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Davis + Henderson Reports Third Quarter 2008 Results

<<
Davis + Henderson reported solid financial results for the three and
nine months ended September 30, 2008.

TSX Stock Symbol: "DHF.UN".

TORONTO, Oct. 28 /CNW/ -

<<
Third Quarter Highlights

- Revenue in the third quarter of 2008 was $97.3 million, an increase
of $2.6 million, or 2.8%, compared to $94.7 million in the same
quarter in 2007.

- Net income increased 11.6% to $0.5303 per unit compared to the same
period last year. Excluding the non-cash impact of unrealized gains
and losses on interest-rate swaps and the charge for future income
taxes, net income was 10.3% higher compared to a year ago.

- Declared distributions in the third quarter of 2008 of $0.4599 per
unit were 16.1% higher than in the third quarter of 2007.

Nine-Month Highlights

- Revenue for the nine-month period ending September 30, 2008 was
$283.7 million, a decrease of $4.1 million, or 1.4%, compared to
$287.8 million in the same period in 2007. This year-over-year
decrease reflects lower revenues in the D+H Segment in the first
six months of 2008, partially offset by increases in the Filogix
Segment. The lower level of revenue within the D+H Segment was
primarily attributed to reduced cheque order volumes as compared to
the unusually strong order volumes in 2007.

- Net income per unit decreased by 1.7% to $1.4680, compared to the
first nine months of 2007. Excluding the non-cash impact of
unrealized gains and losses on interest-rate swaps and the charge for
future income taxes, net income was 2.8% higher than a year ago.

- Declared distributions for the first nine months of 2008 of
$1.3385 per unit were 13.4% higher than in the first nine months of
2007.
>>

Management Commentary

The Business performed well during the third quarter of 2008 as revenue
growth in the D+H Segment returned and our Filogix Segment delivered revenues
above our expectations. The positive contribution from the continued expansion
of our customer programs and effective cost management allowed the Business to
produce strong cash flow for our unitholders.
In the D+H Segment, we benefited from the contribution of our IDefence®
and BizAssist® programs and from our annual product repositioning
initiatives earlier in the year. Through the early part of the year, the
benefit of these initiatives was offset by lower cheque order volumes compared
to 2007. As reported previously, cheque order volumes within the Business
fluctuated outside of normal patterns during much of 2007, when we had higher
order volumes than normally expected, and throughout the first six months of
2008, when we had reduced order volumes. In both cases, these variances were
primarily related to changes in Canadian cheque imaging initiatives.
Within our Filogix Segment, increased revenues in several areas
contributed to modest year-over-year growth. We are pleased with the Filogix
Segment performance, which was achieved despite the softening from a
previously strong real estate market.
Davis + Henderson remains committed to its long-term financial objective
of delivering stable and modestly growing distributions based on achieving
annual revenue growth in the 3% to 5% range. Financial results may, however,
be more variable and negatively affected in the short term given the
uncertainty in many markets. Historically cheque order volumes, which generate
approximately 80% of our consolidated revenues, have not varied significantly
with changes in economic activity. Origination and underwriting revenues
within the Filogix Segment are however likely to be negatively impacted by
changes in the economy and in the real estate and mortgage markets.
For a more detailed discussion of third quarter results and management's
outlook, please see Management's Discussion and Analysis.

Caution Concerning Forward-Looking Statements

Forward-looking statements may also include, without limitation, any
statement relating to future events, conditions or circumstances. Davis +
Henderson cautions you not to place undue reliance upon any such
forward-looking statements, which speak only as of the date they are made.
Risks related to forward-looking statements include, among other things,
challenges presented by declines in the use of cheques by consumers; the
Fund's dependence on a limited number of large financial 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 third
quarter ended September 30, 2008 via conference call at 10:00 a.m. EST
(Toronto time) on Wednesday October 29, 2008. The number to use for this call
is 416-644-3416 for Toronto area callers or 1-800-733-7560 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 21284339
followed by the number sign. The rebroadcast will be available until
Wednesday, November 12, 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 third 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. Unless otherwise stated,
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®, a service that allows financial institutions to more easily
move electronic pre-authorized payments and direct deposit authorizations 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™, 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, or
D+H, 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 has been 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 THIRD QUARTER - CONSOLIDATED

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

Three months Nine months
ended ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------
Revenue $ 97,320 $ 94,676 $ 283,671 $ 287,817
Cost of sales and
operating expenses(1) 64,043 63,813 189,606 195,341
Amortization of capital
and other assets(1) 3,938 3,496 10,780 10,205
-------------------------------------------------------------------------
29,339 27,367 83,285 82,271

Interest expense 1,841 1,982 5,610 6,333
Net unrealized loss (gain)
on interest-rate swaps 728 957 2,038 (1,563)
Amortization of
intangible assets 3,412 3,347 10,307 9,912
Minority interest - 205 - 518
-------------------------------------------------------------------------
Income before income taxes 23,358 20,876 65,330 67,071

Future income tax expense
(recovery) 52 - 818 1,454
-------------------------------------------------------------------------
Net income $ 23,306 $ 20,876 $ 64,512 $ 65,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per unit,
basic and diluted $ 0.5303 $ 0.4750 $ 1.4680 $ 1.4931
-------------------------------------------------------------------------
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(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. Amortization included in cost of sales and
operating expenses during the third quarter of 2008 was $354
(Q3 2007 - $388) and $1,177 for the nine months ended September 30,
2008 (nine months ended September 30, 2007 - $1,130 ).
>>

Revenue

Revenue for the third quarter of 2008 was $97.3 million, an increase of
$2.6 million, or 2.8%, when compared to the third quarter of 2007. For the
first nine months of 2008, total revenue decreased by $4.1 million, or 1.4%,
compared to the first nine months of 2007. While results for both segments are
discussed in more detail in the sections that follow, during the third quarter
of 2008 revenue growth within the D+H Segment returned as cheque order volumes
moved to levels directionally more in line with those historically
experienced. During the first six months of 2008, declines in cheque order
volumes were elevated due to the shift in reorder cycles as described in more
detail below.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses for the
third quarter of 2008 increased by $0.2 million, or 0.4%, compared to the
third quarter of 2007 with small cost reductions within the D+H Segment
partially offsetting cost increases with the Filogix Segment and with both
business units continuing to focus on cost containment initiatives. For the
first nine months of 2008, consolidated cost of sales and operating expenses
decreased by $5.7 million, or 2.9%, when compared to the first nine months of
2007. This decline during the first nine months of 2008 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 basis during
the third quarter of 2008 increased by $0.4 million, or 12.6%, to $3.9 million
compared to the same period in 2007. The increased capital asset amortization
was primarily a result of capital additions in the Filogix Segment.
Similarly, for the first nine months of 2008, amortization of capital and
other assets on a consolidated basis was $10.8 million, an increase of
$0.6 million compared to the first nine months of 2007. Increased capital
asset amortization of $0.5 million in the D+H Segment and $0.1 million in the
Filogix Segment were related to capital additions.

Other Expenses

Interest expense decreased by $0.1 million for the third quarter of 2008
compared to the same quarter in the prior year, reflecting debt repayments
made over the past twelve months. Similarly, for the first nine months of
2008, interest expense was $0.7 million lower than the comparable 2007 period
due primarily to the lower level of outstanding debt.
For the third quarter of 2008, an unrealized loss on interest-rate swaps
of $0.7 million (Q3 2007 - $1.0 million unrealized loss) was recorded
reflecting mark-to-market adjustments related to generally lower interest
rates at September 30, 2008 compared to June 30, 2008. For the nine months
ended September 30, 2008, an unrealized loss on interest-rate swaps of
$2.0 million was recorded (nine months ended September 30, 2007 - unrealized
gain of $1.6 million). 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 increased by $0.1 million and $0.4 million,
compared with the third quarter and first nine months of 2007, respectively.
These increases were 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%. As AVS is 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 was required under Canadian
GAAP to recognize future income tax assets and liabilities, with a
corresponding impact on future income tax expense or recovery based on the
temporary differences expected to reverse after the date the tax is effective.
Accordingly, the Fund recognized a future income tax liability and the related
expense of $0.1 million during the third quarter of 2008 (Q3 2007 - nil) and
$0.8 million in the first nine months of 2008 (nine months ended September 30,
2007 - $1.5 million).
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

Net income of $23.3 million for the third quarter of 2008 increased by
$2.4 million, or 11.6%, compared to the third quarter of 2007. On a per unit
basis, net income of $0.5303 per unit increased by $0.0553 per unit. For the
nine-month period ended September 30, 2008, net income was $64.5 million, or
$1.4680 per unit. This represents a decrease of $1.1 million, or $0.0251 per
unit, compared to the same period in 2007. Excluding the non-cash impact of
the mark-to-market losses on interest-rate swaps and the non-cash charge for
future income taxes, net income per unit increased year-over-year by 10.3% in
the third quarter of 2008 and 2.8% for the first nine months of 2008.

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

Cost of sales and
operating expenses(2) 54,084 54,526 9,419 8,721
Amortization of capital
and other assets(2) 2,161 2,107 1,777 1,389
-------------------------------------------------------------------------

22,204 20,531 7,675 7,402
Percentage change 8.1% 3.7%

Income (loss) before
income taxes 21,480 19,667 4,987 4,919
Future income tax
expense (recovery) - - - -
-------------------------------------------------------------------------

Net income (loss) $ 21,480 $ 19,667 $ 4,987 $ 4,919
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
-------------------------- -----------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ - $ - $ 97,320 $ 94,676
Percentage change - 2.8%

Cost of sales and
operating expenses(2) 540 566 64,043 63,813
Amortization of capital
and other assets(2) - - 3,938 3,496
-------------------------------------------------------------------------

(540) (566) 29,339 27,367
Percentage change -4.6% 7.2%

Income (loss) before
income taxes (3,109) (3,710) 23,358 20,876
Future income tax
expense (recovery) 52 - 52 -
-------------------------------------------------------------------------

Net income (loss) $ (3,161) $ (3,710) $ 23,306 $ 20,876
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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. Amortization included in cost of sales and
operating expenses during the third quarter of 2008 was $354 (Q3 2007
- $388 ) for the Davis + Henderson Segment

Cost of sales and
operating expenses(2) 156,932 167,137 30,719 26,289
Amortization of capital
and other assets(2) 6,490 6,031 4,290 4,174
-------------------------------------------------------------------------

67,697 66,677 17,543 17,509
Percentage change 1.5% 0.2%

Income (loss) before
income taxes 65,526 64,214 9,407 10,060
Future income tax
expense (recovery) - - - -
-------------------------------------------------------------------------

Net Income (loss) $ 65,526 $ 64,214 $ 9,407 $ 10,060
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
-------------------------- -----------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ - $ - $ 283,671 $ 287,817
Percentage change - -1.4%

Cost of sales and
operating expenses(2) 1,955 1,915 189,606 195,341
Amortization of capital
and other assets(2) - - 10,780 10,205
-------------------------------------------------------------------------

(1,955) (1,915) 83,285 82,271
Percentage change 2.1% 1.2%

Income (loss) before
income taxes (9,603) (7,203) 65,330 67,071
Future income tax
expense (recovery) 818 1,454 818 1,454
-------------------------------------------------------------------------

Net Income (loss) $ (10,421) $ (8,657) $ 64,512 $ 65,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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. Amortization included in cost of sales and
operating expenses during the first nine months of 2008 was $1,177
(nine months ended September 30, 2007 - $1,130 ) for the Davis +
Henderson Segment
>>

Operating Results - D+H Segment

Revenue

Revenue within the Davis + Henderson Segment for the third quarter of
2008 increased by $1.3 million, or 1.7%, compared with the same period in
2007. This increase is net of a $1.3 million reclassification of the PPSA
business to the Filogix Segment, which during 2007 was operated and reported
within the Davis + Henderson Segment. Excluding the impact of this
reclassification, there was a $2.6 million, or 3.4%, increase in revenues in
the third quarter of 2008, compared to the same period in 2007. This increase
was driven by successful cheque program initiatives, including annual program
changes and product and service enhancements such as IDefence and BizAssist
which positively impacted the quarter and the nine months ended September 30,
2008.
For the nine-month period ended September 30, 2008, revenue within the
Davis + Henderson Segment decreased by $8.7 million, or 3.6%, compared to the
same period in 2007. Excluding the impact of the PPSA business
reclassification, there was a $5.3 million, or 2.3%, decrease in revenues.
This decrease for the nine-month period is primarily attributed to fewer
cheque orders received for the first six months of 2008 than in the same
period in 2007.
Historically, cheque order volumes have, on average, declined annually by
low single digit percentages as a result of declining cheque usage. In the
first half 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 six months
of 2007. Management believes that many of these accelerated reorders received
in 2007 would otherwise have been received in 2008 pursuant to normal reorder
cycles. In the third quarter of 2008, cheque order volumes returned to levels
directionally more in line with those historically experienced. In general,
changes in the economic environment have not significantly impacted the
Business' cheque order volumes.

Cost of Sales and Operating Expenses

Expenses within the Davis + Henderson Segment decreased by $0.4 million,
or 0.8%, during the third quarter of 2008. This year-over-year expense
decrease was primarily related to 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, partially offset by increased selling
and project implementation costs.
For the nine months ended September 30, 2008, expenses within the Davis +
Henderson Segment decreased by $10.2 million, or 6.1%. A large part of the
year-over-year decrease was related to the decrease in cheque volumes in the
first six months of 2008 and other revenue-related reductions, including the
transfer of the PPSA business to the Filogix Segment, and an overall reduction
in project and other costs generally related to the PPSA business.

Operating Results - Filogix Segment

Revenue

Total revenue for the third quarter of 2008 for the Filogix Segment
increased by $1.4 million, or 7.8%, over the same period in 2007. Excluding
the PPSA program, revenue increased $0.3 million, or 1.7%, compared with the
same quarter in 2007.
Revenue for the first nine months of 2008 increased by $4.6 million, or
9.5%, over the same period in 2007. Excluding the PPSA program, revenue
increased by $1.4 million, or 2.8%, compared with the same first nine months
of 2007.
A significant component of the Filogix Segment revenue is derived from
services related to the origination of mortgages. The volume of origination
transactions is driven by new mortgages and, in the case of broker-originated
transactions, by the refinancing and renewal of existing mortgages. As such,
while the Filogix Segment revenue is impacted by changes in housing market
activity, negative market impacts are partially mitigated by refinancing and
renewal activity.
The increase in the third quarter revenues of 1.7% over the same period
in 2007, reflects relatively stable revenue across the various Filogix service
offerings. The nine month year-to-date revenue increase of 2.8% over 2007
reflects slightly higher professional fees, licensing revenue and other
transactional revenue reduced by slightly lower origination revenues (1.5%
year-to-date September). While the third quarter and year-to-date revenues
within the Filogix Segment have been affected by changing market conditions,
the market conditions will likely weaken, which will negatively impact Filogix
future revenues.

Cost of Sales and Operating Expenses

Direct and operating expenses for the Filogix Segment increased by
$0.7 million, or 8.0%, in the third quarter of 2008 compared with the same
period last year primarily due to the inclusion of the PPSA expense base.
Expense increases to fund product expansion activities were largely offset by
other expense reductions, including cost containment activities. For the nine
months ended September 30, 2008, compared to the same period in 2007, expenses
increased by $4.4 million, or 16.9%. The year-over-year increases in operating
costs include the expenses related to PPSA services 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.

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

2008
Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Revenue $ 97,320 $ 97,263 $ 89,088 $ 90,934
Cost of sales and
operating expenses 64,043 63,357 62,206 64,582
Amortization of capital
and other assets 3,938 3,455 3,387 3,647
-------------------------------------------------------------------------
29,339 30,451 23,495 22,705
Interest expense 1,841 1,906 1,863 1,876
Net unrealized loss (gain)
on interest-rate swaps 728 (1,034) 2,344 823
Amortization of
intangible assets 3,412 3,447 3,448 3,386
Minority interest - - - (139)
-------------------------------------------------------------------------
Income before income taxes 23,358 26,132 15,840 16,759
Future income tax expense 52 766 - 137
-------------------------------------------------------------------------
Net income $ 23,306 $ 25,366 $ 15,840 $ 16,622
-------------------------------------------------------------------------
Net income per unit $ 0.5303 $ 0.5772 $ 0.3604 $ 0.3782
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
units outstanding 43,947 43,947 43,947 43,947
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2007 2006
Q3 Q2 Q1 Q4
-------------------------------------------------------------------------
Revenue $ 94,676 $ 101,992 $ 91,149 $ 87,932
Cost of sales and
operating expenses 63,813 67,250 64,278 62,461
Amortization of capital
and other assets 3,496 3,368 3,341 3,475
-------------------------------------------------------------------------
27,367 31,374 23,530 21,996
Interest expense 1,982 2,121 2,230 2,186
Net unrealized loss (gain)
on interest-rate swaps 957 (2,196) (324) -
Amortization of
intangible assets 3,347 3,271 3,294 3,254
Minority interest 205 204 109 89
-------------------------------------------------------------------------
Income before income taxes 20,876 27,974 18,221 16,467
Future income tax expense - 1,454 - -
-------------------------------------------------------------------------
Net income $ 20,876 $ 26,520 $ 18,221 $ 16,467
-------------------------------------------------------------------------
Net income per unit $ 0.4750 $ 0.6035 $ 0.4146 $ 0.3747
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
units outstanding 43,947 43,947 43,947 43,947
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

The Fund has generally reported quarterly revenues that are stable and
growing. For the first three quarters of 2007, reported revenues benefited
from higher than expected cheque order volume and mortgage origination fees as
described previously. The impact of the higher than expected cheque order
volume was most pronounced in the second quarter of 2007. As a result of this
change in reorder patterns in 2007, management believes that the Business
received fewer cheque orders in the first two quarters of 2008 than would
normally be expected. Management further believes that cheque order volumes in
the third quarter of 2008 moved more in line with levels historically
observed.
Net income and net income per unit has generally been trending
consistently with changing revenue, excluding the variability caused by
unrealized gains and losses on interest-rate swaps and future income taxes.
Management believes that the consolidated Davis + Henderson results are
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, real estate market activity affects volumes processed
by Filogix and can result in fluctuation in revenue levels.

CASH FLOW AND LIQUIDITY

Non-GAAP Measures

The following tables are 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 Nine months
ended ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------

Cash flows from operating
activities $ 35,110 $ 28,802 $ 84,256 $ 85,260

Add:
Changes in non-cash
working capital and
other items(1) (3,169) 425 5,786 2,010
-------------------------------------------------------------------------

Adjusted cash flows from
operating activities 31,941 29,227 90,042 87,270

Less:
Maintenance capital
expenditures - D+H(2) 370 1,444 2,416 4,164
Maintenance capital
expenditures - Filogix(2) 378 1,261 1,645 3,385
Growth capital
expenditures(2) 969 68 1,635 251
Contract payments(3) 1,310 1,825 2,827 3,342
-------------------------------------------------------------------------

Adjusted cash flows after
capital expenditures
and contract payments(2) 28,914 24,629 81,519 76,128

Less:
Distributions paid to
unitholders 20,211 17,403 58,369 51,681
-------------------------------------------------------------------------

8,703 7,226 23,150 24,447

Cash flows provided by
(used in) other financing
activities (5,000) (5,000) (10,000) (15,000)
Cash flows used in
acquisition of businesses
and customer service
contracts - (837) (4,250) (746)
Changes in non-cash working
capital and other items(1) 3,169 (425) (5,786) (2,010)
Distributions paid to
minority interest - (255) - (255)
-------------------------------------------------------------------------

Increase in cash and cash
equivalents for the
period $ 6,872 $ 709 $ 3,114 $ 6,436
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.

(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.

(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
September September
30, 2008 30, 2007 % change
-------------------------------------------------------------------------
Adjusted cash flows from
operating activities $ 0.7268 $ 0.6651 9.3%
Adjusted cash flows after capital
expenditures and contract payments $ 0.6579 $ 0.5604 17.4%
Distributions paid to unitholders $ 0.4599 $ 0.3960 16.1%
Distributions declared during period $ 0.4599 $ 0.3960 16.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended
September September
30, 2008 30, 2007 % change
-------------------------------------------------------------------------
Adjusted cash flows from
operating activities $ 2.0489 $ 1.9858 3.2%
Adjusted cash flows after capital
expenditures and contract payments $ 1.8549 $ 1.7323 7.1%
Distributions paid to unitholders $ 1.3282 $ 1.1760 12.9%
Distributions declared during period $ 1.3385 $ 1.1800 13.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash Flows, Net Income and Distributions Paid

The following table compares cash flows from operating activities and net
income to distributions paid for the quarter and nine months ended
September 30, 2008 and for the years ended December 31, 2007 and 2006.

Three Nine
months months
ended ended Year ended
(in thousands of Canadian September September December 31,
dollars, unaudited) 30, 2008 30, 2008 2007 2006
-------------------------------------------------------------------------

Cash flows from operating
activities $ 35,110 $ 84,256 $ 117,401 $ 89,753

Net income $ 23,306 $ 64,512 $ 82,239 $ 66,529

Adjusted net income(1) $ 27,649 $ 78,085 $ 97,066 $ 74,765

Distributions paid
during period $ 20,211 $ 58,369 $ 78,357 $ 61,191

Excess (shortfall) of
cash flows from operating
activities over cash
distributions paid $ 14,899 $ 25,887 $ 39,044 $ 28,562

Excess (shortfall) of net
income over cash
distributions paid $ 3,095 $ 6,143 $ 3,882 $ 5,338

Excess (shortfall) of
adjusted net income over
cash distributions paid $ 7,438 $ 19,716 $ 18,709 $ 13,574

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

(1) Adjusted net income is a non-GAAP term and is defined as net income
(Q3 2008 - $23,306 ) adjusted to remove amortization of intangible
assets (Q3 2008 - $3,412 ), unrealized losses on interest-rate swaps
(Q3 2008 - $728 ), future income tax expense (Q3 2008 - $52 ), and
amortization of net losses in fair market value of interest-rate
swaps (Q3 2008 - $151 ) 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.

Expenditures on Capital Assets and Contract Payments

Total capital asset expenditures for the third quarter of 2008 decreased
by $1.1 million to $1.7 million compared to the same period in the prior year.
Substantially all of the decrease is attributable to the Davis + Henderson
Segment and in general reflects lower capital spending after a period of
higher capital spending in 2007.
For the first nine months of 2008, total capital expenditures decreased
by $2.1 million compared to the first nine months of 2007. The Davis +
Henderson Segment accounted for $1.7 million of the decrease, with the balance
of the decrease, attributable to the Filogix Segment. While the fluctuation in
both segments for the three and nine month periods ended September 30, 2008
reflects the timing of capital projects, the Business has also reduced its
2008 forecasted expenditures to be in the range of $12.0 million to
$14.0 million. The reduction of expenditures from previous estimates relates
to the movement of certain projects into 2009 from 2008. The Business expects
the capital expenditure program in 2009 to be modestly higher than in 2008.

Distributions

The Fund paid distributions of $20.2 million ($0.4599 per unit) during
the third quarter of 2008 and $58.4 million ($1.3282 per unit) in the first
nine months of 2008 compared to $17.4 million ($0.3960 per unit) and
$51.7 million ($1.1760 per unit), respectively, for the same periods in 2007.
On a per unit basis for the three and nine months ended September 30, 2008,
distributions paid increased by 16.1% and 12.9%, respectively, when compared
to the same periods 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 16.1% and 13.4% for the three and nine month
periods ended September 30, 2008, respectively.
On an annualized basis, the monthly distribution rate for September 2008
was $1.84 per unit as compared to $1.58 per unit annualized in September 2007,
representing an increase of 16.1%. This increase in distributions recognizes
the 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.
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.
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 September 30, 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 Nine months
ended ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------

Minority interest $ - $ 205 $ - $ 518
Decrease (increase) in
non-cash working capital
items 2,985 (701) (4,089) (2,707)
Decrease (increase) in
other operating assets
and liabilities 184 71 (1,697) 179
-------------------------------------------------------------------------

Decrease (increase) in
non-cash working capital
and other items $ 3,169 $ (425) $ (5,786) $ (2,010)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

The decrease in non-cash working capital items for the third quarter was
primarily related to increases in trade payables reflecting normal course
timing differences of when payments are made. The increase in non-cash working
capital items for the first nine months of 2008 was similarly affected by the
timing of trade payable payments, including payments made for capital asset
purchases in the latter part 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, which largely reversed in the first
quarter of 2008.

Cash Balances and Long-term Indebtedness

At September 30, 2008, cash and cash equivalents totalled $16.3 million,
compared to $13.1 million at December 31, 2007.
The balance of long-term indebtedness as at September 30, 2008 was
$120.0 million compared with $130.0 million at December 31, 2007. During the
third quarter of 2008, the Business made a voluntary debt payment of
$5.0 million. The long-term indebtedness is recorded on the Balance Sheet net
of $0.7 million of unamortized deferred financing fees as at September 30,
2008.
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 September 30, 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 September 30,
2008, the Business had drawn $120.0 million under its non-revolving term loan
and has not utilized its revolving term credit facility. The Business is
permitted to draw on the revolving facility's available balance of
$50.0 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 September 30, 2008, the Fund had interest-rate swap hedge contracts
in place with certain of its lenders, such that the borrowing rates on 90.0%
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
-----------------------------------
Notional Interest
Maturity date Amount Asset Liability rate(1)
-------------------------------------------------------------------------
January 4, 2009 $ 10,000 $ - $ 7 4.505%
July 15, 2009 20,000 - 311 5.688%
July 15, 2010 33,000 - 1,046 5.690%
June 15, 2011 20,000 - 968 5.560%
June 15, 2011 25,000 - 774 5.560%
-------------------------------------------------------------------------
$ 108,000 $ - $ 3,106
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 September 30, 2008, the Fund would have had to pay the fair value of
$3.1 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 5.39% as at September 30, 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 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.
International Financial Reporting Standards - The Accounting Standards
Board of Canada (AcSB) plans to converge Canadian GAAP for publicly
accountable enterprises with International Financial Reporting Standards
(IFRS) over a transition period that will end effective January 1, 2011 with
the adoption of IFRS. The AcSB announced on February 13, 2008 that IFRS will
be required in 2011 for publicly accountable profit-oriented enterprises. The
changeover date is for interim and annual financial statements relating to
fiscal years beginning on or after January 1, 2011. The Fund is in the process
of establishing a changeover plan to convert to these new standards according
to the timetable set with these new rules. An implementation team has been
created, and third party advisors have been engaged to provide training to
staff. The implementation team has started the process of assessing accounting
policy choices and elections that are allowed under IFRS. The Fund is also
assessing the impact of the conversion on business activities including the
effect on information technology and data systems, internal controls over
financial reporting and disclosure controls. The Fund will continually review
and adjust the changeover plan to ensure the implementation process properly
addresses the key elements of the plan.

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 September 30, 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.
Revenues, earnings and cash flow over the past 18 months were more
variable than those experienced historically due to changes in the imaging
standards on cheques in Canada that affected the D+H cheque reordering cycle.
In the third quarter of 2008, cheque order trends moved more in line with
those historically experienced. While economic activity in Canada is slowing,
it has not been the Business' experience that cheque order volumes vary
significantly with changes in the economic environment. Cheque order volumes
currently contribute approximately 80% of the consolidated revenues of the
Business. Recent changes in the real estate and mortgage markets and in
general economic activity have impacted, and are expected to continue to
impact, the revenues of the Filogix Segment and the impacts are likely to be
more negative than recently experienced.
The Business' current U.S. cheque supply contract will expire at the end
of 2008 and will not be renewed. Income and cash flow contributions from this
business are relatively modest and expiration of this contract will not have a
significant impact on overall operations. The absence of this contract will,
however, reduce the revenues of the Business beginning in 2009.
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 and PPSA
services.
The Business' capital program provides for continued expenditures to be
funded by cash flows from operations. The 2008 capital program is expected to
be in the range of $12.0 million to $14.0 million and it is expected that 2009
expenditures will be somewhat higher.
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)

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

September 30, December 31,
2008 2007
-------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents $ 16,262 $ 13,148
Accounts receivable 18,195 17,860
Inventory (note 3) 4,142 5,316
Prepaid expenses 3,267 2,973
-------------------------------------------------------------------------
41,866 39,297

Capital assets (note 4) 28,726 32,199
Other assets (note 5) 4,306 5,964
Interest-rate swaps (note 10) - 105
Intangible assets (note 6) 109,121 118,085
Goodwill (note 7) 441,193 438,502
-------------------------------------------------------------------------
$ 625,212 $ 634,152
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 35,220 $ 39,870
Distributions payable to unitholders 6,737 6,284
Current portion of disbursement obligations
on customer contracts (note 8) 2,162 2,962
-------------------------------------------------------------------------
44,119 49,116

Disbursement obligations on customer
contracts (note 8) - 767
Long-term indebtedness (note 9) 119,262 129,054
Interest-rate swaps (note 10) 3,106 1,173
Other long-term liabilities (note 11) 523 2,558
Future income tax liability (note 12) 2,409 1,591
Minority interest - 200
-------------------------------------------------------------------------
169,419 184,459

Unitholders' equity:
Trust units (note 13) 474,585 474,585
Deficit (17,681) (23,371)
Accumulated other comprehensive income (loss) (1,111) (1,521)
-------------------------------------------------------------------------
455,793 449,693

Commitments (note 14)
-------------------------------------------------------------------------
$ 625,212 $ 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 Nine months ended
September September September September
30, 2008 30, 2007 30, 2008 30, 2007
-------------------------------------------------------------------------

Revenue $ 97,320 $ 94,676 $ 283,671 $ 287,817
Cost of sales and operating
expenses (note 3) 64,043 63,813 189,606 195,341
Amortization of capital and
other assets 3,938 3,496 10,780 10,205
-------------------------------------------------------------------------
29,339 27,367 83,285 82,271

Interest expense 1,841 1,982 5,610 6,333
Net unrealized loss (gain)
on interest-rate swaps 728 957 2,038 (1,563)
Amortization of intangible
assets 3,412 3,347 10,307 9,912
Minority interest - 205 - 518
-------------------------------------------------------------------------

Income before income taxes 23,358 20,876 65,330 67,071
Future income tax expense
(recovery) 52 - 818 1,454
-------------------------------------------------------------------------
Net income $ 23,306 $ 20,876 $ 64,512 $ 65,617
-------------------------------------------------------------------------
Net income per unit, basic
and diluted $ 0.5303 $ 0.4750 $ 1.4680 $ 1.4931
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

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

Net income $ 23,306 $ 20,876 $ 64,512 $ 65,617

Other comprehensive income:
Amortization of mark-to-market
adjustment of interest-rate
swaps 151 163 410 515
-------------------------------------------------------------------------
Total comprehensive income $ 23,457 $ 21,039 $ 64,922 $ 66,132
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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)

DEFICIT
Deficit, beginning of period $ (20,776) $ (16,307) $ (23,371) $ (26,710)
Mark-to-market adjustment
of interest-rate swaps - - - 116
Net income 23,306 20,876 64,512 65,617
Distributions (20,211) (17,403) (58,822) (51,857)
-------------------------------------------------------------------------
Deficit, end of period (17,681) (12,834) (17,681) (12,834)
-------------------------------------------------------------------------

ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
Accumulated other
comprehensive income (loss),
beginning of period (1,262) (1,847) (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 151 163 410 515
-------------------------------------------------------------------------
Accumulated other
comprehensive income (loss),
end of period(1) (1,111) (1,684) (1,111) (1,684)
-------------------------------------------------------------------------
Deficit and accumulated other
comprehensive income (loss),
end of period $ (18,792) $ (14,518) $ (18,792) $ (14,518)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.

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

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

Cash and cash equivalents
provided by (used in):

OPERATING ACTIVITIES
Net income $ 23,306 $ 20,876 $ 64,512 $ 65,617
Add:
Amortization of capital
assets 2,992 2,708 7,992 8,140
Amortization of capital
assets included in cost
of sales 354 388 1,177 1,130
Amortization of other assets 946 788 2,788 2,065
Amortization of intangible
assets 3,412 3,347 10,307 9,912
Amortization of mark-to-
market adjustment of
interest-rate swaps 151 163 410 515
Net unrealized loss (gain)
on interest-rate swaps 728 957 2,038 (1,563)
Future income tax expense
(recovery) 52 - 818 1,454
Minority interest - 205 - 518
-------------------------------------------------------------------------
31,941 29,432 90,042 87,788

Decrease (increase) in
non-cash working capital items 2,985 (701) (4,089) (2,707)
Changes in other operating
assets and liabilities 184 71 (1,697) 179
-------------------------------------------------------------------------
35,110 28,802 84,256 85,260
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of long-term
indebtedness (5,000) (5,000) (10,000) (15,000)
Distributions paid to
minority interest - (255) - (255)
Distributions paid to
unitholders (20,211) (17,403) (58,369) (51,681)
-------------------------------------------------------------------------
(25,211) (22,658) (68,369) (66,936)
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures on capital assets (1,717) (2,773) (5,696) (7,800)
Payments pursuant to
long-term supply contracts (1,310) (1,825) (2,827) (3,342)
Acquisition and acquisition
adjustments (note 2) - - (4,250) 91
Acquisition of customer
service contracts - (837) - (837)
-------------------------------------------------------------------------
(3,027) (5,435) (12,773) (11,888)
-------------------------------------------------------------------------

Increase in cash and cash
equivalents for the period 6,872 709 3,114 6,436
Cash and cash equivalents,
beginning of period 9,390 11,515 13,148 5,788
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 16,262 $ 12,224 $ 16,262 $ 12,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplementary information:
Cash interest paid $ 1,609 $ 1,836 $ 4,765 $ 5,924
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Davis + Henderson Income Fund
Notes to Consolidated Financial Statements
Three and nine months ended September 30, 2008 and 2007
(in thousands of Canadian dollars, except unit and per unit amounts,
unaudited)

NATURE OF BUSINESS

Davis + Henderson Income Fund (the "Fund") is a limited-purpose trust,
formed under the laws of the Province of Ontario by a declaration of
trust dated November 6, 2001 and as amended and restated on July 23,
2004. The Fund holds indirectly all of the partnership units of Davis +
Henderson, Limited Partnership ("Davis + Henderson L.P.") and its
subsidiaries Filogix Limited Partnership ("Filogix L.P."), Filogix Inc.
and Advanced Validation System Limited Partnership ("AVS L.P.").

1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared using accounting
policies generally accepted in Canada and follow the same accounting
policies and their method of application as the Fund's consolidated
financial statements for the year ended December 31, 2007, which are
included in the 2007 Annual Report along with the changes in accounting
policies that became effective January 1, 2008 and as described below.
They do not conform in all respects with disclosures required for annual
financial statements and should be read in conjunction with the audited
consolidated financial statements of the Fund for the year ended
December 31, 2007.

2. ACQUISITION

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 the 75% 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 net assets.

Each step acquisition was made with available cash on hand.

3. INVENTORY

September 30, December 31,
2008 2007
-------------------------------------------------------------------------

Raw materials $ 1,917 $ 2,202
Work-in-process 1,358 2,152
Finished goods 867 962
-------------------------------------------------------------------------
$ 4,142 $ 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 September 30, 2008 was $12,180 (Q3 2007 - $12,042) and nine months
ended September 30, 2008 was $37,063 (nine months ended September 30,
2007 - $40,269).

4. CAPITAL ASSETS

September 30, 2008
-------------------------------------------------------------------------
Accumulated
Cost amortization Net
-------------------------------------------------------------------------
Machinery and equipment $ 15,207 $ 8,355 $ 6,852
Computer equipment and software 45,946 26,316 19,630
Furniture, fixtures and
leasehold improvements 8,672 6,428 2,244
-------------------------------------------------------------------------
$ 69,825 $ 41,099 $ 28,726
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 September 30, 2008 was $3,346
(Q3 2007 - $3,096) and during the nine months ended September 30, 2008
was $9,169 (nine months ended September 30, 2007 - $9,270), of which $354
was included in cost of sales during the three months ended September 30,
2008 (Q3 2007 - $388) and $1,177 was included in cost of sales during the
nine months ended September 30, 2008 (nine months ended September 30,
2007 - $1,130). Fully amortized capital assets removed from the accounts
during the three months ended September 30, 2008 was $537 (Q3 2007 -
$127) and during the nine months ended September 30, 2008 was $6,430
(nine months ended September 30, 2007 - $221).

5. OTHER ASSETS

September 30, December 31,
2008 2007
-------------------------------------------------------------------------

Cost:
Long-term supply contracts $ 10,123 $ 12,581
Other 370 370
-------------------------------------------------------------------------
10,493 12,951

Accumulated amortization (6,187) (6,987)
-------------------------------------------------------------------------
$ 4,306 $ 5,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Amortization during the three months ended September 30, 2008 on
long-term supply contracts was $946 (Q3 2007 - $788) and during the nine
months ended September 30, 2008 was $2,788 (nine months ended
September 30, 2007 - $2,065). Fully amortized assets removed from the
accounts during the three months ended September 30, 2008 was nil
(Q3 2007 - nil) and during the nine months ended September 30, 2008 was
$3,588 (nine months ended September 30, 2007 - nil).

6. INTANGIBLE ASSETS

September 30, 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 (41,337) (31,030)
-------------------------------------------------------------------------
$ 109,121 $ 118,085
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Amortization during the three months ended September 30, 2008 was $3,412
(Q3 2007 - $3,347) and during nine months ended September 30, 2008 was
$10,307 (nine months ended September 30, 2007 - $9,912).

7. GOODWILL

September 30, 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------

8. DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Current portion $ 2,162 $ 2,962
Long-term portion - 767
-------------------------------------------------------------------------
Total disbursement obligations on customer
contracts $ 2,162 $ 3,729
-------------------------------------------------------------------------

The Fund has fixed customer contract disbursement obligations payable as
of September 30, 2008 as follows:

2008 $ 645
2009 1,517
-------------------------------------------------------------------------
$ 2,162
-------------------------------------------------------------------------
-------------------------------------------------------------------------

9. LONG-TERM INDEBTEDNESS

September 30, December 31,
2008 2007
-------------------------------------------------------------------------

Non-revolving term loan $ 120,000 $ 120,000
Revolving credit facility - 10,000
-------------------------------------------------------------------------
120,000 130,000
Deferred finance costs (738) (946)
-------------------------------------------------------------------------
$ 119,262 $ 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 September 30, 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 September 30, 2008 was $69 (Q3 2007 - $69)
and during the nine months ended September 30, 2008 was $208 (nine months
ended September 30, 2007 - $207). Amortization of deferred finance costs
is recognized as interest expense using the effective interest method.

10. 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, held for 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 and
nine months ended September 30, 2008. As the sensitivity is hypothetical,
it should be used with caution.

Three months ended Nine months ended
September 30, 2008 September 30, 2008
-------------------------------------------------------------------------
+ 100 bps - 100 bps + 100 bps - 100 bps
-------------------------------------------------------------------------

Increase (decrease) in
interest expense $ 30 $ (30) $ 90 $ (90)
Change to net unrealized
(gain) loss on
interest-rate swaps (1,900) 1,900 (1,900) 1,900
-------------------------------------------------------------------------

Increase (decrease) in
net income $ 1,870 $ (1,870) $ 1,810 $ (1,810)
-------------------------------------------------------------------------

Increase (decrease) in total
comprehensive income $ 1,870 $ (1,870) $ 1,810 $ (1,810)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The Fund manages its interest rate risks through the use of interest-rate
swaps for most of its outstanding long-term indebtedness. As of
September 30, 2008, the Fund has entered into interest-rate swap
contracts with its lenders, such that the borrowing rates on
$108.0 million, or 90.0%, 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)
-------------------------------------------------------------------------
January 4, 2009 $ 10,000 $ - $ 7 4.505%
July 15, 2009 20,000 - 311 5.688%
July 15, 2010 33,000 - 1,046 5.690%
June 15, 2011 20,000 - 968 5.560%
June 15, 2011 25,000 - 774 5.560%
-------------------------------------------------------------------------
$ 108,000 $ - $ 3,106
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.

11. OTHER LONG-TERM LIABILITIES

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Deferred compensation program $ - $ 1,997
Employee future benefits 523 561
-------------------------------------------------------------------------
$ 523 $ 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.
The balance has been reclassified to current liabilities as it is payable
in 2009.

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 September 30, 2008 was $0.5 million (Q3 2007 - $0.4 million)
and for the nine months ended September 30, 2008 was $1.5 million (nine
months ended September 30, 2007 - $1.3 million).

12. 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 taxable income not
distributed to unitholders. As all current taxable income will be
distributed to the unitholders, no provision for current income taxes has
been made in these consolidated financial statements. Taxable income
distributed by the Fund to its unitholders will be taxable income to
those 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 income distributed by a SIFT will not be deductible in computing
the SIFT's taxable income, and the SIFT will be subject to tax on such
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 July 14, 2008, the Minister of Finance released draft
legislation introducing 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 assets and liabilities
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:

September 30, December 31,
2008 2007
-------------------------------------------------------------------------
Future income tax assets:
Intangible assets less than tax values $ 10,979 $ 10,854
Loss carryforwards 1,636 1,636
Valuation allowance (12,615) (12,490)
-------------------------------------------------------------------------
Total future tax assets - -
-------------------------------------------------------------------------

Future income tax liabilities:
Capital assets greater than tax values 2,409 1,591
-------------------------------------------------------------------------
Total future tax liabilities 2,409 1,591
-------------------------------------------------------------------------
Net future income tax liabilities $ 2,409 $ 1,591
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The Fund does not expect to realize the temporary difference between the
carrying amount and tax base of intangible assets 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 non-capital 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 taxable temporary
difference related to goodwill since this amount is not deductible for
tax and is therefore specifically exempt from the recognition
requirements.

The provision for future income taxes in the consolidated statement of
income represents the change in the future income tax liability for the
period. The effective tax rate for the period differs from the expected
Canadian statutory rate of nil due to the change in temporary differences
expected to reverse after 2010.

13. 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:

September 30, 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
and the nine months ended September 30, 2008 was 43,946,792 (three and
nine months ended September 30, 2007 - 43,946,792).

14. COMMITMENTS

As of September 30, 2008, the Fund has annual lease obligations with
respect to real estate, vehicles and equipment as follows:

2008 $ 1,132
2009 3,757
2010 3,681
2011 2,160
2012 1,032
Thereafter 3,495
-------------------------------------------------------------------------
$ 15,257
-------------------------------------------------------------------------
-------------------------------------------------------------------------

15. 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
12-month trailing period ended September 30, 2008, this ratio was
calculated at 1.00 (12-month trailing period ended September 30,
2007 - 1.09). 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.

16. SIGNIFICANT CUSTOMERS

For the three months ended September 30, 2008, the Fund earned 78% of its
consolidated revenue from its seven largest customers (Q3 2007 - 78%).
For the three months ended September 30, 2008, four of these customers
individually accounted for greater than 10%, but not more than 18% of the
Fund's total revenue (Q3 2007 - four of these customers individually
accounted for greater than 10%, but not more than 17% of the Fund's total
revenue).

For the nine months ended September 30, 2008, the Fund earned 79% of its
consolidated revenue from its seven largest customers (for the nine
months ended September 30, 2007 - 78%). For the nine months ended
September 30, 2008, four of these customers individually accounted for
greater than 10%, but not more than 17% of the Fund's total revenue (for
the nine months ended September 30, 2007, five of these customers
individually accounted for greater than 10%, but not more than 17% of the
Fund's total revenue).

17. 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®,
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 and nine months ended
September 30, 2008 and 2007 are as follows:

Three months ended September 30,
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
--------------------- ---------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 78,449 $ 77,164 $ 18,871 $ 17,512
Cost of sales and
operating expenses 54,084 54,526 9,419 8,721
Amortization of capital
and other assets 2,161 2,107 1,777 1,389
-------------------------------------------------------------------------
22,204 20,531 7,675 7,402

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 724 864 2,688 2,483
Minority interest - - - -
-------------------------------------------------------------------------
Income (loss) before
income taxes 21,480 19,667 4,987 4,919
Future income tax expense
(recovery) - - - -
-------------------------------------------------------------------------
Net income (loss) $ 21,480 $ 19,667 $ 4,987 $ 4,919
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other assets
expenditures $ 1,680 $ 2,869 $ 1,347 $ 1,729
Intangible assets $ 984 $ 6,184 $ 108,137 $ 115,287
Goodwill $ 359,385 $ 366,562 $ 81,808 $ 71,940
Total assets $ 428,393 $ 446,225 $ 180,557 $ 180,426
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
--------------------- ---------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ - $ - $ 97,320 $ 94,676
Cost of sales and
operating expenses 540 566 64,043 63,813
Amortization of capital
and other assets - - 3,938 3,496
-------------------------------------------------------------------------
(540) (566) 29,339 27,367

Interest expense 1,841 1,982 1,841 1,982
Net unrealized loss (gain)
on interest-rate swaps 728 957 728 957
Amortization of
intangible assets - - 3,412 3,347
Minority interest - 205 - 205
-------------------------------------------------------------------------
Income (loss) before
income taxes (3,109) (3,710) 23,358 20,876
Future income tax expense
(recovery) 52 - 52 -
-------------------------------------------------------------------------
Net income (loss) $ (3,161) $ (3,710) $ 23,306 $ 20,876
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other assets
expenditures $ - $ - $ 3,027 $ 4,598
Intangible assets $ - $ - $ 109,121 $ 121,471
Goodwill $ - $ - $ 441,193 $ 438,502
Total assets $ 16,262 $ 12,224 $ 625,212 $ 638,875
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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. Current period results under both the new
and old basis of segmentation have been presented separately.

For the three months ended September 30, 2008, the Davis + Henderson
Segment had four customers that individually accounted for greater than
10% but not more than 22% 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 (Q3
2007 - Davis + Henderson Segment had five 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 18% of
the Filogix Segment revenue).

Nine months ended September 30,
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
--------------------- ---------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 231,119 $ 239,845 $ 52,552 $ 47,972
Cost of sales and
operating expenses 156,932 167,137 30,719 26,289
Amortization of capital
and other assets 6,490 6,031 4,290 4,174
-------------------------------------------------------------------------
67,697 66,677 17,543 17,509

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 2,171 2,463 8,136 7,449
Minority interest - - - -
-------------------------------------------------------------------------
Income (loss) before
income taxes 65,526 64,214 9,407 10,060
Future income tax expense
(recovery) - - - -
-------------------------------------------------------------------------
Net income (loss) $ 65,526 $ 64,214 $ 9,407 $ 10,060
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other asset
expenditures $ 5,243 $ 7,106 $ 3,280 $ 4,036
Intangible assets $ 984 $ 6,184 $ 108,137 $ 115,287
Goodwill $ 359,385 $ 366,562 $ 81,808 $ 71,940
Total assets $ 428,393 $ 446,225 $ 180,557 $ 180,426
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
--------------------- ---------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ - $ - $ 283,671 $ 287,817
Cost of sales and
operating expenses 1,955 1,915 189,606 195,341
Amortization of capital
and other assets - - 10,780 10,205
-------------------------------------------------------------------------
(1,955) (1,915) 83,285 82,271

Interest expense 5,610 6,333 5,610 6,333
Net unrealized loss (gain)
on interest-rate swaps 2,038 (1,563) 2,038 (1,563)
Amortization of
intangible assets - - 10,307 9,912
Minority interest - 518 - 518
-------------------------------------------------------------------------
Income (loss) before
income taxes (9,603) (7,203) 65,330 67,071
Future income tax expense
(recovery) 818 1,454 818 1,454
-------------------------------------------------------------------------
Net income (loss) $ (10,421) $ (8,657) $ 64,512 $ 65,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other asset
expenditures $ - $ - $ 8,523 $ 11,142
Intangible assets $ - $ - $ 109,121 $ 121,471
Goodwill $ - $ - $ 441,193 $ 438,502
Total assets $ 16,262 $ 12,224 $ 625,212 $ 638,875
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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. Current period results under both the new
and old basis of segmentation have been presented separately.

For the nine months ended September 30, 2008, the Davis + Henderson
Segment had five customers that individually accounted for greater than
10% but not more than 21% 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 nine months ended September 30, 2007, the Davis + Henderson
Segment had five 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 16% of the Filogix Segment revenue).

The following tables illustrate the reporting under the new and old basis
of segmentation for the three and nine months ended September 30, 2008.

Three months ended September 30,
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
--------------------- ---------------------
New Basis Old Basis New Basis Old Basis
---------- ---------- ---------- ----------
2008 2008 2008 2008
-------------------------------------------------------------------------
Revenue $ 78,449 $ 79,507 $ 18,871 $ 17,813
Cost of sales and
operating expenses 54,084 54,710 9,419 8,793
Amortization of capital
and other assets 2,161 2,161 1,777 1,777
-------------------------------------------------------------------------
22,204 22,636 7,675 7,243

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 724 929 2,688 2,483
-------------------------------------------------------------------------
Income (loss) before
income taxes 21,480 21,707 4,987 4,760
Future income tax expense
(recovery) - - - -
-------------------------------------------------------------------------
Net income (loss) $ 21,480 $ 21,707 $ 4,987 $ 4,760
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other assets
expenditures $ 1,680 $ 1,680 $ 1,347 $ 1,347
Intangible assets $ 984 $ 3,767 $ 108,137 $ 105,354
Goodwill $ 359,385 $ 369,253 $ 81,808 $ 71,940
Total assets $ 428,393 $ 450,168 $ 180,557 $ 158,782
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Three months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
--------------------- ---------------------
New Basis Old Basis New Basis Old Basis
---------- ---------- ---------- ----------
2008 2008 2008 2008
-------------------------------------------------------------------------
Revenue $ - $ - $ 97,320 $ 97,320
Cost of sales and
operating expenses 540 540 64,043 64,043
Amortization of capital
and other assets - - 3,938 3,938
-------------------------------------------------------------------------
(540) (540) 29,339 29,339

Interest expense 1,841 1,841 1,841 1,841
Net unrealized loss (gain)
on interest-rate swaps 728 728 728 728
Amortization of
intangible assets - - 3,412 3,412
-------------------------------------------------------------------------
Income (loss) before
income taxes (3,109) (3,109) 23,358 23,358
Future income tax expense
(recovery) 52 52 52 52
-------------------------------------------------------------------------
Net income (loss) $ (3,161) $ (3,161) $ 23,306 $ 23,306
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other assets
expenditures $ - $ - $ 3,027 $ 3,027
Intangible assets $ - $ - $ 109,121 $ 109,121
Goodwill $ - $ - $ 441,193 $ 441,193
Total assets $ 16,262 $ 16,262 $ 625,212 $ 625,212
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The results presented under the old basis for the Davis + Henderson and
Filogix Segments remove the impact of the change in the reporting of the
personal property, search and registration programs from the current
period results.

Nine months ended September 30,
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
--------------------- ---------------------
New Basis Old Basis New Basis Old Basis
---------- ---------- ---------- ----------
2008 2008 2008 2008
-------------------------------------------------------------------------
Revenue $ 231,119 $ 234,314 $ 52,552 $ 49,357
Cost of sales and
operating expenses 156,932 159,116 30,719 28,535
Amortization of capital
and other assets 6,490 6,490 4,290 4,290
-------------------------------------------------------------------------
67,697 68,708 17,543 16,532

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 2,171 2,858 8,136 7,449
-------------------------------------------------------------------------
Income (loss) before
income taxes 65,526 65,850 9,407 9,083
Future income tax expense
(recovery) - - - -
-------------------------------------------------------------------------
Net income (loss) $ 65,526 $ 65,850 $ 9,407 $ 9,083
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other asset
expenditures $ 5,243 $ 5,243 $ 3,280 $ 3,280
Intangible assets $ 984 $ 3,767 $ 108,137 $ 105,354
Goodwill $ 359,385 $ 369,253 $ 81,808 $ 71,940
Total assets $ 428,393 $ 450,168 $ 180,557 $ 158,782
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Nine months ended September 30,
-------------------------------------------------------------------------
Corporate Consolidated
--------------------- ---------------------
New Basis Old Basis New Basis Old Basis
---------- ---------- ---------- ----------
2008 2008 2008 2008
-------------------------------------------------------------------------
Revenue $ - $ - $ 283,671 $ 283,671
Cost of sales and
operating expenses 1,955 1,955 189,606 189,606
Amortization of capital
and other assets - - 10,780 10,780
-------------------------------------------------------------------------
(1,955) (1,955) 83,285 83,285

Interest expense 5,610 5,610 5,610 5,610
Net unrealized loss (gain)
on interest-rate swaps 2,038 2,038 2,038 2,038
Amortization of
intangible assets - - 10,307 10,307
-------------------------------------------------------------------------
Income (loss) before
income taxes (9,603) (9,603) 65,330 65,330
Future income tax expense
(recovery) 818 818 818 818
-------------------------------------------------------------------------
Net income (loss) $ (10,421) $ (10,421) $ 64,512 $ 64,512
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital and other asset
expenditures $ - $ - $ 8,523 $ 8,523
Intangible assets $ - $ - $ 109,121 $ 109,121
Goodwill $ - $ - $ 441,193 $ 441,193
Total assets $ 16,262 $ 16,262 $ 625,212 $ 625,212
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The results presented under the old basis for the Davis + Henderson and
Filogix Segments remove the impact of the change in the reporting of the
personal property, search and registration programs from the current
period results.

18. COMPARATIVE FIGURES

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

SUPPLEMENTARY FINANCIAL INFORMATION

Consolidated Operating Results by Period

Revenue $ 97,320 $ 97,263 $ 89,088 $ 90,934 $ 94,676
Cost of sales and
operating expenses 64,043 63,357 62,206 64,582 63,813
Amortization of capital
and other assets 3,938 3,455 3,387 3,647 3,496
-------------------------------------------------------------------------
29,339 30,451 23,495 22,705 27,367
Interest expense 1,841 1,906 1,863 1,876 1,982
Net unrealized loss
(gain) on interest-
rate swaps 728 (1,034) 2,344 823 957
Amortization of
intangible assets 3,412 3,447 3,448 3,386 3,347
Future income tax
expense (recovery) 52 766 - 137 -
Minority interest - - - (139) 205
-------------------------------------------------------------------------
Net income $ 23,306 $ 25,366 $ 15,840 $ 16,622 $ 20,876
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash flows from
operating activities $ 35,110 $ 32,623 $ 16,523 $ 32,141 $ 28,802
Changes in non-cash
working capital and
other items(1) (3,169) (82) 9,037 (6,959) 425
-------------------------------------------------------------------------
Adjusted cash flows from
operating activities 31,941 32,541 25,560 25,182 29,227

Less:
Capital asset
expenditures and
contract payments 3,027 2,962 2,534 4,354 4,598
-------------------------------------------------------------------------
Adjusted cash flows
after capital asset
expenditures and
contract payments 28,914 29,579 23,026 20,828 24,629

Distributions paid to
unitholders 20,211 19,305 18,853 26,676 17,403
-------------------------------------------------------------------------
8,703 10,274 4,173 (5,848) 7,226

Cash flows provided by
(used in) other
financing activities (5,000) (5,000) - - (5,000)
Cash flows used in
acquisition of
businesses and customer
service contracts - - (4,250) - (837)
Changes in non-cash
working capital and
other items(1) 3,169 82 (9,037) 6,959 (425)
Distributions paid to
minority interest - - - (187) (255)
-------------------------------------------------------------------------
Increase (decrease) in
cash and cash
equivalents for the
period $ 6,872 $ 5,356 $ (9,114) $ 924 $ 709
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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
ended ended ended ended ended
September June March December September
(in Canadian dollars, 30, 30, 31, 31, 30,
unaudited) 2008 2008 2008 2007(2) 2007(2)
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities $ 0.7268 $ 0.7405 $ 0.5816 $ 0.5730 $ 0.6651
Adjusted cash flows
after capital asset
expenditures and
contract payments $ 0.6579 $ 0.6731 $ 0.5240 $ 0.4739 $ 0.5604
Distributions paid to
unitholders $ 0.4599 $ 0.4393 $ 0.4290 $ 0.6070 $ 0.3960
Distributions declared
during period $ 0.4599 $ 0.4496 $ 0.4290 $ 0.6180 $ 0.3960
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Condensed Consolidated Balance Sheet

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

Cash and cash
equivalents $ 16,262 $ 9,390 $ 4,034 $ 13,148 $ 12,224
Other current assets 25,604 26,847 25,382 26,149 29,644
Capital and other assets 33,032 34,347 35,229 38,268 38,049
Goodwill and other
intangible assets 550,314 553,726 557,173 556,587 559,973
-------------------------------------------------------------------------
$625,212 $624,310 $621,818 $634,152 $639,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Payables and other
current liabilities $ 44,119 $ 42,427 $ 38,491 $ 49,116 $ 45,165
Other long-term
liabilities 6,038 5,143 7,417 6,289 5,673
Long-term indebtedness 119,262 124,193 129,123 129,054 128,985
Unitholders' equity 455,793 452,547 446,787 449,693 460,067
-------------------------------------------------------------------------
$625,212 $624,310 $621,818 $634,152 $639,890
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Distribution History

-------------------------------------------------------------------------
Month 2008 2007 2006 2005
-------------------------------------------------------------------------
January $0.1430 $0.1280 $0.1220 $0.1200
February 0.1430 0.1280 0.1220 0.1200
March 0.1430 0.1320 0.1250 0.1200
April 0.1430 0.1320 0.1250 0.1200
May 0.1533 0.1320 0.1250 0.1200
June 0.1533 0.1320 0.1250 0.1200
July 0.1533 0.1320 0.1250 0.1200
August 0.1533 0.1320 0.1250 0.1220
September 0.1533 0.1320 0.1250 0.1220
October - 0.1320 0.1250 0.1220
November(2) - 0.3430 0.1280 0.1220
December(3) - 0.1430 0.1280 0.1220
-------------------------------------------------------------------------
$1.3385 $1.7980 $1.5000 $1.4500
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Distributions
per unit(1)
Month 2004 2003 2002 2001
-------------------------------------------------------------------------
January $0.1150 $0.1117 $0.1083 $ -
February 0.1150 0.1117 0.1083 -
March 0.1168 0.1117 0.1083 -
April 0.1168 0.1133 0.1083 -
May 0.1168 0.1133 0.1083 -
June 0.1168 0.1133 0.1083 -
July 0.1168 0.1133 0.1117 -
August 0.1168 0.1133 0.1117 -
September 0.1168 0.1133 0.1117 -
October 0.1168 0.1150 0.1117 -
November(2) 0.1200 0.1150 0.1117 -
December(3) 0.1200 0.1150 0.1117 0.0427
-------------------------------------------------------------------------
$1.4044 $1.3599 $1.3200 $0.0427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Monthly distributions are made to unitholders of record on the last
business day of each month and are paid within 31 days following each
month end.
(2) 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)

Quarter High -------------------- 2008 - Q3 $ 16.40 - Q2 17.85 - Q1 21.75 2007 - Q4 22.00 - Q3 20.10 - Q2 19.79 - Q1 17.19 2006 - Q4 19.80 - Q3 19.49 - Q2 21.99 - Q1 23.18 2005 - Q4 24.00 - Q3 24.07 - Q2 22.85 - Q1 23.25 2004 - Q4 23.25 - Q3 19.62 - Q2 19.34 - Q1 19.40 2003 - Q4 17.50 - Q3 15.65 - Q2 15.20 - Q1 13.69 2002 - Q4 13.25 - Q3 12.13 - Q2 11.25 - Q1 11.20 -------------------- >> Number Market
Trading price range of units of units capital-
(TSX: "DHF.UN") outstand- ization
------------------------------- Average ing at at
Low Close daily quarter quarter
volume end end
-----------------------------------------------------
$ 13.50 $ 15.47 93 43,947 $ 679,857
15.53 15.58 83 43,947 684,691
15.77 17.19 107 43,947 755,445
18.75 21.00 98 43,947 922,883
17.14 19.80 78 43,947 870,146
16.30 19.31 90 43,947 848,613
15.00 16.60 87 43,947 729,517
13.80 15.46 143 43,947 679,417
17.21 19.19 96 43,947 843,339
16.99 17.70 100 43,947 777,858
19.50 21.50 61 37,921 815,297
16.32 23.19 92 37,921 879,383
19.50 21.19 88 37,921 803,542
19.58 20.92 61 37,921 793,303
19.65 22.00 67 37,921 834,257
18.80 22.70 81 37,921 860,802
16.75 19.45 58 37,921 737,559
15.05 18.00 93 37,921 682,574
16.71 19.40 92 37,921 735,663
15.10 17.45 67 37,921 661,718
14.52 15.30 99 37,921 580,188
12.91 15.00 82 37,921 568,812
12.48 12.94 92 37,921 490,695
11.22 12.86 139 37,921 487,661
10.45 12.10 165 37,921 458,842
10.00 10.95 176 37,921 415,233
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

For further information: 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