Davis + Henderson Reports First Quarter Results; Announces Intention to Increase Distributions

TORONTO, Apr 29, 2008 (Canada NewsWire via COMTEX News Network) — TSX Stock Symbol: “DHF.UN”.

Website: www.dhltd.com

TORONTO, April 29 /CNW/ – For the first quarter of 2008, Davis + Henderson today reported solid results that were consistent with management’s expectations.

First Quarter Highlights

  • Revenue in the first quarter of 2008 was $89.1 million, a decrease of $2.1 million, or 2.3%, compared to the same quarter in 2007. This lower level of revenue reflects reduced cheque order volumes, consistent with expectations.
  • Net income per unit compared to the same period last year decreased $0.0542, or 13.1% per unit, to $0.3604 per unit. Excluding the impact of non-cash unrealized gains and losses on interest-rate swaps, net income was up 1.6% from the same quarter in 2007.
  • Declared distributions in the first quarter of 2008 of $0.4290 per unit were 10.6% higher than the first quarter of 2007.

Davis + Henderson also announced its intent to increase its distributions for the month of May 2008, payable on June 30, 2008, to $0.1533 per unit (equivalent to $1.84 per unit annualized), subject to normal course regulatory requirements. This represents a 7.2% increase over distributions declared for the month of April 2008, which were equivalent to $1.72 per unit annualized. This increase in distributions recognizes the recent performance of the business, expectations of future performance and the need for the Fund to pay distributions sufficient to ensure the Fund itself is not taxable.

Management Commentary

Overall, we are pleased with the results of the first quarter of 2008. These results reflect the continued positive expansion of our programs, offset by, as expected, lower cheque order volumes compared to the first quarter of 2007. Management believes the changes to cheque imaging standards in Canada resulted in consumers accelerating reorders in the first half of 2007. Management further believes that these orders would have otherwise have been received in later periods, including the first quarter of 2008, and accordingly, their absence resulted in higher order volume declines in the current quarter than historically observed.

In the D+H Segment, solid results from product repositioning and successful program initiatives, including our IDefence(R) and BizAssist(R) programs partially offset volume declines resulting from shifting reorder cycles. Within our Filogix Segment, increases in professional services revenues offset reduced transaction-based revenues.

Davis + Henderson remains committed to its long-term financial objective of delivering stable and modestly growing distributions based on achieving growth in the 3% to 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 first quarter results and management’s outlook, please see the Management’s Discussion and Analysis below.

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 institution customers 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 objectives 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 first quarter ended March 31, 2008 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday April 30, 2008. The number to use for this call is 416-644-3416 for Toronto area callers or 1-800-732-9303 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 21267669 followed by the number sign. The rebroadcast will be available until Wednesday May 14, 2008. 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 first quarter of 2008 should be read in conjunction with MD&A in Davis + Henderson Income Fund’s (the “Fund” or the “Business” or “Davis + Henderson”) Annual Report for the year ended December 31, 2007, dated February 26, 2008 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

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

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

Davis + Henderson significantly advanced its third key strategy with the acquisition of Filogix in June 2006. Among other services, Filogix provides processing services related to the origination and underwriting of mortgages in Canada. Davis + Henderson also acquired Advanced Validation Systems Limited Partnership (“AVS”), which, under Davis + Henderson’s brand CollateralGuard(TM), provides lenders with, among other offerings, personal property search and registration (“PPSA”) programs across Canada. The addition of these business interests has created another business platform for Davis + Henderson.

Changes made to the Income Tax Act require certain income trusts, including the Fund, to pay taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. 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. Since the announcement of this change in tax legislation, management and the Trustees have monitored the changes in the income trust environment and capital markets 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 operates in two business segments, the “Davis + Henderson Segment” and the “Filogix Segment”. The Davis + Henderson Segment includes the cheque supply program, deposit program, and eSwitch among other offerings. The Filogix Segment includes services related to the origination and underwriting of mortgages in Canada, and the PPSA program, 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 business-wide costs.

Effective January 1, 2008, the PPSA business is operated and reported as part of the Filogix Segment. Prior to this date, this program was operated and reported as part of the Davis + Henderson Segment. The comparative segmented information for previous years has not been reclassified as the operational integration of the business in previous periods does not make a separation of these costs practical.

    <<
    OPERATING RESULTS FOR THE FIRST QUARTER - CONSOLIDATED

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

                                                 Three months ended March 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Revenue                                          $   89,088   $   91,149
    Cost of sales and operating expenses(1)              62,206       64,278
    Amortization of capital and other assets(1)           3,387        3,341
    -------------------------------------------------------------------------
                                                         23,495       23,530

    Interest expense                                      1,863        2,230
    Net unrealized loss (gain) on interest-rate swaps     2,344         (324)
    Amortization of intangible assets                     3,448        3,294
    Minority interest                                         -          109
    -------------------------------------------------------------------------

    Net income                                       $   15,840   $   18,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per unit, basic and diluted           $   0.3604   $   0.4146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Historically, the Business has reported amortization related to
        production assets used to manufacture finished products as part of
        amortization of capital and other assets. Commencing January 1, 2008,
        the Fund has included this amortization with cost of sales and
        operating expenses in order to present the total costs incurred in
        the manufacturing process in cost of sales. The comparative numbers
        for previous periods have been reclassified to conform to this new
        presentation format. For the quarter ended March 31, 2008, the Fund
        has included amortization of $434 (Q1 2007 - $365) in cost of sales
        and operating expenses.
    >>

Revenue

Revenue for the first quarter of 2008 was $89.1 million, a decrease of $2.1 million, or 2.3%, when compared to the first quarter of 2007. While results for both segments are discussed in more detail in the sections that follow, during the first quarter of 2008 expected declines in cheque order volumes related to the shift in reorder cycles offset the positive contribution from program enhancements and Filogix Segment revenue growth.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses for the first quarter of 2008 decreased by $2.1 million, or 3.2%, compared to the first quarter of 2007. This decline was primarily driven by reduced costs related to the decline in cheque order volumes in the D+H Segment, partially offset by increased costs in the Filogix Segment, as more fully described below.

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.

Amortization of Capital and Other Assets

Amortization of capital and other assets on a consolidated level during the first quarter of 2008 was substantially unchanged compared to the same period in the prior year.

Other Expenses and Net Income

Interest expense decreased by $0.4 million for the first quarter of 2008 compared to the same quarter in the prior year, reflecting $15.0 million of debt repayments made over the past twelve months.

An unrealized loss on interest-rate swaps of $2.3 million was recognized for the first quarter of 2008 reflecting mark-to-market adjustments related to generally lower interest rates at March 31, 2008 compared to December 31, 2007. For the same period in 2007, an unrealized gain of $0.3 million was reported. These unrealized gains and losses were recognized in income as, effective January 1, 2007, the Business no longer designated its interest-rate swaps as hedges for accounting purposes.

Amortization of intangibles in the first quarter of 2008 increased by $0.2 million to $3.4 million compared with the same quarter last year. This increase was primarily related to the incremental intangible assets arising on the acquisition of the remaining 25% interest in the AVS business discussed below and the purchase of a customer service contract.

Effective January 2, 2008, the Fund increased its ownership in AVS to 100%. The acceleration of the ownership interest in AVS was initiated by the Business so as to better serve customers on an integrated basis. Now a wholly owned subsidiary, the Business no longer recognizes minority interest, as all earnings 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 do not anticipate being 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 income that is distributed to its unitholders at a rate similar to that paid by taxable corporations. As the new tax rules were enacted 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.

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 $15.8 million for the first quarter of 2008 decreased by $2.4 million compared to the first quarter of 2007. On a per unit basis, net income of $0.3604 per unit decreased by $0.0542 per unit. Excluding the non-cash impact of the mark-to-market losses on interest-rate swaps, net income per unit increased 1.6%.

    <<
    Operating Results by Business Segment(1)
    (in thousands of Canadian dollars, unaudited)

                                                 Three months ended March 31,
    -------------------------------------------------------------------------

                         Davis + Henderson Segment           Filogix Segment
                        ---------------------------  ------------------------
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Revenue                $   74,724   $   78,497   $   14,364   $   12,652
    Percentage change           -4.8%                     13.5%

    Cost of sales and
     operating expenses(2)     50,543       54,851       11,071        8,748
    Amortization of capital
     and other assets(2)        2,150        2,012        1,237        1,329
    -------------------------------------------------------------------------
                               22,031       21,634        2,056        2,575
    Percentage change            1.8%                    -20.2%

    Interest expense                -            -            -            -
    Net unrealized loss (gain)
     on interest-rate swaps         -            -            -            -
    Amortization of
     intangible assets            724          811        2,724        2,483
    Minority interest               -            -            -            -
    -------------------------------------------------------------------------
    Net income (loss)      $   21,307   $   20,823   $     (668)  $       92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Three months ended March 31,
    -------------------------------------------------------------------------

                                         Corporate              Consolidated
                           ------------------------  ------------------------
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Revenue                $        -   $        -   $   89,088   $   91,149
    Percentage change               -                     -2.3%

    Cost of sales and
     operating expenses(2)        592          679       62,206       64,278
    Amortization of capital
     and other assets(2)            -            -        3,387        3,341
    -------------------------------------------------------------------------
                                 (592)        (679)      23,495       23,530
    Percentage change          -12.8%                     -0.1%

    Interest expense            1,863        2,230        1,863        2,230
    Net unrealized loss (gain)
     on interest-rate swaps     2,344         (324)       2,344         (324)
    Amortization of
     intangible assets              -           -         3,448        3,294
    Minority interest               -         109             -          109
    -------------------------------------------------------------------------
    Net income (loss)      $   (4,799)  $   (2,694)  $   15,840   $   18,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Effective January 1, 2008, the results of the PPSA program are
        included in the Filogix Segment. Prior to this date, the results were
        included in the Davis + Henderson Segment.

    (2) Historically, the Business has reported amortization related to
        production assets used to manufacture finished products as part of
        amortization of capital and other assets. Commencing January 1, 2008,
        the Fund has included this amortization with cost of sales and
        operating expenses in order to present the total costs incurred in
        the manufacturing process in cost of sales. The comparative numbers
        for previous periods have been reclassified to conform to this new
        presentation format. For the quarter ended March 31, 2008, the Fund
        has included amortization of $434 (Q1 2007 - $365) in cost of sales
        and operating expenses for the Davis + Henderson Segment.
    >>

Operating Results – D+H Segment

Revenue

Revenue within the Davis + Henderson Segment decreased by $3.8 million, or 4.8%, year-over-year. Of this decrease, $0.9 million relates to the reclassification of the PPSA business to the Filogix Segment. The PPSA programs, which were formerly operated and reported within the Davis + Henderson Segment, are now operated and reported as part of the results of the Filogix Segment. Excluding the impact of this reclassification, there was a $2.8 million, or 3.6%, decrease in revenues in the first quarter of 2008, compared to the same period in 2007. This decrease in revenue was primarily a result of a decline in cheque order volume partially offset by successful program initiatives, including products and service enhancements such as IDefence and BizAssist. Management believes this decline was higher than usual for two reasons. First, there were two fewer business days in the first quarter of 2008 versus the same quarter in 2007, and second, the change in reorder patterns that affected 2007, also impacted reorder volume in the first quarter of 2008.

Historically, cheque order volumes have, on average, declined annually by low single digit percentages as a result of declining cheque usage. In the first quarter of 2008, this decline was in excess of historical declines due to changes in the imaging standards required for cheques produced in Canada, which generated incremental and accelerated reorders in the first half of 2007. Management believes that many of these accelerated reorders would otherwise have been received in later periods pursuant to normal reorder cycles. Management also believes that, for this reason, cheque order volumes were lower in the first quarter of 2008 than would otherwise be expected given historical declines and that declines may continue at this higher level into the next quarter, before an expected return to reorder declines directionally more in line with historical experience.

Cost of Sales and Operating Expenses

Expenses within the Davis + Henderson Segment decreased by $4.3 million, or 7.9%. A large part of the year-over-year expense decrease was related to the decrease in cheque volumes and other revenue-related reductions including, the transfer of the PPSA business to the Filogix Segment, and an overall reduction in project costs and other costs generally related to the PPSA business.

Operating Results – Filogix Segment

Revenue

Total revenue for the first quarter of 2008 for the Filogix Segment increased 13.5% over the same period in 2007. Excluding the PPSA program, revenue increased $0.8 million, or 6.2% compared with the same quarter in 2007. Increased revenue from project implementation and customization services offset lower origination services revenue. Consistent with reduced activities in the real estate and mortgage markets, origination services revenue was down 4.4% compared to the same quarter last year.

Cost of Sales and Operating Expenses

Consistent with expense levels in the fourth quarter of 2007 and with management’s expectations, direct and operating expenses for the Filogix Segment increased by $2.3 million or 26.6%. The year-over-year increase in operating costs during the first quarter of 2008 compared to the first quarter of 2007 includes the expenses related to PPSA services now recorded within the Filogix Segment and a planned increase in expenditures in support of product enhancements and strengthening the general delivery capabilities of the Business. These expenditures are expected to continue through 2008. The higher expense levels combined with the lower revenues in the first quarter, traditionally the weakest quarter of the year, reduced the segment’s overall margins for the quarter.

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

                        2008                                            2007
                          Q1          Q4          Q3          Q2          Q1
    -------------------------------------------------------------------------
    Revenue        $  89,088   $  90,934   $  94,676   $ 101,992   $  91,149
    Net income     $  15,840   $  16,622   $  20,876   $  26,520   $  18,221
    -------------------------------------------------------------------------
    Net income
     per unit      $  0.3604   $  0.3782   $  0.4750   $  0.6035   $  0.4146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted
     average units
     outstanding      43,947      43,947      43,947      43,947      43,947
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                2006
                          Q4          Q3          Q2
    -------------------------------------------------
    Revenue        $  87,932   $  87,966   $  75,900
    Net income     $  16,467   $  15,785   $  17,717
    -------------------------------------------------
    Net income
     per unit      $  0.3747   $  0.3592   $  0.4477
    -------------------------------------------------
    -------------------------------------------------
    Weighted
     average units
     outstanding      43,947      43,947      39,576
    -------------------------------------------------
    -------------------------------------------------
    >>

The Fund has generally reported quarterly revenues that are stable and growing. The significant increase in revenue from the second to third quarter of 2006 is primarily a result of the inclusion of the Filogix Segment revenue beginning in mid-June 2006. For the first three quarters of 2007, reported revenues benefited from higher than expected order volume and mortgage origination fees as described previously. The impact of the higher than expected order volume was most pronounced in the second quarter of 2007 before beginning a gradual return toward historical averages.

Net income and net income per unit has generally been trending consistently with changing revenue with one exception. 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.

Management believes that the 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 orders 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, repayment of debt and other investing activities. Certain subtotals presented within the tables below, such as “Adjusted cash flows from operating activities”, “Adjusted cash flows after capital assets and contract payments”, and “Adjusted net income” are not defined terms under Canadian generally accepted accounting principles (“GAAP”). Management uses these subtotals 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 balance 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 March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Cash flows from operating activities             $   16,523   $   21,674

    Add:
      Changes in non-cash working capital other
       items(1)                                           9,037        3,399
    -------------------------------------------------------------------------
    Adjusted cash flows from operating activities        25,560       25,073

    Less:
      Maintenance capital expenditures - D+H(2)             948          578
      Maintenance capital expenditures - Filogix(2)          69        1,311
      Growth capital expenditures(2)                          -          183
      Contract payments(3)                                1,517        1,517
    -------------------------------------------------------------------------
    Adjusted cash flows after capital expenditures
     and contract payments(2)                            23,026       21,484

    Distributions paid to unitholders                   (18,853)     (16,875)
    -------------------------------------------------------------------------
                                                          4,173        4,609

    Cash flows provided by (used in) other financing
     activities                                               -            -
    Cash flows used in acquisition of businesses and
     customer service contracts                          (4,250)          91
    Changes in non-cash working capital and
     other items(1)                                      (9,037)      (3,399)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents for the period                      $   (9,114)  $    1,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 1: Changes in non-cash working capital and certain other balance
    sheet items have been excluded from adjusted 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 to arrive at adjusted cash
    flows. For details, see the Changes in Non-Cash Working Capital and Other
    Items section.

    Note 2: 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. 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.

    Note 3: The Business has various payment obligations under customer
    contracts, which include fixed contract or program initiation payments
    and annual payments payable over the life of the contract. 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.

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

                                                 Three months ended March 31,
                                              2008         2007     % change
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                         $   0.5816   $   0.5705         1.9%
    Adjusted cash flows after capital
     expenditures and contract payments $   0.5240   $   0.4889         7.2%
    Distributions paid to unitholders   $   0.4290   $   0.3840        11.7%
    Distributions declared during
     period                             $   0.4290   $   0.3880        10.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Cash Flows, Net Income and Distributions Paid

The following table compares cash flows from operating activities and net income to distributions paid for the three months ended March 31, 2008 and for the years ended December 31, 2007 and 2006.

    <<
                                      Three months
                                             ended
    (in thousands of Canadian             March 31,   Year ended December 31,
     dollars, unaudited)                      2008         2007         2006
    -------------------------------------------------------------------------

    Cash flows from operating
     activities                         $   16,523   $  117,401   $   89,753

    Net income                          $   15,840   $   82,239   $   66,529

    Adjusted net income(1)              $   21,739   $   97,066   $   74,765
    Distributions paid during period    $   18,853   $   78,357   $   61,191

    Excess (shortfall) of cash flows
     from operating activities over
     cash distributions paid            $   (2,330)  $   39,044   $   28,562

    Excess (shortfall) of net income
     over cash distributions paid       $   (3,013)  $    3,882   $    5,338

    Excess (shortfall) of adjusted net
     income over cash distributions
     paid                               $    2,886   $   18,709   $   13,574
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note 1: Adjusted net income is a non-GAAP term and is defined as net
    income (Q1 2008 - $15,840) adjusted to remove amortization of intangible
    assets (Q1 2008 - $3,448), unrealized losses on interest-rate swaps
    (Q1 2008 - $2,344), and amortization of net losses in fair market value
    of interest-rate swaps (Q1 2008 - $107) that were deferred prior to
    January 1, 2007 and which are included in interest expense. In each case,
    these adjustments are non-cash items.
    >>

Excess cash flows from operating activities over cash distributions paid have historically been used to fund capital expenditures, reduce debt and to fund acquisitions. In the first quarter of 2008, cash flow from operating activities was less than cash distributions paid as $9.0 million of cash was applied to fund working capital. The application of this cash largely reflects the reversing of approximately $7.0 million of incremental cash flow from changes in working capital balances generated in the fourth quarter of 2007.

Net income was less than cash distributions paid in the first quarter of 2008 as a result of deducting non-cash costs such as amortization of intangibles and mark-to-market adjustment for interest-rate swaps. In order to remove the impact of these items we have additionally reported adjusted net income.

Expenditures on Capital Assets and Contract Payments

Total capital asset expenditures for the first quarter of 2008 were $1.0 million a decrease of $1.1 million, compared to the first quarter of 2007. This decrease, attributed to the Filogix Segment, reflects the timing of capital project expenditures, and does not reflect a change in the overall capital expenditures program for the year.

The level of investment in 2008 for both capital assets and contract payments that is required to maintain, sustain and grow the productive capacity of the Business is expected to be in the range of $13.0 million to $15.0 million similar to the level of expenditures made in fiscal 2007. The Business’ capital program provides for continued expenditures to be funded by cash flows from operations.

Distributions

The Fund paid distributions of $18.9 million ($0.4290 per unit) during the first quarter of 2008 compared to $16.9 million ($0.3840 per unit) in the same period in 2007. On a per unit basis for the three months ended March 31, 2008, distributions paid increased by 11.7% when compared to the same period in 2007.

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 10.6%.

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. Historically, Davis + Henderson has paid distributions below the level of adjusted cash flows after capital asset and contract expenditures generated and has not paid taxes as the Business had excess tax deductions available to eliminate taxable income.

The Fund announced its intent to increase its regular monthly distribution for May 2008, payable on June 30, 2008, to $0.1533 per unit (equivalent to $1.84 per unit annualized), subject to normal course regulatory requirements. This represents a 7.2% increase over distributions declared for the month of April 2008, which were equivalent to $1.72 per unit annualized. This increase in distributions recognizes the recent performance of the business, expectations of future performance and the need for the Fund to pay distributions sufficient to ensure the Fund itself is not taxable.

If the Business continues to generate growing cash flow and net income, and in combination with expected diminishing deductions for tax purposes, the Fund may pay out a higher proportion of the cash flows it generates to unitholders in order not to pay taxes in the trust.

The estimated tax allocation of distributions expected to be declared for 2008 is 100% “other income”, as was the case for all of 2007.

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 March 31, 2008 and the date of this report, 43,946,792 trust units were outstanding.

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

                                                 Three months ended March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Minority interest                                $        -   $      109
    Change in non-cash working capital items             (9,092)      (3,526)
    Changes in other operating assets and
      liabilities                                            55           18
     -------------------------------------------------------------------------
    Changes in non-cash working capital
     and other items                                 $   (9,037)  $   (3,399)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The increase in non-cash working capital items for the first quarter was primarily related to decreases in trade payables reflecting normal course timing differences of when payments are made, including payments made for capital asset purchases in the later portion of 2007. In particular, in the fourth quarter of 2007, the Business had $7.0 million of incremental cash flow generated from changes in working capital balances. These timing differences largely reversed in the first quarter of 2008.

Cash Balances and Long-term Indebtedness

At March 31, 2008, cash and cash equivalents totalled $4.0 million, compared to $13.1 million at December 31, 2007.

The balance of long-term indebtedness as at March 31, 2008 and December 31, 2007 was $130.0 million. During the previous 12 months, the Business made voluntary debt payments totalling $15.0 million. The long-term indebtedness is recorded on the Balance Sheet net of $0.9 million of unamortized deferred financing fees.

Management expects to continue to use a portion of any future excess cash flow to pay down debt and fund acquisitions.

Total debt facilities available at March 31, 2008 and December 31, 2007 were $170.0 million, comprised of a $120.0 million non-revolving term loan and a $50.0 million revolving term credit facility. As of March 31, 2008, the Business had drawn $120.0 million under its non-revolving term loan and $10.0 million under the revolving term credit facility. The Business is permitted to draw on the revolving facility’s available balance of $40.0 million to fund capital expenditures or for other general corporate purposes. The credit facilities mature on June 15, 2011.

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 March 31, 2008, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 92.3% 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 of Interest-rate swaps
    -------------------------------------------------------------------------
                                                                    Interest
    Maturity Date     Notional Amount        Asset    Liability       Rate(1)
    -------------------------------------------------------------------------
    June 30, 2008          $   12,000   $        -   $       16       5.035%
    January 4, 2009            10,000            -           14       4.505%
    July 15, 2009              20,000            -          455       5.688%
    July 15, 2010              33,000            -        1,161       5.690%
    June 15, 2011              20,000            -          981       5.560%
    June 15, 2011              25,000            -          785       5.560%
    -------------------------------------------------------------------------
                           $  120,000   $        -   $    3,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The listed interest rates are inclusive of bankers' 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 March 31, 2008, the Fund would have had to pay the fair value of $3.4 million if it were to close out all of its swap contracts. It is not the present intention of the Fund to close out these contracts. The Fund expects to continue to enter into interest-rate swaps for the purpose of hedging its exposure to interest rates.

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 5.40% as at March 31, 2008.

The Fund intends to make monthly cash distributions of its adjusted cash flows after capital asset and contract expenditures, 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.

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. Effective January 1, 2008, the Fund adopted the following CICA Handbook sections: Section 3031, Inventories and Going Concern – Amendments to Section 1400, General Standards of Financial Statement Presentation.

Section 3031, which replaces Section 3030 with the same title, establishes that inventories should be measured at the lower of cost and net realizable value, with guidance on the determination of cost. The impact of adoption of this new standard on the January 1, 2008 Fund’s consolidated financial statements was a nominal amount and therefore was charged to the income statement.

Section 1400, General Standards of Financial Statement Presentation, was amended to require management, when preparing financial statements, to make an assessment of an entity’s ability to continue as a going concern. Any material uncertainties related to events or conditions that may cast doubt upon the entity’s ability to continue as a going concern must be disclosed. Management does not believe that there are any material uncertainties related to events or conditions that may cast significant doubt upon the Fund’s ability to continue as a going concern.

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 March 31, 2008 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, revenue grew in excess of the targeted range. In 2008, revenue growth may fall below the targeted range, as increased reorder activity levels experienced early in 2007 may, particularly in the first half of 2008, contribute to higher than historically observed average volume declines as consumers delay orders due to recent cheque supply replenishments. Additionally, increased activity in 2007 within the real estate and mortgage markets may not be sustained in 2008 due to the cyclical nature of those markets. The combined impact of these factors may result in revenue growth in 2008 being below the targeted long-term range of 3% to 5%.

In addition, while the Fund’s long-term objective is to modestly grow distributions supported by growing revenue, distribution levels can be influenced by the level of taxable income generated in the Fund as the Fund is subject to income taxes on taxable income that is not distributed to its unitholders. Deductions for tax purposes that were previously available to the Fund have been diminishing and, as a result, the Fund may pay out a greater proportion of its cash flows to unitholders than in previous periods.

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 objective. Examples include further implementations and enhancements of IDefence, BizAssist and eSwitch programs. Relating to lending markets, the Business looks to grow its volumes related to mortgage origination and underwriting services.

The Business’ 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. Consistent with 2007, the 2008 capital program is expected to be in the range of $13.0 million to $15.0 million.

Recent changes made to the Income Tax Act require certain income trusts, including the Fund, to pay taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. 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. Since the announcement of this change in tax legislation, management and the Trustees have monitored the changes in the income trust environment and capital markets 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.

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.

    <<
    CONSOLIDATED BALANCE SHEETS
    (in thousands of Canadian dollars, unaudited)

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

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                      $    4,034   $   13,148
      Accounts receivable                                17,461       17,860
      Inventory (note 2)                                  4,736        5,316
      Prepaid expenses                                    3,185        2,973
    -------------------------------------------------------------------------
                                                         29,416       39,297

    Capital assets (note 3)                              30,316       32,199
    Other assets (note 4)                                 4,913        5,964
    Interest-rate swaps (note 9)                              -          105
    Intangible assets (note 5)                          115,980      118,085
    Goodwill (note 6)                                   441,193      438,502
    -------------------------------------------------------------------------
                                                     $  621,818   $  634,152
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities       $   29,995   $   39,870
      Distributions payable to unitholders                6,284        6,284
      Current portion of disbursement obligations
       on customer contracts (note 7)                     2,212        2,962
    -------------------------------------------------------------------------
                                                         38,491       49,116

    Disbursement obligations on customer
     contracts (note 7)                                       -          767
    Long-term indebtedness (note 8)                     129,123      129,054
    Interest-rate swaps (note 9)                          3,412        1,173
    Other long-term liabilities (note 10)                 2,414        2,558
    Future income tax liability (note 11)                 1,591        1,591
    Minority interest                                         -          200
    -------------------------------------------------------------------------
                                                        175,031      184,459

    Unitholders' equity:
      Trust units (note 12)                             474,585      474,585
      Deficit                                           (26,384)     (23,371)
      Accumulated other comprehensive income (loss)      (1,414)      (1,521)
    -------------------------------------------------------------------------
                                                        446,787      449,693

    Commitments (note 13)
    -------------------------------------------------------------------------
                                                     $  621,818   $  634,152
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
                                                       March 31,    March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Revenue                                          $   89,088   $   91,149
    Cost of sales and operating expenses (note 2)        62,206       64,278
    Amortization of capital and other assets              3,387        3,341
    -------------------------------------------------------------------------
                                                         23,495       23,530

    Interest expense                                      1,863        2,230
    Net unrealized loss (gain) on interest-rate swaps     2,344         (324)
    Amortization of intangible assets                     3,448        3,294
    Minority interest                                         -          109
    -------------------------------------------------------------------------

    Net income                                       $   15,840   $   18,221
    -------------------------------------------------------------------------
    Net income per unit, basic and diluted           $   0.3604   $   0.4146
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
                                                       March 31,    March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Net income                                       $   15,840   $   18,221

    Other comprehensive income:
    Amortization of mark-to-market adjustment of
     interest-rate swaps                                    107          176
    -------------------------------------------------------------------------
    Total comprehensive income                       $   15,947   $   18,397
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
                                                       March 31,    March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    DEFICIT
    Deficit, beginning of period                     $  (23,371)  $  (26,710)
    Mark-to-market adjustment of interest-rate
     swaps                                                    -          116
    Net income                                           15,840       18,221
    Distributions                                       (18,853)     (17,051)
    -------------------------------------------------------------------------
    Deficit, end of period                              (26,384)     (25,424)
    -------------------------------------------------------------------------

    ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
    Accumulated other comprehensive income (loss),
     beginning of period                                 (1,521)           -
    Mark-to-market adjustment of interest-rate swaps          -       (2,199)
    Other comprehensive income:
    Amortization of mark-to-market adjustment of
     interest-rate swaps                                    107          176
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (loss),

     end of period(1)                                    (1,414)      (2,023)
    -------------------------------------------------------------------------
    Deficit and accumulated other comprehensive
     income (loss), end of period                    $  (27,798)  $  (27,447)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.

    (1) Accumulated other comprehensive income (loss) consists of cumulative
        net gains and losses that were deferred prior to January 1, 2007 when
        hedge accounting was used by the fund.

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

    -------------------------------------------------------------------------
                                                          Three months ended
                                                       March 31,    March 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Cash and cash equivalents provided by (used in):

    OPERATING ACTIVITIES
    Net income                                       $   15,840   $   18,221
    Add:
      Amortization of capital assets                      2,466        2,673
      Amortization of capital assets included
       in cost of sales                                     434          365
      Amortization of other assets                          921          668
      Amortization of intangible assets                   3,448        3,294
      Amortization of mark-to-market adjustment
       of interest-rate swaps                               107          176
      Net unrealized loss (gain) on interest-rate swaps   2,344         (324)
      Minority interest                                       -          109
    -------------------------------------------------------------------------
                                                         25,560       25,182

    Increase in non-cash working capital items           (9,092)      (3,526)
    Changes in other operating assets and liabilities        55           18
    -------------------------------------------------------------------------
                                                         16,523       21,674
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Distributions paid to unitholders                   (18,853)     (16,875)
    -------------------------------------------------------------------------
                                                        (18,853)     (16,875)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Expenditures on capital assets                       (1,017)      (2,072)
    Payments pursuant to long-term supply contracts      (1,517)      (1,517)
    Acquisition of businesses (note 1)                   (4,250)          91
    -------------------------------------------------------------------------
                                                         (6,784)      (3,498)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash
     equivalents for the period                          (9,114)       1,301
    Cash and cash equivalents, beginning of period       13,148        5,788
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period         $    4,034   $    7,089
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information:
      Cash interest paid                             $    1,568   $    2,072
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The accompanying notes are an integral part of these consolidated
    financial statements.

    Davis + Henderson Income Fund
    Notes to Consolidated Financial Statements
    Three months ended March 31, 2008 and 2007
    (in thousands of Canadian dollars, except unit and per unit amounts,
    unaudited)

    1.  ACQUISITIONS

    a.  Filogix Business

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

    This acquisition was made for a consideration of $214.2 million of which
    $128.1 million was allocated to intangible assets, $71.9 million to
    goodwill, and the remaining balance to net assets. Intangible assets
    consist of proprietary software, brand names and customer relationships.
    The purchase price and related transaction costs were financed with net
    proceeds of $109.2 million from the issuance of Trust units and
    $98.5 million from the drawdown of debt, net of financing fees, with the
    balance from cash on hand.

    b.  AVS Business

    On April 28, 2005, the Fund entered into an agreement to acquire a 50%
    interest in AVS L.P. through a step-by-step acquisition over 20 months
    ending January 2007. On May 25, 2006, the Fund entered into an amending
    agreement to accelerate its remaining obligation as well as exercising
    its option to acquire a further 25% interest in the AVS business. Total
    consideration paid for 75% of interest in the AVS business was
    $11.1 million of which $3.5 million was allocated to intangible assets,
    $7.2 million to goodwill and the remaining balance to net assets.

    Effective January 2, 2008, the Fund acquired the remaining 25% of
    interest in the AVS business for a consideration of $4.2 million of which
    $1.4 million was allocated to intangible assets, $2.7 million to
    goodwill, and the remaining balance to working capital.

    The acquisition was made with available cash on hand.

    2.  INVENTORY

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Raw materials                                    $    1,936   $    2,202
    Work-in-process                                       1,838        2,152
    Finished goods                                          962          962
    -------------------------------------------------------------------------
                                                     $    4,736   $    5,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Raw materials primarily consist of paper but also include foil, hologram
    and ink. Work-in-process consists of base stock which refers to sheets of
    cheque stock with non-personalized background print. Finished goods
    primarily consist of retail products, labels, accessories and security
    bags.

    Inventory that was recognized as cost of sales during the three months
    ended March 31, 2008 was $12,488 (Q1 2007 - $13,894).

    3.  CAPITAL ASSETS

                                                              March 31, 2008
    -------------------------------------------------------------------------
                                                     Accumulated
                                              Cost  amortization         Net
    -------------------------------------------------------------------------
    Machinery and equipment             $   15,117   $    7,844   $    7,273
    Computer equipment and software         42,112       21,491       20,621
    Furniture, fixtures and leasehold
     improvements                            8,462        6,040        2,422
    -------------------------------------------------------------------------
                                        $   65,691   $   35,375   $   30,316
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                           December 31, 2007
    -------------------------------------------------------------------------
                                                     Accumulated
                                              Cost  amortization         Net
    -------------------------------------------------------------------------
    Machinery and equipment             $   15,191   $    7,679   $    7,512
    Computer equipment and software         47,044       24,887       22,157
    Furniture, fixtures and leasehold
     improvements                            8,324        5,794        2,530
    -------------------------------------------------------------------------
                                        $   70,559   $   38,360   $   32,199
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the three months ended March 31, 2008 was $2,900 (Q1
    2007 - $3,038), of which $434 (Q1 2007 - $365) is included in cost of
    sales. Fully amortized capital assets removed from the accounts during
    the three months ended March 31, 2008 were $5,885 (Q1 2007 - nil).

    4.  OTHER ASSETS

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Cost:
      Long-term supply contracts                     $    8,863   $   12,581
      Other                                                 370          370
    -------------------------------------------------------------------------
                                                          9,233       12,951

    Accumulated amortization                             (4,320)      (6,987)
    -------------------------------------------------------------------------
                                                     $    4,913   $    5,964
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the three months ended March 31, 2008 on long-term
    supply contracts was $921 (Q1 2007 - $668). Fully amortized assets
    removed from the accounts during the three months ended March 31, 2008
    were $3,588 (Q1 2007 - nil).

    5.  INTANGIBLE ASSETS

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Cost:
      Cheque supply outsourcing contracts            $   16,329   $   16,329
      Customer service contracts                          5,849        4,506
      Proprietary software                               41,993       41,993
      Brand names                                         8,400        8,400
      Customer relationships                             77,887       77,887
    -------------------------------------------------------------------------
                                                        150,458      149,115
    Accumulated amortization                            (34,478)     (31,030)
    -------------------------------------------------------------------------
                                                     $  115,980   $  118,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization during the three months ended March 31, 2008 was $3,448 (Q1
    2007 - $3,294).

    6.  GOODWILL

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Balance, beginning of period                     $  438,502   $  438,546
    Goodwill acquired during the period:
      AVS acquisition                                     2,691          (44)
    -------------------------------------------------------------------------
    Balance, end of period                           $  441,193   $  438,502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Current portion                                  $    2,212   $    2,962
    Long-term portion                                         -          767
    -------------------------------------------------------------------------
    Total disbursement obligations on customer
     contracts                                       $    2,212   $    3,729
    -------------------------------------------------------------------------

    The Fund has fixed customer contract
     disbursement obligations payable as of
     March 31, 2008 as follows:

    2008                                                          $    1,445
    2009                                                                 767
    -------------------------------------------------------------------------
                                                                  $    2,212
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  LONG-TERM INDEBTEDNESS

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Non-revolving term loan                          $  120,000   $  120,000
    Revolving credit facility                            10,000       10,000
    -------------------------------------------------------------------------
                                                        130,000      130,000
    Deferred finance costs                                 (877)        (946)
    -------------------------------------------------------------------------
                                                     $  129,123   $  129,054
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund has $170.0 million of available term credit facilities due
    June 15, 2011 (December 31, 2007 - $170.0 million), consisting of a
    $120.0 million non-revolving term loan and a $50.0 million revolving
    credit facility. The credit facilities do not require the Fund to make
    any principal payments prior to their maturity. 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 interest
    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 March 31, 2008, the Fund was in
    compliance with all of its financial covenants and financial condition
    tests.

    Deferred finance costs relate to the renewal and amendment of long-term
    indebtedness on June 15, 2006. Amortization of deferred finance costs
    during the three months ended March 31, 2008 was $69 (Q1 2007 - $69).
    Amortization of deferred finance costs is recognized as interest expense
    using the effective interest method.

    9.  FINANCIAL INSTRUMENTS

    Recognition and Measurement
    The Fund's financial instruments consist of cash and cash equivalents,
    accounts receivable, accounts payable and accrued liabilities,
    disbursement obligations on customer contracts, distributions payable to
    unitholders, interest-rate swaps and long-term indebtedness. The Fund
    does not enter into financial instruments for trading or speculative
    purposes. Financial assets are classified as available for sale, held to
    maturity, trading, or loans and receivables. Financial liabilities are
    recorded at amortized cost. Initially, all financial assets and financial
    liabilities must be recorded on the balance sheet at fair value.
    Subsequent measurement is determined by the classification of each
    financial asset and financial liability. Unrealized gains and losses on
    financial assets that are held as available for sale are recorded in
    other comprehensive income until realized, at which time they will be
    recorded in the consolidated statement of income. All derivatives,
    including embedded derivatives that must be separately accounted for, are
    recorded at fair value in the consolidated balance sheet. Transaction
    costs related to financial instruments are generally capitalized and then
    amortized over the expected life of the financial instrument using the
    effective yield method.

    Credit Risk
    The Fund's financial assets that are exposed to credit risk consist
    primarily of cash and cash equivalents, accounts receivable and interest-
    rate swaps. The Fund, in its normal course of business, is exposed to
    credit risk from its customers. The Fund is exposed to credit loss in the
    event of non-performance by counterparties to the interest-rate swaps.
    Risks associated with concentrations of credit risk with respect to
    accounts receivable and interest-rate swaps are limited due to the credit
    rating of customers and swap counterparties serviced by the Fund and the
    generally short payment terms and frequent settlement of swap
    differences.

    Market risk
    The Fund is subject to interest rate risks as its credit 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 following table presents a sensitivity analysis to changes in market
    interest rates and their potential impact on the Fund for the three
    months ended March 31, 2008. As the sensitivity is hypothetical, it
    should be used with caution.

                                                      + 100 bps    - 100 bps
    -------------------------------------------------------------------------

    Increase (decrease) in interest expense          $       25   $      (25)
    Change to net unrealized (gain) loss on
     interest-rate swaps                                 (2,500)       2,500
    -------------------------------------------------------------------------

    Increase (decrease) in net income                $    2,475   $   (2,475)
    -------------------------------------------------------------------------

    Increase (decrease) in total
     comprehensive income                            $    2,475   $   (2,475)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Fund manages its interest rate risks through the use of interest-rate
    swaps for most of its outstanding long-term indebtedness. As of March 31,
    2008, the Fund has entered into interest-rate swap contracts with its
    lenders, such that the borrowing rates on $120.0 million, or 92.3%, of
    its outstanding term indebtedness are effectively fixed at interest rates
    and for periods shown in the following table:

                                    Fair value of interest-rate swaps
    -------------------------------------------------------------------------
                             Notional                               Interest
    Maturity date              Amount        Asset    Liability      rate(1)
    -------------------------------------------------------------------------

    June 30, 2008          $   12,000   $        -   $       16       5.035%
    January 4, 2009            10,000            -           14       4.505%
    July 15, 2009              20,000            -          455       5.688%
    July 15, 2010              33,000            -        1,161       5.690%
    June 15, 2011              20,000            -          981       5.560%
    June 15, 2011              25,000            -          785       5.560%
    -------------------------------------------------------------------------
                           $  120,000   $        -   $    3,412
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The listed interest rates are inclusive of bankers' 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.

    Liquidity risk
    The Fund has long-term indebtedness with a maturity date of June 15,
    2011. The degree to which the Fund is leveraged may reduce its ability to
    obtain additional financing for working capital and to finance
    investments to maintain and grow the current levels of cash flows from
    operations. The Fund may be unable to extend the maturity date of the
    credit facilities or to refinance outstanding indebtedness.

    Management, to reduce liquidity risk, has historically renewed the terms
    of the Fund's long-term indebtedness in advance of its maturity dates and
    the Fund has maintained financial ratios that are conservative compared
    to financial covenants applicable to the credit facilities. Further, the
    Fund has made numerous voluntary payments on its outstanding long-term
    indebtedness and a portion of its committed term credit facilities
    remains undrawn.

    Management measures liquidity risk through comparisons of current
    financial ratios with financial covenants contained in the Credit
    Agreement.

    Hedge Accounting
    Where derivatives are held for risk management purposes or when
    transactions meet the criteria, including documentation requirements,
    specified in the CICA Handbook Section 3865, hedge accounting is applied
    to the risks being hedged. When hedge accounting is not applied, the
    change in the fair value of the derivative is recognized in income,
    including instruments used for economic hedging purposes that do not meet
    the requirements for hedge accounting.

    Effective January 1, 2007, the Fund ceased applying hedge accounting on
    the interest-rate swaps outstanding at December 31, 2006.

    Derivative Financial Instruments
    Derivatives are carried at fair value and are reported as assets where
    they have a positive fair value and liabilities where they have a
    negative fair value. Derivatives may be embedded in other financial
    instruments or contracts. Derivatives embedded in other financial
    instruments are valued as separate derivatives when their economic
    characteristics and risks are not clearly and closely related to those of
    the host contract unless such contracts relate to normal course
    operations and qualify for the normal purchase and sale exemption in
    accordance with the standards.

    Accumulated Other Comprehensive Income (loss)
    When applicable, changes in the fair value of cash flow hedging
    instruments are recorded in accumulated other comprehensive income (loss)
    until recognized in the consolidated statement of income. Accumulated
    other comprehensive income (loss) forms part of unitholders' equity.

    10. OTHER LONG-TERM LIABILITIES

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Deferred compensation program                    $    1,928   $    1,997
    Employee future benefits                                486          561
    -------------------------------------------------------------------------
                                                     $    2,414   $    2,558
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The deferred compensation program, which commenced in 2003, 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 three
    months ended March 31, 2008 was $0.6 million (Q1 2007 - $0.5 million).

    11. INCOME TAXES

    The Fund is a mutual fund trust for income tax purposes. As such, the
    Fund is subject to current income taxes on any amount not allocated to
    unitholders. As all current taxable income will be allocated to the
    unitholders, no provision for current income taxes has been made in these
    consolidated financial statements. Current income tax liabilities
    relating to distributions of the Fund are taxed in the hands of the
    unitholders.

    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, assuming transitional rules apply.

    Certain distributions of a SIFT will not be deductible in computing the
    SIFT's taxable income, and the SIFT will be subject to tax on its income
    distributed 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, and under the existing
    SIFT Rules certain flow-through subsidiaries of the Fund themselves may
    also be within the definition of a SIFT. Even if it is determined that
    these flow-through subsidiaries of the Fund meet the definition of a
    SIFT, there would be no impact on the future tax assets and liabilities
    of the Fund. On December 20, 2007, the Minister of Finance announced his
    intention to introduce technical amendments to the SIFT Rules under which
    certain flow-through subsidiaries of a SIFT, which would include those of
    the Fund, will not themselves be SIFTs.

    Commencing January 1, 2011, the Fund will be subject to tax on its income
    distributed. 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 flow-through subsidiaries that are expected to reverse in or after
    2011. The Fund expects that its income distributed 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 2011.

    Significant components of the Fund's future tax liabilities and assets
    with respect to the consolidated carrying values related to its
    investments in certain partnership and trust subsidiaries that are
    expected to reverse after 2010 are as follows:

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------
    Future income tax assets:
      Intangible assets less than tax values         $   11,043   $   10,854
      Loss carryforwards                                  1,636        1,636
      Valuation allowance                               (12,679)     (12,490)
    -------------------------------------------------------------------------
      Total future tax assets                                 -            -
    -------------------------------------------------------------------------

    Future income tax liabilities:
      Capital assets greater than tax values              1,591        1,591
    -------------------------------------------------------------------------
      Total future tax liabilities                        1,591        1,591
    -------------------------------------------------------------------------
    Net future income tax liabilities                $    1,591   $    1,591
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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 future income tax asset by a
    valuation allowance for the full amount. A corporate subsidiary of the
    Fund has losses available for carry forward. The Fund does not expect to
    realize the benefit of these losses in the foreseeable future and
    accordingly has reduced the future income tax 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.

    12. 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:

                                                       March 31, December 31,
                                                           2008         2007
    -------------------------------------------------------------------------

    Balance, beginning of period                     $  474,585   $  474,585
    Units issued                                              -            -
    -------------------------------------------------------------------------
    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 three months
    ended March 31, 2008 was 43,946,792 (Q1 2007 - 43,946,792).

    13. COMMITMENTS

    As of March 31, 2008, the Fund has annual lease obligations with respect
    to real estate, vehicles and equipment as follows:

    2008                                                          $    3,744
    2009                                                               3,183
    2010                                                               3,040
    2011                                                               1,523
    2012                                                                 796
    Thereafter                                                           305
    -------------------------------------------------------------------------
                                                                  $   12,591
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    14. CAPITAL

    The Fund views its capital as the combination of its indebtedness and
    equity balances. In general, the overall capital of the Fund is evaluated
    and determined in the context of its financial objectives and its
    strategic plan.

    While the Fund carries a level of cash on hand, this amount is modest in
    relation to its overall capital and is generally in an amount determined
    in reference to its pending distribution obligations and short-term
    changes in non-cash working capital balances.

    With respect to its level of indebtedness, the Fund determines the
    appropriate level in the context of its cash flow and overall business
    risks. Generally, the Fund has maintained a low level of indebtedness
    relative to cash flow (as compared to many corporate entities) in order
    to provide increased financial flexibility and to provide increased
    protection for unitholders relative to their expectation of
    distributions. Additionally, the Fund has historically generated cash
    flow in excess of distributions and has used a portion of such excess to
    pay down indebtedness. The Fund would consider increasing its level of
    indebtedness relative to cash flow to assist in the financing of an
    acquisition. As well, the Fund will review its level of indebtedness in
    the context of the change in taxation impacting the Fund commencing 2011.

    The Fund's indebtedness is subject to a number of covenants and
    restrictions including the requirement to meet certain financial ratios
    and financial condition tests at a subsidiary level. One such ratio is
    the "Total Funded Debt/EBITDA Ratio" as defined in the Credit Agreement.
    The maximum ratio allowed for a 12-month trailing period is 2.50. For the
    three months ended March 31, 2008, this ratio was calculated at 1.11 (Q1
    2007 - 1.40). Management also uses this ratio as a key indicator in
    managing the Fund's capital.

    With respect to its equity, the current level of capital is considered
    adequate in the context of current operations and the present strategic
    plan of the Fund. The equity component of capital increases primarily
    based upon the income of the business less the distribution paid. Any
    major acquisition would be financed in part with additional equity. The
    Fund will also review its level of equity in the context of the change in
    taxation impacting the Fund commencing in 2011.

    15. SIGNIFICANT CUSTOMERS

    For the three months ended March 31, 2008, the Fund earned 80% (Q1 2007 -
    78%) of its consolidated revenue from its seven largest customers. For
    the three months ended March 31, 2008, four of these customers
    individually accounted for greater than 10%, but not more than 17% of the
    Fund's total revenue (for the three months ended March 31, 2007, five of
    these customers individually accounted for greater than 10%, but not more
    than 17% of the Fund's total revenue).

    16. 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 and eSwitch(R),
    among other offerings. The Filogix Segment includes services related to
    the origination and underwriting of mortgages in Canada and the personal
    property search and registration programs, among other offerings.

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

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

    Prior to January 1, 2008, the personal property, search and registration
    programs were operated and reported as part of the Davis + Henderson
    Segment. Effective January 1, 2008, these programs are operated and
    reported as part of the Filogix Segment.

    In circumstances where there is a change in the composition of reportable
    segments, CICA Handbook Section 1701, Segment Disclosures, requires
    restatement of corresponding information for earlier periods if
    practical. If information is not restated, the entity is required to
    disclose the results for the current period under both the old basis and
    the new basis of segmentation. As it is not practical to extract costs
    relating to the personal property, search and registration programs for
    periods prior to January 1, 2008, in accordance with the CICA Handbook
    Section 1701, Segment Disclosures, the Fund has presented the segment
    information for the current period both under the old basis and the new
    basis of segmentation.

    Summarized financial information for the three months ended March 31,
    2008 are as follows:

                                                 Three months ended March 31,
    -------------------------------------------------------------------------
                                           Davis +
                                 Henderson Segment           Filogix Segment
                           ------------------------  ------------------------
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------

    Revenue                $   74,724   $   78,497   $   14,364   $   12,652
    Cost of sales and
     operating expenses        50,543       54,851       11,071        8,748
    Amortization of capital
     and other assets           2,150        2,012        1,237        1,329
    -------------------------------------------------------------------------
                               22,031       21,634        2,056        2,575

    Interest expense                -            -            -            -
    Net unrealized loss (gain)
     on interest-rate swaps         -            -            -            -
    Amortization of
     intangible assets            724          811        2,724        2,483
    Minority interest               -            -            -            -
    -------------------------------------------------------------------------

    Net income             $   21,307   $   20,823   $     (668)  $       92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other
     assets expenditures   $    2,465   $    2,095   $       69   $    1,494
    Intangible assets      $    4,559   $    7,000   $  111,421   $  120,252
    Goodwill               $  359,385   $  366,562   $   81,808   $   71,940
    Total assets           $  428,015   $  444,533   $  190,290   $  187,085
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Three months ended March 31,
    -------------------------------------------------------------------------

                                         Corporate              Consolidated
                           ------------------------  ------------------------
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------

    Revenue                $        -   $        -   $   89,088   $   91,149
    Cost of sales and
     operating expenses           592          679       62,206       64,278
    Amortization of capital
     and other assets               -                     3,387        3,341
    -------------------------------------------------------------------------
                                 (592)        (679)      23,495       23,530

    Interest expense            1,863        2,230        1,863        2,230
    Net unrealized loss (gain)
     on interest-rate swaps     2,344         (324)       2,344         (324)
    Amortization of
     intangible assets              -            -        3,448        3,294
    Minority interest               -          109            -          109
    -------------------------------------------------------------------------

    Net income             $   (4,799)  $   (2,694)  $   15,840   $   18,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other
     assets expenditures   $        -   $        -   $    2,534   $    3,589
    Intangible assets      $        -   $        -   $  115,980   $  127,252
    Goodwill               $        -   $        -   $  441,193   $  438,502
    Total assets           $    4,034   $    7,089   $  621,818   $  638,707
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Effective January 1, 2008, the results of the personal property, search
    and registration programs are included as part of the results of the
    Filogix Segment. Prior to this date, the results were included as part of
    the Davis + Henderson Segment. Please refer to the table on the following
    page for presentation of current period results under both the new and
    old basis of segmentation.

    The following table illustrates the reporting under the new and old basis
    of segmentation for the three months ended March 31, 2008.

                                                 Three months ended March 31,
    -------------------------------------------------------------------------
                                           Davis +
                                 Henderson Segment           Filogix Segment
                           ------------------------  ------------------------

                            New Basis    Old Basis    New Basis    Old Basis
                           -----------  -----------  -----------  -----------
                                 2008         2008         2008         2008
    -------------------------------------------------------------------------

    Revenue                $   74,724   $   75,649   $   14,364   $   13,439
    Cost of sales and
     operating expenses        50,543       51,336       11,071       10,278
    Amortization of capital
     and other assets           2,150        2,150        1,237        1,237
    -------------------------------------------------------------------------
                               22,031       22,163        2,056        1,924

    Interest expense                -            -            -            -
    Net unrealized loss (gain)
     on interest-rate swaps         -            -            -            -
    Amortization of
     intangible assets            724          965        2,724        2,483
    Minority interest               -            -            -            -
    -------------------------------------------------------------------------

    Net income             $   21,307   $   21,198   $     (668)  $     (559)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other
     assets expenditures   $    2,465   $    2,465   $       69   $       69
    Intangible assets      $    4,559   $    4,559   $  111,421   $  111,421
    Goodwill               $  359,385   $  359,385   $   81,808   $   81,808
    Total assets           $  427,494   $  427,494   $  190,290   $  190,290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Three months ended March 31,
    -------------------------------------------------------------------------

                                         Corporate              Consolidated
                           ------------------------  ------------------------

                            New Basis    Old Basis    New Basis    Old Basis
                           -----------  -----------  -----------  -----------
                                 2008         2008         2008         2008
    -------------------------------------------------------------------------

    Revenue                $        -   $        -   $   89,088   $   89,088
    Cost of sales and
     operating expenses           592          592       62,206       62,206
    Amortization of capital
     and other assets               -            -        3,387        3,387
    -------------------------------------------------------------------------
                                 (592)        (592)      23,495       23,495

    Interest expense            1,863        1,863        1,863        1,863
    Net unrealized loss (gain)
     on interest-rate swaps     2,344        2,344        2,344        2,344
    Amortization of
     intangible assets              -            -        3,448        3,448
    Minority interest               -            -            -            -
    -------------------------------------------------------------------------

    Net income             $   (4,799)  $   (4,799)  $   15,840   $   15,840
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital and other
     assets expenditures   $        -   $        -   $    2,534   $    2,534
    Intangible assets      $        -   $        -   $  115,980   $  115,980
    Goodwill               $        -   $        -   $  441,193   $  441,193
    Total assets           $    4,034   $    4,034   $  621,818   $  621,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The results presented under the old basis for the Davis + Henderson and
    Filogix Segments remove from the current period results, the impact of
    the change in the reporting of the personal property, search and
    registration programs.

    For the three months ended March 31, 2008, the Davis + Henderson Segment
    had six customers that individually accounted for greater than 10% but
    not more than 20% of the Davis + Henderson Segment revenue and the
    Filogix Segment had three customers that individually accounted for
    greater than 10% but not more than 19% of the Filogix Segment revenue
    (for the three months ended March 31, 2007, the Davis + Henderson Segment
    had five customers that individually accounted for greater than 10% but
    not more than 19% of the Davis + Henderson Segment revenue and the
    Filogix Segment had three customers that individually accounted for
    greater than 10% but not more than 16% of the Filogix Segment revenue).

    17. COMPARATIVE FIGURES

    Certain comparative figures have been reclassified to conform to the
    current period's presentation.

    SUPPLEMENTARY FINANCIAL INFORMATION

    Consolidated Operating Results by Period

    -------------------------------------------------------------------------
                                      Three      Three
    (in thousands of       Three     months     months      Three      Three
     Canadian dollars,    months      ended      ended     months     months
     except per unit       ended   December  September      ended      ended
     amounts,           March 31,        31,        30,   June 30,  March 31,
     unaudited)             2008     2007(2)    2007(2)    2007(2)    2007(2)
    -------------------------------------------------------------------------

    Revenue            $  89,088  $  90,934  $  94,676  $ 101,992  $  91,149
    Cost of sales and
     operating expenses   62,206     64,582     63,813     67,250     64,278
    Amortization of
     capital and other
     assets                3,387      3,647      3,496      3,368      3,341
    -------------------------------------------------------------------------
                          23,495     22,705     27,367     31,374     23,530
    Interest expense       1,863      1,876      1,982      2,121      2,230
    Net unrealized
     loss (gain) on
     interest-rate
     swaps                 2,344        823        957     (2,196)      (324)
    Amortization of
     intangible assets     3,448      3,386      3,347      3,271      3,294
    Future income tax
     expense (recovery)        -        137          -      1,454          -
    Minority interest          -       (139)       205        204        109
    -------------------------------------------------------------------------
    Net income         $  15,840  $  16,622  $  20,876  $  26,520  $  18,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows from
     operating
     activities        $  16,523  $  32,141  $  28,802  $  34,784  $  21,674
    Changes in non-cash
     working capital
     and other items(1)    9,037     (6,959)       425     (1,814)     3,399
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities           25,560     25,182     29,227     32,970     25,073

    Less:
      Capital asset
       expenditures and
       contract payments   2,534      4,354      4,598      2,955      3,589
    -------------------------------------------------------------------------
    Adjusted cash flows
     after capital asset
     expenditures and
     contract payments    23,026     20,828     24,629     30,015     21,484

    Distributions paid
     to unitholders       18,853     26,676     17,403     17,403     16,875
    -------------------------------------------------------------------------
                           4,173     (5,848)     7,226     12,612      4,609

    Cash flows provided
     by (used in) other
     financing
     activities                -          -     (5,000)   (10,000)         -
    Cash flows used in
     acquisition of
     businesses and
     customer service
     contracts            (4,250)         -       (837)         -         91
    Changes in non-cash
     working capital
     and other items(1)   (9,037)     6,959       (425)     1,814     (3,399)
    Distributions paid
     to minority
     interest                  -       (187)      (255)         -          -
    -------------------------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents for
     the period        $  (9,114) $     924  $     709  $   4,426  $   1,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Changes in non-cash working capital and certain other balance sheet
        items have been excluded from adjusted 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 to arrive at
        adjusted cash flows.

    (2) Certain comparative figures have been reclassified to conform to the
        current period's presentation.

    Summary of Cash Flows Per Unit
    -------------------------------------------------------------------------
                           Three      Three      Three      Three      Three
                          months     months     months     months     months
    (in Canadian           ended      ended      ended      ended      ended
     dollars,           March 31,  December  September    June 30,  March 31,
     unaudited)             2008   31, 2007   30, 2007       2007       2007
    -------------------------------------------------------------------------
    Adjusted cash
     flows from
     operating
     activities        $  0.5816  $  0.5730  $  0.6651  $  0.7502  $  0.5705
    Adjusted cash
     flows after
     capital asset
     expenditures and
     contract payments $  0.5240  $  0.4739  $  0.5604  $  0.6830  $  0.4889
    Distributions paid
     to unitholders    $  0.4290  $  0.6070  $  0.3960  $  0.3960  $  0.3840
    Distributions
     declared
     during period     $  0.4290  $  0.6180  $  0.3960  $  0.3960  $  0.3880
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Condensed Consolidated Balance Sheet

    -------------------------------------------------------------------------
    (in thousands of
     Canadian dollars,  March 31,  December  September    June 30,  March 31,
     unaudited)             2008   31, 2007   30, 2007       2007       2007
    -------------------------------------------------------------------------

    Cash and cash
     equivalents       $   4,034  $  13,148  $  12,224  $  11,515  $   7,089
    Other current
     assets               25,382     26,149     29,644     29,772     26,332
    Capital and other
     assets               35,229     38,268     38,049     39,303     39,532
    Goodwill and other
     intangible assets   557,173    556,587    559,973    562,483    565,754
    -------------------------------------------------------------------------
                       $ 621,818  $ 634,152  $ 639,890  $ 643,073  $ 638,707
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and
     other current
     liabilities       $  38,491  $  49,116  $  45,165  $  45,994  $  41,034
    Other long-term
     liabilities           7,417      6,289      5,673      6,732      6,688
    Long-term
     indebtedness        129,123    129,054    128,985    133,916    143,847
    Unitholders'
     equity              446,787    449,693    460,067    456,431    447,138
    -------------------------------------------------------------------------
                       $ 621,818  $ 634,152  $ 639,890  $ 643,073  $ 638,707
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distribution History
    -------------------------------------------------------------------------
                                                    Distributions per unit(1)
    Month             2008      2007      2006      2005      2004      2003
    -------------------------------------------------------------------------

    January        $0.1430   $0.1280   $0.1220   $0.1200   $0.1150   $0.1117
    February        0.1430    0.1280    0.1220    0.1200    0.1150    0.1117
    March           0.1430    0.1320    0.1250    0.1200    0.1168    0.1117
    April                -    0.1320    0.1250    0.1200    0.1168    0.1133
    May                  -    0.1320    0.1250    0.1200    0.1168    0.1133
    June                 -    0.1320    0.1250    0.1200    0.1168    0.1133
    July                 -    0.1320    0.1250    0.1200    0.1168    0.1133
    August               -    0.1320    0.1250    0.1220    0.1168    0.1133
    September            -    0.1320    0.1250    0.1220    0.1168    0.1133
    October              -    0.1320    0.1250    0.1220    0.1168    0.1150
    November(2)          -    0.3430    0.1280    0.1220    0.1200    0.1150
    December(3)          -    0.1430    0.1280    0.1220    0.1200    0.1150
    -------------------------------------------------------------------------
                   $0.4290   $1.7980   $1.5000   $1.4500   $1.4044   $1.3599
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ---------------------------------
            Distributions per unit(1)
    Month             2002      2001
    ---------------------------------

    January        $0.1083   $     -
    February        0.1083         -
    March           0.1083         -
    April           0.1083         -
    May             0.1083         -
    June            0.1083         -
    July            0.1117         -
    August          0.1117         -
    September       0.1117         -
    October         0.1117         -
    November(2)     0.1117         -
    December(3)     0.1117    0.0427
    ---------------------------------
                   $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) November 2007 declared distributions included a special distribution
        of $0.20 for unitholders of record on November 15, 2007 and was paid
        November 30, 2007.
    (3) Distributions in 2001 are in respect of the 12 calendar days from
        December 20, 2001 to December 31, 2001.

    Tax Allocation of Distributions

    -------------------------------------------------------------------------
                        2008    2007    2006    2005    2004    2003    2002
    -------------------------------------------------------------------------

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

    The above tax allocation of distributions for 2008 represents an estimate
    based on the total expected distributions for the year
    ended December 31, 2008.

    Other Statistics
    (in thousands, except per unit amounts)

                                                       Number of      Market
                   Trading price range of                  units   capitali-
        Quarter     units (TSX: "DHF.UN")   Average  outstanding      zation
                 --------------------------   daily   at quarter  at quarter
                    High      Low    Close   volume          end         end
    -------------------------------------------------------------------------

    2008 - Q1    $ 21.75  $ 15.77  $ 17.19      107       43,947   $ 755,445
    2007 - Q4      22.00    18.75    21.00       98       43,947     922,883
         - Q3      20.10    17.14    19.80       78       43,947     870,146
         - 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