      Three
     Canadian dollars,      Year     months     months     months     months
     except per unit       ended      ended      ended      ended      ended
     amounts,           December   December  September       June      March
     unaudited)         31, 2004   31, 2004   30, 2004   30, 2004   31, 2004
    -------------------------------------------------------------------------

    Revenue            $ 275,586  $  69,068  $  69,065  $  68,864  $  68,589
    Cost of sales and
     operating
     expenses            196,789     49,124     49,451     49,428     48,786
    Amortization of
     capital and other
     assets               13,509      3,305      3,264      3,390      3,550
    -------------------------------------------------------------------------
                          65,288     16,639     16,350     16,046     16,253
    Interest expense       4,193        958      1,105      1,045      1,085
    Amortization of
     intangible assets     2,333        583        583        583        584
    Income Taxes           4,494          -        955      1,873      1,666
    Minority interest           -          -          -          -          -
    -------------------------------------------------------------------------
    Net income         $  54,268  $  15,098  $  13,707  $  12,545  $  12,918
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash flows from
     operating
     activities        $  77,271  $  19,427  $  19,786  $  19,561  $  18,497
    Change in non-cash
     working capital
     items                (2,803)       (60)    (1,367)    (1,463)        87
    Minority interest          -          -          -          -          -
    Changes in other
     operating assets
     and liabilities        (813)      (381)      (120)      (143)      (169)
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operations(2)   73,655     18,986     18,299     17,955     18,415
    Less:
      Expenditures on
       maintenance
       capital             7,179      2,715      1,451      1,317      1,696
      Contract payments,
       maintenance         3,145        645        625        625      1,250
    -------------------------------------------------------------------------
    Distributable cash
     after maintenance
     capital and
     contract
     payments(1)          63,331     15,626     16,223     16,013     15,469
    Less:
      Expenditures on
       growth capital(3)       -          -          -          -          -
      Expenditures on
       non-maintenance
       capital               354         49         82        126         97
      Contract payments,
       non-maintenance     1,250      1,000         50          -        200
    -------------------------------------------------------------------------
    Distributable cash
     after all capital
     and contract
     payments          $  61,727  $  14,577  $  16,091  $  15,887   $ 15,172
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of Cash Flows Per Unit

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities        $  1.9423  $  0.5007  $  0.4826  $  0.4735   $ 0.4856
    Distributable cash
     after maintenance
     capital and
     contract payments $  1.6701  $  0.4121  $  0.4278  $  0.4223   $ 0.4079
    Distributable cash
     after all capital
     and contract
     payments          $  1.6278  $  0.3844  $  0.4243  $  0.4190   $ 0.4001
    Distributions,
     paid during
     period            $  1.3994  $  0.3536  $  0.3504  $  0.3504   $ 0.3450
    Distributions,
     declared during
     period            $  1.4044  $  0.3568  $  0.3504  $  0.3504   $ 0.3468
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -----------------------------------------
    (in thousands of                    Year
     Canadian dollars,      Year       ended
     except per unit       ended    December
     amounts,           December  31, 2002(4)
     unaudited)         31, 2003  (pro forma)
    -----------------------------------------

    Revenue            $ 251,783  $ 228,259
    Cost of sales and
     operating
     expenses            177,704    158,287
    Amortization of
     capital and other
     assets               14,065     14,212
    -----------------------------------------
                          60,014     55,760
    Interest expense       4,630      4,527
    Amortization of
     intangible assets     2,332      2,408
    Income Taxes           4,595      3,314
    Minority interest          -          -
    -----------------------------------------
    Net income         $  48,457  $  45,511
    -----------------------------------------
    -----------------------------------------
    Cash flows from
     operating
     activities        $  68,569  $  56,867
    Change in non-cash
     working capital
     items                   (66)     8,858
    Minority interest          -          -
    Changes in other
     operating assets
     and liabilities         (66)    (1,289)
    -----------------------------------------
    Adjusted cash flows
     from operations(2)   68,437     64,436
    Less:
      Expenditures on
       maintenance
       capital             5,210      5,006
      Contract payments,
       maintenance         3,145      3,145
    -----------------------------------------
    Distributable cash
     after maintenance
     capital and
     contract
     payments(1)          60,082     56,285
    Less:
      Expenditures on
       growth capital(3)       -          -
      Expenditures on
       non-maintenance
       capital             2,137      2,628
      Contract payments,
       non-maintenance       700      1,850
    -----------------------------------------
    Distributable cash
     after all capital
     and contract
     payments          $ 57,245    $ 51,807
    -----------------------------------------
    -----------------------------------------

    Summary of Cash Flows Per Unit

    -----------------------------------------
    -----------------------------------------
    Adjusted cash flows
     from operating
     activities        $  1.8047  $  1.9739
    Distributable cash
     after maintenance
     capital and
     contract payments $  1.5844  $  1.7242
    Distributable cash
     after all capital
     and contract
     payments          $  1.5096  $  1.5871
    Distributions
     paid during
     period            $  1.3566  $  1.2510
    Distributions
     declared during
     period            $  1.3599  $  1.3200
    -----------------------------------------
    -----------------------------------------

    (1) Maintenance capital expenditures are defined by the Fund as capital
        expenditures necessary to maintain and sustain the current productive
        capacity of the Business or generally improve the efficiency of the
        Business. Maintenance expenditures also include recurring fixed
        customer contract payments that are made annually over the life of
        the contract. Growth capital expenditures are defined by the Fund as
        capital expenditures that increase the productive capacity of the
        Business with a reasonable expectation of an increase in cash flow.
        Non-maintenance capital expenditures are defined as expenditures,
        which are expected to increase future operating cash flows of the
        Business, that are infrequent and include non-maintenance contract
        payments which are payment obligations under certain long-term
        customer contracts.

    (2) Changes in non-cash working capital and certain other balance sheet
        items have been excluded from cash flows from operating activities so
        as to remove the effects of timing differences in cash receipts and
        cash disbursements, which generally reverse themselves but can vary
        significantly across quarters. Minority interest, future income taxes
        and changes to other long-term liabilities are deducted from adjusted
        cashflow from operations.

    (3) For the quarter ending June 30, 2006, approximately $0.4 million
        pertaining to Filogix capital expenditures have been classified as
        growth capital rather than maintenance capital, as reported in the
        second quarter Management's Discussion and Analysis.

    (4) The year ended December 31, 2002 was compiled from proforma
        financial statements adjusted to remove the twelve-day period ended
        December 31, 2001. The proforma balances presented are based on the
        actual statements of the Fund adjusted to remove the expense related
        to the distributions paid to the non-controlling owner and to
        increase the number of units outstanding to 37,920,792 as at
        December 20, 2001 (versus the 17,235,000 units outstanding from
        December 20, 2001 to January 9, 2002; 19,955,000 units outstanding
        from January 10, 2002 to April 1, 2002; and 37,920,792 units
        outstanding subsequent to April 1, 2002).

    Condensed Consolidated Balance Sheet

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars,  December  September       June      March   December
     unaudited)         31, 2006   30, 2006   30, 2006   31, 2006   31, 2005
    -------------------------------------------------------------------------

    Cash and cash
     equivalents       $   5,788  $   8,893  $   4,607  $   9,441  $   8,304
    Other current
     assets               27,457     27,384     28,834     17,136     17,076
    Future income
     taxes                     -          -          -          -          -
    Capital and
     other assets         39,936     41,908     42,701     29,220     30,673
    Goodwill and
     other intangible
     assets              569,092    572,215    575,635    369,131    369,250
    -------------------------------------------------------------------------
                       $ 642,273  $ 650,400  $ 651,777  $ 424,928  $ 425,303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and
     other current
     liabilities       $  44,420  $  47,100  $  48,064  $  32,697  $  35,665
    Other long-term
     liabilities           4,715      4,797      4,604      5,328      5,302
    Long-term
     indebtedness        145,000    150,000    150,000     50,000     50,000
    Minority
     interest                263        351        263          -          -
    Unitholders'
     equity              447,875    448,152    448,846    336,903    334,336
    -------------------------------------------------------------------------
                       $ 642,273  $ 650,400  $ 651,777  $ 424,928  $ 425,303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Condensed Consolidated Balance Sheet

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars, September       June      March   December  September
     unaudited)         30, 2005   30, 2005   31, 2005   31, 2004   30, 2004
    -------------------------------------------------------------------------

    Cash and cash
     equivalents       $   9,674  $   9,660  $   4,243  $  10,258  $  11,647
    Other current
     assets               18,245     17,009     16,826     15,352     15,744
    Future income
     taxes                     -          -           -          -    28,170
    Capital and
     other assets         31,401     33,093     34,652     36,345     36,888
    Goodwill and
     other intangible
     assets              369,538    369,610    368,056    368,640    369,223
    -------------------------------------------------------------------------
                       $ 428,858  $ 429,372  $ 423,777  $ 430,595  $ 461,672
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and
     other current
     liabilities       $  35,703  $  34,181  $  30,373  $  34,422  $  35,632
    Other long-term
     liabilities           5,921      6,446      6,930      7,603      7,867
    Long-term
     indebtedness         54,000     57,000     57,000     60,000     63,000
    Minority
     interest                  -          -          -          -          -
    Unitholders'
     equity              333,234    331,745    329,474    328,570    355,173
    -------------------------------------------------------------------------
                       $ 428,858  $ 429,372  $ 423,777  $ 430,595  $ 461,672
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Condensed Consolidated Balance Sheet

    --------------------------------------------------------------
    (in thousands of
     Canadian dollars,      June      March   December   December
     unaudited)         30, 2004   31, 2004   31, 2003   31, 2002
    --------------------------------------------------------------

    Cash and cash
     equivalents       $   7,357  $   7,152  $   4,981  $  12,046
    Other current
     assets               16,672     15,898     15,779     16,142
    Future income
     taxes                28,915     30,352     31,715     35,298
    Capital and
     other assets         32,643     34,589     35,396     39,614
    Goodwill and
     other intangible
     assets              369,806    370,389    370,973    373,305
    --------------------------------------------------------------
                       $ 455,393  $ 458,380  $ 458,844  $ 476,405
    --------------------------------------------------------------
    --------------------------------------------------------------

    Payables and
     other current
     liabilities       $  33,473  $  31,235  $  31,136  $  32,778
    Other long-term
     liabilities           4,167      4,650      4,980      4,789
    Long-term
     indebtedness         63,000     67,000     67,000     80,000
    Minority
     interest
    Unitholders'
     equity              354,753    355,495    355,728    358,838
    --------------------------------------------------------------
                       $ 455,393  $ 458,380  $ 458,844  $ 476,405
    --------------------------------------------------------------
    --------------------------------------------------------------

    Distribution History
    -------------------------------------------------------------------------
                                                               Distributions
                                                                  per unit(1)
    Month             2006      2005      2004      2003      2002      2001
    -------------------------------------------------------------------------

    January       $ 0.1220  $ 0.1200  $ 0.1150  $ 0.1117  $ 0.1083  $      -
    February        0.1220    0.1200    0.1150    0.1117    0.1083         -
    March           0.1250    0.1200    0.1168    0.1117    0.1083         -
    April           0.1250    0.1200    0.1168    0.1133    0.1083         -
    May             0.1250    0.1200    0.1168    0.1133    0.1083         -
    June            0.1250    0.1200    0.1168    0.1133    0.1083         -
    July            0.1250    0.1200    0.1168    0.1133    0.1117         -
    August          0.1250    0.1220    0.1168    0.1133    0.1117         -
    September       0.1250    0.1220    0.1168    0.1133    0.1117         -
    October         0.1250    0.1220    0.1168    0.1150    0.1117         -
    November        0.1280    0.1220    0.1200    0.1150    0.1117         -
    December(2)     0.1280    0.1220    0.1200    0.1150    0.1117    0.0427

    -------------------------------------------------------------------------
                  $ 1.5000  $ 1.4500  $ 1.4044  $ 1.3599  $ 1.3200  $ 0.0427
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Monthly distributions are made to unitholders of record on the last
        business day of each month and are paid within 31 days following each
        month end.

    (2) Distributions paid in 2001 are in respect of the 12 calendar days
        from December 20, 2001 to December 31, 2001.

    Tax Allocation of Distributions
    -------------------------------------------------------------------------
                            2006       2005       2004       2003       2002

    -------------------------------------------------------------------------

    Dividend income         0.0%       0.0%      15.0%      19.5%      16.9%
    Other income          100.0%      91.6%      75.2%      69.5%      71.5%
    Return of capital       0.0%       8.4%       9.8%      11.0%      11.6%
    -------------------------------------------------------------------------
    Total distributions
     for the period       100.0%     100.0%     100.0%     100.0%     100.0%
    -------------------------------------------------------------------------

    The above tax allocation of distributions for 2006 represents an
    estimate based on the total expected distributions for the year ended
    December 31, 2006. As a result of the July 2004 reorganization to a
    trust-on-trust-on-partnership structure, the 2005 and 2006 distributions
    do not have a dividend component.

    Other Statistics
    (in thousands, except per unit amounts)

                                                   Number of
                  Trading price range                units         Market
                of units (TSX: "DHF.UN")  Average outstanding  capitalization
     Quarter   --------------------------  daily   at quarter    at quarter
      ended       High      Low     Close  volume     end           end
    -------------------------------------------------------------------------
    2006 - Q4  $ 19.80  $ 13.80  $ 15.46    143      43,947       679,417
         - Q3    19.49    17.21    19.19     96      43,947       843,339
         - Q2    21.99    16.99    17.70    100      43,947       777,858
         - Q1    23.18    19.50    21.50     61      37,921       815,297
    2005 - Q4    24.00    16.32    23.19     92      37,921       879,383
         - Q3    24.07    19.50    21.19     88      37,921       803,542
         - Q2    22.85    19.58    20.92     61      37,921       793,303
         - Q1    23.25    19.65    22.00     67      37,921       834,257
    2004 - Q4    23.25    18.80    22.70     81      37,921       860,802
         - Q3    19.62    16.75    19.45     58      37,921       737,559
         - Q2    19.34    15.05    18.00     93      37,921       682,574
         - Q1    19.40    16.71    19.40     92      37,921       735,663
    2003 - Q4    17.50    15.10    17.45     67      37,921       661,718
         - Q3    15.65    14.52    15.30     99      37,921       580,188
         - Q2    15.20    12.91    15.00     82      37,921       568,812
         - Q1    13.69    12.48    12.94     92      37,921       490,695
    2002 - Q4    13.25    11.22    12.86    139      37,921       487,661
         - Q3    12.13    10.45    12.10    165      37,921       458,842
         - Q2    11.25    10.00    10.95    176      37,921       415,233
         - Q1    11.20    10.11    10.51    149      18,955       199,217
    >>

ABOUT DAVIS + HENDERSON

Davis + Henderson and its predecessors have been serving the Canadian

financial services industry since 1875. Through integrated service

offerings, Davis + Henderson is a market leader in providing programs to

customers who offer chequing account and lending services within Canada.

Davis + Henderson Income Fund is listed on the Toronto Stock Exchange,

symbol DHF.UN. Further information can be found in the disclosure

documents filed by Davis + Henderson Income Fund with the securities

regulatory authorities, available at www.sedar.com.

%SEDAR: 00017092EF

SOURCE: Davis + Henderson Income Fund

Bob Cronin, Chief Executive Officer, Davis + Henderson, Limited Partnership, (416)
696-7700, extension 5301, bob.cronin@dhltd.com; Catherine Martin, Chief Financial
Officer, Davis + Henderson, Limited Partnership, (416) 696-7700, extension 5265,
catherine.martin@dhltd.com