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Davis + Henderson Income Fund Reports Growth in Revenue and Cash Flow in Fourth Quarter and Year Ended December 31, 2007

TSX Stock Symbol: "DHF.UN"

TORONTO, Feb. 26 /CNW/ - Davis + Henderson Income Fund reported increases
in revenue and cash flow for the fourth quarter and year ended December 31,
2007.

<<
Fourth Quarter Highlights

- Revenue increased by $3.0 million, or 3.4%, to $90.9 million compared
to the same quarter in 2006. This increase was the result of a
$0.6 million, or 0.8%, increase for the Davis + Henderson Segment and
a $2.4 million, or 18.0%, increase for the Filogix Segment over the
comparable prior period.

- Net income per unit increased to $0.3782, or just under 1% compared
to the fourth quarter of 2006. Excluding the impact of a mark-to-
market swap loss and the charge for future income taxes, both non-
cash items, net income per unit increased 6.8% over the same quarter
last year.

- Distributions paid were $0.6070 compared to $0.3780 paid during the
fourth quarter of 2006. Excluding the special distribution in
November of $0.20 per unit, the year-over-year increase was 7.7%.

2007 Highlights

- Revenue increased by $55.0 million, or 17.0%, to $378.8 million
compared to the same period in 2006. Of this increase, $32.8 million
related to the Filogix Segment and was primarily attributable to both
the inclusion of a full year of results in 2007 compared with a half
year in 2006 and to strong growth in origination fees. The
Davis + Henderson Segment reported above expected revenue growth of
7.6%, or $22.2 million, compared to the same period in 2006.

- Net income per unit increased to $1.8713 per unit, or 16.4%, compared
to 2006.

- Declared distributions for 2007 of $1.7980 per unit were 19.9% higher
than 2006.
>>

Management Commentary

Davis + Henderson had a very solid year with annual revenue growth above
its long-term objective of 3% to 5%. Several factors contributed to this
growth. The two most significant were the inclusion of the Filogix results for
the full year of 2007, as compared to approximately a half year in 2006, as
well continued contribution from program initiatives, such as iDefence® and
BizAssist®.
Additionally, two other significant factors contributed to above-target
revenue growth for the year: (1) cheque order volumes were stronger than
anticipated, including incremental reorders related to the changes in imaging
standards on cheques; and (2) record real estate activity in 2007
significantly increased mortgage origination revenues within the Filogix
Segment. While both of these factors have influenced year-over-year
comparisons, they were less pronounced in the second half of 2007.
Management believes that the increased reorder activity levels that
lifted revenue in the first half of 2007 reduced order volumes in the later
part of 2007. Management also believes that increased reorder activity from
earlier in 2007 will contribute to reduced order volumes in future quarters,
particularly in the first half of 2008, as consumers delay orders due to
recent cheque supply replenishments. Taking into account the specific items
referred to above, management believes revenue growth in 2008 may be less than
the Business's 3% to 5% long-term objective.
We remain committed to our long-term financial objective of growing
distributions. With the addition of Filogix, Davis + Henderson has
significantly strengthened its capabilities and the breadth of services it
offers to the Canadian financial services marketplace. From our established
platforms, we look to increase value for customers and unitholders by
continuing to enhance our existing programs.
For a more detailed discussion of fourth quarter and full year results
and management's outlook, please see the Management's Discussion and Analysis
below.

Caution Concerning Forward-Looking Statements

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

Conference Call

Davis + Henderson will discuss its financial results for the fourth
quarter ended December 31, 2007 via conference call at 10:00 a.m. EST (Toronto
time) on Wednesday February 27, 2008. The number to use for this call is
416-644-3414 for Toronto area callers or 1-800-731-6941 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 21259652
followed by the number sign. The rebroadcast will be available until Wednesday
March 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 and the Short Form Prospectus dated
May 30, 2006, is available on SEDAR at www.sedar.com.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis ("MD&A") for the fourth quarter of
2007 and year ended December 31, 2007 should be read in conjunction with MD&A
in the Fund's Annual Report for the year ended December 31, 2006, dated
February 27, 2007, the Short Form Prospectus, dated May 30, 2006, and the
attached unaudited consolidated financial statements. External economic and
industry factors remain substantially unchanged from the annual MD&A and the
Short Form Prospectus, unless otherwise stated.

STRATEGY

The Fund's financial goal is to deliver stable and modestly growing cash
distributions to unitholders by targeting annual revenue growth in the range
of 3% to 5% and maintaining margins. The Fund has three primary strategies to
meet this financial goal. These are to enhance the value of the 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
between chequing accounts on behalf of account holders at the time of new
account openings.
Davis + Henderson significantly advanced its third key strategy with the
acquisition of Filogix in June 2006. Among other services, Filogix provides
processing services related to the origination and underwriting of mortgages
in Canada. Davis + Henderson also acquired AVS, which under Davis +
Henderson's brand CollateralGuard™, provides lenders with, among other
offerings, personal property search and registration programs across Canada.
The addition of these business interests has created another business platform
for Davis + Henderson.
Recent changes made to the Income Tax Act require certain income trusts,
including the Fund, to pay taxes after fiscal 2010, similar to those paid by
taxable Canadian corporations. The payment of such taxes will, in the future,
reduce the cash flow of the Fund, thereby reducing the amount available for
distributions to unitholders. Since the announcement of this change in tax
legislation, management and the Trustees have monitored the changes in the
income trust environment and capital markets and continue to review potential
impacts on the Fund's current strategies and the alternatives available to the
Fund, consistent with protecting and enhancing unitholder value.

FINANCIAL INFORMATION PRESENTATION

The Fund's results for the year ended December 31, 2007 include the
results of the Filogix business acquired on June 15, 2006. The inclusion of
Filogix had a significant impact on the financial results and has also
resulted in changes to the form of Davis + Henderson's disclosures.
With the acquisition of Filogix, the Fund now operates in two business
segments, the "Davis + Henderson Segment" and the "Filogix Segment". The Davis
+ Henderson Segment includes the cheque supply program, deposit program,
eSwitch and the personal property search and registration programs, among
other offerings. The Filogix Segment includes services related to the
origination and underwriting of mortgages in Canada, among other offerings.
Corporate expenses have also been segmented and include expenditures related
to public company activities, a share of executive corporate management costs
and certain other corporation-wide costs.

<<
OPERATING RESULTS FOR THE FOURTH QUARTER

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

Quarter ended December 31,
2007 2006
-------------------------------------------------------------------------
Revenue $ 90,934 $ 87,932
Cost of sales and operating expenses 64,178 62,034
Amortization of capital and other assets 4,051 3,902
-------------------------------------------------------------------------
22,705 21,996

Interest expense 1,876 2,186
Net unrealized loss (gain) on interest-rate
swaps 823 -
Amortization of intangible assets 3,386 3,254
Minority interest (139) 89
-------------------------------------------------------------------------
Income before income taxes 16,759 16,467

Future income tax expense 137 -
-------------------------------------------------------------------------
Net income $ 16,622 $ 16,467
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per unit, basic and diluted $ 0.3782 $ 0.3747
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Quarter ended December 31,
-------------------------------------------------------------------------
Davis + Henderson Segment Filogix Segment
-------------------------- -----------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 75,359 $ 74,730 $ 15,575 $ 13,202
Percentage change 0.8% 18.0%

Cost of sales and
operating expenses 53,082 52,720 10,437 8,794
Amortization of capital
and other assets 2,628 2,421 1,423 1,481
-------------------------------------------------------------------------
19,649 19,589 3,715 2,927
Percentage change 0.3% 26.9%

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 903 771 2,483 2,483
Minority interest (139) 89 - -
-------------------------------------------------------------------------
Income before income
taxes 18,885 18,729 1,232 444
Future income tax
expense - - - -
-------------------------------------------------------------------------
Net income $ 18,885 $ 18,729 $ 1,232 $ 444
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Quarter ended December 31,
-------------------------------------------------------------------------
Corporate Consolidated
-------------------------- -----------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ - $ - $ 90,934 $ 87,932
Percentage change - 3.4%

Cost of sales and
operating expenses 659 520 64,178 62,034
Amortization of capital
and other assets - - 4,051 3,902
-------------------------------------------------------------------------
(659) (520) 22,705 21,996
Percentage change 26.7% 3.2%

Interest expense 1,876 2,186 1,876 2,186
Net unrealized loss (gain)
on interest-rate swaps 823 - 823 -
Amortization of
intangible assets - - 3,386 3,254
Minority interest - - (139) 89
-------------------------------------------------------------------------
Income before income
taxes (3,358) (2,706) 16,759 16,467
Future income tax
expense 137 - 137 -
-------------------------------------------------------------------------
Net income $ (3,495) $ (2,706) $ 16,622 $ 16,467
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Revenue

Revenue for the fourth quarter of 2007 was $90.9 million, an increase of
$3.0 million, or 3.4%, when compared to the fourth quarter of 2006. The
Filogix Segment accounted for $2.4 million of the increase with the balance of
the increase, $0.6 million, attributable to the Davis + Henderson Segment.
Revenue for the Davis + Henderson Segment increased by 0.8%
year-over-year. Revenue increases from successful program initiatives,
including products and service enhancements such as iDefence and BizAssist,
were essentially offset by a reduction in revenue driven by a year-over-year
decline in cheque order volumes.
Historically, cheque order volumes have, on average, declined annually by
low single digit percentages as a result of declining cheque usage. In the
first nine months of 2007, the Davis + Henderson Segment did not experience
this decline and, for the first six months of 2007, overall cheque order
volume was higher than in the prior year. These stronger than anticipated
order volumes are believed to be the result of increased customer promotional
activities, the continuing movement of consumers to orders with fewer cheques
and changes in the imaging standards required for cheques produced in Canada,
which generated incremental and accelerated reorders. Management believes that
many of these accelerated reorders would otherwise have been received in
future periods pursuant to normal reorder cycles. Management also believes
that for this reason cheque order volumes were lower in the fourth quarter of
2007 than would otherwise be expected given historical declines and that
declines may continue at this higher level for the next few quarters.
Total revenue for the fourth quarter of 2007 for the Filogix Segment was
up 18.0% compared with the same quarter in 2006, reflecting growth in the
origination and other transaction based revenues. This growth was consistent
with the overall strength in the real estate and mortgage market. The growth
in transaction-based revenue was less pronounced in the second half of the
year than in the first half.

Cost of Sales and Operating Expenses

Cost of sales and operating expenses for the fourth quarter of 2007 were
$64.2 million, an increase of $2.1 million, or 3.5%, over the comparable prior
year period. The Filogix Segment accounted for $1.6 million of the increase
with the balance of $0.5 million attributable to the Davis + Henderson Segment
and corporate expenses. Expenses in the Davis + Henderson Segment and
corporate expenses grew 0.9%, relatively unchanged from the same period in
2006.
Filogix expenses were 18.7% higher compared to the same period last year.
During the fourth quarter, the Filogix Segment incurred additional expenses
for customer implementations, contract renewals and in support of further
product enhancements and strengthening the general delivery capabilities of
the Business as planned. This increased level of spending is expected to
continue into 2008.

Other Expenses and Net Income

Amortization of capital and other assets increased by $0.1 million when
comparing the fourth quarters of 2007 and 2006. The Davis + Henderson Segment
accounted for $0.2 million of the increase, which was partially offset by a
$0.1 million decrease in the Filogix Segment.
Interest expense decreased by $0.3 million in the fourth quarter of 2007
compared to the fourth quarter of 2006. This decrease reflected the repayment
of $15.0 million in debt during the year.
An unrealized loss on interest rate swaps of $0.8 million was recognized
in the fourth quarter of 2007, reflecting mark-to-market adjustments in
interest rates since September 30, 2007. These unrealized gains and losses are
recognized in income as these swaps are no longer designated as hedges for
accounting purposes.
Amortization of intangibles increased by $0.1 million to $3.4 million for
the fourth quarter of 2007 when compared to the same period in 2006. These
intangible assets consist of rights related to customer relationships, brand
names and proprietary software and are amortized on a straight-line basis over
periods ranging from 10 to 15 years.
The minority interest recognized in the fourth quarter increased income
by $0.1 million, reflecting a loss recorded in the AVS business as a result of
increased costs, including an increase in expenses allocated to the business
and certain direct costs.
Net income of $16.6 million for the quarter ended December 31, 2007,
represents an increase of $0.2 million, or 0.9%, when compared to the same
quarter in the previous year. On a per unit basis, net income increased by
$0.0035 per unit to $0.3782 per unit. Excluding the non-cash impact of the
mark-to-market swap loss and the charge for future income taxes, net income
per unit increased 6.8% over the same quarter last year.

Summary of Cash Flows

The following table is a supplementary disclosure provided by management
to provide useful additional information related to the cash flows of the
Business, including the amount of cash available for distribution to
unitholders, repayment of debt and other investing activities. For a full
description of the table and terminology used, see Non-GAAP Measures under the
Cash Flow and Liquidity section of this MD&A.

<<
Quarter ended December 31,
2007 2006
-------------------------------------------------------------------------
Cash flows from operating activities $ 32,141 $ 22,110

Add (deduct):
Changes in non-cash working capital other
items(1) (6,959) 1,512
-------------------------------------------------------------------------
Adjusted cash flows from operating activities 25,182 23,622

Less:
Maintenance capital expenditures - D+H(2) 2,640 1,057
Maintenance capital expenditures - Filogix(2) 1,564 854
Growth capital expenditures(2) - 34
Contract payments(3) 150 20
-------------------------------------------------------------------------
Adjusted cash flows after capital expenditures
and contract payments(2) 20,828 21,657

Distributions paid to unitholders 26,676 16,612
-------------------------------------------------------------------------
Adjusted cash flows after capital, contract
payments and distributions paid (5,848) 5,045

Cash flows provided by (used in) other
financing activities - (5,000)
Cash flows used in acquisition of businesses
and customer service contracts - (1,518)
Changes in non-cash working capital and other
items(1) 6,959 (1,512)
Distributions paid to minority interest (187) (120)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents for the period $ 924 $ (3,105)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Note 1: Changes in non-cash working capital and certain other balance
sheet items have been excluded from adjusted cash flows from operating
activities so as to remove the effects of timing differences in cash
receipts and cash disbursements, which generally reverse themselves but
can vary significantly across quarters. Minority interest and changes to
other long-term liabilities are deducted to arrive at adjusted cash
flows. For details, see the Changes in Non-Cash Working Capital and Other
Items section.

Note 2: Maintenance capital expenditures are defined by the Fund as
capital expenditures necessary to maintain and sustain the current
productive capacity of the Business or generally improve the efficiency
of the Business. Growth capital expenditures are defined by the Fund as
capital expenditures that increase the productive capacity of the
Business with a reasonable expectation of an increase in cash flow.

Note 3: The Business has various payment obligations under customer
contracts, which include fixed contract or program initiation payments
and annual payments payable over the life of the contract. The aggregate
of all contract payments, both fixed and variable, reflects, among other
things, the high degree of integration and sharing between Davis +
Henderson and the financial institutions of the many activities related
to ordering, data handling, customer service and other activities
undertaken by financial institutions related to the operation of the
cheque supply and other programs.

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

Quarter ended December 31,
2007 2006 % change
-------------------------------------------------------------------------
Adjusted cash flows from operating
activities $ 0.5730 $ 0.5375 6.6%
Adjusted cash flows after capital
expenditures and contract payments $ 0.4739 $ 0.4928 -3.8%
Distributions paid to unitholders $ 0.6070 $ 0.3780 60.6%
Distributions declared during period $ 0.6180 $ 0.3810 62.2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash Flows, Net Income and Distributions Paid

The following table compares cash flows from operating activities and net
income to distributions paid for the fourth quarter and year ended
December 31, 2007.

Quarter ended Year ended
(in thousands of Canadian December 31, December 31,
dollars, unaudited) 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flows from operating
activities $ 32,141 $ 22,110 $ 117,401 $ 89,753
Net income $ 16,622 $ 16,467 $ 82,239 $ 66,529
Distributions paid
during period $ 26,676 $ 16,612 $ 78,357 $ 61,191
Excess (shortfall) of
cash flows from operating
activities over cash
distributions paid $ 5,465 $ 5,498 $ 39,044 $ 28,562
Excess (shortfall) of net
income over cash
distributions paid $ (10,054) $ (145) $ 3,882 $ 5,338
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Net income, in all periods shown in the above table, included a non-cash
charge for amortization of intangibles arising on acquisitions. Additionally,
in the fourth quarter of 2007, distributions included the payment of a special
distribution of $8.8 million, funded by cash balances on hand accumulated from
prior periods. As a result of these factors, in the fourth quarter of both
2007 and 2006, distributions exceeded net income.

Expenditures on Capital Assets and Contract Payments

Total capital asset expenditures for the fourth quarter increased
$2.3 million over the same quarter in 2006. The Filogix Segment accounted for
$0.7 million of the increase, with the balance of the increase of $1.6
million attributable to the Davis + Henderson Segment. The increase in capital
expenditures in the fourth quarter of 2007, compared with the same period in
2006, was consistent with the increase in the full year capital expenditures
program. Total capital asset expenditures for the year ended December 31, 2007
were $12.0 million, an increase of $4.8 million compared to the same period in
2006. The Filogix Segment accounted for $2.6 million of the increase and the
Davis + Henderson Segment accounted for $2.2 million of the increase. Most of
the increase in 2007 over 2006 reflects continued investment in both the Davis
+ Henderson and the Filogix Segments' technology infrastructure as well as
including a full-year capital program for the Filogix Segment.
The level of investment in 2008, for both capital assets and contract
payments, that is required to maintain, sustain and grow the productive
capacity of the Business, is expected to be in the range of $13.0 million to
$15.0 million. The Business' capital program provides for continued
expenditures to be funded by cash flows from operations.

Distributions

During the fourth quarter of 2007, the Fund paid distributions of
$26.7 million. Included in the fourth quarter total was an $8.8 million
special distribution paid in November 2007. On a per unit basis, distributions
paid were $0.6070 compared to $0.3780 paid during the fourth quarter of 2006,
representing a 60.6% year-over-year increase. Excluding the special
distribution of $0.20 per unit, the year-over-year increase was 7.7%. Monthly
distributions declared increased in November 2007 to $0.143 per unit
(annualized basis, $1.72 per unit), up 8.3% from the October 2007 monthly
distribution rate of $0.132 per unit.

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

Quarter ended December 31,
2007 2006
-------------------------------------------------------------------------
Minority interest $ (139) $ 89
Change in non-cash working capital items 6,963 (1,671)
Changes in other operating assets and
liabilities 135 70
-------------------------------------------------------------------------
Changes in non-cash working capital and
other items $ 6,959 $ (1,512)
-------------------------------------------------------------------------
>>

The decrease in non-cash working capital for the quarter ended
December 31, 2007, a source of cash flow, reflects a decrease in the level of
receivables and an increase in the level of payables, both of which are
considered timing differences that are expected to reverse in future quarters.
The increase in non-cash working capital for the quarter ended December 31,
2006, reflects the settlement of certain purchase price obligations and the
reversal of timing differences from earlier quarters.

Cash Flows Provided by Financings and Used in Business Acquisitions

There were no expenditures in the fourth quarter of 2007 related to debt
repayments and business acquisitions. Cash flows used in other financing
activities for the quarter ended December 31, 2006 reflect a $5.0 million pay
down of debt. Cash flows used in investing activities for the quarter ended
December 31, 2006 relate to a $1.0 million purchase price adjustment for the
increased investment in AVS, $1.8 million (of which $1.1 million are current
receivables that have been collected) relating to the acquisition of customer
contracts to provide personal property search and registration programs,
partially offset by a final purchase price adjustment for the acquisition of
the Filogix business of $1.3 million.

<<
2007 OPERATING RESULTS

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

Year ended December 31,
2007 2006 2005
-------------------------------------------------------------------------
Revenue $ 378,751 $ 323,716 $ 276,537
Cost of sales and operating expenses 258,389 228,793 196,956
Amortization of capital and other
assets 15,386 13,940 13,107
-------------------------------------------------------------------------
104,976 80,983 66,474

Interest expense 8,209 6,016 3,301
Net unrealized loss (gain)
on interest-rate swaps (740) - -
Amortization of intangible assets 13,298 8,236 2,422
Minority interest 379 202 -
-------------------------------------------------------------------------
Income before income taxes 83,830 66,529 60,751

Future income tax expense 1,591 - -
-------------------------------------------------------------------------
Net income $ 82,239 $ 66,529 $ 60,751
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income per unit, basic and
diluted $ 1.8713 $ 1.6081 $ 1.6020
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Operating Results by Business Segment
(in thousands of Canadian dollars)
Year ended December 31,
-------------------------------------------------------------------------
Davis + Henderson Segment Filogix Segment
-------------------------- -----------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 315,204 $ 292,981 $ 63,547 $ 30,735
Percentage change 7.6% Note 1

Cost of sales and
operating expenses 219,089 205,442 36,726 21,365
Amortization of capital
and other assets 9,789 11,168 5,597 2,772
-------------------------------------------------------------------------
86,326 76,371 21,224 6,598
Percentage change 13.0% Note 1

Interest expense - - - -
Net unrealized loss (gain)
on interest-rate swaps - - - -
Amortization of
intangible assets 3,366 2,884 9,932 5,352
Minority interest 379 202 - -
-------------------------------------------------------------------------
Income before
income taxes 82,581 73,285 11,292 1,246
Future income tax
expense - - - -
-------------------------------------------------------------------------
Net Income $ 82,581 $ 73,285 $ 11,292 $ 1,246
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cost of sales and
operating expenses 2,574 1,986 258,389 228,793
Amortization of capital
and other assets - - 15,386 13,940
-------------------------------------------------------------------------
(2,574) (1,986) 104,976 80,983
Percentage change 29.6% 29.6%

Interest expense 8,209 6,016 8,209 6,016
Net unrealized loss (gain)
on interest-rate swaps (740) - (740) -
Amortization of
intangible assets - - 13,298 8,236
Minority interest - - 379 202
-------------------------------------------------------------------------
Income before
income taxes (10,043) (8,002) 83,830 66,529
Future income tax
expense 1,591 - 1,591 -
-------------------------------------------------------------------------
Net Income $ (11,634) $ (8,002) $ 82,239 $ 66,529
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 1: The results of the year ended December 31, 2006 included
financial results of Filogix for the period of June 15, 2006 to
December 31, 2006 and accordingly, the year-over-year growth percentages
are not provided as they do not compare equivalent time periods.
>>

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenue

Total revenue for the year ended December 31, 2007 was $378.8 million, an
increase of $55.0 million, or 17.0%, compared to 2006. The Davis + Henderson
Segment contributed $22.2 million to this increase with the remaining balance
of $32.8 million attributable to the Filogix Segment. The significant growth
in the Filogix Segment was due to the inclusion of a full year of results for
the Filogix Segment in 2007 versus only a partial period in 2006 (commencing
on the date of acquisition on June 15, 2006) and to strong activity in the
mortgage and real estate market.
The revenue growth rates achieved by the Business for the year were
higher than the Fund's long-term objective of 3% to 5%, even after considering
the impact of the short reporting period for the Filogix Segment in 2006.
Revenue for the Davis + Henderson Segment increased by 7.6%
year-over-year. The revenue growth in this segment was above the long-term
target as a result of contributions related to program initiatives, such as
iDefence® and BizAssist®, and to a lesser extent, the expansion of
personal property search and registration programs, and growth in eSwitch
volumes related to customer promotional programs. In addition, stronger than
expected cheque order volumes, including incremental reorders related to the
changes in imaging standards on cheques, contributed to growth rates exceeding
the Fund's overall long-term objectives.
Historically, cheque order volumes have, on average, been declining by
low single digit percentages annually as a result of declining cheque usage.
Order volumes in both 2006 and 2007 were different than the historical
average, with 2006 being comparable to 2005, and 2007 order volumes being
higher than 2006. Specifically, for the first six months of 2007 overall
cheque order volume was higher than in the prior year. These stronger than
anticipated order volumes are believed to be the result of increased customer
promotional activities, the continuing movement of consumers to orders with
fewer cheques, and changes in the imaging standards required for cheques
produced in Canada, which generated incremental and accelerated reorders. In
the second half of the year, order activity was directionally more in line
with historical experience and management believes there were few accelerated
reorders. As management further believes that many of these accelerated
reorders would otherwise have been received in future periods pursuant to
normal reorder cycles, the Business may experience higher than historically
observed average declines in future quarters, particularly in the first half
of 2008, reducing revenues in such periods. Management believes that cheque
order volumes in the last quarter of 2007 were so impacted. In looking beyond
the shifting reorder cycles experienced in the most recent periods, management
believes that declining cheque usage will continue to contribute to declining
cheque orders as it has in the past.
Revenue for the Filogix Segment was also stronger than expected as the
Business benefited from a strong real estate and mortgage market. Including
2006 revenue earned by Filogix prior to its acquisition by the Fund,
origination services revenue, which represents a substantial share of overall
Filogix revenues, was up 30.0% year-over-year. Total revenue for 2007 for the
Filogix Segment of $63.5 million was up 22.9% when compared with full-year
2006 revenue, reflecting growth in the origination and other transaction-based
revenues and reduced revenues from project implementation and customization
services.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses increased
by $29.6 million, or 12.9%, when compared to 2006. The Filogix Segment
accounted for $15.4 million of the increase and the Davis + Henderson Segment,
along with corporate expenses, accounted for the remaining $14.2 million.
While most of the expense increase in the Davis + Henderson Segment
related directly to revenue growth, the segment also had increased spending on
information technology related to infrastructure upgrade initiatives,
enhancements to the overall internal computing environment and project
implementations.
The expense increase in the Filogix Segment for 2007 was largely a result
of its inclusion for a full fiscal year in 2007 versus six-and-a-half months
in 2006. Within the Filogix Segment, margins were stronger in 2007 compared to
2006 and stronger than expectations. During 2007, Filogix benefited from
growth in origination revenues with relatively unchanged expenses for the
first three quarters of 2007, but during the fourth quarter of 2007, the
Filogix Segment incurred additional expenses for customer implementations,
contract renewals and in support of further product enhancements and
strengthening the general delivery capabilities of the Business. An increased
level of spending over 2007 levels is expected to continue into 2008, and
accordingly, margins for the Filogix Segment are expected to be reduced from
those recorded in 2007.
While Davis + Henderson operates primarily in Canada, the Business also
services a U.S. subsidiary of one of our Canadian customers. All revenue and
substantially all expenses relating to our U.S. cheque supply program are
contracted for in U.S. dollars. As the net U.S. dollar contribution from this
activity is relatively modest, the change in relative dollar valuations has
not had a meaningful impact on the results of the Business.

Other Expenses and Net Income

Amortization of capital and other assets on a consolidated level
increased by $1.4 million, or 10.4%, to $15.4 million when comparing 2007 to
2006. Increased capital asset amortization in the Filogix Segment of
$2.8 million was related to capital additions. This increase was partially
offset by a decline in expense in the Davis + Henderson Segment of
$1.4 million, related to certain capital and other assets having become fully
amortized.
Interest expense in 2007 was $2.2 million higher than in the comparable
2006 period. This increase reflected the drawdown of additional debt for the
acquisition of the Filogix business late in the second quarter of 2006.
Included in this increase was $0.7 million of amortization of net losses in
fair market value of interest-rate swaps that were deferred prior to
January 1, 2007. Commencing January 1, 2007, the Business no longer designates
its interest-rate swaps as hedges for accounting purposes.
An unrealized gain on interest-rate swaps of $0.7 million was recognized
in 2007, reflecting mark-to-market adjustments related to changes in interest
rates since December 31, 2006. Gains recorded earlier in the year have reduced
as interest rates have fallen in the second half of 2007. These unrealized
gains and losses were recognized in income, as these swaps are no longer
designated as hedges for accounting purposes.
Amortization of intangibles increased by $5.1 million to $13.3 million
when comparing 2007 to 2006. This increase was primarily related to
incremental intangible assets arising on the purchase of the Filogix business.
These intangible assets consist of rights related to customer relationships,
brand names and proprietary software and are amortized on a straight-line
basis over periods ranging between 10 and 15 years.
During the second quarter of 2006, the Fund increased its ownership in
AVS to 75% and, since that time, the Business has fully consolidated the
results of AVS. The minority interest recorded in the consolidated statement
of income represents the 25% interest in the earnings of AVS that do not
accrue to the Business. Effective January 2, 2008, the Fund acquired the
remaining 25% interest in AVS and now owns 100% of the AVS 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 distributed at a rate
similar to that paid by taxable corporations. As the new tax rules were
enacted late in June 2007, the Fund is required under Canadian GAAP to
recognize future income tax assets and liabilities, with a corresponding
impact on future income tax expense or recovery based on the temporary
differences expected to reverse after the date the tax is effective.
Accordingly, the Fund recognized a future income tax liability and a
corresponding non-cash future income tax expense of $1.6 million in 2007.
With respect to delivery of products and services under its U.S. cheque
supply contract, the Business does not have a permanent establishment in the
U.S. for the purposes of determining tax liability and therefore does not have
a U.S. income tax liability.
Net income of $82.2 million for 2007 represents an increase of
$15.7 million, or 23.6%, when compared to 2006. On a per unit basis, net
income increased by $0.2632 per unit to $1.8713 per unit or, 16.4%, compared
to 2006. Net income per unit includes a charge for amortization of intangible
assets arising on acquisitions of $0.3026 per unit in 2007.

<<
EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY

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

2007
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue $ 90,934 $ 94,676 $ 101,992 $ 91,149
Cost of sales and
operating expenses 64,178 63,425 66,873 63,913
Amortization of capital
and other assets 4,051 3,884 3,745 3,706
-------------------------------------------------------------------------
22,705 27,367 31,374 23,530
Interest expense 1,876 1,982 2,121 2,230
Net unrealized loss (gain)
on interest-rate swaps 823 957 (2,196) (324)
Amortization of
intangible assets 3,386 3,347 3,271 3,294
Minority interest (139) 205 204 109
-------------------------------------------------------------------------
Income before income taxes 16,759 20,876 27,974 18,221
Future income tax expense 137 - 1,454 -
-------------------------------------------------------------------------
Net income $ 16,622 $ 20,876 $ 26,520 $ 18,221
-------------------------------------------------------------------------
Net income per unit $ 0.3782 $ 0.4750 $ 0.6035 $ 0.4146
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
units outstanding 43,947 43,947 43,947 43,947
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

The Fund has generally reported quarterly revenues that are stable and
growing on a year-over-year basis. The significant increase in revenue from
the second to third quarter of 2006 is primarily a result of the inclusion of
the Filogix Segment revenue beginning in mid-June 2006. In 2007, the Business
benefited from higher than expected order volume and mortgage origination fees
as described previously. The impact of the higher than expected order volume
was a positive factor in the first and second quarters of 2007 and, management
believes, contributed to some order decline toward the end of the year.
Net income and net income per unit have generally been trending
consistently with changing revenue with some exceptions. Commencing in the
third quarter of 2006 and continuing thereafter, as a result of the
acquisition of Filogix, the Business incurred increased amortization of
intangible assets expense and increased interest expense. As a result, both
net income and net income per unit were impacted accordingly. Net income and
net income per unit, starting in the first quarter of 2007, were also affected
by amounts recognized for net unrealized gains and losses on interest-rate
swaps. The fair market value of a swap can fluctuate significantly
quarter-over-quarter as a result of changes in market interest rates.
Management believes that consolidated Davis + Henderson results will be
subject to seasonality with the inclusion of revenue from the Filogix Segment.
Historically, Filogix has recorded stronger results in the second and third
quarters. Additionally, the accelerated and incremental orders received within
the Davis + Henderson Segment that related to the changes in imaging
standards, as previously described, may cause increased variability in revenue
and cash flows as historical reorder patterns adjust.

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

Year ended December 31,
2007 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets $ 634,152 $ 641,051 $ 425,303
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total long-term liabilities $ 135,143 $ 148,493 $ 55,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Total assets of $634.2 million at December 31, 2007 decreased by
$6.9 million compared with total assets at December 31, 2006, primarily as a
result of the amortization of intangible assets. The increase in total assets
between December 31, 2005 and December 31, 2006 was primarily a result of the
acquisition of the Filogix business and the increased investment in AVS in
2006.
Long-term liabilities decreased by $13.4 million as the Business made
$15.0 million of voluntary debt payments in 2007. The change between
December 31, 2005 and December 31, 2006 was principally a result of the
$100.0 million in debt drawn to finance the acquisition of the Filogix
business.

CASH FLOW AND LIQUIDITY

Non-GAAP Measures

The following table is derived from, and should be read in conjunction
with, the consolidated statement of cash flows. Management believes this
supplementary disclosure provides useful additional information related to the
cash flows of the Fund, repayment of debt and other investing activities.
Certain subtotals presented within the cash flows table below, such as
"Adjusted cash flows from operating activities" and "Adjusted cash flows after
capital expenditures and contract payments" are not defined terms under 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)

Year ended December 31,
2007 2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities $ 117,401 $ 89,753 $ 76,844

Add (deduct):
Changes in non-cash working capital
other items(1) (4,949) (1,048) (564)
-------------------------------------------------------------------------
Adjusted cash flows from
operating activities 112,452 88,705 76,280

Less:
Maintenance capital expenditures
- D+H(2) 6,804 4,551 6,729
Maintenance capital expenditures
- Filogix(2) 4,949 1,280 -
Growth capital expenditures(2) 251 1,329 -
Contract payments(3) 3,492 2,695 3,945
-------------------------------------------------------------------------
Adjusted cash flows after capital
expenditures and contract payments(2) 96,956 78,850 65,606

Distributions paid to unitholders 78,357 61,191 54,910
-------------------------------------------------------------------------
Adjusted cash flows after capital,
contract payments and
distributions paid 18,599 17,659 10,696

Cash flows provided by (used in)
other financing activities (15,000) 202,749 (10,000)
Cash flows used in acquisition of
businesses and customer service
contracts (746) (223,852) (3,214)
Changes in non-cash working capital
and other items(1) 4,949 1,048 564
Distributions paid to minority interest (442) (120) -
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents for the year $ 7,360 $ (2,516) $ (1,954)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Year ended December 31,
2007 2006 2005
-------------------------------------------------------------------------
Adjusted cash flows from
operating activities $ 2.5588 $ 2.1441 $ 2.0116
Adjusted cash flows after capital
expenditures and contract payments $ 2.2062 $ 1.9059 $ 1.7301
Distributions paid to unitholders $ 1.7830 $ 1.4940 $ 1.4480
Distributions declared during year $ 1.7980 $ 1.5000 $ 1.4500
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
2007 2006
vs. 2006 vs. 2005
% Change % Change
-------------------------------------------------------------------------
Adjusted cash flows from operating activities 19.3% 6.6%
Adjusted cash flows after capital expenditures
and contract payments 15.8% 10.2%
Distributions paid to unitholders 19.3% 3.2%
Distributions declared during year 19.9% 3.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash Flows, Net Income and Distributions Paid

The following table compares cash flows from operating activities and net
income to distributions paid:

(in thousands of Canadian Year ended December 31,
dollars, unaudited) 2007 2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities $ 117,401 $ 89,753 $ 76,844
Net income $ 82,239 $ 66,529 $ 60,751
Distributions paid during year $ 78,357 $ 61,191 $ 54,910
Excess of cash flows from operating
activities over cash distributions
paid $ 39,044 $ 28,562 $ 21,934
Excess of net income over cash
distributions paid $ 3,882 $ 5,338 $ 5,841
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Excess cash flows from operating activities over cash distributions paid
have been used to fund capital expenditures, to pay down debt and to fund
acquisitions.

Expenditures on Capital Assets and Contract Payments

Total capital asset expenditures for the year ended December 31, 2007
were $12.0 million, an increase of $4.8 million compared to the same period in
2006. The Filogix Segment accounted for $2.6 million of the increase and the
Davis + Henderson Segment accounted for $2.2 million of the increase. Most of
the increase in 2007 over 2006 reflects continued investment in both the Davis
+ Henderson and the Filogix Segments' technology infrastructure as well as
including a full-year capital program for the Filogix Segment.
The level of investment in 2008, for both capital assets and contract
payments, that is required to maintain, sustain and grow the productive
capacity of the Business is expected to be in the range of $13.0 million to
$15.0 million. The Business' capital program provides for continued
expenditures to be funded by cash flows from operations.

Distributions

The Trustees of the Fund manage distribution levels of the Fund with
reference to its financial position, the historical projected performance of
the business and funds required for potential acquisitions. The Fund intends
to make monthly cash distributions of its adjusted cash flows after capital
asset and contract expenditures, subject to working capital requirements, debt
repayments and other reserves.
The Fund paid distributions of $78.4 million ($1.7830 per unit) during
2007 compared to $61.2 million ($1.4940 per unit) in 2006. In the second
quarter of 2006, the Fund issued 6,026,000 trust units to finance the
acquisition of Filogix, increasing cash flow expended on distributions. On a
per unit basis, distributions paid increased by 19.3%, when comparing 2007 to
2006, including a special distribution made in the fourth quarter of 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 19.9% for the year ended December 31, 2007.
On an annualized basis, the monthly distribution rate for December 2007
was $1.72 per unit as compared to $1.54 per unit annualized in December 2006,
representing an increase of 11.4%.
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.
In 2007, Davis + Henderson recorded higher than expected revenues, cash
flow and net income due to a number of factors including incremental cheque
orders and a stronger than anticipated mortgage and real estate market. As a
result, and in recognition of the Fund's intention to pay distributions
sufficient to ensure no taxable income remains within the Fund, the Fund
declared a special distribution in the amount of $0.20 per unit that was paid
in November 2007.
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 declared for 2007 is 100%
"other income", as was the case for all of 2006.
The Fund may issue an unlimited number of trust units. Each trust unit is
transferable and represents an equal, undivided beneficial interest in any
distribution from the Fund and the net assets of the Fund. All units are of
the same class with equal rights and privileges and are not subject to future
calls or assessments. Each unit entitles the holder to one vote at all
meetings of unitholders.
As at December 31, 2007 and February 26, 2008, 43,946,792 trust units
were outstanding. This reflects the issuance of an additional 6,026,000 trust
units on June 15, 2006 in exchange for subscription receipts issued on June 6,
2006, which was the first new issuance of units by the Fund since April 2,
2002.

Cash Flows Provided by (Used in) Other Financing Activities

During the year ended December 31, 2007, the Fund repaid $15.0 million of
long-term indebtedness. Repayments of the debt facility are not subject to
penalties. For the year ended December 31, 2006, the Fund received
$109.2 million of net proceeds from the issuance of new trust units and
$98.5 million from a new debt facility, net of financing fees, to fund the
acquisition of Filogix. The drawdown was partially offset by a $5.0 million
repayment late in 2006.

Cash Flows Used in Acquisition of Business

In June 2006, the Fund significantly advanced its strategy of providing
services to the consumer-lending marketplace by acquiring 100% of Filogix Inc.
for total cash consideration of $212.5 million plus $1.7 million of balance
sheet adjustments. As described above, the cash required to fund this
acquisition was raised by drawing $100.0 million from a newly expanded credit
facility and $109.2 million from net proceeds on the issuance of new trust
units, with the balance funded from cash generated by the operating activities
of the Business.
In May 2006, the Fund entered into an amending agreement to accelerate
its purchase obligation and its first option related to partnership units of
AVS. The Fund, as at December 31, 2007, has a 75% interest in AVS. As noted
earlier, effective January 2, 2008, the Fund purchased the remaining 25%
interest in AVS, bringing its investment to 100%.

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

Year ended December 31,
2007 2006 2005
-------------------------------------------------------------------------
Minority interest $ 379 $ 202 $ -
Change in non-cash working
capital items 4,256 610 220
Changes in other operating
assets and liabilities 314 236 344
-------------------------------------------------------------------------
Changes in non-cash working
capital and other items $ 4,949 $ 1,048 $ 564
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

The decrease in non-cash working capital items for the year ended
December 31, 2007, a source of cash flow, was primarily related to an increase
in trade payables and other current liabilities that is expected to reverse in
future quarters.

Cash Balances and Long-term Indebtedness

The Business has continued to generate operating cash flow in excess of
distributions. For 2007, this excess cash flow, together with cash on hand,
was applied primarily to make voluntary repayments of bank debt. Management
expects to continue to use excess cash flow to pay down debt during 2008.
At December 31, 2007, cash and cash equivalents totalled $13.1 million,
compared to $5.8 million at December 31, 2006. The cash on hand at
December 31, 2007, at higher than normal levels, was used to reduce trade
payables after year end.
Total debt facilities available at December 31, 2006 were $170.0 million
and included a $120.0 million non-revolving term loan and a $50.0 million
revolving term credit facility. As of December 31, 2007, the Business had
drawn $120.0 million under the non-revolving term loan and $10.0 million under
the revolving term credit facility. The Business is permitted to draw on the
revolving facility's available balance of $40.0 million to fund capital
expenditures or for other general purposes.
The Credit Agreement for the Business contains a number of covenants and
restrictions including the requirement to meet certain financial ratios and
financial condition tests. The financial covenants include a leverage test, a
fixed charge coverage ratio test, a minimum net worth test and a limit on the
maximum amount of distributions that may be made by Davis + Henderson L.P. to
the Fund during each rolling, four-quarter period. Davis + Henderson was in
compliance with all of its financial covenants and financial condition tests
as of the end of its latest quarterly period. A copy of the Credit Agreement
is available on SEDAR at www.sedar.com.
As of December 31, 2007, the Fund had interest-rate swap hedge contracts
in place with certain of its lenders, such that the borrowing rates on 92.3%
of outstanding indebtedness are effectively fixed at the interest rates and
for the time periods ending as follows:

<<
(in thousands of Canadian
dollars, unaudited) Fair value of Interest-rate swaps
-------------------------------------------------------------------------
Notional Interest
Maturity Date Amount Asset Liability Rate(1)
-------------------------------------------------------------------------
June 30, 2008 $ 12,000 $ 19 $ - 5.035%
January 4, 2009 10,000 86 - 4.505%
July 15, 2009 20,000 - 207 5.688%
July 15, 2010 33,000 - 455 5.690%
June 15, 2011 20,000 - 284 5.560%
June 15, 2011 25,000 - 227 5.560%
-------------------------------------------------------------------------
$ 120,000 $ 105 $ 1,173
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The listed interest rates are inclusive of banker's acceptance fees
currently in effect. Such fees could increase or decrease depending
on the Fund's financial leverage as compared to certain levels
specified in the Credit Agreement.
>>

Pursuant to new accounting pronouncements implemented with effect from
January 1, 2007, the fair value of the interest-rate swaps is now recorded on
the Balance Sheet.
As at December 31, 2007, the Fund would have to pay the fair value of
$1.2 million ($2.0 million at December 31, 2006) if it were to close out four
of the contracts and would receive $0.1 million ($0.2 million at December 31,
2006) on the closing of the remaining two contracts, as set out on the balance
sheet.
The Fund expects to continue to enter into interest-rate swaps for the
purpose of hedging 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 5.48% as at December 31, 2007.
Cash flows from operations together with cash balances on hand and
unutilized term credit facilities are expected to be sufficient to fund the
Business' operating requirements, capital expenditures, contractual
obligations and anticipated distributions.

<<
Contractual Obligations - Payments Due by Period

The table below presents the contractual obligations of the Business as at
December 31, 2007 and the timing of the expected payments.

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

Long-term
indebtedness $ 130,000 $ - $ - $ 130,000 $ -

Disbursement
obligations on
customer contracts 3,729 2,962 767 - -

Operating leases 13,058 4,212 6,222 2,319 305

Employee future
benefits 561 168 393 - -

Obligations
relating to a
deferred
compensation
program 1,997 - 1,997 - -

-------------------------------------------------------------------------
$ 149,345 $ 7,342 $ 9,379 $ 132,319 $ 305
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cumulative Summary of Cash Flows

The table below provides an analysis of cash flows of the Fund since
inception through December 31, 2007, excluding the transactions pertaining to
the purchase of the original Davis + Henderson business by the Fund.

(in thousands of Canadian dollars, unaudited) Cumulative
-------------------------------------------------------------------------
Cash flows from operating activities $ 502,439

Less:
Expenditures on capital assets and contract payments 71,824
-------------------------------------------------------------------------
Adjusted cash flows after capital expenditures and
contract payments 430,615

Less:
Distributions paid to unitholders 346,793
-------------------------------------------------------------------------
Adjusted cash flows after capital, contract payments
and distributions paid 83,822

Cash flows provided by (used in) other financing activities
Net proceeds from issuance of trust units 109,200
Proceeds from long-term indebtedness net of issuance costs 98,549
Distributions paid to minority interest (562)
Repayments of long-term indebtedness (50,000)
-------------------------------------------------------------------------
157,187
Cash flows used in acquisition of businesses (227,861)
-------------------------------------------------------------------------
Increase in cash and cash equivalents for the period 13,148
Cash and cash equivalents, beginning of period -
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 13,148
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative distributions paid as a % of adjusted
cash flows after capital expenditures and contract payments 80.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

Adjusted cash flows after capital, contract payments and distributions
paid of $83.8 million was retained by the Business and used to contribute to
the funding of acquisitions and to pay down debt.
In general, mutual fund trusts, including the Fund, must distribute all
their taxable income to their unitholders in order not to pay income taxes in
the trust. Taxable income may be less than distributable cash at the Fund
level if the Business has excess tax deductions it can utilize to reduce
taxable income.
The Fund intends to make monthly cash distributions of its Distributable
Cash (a term defined in the Fund's Declaration of Trust) subject to working
capital requirements, debt repayments and other reserves. On a cumulative
basis since inception, Davis + Henderson has distributed approximately 80.5%
of Distributable Cash generated. It has been possible to pay less than 100% of
its Distributable Cash generated to unitholders and not pay taxes within the
trust as the Business had excess tax deductions available to reduce taxable
income. These excess tax deductions diminish each year, and if the Business
continues to generate growing cash flow, the Fund may pay out a higher
proportion of the Distributable Cash it generates to unitholders in order not
to pay taxes in the trust.

OUTLOOK

Davis + Henderson's overall long-term objective is to deliver stable and
modestly growing distributions through growing revenue in the 3% to 5% range
and maintaining margins. In 2007, revenues grew in excess of the targeted
range, in part, as a result of the consolidation of the Filogix business.
Also, as previously described, two additional factors have contributed in 2007
to organic growth exceeding the targeted range: the incremental revenue in the
first half of 2007 from accelerated cheque reorders related to the changes in
imaging standards; and, the record real estate and mortgage activity in 2007
which has contributed to strong growth in fee revenue in the Filogix Segment.
The increased reorder activity levels experienced earlier in 2007 may, in
future quarters, particularly in the first half of 2008, contribute to higher
than historically observed average volume declines as consumers delay orders
due to recent cheque supply replenishments. Additionally, the increased
activity within the real estate and mortgage markets may not be sustained due
to the historical cyclical nature of those markets. The combined impact of
these factors may result in revenue growth in 2008 being below the targeted
long-term range of 3% to 5%.
In addition, while the Fund's long-term objective is to modestly grow
distributions supported by growing revenue, distribution levels can be
influenced by the level of taxable income generated in the Fund as the Fund is
subject to income taxes on taxable income that is not distributed to its
unitholders. Deductions for tax purposes that were previously available to the
Fund have been diminishing and as a result, the Fund may pay out a greater
proportion of its cash flows to unitholders than in previous periods.
As set out in the Fund's statement of strategy, the objective is to grow
profits and cash flow by enhancing the value of our cheque supply program,
offering additional programs to serve the chequing account and delivering
programs within the lending services market.
Management's operational plans include many initiatives which, when
combined, are intended to allow the Fund to meet its objective. Examples
include further implementations and enhancements of iDefence, BizAssist and
eSwitch programs relating to the chequing account. Relating to lending
markets, the Business looks to grow its volumes related to mortgage
origination and underwriting services.
The Business' current U.S. cheque supply contract will expire at the end
of 2008 and it is not expected to be renewed. Contributions from this business
are relatively modest and its expiration will not have a significant impact on
overall operations and, more specifically, cash flows.
The Business' capital program provides for continued expenditures to be
funded by cash flows from operations. Consistent with 2007, the 2008 capital
program is expected to be in the range of $13.0 million to $15.0 million,
Recent changes made to the Income Tax Act require certain income trusts,
including the Fund, to pay taxes after fiscal 2010, similar to those paid by
taxable Canadian corporations. The payment of such taxes will, in the future,
reduce the cash flow of the Fund, thereby reducing the amount available for
distributions to unitholders. Since the announcement of this change in tax
legislation, management and the Trustee 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 institution customers
and dependence on their acceptance of new programs; strategic initiatives
being undertaken to meet the Fund's financial objective, stability and growth
in the real estate and mortgage markets, 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
December 31, 2007 and 2006
(in thousands of Canadian dollars)

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

2007 2006
-------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents $ 13,148 $ 5,788
Accounts receivable 17,860 18,299
Inventory 5,316 5,238
Prepaid expenses 2,973 3,920
-------------------------------------------------------------------------
39,297 33,245

Capital assets (note 2) 32,199 32,567
Other assets (note 3) 5,964 6,147
Interest-rate swaps (note 8) 105 -
Intangible assets (note 4) 118,085 130,546
Goodwill (note 5) 438,502 438,546
-------------------------------------------------------------------------
$ 634,152 $ 641,051
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 39,870 $ 36,600
Distributions payable to unitholders 6,284 5,625
Current portion of disbursement obligations on
customer contracts (note 6) 2,962 2,195
-------------------------------------------------------------------------
49,116 44,420

Disbursement obligations on customer
contracts (note 6) 767 2,195
Long-term indebtedness (note 7) 129,054 143,778
Interest-rate swaps (note 8) 1,173 -
Other long-term liabilities (note 9) 2,558 2,520
Future income taxes (note 10) 1,591 -
Minority interest 200 263
-------------------------------------------------------------------------
184,459 193,176

Unitholders' equity:
Trust units (note 11) 474,585 474,585
Deficit (23,371) (26,710)
Accumulated other comprehensive income (loss) (1,521) -
-------------------------------------------------------------------------
449,693 447,875

Commitments (note 12)
-------------------------------------------------------------------------
$ 634,152 $ 641,051
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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)

-------------------------------------------------------------------------
Quarter ended December 31, Year ended December 31,
2007 2006 2007 2006
-------------------------------------------------------------------------

Revenue $ 90,934 $ 87,932 $ 378,751 $ 323,716
Cost of sales and
operating expenses 64,178 62,034 258,389 228,793
Amortization of capital
and other assets 4,051 3,902 15,386 13,940
-------------------------------------------------------------------------
22,705 21,996 104,976 80,983

Interest expense 1,876 2,186 8,209 6,016
Net unrealized loss (gain)
on interest-rate swaps 823 - (740) -
Amortization of intangible
assets 3,386 3,254 13,298 8,236
Minority interest (139) 89 379 202
-------------------------------------------------------------------------

Income before income taxes 16,759 16,467 83,830 66,529
Future income tax expense 137 - 1,591 -
-------------------------------------------------------------------------
Net income $ 16,622 $ 16,467 $ 82,239 $ 66,529
-------------------------------------------------------------------------
Net income per unit,
basic and diluted $ 0.3782 $ 0.3747 $ 1.8713 $ 1.6081
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 $ 16,622 $ 16,467 $ 82,239 $ 66,529

Other comprehensive income:
Amortization of
transitional adjustment
to net income 163 - 678 -
-------------------------------------------------------------------------
Total comprehensive
income $ 16,785 $ 16,467 $ 82,917 $ 66,529
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 $ (12,834) $ (26,433) $ (26,710) $ (31,049)
Transitional adjustment
on adoption of financial
instruments - - 116 -
Net income 16,622 16,467 82,239 66,529
Distributions (27,159) (16,744) (79,016) (62,190)
-------------------------------------------------------------------------
Deficit, end of period (23,371) (26,710) (23,371) (26,710)
-------------------------------------------------------------------------

ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
Accumulated other
comprehensive income
(loss), beginning of
period (1,684) - - -
Transitional adjustment
on adoption of financial
instruments standards - - (2,199) -
Other comprehensive income:
Amortization of
transitional adjustment
to net income 163 - 678 -
-------------------------------------------------------------------------
Accumulated other
comprehensive income
(loss), end of period (1,521) - (1,521) -
-------------------------------------------------------------------------
Deficit and accumulated
other comprehensive
income (loss), end of
period $ (24,892) $ (26,710) $ (24,892) $ (26,710)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 $ 16,622 $ 16,467 $ 82,239 $ 66,529
Add:
Amortization of capital
assets 3,102 3,442 12,372 10,639
Amortization of other
assets 949 459 3,014 3,301
Amortization of
intangible assets 3,386 3,254 13,298 8,236
Amortization of
transitional adjustment
in interest expense 163 - 678 -
Net unrealized loss
(gain) on interest-rate
swaps 823 - (740) -
Future income tax expense 137 - 1,591 -
Minority interest (139) 89 379 202
-------------------------------------------------------------------------
25,043 23,711 112,831 88,907

Decrease in non-cash
working capital items 6,963 (1,671) 4,256 610
Changes in other
operating assets and
liabilities 135 70 314 236
-------------------------------------------------------------------------
32,141 22,110 117,401 89,753
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Gross proceeds from
issuance of trust units - - - 116,000
Issuance costs - - - (6,800)
Proceeds from (repayment
of) long-term
indebtedness - (5,000) (15,000) 95,000
Financing fees - - - (1,451)
Distributions paid to
minority interest (187) (120) (442) (120)
Distributions paid to
unitholders (26,676) (16,612) (78,357) (61,191)
-------------------------------------------------------------------------
(26,863) (21,732) (93,799) 141,438
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Expenditures on capital
assets (4,204) (1,945) (12,004) (7,160)
Payments pursuant to
long-term supply
contracts (150) (20) (3,492) (2,695)
Acquisition of businesses
(note 1) - 247 91 (222,087)
Acquisition of customer
service contracts - (1,765) (837) (1,765)
-------------------------------------------------------------------------
(4,354) (3,483) (16,242) (233,707)
-------------------------------------------------------------------------
Increase (decrease) in
cash and cash equivalents
for the period 924 (3,105) 7,360 (2,516)
Cash and cash equivalents,
beginning of period 12,224 8,893 5,788 8,304
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 13,148 $ 5,788 $ 13,148 $ 5,788
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplementary information:
Cash interest paid $ 1,886 $ 2,058 $ 7,810 $ 6,526
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Davis + Henderson Income Fund
Notes to Consolidated Financial Statements
Years ended December 31, 2007 and 2006
(in thousands of Canadian dollars, except unit and per unit amounts
unaudited)

1. ACQUISITIONS

a. Filogix Business

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

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

-------------------------------------------------------------------------
Total $ 214,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

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

b. AVS Business

On April 28, 2005, the Fund entered into an agreement to acquire a 50%
interest in AVS L.P. through a step-by-step acquisition over 20 months
ending January 2007. On May 25, 2006, the Fund entered into an amending
agreement to accelerate its remaining obligation as well as exercising
its option to acquire a further 25% interest in the AVS business. As at
December 31, 2006 and December 31, 2007, the Fund owned a 75% interest in
AVS L.P. The purchase price paid for the additional ownership was based
on a formula that referenced the earnings of AVS up to and including
earnings for the year ended December 31, 2006. During the year ended
December 31, 2007, the Fund recognized $0.1 million of adjustments on the
purchase price. The Fund has adopted the purchase method of accounting in
respect of AVS.

Effective January 2, 2008, the Fund acquired the remaining 25% of
interest in the AVS business for consideration of $4.2 million, of which
$1.4 million was allocated to intangible assets and $ 2.8 million was
allocated to goodwill. The acquisition was made with available cash on
hand.

2. CAPITAL ASSETS

2007
-------------------------------------------------------------------------
Accumulated
amorti-
Cost zation 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
-------------------------------------------------------------------------
-------------------------------------------------------------------------

2006
-------------------------------------------------------------------------
Accumulated
amorti-
Cost zation Net
-------------------------------------------------------------------------
Machinery and equipment $ 15,014 $ 6,689 $ 8,325
Computer equipment and software 36,211 14,827 21,384
Furniture, fixtures and leasehold
improvements 7,774 4,916 2,858
-------------------------------------------------------------------------
$ 58,999 $ 26,432 $ 32,567
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization during the quarter ended December 31, 2007 was $3,102
(Q4 2006 - $3,442) and during the year ended December 31, 2007 was
$12,372 (2006 - $10,639). Fully amortized capital assets removed from the
accounts during the year ended December 31, 2007 were $444
(2006 - $5,236).

3. OTHER ASSETS
2007 2006
-------------------------------------------------------------------------
Cost:
Long-term supply contracts $ 12,581 $ 9,750
Other 370 370
-------------------------------------------------------------------------
12,951 10,120

Accumulated amortization (6,987) (3,973)
-------------------------------------------------------------------------
$ 5,964 $ 6,147
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization during the quarter ended December 31, 2007 on long-term
supply contracts was $130 (Q4 2006 - $459) and during the year ended
December 31, 2007 was $3,014 (2006 - $3,301). Fully amortized other
assets removed from the accounts during the year ended December 31, 2007
was $nil (2006 - $4,303).

4. INTANGIBLE ASSETS

2007 2006
-------------------------------------------------------------------------
Cost:
Cheque supply outsourcing contracts $ 16,329 $ 16,329
Customer service contracts 4,506 3,669
Proprietary software 41,993 41,993
Brand names 8,400 8,400
Customer relationships 77,887 77,887
-------------------------------------------------------------------------
149,115 148,278
Accumulated amortization (31,030) (17,732)
-------------------------------------------------------------------------
$ 118,085 $ 130,546
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization during the quarter ended December 31, 2007 was $3,386
(Q4 2006 - $3,254) and during the year ended December 31, 2007 was
$13,298 (2006 - $8,236).

5. GOODWILL
2007 2006
-------------------------------------------------------------------------

Balance, beginning of year $ 438,546 $ 361,288

Goodwill acquired during the year:
AVS acquistion (44) 5,318
Filogix acquistion - 71,940
-------------------------------------------------------------------------
Balance, end of year $ 438,502 $ 438,546
-------------------------------------------------------------------------
-------------------------------------------------------------------------

6. DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

2007 2006
-------------------------------------------------------------------------

Current portion $ 2,962 $ 2,195
Long-term portion 767 2,195
-------------------------------------------------------------------------
Total disbursement obligations on customer
contracts $ 3,729 $ 4,390
-------------------------------------------------------------------------

The Fund has fixed customer contract disbursement obligations payable as
of December 31, 2007 as follows:

2008 $ 2,962
2009 767
-------------------------------------------------------------------------
$ 3,729
-------------------------------------------------------------------------
-------------------------------------------------------------------------

7. LONG-TERM INDEBTEDNESS

2007 2006
-------------------------------------------------------------------------

Non-revolving term loan $ 120,000 $ 120,000
Revolving credit facility 10,000 25,000
-------------------------------------------------------------------------
130,000 145,000
Deferred finance costs (946) (1,222)
-------------------------------------------------------------------------
$ 129,054 $ 143,778
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The Fund has $170.0 million of available term credit facilities due
June 15, 2011 (December 31, 2006 - $170.0 million), consisting of a
$120.0 million non-revolving term loan and a $50.0 million revolving
credit facility. The 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 December 31, 2007, 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 quarter ended December 31, 2007 was $69 (Q4 2006 - $131) and
during the year ended December 31, 2007 was $276 (2006 - $228).
Amortization of deferred finance costs is recognized as interest expense
using the effective interest method.

8. FINANCIAL INSTRUMENTS

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

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

Market risk
The Fund is subject to interest rate risks as its credit
facilities bear interest at rates that depend on certain financial ratios
of the Fund and vary in accordance with borrowing rates in Canada and the
United States.

The following table presents a sensitivity analysis to changes in market
interest rates and their potential impact on the Fund as at December 31,
2007. As the sensitivity is hypothetical, it should be used with caution.

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

Increase (decrease) in interest expense $ 160 $ (160)
Change to net unrealized (gain) loss on
interest-rate swaps (2,700) 2,700
-------------------------------------------------------------------------
Increase (decrease) in net income $ 2,540 $ (2,540)
-------------------------------------------------------------------------
Increase (decrease) in total
comprehensive income $ 2,540 $ (2,540)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The Fund manages its interest rate risks through the use of interest-rate
swaps for most of its outstanding long-term indebtedness. As of
December 31, 2007, the Fund has entered into interest-rate swap contracts
with its lenders, such that the borrowing rates on $120.0 million, or
92.3%, of its outstanding term indebtedness are effectively fixed at
interest rates and for periods shown in the following table:

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

June 30, 2008 $ 12,000 $ 19 $ - 5.035%
January 4, 2009 10,000 86 - 4.505%
July 15, 2009 20,000 - 207 5.688%
July 15, 2010 33,000 - 455 5.690%
June 15, 2011 20,000 - 284 5.560%
June 15, 2011 25,000 - 227 5.560%
-------------------------------------------------------------------------
$ 120,000 $ 105 $ 1,173
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The listed interest rates are inclusive of banker's acceptance fees
currently in effect. Such fees could increase or decrease depending
on the Fund's financial leverage as compared to certain levels
specified in the Credit Agreement.

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.

9. OTHER LONG-TERM LIABILITIES

2007 2006
-------------------------------------------------------------------------
Deferred compensation program $ 1,997 $ 1,659
Employee future benefits 561 861
-------------------------------------------------------------------------
$ 2,558 $ 2,520
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The deferred compensation program, which commenced in 2003, is a five-
year long-term incentive plan for management, subject to certain
performance criteria and vesting terms, payable after December 31, 2008.

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

The Fund's principal pension plans are defined contribution pension plans
that provide pensions to substantially all eligible employees. Total
expense for the Fund's defined contribution pension plan for the quarter
ended December 31, 2007 was $0.5 million (Q4 2006 - $0.3 million) and for
the year ended December 31, 2007 was $1.8 million (2006 - $1.3 million).

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

10. INCOME TAXES

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

On June 22, 2007, legislation (the "SIFT Rules") relating to the
federal income taxation of publicly listed or traded trusts (such as
income trusts and real estate investment trusts) and partnerships
received royal assent. The SIFT Rules apply to a publicly traded trust
that is a specified investment flow-through entity (a "SIFT") which
existed before November 1, 2006 ("Existing Trust"), commencing with
taxation years ending in 2011, assuming transitional rules apply.

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

The Fund is a SIFT as defined in the legislation, and under the existing
SIFT Rules certain flow-through subsidiaries of the Fund themselves may
also be within the definition of a SIFT. Even if it is determined
that these flow-through subsidiaries of the Fund meet the definition of a
SIFT, there would be no impact on the future tax assets and liabilities
of the Fund. On December 20, 2007, the Minister of Finance announced his
intention to introduce technical amendments to the SIFT Rules under which
certain flow-through subsidiaries of a SIFT, which would include those of
the Fund, will not themselves be SIFTs.

Commencing January 1, 2011, the Fund will be subject to tax on its income
distributed. The Fund is also required to recognize future income tax
assets and liabilities with respect to the temporary differences between
the carrying amount and tax bases of its assets and liabilities and those
of its flow-through subsidiaries that are expected to reverse in or after
2011. The Fund expects that its income distributed will not be subject to
tax prior to 2011 and accordingly has not provided for future income
taxes on the temporary differences expected to reverse prior to 2011.

The future income tax expense of the Fund includes the impact of the
enactment of the SIFT Rules and the impact of the Canadian tax
rate reductions that were substantively enacted during the year.

Significant components of the Fund's future tax liabilities and assets
with respect to the consolidated carrying values related to its
investments in certain partnership and trust subsidiaries as of
December 31, 2007 that are expected to reverse after 2010 are as follows:

2007
-------------------------------------------------------------------------
Future income tax assets:
Intangible assets less than tax values $ 10,854
Loss carryforwards 1,636
Valuation allowance (12,490)
-------------------------------------------------------------------------
Total future tax assets -
-------------------------------------------------------------------------

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

The Fund does not expect the temporary difference between the carrying
amount and tax base of intangible assets to reverse in the foreseeable
future and accordingly has reduced the asset by a valuation allowance for
the full amount. A corporate subsidiary of the Fund has losses available
for carry forward. The Fund does not expect to realize the benefit of
these losses in the foreseeable future and accordingly has reduced the
asset by a valuation allowance for the full amount.

The Fund does not have significant temporary differences that are
expected to reverse prior to 2011.

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

11. 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:

2007 2006
-------------------------------------------------------------------------

Balance, beginning of year $ 474,585 $ 365,385
Units issued - 109,200
-------------------------------------------------------------------------
Balance, end of year $ 474,585 $ 474,585
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Units outstanding, end of year 43,946,792 43,946,792
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The weighted average number of units outstanding during 2007 was
43,946,792 (2006 - 41,371,297).

12. COMMITMENTS

As of December 31, 2007, the Fund has annual lease obligations with
respect to real estate, vehicles and equipment as follows:

2008 $ 4,212
2009 3,182
2010 3,040
2011 1,523
2012 796
Thereafter 305
-------------------------------------------------------------------------
$ 13,058
-------------------------------------------------------------------------
-------------------------------------------------------------------------

13. 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 year ended December 31, 2007, this ratio was calculated at
1.09 (2006 - 1.47). 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.

14. SIGNIFICANT CUSTOMERS

For the quarter ended December 31, 2007, the Fund earned 79%
(Q4 2006 - 77%) of its consolidated revenue from its seven largest
customers and for the year ended December 31, 2007, the Fund earned 78%
(2006 - 79%) of its consolidated revenue from its seven largest
customers. For the quarter ended December 31, 2007, four of these
customers individually accounted for greater than 10%, but not more than
18% of the Fund's total revenue (for the quarter ended December 31, 2006,
three of these customers individually accounted for greater than 10%, but
not more than 16% of the Fund's total revenue). For the year ended
December 31, 2007, four of these customers individually accounted
for greater than 10%, but not more than 17% of the Fund's total revenue
(for the year ended December 31, 2006, three of these customers
individually accounted for greater than 10%, but not more than 17% of the
Fund's total revenue).

15. SEGMENTED INFORMATION

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

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

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

Summarized financial information for the quarters and years ended
December 31, 2007 and 2006 is as follows:

Quarters ended
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
----------------------- -----------------------
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
-------------------------------------------------------------------------

Revenue $ 75,359 $ 74,730 $ 15,575 $ 13,202
Cost of sales and
operating expenses 53,082 52,720 10,437 8,794
Amortization of capital
and other assets 2,628 2,421 1,423 1,481
-------------------------------------------------------------------------
19,649 19,589 3,715 2,927

Interest expense - - - -
Net unrealized loss on
interest-rate swaps - - - -
Amortization of intangible
assets 903 771 2,483 2,483
Minority interest (139) 89 - -
-------------------------------------------------------------------------

Income before income taxes 18,885 18,729 1,232 444
Future income tax expense - - - -
-------------------------------------------------------------------------
Net income $ 18,885 $ 18,729 $ 1,232 $ 444
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital and other
expenditures $ 2,660 $ 1,077 $ 1,694 $ 888
Intangible assets $ 5,282 $ 7,810 $ 112,803 $ 122,736
Goodwill $ 366,562 $ 366,606 $ 71,940 $ 71,940
Total assets $ 452,012 $ 418,372 $ 168,992 $ 216,891
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Quarters ended
-------------------------------------------------------------------------
Corporate Consolidated
----------------------- -----------------------
Dec 31, Dec 31, Dec 31, Dec 31,
2007 2006 2007 2006
-------------------------------------------------------------------------

Revenue $ - $ - $ 90,934 $ 87,932
Cost of sales and
operating expenses 659 520 64,178 62,034
Amortization of capital
and other assets - - 4,051 3,902
-------------------------------------------------------------------------
(659) (520) 22,705 21,996

Interest expense 1,876 2,186 1,876 2,186
Net unrealized loss on
interest-rate swaps 823 - 823 -
Amortization of intangible
assets - - 3,386 3,254
Minority interest - - (139) 89
-------------------------------------------------------------------------

Income before income taxes (3,358) (2,706) 16,759 16,467
Future income tax expense 137 - 137 -
-------------------------------------------------------------------------
Net income $ (3,495) $ (2,706) $ 16,622 $ 16,467
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital and other
expenditures $ - $ - $ 4,354 $ 1,965
Intangible assets $ - $ - $ 118,085 $ 130,546
Goodwill $ - $ - $ 438,502 $ 438,546
Total assets $ 13,148 $ 5,788 $ 634,152 $ 641,051
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Year ended December 31,
-------------------------------------------------------------------------
Davis +
Henderson Segment Filogix Segment
----------------------- -----------------------
2007 2006 2007 2006
-------------------------------------------------------------------------

Revenue $ 315,204 $ 292,981 $ 63,547 $ 30,735
Cost of sales and
operating expenses 219,089 205,442 36,726 21,365
Amortization of capital
and other assets 9,789 11,168 5,597 2,772
-------------------------------------------------------------------------
86,326 76,371 21,224 6,598

Income before income taxes 82,581 73,285 11,292 1,246
Future income tax expense - - - -
-------------------------------------------------------------------------
Net income $ 82,581 $ 73,285 $ 11,292 $ 1,246
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital and other asset
expenditures $ 9,766 $ 7,246 $ 5,730 $ 2,609
Intangible assets $ 5,282 $ 7,810 $ 112,803 $ 122,736
Goodwill $ 366,562 $ 366,606 $ 71,940 $ 71,940
Total assets $ 452,012 $ 418,372 $ 168,992 $ 216,891
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Year ended December 31,
-------------------------------------------------------------------------
Corporate Consolidated
----------------------- -----------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ - $ - $ 378,751 $ 323,716
Cost of sales and
operating expenses 2,574 1,986 258,389 228,793
Amortization of capital
and other assets - - 15,386 13,940
-------------------------------------------------------------------------
(2,574) (1,986) 104,976 80,983

Income before income taxes (10,043) (8,002) 83,830 66,529
Future income tax expense 1,591 - 1,591 -
-------------------------------------------------------------------------
Net income $ (11,634) $ (8,002) $ 82,239 $ 66,529
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Capital and other asset
expenditures $ - $ - $ 15,496 $ 9,855
Intangible assets $ - $ - $ 118,085 $ 130,546
Goodwill $ - $ - $ 438,502 $ 438,546
Total assets $ 13,148 $ 5,788 $ 634,152 $ 641,051
-------------------------------------------------------------------------
-------------------------------------------------------------------------

For the quarter ended December 31, 2007, 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 18% of the Filogix Segment revenue (for the quarter
ended December 31, 2006, the Davis + Henderson Segment had five customers
that individually accounted for greater than 10% but not more than 19% of
the Davis + Henderson Segment revenue and the Filogix Segment had two
customers that individually accounted for greater than 10% but not more
than 15% of the Filogix Segment revenue).

For the year ended December 31, 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 17% of the Filogix Segment revenue (for the year
ended December 31, 2006, the Davis + Henderson Segment had four customers
that individually accounted for greater than 10% but not more than 19% of
the Davis + Henderson Segment revenue and the Filogix Segment had two
customers that individually accounted for greater than 10% but not more
than 13% of the Filogix Segment revenue).

SUPPLEMENTARY FINANCIAL INFORMATION

Consolidated Operating Results by Period

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

Revenue $ 378,751 $ 90,934 $ 94,676 $ 101,992 $ 91,149
Cost of sales and
operating
expenses 258,389 64,178 63,425 66,873 63,913
Amortization of
capital and other
assets 15,386 4,051 3,884 3,745 3,706
-------------------------------------------------------------------------
104,976 22,705 27,367 31,374 23,530
Interest expense 8,209 1,876 1,982 2,121 2,230
Net unrealized
loss (gain) on
interest-rate
swaps (740) 823 957 (2,196) (324)
Amortization of
intangible assets 13,298 3,386 3,347 3,271 3,294
Future income tax
expense 1,591 137 - 1,454 -
Minority interest 379 (139) 205 204 109
-------------------------------------------------------------------------
Net income $ 82,239 $ 16,622 $ 20,876 $ 26,520 $ 18,221
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash flows from
operating
activities $ 117,401 $ 32,141 $ 28,802 $ 34,784 $ 21,674
Changes in non-cash
working capital
and other
items(1) (4,949) (6,959) 425 (1,814) 3,399
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 112,452 25,182 29,227 32,970 25,073

Less:
Capital asset
expenditures and
contract
payments 15,496 4,354 4,598 2,955 3,589
-------------------------------------------------------------------------
Adjusted cash flows
after capital
asset expenditures
and contract
payments 96,956 20,828 24,629 30,015 21,484

Distributions paid
to unitholders 78,357 26,676 17,403 17,403 16,875
-------------------------------------------------------------------------
Adjusted cash flows
after capital,
contract payments
and distributions
paid 18,599 (5,848) 7,226 12,612 4,609

Cash flows provided
by (used in) other
financing
activities (15,000) - (5,000) (10,000) -
Cash flows used in
acquisition of
businesses and
customer service
contracts (746) - (837) - 91
Changes in non-cash
working capital
and other
items(1) 4,949 6,959 (425) 1,814 (3,399)
Distributions paid
to minority
interest (442) (187) (255) - -
-------------------------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents for
the period $ 7,360 $ 924 $ 709 $ 4,426 $ 1,301

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

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

Revenue $ 323,716 $ 87,932 $ 87,966 $ 75,900 $ 71,918
Cost of sales and
operating
expenses 228,793 62,034 62,754 52,989 51,016
Amortization of
capital and
other assets 13,940 3,902 3,752 3,286 3,000
-------------------------------------------------------------------------
80,983 21,996 21,460 19,625 17,902
Interest expense 6,016 2,186 2,248 887 695
Net unrealized loss
(gain) on
interest-rate swaps - - - - -
Amortization of
intangible assets 8,236 3,254 3,339 996 647
Future income
tax expense - - - - -
Minority interest 202 89 88 25 -
-------------------------------------------------------------------------
Net income $ 66,529 $ 16,467 $ 15,785 $ 17,717 $ 16,560
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash flows from
operating
activities $ 89,753 $ 22,111 $ 22,786 $ 26,498 $ 18,358
Changes in non-cash
working capital
and other item(1) (1,048) 1,512 90 (4,499) 1,849
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 88,705 23,623 22,876 21,999 20,207

Less:
Capital asset
expenditures and
contract payments 9,855 1,966 2,681 2,413 2,795
-------------------------------------------------------------------------
Adjusted cash flows
after capital asset
expenditures and
contract payments 78,850 21,657 20,195 19,586 17,412

Distributions paid
to unitholders 61,311 16,732 16,479 14,221 13,879
-------------------------------------------------------------------------
Adjusted cash flows
after capital,
contract payments
and distributions
paid 17,539 4,925 3,716 5,365 3,533

Cash flows provided
by (used in) other
financing
activities 202,749 (5,000) - 207,749 -
Cash flows used in
acquisition of
businesses and
customer service
contracts (223,852) (1,518) 660 (222,447) (547)
Changes in non-cash
working capital
and other items(1) 1,048 (1,512) (90) 4,499 (1,849)
Distributions paid
to minority
interest - - - - -
-------------------------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents for
the period $ (2,516) $ (3,105) $ 4,286 $ (4,834) $ 1,137

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

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

Revenue $ 276,537 $ 69,232 $ 69,845 $ 71,226 $ 66,234
Cost of sales and
operating
expenses 196,956 49,586 49,791 50,585 46,994
Amortization of
capital and
other assets 13,107 3,258 3,339 3,298 3,212
-------------------------------------------------------------------------
66,474 16,388 16,715 17,343 16,028
Interest expense 3,301 760 813 839 889
Net unrealized loss
(gain) on
interest-rate swap - - - - -
Amortization of
intangible assets 2,422 646 610 582 584
Future income
tax expense - - - - -
Minority interest - - - - -
-------------------------------------------------------------------------
Net income $ 60,751 $ 14,982 $ 15,292 $ 15,922 $ 14,555
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Cash flows from
operating
activities $ 76,844 $ 19,629 $ 19,634 $ 24,175 $ 13,406
Changes in non-cash
working capital
and other item(1) (564) (743) (393) (4,373) 4,945
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 76,280 18,886 19,241 19,802 18,351

Less:
Capital asset
expenditures and
contract payment 10,674 2,673 2,270 2,962 2,769
-------------------------------------------------------------------------
Adjusted cash flows
after capital asset
expenditures and
contract payments 65,606 16,213 16,971 16,840 15,582

Distributions paid
to unitholders 54,910 13,880 13,728 13,650 13,652
-------------------------------------------------------------------------
Adjusted cash flows
after capital,
contract payments
and distributions
paid 10,696 2,333 3,243 3,190 1,930

Cash flows provided
by (used in) other
financing
activities (10,000) (4,000) (3,000) - (3,000)
Cash flows used in
acquisition of
businesses and
customer service
contracts (3,214) (448) (622) (2,144) -
Changes in non-cash
working capital
and other items(1) 564 743 393 4,373 (4,945)
Distributions paid
to minority
interest - - - - -
-------------------------------------------------------------------------

Increase (decrease)
in cash and cash
equivalents for
the period $ (1,954) $ (1,372) $ 14 $ 5,419 $ (6,015)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

---------------------------------------------------
Year
Year Year ended
ended ended December
December December 31,
(in thousands of 31, 2004 31, 2003 2002(2)
Canadian dollars, (proforma)
except per unit
amounts,
unaudited)
---------------------------------------------------

Revenue $ 275,586 $ 251,783 $ 228,259
Cost of sales and
operating
expenses 196,789 177,704 158,287
Amortization of
capital and
other assets 13,509 14,065 14,212
---------------------------------------------------
65,288 60,014 55,760
Interest expense 4,193 4,630 4,527
Net unrealized loss
(gain) on
interest-rate swap - - -
Amortization of
intangible assets 2,333 2,332 2,408
Future income
tax expense 4,494 4,595 3,314
Minority interest - - -
---------------------------------------------------
Net income $ 54,268 $ 48,457 $ 45,511
---------------------------------------------------
---------------------------------------------------

Cash flows from
operating
activities $ 77,271 $ 68,569 $ 64,786
Changes in non-cash
working capital
and other item(1) (3,616) (132) (352)
---------------------------------------------------
Adjusted cash flows
from operating
activities 73,655 68,437 64,434

Less:
Capital asset
expenditures and
contract payment 11,928 11,192 12,597
---------------------------------------------------
Adjusted cash flows
after capital asset
expenditures and
contract payments 61,727 57,245 51,837

Distributions paid
to unitholders 53,066 51,442 47,827
---------------------------------------------------
Adjusted cash flows
after capital,
contract payments
and distributions
paid 8,661 5,803 4,010

Cash flows provided
by (used in) other
financing
activities (7,000) (13,000) -
Cash flows used in
acquisition of
businesses and
customer service
contracts - - -
Changes in non-cash
working capital
and other items(1) 3,616 132 352
Distributions paid
to minority
interest - - -
---------------------------------------------------

Increase (decrease)
in cash and cash
equivalents for
the period $ 5,277 $ (7,065) $ 4,362
---------------------------------------------------
---------------------------------------------------

Summary of Cash Flows Per Unit
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
(in Canadian ended ended ended ended ended
dollars, December December September June 30, March 31,
unaudited) 31, 2007 31, 2007 30, 2007 2007 2007
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities $ 2.5588 $ 0.5730 $ 0.6651 $ 0.7502 $ 0.5705
Adjusted cash flows
after capital asset
expenditures and
contract payments $ 2.2062 $ 0.4739 $ 0.5604 $ 0.6830 $ 0.4889
Distributions paid
to unitholders $ 1.7830 $ 0.6070 $ 0.3960 $ 0.3960 $ 0.3840
Distributions
declared during
period $ 1.7980 $ 0.6180 $ 0.3960 $ 0.3960 $ 0.3880
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
(in Canadian ended ended ended ended ended
dollars, December December September June 30, March 31,
unaudited) 31, 2006 31, 2006 30, 2006 2006 2006
-------------------------------------------------------------------------
Adjusted cash
flows from
operating
activities $ 2.1441 $ 0.5375 $ 0.5205 $ 0.5559 $ 0.5329
Adjusted cash
flows after
capital asset
expenditures and
contract payments $ 1.9059 $ 0.4928 $ 0.4595 $ 0.4949 $ 0.4592
Distributions paid
to unitholders $ 1.4940 $ 0.3780 $ 0.3750 $ 0.3750 $ 0.3660
Distributions
declared during
period $ 1.5000 $ 0.3810 $ 0.3750 $ 0.3750 $ 0.3690
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
(in Canadian ended ended ended ended ended
dollars, December December September June 30, March 31,
unaudited) 31, 2005 31, 2005 30, 2005 2005 2005
-------------------------------------------------------------------------
Adjusted cash
flows from
operating
activities $ 2.0116 $ 0.4980 $ 0.5074 $ 0.5222 $ 0.4839
Adjusted cash
flows after
capital asset
expenditures and
contract payments $ 1.7301 $ 0.4275 $ 0.4475 $ 0.4441 $ 0.4109
Distributions paid
to unitholders $ 1.4480 $ 0.3660 $ 0.3620 $ 0.3600 $ 0.3600
Distributions
declared during
period $ 1.4500 $ 0.3660 $ 0.3640 $ 0.3600 $ 0.3600
-------------------------------------------------------------------------
-------------------------------------------------------------------------

---------------------------------------------------
Year
Year Year ended
(in Canadian ended ended December
dollars, December December 31,
unaudited) 31, 2004 31, 2003 2002(2)
---------------------------------------------------
Adjusted cash
flows from
operating
activities $ 1.9423 $ 1.8047 $ 1.6992
Adjusted cash
flows after
capital asset
expenditures and
contract payments $ 1.6278 $ 1.5096 $ 1.3670
Distributions paid
to unitholders $ 1.3994 $ 1.3566 $ 1.2510
Distributions
declared during
period $ 1.4044 $ 1.3599 $ 1.3200
---------------------------------------------------
---------------------------------------------------
(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) The year ended December 31, 2002 was compiled from proforma
financial statements adjusted to remove the twelve-day period ended
December 31, 2001. The proforma balances presented are based on the
actual statements of the Fund adjusted to remove the expense related to
the distributions paid to the non-controlling owner and to increase the
number of units outstanding to 37,920,792 as at December 20, 2001 (versus
the 17,235,000 units outstanding from December 20, 2001 to January 9,
2002; 19,955,000 units outstanding from January 10, 2002 to April 1,
2002; and 37,920,792 units outstanding subsequent to April 1, 2002).

Condensed Consolidated Balance Sheet

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

Cash and cash equivalents $ 13,148 $ 12,224 $ 11,515 $ 7,089
Other current assets 26,149 29,644 29,772 26,332
Capital and other assets 38,268 38,049 39,303 39,532
Goodwill and other
intangible assets 556,587 559,973 562,483 565,754

-------------------------------------------------------------------------
$ 634,152 $ 639,890 $ 643,073 $ 638,707
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Payables and other current
liabilities $ 49,116 $ 45,165 $ 45,994 $ 41,034
Other long-term liabilities 6,289 5,673 6,732 6,688
Long-term indebtedness 129,054 128,985 133,916 143,847
Unitholders' equity 449,693 460,067 456,431 447,138

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

Cash and cash equivalents $ 5,788 $ 8,893 $ 4,607 $ 9,441
Other current assets 27,457 27,384 28,834 17,136
Capital and other assets 38,714 40,554 41,275 29,220
Goodwill and other
intangible assets 569,092 572,215 575,635 369,131

-------------------------------------------------------------------------
$ 641,051 $ 649,046 $ 650,351 $ 424,928
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Payables and other current
liabilities $ 44,420 $ 47,100 $ 48,064 $ 32,697
Other long-term liabilities 4,978 5,148 4,867 5,328
Long-term indebtedness 143,778 148,646 148,574 50,000
Unitholders' equity 447,875 448,152 448,846 336,903

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

Cash and cash equivalents $ 8,304 $ 9,674 $ 9,660 $ 4,243
Other current assets 17,076 18,245 17,009 16,826
Capital and other assets 30,673 31,401 33,093 34,652
Goodwill and other
intangible assets 369,250 369,538 369,610 368,056

-------------------------------------------------------------------------
$ 425,303 $ 428,858 $ 429,372 $ 423,777
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Payables and other current
liabilities $ 35,665 $ 35,703 $ 34,181 $ 30,373
Other long-term liabilities 5,302 5,921 6,446 6,930
Long-term indebtedness 50,000 54,000 57,000 57,000
Unitholders' equity 334,336 333,234 331,745 329,474

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

Cash and cash equivalents $ 10,258 $ 4,981 $ 12,046
Other current assets 15,352 15,779 16,142
Capital and other assets 36,345 67,111 74,912
Goodwill and other
intangible assets 368,640 370,973 373,305

--------------------------------------------------------------
$ 430,595 $ 458,844 $ 476,405
--------------------------------------------------------------
--------------------------------------------------------------

Payables and other current
liabilities $ 34,422 $ 31,136 $ 32,778
Other long-term liabilities 7,603 4,980 4,789
Long-term indebtedness 60,000 67,000 80,000
Unitholders' equity 328,570 355,728 358,838

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

Distribution History
-------------------------------------------------------------------------
Distributions
per unit(1)
Month 2007 2006 2005 2004 2003 2002 2001
-------------------------------------------------------------------------

January $ 0.1280 $ 0.1220 $ 0.1200 $ 0.1150 $ 0.1117 $ 0.1083 $ -
February 0.1280 0.1220 0.1200 0.1150 0.1117 0.1083 -
March 0.1320 0.1250 0.1200 0.1168 0.1117 0.1083 -
April 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
May 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
June 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
July 0.1320 0.1250 0.1200 0.1168 0.1133 0.1117 -
August 0.1320 0.1250 0.1220 0.1168 0.1133 0.1117 -
September 0.1320 0.1250 0.1220 0.1168 0.1133 0.1117 -
October 0.1320 0.1250 0.1220 0.1168 0.1150 0.1117 -
November(2) 0.3430 0.1280 0.1220 0.1200 0.1150 0.1117 -
December(3) 0.1430 0.1280 0.1220 0.1200 0.1150 0.1117 0.0427

-------------------------------------------------------------------------
$ 1.7980 $ 1.5000 $ 1.4500 $ 1.4044 $ 1.3599 $ 1.3200 $ 0.0427
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Monthly distributions are made to unitholders of record on the last
business day of each month and are paid within 31 days following each
month end.

(2) 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

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

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

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

-------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
-------------------------------------------------------------------------

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

Other Statistics
(in thousands, except per unit amounts)

Number of Market
Trading price range of units capitali-
Quarter units (TSX: "DHF.UN") Average outstanding zation
-------------------------- daily at quarter at quarter
High Low Close volume end end
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2007 - Q4 - Q3 - Q2 - Q1 2006 - Q4 - Q3 - Q2 - Q1 2005 - Q4 - Q3 - Q2 - Q1 2004 - Q4 - Q3 - Q2 - Q1 2003 - Q4 - Q3 - Q2 - Q1 2002 - Q4 - Q3 - Q2 - Q1 $ 22.00 $ 18.75 $ 21.00 98 43,947 $ 922,883
20.10 17.14 19.80 78 43,947 870,146
19.79 16.30 19.31 90 43,947 848,613
17.19 15.00 16.60 87 43,947 729,517
19.80 13.80 15.46 143 43,947 679,417
19.49 17.21 19.19 96 43,947 843,339
21.99 16.99 17.70 100 43,947 777,858
23.18 19.50 21.50 61 37,921 815,297
24.00 16.32 23.19 92 37,921 879,383
24.07 19.50 21.19 88 37,921 803,542
22.85 19.58 20.92 61 37,921 793,303
23.25 19.65 22.00 67 37,921 834,257
23.25 18.80 22.70 81 37,921 860,802
19.62 16.75 19.45 58 37,921 737,559
19.34 15.05 18.00 93 37,921 682,574
19.40 16.71 19.40 92 37,921 735,663
17.50 15.10 17.45 67 37,921 661,718
15.65 14.52 15.30 99 37,921 580,188
15.20 12.91 15.00 82 37,921 568,812
13.69 12.48 12.94 92 37,921 490,695
13.25 11.22 12.86 139 37,921 487,661
12.13 10.45 12.10 165 37,921 458,842
11.25 10.00 10.95 176 37,921 415,233
11.20 10.11 10.51 149 18,955 199,217

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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