Davis + Henderson Income Fund Reports Second Quarter 2007 Results

TORONTO, Jul 31, 2007 (Canada NewsWire via COMTEX News Network) — TSX Stock Symbol: “DHF.UN”.

Website: www.dhltd.com

Davis + Henderson Income Fund today reported sharp increases in revenue and cash flow for the three and six months ended June 30, 2007 as the positive impact of program enhancements, higher than anticipated cheque order volumes and strong activity in the mortgage and real estate markets combined to produce above-target performance.

    <<
    Second Quarter Highlights

    -   Revenue increased by $26.1 million, or 34.4%, compared to the same
        quarter in 2006. Of this increase, $15.2 million, or 20.0%, related
        to the inclusion of Filogix with the balance related primarily to
        increases from the Davis + Henderson cheque supply program.

    -   Net income per unit increased to $0.6035, or 34.8%, compared to the
        second quarter of 2006.

    -   Declared distributions in the second quarter of 2007 of $0.3960 per
        unit were 5.6% higher than in the second quarter of 2006.

    Six-Month Highlights

    -   Revenue increased by $45.3 million, or 30.7%, compared to the same
        period in 2006. Of this increase, $27.8 million, or 18.8%, related
        to the addition of Filogix with the balance related primarily to
        increases from the Davis + Henderson cheque supply program.

    -   Net income per unit increased to $1.0181, or 15.1%, compared to the
        first six months of 2006.

    -   Declared distributions for the first six months of 2007 of $0.784 per
        unit were 5.4% higher than in the first six months of 2006.
    >>

Management Commentary

The inclusion of the Filogix results for the full six months of 2007, as compared to just eleven business days for the same period in 2006, had a significant impact on revenue and cash flows to date this year. During the first six months of 2007, the Business continued to benefit from solid contributions related to program initiatives, such as iDefence(R) and BizAssist(TM).

Additionally, two other significant factors contributed to above-target revenue growth: (1) cheque order volumes were stronger than anticipated, including incremental reorders related to the changes in imaging standards on cheques; and (2) record real estate activity in 2007 has significantly increased mortgage origination and underwriting fees within the Filogix Segment.

While the factors contributing to incremental cheque orders may or may not continue to positively impact performance through the remainder of the current year, they are not expected to be sustained long term as management continues to expect overall cheque order volume declines. Recent increased reorder activity levels may contribute in future quarters to higher than historically observed average volume declines, as consumers delay orders due to recent cheque supply replenishments.

Looking forward, Davis + Henderson remains committed to its financial objective of delivering stable and modestly growing distributions based on achieving revenue growth in the 3-5% range. With the addition of Filogix, Davis + Henderson has significantly strengthened its capabilities and the breadth of services it offers to the Canadian financial services marketplace. From Davis + Henderson’s established platforms, management looks to increase value for customers and unitholders by building on Davis + Henderson’s programs.

For a more detailed discussion of second quarter results and management’s outlook, please see the 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 second quarter ended June 30, 2007 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday August 1, 2007. The number to use for this call is 416-644-3414 for Toronto area callers or 1-866-249-1964- 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 21236226 followed by the number sign. The rebroadcast will be available until Wednesday August 15, 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, is available on SEDAR at www.sedar.com.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis (“MD&A”) for the second quarter of 2007 should be read in conjunction with MD&A in the Davis + Henderson Income Fund’s (the “Fund” or the “Business” or “Davis + Henderson”) Annual Report for the year ended December 31, 2006, dated February 27, 2007 and the attached interim unaudited consolidated financial statements. External economic and industry factors remain substantially unchanged from the annual MD&A and the Fund’s most recently filed Annual Information Form, 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 Davis + Henderson 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 as part of its first strategy, 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 that have been developed as part of its second strategy 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, under Davis + Henderson’s brand CollateralGuard(TM), 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.

Late in 2006, the Minister of Finance (Canada) released draft legislation, which would result in certain income trusts, including the Fund, paying taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. These proposed amendments were enacted on June 22, 2007. The payment of such taxes will, in the future, reduce the cash flow of the Fund, thereby reducing the amount available for distributions to unitholders. These changes have caused uncertainty in the capital markets and variability in 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, management and the Trustees have monitored the changes in the income trust environment and continue to review potential impacts on the Fund’s current strategies and the alternatives available to the Fund, consistent with protecting and enhancing unitholder value.

FINANCIAL INFORMATION PRESENTATION

The Fund’s results for the quarter ended June 30, 2007 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.

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 SECOND QUARTER

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

                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $ 101,992  $  75,900  $ 193,141  $ 147,818
    Cost of sales and operating
     expenses                        66,873     52,989    130,786    104,005
    Amortization of capital and
     other assets                     3,745      3,286      7,451      6,286
    -------------------------------------------------------------------------
                                     31,374     19,625     54,904     37,527

    Interest expense                  2,121        887      4,351      1,582
    Net unrealized loss (gain)
     on interest rate swaps          (2,196)         -     (2,520)         -
    Amortization of intangible
     assets                           3,271        996      6,565      1,643
    Minority interest                   204         25        313         25
    -------------------------------------------------------------------------
    Income before income taxes       27,974     17,717     46,195     34,277

    Future income taxes expense       1,454          -      1,454          -
    -------------------------------------------------------------------------
    Net income                    $  26,520  $  17,717  $  44,741  $  34,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit,
     basic and diluted            $  0.6035  $  0.4477  $  1.0181  $  0.8845
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

                                                          Three months ended
    -------------------------------------------------------------------------
                                               Davis +
                                     Henderson Segment       Filogix Segment
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $  84,184  $  73,272  $  17,808  $   2,628
    Cost of sales and
     operating expenses              57,383     50,784      8,820      1,674
    Amortization of capital
     and other assets                 2,289      3,091      1,456        195
    -------------------------------------------------------------------------
                                     24,512     19,397      7,532        759

    Interest expense                      -          -          -          -
    Net unrealized loss (gain)
     on interest rate swaps               -          -          -          -
    Amortization of
     intangible assets                  788        611      2,483        385
    Minority interest                   204         25          -          -
    -------------------------------------------------------------------------
    Income before income taxes       23,520     18,761      5,049        374
    Future income taxes expense       1,125          -        329          -
    -------------------------------------------------------------------------
    Net income                    $  22,395  $  18,761  $   4,720  $     374
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          Three months ended
    -------------------------------------------------------------------------
                                             Corporate          Consolidated
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $       -  $       -  $ 101,992  $  75,900
    Cost of sales and
     operating expenses                 670        531     66,873     52,989
    Amortization of capital
     and other assets                     -          -      3,745      3,286
    -------------------------------------------------------------------------
                                       (670)      (531)    31,374     19,625

    Interest expense                  2,121        887      2,121        887
    Net unrealized loss (gain)
     on interest rate swaps          (2,196)         -     (2,196)         -
    Amortization of
     intangible assets                    -          -      3,271        996
    Minority interest                     -          -        204         25
    -------------------------------------------------------------------------
    Income before income taxes         (595)    (1,418)    27,974     17,717
    Future income taxes expense           -          -      1,454          -
    -------------------------------------------------------------------------

    Net income                    $    (595) $  (1,418) $  26,520  $  17,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results of the three months ended June 30, 2006 included financial
results of Filogix for the period of June 15, 2006 to June 30, 2006.

                                                            Six months ended
    -------------------------------------------------------------------------
                                               Davis +
                                     Henderson Segment       Filogix Segment
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $ 162,681  $ 145,190  $  30,460  $   2,628
    Cost of sales and
     operating expenses             111,869    101,337     17,568      1,674
    Amortization of capital
     and other assets                 4,666      6,091      2,785        195
    -------------------------------------------------------------------------
                                     46,146     37,762     10,107        759

    Interest expense                      -          -          -          -
    Net unrealized loss (gain)
     on interest rate swaps               -          -          -          -
    Amortization of
     intangible assets                1,599      1,258      4,966        385
    Minority interest                   313         25          -          -
    -------------------------------------------------------------------------
    Income before income taxes       44,234     36,479      5,141        374
    Future income taxes expense       1,125          -        329          -
    -------------------------------------------------------------------------
    Net Income                    $  43,109  $  36,479  $   4,812  $     374
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                            Six months ended
    -------------------------------------------------------------------------
                                             Corporate          Consolidated
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $       -  $       -  $ 193,141  $ 147,818
    Cost of sales and
     operating expenses               1,349        994    130,786    104,005
    Amortization of capital
     and other assets                     -          -      7,451      6,286
    -------------------------------------------------------------------------
                                     (1,349)      (994)    54,904     37,527

    Interest expense                  4,351      1,582      4,351      1,582
    Net unrealized loss (gain)
     on interest rate swaps          (2,520)         -     (2,520)         -
    Amortization of
     intangible assets                    -          -      6,565      1,643
    Minority interest                     -          -        313         25
    -------------------------------------------------------------------------
    Income before income taxes       (3,180)    (2,576)    46,195     34,277
    Future income taxes expense           -          -      1,454          -
    -------------------------------------------------------------------------
    Net Income                    $  (3,180) $  (2,576) $  44,741  $  34,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results of the six months ended June 30, 2006 included financial
results of Filogix for the period of June 15, 2006 to June 30, 2006.
    >>

Revenue

Total revenue for the second quarter of 2007 was $102.0 million, an increase of $26.1 million, or 34.4%, compared to the second quarter of 2006. The inclusion of the Filogix Segment for the full quarter accounted for $15.2 million of the increase, with the balance of the increase, $10.9 million, attributable to the Davis + Henderson Segment.

For the first six months of 2007, total revenue increased by $45.3 million, or 30.7%, compared to the first six months of 2006. The Filogix Segment accounted for $27.8 million of the increase and the Davis + Henderson Segment accounted for $17.5 million of the increase.

Revenue for the Davis + Henderson Segment increased by 14.9% and 12.0% in the second quarter and first half of 2007, respectively, when compared to the same periods in 2006. This is higher than the Fund’s overall long-term objective of growing revenues in the 3% to 5% range. As expected, the Business achieved solid growth in revenues related to successful program initiatives introduced late in 2006, including product and service enhancements such as iDefence(R) and BizAssist(TM), and it benefited from certain customer initiatives during the second quarter, including orders relating to account conversion activities. In addition, almost half of the year-over-year revenue increase came from stronger than expected Canadian cheque order volumes as further discussed below.

Historically, cheque order volumes have, on average, declined annually by low single digit percentages as a result of declining cheque usage. In the first six months of 2007, the Davis + Henderson Segment did not experience this decline and overall cheque order volume was higher than the prior year. These stronger than anticipated order volumes are believed to be the result of increased customer promotional activities, the continuing movement of consumers to orders with fewer cheques and changes in the imaging standards required for cheques produced in Canada, which generated incremental and accelerated orders. In the first quarter of 2007, these incremental orders related primarily to one financial institution, but during the second quarter, orders were increasing from many of our financial institution customers. Management believes that many of these accelerated reorders would otherwise have been received in future periods pursuant to normal reorder cycles.

Management also believes that declining cheque usage will continue to contribute to declining cheque orders as it has in the past, although, the Business may continue to receive incremental and accelerated orders, as previously described, over the short term. Additionally, it is believed that the acceleration of orders may contribute to higher than historically observed average declines in future quarters, reducing revenues in such periods.

During the first six months of 2007, the Business also benefited from its increased ownership of the AVS business, the expansion of 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 Davis + Henderson’s service offerings.

Revenue for the Filogix Segment in the first six months of 2007 was stronger than expected with continued year-over-year growth in fees related to mortgage origination and underwriting services. Including 2006 revenue recorded prior to the acquisition of Filogix by the Fund, origination services revenue was up over 35% year-over-year. This performance is consistent with the record activity in the real estate market and strong origination mortgage volume.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses for the second quarter of 2007 increased by $13.9 million, or 26.2%, compared to the second quarter of 2006. The addition of the Filogix Segment accounted for $7.1 million of the increase. The remaining $6.8 million is related to the Davis + Henderson Segment and to corporate expenses.

For the first half of 2007, consolidated cost of sales and operating expenses increased by $26.8 million, or 25.7%, when compared to the first half of 2006. The Filogix Segment accounted for $15.9 million of the increase and the Davis + Henderson Segment, along with corporate expenses, accounted for the remaining $10.9 million.

For the second quarter, substantially all of the Davis + Henderson Segment and corporate year-over-year expense increase of 13.1%, was related to increased revenues as described above. For the six-month period ended June 30, 2007, while most of the expense increase related directly to revenue growth, the Business also had increased spending on information technology related to infrastructure upgrade initiatives and enhancing the overall internal computing environment. As a result of revenue growth, including the higher than expected cheque order volume described above, the Davis + Henderson Segment margins improved.

Cost of sales and operating expenses of the Filogix Segment during the period since acquisition were consistent with expectations and reflected continued spending on product enhancements. In general, operating costs are not directly correlated with increases or decreases in revenue. Increases in Filogix revenues, due to the factors described above, significantly increased the Filogix Segment margins. The Business expects to increase expenses within the Filogix Segment in support of further product enhancements, and accordingly, margins are expected to be reduced from the second quarter of 2007 levels.

While Davis + Henderson operates primarily in Canada, the Business also services a U.S. subsidiary of one of its Canadian customers. All revenue and substantially all expenses relating to the 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 $0.5 million, or 14.0%, to $3.7 million compared to the second quarter of 2006. The inclusion of the Filogix Segment for the full quarter, which contributed $1.3 million to the increase, was partially offset by a decline in expense in the Davis + Henderson Segment of $0.8 million, relating to certain capital and other assets having become fully amortized. For the first half of 2007, amortization of capital and other assets on a consolidated basis was $7.5 million, an increase of $1.2 million compared to the first half of 2006. The Filogix Segment contributed $2.6 million of the increase, partially offset by a decrease in expenses for the Davis + Henderson Segment of $1.4 million as described above.

Interest expense increased by $1.2 million for the second quarter of 2007 compared to the same quarter in the prior year. For the first half of 2007, interest expense was $2.8 million higher than the comparable 2006 period. These increases reflected the draw down of additional debt for the acquisition of the Filogix business late in the second quarter of 2006. Included in these balances were $0.2 million and $0.4 million, respectively for the second quarter and first half of 2007, of amortization of net losses in fair market value of interest-rate swaps that were deferred prior to January 1, 2007. Commencing January 1, 2007, the Business no longer designates its interest-rate swaps as hedges for accounting purposes.

Unrealized gains on interest-rate swaps of $2.2 million and $2.5 million were recognized for the three and six months ended June 30, 2007, respectively, and reflected the recognition of the change in fair value of the interest-rate swaps during each period. These unrealized gains were recognized in income as these swaps are no longer designated as hedges for accounting purposes. For further discussion on the amortization of net losses in fair market value and the net gain or loss from change in fair value of interest-rate swaps, see the Comprehensive Income section below.

Amortization of intangibles increased by $2.3 million and $4.9 million compared to the second quarter and first half of 2006, respectively. These increases were 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.

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.

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 until 2011, as long as all taxable income generated by the Fund is paid to unitholders in the form of distributions. In 2011 and subsequent years, the Fund will pay a tax on its distributions at a rate of 31.5%. As the new tax rules were enacted late in June 2007, the Fund is required under Canadian GAAP to recognize future income tax assets and liabilities, with a corresponding impact on future income tax expense or recovery based on the temporary differences expected to reverse after the date the tax is effective. Accordingly, the Fund recognized a future income tax liability and a corresponding non-cash future income tax expense of $1.5 million during the second quarter of 2007.

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.

Net income of $26.5 million for the second quarter of 2007 represents an increase of $8.8 million compared to the second quarter of 2006. Net income of $0.6035 per unit increased by $0.1558 per unit. For the six-month period ended June 30, 2007, net income was $44.7 million, or $1.0181 per unit. This represents an increase of $10.5 million, or $0.1336 per unit.

Comprehensive Income

On January 1, 2007, the Business adopted the Canadian Institute of Chartered Accountants (CICA) handbook sections 3855 “Financial Instruments – Recognition and Measurement”, 1530 “Comprehensive Income ” and 3251 “Equity”.

These standards require that all financial assets be classified as “trading”, “designated at fair value”, “available for sale”, “held to maturity”, or “loans and receivables”. In addition, the standards require that all financial assets, including all derivatives, be measured at fair value with the exception of loans and receivables, debt securities classified as held-to-maturity, and available-for-sale equities that do not have quoted market values in an active market. As required, these standards have been applied on a prospective basis and accordingly, the recording of an adjustment to opening Deficit and the recognition of Accumulated Other Comprehensive Income (Loss) (“AOCI”) have been made. As a result, the Deficit balance decreased by $0.1 million and AOCI increased by $2.2 million. Prior period balances have not been restated.

The Business expects to continue to enter into interest-rate swaps for the purpose of hedging interest rates.

During the three-month and six-month periods ended June 30, 2007 the Business recognized $0.2 million and $0.4 million, respectively, of comprehensive income reflecting the amortization of previously deferred net losses charged to net income as discussed above.

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

                                                  2007                  2006
                                         Q2         Q1         Q4         Q3
    -------------------------------------------------------------------------
    Revenue                       $ 101,992  $  91,149  $  87,932  $  87,966
    Net income                    $  26,520  $  18,221  $  16,467  $  15,785
    -------------------------------------------------------------------------
    Net income per unit           $  0.6035  $  0.4146  $  0.3747  $  0.3592
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     units outstanding               43,947     43,947     43,947     43,947
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                  2006                  2005
                                         Q2         Q1         Q4         Q3
    -------------------------------------------------------------------------
    Revenue                       $  75,900  $  71,918  $  69,232  $  69,845
    Net income                    $  17,717  $  16,560  $  14,982  $  15,292
    -------------------------------------------------------------------------
    Net income per unit           $  0.4477  $  0.4367  $  0.3951  $  0.4033
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     units outstanding               39,576     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 from the second to the third quarter of 2006 are primarily a result of the inclusion of the Filogix Segment revenue beginning in mid-June 2006. The increase from the first to the second quarter of 2007 reflected the higher than expected order volume and origination fees as described previously.

Net income and net income per unit has been trending consistently with changing revenue with two exceptions. Commencing in the third quarter of 2006 and continuing thereafter, as a result of the acquisition of Filogix, the Business incurred increased amortization of intangible assets expense and both net income and net income per unit were impacted accordingly. More recently, the increase in net income and net income per unit from the first quarter to the second quarter of 2007 reflected higher contribution resulting from increased revenue discussed above.

Going forward, management believes that consolidated 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. Additionally, the accelerated and incremental order received within the Davis + Henderson Segment related to the changes in imaging standards as previously described, may cause increased variability in revenue and cash flows.

CASH FLOW AND LIQUIDITY

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 Fund 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 consolidated 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 consolidated 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.

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

                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Cash flows from operating
     activities                   $  34,784  $  26,498  $  56,458  $  44,856

    Add (deduct):
      Changes in non-cash working
       capital and other items       (1,814)    (4,499)     1,585     (2,650)
    -------------------------------------------------------------------------

    Adjusted cash flows from
     operating activities (Note 2)   32,970     21,999     58,043     42,206

    Less:
      Expenditures on
       maintenance capital            2,955      1,377      4,844      2,922
      Contract payments,
       maintenance                        -        625      1,517      1,875
    -------------------------------------------------------------------------

    Distributable cash after
     maintenance capital and
     contract payments (Note 1)      30,015     19,997     51,682     37,409

    Less:
      Expenditures on growth
       capital                            -        411        183        411
      Contract payments,
       non-maintenance                    -          -          -          -
    -------------------------------------------------------------------------

    Distributable cash after all
     capital and contract payments
     (Note 1)                        30,015     19,586     51,499     36,998

    Less:
      Distributions paid during
       period                        17,403     14,221     34,278     28,100
    -------------------------------------------------------------------------

    Distributable cash after all
     capital, contract payments
     and distributions paid          12,612      5,365     17,221      8,898

    Changes in non-cash working
     capital and other items
     (Note 2)                         1,814      4,499     (1,585)     2,650
    Distributions paid to
     minority interest                    -          -          -          -
    Cash flows provided by
     (used in) other financing
     activiites                     (10,000)   207,749    (10,000)   207,749
    Cash flows used in
     acquisition of businesses            -   (222,447)        91   (222,994)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents
     for the period               $   4,426  $  (4,834) $   5,727  $  (3,697)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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 and changes to other
    long-term liabilities are deducted from adjusted cash flow from
    operations. For details, see the Changes in Non-Cash Working Capital and
    Other Items section.

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

                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Adjusted cash flows from
     operating activities         $  0.7502  $  0.5559  $  1.3208  $  1.0891
    Distributable cash after
     maintenance capital and
     contract payments            $  0.6830  $  0.5053  $  1.1760  $  0.9653
    Distributable cash after all
     capital and contract
     payments                     $  0.6830  $  0.4949  $  1.1718  $  0.9547
    Distributions paid
     during period                $  0.3960  $  0.3750  $  0.7800  $  0.7410
    Distributions declared
     during period                $  0.3960  $  0.3750  $  0.7840  $  0.7440
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                           Per unit % change
    -------------------------------------------------------------------------
                                    Three months ended      Six months ended
                                          June 2007 vs.         June 2007 vs.
                                             June 2006             June 2006
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                                   35.0%                 21.3%
    Distributable cash after maintenance
     capital and contract payments                35.2%                 21.8%
    Distributable cash after all capital
     and contract payments                        38.0%                 22.7%
    Distributions paid during period               5.6%                  5.3%
    Distributions declared during period           5.6%                  5.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

During the second quarter of 2007, the Business generated $33.0 million in adjusted cash flow from operating activities, an increase of $11.0 million, or 35.0%, compared to the second quarter of 2006. For the first half of 2007, adjusted cash flow from operating activities was $58.0 million, an increase of $15.8 million, or 21.3%, over the comparable period in 2006. These increases are primarily due to the inclusion of the Filogix business, net of increased interest expense, and, in general, increases in cash flow from organic growth initiatives and higher than expected order volume and origination fee revenues, as previously described.

Excess Cash Flows and Net Income Over Distributions Paid

The following table presents excess cash flows from operating activities and net income over distributions paid for the three and six-month periods ended June 30, 2007 and for the years ended December 31, 2006 and 2005.

    <<
                               Three months Six months       Year       Year
                                      ended      ended      ended      ended
    (in thousands of Canadian       June 30,   June 30,  December   December
     dollars, unaudited)               2007       2007   31, 2006   31, 2005
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                   $  34,784  $  56,458  $  89,753  $  76,844
    Net income                    $  26,520  $  44,741  $  66,529  $  60,751
    Distributions paid during
     period                       $  17,403  $  34,278  $  61,311  $  54,910
    Excess of cash
     flows from operating
     activities over cash
     distributions paid           $  17,381  $  22,180  $  28,442  $  21,934
    Excess of net
     income over cash
     distributions paid           $   9,117  $  10,463  $   5,218  $   5,841
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Excess cash flows from operating activities over cash distributions paid
have been used to fund capital expenditures, pay down debt and to fund
acquisitions as shown in the previous table.

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

                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    DAVIS + HENDERSON SEGMENT
      Maintenance capital
       expenditures               $   2,142  $   1,261  $   2,720  $   2,806
      Maintenance contract
       payments                           -        625      1,517      1,875
      Growth capital expenditures         -          -          -          -
      Non-maintenance capital
       expenditures                       -          -          -          -
      Non-maintenance contract
       payments                           -          -          -          -
    -------------------------------------------------------------------------
                                  $   2,142  $   1,886  $   4,237  $   4,681
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FILOGIX SEGMENT
      Maintenance capital
       expenditures               $     813  $     116  $   2,124  $     116
      Maintenance contract
       payments                           -          -          -          -
      Growth capital expenditures         -        411        183        411
      Non-maintenance capital
       expenditures                       -          -          -          -
      Non-maintenance contract
       payments                           -          -          -          -
    -------------------------------------------------------------------------
                                  $     813  $     527  $   2,307  $     527
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONSOLIDATED
      Maintenance capital
       expenditures               $   2,955  $   1,377  $   4,844  $   2,922
      Maintenance contract
       payments                           -        625      1,517      1,875
      Growth capital expenditures         -        411        183        411
      Non-maintenance capital
       expenditures                       -          -          -          -
      Non-maintenance contract
       payments                           -          -          -          -
    -------------------------------------------------------------------------
                                  $   2,955  $   2,413  $   6,544  $   5,208
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

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.

The level of capital expenditures in the Davis + Henderson Segment in 2007 is expected to be similar to, or slightly higher than, the expenditure levels in 2006. Maintenance capital expenditures in the Filogix Segment for 2007 is expected to be higher only as a reflection of a full-year capital program.

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 in the range of $12.0 million to $14.0 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. The level of investment in 2007 required 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 $17.4 million ($0.396 per unit) during the second quarter of 2007 and $34.3 million ($0.780 per unit) for the first half of 2007 compared to $14.2 million ($0.375 per unit) and $28.1 million ($0.741 per unit), respectively, for the same periods in 2006. In June 2006, the Fund issued 6,026,000 additional units to finance the Filogix acquisition. On a per unit basis for the three and six months ended June 30, 2007, distributions paid increased by 5.6% and 5.3%, respectively, when compared to the same periods in 2006.

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 5.6% and 5.4% for the three and six-month periods ended June 30, 2007 respectively.

On an annualized basis, the monthly distribution rate for June 2007 was $1.58 per unit as compared to $1.50 per unit annualized in June 2006, representing an increase of 5.6%.

The estimated tax allocation of distributions declared for 2007 is 100% “other income”, as was the case for all of 2006.

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 June 30, 2007 and July 31, 2007, 43,946,792 trust units were outstanding. This reflects the 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)

                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Minority interest             $     204  $      25  $     313  $      25
    Decrease (increase) in
     non-cash working capital
     items                            1,520      4,424     (2,006)     2,549
    Changes in other operating
     assets and liabilities              90         50        108         76
    -------------------------------------------------------------------------
    Changes in non-cash working
     capital and other items      $   1,814  $   4,499  $  (1,585) $   2,650
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The decrease in non-cash working capital items for the three months ended June 30, 2007 was primarily related to an increase in trade payables that is expected to reverse, partially offset by increases in receivable balances in the Filogix Segment as a result of increased revenue between the second and first quarter of 2007.

The increase for the six-month period ended June 30, 2007 was related to payment of certain accruals, including performance-based compensation which is paid annually in the first quarter of every year, partially offset by the decrease in non-cash working capital items during the second quarter of 2007 as discussed above.

Cash Balances and Long-term Indebtedness

The Business has continued to generate operating cash flow in excess of distributions, capital expenditures and contractual obligations. During the second quarter of 2007, the Business made voluntary debt payments totalling $10.0 million. Management expects to continue to use a portion of any future excess flow to pay down debt during 2007.

At June 30, 2007, cash and cash equivalents totalled $11.5 million, compared to $5.8 million at December 31, 2006.

Total debt facilities available at June 30, 2007 and 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 June 30, 2007, the Business had drawn $120.0 million under its non-revolving term loan and $15.0 million under the revolving term credit facility. The Business is permitted to draw on the revolving facility’s available balance of $35.0 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, Limited Partnership 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 on SEDAR at www.sedar.com.

As of June 30, 2007, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 88.9% of outstanding indebtedness are effectively fixed at the interest rates and for the time periods ending as follows:

    <<
    (in thousands of Canadian
     dollars, unaudited)                Fair value - Interest rate swaps
    -------------------------------------------------------------------------
                                   Notional                         Interest
    Maturity Date                    Amount      Asset  Liability     Rate(1)
    -------------------------------------------------------------------------
    June 30, 2008                 $  12,000  $      74  $       -     5.160%
    January 4, 2009                  10,000        193          -     4.630%
    July 15, 2009                    20,000          2          -     5.813%
    July 15, 2010                    33,000         65          -     5.815%
    June 15, 2011                    20,000        210          -     5.685%
    June 15, 2011                    25,000        168          -     5.685%
    -------------------------------------------------------------------------
                                  $ 120,000  $     712  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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.
    >>

At June 30, 2007, the Fund would receive the fair value of $0.7 million if it were to close out its swap contracts. It is not the present intention of the Fund to close out these contracts. Pursuant to new accounting pronouncements implemented with effect from January 1, 2007, the fair value of the interest-rate swaps is now recorded on the balance sheet. For a further description of this accounting treatment, see the Comprehensive Income section.

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 5.59% as at June 30, 2007.

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.

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.

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.

Historically, Davis + Henderson has paid distributions below the level of distributable cash generated, using the excess cash generated to pay down debt and to fund acquisitions. 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.

CHANGES IN ACCOUNTING POLICY

The Fund reviews all revisions to the Canadian Institute of Chartered Accountants (“CICA”) Handbook when issued. All revisions are considered and applied by the effective date or earlier if practical.

On June 12, 2007, with the third reading of Bill C-52, which contained the new tax rules regarding the taxation of income trusts, including the Fund, the new tax rules were considered to be substantively enacted under Canadian GAAP. As a result, the Fund commenced accounting for tax changes in its June 30, 2007 interim reporting. A future income tax liability of $1.5 million was recognized with a corresponding amount flowing through the Fund’s income for the quarter ended June 30, 2007. The liability represents estimated temporary differences at June 30, 2007 that are expected to reverse starting in the fiscal year 2011. The future income tax liability will be assessed on an annual basis and any changes will be recognized on the statement of income.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

The Fund and its subsidiaries have designed and maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in filings made pursuant to Multilateral Instrument 52-109 is recorded, processed, summarized and reported within the time periods specified in the Canadian Securities Administrators’ rules and forms.

The Fund and its subsidiaries have also designed and maintain a set of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with Canadian GAAP.

There have been no changes in the Fund’s internal controls over financial reporting during the quarter ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect its internal control over financial reporting.

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. Also, as previously described, two additional factors have contributed in 2007 to organic growth exceeding the targeted range: the incremental revenue from accelerated cheque reorders related to the changes in imaging standards; and, the record real estate and mortgage activity in 2007 which has to date contributed to strong growth in fee revenue in the Filogix segment. The impact related to cheque order volume may or may not continue to positively impact performance through the remainder of the current year, however, it is not expected to be sustained long term as management continues to expect overall cheque order volume declines. Recent increased reorder activity levels may contribute in future quarters to higher than historically observed average volume declines as consumers delay orders due to recent cheque supply replenishments. Additionally, the increased activity within the real estate and mortgage markets may not be sustained due to the historical cyclical nature of those markets.

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.

Management’s operational plans include many initiatives which, when combined, are intended to allow the Fund to meet its objectives. Examples include further implementations and enhancements of 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 current U.S. cheque supply contract will expire at the end of 2008 and it is not expected to be renewed. Contributions from this business are relatively modest and its expiration will not have a significant impact on overall operations and, more specifically, cash flows.

The Business’ capital program provides for continued expenditures to be funded by cash flows from operations. The 2007 capital program is expected to be in the range of $12.0 million to $14.0 million, of which $2.0 million to $3.0 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.

Late in 2006, the Minister of Finance (Canada) released draft legislation, which would result in certain income trusts, including the Fund, paying taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. These proposed amendments were enacted on June 22, 2007. The payment of such taxes will, in the future, reduce the cash flow of the Fund, thereby reducing the amount available for distributions to unitholders. These changes have caused uncertainty in the capital markets and variability in 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, management and the Trustees have monitored the changes in the income trust environment and continue to review potential impacts on the Fund’s current strategies and the alternatives available to the Fund, consistent with protecting and enhancing unitholder value.

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.

    <<
    CONSOLIDATED BALANCE SHEETS

    (in thousands of Canadian dollars, unaudited)

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    ASSETS
    Current Assets:
      Cash and cash equivalents                      $  11,515     $   5,788
      Accounts receivable                               22,237        18,299
      Inventory                                          4,259         5,238
      Prepaid expenses                                   3,276         3,920
    -------------------------------------------------------------------------
                                                        41,287        33,245

    Capital assets (note 3)                             31,420        32,567
    Other assets (note 4)                                8,255         7,369
    Interest rate swaps (note 8 )                          712             -
    Intangible assets (note 5)                         123,981       130,546
    Goodwill (note 6)                                  438,502       438,546
    -------------------------------------------------------------------------
                                                     $ 644,157     $ 642,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable and accrued liabilities       $  37,231     $  36,600
      Distributions payable to unitholders               5,801         5,625
      Current portion of disbursement obligations
       on customer contracts (note 7)                    2,962         2,195
    -------------------------------------------------------------------------
                                                        45,994        44,420

    Disbursement obligations on customer
     contracts (note 7)                                  2,212         2,195
    Long-term indebtedness (note 8 )                   135,000       145,000
    Other long-term liabilities (note 9)                 2,490         2,520
    Future income taxes (note 2)                         1,454             -
    Minority interest                                      576           263
    -------------------------------------------------------------------------
                                                       187,726       194,398

    Unitholders' Equity:
      Trust units (note 10)                            474,585       474,585
      Deficit                                          (16,307)      (26,710)
      Accumulated other comprehensive income (loss)     (1,847)            -
    -------------------------------------------------------------------------
                                                       456,431       447,875

    Commitments (note 11)
    -------------------------------------------------------------------------
                                                     $ 644,157     $ 642,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    CONSOLIDATED STATEMENTS OF INCOME
    (in thousands of Canadian dollars, except per unit amounts, unaudited)

    -------------------------------------------------------------------------
                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenue                       $ 101,992  $  75,900  $ 193,141  $ 147,818
    Cost of sales and
     operating expenses              66,873     52,989    130,786    104,005
    Amortization of capital
     and other assets                 3,745      3,286      7,451      6,286
    -------------------------------------------------------------------------
                                     31,374     19,625     54,904     37,527

    Interest expense                  2,121        887      4,351      1,582
    Net unrealized loss (gain)
     on interest rate swaps          (2,196)         -     (2,520)         -
    Amortization of
     intangible assets                3,271        996      6,565      1,643
    Minority interest                   204         25        313         25
    -------------------------------------------------------------------------

    Income before income taxes       27,974     17,717     46,195     34,277
    Future income taxes expense       1,454          -      1,454          -
    -------------------------------------------------------------------------
    Net income                    $  26,520  $  17,717  $  44,741  $  34,277
    -------------------------------------------------------------------------
    Net income per unit, basic
     and diluted                  $  0.6035  $  0.4477  $  1.0181  $  0.8845
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (in thousands of Canadian dollars, unaudited)

    -------------------------------------------------------------------------
                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Net income                    $  26,520  $  17,717  $  44,741  $  34,277

    Other comprehensive income:
      Amortization of transitional
       adjustment to net income         176          -        352          -
    -------------------------------------------------------------------------
    Total comprehensive income    $  26,696  $  17,717  $  45,093  $  34,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    CONSOLIDATED STATEMENTS OF DEFICIT AND ACCUMULATED OTHER
    COMPREHENSIVE INCOME (LOSS)
    (in thousands of Canadian dollars, unaudited)

    -------------------------------------------------------------------------
                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Deficit:
    Deficit, beginning of period  $ (25,424) $ (28,482) $ (26,710) $ (31,049)
    Transitional adjustment on
     adoption of financial
     instruments standards                -          -        116          -
    Net income                       26,520     17,717     44,741     34,277
    Distributions                   (17,403)   (14,974)   (34,454)   (28,967)
    -------------------------------------------------------------------------
    Deficit, end of period          (16,307)   (25,739)   (16,307)   (25,739)
    -------------------------------------------------------------------------

    Accumulated Other
     Comprehensive Income (Loss):
    Accumulated other
     comprehensive income (loss),
     beginning of period             (2,023)         -          -          -
    Transitional adjustment on
     adoption of financial
     instruments standards                -          -     (2,199)         -
    Other comprehensive income:
      Amortization of transitional
       adjustment to net income         176          -        352          -
    -------------------------------------------------------------------------
    Accumulated other
     comprehensive income (loss),
     end of period                   (1,847)         -     (1,847)         -
    -------------------------------------------------------------------------
    Deficit and accumulated
     other comprehensive income
     (loss), end of period        $ (18,154) $ (25,739) $ (18,154) $ (25,739)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands of Canadian dollars, unaudited)

    -------------------------------------------------------------------------
                                    Three months ended      Six months ended
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Cash and cash equivalents
     provided by (used in):

    OPERATING ACTIVITIES
    Net income                    $  26,520  $  17,717  $  44,741  $  34,277
    Add:
      Amortization of capital
       assets                         3,136      2,199      6,174      4,113
      Amortization of other
       assets                           609      1,087      1,277      2,173
      Amortization of intangible
       assets                         3,271        996      6,565      1,643
      Amortization of transitional
       adjustment in interest
       expense                          176          -        352          -
      Net unrealized loss (gain)
       on interest rate swaps        (2,196)         -     (2,520)         -
      Future income taxes expense     1,454          -      1,454          -
      Minority interest                 204         25        313         25
    -------------------------------------------------------------------------
                                     33,174     22,024     58,356     42,231

    Decrease (increase) in
     non-cash working capital items   1,520      4,424     (2,006)     2,549
    Changes in other operating
     assets and liabilities              90         50        108         76
    -------------------------------------------------------------------------
                                     34,784     26,498     56,458     44,856
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Gross proceeds from issuance
     of trust units                       -    116,000          -    116,000
    Issuance costs                        -     (6,800)         -     (6,800)
    Proceeds from (repayment of)
     long-term indebtedness         (10,000)   100,000    (10,000)   100,000
    Financing fees                        -     (1,451)         -     (1,451)
    Distributions paid to
     unitholders                    (17,403)   (14,221)   (34,278)   (28,100)
    -------------------------------------------------------------------------
                                    (27,403)   193,528    (44,278)   179,649
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Expenditures on capital
     assets                          (2,955)    (1,788)    (5,027)    (3,333)
    Payments pursuant to
     long-term supply contracts           -       (625)    (1,517)    (1,875)
    Acquisitions and acquisition
     adjustments                          -   (222,447)        91   (222,994)
    -------------------------------------------------------------------------
                                     (2,955)  (224,860)    (6,453)  (228,202)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents
     for the period                   4,426     (4,834)     5,727     (3,697)
    Cash and cash equivalents,
     beginning of period              7,089      9,441      5,788      8,304
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $  11,515  $   4,607  $  11,515  $   4,607
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information:
      Cash interest paid          $   2,016  $   1,287  $   4,088  $   2,132
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Notes to Consolidated Financial Statements
    Three and six months ended June 30, 2007 and 2006
    (in thousands of Canadian dollars, except unit and per unit amounts,
    unaudited)

    1.  SIGNIFICANT ACCOUNTING POLICIES

    The consolidated financial statements have been prepared using accounting
    policies generally accepted in Canada and follow the same accounting
    policies and their method of application as the Fund's consolidated
    financial statements for the year ended December 31, 2006, which are
    included in the 2006 Annual Report along with changes in accounting
    policies that became effective January 1, 2007. They do not conform in
    all respects with disclosures required for annual financial statements
    and should be read in conjunction with the audited consolidated financial
    statements of the Fund for the year ended December 31, 2006.

    2.  INCOME TAXES

    Income that is currently 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.

    On June 22, 2007, legislation (the "SIFT Rules") relating to the federal
    income taxation of publicly-listed or traded trusts (such as income
    trusts and real estate investment trusts) and partnerships received royal
    assent. The SIFT Rules 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 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 legislation. Accordingly, the Fund
    will be subject to taxes on distributions of certain income earned from
    investments in its subsidiaries made after 2010. The Fund is also
    required to recognize future income tax assets and liabilities with
    respect to the temporary differences between the carrying amount and tax
    bases of its assets and liabilities and those of its subsidiaries that
    are expected to reverse in or after 2011. The impact of this legislation
    for this period is a future income tax expense of $1,454. The Fund
    expects that its distributions will not be subject to tax prior to 2011
    and accordingly has not provided for future income taxes on the temporary
    differences expected to reverse prior to then.

    Significant components of the Fund's future tax liabilities and assets
    with respect to its investments in certain partnership and trust
    subsidiaries as of June 30, 2007 are as follows:

                                                               June 30, 2007
    -------------------------------------------------------------------------
    Future income tax assets:
      Intangible assets less than tax values                       $  12,001
      Valuation allowance                                            (12,001)
    -------------------------------------------------------------------------
      Total future tax assets                                              -
    -------------------------------------------------------------------------

    Future income tax liabilities:
      Capital assets greater than tax values                           1,454
    -------------------------------------------------------------------------
      Total future tax liabilities                                     1,454
    -------------------------------------------------------------------------
    Net future income tax liabilities                              $   1,454
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund does not expect the temporary difference between the carrying
    amount and tax base of intangible assets to reverse in the foreseeable
    future and accordingly has reduced the asset by a valuation allowance for
    the full amount.

    No future tax liability has been provided for the temporary difference
    related to goodwill since this amount is not deductible for tax and is
    therefore specifically exempt from the recognition requirements.

    3.  CAPITAL ASSETS

                                                               June 30, 2007
    -------------------------------------------------------------------------
                                                     Accumulated
                                                         amortiz-
                                                Cost       ation         Net
    -------------------------------------------------------------------------
    Machinery and equipment               $   15,116  $    7,213  $    7,903
    Computer equipment and software           40,815      19,965      20,850
    Furniture, fixtures and leasehold
     improvements                              8,001       5,334       2,667
    -------------------------------------------------------------------------
                                          $   63,932  $   32,512  $   31,420
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                           December 31, 2006
    -------------------------------------------------------------------------
                                                     Accumulated
                                                         amortiz-
                                                Cost       ation         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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended June 30, 2007 was $3,136 (Q2 2006 -
    $2,199) and during the six months ended June 30, 2007 was $6,174 (six
    months ended June 30, 2006 - $4,113). Fully amortized capital assets
    removed from the accounts during the quarter ended and the six months
    ended June 30, 2007 was $94 (Q2 2006 and the six months ended June 30,
    2006 - nil).

    4.  OTHER ASSETS

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Cost:
      Long-term supply contracts                     $  12,051     $   9,750
      Deferred finance costs                             1,451         1,451
      Other                                                370           370
    -------------------------------------------------------------------------
                                                        13,872        11,571

    Accumulated amortization                            (5,617)       (4,202)
    -------------------------------------------------------------------------
                                                     $   8,255     $   7,369
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended June 30, 2007 on long-term supply
    contracts and deferred finance costs was $609 (Q2 2006 - $1,087) and $69
    (Q2 2006 - $24), respectively and during the six months ended June 30,
    2007 was $1,277 (six months ended June 30, 2006 - $2,173) and $138 (six
    months ended June 30, 2006 - $24) respectively. Amortization of deferred
    finance costs is recognized as interest expense.

    5.  INTANGIBLE ASSETS

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Cost:
      Cheque supply outsourcing contracts            $  16,329     $  16,329
      Customer service contracts                         3,669         3,669
      Proprietary software                              41,993        41,993
      Brand names                                        8,400         8,400
      Customer relationships                            77,887        77,887
    -------------------------------------------------------------------------
                                                       148,278       148,278

    Accumulated amortization                           (24,297)      (17,732)
    -------------------------------------------------------------------------
                                                     $ 123,981     $ 130,546
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the quarter ended June 30, 2007 was $3,271 (Q2 2006 -
    $996) and during the six months ended June 30, 2007 was $6,565 (six
    months ended June 30, 2006 - $1,643).

    6.  GOODWILL

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Balance, beginning of period                     $ 438,546     $ 361,288
    Goodwill acquired during the period:
      AVS acquisition                                      (44)        5,318
      Filogix acquisition                                    -        71,940
    -------------------------------------------------------------------------
    Balance, end of period                           $ 438,502     $ 438,546
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------

    Current portion                                  $   2,962     $   2,195
    Long-term portion                                    2,212         2,195
    -------------------------------------------------------------------------
    Total disbursement obligations on customer
     contracts                                       $   5,174     $   4,390
    -------------------------------------------------------------------------

    The Fund has fixed customer contract disbursement obligations payable as
    of June 30, 2007 as follows:

    2007                                                           $   1,445
    2008                                                               2,962
    2009                                                                 767
    -------------------------------------------------------------------------
                                                                   $   5,174
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  LONG-TERM INDEBTEDNESS

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Non-revolving term loan                          $ 120,000     $ 120,000
    Revolving credit facility                           15,000        25,000
    -------------------------------------------------------------------------
                                                     $ 135,000     $ 145,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund has $170.0 million of available term credit facilities due
    June 15, 2011 (December 31, 2006 - $170.0 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 carrying value of long-term indebtedness approximates its fair
    value as it bears interest at floating rates that reset in most cases
    within three months and in all cases within one year.

    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 June 30, 2007, the Fund was in
    compliance with all of its financial covenants and financial condition
    tests.

    As of June 30, 2007, the Fund has entered into interest-rate swap hedge
    contracts with its lenders, such that the borrowing rates on
    $120.0 million, or 88.9%, of its outstanding term indebtedness are
    effectively fixed at interest rates and for periods shown in the
    following table:

                                   Fair value - Interest rate swaps
    -------------------------------------------------------------------------
                          Notional                                  Interest
    Maturity Date           Amount         Asset     Liability       Rate(1)
    -------------------------------------------------------------------------
    June 30, 2008     $     12,000  $         74  $          -        5.160%
    January 4, 2009         10,000           193             -        4.630%
    July 15, 2009           20,000             2             -        5.813%
    July 15, 2010           33,000            65             -        5.815%
    June 15, 2011           20,000           210             -        5.685%
    June 15, 2011           25,000           168             -        5.685%
    -------------------------------------------------------------------------
                      $    120,000  $        712  $          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.

    At June 30, 2007, the Fund would receive the fair value of $0.7 million
    if it were to close out the contracts compared to having to pay the fair
    value of $2.0 million on four contracts and receive $0.2 million on three
    contracts at December 31, 2006, as set out on the balance sheet.

    9.  OTHER LONG-TERM LIABILITIES

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Deferred compensation program                    $   1,776     $   1,659
    Employee future benefits                               714           861
    -------------------------------------------------------------------------
                                                     $   2,490     $   2,520
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 post-retirement benefit plan. Obligations relating to
    employee future benefits relate to the non-pension post-retirement
    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 quarter
    ended June 30, 2007 was $0.4 million (Q2 2006 - $0.2 million) and
    $0.9 million for the six months ended June 30, 2007 (six months ended
    June 30, 2006 - $0.6 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 are as
    follows:

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------

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

    The weighted average number of units outstanding during the quarter ended
    and the six months ended June 30, 2007 was 43,946,792 (Q2 2006 -
    39,576,287 and for the six months ended June 30, 2006 - 38,753,112).

    11. COMMITMENTS

    As of June 30, 2007, the Fund has annual lease obligations with respect
    to real estate, vehicles and equipment as follows for the years ending:

    2007                                                           $   2,142
    2008                                                               3,908
    2009                                                               3,136
    2010                                                               3,035
    2011                                                               1,523
    Thereafter                                                           803
    -------------------------------------------------------------------------
                                                                   $  14,547
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. SIGNIFICANT CUSTOMERS

    For the quarter ended June 30, 2007, the Fund earned 77% (Q2 2006 - 82%)
    of its revenue from its seven largest customers. Five of these customers
    individually accounted for greater than 10% but not more than 17% of the
    Fund's total revenue.

    13. 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.

    The business of Filogix is seasonal and varies according to the funding
    of residential mortgages and real estate activity in general. This may
    result in an increase in the quarter-to-quarter seasonality of the Fund's
    consolidated revenues and cash flows.

    Summarized financial information for the three and six months ended
    June 30, 2007 are as follows:

                                                          Three months ended
    -------------------------------------------------------------------------
                                               Davis +
                                     Henderson Segment       Filogix Segment
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $  84,184  $  73,272  $  17,808  $   2,628
    Cost of sales and
     operating expenses              57,383     50,784      8,820      1,674
    Amortization of capital
     and other assets                 2,289      3,091      1,456        195
    -------------------------------------------------------------------------
                                     24,512     19,397      7,532        759

    Interest expense                      -          -          -          -
    Net unrealized loss (gain)
     on interest rate swaps               -          -          -          -
    Amortization of
     intangible assets                  788        611      2,483        385
    Minority interest                   204         25          -          -
    -------------------------------------------------------------------------
    Income before income taxes       23,520     18,761      5,049        374
    Future income taxes expense       1,125          -        329          -
    -------------------------------------------------------------------------
    Net income                    $  22,395  $  18,761  $   4,720  $     374
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other assets
     expenditures                 $   2,142  $   1,886  $     813  $     527
    Intangible assets             $   6,211  $   9,073  $ 117,770  $ 127,702
    Goodwill                      $ 366,562  $ 365,484  $  71,940  $  73,376
    Total assets                  $ 446,568  $ 440,572  $ 186,074  $ 206,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          Three months ended
    -------------------------------------------------------------------------
                                             Corporate          Consolidated
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $       -  $       -  $ 101,992  $  75,900
    Cost of sales and
     operating expenses                 670        531     66,873     52,989
    Amortization of capital
     and other assets                     -          -      3,745      3,286
    -------------------------------------------------------------------------
                                       (670)      (531)    31,374     19,625

    Interest expense                  2,121        887      2,121        887
    Net unrealized loss (gain)
     on interest rate swaps          (2,196)         -     (2,196)         -
    Amortization of
     intangible assets                    -          -      3,271        996
    Minority interest                     -          -        204         25
    -------------------------------------------------------------------------
    Income before income taxes         (595)    (1,418)    27,974     17,717
    Future income taxes expense           -          -      1,454          -
    -------------------------------------------------------------------------
    Net income                    $    (595) $  (1,418) $  26,520  $  17,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other assets
     expenditures                 $       -  $       -  $   2,955  $   2,413
    Intangible assets             $       -  $       -  $ 123,981  $ 136,775
    Goodwill                      $       -  $       -  $ 438,502  $ 438,860
    Total assets                  $  11,515  $   4,607  $ 644,157  $ 651,777
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                            Six months ended
    -------------------------------------------------------------------------
                                               Davis +
                                     Henderson Segment       Filogix Segment
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $ 162,681  $ 145,190  $  30,460  $   2,628
    Cost of sales and
     operating expenses             111,869    101,337     17,568      1,674
    Amortization of capital
     and other assets                 4,666      6,091      2,785        195
    -------------------------------------------------------------------------
                                     46,146     37,762     10,107        759

    Interest expense                      -          -          -          -
    Net unrealized loss (gain)
     on interest rate swaps               -          -          -          -
    Amortization of
     intangible assets                1,599      1,258      4,966        385
    Minority interest                   313         25          -          -
    -------------------------------------------------------------------------
    Income before income taxes       44,234     36,479      5,141        374
    Future income taxes expense       1,125          -        329          -
    -------------------------------------------------------------------------
    Net Income                    $  43,109  $  36,479  $   4,812  $     374
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other asset
     expenditures                 $   4,237  $   4,681  $   2,307  $     527
    Intangible assets             $   6,211  $   9,073  $ 117,770  $ 127,702
    Goodwill                      $ 366,562  $ 365,484  $  71,940  $  73,376
    -------------------------------------------------------------------------
    Total assets                  $ 446,568  $ 440,572  $ 186,074  $ 206,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                            Six months ended
    -------------------------------------------------------------------------
                                             Corporate          Consolidated
                                  --------------------- ---------------------
                                    June 30,   June 30,   June 30,   June 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Revenue                       $       -  $       -  $ 193,141  $ 147,818
    Cost of sales and
     operating expenses               1,349        994    130,786    104,005
    Amortization of capital
     and other assets                     -          -      7,451      6,286
    -------------------------------------------------------------------------
                                     (1,349)      (994)    54,904     37,527

    Interest expense                  4,351      1,582      4,351      1,582
    Net unrealized loss (gain)
     on interest rate swaps          (2,520)         -     (2,520)         -
    Amortization of
     intangible assets                    -          -      6,565      1,643
    Minority interest                     -          -        313         25
    -------------------------------------------------------------------------
    Income before income taxes       (3,180)    (2,576)    46,195     34,277
    Future income taxes expense           -          -      1,454          -
    -------------------------------------------------------------------------
    Net Income                    $  (3,180) $  (2,576) $  44,741  $  34,277
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other asset
     expenditures                 $       -  $       -  $   6,544  $   5,208
    Intangible assets             $       -  $       -  $ 123,981  $ 136,775
    Goodwill                      $       -  $       -  $ 438,502  $ 438,860
    -------------------------------------------------------------------------
    Total assets                  $  11,515  $   4,607  $ 644,157  $ 651,777
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results of the three and six months ended June 30, 2006 included
    financial results of Filogix for the period of June 15, 2006 to June 30,
    2006.

    For the Davis + Henderson Segment, five customers individually accounted
    for greater than 10% but not more than 20% of the Davis + Henderson
    Segment revenue. For the Filogix Segment, three customers individually
    accounted for greater than 10% but not more than 17% of the Filogix
    Segment revenue.

    Supplementary Information

    Consolidated Operating Results by Period

    -------------------------------------------------------------------------
                               Three     Three     Three     Three     Three
    (in thousands of          months    months    months    months    months
     Canadian dollars,         ended     ended     ended     ended     ended
     except per unit            June     March  December September      June
     amounts, unaudited)    30, 2007  31, 2007  31, 2006  30, 2006  30, 2006
    -------------------------------------------------------------------------

    Revenue                 $101,992  $ 91,149  $ 87,932  $ 87,966  $ 75,900
    Cost of sales and
     operating expenses       66,873    63,913    62,034    62,754    52,989
    Amortization of capital
     and other assets          3,745     3,706     3,902     3,752     3,286
    -------------------------------------------------------------------------
                              31,374    23,530    21,996    21,460    19,625
    Interest expense           2,121     2,230     2,186     2,248       887
    Net unrealized loss
     (gain) on interest
     rate swaps               (2,196)     (324)        -         -         -
    Amortization of
     intangible assets         3,271     3,294     3,254     3,339       996
    Future income taxes
     expense                   1,454         -         -         -         -
    Minority interest            204       109        89        88        25
    -------------------------------------------------------------------------
    Net income              $ 26,520  $ 18,221  $ 16,467  $ 15,785  $ 17,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from
     operating activities   $ 34,784  $ 21,674  $ 22,111  $ 22,786  $ 26,498
    Change in non-cash
     working capital items    (1,520)    3,526     1,671       268    (4,424)
    Minority interest           (204)     (109)      (89)      (88)      (25)
    Changes in other
     operating assets
     and liabilities             (90)      (18)      (70)      (90)      (50)
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operations(2)       32,970    25,073    23,623    22,876    21,999

    Less:
      Expenditures on
       maintenance capital     2,955     1,889     1,912       997     1,377
      Contract payments,
       maintenance                 -     1,517        20       800       625
    -------------------------------------------------------------------------
    Distributable cash
     after maintenance
     capital and contract
     payments(1)              30,015    21,667    21,691    21,079    19,997

    Less:
      Expenditures on
       growth capital              -       183        34       884       411
      Expenditures on
       non-maintenance
       capital                     -         -         -         -         -
      Contract payments,
       non-maintenance             -         -         -         -         -
    -------------------------------------------------------------------------
    Distributable cash
     after all capital and
     contract payments      $ 30,015  $ 21,484  $ 21,657  $ 20,195  $ 19,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of Cash Flows Per Unit

    -------------------------------------------------------------------------
                               Three     Three     Three     Three     Three
                              months    months    months    months    months
                               ended     ended     ended     ended     ended
    (in Canadian dollars,       June     March  December September      June
     unaudited)             30, 2007  31, 2007  31, 2006  30, 2006  30, 2006
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities             $ 0.7502  $ 0.5705  $ 0.5375  $ 0.5205  $ 0.5559
    Distributable cash
     after maintenance
     capital and contract
     payments               $ 0.6830  $ 0.4930  $ 0.4936  $ 0.4796  $ 0.5053
    Distributable cash
     after all capital
     and contract payments  $ 0.6830  $ 0.4889  $ 0.4928  $ 0.4595  $ 0.4949
    Distributions paid
     during period          $ 0.3960  $ 0.3840  $ 0.3780  $ 0.3750  $ 0.3750
    Distributions declared
     during period          $ 0.3960  $ 0.3880  $ 0.3810  $ 0.3750  $ 0.3750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 and changes to other
        long-term liabilities are deducted from adjusted cash flow from
        operations.

    Condensed Consolidated Balance Sheet

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars,      June      March   December  September       June
     unaudited)         30, 2007   31, 2007   31, 2006   30, 2006   30, 2006
    -------------------------------------------------------------------------
    Cash and cash
     equivalents       $  11,515  $   7,089  $   5,788  $   8,893  $   4,607
    Other current
     assets               29,772     26,332     27,457     27,384     28,834
    Capital and
     other assets         40,387     40,685     39,936     41,908     42,701
    Goodwill and other
     intangible assets   562,483    565,754    569,092    572,215    575,635
    -------------------------------------------------------------------------
                       $ 644,157  $ 639,860  $ 642,273  $ 650,400  $ 651,777
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and
     other current
     liabilities       $  45,994  $  41,034  $  44,420  $  47,100  $  48,064
    Other long-term
     liabilities           4,702      6,316      4,715      4,797      4,604
    Long-term
     indebtedness        135,000    145,000    145,000    150,000    150,000
    Future income
     taxes                 1,454          -          -          -          -
    Minority interest        576        372        263        351        263
    Unitholders'
     equity              456,431    447,138    447,875    448,152    448,846
    -------------------------------------------------------------------------
                       $ 644,157  $ 639,860  $ 642,273  $ 650,400  $ 651,777
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distribution History

    -------------------------------------------------------------------------
                                                               Distributions
                                                                         per
                                                                      unit(1)
    Month         2007     2006     2005     2004     2003     2002     2001
    -------------------------------------------------------------------------
    January    $0.1280  $0.1220  $0.1200  $0.1150  $0.1117  $0.1083  $     -
    February    0.1280   0.1220   0.1200   0.1150   0.1117   0.1083        -
    March       0.1320   0.1250   0.1200   0.1168   0.1117   0.1083        -
    April       0.1320   0.1250   0.1200   0.1168   0.1133   0.1083        -
    May         0.1320   0.1250   0.1200   0.1168   0.1133   0.1083        -
    June        0.1320   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
    -------------------------------------------------------------------------
               $0.7840  $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

    -------------------------------------------------------------------------
                           2007     2006     2005     2004     2003     2002
    -------------------------------------------------------------------------
    Dividend income        0.0%     0.0%     0.0%    15.0%    19.5%    16.9%
    Other income         100.0%   100.0%    91.6%    75.2%    69.5%    71.5%
    Return of capital      0.0%     0.0%     8.4%     9.8%    11.0%    11.6%
    -------------------------------------------------------------------------
                         100.0%   100.0%   100.0%   100.0%   100.0%   100.0%
    -------------------------------------------------------------------------

    The above tax allocation of distributions for 2007 represents an estimate
    based on the total expected distributions for the year ended December 31,
    2007.

    Other Statistics

    (in thousands, except per unit amounts)

                                                           Number     Market
                 Trading price range of units            of units    capital-
                       (TSX: "DHF.UN")                   outstand-   ization
      Quarter   -------------------------------  Average   ing at         at
        ended       High        Low      Close    daily   quarter    quarter
                                                 volume       end        end
    -------------------------------------------------------------------------
    2007 - Q2    $ 19.79    $ 16.30    $ 19.31     90      43,947  $ 848,613
         - Q1      17.19      15.00      16.60     87      43,947    729,517
    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