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Davis + Henderson Income Fund Reports Second Quarter 2007 Results

TSX Stock Symbol: "DHF.UN".
Website: www.dhltd.com

TORONTO, July 31 /CNW/ - Davis + Henderson Income Fund today reported
sharp increases in revenue and cash flow for the three and six months ended
June 30, 2007 as the positive impact of program enhancements, higher than
anticipated cheque order volumes and strong activity in the mortgage and real
estate markets combined to produce above-target performance.

<<
Second Quarter Highlights

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

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

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

Six-Month Highlights

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

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

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

Management Commentary

The inclusion of the Filogix results for the full six months of 2007, as
compared to just eleven business days for the same period in 2006, had a
significant impact on revenue and cash flows to date this year. During the
first six months of 2007, the Business continued to benefit from solid
contributions related to program initiatives, such as iDefence® and
BizAssist™.
Additionally, two other significant factors contributed to above-target
revenue growth: (1) cheque order volumes were stronger than anticipated,
including incremental reorders related to the changes in imaging standards on
cheques; and (2) record real estate activity in 2007 has significantly
increased mortgage origination and underwriting fees within the Filogix
Segment.
While the factors contributing to incremental cheque orders may or may
not continue to positively impact performance through the remainder of the
current year, they are not expected to be sustained long term as management
continues to expect overall cheque order volume declines. Recent increased
reorder activity levels may contribute in future quarters to higher than
historically observed average volume declines, as consumers delay orders due
to recent cheque supply replenishments.
Looking forward, Davis + Henderson remains committed to its financial
objective of delivering stable and modestly growing distributions based on
achieving revenue growth in the 3-5% range. With the addition of Filogix,
Davis + Henderson has significantly strengthened its capabilities and the
breadth of services it offers to the Canadian financial services marketplace.
From Davis + Henderson's established platforms, management looks to increase
value for customers and unitholders by building on Davis + Henderson's
programs.
For a more detailed discussion of second quarter results and management's
outlook, please see the Management's Discussion and Analysis.

Caution Concerning Forward-Looking Statements

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

Conference Call

Davis + Henderson will discuss its financial results for the second
quarter ended June 30, 2007 via conference call at 10:00 a.m. EST (Toronto
time) on Wednesday August 1, 2007. The number to use for this call is
416-644-3414 for Toronto area callers or 1-866-249-1964- for all other
callers. The conference call will be hosted by Bob Cronin, Chief Executive
Officer and by Catherine Martin, Chief Financial Officer. The conference call
will also be available on the web by accessing CNW Group's website
www.newswire.ca/webcast/. For anyone unable to listen to the scheduled call,
the rebroadcast number is: 416-640-1917 for Toronto area callers, or
1-877-289-8525 for all other callers, with reservation number 21236226
followed by the number sign. The rebroadcast will be available until Wednesday
August 15, 2007. An archive recording of the conference call will also be
available at the above noted web address for one month following the call and
a text version of the call will be available at www.dhltd.com.

ADDITIONAL INFORMATION

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis ("MD&A") for the second quarter of
2007 should be read in conjunction with MD&A in the Davis + Henderson Income
Fund's (the "Fund" or the "Business" or "Davis + Henderson") Annual Report for
the year ended December 31, 2006, dated February 27, 2007 and the attached
interim unaudited consolidated financial statements. External economic and
industry factors remain substantially unchanged from the annual MD&A and the
Fund's most recently filed Annual Information Form, unless otherwise stated.

STRATEGY

The Fund's financial goal is to deliver stable and modestly growing cash
distributions to unitholders by targeting annual revenue growth in the range
of 3% to 5% and maintaining margins. The Fund has three primary strategies to
meet this financial goal. These are to: enhance the value of the Davis +
Henderson cheque supply program; offer additional programs to serve the
chequing account; and deliver programs within the lending services market. The
Fund advances its strategies through internal (or organic) initiatives, as
well as by partnering with third parties and by way of selective acquisitions.
In growing its cheque supply program as part of its first strategy, Davis
+ Henderson is focused on increasing value by continuously introducing product
design alternatives, enhancing security components and combining other logical
products and services into convenient and valuable packages for chequing
account holders.
Other Davis + Henderson programs that serve the chequing account that
have been developed as part of its second strategy include a deposit program,
which is directed towards small business account holders, and eSwitch®, a
service that allows financial institutions to more easily move electronic
pre-authorized payments and direct deposit authorizations between chequing
accounts on behalf of account holders at the time of new account openings.
To advance its third key strategy, the Business acquired Filogix and
Advanced Validation Systems Limited Partnership ("AVS" or "AVS L.P."). Among
other services, Filogix provides processing services related to the
origination and underwriting of mortgages in Canada. AVS, under Davis +
Henderson's brand CollateralGuard™, provides lenders with, among other
offerings, personal property search and registration programs across Canada.
The addition of these business interests has created another business platform
for Davis + Henderson.
Late in 2006, the Minister of Finance (Canada) released draft
legislation, which would result in certain income trusts, including the Fund,
paying taxes after fiscal 2010, similar to those paid by taxable Canadian
corporations. These proposed amendments were enacted on June 22, 2007. The
payment of such taxes will, in the future, reduce the cash flow of the Fund,
thereby reducing the amount available for distributions to unitholders. These
changes have caused uncertainty in the capital markets and variability in the
unit prices of many income trusts, including the Fund. This uncertainty and
the related impacts may affect the Fund's ability to make future acquisitions.
Since the announcement, management and the Trustees have monitored the changes
in the income trust environment and continue to review potential impacts on
the Fund's current strategies and the alternatives available to the Fund,
consistent with protecting and enhancing unitholder value.

FINANCIAL INFORMATION PRESENTATION

The Fund's results for the quarter ended June 30, 2007 include the
results of the Filogix business acquired on June 15, 2006. The inclusion of
Filogix had a significant impact on the financial results and has also
resulted in changes to the form of Davis + Henderson's disclosures.
With the acquisition of Filogix, the Fund now operates in two business
segments, the "Davis + Henderson Segment" and the "Filogix Segment". The Davis
+ Henderson Segment includes the cheque supply program, deposit program,
eSwitch and the personal property search and registration programs, among
other offerings. The Filogix Segment includes services related to the
origination and underwriting of mortgages in Canada, among other offerings.
Corporate expenses have also been segmented and include expenditures related
to public company activities, a share of executive corporate management costs
and certain other corporation-wide costs.

<<
OPERATING RESULTS FOR THE SECOND QUARTER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Revenue

Total revenue for the second quarter of 2007 was $102.0 million, an
increase of $26.1 million, or 34.4%, compared to the second quarter of 2006.
The inclusion of the Filogix Segment for the full quarter accounted for
$15.2 million of the increase, with the balance of the increase,
$10.9 million, attributable to the Davis + Henderson Segment.
For the first six months of 2007, total revenue increased by
$45.3 million, or 30.7%, compared to the first six months of 2006. The Filogix
Segment accounted for $27.8 million of the increase and the Davis + Henderson
Segment accounted for $17.5 million of the increase.
Revenue for the Davis + Henderson Segment increased by 14.9% and 12.0% in
the second quarter and first half of 2007, respectively, when compared to the
same periods in 2006. This is higher than the Fund's overall long-term
objective of growing revenues in the 3% to 5% range. As expected, the Business
achieved solid growth in revenues related to successful program initiatives
introduced late in 2006, including product and service enhancements such as
iDefence® and BizAssist™, and it benefited from certain customer
initiatives during the second quarter, including orders relating to account
conversion activities. In addition, almost half of the year-over-year revenue
increase came from stronger than expected Canadian cheque order volumes as
further discussed below.
Historically, cheque order volumes have, on average, declined annually by
low single digit percentages as a result of declining cheque usage. In the
first six months of 2007, the Davis + Henderson Segment did not experience
this decline and overall cheque order volume was higher than the prior year.
These stronger than anticipated order volumes are believed to be the result of
increased customer promotional activities, the continuing movement of
consumers to orders with fewer cheques and changes in the imaging standards
required for cheques produced in Canada, which generated incremental and
accelerated orders. In the first quarter of 2007, these incremental orders
related primarily to one financial institution, but during the second quarter,
orders were increasing from many of our financial institution customers.
Management believes that many of these accelerated reorders would otherwise
have been received in future periods pursuant to normal reorder cycles.
Management also believes that declining cheque usage will continue to
contribute to declining cheque orders as it has in the past, although, the
Business may continue to receive incremental and accelerated orders, as
previously described, over the short term. Additionally, it is believed that
the acceleration of orders may contribute to higher than historically observed
average declines in future quarters, reducing revenues in such periods.
During the first six months of 2007, the Business also benefited from its
increased ownership of the AVS business, the expansion of personal property
search and registration programs to two additional financial institutions and
continued growth in eSwitch volume related to customer promotional programs.
These initiatives, while still small relative to the cheque program and
Filogix revenue, continue to grow and enhance the value of Davis + Henderson's
service offerings.
Revenue for the Filogix Segment in the first six months of 2007 was
stronger than expected with continued year-over-year growth in fees related to
mortgage origination and underwriting services. Including 2006 revenue
recorded prior to the acquisition of Filogix by the Fund, origination services
revenue was up over 35% year-over-year. This performance is consistent with
the record activity in the real estate market and strong origination mortgage
volume.

Cost of Sales and Operating Expenses

On a consolidated basis, cost of sales and operating expenses for the
second quarter of 2007 increased by $13.9 million, or 26.2%, compared to the
second quarter of 2006. The addition of the Filogix Segment accounted for
$7.1 million of the increase. The remaining $6.8 million is related to the
Davis + Henderson Segment and to corporate expenses.
For the first half of 2007, consolidated cost of sales and operating
expenses increased by $26.8 million, or 25.7%, when compared to the first half
of 2006. The Filogix Segment accounted for $15.9 million of the increase and
the Davis + Henderson Segment, along with corporate expenses, accounted for
the remaining $10.9 million.
For the second quarter, substantially all of the Davis + Henderson
Segment and corporate year-over-year expense increase of 13.1%, was related to
increased revenues as described above. For the six-month period ended June 30,
2007, while most of the expense increase related directly to revenue growth,
the Business also had increased spending on information technology related to
infrastructure upgrade initiatives and enhancing the overall internal
computing environment. As a result of revenue growth, including the higher
than expected cheque order volume described above, the Davis + Henderson
Segment margins improved.
Cost of sales and operating expenses of the Filogix Segment during the
period since acquisition were consistent with expectations and reflected
continued spending on product enhancements. In general, operating costs are
not directly correlated with increases or decreases in revenue. Increases in
Filogix revenues, due to the factors described above, significantly increased
the Filogix Segment margins. The Business expects to increase expenses within
the Filogix Segment in support of further product enhancements, and
accordingly, margins are expected to be reduced from the second quarter of
2007 levels.
While Davis + Henderson operates primarily in Canada, the Business also
services a U.S. subsidiary of one of its Canadian customers. All revenue and
substantially all expenses relating to the U.S. cheque supply program are
contracted for in U.S. dollars. As the net U.S. dollar contribution from this
activity is relatively modest, the change in relative dollar valuations has
not had a meaningful impact on the results of the Business.

Other Expenses and Net Income

Amortization of capital and other assets on a consolidated level
increased by $0.5 million, or 14.0%, to $3.7 million compared to the second
quarter of 2006. The inclusion of the Filogix Segment for the full quarter,
which contributed $1.3 million to the increase, was partially offset by a
decline in expense in the Davis + Henderson Segment of $0.8 million, relating
to certain capital and other assets having become fully amortized. For the
first half of 2007, amortization of capital and other assets on a consolidated
basis was $7.5 million, an increase of $1.2 million compared to the first half
of 2006. The Filogix Segment contributed $2.6 million of the increase,
partially offset by a decrease in expenses for the Davis + Henderson Segment
of $1.4 million as described above.
Interest expense increased by $1.2 million for the second quarter of 2007
compared to the same quarter in the prior year. For the first half of 2007,
interest expense was $2.8 million higher than the comparable 2006 period.
These increases reflected the draw down of additional debt for the acquisition
of the Filogix business late in the second quarter of 2006. Included in these
balances were $0.2 million and $0.4 million, respectively for the second
quarter and first half of 2007, of amortization of net losses in fair market
value of interest-rate swaps that were deferred prior to January 1, 2007.
Commencing January 1, 2007, the Business no longer designates its
interest-rate swaps as hedges for accounting purposes.
Unrealized gains on interest-rate swaps of $2.2 million and $2.5 million
were recognized for the three and six months ended June 30, 2007,
respectively, and reflected the recognition of the change in fair value of the
interest-rate swaps during each period. These unrealized gains were recognized
in income as these swaps are no longer designated as hedges for accounting
purposes. For further discussion on the amortization of net losses in fair
market value and the net gain or loss from change in fair value of
interest-rate swaps, see the Comprehensive Income section below.
Amortization of intangibles increased by $2.3 million and $4.9 million
compared to the second quarter and first half of 2006, respectively. These
increases were primarily related to incremental intangible assets arising on
the purchase of the Filogix business. These intangible assets consist of
rights related to customer relationships, brand names and proprietary software
and are amortized on a straight-line basis over periods ranging from 10 to
15 years.
During the second quarter of 2006, the Fund increased its ownership in
AVS to 75%. The acceleration of the ownership interest in AVS was initiated by
the Business so as to better serve customers on an integrated basis. With the
increased ownership, the Business now fully consolidates the results of AVS.
The minority interest recorded in the consolidated statement of income
represents the 25% interest in the earnings of AVS that do not accrue to the
Business.
Income earned by the Business and distributed annually to unitholders is
not subject to taxation in the Business, but is taxed at the individual
unitholder level. The Fund and its subsidiaries are not anticipated to be
subject to taxes until 2011, as long as all taxable income generated by the
Fund is paid to unitholders in the form of distributions. In 2011 and
subsequent years, the Fund will pay a tax on its distributions at a rate of
31.5%. As the new tax rules were enacted late in June 2007, the Fund is
required under Canadian GAAP to recognize future income tax assets and
liabilities, with a corresponding impact on future income tax expense or
recovery based on the temporary differences expected to reverse after the date
the tax is effective. Accordingly, the Fund recognized a future income tax
liability and a corresponding non-cash future income tax expense of
$1.5 million during the second quarter of 2007.
With respect to delivery of products and services under its U.S. cheque
supply contract, the Business does not have a permanent establishment in the
U.S. for the purposes of determining tax liability and therefore does not have
U.S. income tax liability.
Net income of $26.5 million for the second quarter of 2007 represents an
increase of $8.8 million compared to the second quarter of 2006. Net income of
$0.6035 per unit increased by $0.1558 per unit. For the six-month period ended
June 30, 2007, net income was $44.7 million, or $1.0181 per unit. This
represents an increase of $10.5 million, or $0.1336 per unit.

Comprehensive Income

On January 1, 2007, the Business adopted the Canadian Institute of
Chartered Accountants (CICA) handbook sections 3855 "Financial Instruments -
Recognition and Measurement", 1530 "Comprehensive Income " and 3251 "Equity".
These standards require that all financial assets be classified as
"trading", "designated at fair value", "available for sale", "held to
maturity", or "loans and receivables". In addition, the standards require that
all financial assets, including all derivatives, be measured at fair value
with the exception of loans and receivables, debt securities classified as
held-to-maturity, and available-for-sale equities that do not have quoted
market values in an active market. As required, these standards have been
applied on a prospective basis and accordingly, the recording of an adjustment
to opening Deficit and the recognition of Accumulated Other Comprehensive
Income (Loss) ("AOCI") have been made. As a result, the Deficit balance
decreased by $0.1 million and AOCI increased by $2.2 million. Prior period
balances have not been restated.
The Business expects to continue to enter into interest-rate swaps for
the purpose of hedging interest rates.
During the three-month and six-month periods ended June 30, 2007 the
Business recognized $0.2 million and $0.4 million, respectively, of
comprehensive income reflecting the amortization of previously deferred net
losses charged to net income as discussed above.

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

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

2006 2005
Q2 Q1 Q4 Q3
-------------------------------------------------------------------------
Revenue $ 75,900 $ 71,918 $ 69,232 $ 69,845
Net income $ 17,717 $ 16,560 $ 14,982 $ 15,292
-------------------------------------------------------------------------
Net income per unit $ 0.4477 $ 0.4367 $ 0.3951 $ 0.4033
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
units outstanding 39,576 37,921 37,921 37,921
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

The Fund has generally reported quarterly revenues that are stable and
growing on a year-over-year basis. The significant increases in revenue from
the second to the third quarter of 2006 are primarily a result of the
inclusion of the Filogix Segment revenue beginning in mid-June 2006. The
increase from the first to the second quarter of 2007 reflected the higher
than expected order volume and origination fees as described previously.
Net income and net income per unit has been trending consistently with
changing revenue with two exceptions. Commencing in the third quarter of 2006
and continuing thereafter, as a result of the acquisition of Filogix, the
Business incurred increased amortization of intangible assets expense and both
net income and net income per unit were impacted accordingly. More recently,
the increase in net income and net income per unit from the first quarter to
the second quarter of 2007 reflected higher contribution resulting from
increased revenue discussed above.
Going forward, management believes that consolidated Davis + Henderson
results will be subject to seasonality with the inclusion of revenue from the
Filogix Segment. Historically, Filogix has recorded stronger results in the
second and third quarters. Additionally, the accelerated and incremental order
received within the Davis + Henderson Segment related to the changes in
imaging standards as previously described, may cause increased variability in
revenue and cash flows.

CASH FLOW AND LIQUIDITY

Non-GAAP Measures

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

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

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

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

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

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

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

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

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

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

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

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

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

Increase (decrease) in cash
and cash equivalents
for the period $ 4,426 $ (4,834) $ 5,727 $ (3,697)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 1: Maintenance capital expenditures are defined by the Fund as
capital expenditures necessary to maintain and sustain the current
productive capacity of the Business or generally improve the efficiency
of the Business. Maintenance expenditures also include recurring fixed
customer contract payments that are made annually over the life of the
contract. Growth capital expenditures are defined by the Fund as capital
expenditures that increase the productive capacity of the Business with a
reasonable expectation of an increase in cash flow. Non-maintenance
capital expenditures are defined as expenditures which are expected to
increase future operating cash flows of the Business, that are infrequent
and include non-maintenance contract payments, which are payment
obligations under certain long-term customer contracts.

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

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

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

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

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

Excess Cash Flows and Net Income Over Distributions Paid

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

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

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

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

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

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

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

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

The table above sets out capital expenditures and payments under customer
contracts. The Business has various payment obligations under customer
contracts. Certain long-term customer contracts provide for fixed contract or
program initiation payments to be made, and these are treated as
non-maintenance capital because they are not regularly recurring
disbursements. Other fixed customer contract payments are made annually over
the life of the contract and therefore are treated as recurring maintenance
capital. The aggregate of all contract payments, both fixed and variable,
reflects, among other things, the high degree of integration and sharing
between Davis + Henderson and the financial institutions of the many
activities related to ordering, data handling, customer service and other
activities undertaken by financial institutions related to the operation of
the cheque supply and other programs.
The level of capital expenditures in the Davis + Henderson Segment in
2007 is expected to be similar to, or slightly higher than, the expenditure
levels in 2006. Maintenance capital expenditures in the Filogix Segment for
2007 is expected to be higher only as a reflection of a full-year capital
program.
The Business' capital program provides for continued expenditures to be
funded by cash flows from operations. The Business' 2007 capital program is
expected to be in the range of $12.0 million to $14.0 million of which
$2.0 million to $3.0 million is expected to be growth capital. Most of the
increase arises as a result of including a full-year capital program for the
Filogix business. The level of investment in 2007 required to maintain and
sustain the productive capacity of the Business is expected to be comparable
to the annualized expenditures in 2006.

Distributions

The Fund paid distributions of $17.4 million ($0.396 per unit) during the
second quarter of 2007 and $34.3 million ($0.780 per unit) for the first half
of 2007 compared to $14.2 million ($0.375 per unit) and $28.1 million
($0.741 per unit), respectively, for the same periods in 2006. In June 2006,
the Fund issued 6,026,000 additional units to finance the Filogix acquisition.
On a per unit basis for the three and six months ended June 30, 2007,
distributions paid increased by 5.6% and 5.3%, respectively, when compared to
the same periods in 2006.
Distributions paid can be different than distributions declared during a
period. Monthly distributions are declared by the Fund for unitholders of
record on the last business day of each month and are paid within 31 days
following each month end. On a declared basis, the year-over-year increase in
distributions per unit was 5.6% and 5.4% for the three and six-month periods
ended June 30, 2007 respectively.
On an annualized basis, the monthly distribution rate for June 2007 was
$1.58 per unit as compared to $1.50 per unit annualized in June 2006,
representing an increase of 5.6%.
The estimated tax allocation of distributions declared for 2007 is 100%
"other income", as was the case for all of 2006.
The Fund may issue an unlimited number of trust units. Each trust unit is
transferable and represents an equal, undivided beneficial interest in any
distribution from the Fund and the net assets of the Fund. All units are of
the same class with equal rights and privileges and are not subject to future
calls or assessments. Each unit entitles the holder to one vote at all
meetings of unitholders.
As at June 30, 2007 and July 31, 2007, 43,946,792 trust units were
outstanding. This reflects the issuance of an additional 6,026,000 trust units
on June 15, 2006 in exchange for subscription receipts issued on June 6, 2006,
which was the first new issuance of units by the Fund since April 2, 2002.

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

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

The decrease in non-cash working capital items for the three months ended
June 30, 2007 was primarily related to an increase in trade payables that is
expected to reverse, partially offset by increases in receivable balances in
the Filogix Segment as a result of increased revenue between the second and
first quarter of 2007.
The increase for the six-month period ended June 30, 2007 was related to
payment of certain accruals, including performance-based compensation which is
paid annually in the first quarter of every year, partially offset by the
decrease in non-cash working capital items during the second quarter of 2007
as discussed above.

Cash Balances and Long-term Indebtedness

The Business has continued to generate operating cash flow in excess of
distributions, capital expenditures and contractual obligations. During the
second quarter of 2007, the Business made voluntary debt payments totalling
$10.0 million. Management expects to continue to use a portion of any future
excess flow to pay down debt during 2007.
At June 30, 2007, cash and cash equivalents totalled $11.5 million,
compared to $5.8 million at December 31, 2006.
Total debt facilities available at June 30, 2007 and December 31, 2006
were $170.0 million and include a $120.0 million non-revolving term loan and a
$50.0 million revolving term credit facility. As of June 30, 2007, the
Business had drawn $120.0 million under its non-revolving term loan and
$15.0 million under the revolving term credit facility. The Business is
permitted to draw on the revolving facility's available balance of
$35.0 million to fund capital expenditures or for other general corporate
purposes.
The Credit Agreement for the Business contains a number of covenants and
restrictions including the requirement to meet certain financial ratios and
financial condition tests. The financial covenants include a leverage test, a
fixed charge coverage ratio test, a minimum net worth test and a limit on the
maximum amount of distributions that may be made by Davis + Henderson, Limited
Partnership to the Fund during each rolling, four-quarter period. Davis +
Henderson was in compliance with all of its financial covenants and financial
condition tests as of the end of its latest quarterly period. A copy of the
Credit Agreement is available on SEDAR at www.sedar.com.
As of June 30, 2007, the Fund had interest-rate swap hedge contracts in
place with certain of its lenders, such that the borrowing rates on 88.9% of
outstanding indebtedness are effectively fixed at the interest rates and for
the time periods ending as follows:

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

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

At June 30, 2007, the Fund would receive the fair value of $0.7 million
if it were to close out its swap contracts. It is not the present intention of
the Fund to close out these contracts. Pursuant to new accounting
pronouncements implemented with effect from January 1, 2007, the fair value of
the interest-rate swaps is now recorded on the balance sheet. For a further
description of this accounting treatment, see the Comprehensive Income
section.
The Fund's remaining indebtedness is subject to floating interest rates
that may be funded either by way of prime-rate loans or through the issuance
of banker's acceptance with maturities, and thus interest rates, resetting
typically in the one-month to three-month range.
The average effective interest rate applicable to the Fund's total
indebtedness was 5.59% as at June 30, 2007.
The Fund intends to make monthly cash distributions of its distributable
cash, as defined in the Fund's Declaration of Trust, subject to working
capital requirements, debt repayments and other reserves.
Cash flows from operations together with cash balances on hand and
unutilized term credit facilities are expected to be sufficient to fund the
Business' operating requirements, capital expenditures, contractual
obligations and anticipated distributions.
In general, mutual fund trusts, like the Fund, must distribute all their
taxable income to their unitholders in order not to pay income taxes in the
trust. Taxable income may be less than distributable cash if the Business has
excess tax deductions it can utilize to reduce taxable income.
Historically, Davis + Henderson has paid distributions below the level of
distributable cash generated, using the excess cash generated to pay down debt
and to fund acquisitions. It has been possible to pay less than 100% of its
distributable cash generated to unitholders and not pay taxes within the trust
as the Business had excess tax deductions available to reduce taxable income.
These excess tax deductions diminish each year and, if the Business continues
to generate growing cash flow, the Fund will need to pay out a higher
proportion of the distributable cash it generates to unitholders in order not
to pay taxes in the trust.

CHANGES IN ACCOUNTING POLICY

The Fund reviews all revisions to the Canadian Institute of Chartered
Accountants ("CICA") Handbook when issued. All revisions are considered and
applied by the effective date or earlier if practical.
On June 12, 2007, with the third reading of Bill C-52, which contained
the new tax rules regarding the taxation of income trusts, including the Fund,
the new tax rules were considered to be substantively enacted under Canadian
GAAP. As a result, the Fund commenced accounting for tax changes in its June
30, 2007 interim reporting. A future income tax liability of $1.5 million was
recognized with a corresponding amount flowing through the Fund's income for
the quarter ended June 30, 2007. The liability represents estimated temporary
differences at June 30, 2007 that are expected to reverse starting in the
fiscal year 2011. The future income tax liability will be assessed on an
annual basis and any changes will be recognized on the statement of income.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

The Fund and its subsidiaries have designed and maintain a set of
disclosure controls and procedures designed to ensure that information
required to be disclosed in filings made pursuant to Multilateral Instrument
52-109 is recorded, processed, summarized and reported within the time periods
specified in the Canadian Securities Administrators' rules and forms.
The Fund and its subsidiaries have also designed and maintain a set of
internal controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and preparation of financial
statements for external purposes in accordance with Canadian GAAP.
There have been no changes in the Fund's internal controls over financial
reporting during the quarter ended June 30, 2007, that have materially
affected, or are reasonably likely to materially affect its internal control
over financial reporting.

OUTLOOK

Davis + Henderson's overall long-term objective is to deliver stable and
modestly growing distributions through growing revenue in the 3% to 5% range
and maintaining margins. In 2007, revenues are expected to grow in excess of
the targeted range as a result of the consolidation of the Filogix business.
Also, as previously described, two additional factors have contributed in 2007
to organic growth exceeding the targeted range: the incremental revenue from
accelerated cheque reorders related to the changes in imaging standards; and,
the record real estate and mortgage activity in 2007 which has to date
contributed to strong growth in fee revenue in the Filogix segment. The impact
related to cheque order volume may or may not continue to positively impact
performance through the remainder of the current year, however, it is not
expected to be sustained long term as management continues to expect overall
cheque order volume declines. Recent increased reorder activity levels may
contribute in future quarters to higher than historically observed average
volume declines as consumers delay orders due to recent cheque supply
replenishments. Additionally, the increased activity within the real estate
and mortgage markets may not be sustained due to the historical cyclical
nature of those markets.
As set out in the Fund's statement of strategy, the objective is to grow
profits and cash flow by enhancing the value of our cheque supply program,
offering additional programs to serve the chequing account and delivering
programs within the lending services market.
Management's operational plans include many initiatives which, when
combined, are intended to allow the Fund to meet its objectives. Examples
include further implementations and enhancements of iDefence, BizAssist and
eSwitch programs relating to the chequing account. Relating to lending
markets, the Business looks to gain market share from its personal property
search and registration programs and by increasing volumes related to mortgage
origination and underwriting services.
The current U.S. cheque supply contract will expire at the end of 2008
and it is not expected to be renewed. Contributions from this business are
relatively modest and its expiration will not have a significant impact on
overall operations and, more specifically, cash flows.
The Business' capital program provides for continued expenditures to be
funded by cash flows from operations. The 2007 capital program is expected to
be in the range of $12.0 million to $14.0 million, of which $2.0 million to
$3.0 million is expected to be growth capital. Most of the increase over the
2006 expenditures of $9.9 million arises as a result of including a full year
capital program for the Filogix business.
Late in 2006, the Minister of Finance (Canada) released draft
legislation, which would result in certain income trusts, including the Fund,
paying taxes after fiscal 2010, similar to those paid by taxable Canadian
corporations. These proposed amendments were enacted on June 22, 2007. The
payment of such taxes will, in the future, reduce the cash flow of the Fund,
thereby reducing the amount available for distributions to unitholders. These
changes have caused uncertainty in the capital markets and variability in the
unit prices of many income trusts, including the Fund. This uncertainty and
the related impacts may affect the Fund's ability to make future acquisitions.
Since the announcement, management and the Trustees have monitored the changes
in the income trust environment and continue to review potential impacts on
the Fund's current strategies and the alternatives available to the Fund,
consistent with protecting and enhancing unitholder value.

Caution Concerning Forward-looking Statements

This MD&A contains certain statements that constitute forward-looking
information within the meaning of applicable securities laws ("forward-looking
statements") including those set out in the Outlook above. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Business, or developments in Davis + Henderson's industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements. Forward-
looking statements include all disclosure regarding possible events,
conditions or results of operations that are based on assumptions about future
economic conditions and courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future events,
conditions or circumstances. Davis + Henderson cautions you not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date they are made.
Risks related to forward-looking statements include, among other things,
challenges presented by declines in the use of cheques by consumers; the
Fund's dependence on a limited number of large financial institutions and
dependence on their acceptance of new programs; strategic initiatives being
undertaken to meet the Fund's financial objective, as well as general market
conditions, including economic and interest rate dynamics and investor
interest in, and government regulations relating to income trusts. Forward-
looking statements are based on management's current plans, estimates,
projections, beliefs and opinions, and Davis + Henderson does not undertake
any obligation to update forward-looking statements should assumptions related
to these plans, estimates, projections, beliefs and opinions change.

<<
CONSOLIDATED BALANCE SHEETS

(in thousands of Canadian dollars, unaudited)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cash and cash equivalents
provided by (used in):

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

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

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

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

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

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

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

1. SIGNIFICANT ACCOUNTING POLICIES

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

2. INCOME TAXES

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

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

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

The Fund is a SIFT as defined in the legislation. Accordingly, the Fund
will be subject to taxes on distributions of certain income earned from
investments in its subsidiaries made after 2010. The Fund is also
required to recognize future income tax assets and liabilities with
respect to the temporary differences between the carrying amount and tax
bases of its assets and liabilities and those of its subsidiaries that
are expected to reverse in or after 2011. The impact of this legislation
for this period is a future income tax expense of $1,454. The Fund
expects that its distributions will not be subject to tax prior to 2011
and accordingly has not provided for future income taxes on the temporary
differences expected to reverse prior to then.

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

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

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

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

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

3. CAPITAL ASSETS

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

December 31, 2006
-------------------------------------------------------------------------
Accumulated
amortiz-
Cost ation Net
-------------------------------------------------------------------------
Machinery and equipment $ 15,014 $ 6,689 $ 8,325
Computer equipment and software 36,211 14,827 21,384
Furniture, fixtures and leasehold
improvements 7,774 4,916 2,858
-------------------------------------------------------------------------
$ 58,999 $ 26,432 $ 32,567
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

4. OTHER ASSETS

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

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

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

5. INTANGIBLE ASSETS

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

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

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

6. GOODWILL

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

7. DISBURSEMENT OBLIGATIONS ON CUSTOMER CONTRACTS

June 30, December 31,
2007 2006
-------------------------------------------------------------------------
Current portion $ 2,962 $ 2,195
Long-term portion 2,212 2,195
-------------------------------------------------------------------------
Total disbursement obligations on customer
contracts $ 5,174 $ 4,390
-------------------------------------------------------------------------

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

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

8. LONG-TERM INDEBTEDNESS

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

The Fund has $170.0 million of available term credit facilities due
June 15, 2011 (December 31, 2006 - $170.0 million), consisting of a
$120.0 million non-revolving term loan and a $50.0 million revolving
credit facility. The facilities bear interest at rates that depend on
certain financial ratios of the Fund and vary in accordance with
borrowing rates in Canada and the United States. The credit facilities,
including any hedge contracts with the lenders, are secured in first
priority by a pledge of substantially all of the Fund's assets and by a
pledge of the Fund's indirect ownership interests in Davis + Henderson
L.P. The carrying value of long-term indebtedness approximates its fair
value as it bears interest at floating rates that reset in most cases
within three months and in all cases within one year.

The Credit Agreement for the Fund contains a number of covenants and
restrictions including the requirement to meet certain financial ratios
and financial condition tests. As at June 30, 2007, the Fund was in
compliance with all of its financial covenants and financial condition
tests.

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

Fair value - Interest rate swaps
-------------------------------------------------------------------------
Notional Interest
Maturity Date Amount Asset Liability Rate(1)
-------------------------------------------------------------------------
June 30, 2008 $ 12,000 $ 74 $ - 5.160%
January 4, 2009 10,000 193 - 4.630%
July 15, 2009 20,000 2 - 5.813%
July 15, 2010 33,000 65 - 5.815%
June 15, 2011 20,000 210 - 5.685%
June 15, 2011 25,000 168 - 5.685%
-------------------------------------------------------------------------
$ 120,000 $ 712 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The listed interest rates are inclusive of banker's acceptance fees
currently in effect. Such fees could increase or decrease depending
on the Fund's financial leverage as compared to certain levels
specified in the Credit Agreement.

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

9. OTHER LONG-TERM LIABILITIES

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

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

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

The Fund's principal pension plans are defined contribution pension plans
that provide pensions to substantially all eligible employees. Total
expense for the Fund's defined contribution pension plan for the quarter
ended June 30, 2007 was $0.4 million (Q2 2006 - $0.2 million) and
$0.9 million for the six months ended June 30, 2007 (six months ended
June 30, 2006 - $0.6 million).

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

10. TRUST UNITS

An unlimited number of trust units may be issued by the Fund pursuant to
the Fund's Declaration of Trust. Each unit is transferable and represents
an equal, undivided beneficial interest in any distributions from the
Fund and in the net assets of the Fund. All units are of the same class
with equal rights and privileges and are not subject to future calls or
assessments. Each unit entitles the holder to one vote at all meetings of
unitholders and a pro rata share of distributions declared by the Fund.
The Fund intends to make monthly cash distributions of its distributable
cash, as defined in the Fund's Declaration of Trust, subject to working
capital requirements and other reserves. The net proceeds from the
issuance of trust units and the number of units outstanding are as
follows:

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

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

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

11. COMMITMENTS

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

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

12. SIGNIFICANT CUSTOMERS

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

13. SEGMENTED INFORMATION

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

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

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

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

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

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

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

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

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

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

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

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

Supplementary Information

Consolidated Operating Results by Period

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

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

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

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

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

Summary of Cash Flows Per Unit

-------------------------------------------------------------------------
Three Three Three Three Three
months months months months months
ended ended ended ended ended
(in Canadian dollars, June March December September June
unaudited) 30, 2007 31, 2007 31, 2006 30, 2006 30, 2006
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities $ 0.7502 $ 0.5705 $ 0.5375 $ 0.5205 $ 0.5559
Distributable cash
after maintenance
capital and contract
payments $ 0.6830 $ 0.4930 $ 0.4936 $ 0.4796 $ 0.5053
Distributable cash
after all capital
and contract payments $ 0.6830 $ 0.4889 $ 0.4928 $ 0.4595 $ 0.4949
Distributions paid
during period $ 0.3960 $ 0.3840 $ 0.3780 $ 0.3750 $ 0.3750
Distributions declared
during period $ 0.3960 $ 0.3880 $ 0.3810 $ 0.3750 $ 0.3750
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Maintenance capital expenditures are defined by the Fund as capital
expenditures necessary to maintain and sustain the current productive
capacity of the Business or generally improve the efficiency of the
Business. Maintenance expenditures also include recurring fixed
customer contract payments that are made annually over the life of
the contract. Growth capital expenditures are defined by the Fund as
capital expenditures that increase the productive capacity of the
Business with a reasonable expectation of an increase in cash flow.
Non-maintenance capital expenditures are defined as expenditures,
which are expected to increase future operating cash flows of the
Business, that are infrequent and include non-maintenance contract
payments which are payment obligations under certain long-term
customer contracts.

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

Condensed Consolidated Balance Sheet

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

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

Distribution History

-------------------------------------------------------------------------
Distributions
per
unit(1)
Month 2007 2006 2005 2004 2003 2002 2001
-------------------------------------------------------------------------
January $0.1280 $0.1220 $0.1200 $0.1150 $0.1117 $0.1083 $ -
February 0.1280 0.1220 0.1200 0.1150 0.1117 0.1083 -
March 0.1320 0.1250 0.1200 0.1168 0.1117 0.1083 -
April 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
May 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
June 0.1320 0.1250 0.1200 0.1168 0.1133 0.1083 -
July - 0.1250 0.1200 0.1168 0.1133 0.1117 -
August - 0.1250 0.1220 0.1168 0.1133 0.1117 -
September - 0.1250 0.1220 0.1168 0.1133 0.1117 -
October - 0.1250 0.1220 0.1168 0.1150 0.1117 -
November - 0.1280 0.1220 0.1200 0.1150 0.1117 -
December(2) - 0.1280 0.1220 0.1200 0.1150 0.1117 0.0427
-------------------------------------------------------------------------
$0.7840 $1.5000 $1.4500 $1.4044 $1.3599 $1.3200 $0.0427
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Monthly distributions are made to unitholders of record on the last
business day of each month and are paid within 31 days following each
month end.
(2) Distributions paid in 2001 are in respect of the 12 calendar days
from December 20, 2001 to December 31, 2001.

Tax Allocation of Distributions

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

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

Other Statistics

(in thousands, except per unit amounts)

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

ABOUT DAVIS + HENDERSON

Davis + Henderson and its predecessors have been serving the Canadian
financial services industry since 1875. Through integrated service offerings,
Davis + Henderson is a market leader in providing programs to customers who
offer chequing account and lending services within Canada. Davis + Henderson
Income Fund is listed on the Toronto Stock Exchange, symbol DHF.UN.
Further information can be found in the disclosure documents filed by
Davis + Henderson Income Fund with the securities regulatory authorities,
available at www.sedar.com.

%SEDAR: 00017092EF

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