Davis + Henderson Reports First Quarter 2010 Results

TSX Stock Symbol: "DHF.UN"

Website: www.dhltd.com

TORONTO, May 4 /CNW/ - Davis + Henderson ("D+H" or the "Business") today reported solid financial results for the three months ended March 31, 2010. These results reflect the inclusion of the operations of Resolve which was acquired on July 27, 2009 as well as the positive impact of a recovering economy in Canada.

First Quarter Highlights

    
    -   Revenue was $158.4 million, an increase of $69.9 million, or 78.9%,
        compared to the same quarter in 2009.

    -   EBITDA(1) was $37.5 million, an increase of $9.0 million, or 31.7%,
        compared to the same quarter in 2009. The increase in EBITDA of 31.7%
        relative to the increase in revenue of 78.9% reflected the inclusion
        of acquired Resolve service offerings that contributed lower margins
        as a percentage of revenues as compared to other D+H services.

    -   Adjusted income(1) was $29.4 million, an increase of $6.5 million, or
        28.5%, compared to the same quarter in 2009. Adjusted income(1) per
        unit was $0.5519, an increase of 6.1%, compared to the same quarter
        in 2009.

    -   Net income was $23.1 million, a year-over-year increase of $3.8
        million, or 19.9%. Net income per unit was $0.4333, a decrease of
        1.0%, compared to the same quarter in 2009.

    -   Cash distributions paid for the quarter were $0.4599 per unit,
        unchanged from the same quarter in 2009.

    ------------------------------
    (1) Davis + Henderson reports several non-GAAP measures, including EBITDA
    and Adjusted income used above. Adjusted income is calculated as net
    income, adjusted to remove the non-cash impacts of certain fair value and
    purchase accounting items and future tax recoveries or expenses. These
    items are excluded in calculating Adjusted income as they are non-cash
    items and are not considered indicative of the financial performance of
    the Business for the period being reviewed. Any non-GAAP measures should
    be considered in context with the GAAP financial presentation and should
    not be considered in isolation or as a substitute for GAAP net earnings
    or cash flow. Further, Davis + Henderson's measures may be calculated
    differently from similarly titled measures of other companies. A
    reconciliation of these non-GAAP measures to related GAAP measures is
    included in the attachments to this news release.
    

Management Commentary

We are pleased with the results of the first quarter of 2010. Financially, we benefited from contributions of Resolve service offerings and from the economic recovery within our service offerings to the lending markets.

During the quarter, we continued to advance our strategy related to enhancing our service offerings and integrating our operations. Both of these initiatives are aimed at improving our delivery effectiveness for customers and are part of our goal of positioning D+H to grow in the future.

In March 2010, we announced our intention to seek unitholder approval to convert to a corporation effective January 1, 2011. Concurrently, we also announced our intention to maintain distributions for the remainder of 2010 at an annualized rate of $1.84 per unit and commencing in 2011 to move to a quarterly payout to owners at $1.20 per share annualized.

For a more detailed discussion of first quarter results, and management's outlook, please see Management's Discussion and Analysis below.

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"). Statements concerning Davis + Henderson's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Davis + Henderson are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of Davis + Henderson to meet its revenue and EBITDA targets; general industry and economic conditions; changes in Davis + Henderson's relationship with its customers and suppliers; pricing pressures and other competitive factors. Davis + Henderson has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While Davis + Henderson considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect.

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.

Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund's financial objective; stability and growth in the real estate, mortgage and lending markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 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 except as required by applicable securities laws.

Conference Call

Davis + Henderson will discuss its financial results for the three months ended March 31, 2010 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, May 5, 2010. The number to use for this call is 647-427-7450 for Toronto area callers or 1-888-231-8191 for all other callers. The conference call will be hosted by Bob Cronin, Chief Executive Officer and by Brian Kyle, 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 will be: 416-849-0833 for Toronto area callers, or 1-800-642-1687 for all other callers, with Encore Password 69375220. The rebroadcast will be available until Wednesday, May 19, 2010. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com.

ADDITIONAL INFORMATION

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis ("MD&A") for the first quarter of 2010 for the Davis + Henderson Income Fund (the "Fund" or the "Company" or the "Business" or "Davis + Henderson" or "D+H" or "we" or "our") should be read in conjunction with MD&A in the Annual Report for the year ended December 31, 2009, dated March 2, 2010, and the attached interim unaudited consolidated financial statements. External economic and industry factors remain substantially unchanged from those described in the annual MD&A and the Fund's most recently filed Annual Information Form.

STRATEGY

Davis + Henderson is a leading solutions provider to the financial services marketplace. We have several market-leading service offerings within Canada, including our cheque supply program, the servicing of student loans, the provision of registration and related services for secured loan products and the delivery of leading technology solutions within the mortgage market. We also offer broader technology solutions in the commercial lending, small business lending and leasing area, as well as servicing solutions within the credit card market and other outsourced services in a number of specialty areas.

Davis + Henderson's strategy is to establish market leading positions within well defined and growing service areas in the financial services marketplace and to further expand our service offerings by enhancing the activities that we perform on behalf of our customers. We expect to advance this strategy through internal (or organic) initiatives, as well as by partnering with third parties and by way of selective acquisitions. The Business' 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%. The Business has three primary strategies to meet its objectives. These are to: (i) evolve and enhance the value of the cheque supply program and services to the chequing account; (ii) extend our technology supported services related to personal, student and commercial lending and leasing markets; and (iii) pursue opportunities in other areas within the financial services marketplace.

Over the past several years, D+H has executed this strategy by evolving our programs to the chequing account, completing several acquisitions, including Advanced Validation Systems ("AVS") in 2005, Filogix in 2006, Cyence in 2008 and Resolve in 2009, and by further enhancing our services and capabilities. As a result, we offer a diverse range of market-leading services.

Since December 2001, the initial public offering date of Davis + Henderson Income Fund, the Business has operated as a subsidiary of an Income Trust pursuant to its declaration of trust. In 2007, changes were made to the Income Tax Act that will require certain Income Trusts, including D+H, to be subject to taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. In response to these changes and related impacts, D+H will hold a combined annual general and special meeting (the "Meeting") on June 17, 2010, at which time unitholders will be asked to approve its conversion from an Income Trust into a corporation effective January 1, 2011. The Trustees and management of Davis + Henderson believe that the proposed conversion of the Fund's capital structure is in the best interests of unitholders and the Business and believe the conversion can be expected to provide the following benefits: (i) enhanced access to capital markets which will benefit the Business as it continues to expand through acquisition; (ii) a corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and (iii) a simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing, among other items, the benefit of reduced internal and external administrative costs.

Implementation of the conversion is expected to occur by way of plan of arrangement and is subject to approval by not less than 66 2/3% of the votes cast at the Meeting as well as customary conditions, including the receipt of applicable regulatory, court and the Toronto Stock Exchange approvals. Upon completion of the conversion, unitholders will receive on a tax deferred roll over basis one share of the resulting public corporation for each unit held. An information circular in respect of the Meeting, which will provide a detailed outline of the proposed conversion will be mailed to all unitholders in mid-May, 2010.

Independent of the conversion plan and as a result of the enacted tax changes, the Business will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly). Provided the conversion is approved, distributions made by Davis + Henderson beginning in 2011 should be taxed as eligible dividends rather than regular income as they are today. Investors that are taxed as individuals may be entitled to dividend tax credits which may enhance their after-tax yield and therefore significantly reduce the after-tax impact of the reduction in distributions.

Consistent with past practices, actual distributions will only be made to owners of record based upon a declaration by the Trustees. Among other items, in determining actual distributions, the Trustees will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.

Notwithstanding the proposed structural and distribution changes attributed to the changes to the law, the strategies and objectives of the Business will remain unchanged.

FINANCIAL INFORMATION PRESENTATION

Since 2006, the Business has operated and reported upon two business segments, the "D+H Segment" and the "Filogix Segment". Subsequent to the completion of the Resolve acquisition, the Business announced that it would move to a single integrated operation in order to better serve customers and maximize effectiveness. The Business is now managed along functional lines and operating decisions and performance assessment is aligned with these functions. As such, the Business reports as a single segment. Segmented data has been provided related to revenues pertaining to major service areas.

OPERATING RESULTS FOR THE FIRST QUARTER - CONSOLIDATED

The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Income and includes non-GAAP measures. Management believes this supplementary disclosure provides useful additional information. See Non-GAAP Measures for a discussion of non-GAAP terms used. Effective July 27, 2009, the consolidated results include those of Resolve.

Consolidated Operating and Financial Results(1)

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

    
                                                 Three months ended March 31,
                                                             2010       2009
    -------------------------------------------------------------------------
    Revenue                                             $ 158,419  $  88,529
    Expenses                                              120,957     60,091
    -------------------------------------------------------------------------

    EBITDA(2)                                              37,462     28,438

    Amortization of capital assets and non-acquisition
     intangibles                                            4,706      3,819
    Interest expense                                        3,374      1,747
    -------------------------------------------------------------------------

    Adjusted income(2)                                     29,382     22,872

    Amortization of mark-to-market adjustment
     of interest-rate swaps                                   189        136
    Net unrealized loss (gain) on derivative
     instruments(3)                                        (1,559)       191
    Future income tax expense (recovery)                      587        (64)
    Amortization of intangibles from acquisitions           7,097      3,374
    -------------------------------------------------------------------------

    Net income                                          $  23,068  $  19,235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Adjusted income per unit, basic and diluted(2)      $  0.5519  $  0.5204

    Net income per unit, basic and diluted              $  0.4333  $  0.4377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                 Three months ended March 31,
                                                               2010 vs. 2009
                                                                    % change
    -------------------------------------------------------------------------
    Revenue                                                            78.9%
    EBITDA(2)                                                          31.7%
    Adjusted income per unit(2)                                         6.1%
    Net income per unit                                                -1.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The results of the three months ended March 31, 2010 include the
        results of the Resolve business.
    (2) EBITDA and Adjusted income are non-GAAP terms. See Non-GAAP Measures
        for a more complete description of these terms and reconciliation to
        GAAP.
    (3) The Business enters into derivative contracts to fix the interest
        rates and foreign exchange rates on a significant portion of its
        outstanding bank debt and foreign currency transactions,
        respectively. For accounting purposes, these derivative instruments
        do not qualify for hedge accounting treatment and, accordingly, any
        change in the fair value of these contracts is recorded through
        income. Provided the Business does not cancel its derivative
        contracts prior to maturity, the amounts represent a non-cash
        unrealized gain or loss that will subsequently reverse through
        income. The Company has historically held its derivative contracts to
        maturity.
    

Overview

D+H delivered solid operating performance in the first quarter of 2010. While the large year-over-year increases in first quarter revenues and expenses were primarily due to the inclusion of the Resolve results, the Business also benefited from stronger origination services revenue and an increase in revenue from the cheque supply program. In various areas, D+H revenue benefitted from early signs of any economic recovery. Additionally, the Business continued its integration activities, including activities related to the attainment of cost synergies. Revenue and earnings increased and, on a per unit basis after reflecting the additional units issued in connection with the acquisition of Resolve, D+H's consolidated Adjusted income per unit was higher by 6.1%. Net income per unit was lower by 1.0% compared to the same quarter of 2009, largely as a result of the increase in amortization of intangible assets recorded as part of the Resolve acquisition.

Revenue

Consolidated revenue for the first quarter of 2010 was $158.4 million, an increase of $69.9 million, or 78.9%, compared to the same quarter in 2009. The increase in consolidated revenues is primarily attributable to the inclusion of revenues from Resolve. Revenue during the quarter also benefited from the positive impact of annual cheque program changes and stronger mortgage origination service fees. Services delivered by the Business are subject to seasonality, particularly relating to fees earned in connection with mortgage origination services and automobile loan registration services.

(in thousands of Canadian dollars, unaudited)

    
                                                 Three months ended March 31,
                                                             2010       2009
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing account                  $  73,165  $  71,559
      Loan servicing                                       29,669          -
      Loan registration technology services                22,847        764
      Lending technology services                          17,090     14,202
      Other                                                15,648      2,004
    -------------------------------------------------------------------------
                                                        $ 158,419  $  88,529
    -------------------------------------------------------------------------
    

Revenue for the first quarter from programs to the chequing account was $73.2 million, an increase of $1.6 million, or 2.2%, compared to the same quarter in 2009. This modest increase is primarily attributable to program changes and product and service enhancements, which positively impacted revenue in the first quarter of 2010 as well as modest improvement in business cheque order volumes. Management believes that cheque orders from small business consumers increased due to improved economic conditions. Management further believes that the long-term historical trend related to cheque order decline is relatively unchanged and continues to be in the low single digit range despite more recent volatility due to the changes in the economic environment.

Revenue for the first quarter of 2010 from loan servicing, which includes student loan administration services and credit card servicing was $29.7 million. There was no comparative revenue for the first quarter of 2009 as these services were part of the Resolve business acquired on July 27, 2009. Revenue from student loan administrative services, which comprise the largest portion of revenues within this service area, is expected to be relatively stable over the short-term with modestly growing volumes and new program initiatives being offset by reduced pricing related to particular contracts.

Loan registration technology services revenue for the first quarter of 2010 was $22.8 million. This service area includes the personal property search and registration ("PPSA") business acquired with the Resolve acquisition and the existing PPSA program operated by D+H. Volumes in this area can be variable, but in general would be expected to improve with an improving economic environment, particularly as it relates to servicing customers within the automotive area.

Revenue for the first quarter of 2010 from lending technology services, which includes services to the mortgage market and other credit markets was $17.1 million, an increase of $2.9 million, or 20.3%, compared to the same quarter in 2009. This increase is primarily as a result of increased mortgage origination service fees, up 28% during the quarter compared to the same quarter in 2009 due to strong activity in the Canadian housing and mortgage markets, partially offset by reduced activity for the Business in other credit markets. In general, industry analysts expect a slowing of the housing and mortgage markets compared to current trends.

Other revenue for the first quarter of 2010 of $15.6 million is comprised of a number of smaller service offerings, the largest of which are contact centre services. Revenue within the contact centre services area is more variable due to changing customer initiatives and also will vary depending upon customer contract wins and losses, which are more common in these service areas compared to other D+H service areas.

The following pro forma table reflects management's estimate of the current relative size of each of the major service areas as a percentage of total revenue on an annualized basis:

    
    Allocation of Revenue by Service Area(1)                       % Revenue
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing account                                   45%
      Loan servicing                                                     18%
      Loan registration technology services                              15%
      Lending technology services                                        11%
      Other                                                              11%

    -------------------------------------------------------------------------
                                                                        100%
    -------------------------------------------------------------------------

    (1) Based on management's estimate using pro forma 2009 revenue.
    

Expenses

On a consolidated basis, expenses for the first quarter of 2010 of $121.0 million increased by $60.9 million, or 101.3%, compared to the same quarter in 2009. The increase was due to the inclusion of the Resolve expense base and the ongoing costs of integrating the businesses, partially offset by continued cost management activities and integration savings.

    
    (in thousands of Canadian dollars,           Three months ended March 31,
     unaudited)                                              2010       2009
    -------------------------------------------------------------------------
     Employee compensation and benefits                 $  52,371  $  22,256
     Non-compensation direct expenses(1)                   43,619     29,385
     Other operating expenses(2)                           20,091      6,719
     Occupancy costs                                        4,876      1,731
    -------------------------------------------------------------------------
                                                        $ 120,957  $  60,091
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Non-compensation direct expenses include materials, shipping, selling
        expenses and third party direct disbursements.
    (2) Other operating expenses include communication costs, licensing fees,
        professional fees and expenses not included in other categories.
    

Employee compensation and benefits costs of $52.4 million for the first quarter of 2010 increased by $30.1 million, or 135.3%, compared to the same quarter in 2009, with the increase primarily due to the inclusion of Resolve expenses. Resolve service offerings, such as loan servicing, contact centre services and other process outsourcing services are more employee intensive than other D+H service areas.

Non-compensation direct expenses were $43.6 million for the first quarter of 2010, an increase of $14.2 million, or 48.4%, compared to the same quarter in 2009 mainly due to the inclusion of Resolve expenses and increases related to slightly higher order volumes.

Other operating expenses were $20.1 million, an increase of $13.4 million, or 199.0% compared to the same quarter in 2009 with increases attributed to the inclusion of Resolve expenses as well as the ongoing costs of integration partially offset by cost management activities.

Occupancy costs were $4.9 million, an increase of $3.1 million, or 181.7%, compared to the same quarter in 2009 mainly due to the inclusion of Resolve facilities, which as described above, are employee intensive service businesses.

EBITDA

EBITDA during the first quarter of 2010 was $37.5 million, an increase of $9.0 million, or 31.7%, compared to the same quarter in 2009. The increase in EBITDA of 31.7% relative to the 78.9% increase in revenue during the first quarter of 2010, reflected the inclusion of service offerings within Resolve which contribute lower margins as a percentage of revenues compared to other D+H services.

Amortization of Capital and Non-acquisition Intangible Assets

Amortization of capital and non-acquisition intangible assets during the first quarter of 2010 increased by $0.9 million, or 23.2% compared to the first quarter of 2009. This increase related to the inclusion of amortization related to assets acquired from the Resolve business, partially offset by the impact of certain capital and other assets having become fully amortized.

Other Expenses

Interest expense for the first quarter of 2010 increased by $1.6 million compared to the same quarter during the prior year, due to an increase in the level of outstanding debt related to the acquisition of Resolve on July 27, 2009.

An unrealized gain on interest-rate swaps and foreign currency contracts of $1.6 million was recognized in the first quarter of 2010 (Q1 2009 - $0.2 million loss) reflecting mark-to-market adjustments related to changes in market interest rates at March 31, compared to December 31, and from currency fluctuations on foreign exchange contracts. These unrealized gains and losses for interest-rate swaps are recognized in income because these swaps are not designated as hedges for accounting purposes. In addition, unrealized gains and losses on foreign exchange contracts are recognized in income because the foreign exchange contracts do not qualify for hedge accounting treatment. Provided the Business does not cancel its interest-rate swaps or foreign exchange contracts, the unrealized amounts represent a non-cash unrealized gain or loss that will subsequently reverse through income as the related swaps and foreign exchange contracts mature. The Company has historically held its derivative contracts to maturity.

In the first quarter of 2010, the Fund recorded a future tax expense of $0.6 million (Q1 2009 - $0.1 million recovery). This relates to the utilization of tax losses in certain corporate subsidiaries for which the Fund had previously recorded a future tax benefit and the increase in the future tax liability related to the temporary differences of the Fund and its flow-through subsidiaries expected to reverse after 2010.

Amortization of acquisition related intangibles for the first quarter of 2010 increased as compared to the same period in 2009 due to the incremental intangible assets from the acquisition of Resolve.

Net Income

Net income of $23.1 million for the first quarter of 2010 increased by $3.8 million, or 19.9%, compared to the same period in 2009 with increased EBITDA from the businesses acquired in the Resolve acquisition more than offsetting increased amortization and interest expense. Net income also benefitted from the change in the mark-to-market unrealized gains and losses of derivative instruments. On a per unit basis, net income decreased by 1.0% to $0.4333 per unit, compared to the first quarter of 2009.

Excluding the non-cash impacts of mark-to-market gains and losses on derivative instruments, future income taxes and amortization of intangibles from acquisitions, Adjusted income of $29.4 million for the first quarter of 2010 increased by $6.5 million, or 28.5%, compared to the same period in 2009. On a per unit basis, Adjusted income per unit of $0.5519 increased by $0.0315, or 6.1%, compared to the first quarter of 2009.

EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY

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

    
                                       2010                             2009
                                         Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
    Revenue                       $ 158,419  $ 156,215  $ 142,463  $  94,557
    Expenses                        120,957    119,671    104,879     62,080
    -------------------------------------------------------------------------
    EBITDA(1)                        37,462     36,544     37,584     32,477

    Amortization of capital assets
     and non-acquisition
     intangibles                      4,706      4,551      4,530      3,679
    Interest expense                  3,374      3,326      2,681      1,787
    -------------------------------------------------------------------------
    Adjusted income(1)               29,382     28,667     30,373     27,011

    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              189        103        103        136
    Net unrealized loss (gain) on
     derivative instruments(2)       (1,559)    (1,620)    (1,647)    (1,069)
    Future income tax expense
     (recovery)                         587     (2,747)     1,018       (718)
    Amortization of intangibles
      from acquisition                7,097      7,330      5,942      3,441
    -------------------------------------------------------------------------
    Income from continuing
     operations                      23,068     25,601     24,957     25,221
    Income from discontinued
     operations                           -          -          -          -
    -------------------------------------------------------------------------
    Net income                    $  23,068  $  25,601  $  24,957  $  25,221
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted income per unit,
     basic and diluted(1)         $  0.5519  $  0.5385  $  0.6002  $  0.6146

    Net income per unit, basic
     and diluted                  $  0.4333  $  0.4809  $  0.4931  $  0.5739
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                       2009                             2008
                                         Q1         Q4         Q3         Q2
    -------------------------------------------------------------------------
    Revenue                       $  88,529  $  89,357  $  95,055  $  95,407
    Expenses                         60,091     62,413     61,664     61,334
    -------------------------------------------------------------------------
    EBITDA(1)                        28,438     26,944     33,391     34,073

    Amortization of capital assets
     and non-acquisition
     intangibles                      3,819      3,800      4,219      3,771
    Interest expense                  1,747      1,647      1,690      1,754
    -------------------------------------------------------------------------
    Adjusted income(1)               22,872     21,497     27,482     28,548

    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              136        151        151        152
    Net unrealized loss (gain) on
     derivative instruments(2)          191      3,653        728     (1,034)
    Future income tax expense
     (recovery)                         (64)       399         52        766
    Amortization of intangibles
      from acquisition                3,374      3,409      3,412      3,447
    -------------------------------------------------------------------------
    Income from continuing
     operations                      19,235     13,885     23,139     25,217
    Income from discontinued
     operations                           -         51        167        149
    -------------------------------------------------------------------------
    Net income                    $  19,235  $  13,936  $  23,306  $  25,366
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted income per unit,
     basic and diluted(1)         $  0.5204  $  0.4892  $  0.6253  $  0.6496

    Net income per unit, basic
     and diluted                  $  0.4377  $  0.3172  $  0.5303  $  0.5772
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA and Adjusted income are non-GAAP terms. See Non-GAAP
        Measures for a more complete description of these terms.
    (2) The Business enters into derivative contracts to fix the interest
        rates and foreign exchange rates on a significant portion of its
        outstanding bank debt and foreign currency transactions,
        respectively. For accounting purposes, these derivative instruments
        do not qualify for hedge accounting treatment. Accordingly, any
        change in the fair value of these contracts is recorded through
        income. Provided the Business does not cancel its derivative
        contracts prior to maturity, the amounts represent a non-cash
        unrealized gain or loss that will subsequently reverse through
        income. The Company has historically held its derivative contracts to
        maturity.
    

The Fund has generally reported quarterly revenues that are stable and growing when measured on a year-over-year basis, however more recent changes in the economic environment and the housing and mortgage markets have increased volatility. Measured on a sequential quarter-over-quarter basis, revenues can vary as they are subject to seasonality and are generally stronger in the second and third quarter of each year. The acquisition of the Resolve business has resulted in a substantial increase in all reported balances since acquisition on July 27, 2009, except per unit amounts, which were additionally impacted by the issuance of 9,286,581 additional units of Davis + Henderson to fund the Resolve acquisition.

Adjusted income per unit has generally been trending consistently with changing revenue. Net income has been more variable as it has been affected by the variability in non-cash items such as mark-to-market adjustments on interest-rate swaps and foreign exchange contracts, amortization of intangibles from acquisition and changes in future income tax provisions.

CASH FLOW AND LIQUIDITY

The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows and includes non-GAAP measures. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Fund, repayment of debt and other investing activities. See Non-GAAP Measures for a discussion of non-GAAP terms used.

Summary of Cash Flows(1)

(in thousands of Canadian dollars, unaudited)

    
                                                 Three months ended March 31,
                                                             2010       2009
    -------------------------------------------------------------------------
    Cash flows from operating activities                $  20,981  $  13,015

    Add:
      Changes in non-cash working capital
       and other items(2)                                  13,107     13,676
    -------------------------------------------------------------------------
    Adjusted cash flows from operating activities          34,088     26,691

    Less:
      Asset expenditures(3)                                 3,026      1,846
      Contract payments(4)                                    950      2,517
    -------------------------------------------------------------------------
    Adjusted cash flows after capital expenditures
     and contract payments                                 30,112     22,328

    Less:
      Distributions paid to unitholders                    24,482     20,211
    -------------------------------------------------------------------------
                                                            5,630      2,117

    Cash flows provided by bank indebtedness                5,000          -
    Fair value of acquisitions                                  -         60
    Changes in non-cash working capital and
     other items(2)                                       (13,107)   (13,676)
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash
     equivalents for the period                         $  (2,477) $ (11,499)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) The subtotals in this table are not consistent with GAAP and
        accordingly are considered non-GAAP measures. See Non-GAAP Measures
        for a discussion of non-GAAP terms used.
    (2) Changes in non-cash working capital and certain other balance sheet
        items have been excluded from adjusted cash flows from operating
        activities so as to remove the effects of timing differences in cash
        receipts and cash disbursements, which generally reverse themselves,
        but can vary significantly across quarters and to remove certain of
        the payments related to the acquisition and related restructuring
        activities that were recorded as part of the acquisition. For
        details, see the Changes in Non-Cash Working Capital and Other Items
        section.
    (3) Asset expenditures include both maintenance asset expenditures and
        growth asset expenditures. Maintenance asset expenditures for the
        three months ended March 31, 2010 were $1.6 million and are defined
        by the Fund as asset expenditures necessary to maintain and sustain
        the current productive capacity of the Business or generally improve
        the efficiency of the Business. Growth asset expenditures for the
        three months ended March 31, 2010 were $1.4 million and are defined
        by the Fund as asset expenditures that increase the productive
        capacity of the Business with a reasonable expectation of an increase
        in cash flow.
    (4) The Business has various payment obligations under customer and
        partner contracts, which include fixed contract or program initiation
        payments and annual payments payable over the life of the contract.
        The aggregate of all contract payments, both fixed and variable,
        reflects, among other things, the high degree of integration and
        sharing between Davis + Henderson and its customers and partners of
        the many activities related to ordering, data handling, customer
        service, customer access and other activities.



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

                                                 Three months ended March 31,
                                                  2010       2009   % change
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                              $  0.6404  $  0.6073       5.5%
    Adjusted cash flows after capital
     expenditures and contract payments      $  0.5657  $  0.5081      11.3%
    Cash distributions paid to unitholders   $  0.4599  $  0.4599       0.0%
    Distributions declared during period     $  0.4599  $  0.4599       0.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Cash Flows, Income and Distributions Paid

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

    
                                     Three months ended         Year ended
    (in thousands of Canadian              March 31,           December 31,
     dollars, unaudited)               2010       2009       2009       2008
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                   $  20,981  $  13,015  $ 119,722  $ 116,062
    Net income                    $  23,068  $  19,235  $  95,014  $  78,448
    Adjusted income(1)            $  29,382  $  22,872  $ 108,923  $  99,168
    Distributions paid during
     period                       $  24,482  $  20,211  $  87,962  $  78,580
    Excess (shortfall) of cash
     flows from operating
     activities over cash
     distributions paid           $  (3,501) $  (7,196) $  31,760  $  37,482
    Excess (shortfall) of net
     income over cash
     distributions paid           $  (1,414) $    (976) $   7,052  $    (132)
    Excess (shortfall) of
     Adjusted income over cash
     distributions paid           $   4,900  $   2,661  $  20,961  $  20,588
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted income is a non-GAAP term. See Non-GAAP Measures for a more
        complete description of this term.
    

Historically, excess cash flows from operating activities over cash distributions paid have been used to fund capital expenditures, pay down debt and to fund acquisitions. Distributions exceeded net income as a result of non-cash charges recorded through income including amortization of intangible assets related to acquisitions and future income taxes. During the first quarter of 2010 and over the next several quarters, payments will be made related to restructuring activities pertaining to the operational integration of the Business as well as payments related to the settlement of outstanding contractual obligations within Resolve.

Expenditures on Capital Assets and Contract Payments

Total capital asset expenditures for the first quarter of 2010 were $3.0 million, an increase of $1.2 million compared to the same period in 2009. However, fixed contract payments decreased $1.6 million in the first quarter of 2010 compared to 2009. The increase in capital expenditures over 2009 relates to the increased size of operations and the Company's plans for further integration activities. The decrease in fixed contract payments relates to timing of when payments are made.

The Business' capital program provides for continued expenditures to be funded by cash flows from operations.

Distributions

The Trustees of the Fund establish distribution levels of the Fund with reference to its financial position, historical results, projected performance of the Business and funds required for potential acquisitions. The Fund intends to make monthly cash distributions for the remainder of 2010 of its adjusted cash flows after capital asset and contract expenditures, subject to working capital requirements, debt repayments and other reserves.

The Fund paid cash distributions of $0.4599 per unit ($24.5 million) during the first quarter of 2010 compared to $0.4599 per unit ($20.2 million) in the same period in 2009. In connection with the Resolve acquisition, D+H issued 9,286,581 million units on July 27, 2009, which increased the distributions paid of the Fund by $4.3 million in the first quarter of 2010. For the first quarter of 2010 both distributions declared and paid per unit were unchanged.

On an annualized basis, the monthly cash distribution rate for March 2010 was $1.84 per unit, unchanged from March 2009.

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. In the first quarter of 2010, these amounts were the same on a per unit basis.

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.

The estimated tax allocation of distributions to be declared for 2010 is 100% "other income", as was the case for all of 2009.

The Fund may issue an unlimited number of trust units. Each trust unit is transferable and represents an equal, undivided beneficial interest in any distribution from the Fund and the net assets of the Fund. All units are of the same class with equal rights and privileges and are not subject to future calls or assessments. Each unit entitles the holder to one vote at all meetings of unitholders. As at March 31, 2010 and May 4, 2010, the total number of trust units outstanding was 53,233,373 compared to 43,946,792 trust units outstanding as at March 31, 2009. This reflects an issuance of an additional 9,286,581 trust units on July 27, 2009 in exchange for all the outstanding units of Resolve.

Changes in Non-Cash Working Capital and Other Items

(in thousands of Canadian dollars, unaudited)

    
                                                 Three months ended March 31,
                                                             2010       2009
    -------------------------------------------------------------------------
    Decrease (increase) in non-cash working
     capital items                                      $ (14,094) $ (13,885)
    Decrease (increase) in other operating assets
     and liabilities                                          987        209
    -------------------------------------------------------------------------
    Decrease (increase) in non-cash working capital
     and other items                                    $ (13,107) $ (13,676)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The net increase in non-cash working capital items for the first quarter of 2010 was primarily related to an increase in trade receivables due to timing of collections. The Company expects a continuing increase in the volatility of non-cash working capital due to the nature of services rendered in connection with the business recently acquired.

Acquisition

With the acquisition of Resolve, the Business significantly advanced its strategy by expanding its service offerings within the financial services industry, by establishing market leading positions in several niche markets and by increasing its overall servicing capabilities. The acquisition was funded through the issuance of Davis + Henderson units in exchange for all the outstanding units of Resolve, valued at $119.5 million (net of after-tax issuance costs of $0.6 million), and the assumption of Resolve debt. Including transaction costs and estimated restructuring costs, the total cost of the acquisition (excluding assumed debt) is expected to be approximately $130.0 million. Management has not completed its assessment of the valuation of the assets acquired and liabilities assumed for this acquisition and therefore continues to estimate transaction and restructuring costs. As a result, the presented purchase information may change. For additional information on the acquisition, refer to Note 2 to the consolidated financial statements.

Cash Balances and Bank Indebtedness

At March 31, 2010, cash and cash equivalents totalled $1.4 million, compared to $3.9 million at December 31, 2009. The bank indebtedness as at March 31, 2010, before deducting unamortized deferred finance fees, was $215.0 million compared to $210.0 million at December 31, 2009. The bank indebtedness is recorded on the Balance Sheet, net of $1.2 million of unamortized deferred financing fees as at March 31, 2010.

Total credit facilities available at March 31, 2010 were $260.0 million consisting of two non-revolving term loans and two revolving credit facilities. A non-revolving term loan of $120.0 million matures June 15, 2011 and the second non-revolving term loan of $70.0 million matures January 2, 2011. A revolving credit facility of $50.0 million matures June 15, 2011 (of which $25.0 million was drawn at March 31, 2010) and the second revolving credit facility of $20.0 million matures January 2, 2011 (of which nil was drawn at March 31, 2010). As of March 31, 2010, the Business had drawn $190.0 million under the non-revolving term loans and $25.0 million under the revolving term credit facilities. The Business is permitted to draw on the revolving facilities' available balances of $45.0 million to fund capital expenditures or for other general purposes. As the non-revolving term loan of $70 million matures on January 2, 2011, it has been disclosed as a current liability as at March 31, 2010 without allocation of any of the unamortized deferred financing fees. The credit approval process has commenced and a Draft Credit Agreement is being negotiated with the financial institutions for the renewal of the credit facilities.

The Credit Agreement 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 at www.sedar.com.

To reduce liquidity risk, management has historically renewed the terms of the Fund's long-term indebtedness in advance of its maturity dates and the Fund has maintained financial ratios that are conservative compared to financial covenants applicable to the credit facilities. Further, in prior years the Fund has made numerous voluntary payments on its outstanding bank indebtedness.

As at March 31, 2010, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 90.7% of outstanding indebtedness are effectively fixed at the interest rates and for the time periods ending as outlined in the table below.

    
    (in thousands of Canadian dollars, unaudited)
    -------------------------------------------------------------------------
                                        Fair value of interest-rate swaps
                                        ---------------------------------
                                   Notional                         Interest
    Maturity Date                    Amount      Asset  Liability     Rate(1)
    -------------------------------------------------------------------------
      July 15, 2010               $  33,000  $       -  $     704     4.815%
      January 5, 2011                22,000          -        260     1.980%
      June 15, 2011                  20,000          -      1,239     4.685%
      June 15, 2011                  25,000          -        991     4.685%
      December 18, 2014              25,000        198          -     2.720%
      March 18, 2015                 25,000         24          -     2.940%
      March 20, 2017                 25,000          -         61     3.350%
      March 20, 2017                 20,000          -         68     3.366%
    -------------------------------------------------------------------------
                                  $ 195,000  $     222  $   3,323
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The listed interest rates exclude bankers' acceptance fees currently
        in effect. Such fees could increase depending on the Fund's financial
        leverage as compared to certain levels specified in the Credit
        Agreement. As at March 31, 2010, $140 million of the Fund's debt was
        subject to bankers' acceptance fees of 1.00%, $5 million was subject
        to the prime rate, with the balance of $70 million subject to
        bankers' acceptance fees of 3.75%.
    

As at March 31, 2010, the Fund would have to pay the fair value of $3.3 million if it were to close out six of the interest-rate swap contracts and would receive $0.2 million on the closing of the two remaining contracts as set out on the balance sheet. It is not the present intention of management to close out these contracts and the Company has historically held its derivative contracts to maturity. The Fund expects to continue to enter into interest-rate swaps for the purpose of hedging interest rates.

The Fund's remaining indebtedness of $20.0 million as at March 31, 2010 is subject to floating interest rates that may be funded either by way of prime-rate loans or through the issuance of bankers' acceptance with maturities and interest rates which reset typically in the one-month to three-month range.

The average effective interest rate applicable to the Fund's total indebtedness was 5.238% as at March 31, 2010.

As at March 31, 2010, the Fund had two foreign-exchange contracts in place with one of its lenders amounting to $1.0 million USD.

(in thousands of Canadian dollars, unaudited)

    
    -------------------------------------------------------------------------
                                    Fair value of foreign exchange contracts
                                   ------------------------------------------
                                   Notional                         Exchange
    Maturity Date                    Amount      Asset  Liability       Rate
    -------------------------------------------------------------------------
      April 15, 2010              $     500  $      45  $       -     1.1057
      May 17, 2010                      500         45          -     1.1057
    -------------------------------------------------------------------------
                                  $   1,000  $      90  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The last of these contracts expires on May 17, 2010. Under these contracts, the Fund is required to deliver the agreed USD amount and in return receive the contracted CDN dollar amount set forth in each contract. As at March 31, 2010, the fair value the Fund would have received if it were to have closed out the foreign exchange contracts was $0.1 million. It is not the present intention of management to close out these contracts. The Company has historically held its derivative contracts to maturity.

The Company believes that its customers, suppliers and lenders, while impacted by the more recent economic slow down, will continue to operate with the Company on similar terms to those currently in place. As well, while the Company's products and services may be impacted by the changing economic environment, the Company expects to remain profitable and generate positive cash flow.

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, asset expenditures, contractual obligations and anticipated distributions.

Business Risks

For a comprehensive discussion of business risks, please refer to the Fund's most recently filed Annual Information Form and Annual Report available on SEDAR at www.sedar.com.

Non-GAAP Measures

The information presented within the tables in this MD&A include certain adjusted financial measures such as "EBITDA" (Earnings before income taxes, depreciation and amortization), "Adjusted income" (net income before certain non-cash charges) and "Adjusted cash flow after capital expenditures and contract payments", all of which are not defined terms under Canadian generally accepted accounting principles ("GAAP"). These non-GAAP financial measures are derived from, and should be read in conjunction with, the Consolidated Statements of Income and the Consolidated Statements of Cash Flow. Management believes these supplementary disclosures provide useful additional information related to the operating results of the Fund.

Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income and Consolidated Statements of Cash Flow. 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 Statements of Income or other GAAP statements. Further, the Fund's method of calculating each balance may not be comparable to calculations used by other Income Trusts bearing the same description.

EBITDA

In addition to its use by management as an internal measure of financial performance, EBITDA is used to measure (with adjustments) compliance with certain financial covenants under the Fund's credit facility. EBITDA is also widely used by the Fund and others in assessing performance and value of a business. EBITDA has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under GAAP.

Adjusted Income

Adjusted income is used as a measure of internal performance similar to net income, but is calculated after removing the non-cash impacts of certain fair value and purchase accounting items and future tax recoveries or expenses. These items are excluded in calculating Adjusted income as they are non-cash items and not considered indicative of the financial performance of the Business for the period being reviewed.

Adjusted Cash Flows from Operating Activities and Adjusted Cash Flows after Capital Expenditures and Contract Payments

Certain subtotals presented within the cash flows table above, such as "Adjusted cash flows from operating activities" and "Adjusted cash flows after capital expenditures and contract payments", are not defined terms under GAAP. Management uses these subtotals as measures of internal performance and as a supplement to the Consolidated Statements of Cash Flows.

OUTLOOK

Davis + Henderson's overall long-term objective is to deliver stable and modestly growing cash distributions by growing revenue in the 3% to 5% range. For 2009 and the first quarter of 2010, revenue was substantially above this range due to the inclusion of the results of Resolve. For the first half of 2010, we expect revenues will continue to show a substantial increase over the prior year as a result of the inclusion of the Resolve business within our consolidated results.

In the immediate future, we will focus on executing our organic growth initiatives, integrating the Business and continuing to diligently manage costs. Beyond the immediate term, we believe that combining Davis + Henderson and Resolve will solidly position the Business in the markets we serve and allow us to grow consistent with our long-term objectives.

As set out in our statement of strategy, we look to grow our Business through a combination of organic initiatives, partnering with third parties and by way of selective acquisitions. Our organic initiatives are many and include: (1) the ongoing enhancement and evolution of our cheque program through the addition of value-added service enhancements (such as our IDefence(R) and BizAssist(R) programs), (2) the expansion of our current services within the student lending, commercial and personal lending areas (including the mortgage, credit card and personal property markets), (3) selling and delivering our lending technology services to new customers and (4) combining the capabilities of D+H together with those of the recently acquired Resolve and Cyence businesses to develop new service offerings for our financial institution customers.

With the inclusion of several new service areas over the last several years, we expect to experience some level of increase in variability in year-over-year quarterly revenues, earnings and cash flows, due to: (i) volume variances within the registration service area; (ii) variability in professional services work; and (iii) variability in fees relating to origination services revenues due to recent significant variability in the housing market.

For 2010, with a full-year inclusion of Resolve and various integration initiatives, we expect the consolidated capital program to be in the range of $24.0 million to $27.0 million, although additional integration saving opportunities may result in an expansion of our capital program.

Since December 2001, the initial public offering date of Davis + Henderson Income Fund, the Business has operated as a subsidiary of an Income Trust pursuant to its declaration of trust. In 2007, changes were made to the Income Tax Act that will require certain Income Trusts, including D+H, to be subject to taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. In response to these changes and related impacts, D+H will hold the Meeting on June 17, 2010, at which time unitholders will be asked to approve its conversion from an Income Trust into a corporation effective January 1, 2011. The Trustees and management of Davis + Henderson believe that the proposed conversion of the Fund's capital structure is in the best interests of unitholders and the Business and believe the conversion can be expected to provide the following benefits: (i) enhanced access to capital markets which will benefit the Business as it continues to expand through acquisition; (ii) a corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and (iii) a simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing, among other items, the benefit of reduced internal and external administrative costs.

Implementation of the conversion is expected to occur by way of plan of arrangement and is subject to approval by not less than 66(2/3)% of the votes cast at the Meeting as well as customary conditions, including the receipt of applicable regulatory, court and the Toronto Stock Exchange approvals. Upon completion of the conversion, unitholders will receive on a tax deferred roll over basis one share of the resulting public corporation for each unit held. An information circular in respect of the Meeting, which will provide a detailed outline of the proposed conversion, will be mailed to all unitholders in mid-May, 2010.

Independent of the conversion plan and as a result of the enacted tax changes, the Business will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly). Provided the conversion is approved, distributions made by Davis + Henderson beginning in 2011 should be taxed as eligible dividends rather than regular income as they are today. Investors that are taxed as individuals may be entitled to dividend tax credits which may enhance their after-tax yield and therefore significantly reduce the after-tax impact of the reduction in distributions.

Consistent with past practices, actual distributions will only be made to owners of record based upon a declaration by the Trustees. Among other items, in determining actual distributions, the Trustees will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.

Notwithstanding the proposed structural and distribution changes attributed to the changes to the law, the strategies and objectives of the Business will remain unchanged.

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"). Statements concerning Davis + Henderson's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Davis + Henderson are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of Davis + Henderson to meet its revenue and EBITDA targets; general industry and economic conditions; changes in Davis + Henderson's relationship with its customers and suppliers; pricing pressures and other competitive factors. Davis + Henderson has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While Davis + Henderson considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect.

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.

Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund's financial objective; stability and growth in the real estate, mortgage and lending markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 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 except as required by applicable securities laws.

ADDITIONAL INFORMATION

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

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

                                                       March 31, December 31,
                                                           2010         2009
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                       $   1,401    $   3,878
      Accounts receivable (note 3)                       72,778       57,251
      Inventory (note 4)                                  6,154        6,197
      Prepaid expenses                                    6,769        6,156
      Future income tax asset - current  (note 11)        2,546        3,274
    -------------------------------------------------------------------------
                                                         89,648       76,756

    Future income tax asset (note 11)                    20,556       21,425
    Capital assets (note 5)                              31,980       33,296
    Fair value of derivatives (note 9)                      312          456
    Intangible assets (note 6)                          279,663      289,774
    Goodwill (note 7)                                   522,482      519,848
    -------------------------------------------------------------------------
                                                      $ 944,641    $ 941,555
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities        $  75,216    $  72,274
      Distributions payable to unitholders                8,161        8,161
      Bank indebtedness (note 8)                         70,000            -
      Deferred revenue - current                          6,496        7,028
    -------------------------------------------------------------------------
                                                        159,873       87,463

    Bank indebtedness (note 8)                          143,760      208,463
    Fair value of derivatives (note 9)                    3,323        4,733
    Deferred revenue - non-current                        9,102        9,510
    Other long-term liabilities (note 10)                 7,559        7,161
    Future income tax liability (note 11)                46,958       48,934
    -------------------------------------------------------------------------
                                                        370,575      366,264

    Unitholders' equity:
      Trust units (note 12)                             595,859      595,859
      Deficit                                           (21,500)     (20,086)
      Accumulated other comprehensive income (loss)        (293)        (482)
    -------------------------------------------------------------------------
                                                        574,066      575,291

    Commitments (note 14)
    -------------------------------------------------------------------------
                                                      $ 944,641    $ 941,555
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                                          Three months ended
                                                       March 31,    March 31,
                                                           2010         2009
    -------------------------------------------------------------------------
    Revenue                                           $ 158,419    $  88,529
    Cost of sales and operating expenses (note 4)       121,310       60,401
    Amortization of capital assets                        1,837        1,098
    -------------------------------------------------------------------------
                                                         35,272       27,030

    Interest expense                                      3,563        1,883
    Net unrealized loss (gain) on derivative
     instruments                                         (1,559)         191
    Amortization of intangible assets (note 6)            9,613        5,785
    -------------------------------------------------------------------------
    Income from continuing operations before income
     taxes                                               23,655       19,171

    Future income tax expense (recovery)  (note 11)         587          (64)
    -------------------------------------------------------------------------

    Net income                                        $  23,068     $ 19,235
    -------------------------------------------------------------------------
    Net income per unit, basic and diluted            $  0.4333    $  0.4377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                                          Three months ended
                                                       March 31,    March 31,
                                                           2010         2009
    -------------------------------------------------------------------------

    Net income                                        $  23,068    $  19,235

    Other comprehensive income:
    Amortization of mark-to-market adjustment of
     interest-rate swaps                                    189          136
    -------------------------------------------------------------------------
    Total comprehensive income                        $  23,257    $  19,371
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                                          Three months ended
                                                       March 31,    March 31,
                                                           2010         2009
    -------------------------------------------------------------------------

    Deficit
    Deficit, beginning of period                      $ (20,086)   $ (25,714)
    Net income                                           23,068       19,235
    Distributions                                       (24,482)     (20,211)
    -------------------------------------------------------------------------
    Deficit, end of period                              (21,500)     (26,690)
    -------------------------------------------------------------------------

    Accumulated Other Comprehensive Income (Loss)
    Accumulated other comprehensive income (loss),
     beginning of period                                   (482)        (960)
    Other comprehensive income :
    Amortization of mark-to-market adjustment of
     interest-rate swaps                                    189          136
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (loss),
     end of period(1)                                      (293)        (824)
    -------------------------------------------------------------------------
    Deficit and accumulated other comprehensive
     income (loss), end of period                     $ (21,793)   $ (27,514)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Accumulated other comprehensive income (loss) consists of cumulative
        net gains and losses that were deferred prior to January 1, 2007 when
        hedge accounting was used by the Fund.

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



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

                                                          Three months ended
                                                       March 31,    March 31,
                                                           2010         2009
    -------------------------------------------------------------------------

    Cash and cash equivalents provided by (used in):

    OPERATING ACTIVITIES
    Net income                                        $  23,068    $  19,235
    Add:
      Amortization of capital assets                      1,837        1,098
      Amortization of capital assets included in
       cost of sales                                        353          310
      Amortization of intangible assets                   9,613        5,785
      Amortization of mark-to-market adjustment of
       interest-rate swaps                                  189          136
      Net unrealized loss (gain) on derivative
       instruments                                       (1,559)         191
      Future income tax expense (recovery)                  587          (64)
    -------------------------------------------------------------------------
                                                         34,088       26,691

    Decrease (increase) in non-cash working capital
     items                                              (14,094)     (13,885)
    Changes in other operating assets and liabilities       987          209
    -------------------------------------------------------------------------
                                                         20,981       13,015
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Net proceeds from bank indebtedness                   5,000            -
    Distributions paid to unitholders                   (24,482)     (20,211)
    -------------------------------------------------------------------------
                                                        (19,482)     (20,211)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Expenditures on capital assets, non-acquisition
     intangible assets and long term contracts           (3,976)      (4,363)
    Acquisition of businesses (note 2)                        -           60
    -------------------------------------------------------------------------
                                                         (3,976)      (4,303)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents
     for the period                                      (2,477)     (11,499)
    Cash and cash equivalents, beginning of period        3,878       12,066
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period          $   1,401    $     567
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information:
      Cash interest paid                              $   3,068    $   1,100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2010 and 2009

(in thousands of Canadian dollars, except unit and per unit amounts,

unaudited)

NATURE OF BUSINESS

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

    
    1.  SIGNIFICANT ACCOUNTING POLICIES
    

The consolidated financial statements have been prepared using the following 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, 2009, which are included in the 2009 Annual Report. They do not conform in all respects with disclosures required for annual financial statements and should be read in conjunction with the audited financial statements of the Fund for the year ended December 31, 2009.

    
    2.  ACQUISITION
    

Resolve Business

On July 27, 2009, the Fund acquired all of the outstanding units of Resolve Business Outsourcing Income Fund through the exchange of 0.285 trust units of the Fund for each unit of Resolve Business Outsourcing Income Fund. A total of 9,286,581 Fund trust units were issued for this exchange.

Resolve is a leading provider in Canada of student loan administration services, credit card portfolio management services, and search and registration services, among other offerings. The net assets acquired and consideration given were as follows:

    
    Net assets acquired, at fair value:
      Current assets                                               $  55,362
      Capital and other assets                                        16,522
      Intangible assets                                              161,396
      Future income tax asset                                         22,376
      Payables and other current liabilities                         (65,517)
      Future income tax liability                                    (45,100)
      Long-term indebtedness                                         (73,812)
      Other long-term liabilities                                     (6,800)
    -------------------------------------------------------------------------
                                                                      64,427
    Goodwill                                                          66,266
    -------------------------------------------------------------------------
    Total                                                          $ 130,693
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
     Consideration for 100% ownership:
       Units issued                                                $ 120,094
       Acquisition costs, net of cash acquired of $3,212              10,599
    -------------------------------------------------------------------------
    Total                                                          $ 130,693
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

During the current period, certain customer relationship contracts were reclassified from intangibles to goodwill as an adjustment to the purchase price allocation.

The value of the Fund's trust units issued on acquisition reflects the unit's average trading price over a five-day period surrounding the Fund's announcement to acquire Resolve Business Outsourcing Income Fund on June 3, 2009. The estimated acquisition costs of $13.8 million, which included transaction and restructuring costs was reduced by Resolve's cash on hand of $3.2 million at the date of acquisition. In addition, the Fund also incurred after tax costs of $0.6 million to issue additional trust units. The Fund has not completed its assessment and valuation of the assets acquired and liabilities assumed for this acquisition. As a result, the amount of the purchase price in excess of the carrying value of the acquired assets and liabilities allocated to the acquired assets and liabilities in the consolidated balance sheet has not been finalized.

    
    3.  ACCOUNTS RECEIVABLE

                                                       March 31, December 31,
                                                           2010         2009
    -------------------------------------------------------------------------
    Trade receivables                                 $  71,196    $  56,073
    Other receivables                                     1,582        1,178
    -------------------------------------------------------------------------
                                                      $  72,778    $  57,251
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The amount for allowance for doubtful accounts recorded as at March 31, 2010 was $519 (Q1 2009 - $559). The amount of past due accounts as at March 31, 2010 was $727 (Q1 2009 - $485).

    
    4.  INVENTORY

                                                       March 31, December 31,
                                                           2010         2009
    -------------------------------------------------------------------------
    Raw materials                                     $   2,307    $   2,457
    Work-in-process                                       1,889        1,322
    Finished goods                                        1,958        2,418
    -------------------------------------------------------------------------
                                                      $   6,154    $   6,197
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

Inventory that was recognized as cost of sales during the three months ended March 31, 2010 was $10,676 (Q1 2009 - $10,467). The amount of write-down of inventories recognized as an expense during the three months ended March 31, 2010 was $41 (Q1 2009 - $43).

    
    5.  CAPITAL ASSETS

                                           Three months ended March 31, 2010
    -------------------------------------------------------------------------
                                                        Furniture,
                                                         fixtures
                                                              and
                                  Machinery             leasehold
                        Land and        and   Computer   improve-
                       buildings  equipment  equipment      ments      Total
    -------------------------------------------------------------------------
    Cost
    At January 1, 2010  $  2,975   $ 19,971   $ 25,589   $ 12,798   $ 61,333
    Additions                           115        669         90        874
    Other movements(1)         -         29     (1,414)        33     (1,352)
    -------------------------------------------------------------------------
    At March 31, 2010   $  2,975   $ 20,115   $ 24,844   $ 12,921   $ 60,855
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     impairment losses
    At January 1, 2010  $     45   $  9,998   $ 10,617   $  7,377   $ 28,037
    Amortization              95        514      1,264        317      2,190
    Other movements(1)         -         29     (1,362)       (19)    (1,352)
    -------------------------------------------------------------------------
    At March 31, 2010   $    140   $ 10,541   $ 10,519   $  7,675   $ 28,875
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net carrying amount
     at March 31, 2010  $  2,835   $  9,574   $ 14,325   $  5,246   $ 31,980
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                              March 31, 2009
    -------------------------------------------------------------------------
                                                        Furniture,
                                                         fixtures
                                                              and
                                  Machinery             leasehold
                        Land and        and   Computer   improve-
                       buildings  equipment  equipment      ments      Total
    -------------------------------------------------------------------------
    Cost
    At January 1, 2009  $      -   $ 15,589   $ 18,491   $  9,048   $ 43,128
    Additions                            44        793         15        852
    Other movements(1)         -        (39)    (1,684)      (282)    (2,005)
    -------------------------------------------------------------------------
    At March 31, 2009   $      -   $ 15,594   $ 17,600   $  8,781   $ 41,975
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     impairment losses
    At January 1, 2009         -      8,609      7,438      6,617   $ 22,664
    Amortization                   $    227   $  1,005   $    181      1,413
    Other movements(1)         -        (32)    (1,666)      (282)    (1,980)
    -------------------------------------------------------------------------
    At March 31, 2009   $      -   $  8,804   $  6,777   $  6,516   $ 22,097
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net carrying amount
     at March 31, 2009  $      -   $  6,790   $ 10,823   $  2,265   $ 19,878
    Net carrying amount
     at December 31,
     2009                   2930   $  9,973   $ 14,972   $  5,421   $ 33,296
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Other movements primarily relate to fully amortized assets removed
        from the accounts during the period.


    6.  INTANGIBLE ASSETS

                     Three months ended March 31, 2010
    ---------------------------------------------------
                       Contracts              Software
                      ----------- ---------------------
                                            Internally
                                  Purchased  Developed
    ---------------------------------------------------
    Cost
    At January 1, 2010  $  6,799   $ 29,814   $ 14,126
    Additions                950        879      1,273
    Other movements(1)    (3,537)    (2,204)    (1,002)
    ---------------------------------------------------
    At March 31, 2010      4,212     28,489     14,397
    ---------------------------------------------------
    ---------------------------------------------------

    Amortization and
     impairment loss
    At January 1, 2010  $  4,693   $ 19,261   $  4,674
    Amortization             408      1,327        781
    Other movements(1)    (3,537)    (2,204)    (1 002)
    ---------------------------------------------------
    At March 31, 2010      1,564     18,384      4,453
    ---------------------------------------------------
    ---------------------------------------------------

    Net carrying amount
    At March 31, 2010   $  2,648   $ 10,105   $  9,944
    ---------------------------------------------------
    ---------------------------------------------------


                                           Three months ended March 31, 2010
    -------------------------------------------------------------------------
                                        Acquisition of businesses
                      --------------------------------------------
                                                         Customer
                                  Proprietary    Brand   relation-
                       Contracts     software    names      ships      Total
    -------------------------------------------------------------------------
    Cost
    At January 1, 2010  $    438   $ 70,500   $ 10,900   $232,935   $365,512
    Additions                  -          -          -          -      3,102
    Other movements(1)         -          -          -     (3,600)   (10,343)
    -------------------------------------------------------------------------
    At March 31, 2010        438     70,500     10,900    229,335    358,271
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization and
     impairment loss
    At January 1, 2010  $     37   $ 17,149   $  2,180   $ 27,744   $ 75,738
    Amortization              36      1,832        183      5,046      9,613
    Other movements(1)         -          -          -          -     (6,743)
    -------------------------------------------------------------------------
    At March 31, 2010         73     18,981      2,363     32,790     78,608
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net carrying amount
    At March 31, 2010   $    365   $ 51,519   $  8,537   $196,545   $279,663
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                     Three months ended March 31, 2009
    ---------------------------------------------------
                       Contracts              Software
                      ----------- ---------------------
                                            Internally
                                  Purchased  Developed
    ---------------------------------------------------
    Cost
    At January 1, 2009  $  8,761   $ 21,727   $ 10,676
    Additions              1,000        482        535
    Other movements       (3,162)    (2,516)    (1,508)
    ---------------------------------------------------
    At March 31, 2009      6,599     19,693      9,703
    ---------------------------------------------------
    ---------------------------------------------------

    Amortization and
     impairment loss
    At January 1, 2009  $  5,414   $ 17,393   $  4,194
    Amortization             917      1,074        421
    Other movements       (3,162)    (2,516)    (1,503)
    ---------------------------------------------------
    At March 31, 2009      3,169     15,951      3,112
    ---------------------------------------------------
    ---------------------------------------------------

    Net carrying amount
    At March 31, 2009   $  3,430   $  3,742   $  6,591
    At December 31,
     2009               $  2,106   $ 10,553   $  9,452
    ---------------------------------------------------
    ---------------------------------------------------


                                           Three months ended March 31, 2009
    -------------------------------------------------------------------------
                                        Acquisition of businesses
                      --------------------------------------------
                                                         Customer
                                  Proprietary    Brand   relation-
                       Contracts     software    names      ships      Total
    -------------------------------------------------------------------------
    Cost
    At January 1, 2009  $  1,201   $ 56,093   $ 10,900   $107,064   $216,422
    Additions                  -                     -          -      2,017
    Other movements            -       (193)         -    (16,329)   (23,078)
    -------------------------------------------------------------------------
    At March 31, 2009      1,201     55,900     10,900     90,735    194,731
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization and
     impairment loss
    At January 1, 2009  $    864   $ 11,017   $  1,452    $ 31,413  $ 71,747
    Amortization             140      1,397        182       1,654     5,785
    Other movements            -       (193)         -     (16,329)  (23,703)
    -------------------------------------------------------------------------
    At March 31, 2009      1,004     12,221      1,634      16,738    53,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net carrying amount
    At March 31, 2009   $    197   $ 43,679   $  9,266    $ 73,997  $140,902
    At December 31,
     2009               $    401   $ 53,351   $  8,720    $205,191  $289,774
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Other movements primarily relate to fully amortized assets removed
        from the accounts during the period and to reflect reclassification
        from intangibles to goodwill of certain Resolve customer relationship
        intangibles.


    7.  GOODWILL

                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Balance, beginning of period                     $ 519,848     $ 458,989
    Goodwill acquired during the period:
      Cyence                                                 -        (1,417)
      Resolve                                            2,634        63,632
      Filogix                                                -        (1,356)
    -------------------------------------------------------------------------
    Balance, end of period                           $ 522,482     $ 519,848
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The adjustment to goodwill in Resolve is in connection with the reclassification of certain customer relationship contracts from intangibles to goodwill during the current period.

    
    8.  BANK INDEBTEDNESS

                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Non-revolving term loan maturing June 15, 2011   $ 120,000     $ 120,000
    Non-revolving term loan maturing January 2, 2011    70,000        70,000
    Revolving credit facility maturing June 15, 2011    25,000        20,000
    -------------------------------------------------------------------------
                                                       215,000       210,000
    Deferred finance costs                              (1,240)       (1,537)
    -------------------------------------------------------------------------
                                                     $ 213,760     $ 208,463
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

As at March 31, 2010, the Fund had $260 million of available credit facilities consisting of two non-revolving term loans and two revolving credit facilities. These include a non-revolving term loan maturing June 15, 2011 of $120 million, a second non-revolving term loan of $70 million maturing January 2, 2011, a revolving credit facility maturing June 15, 2011 of $50 million (of which $25 million was drawn at March 31, 2010) and a second revolving credit facility maturing January 2, 2011 of $20 million (of which nil was drawn at March 31, 2010). The credit facilities do not require the Fund to make any principal payments prior to their stated maturities. As the non-revolving term loan of $70 million matures on January 2, 2011, it has been disclosed as a current liability on the financial statements as at March 31, 2010. The credit approval process has commenced and a Draft Credit Agreement is being negotiated with the financial institutions for the renewal of the credit facilities described above.

The facilities bear interest at rates that depend on certain financial ratios of the Fund and vary in accordance with borrowing rates in Canada. The credit facilities, including any hedge contracts with the lenders, are secured in first priority by a pledge of substantially all of the Fund's assets and by a pledge of the Fund's indirect ownership interest in Davis + Henderson L.P. The carrying value of long-term indebtedness approximates its fair value as it bears interest at floating rates that reset in most cases within three months and in all cases within one year.

In addition to the credit facilities described above, the Fund also has obligations outstanding pursuant to letters of credit and performance guarantees aggregating to $5 million.

The Credit Agreement for the Fund contains a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests. As at March 31, 2010, the Fund was in compliance with all of its financial covenants and financial condition tests.

Deferred finance costs relate to amendments to credit agreement on July 27, 2009 and the renewal and amendment of long-term indebtedness on June 15, 2006. Amortization of deferred finance costs during the three month ended March 31, 2010 was $297 (Q1 2009 - $69). Amortization of deferred finance costs is recognized over the term of the facilities as interest expense using the effective interest method.

    
    9.  FINANCIAL INSTRUMENTS
    

Recognition and Measurement

The Fund's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, distributions payable to unitholders, interest-rate swaps, foreign exchange contracts and long-term indebtedness. The Fund does not enter into financial instruments for trading or speculative purposes. As such, financial assets are classified as held to maturity, or loans and receivables. Financial liabilities are recorded at amortized cost. Initially, all financial assets and financial liabilities must be recorded on the balance sheet at fair value. Subsequent measurement is determined by the classification of each financial asset and financial liability. All derivatives, including embedded derivatives that must be separately accounted for, are recorded at fair value in the consolidated balance sheet. Transaction costs related to financial instruments are generally capitalized and then amortized over the expected life of the financial instrument using the effective interest method.

Credit Risk

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

Market Risk

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

The following table presents a sensitivity analysis to changes in market interest rates and their potential impact on the Fund for the three months ended March 31, 2010. As the sensitivity is hypothetical, it should be used with caution.

    
                                                     + 100 bps      -100 bps
    -------------------------------------------------------------------------
    Increase (decrease) in interest expense          $      49     $     (49)
    Change to net unrealized (gain) loss on
     interest-rate swaps                                (5,800)        5,800
    -------------------------------------------------------------------------

    Increase (decrease) in net income                $   5,751     $  (5,751)
    -------------------------------------------------------------------------
    Increase (decrease) in total comprehensive
     income                                          $   5,751     $  (5,751)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Fund manages its interest-rate risks through the use of interest-rate swaps for some of its outstanding long-term indebtedness. As at March 31, 2010, the Fund has entered into interest-rate swap contracts with its lenders, such that the floating borrowing rates on $195.0 million, or 90.7%, of its outstanding term indebtedness are effectively fixed at interest rates and for periods shown in the following table:

    
    -------------------------------------------------------------------------
                                                 Fair value of
                                           interest-rate swaps
                                    ---------------------------     Interest
    Maturity date  Notional Amount         Asset     Liability        rate(1)
    -------------------------------------------------------------------------
    July 15, 2010        $  33,000     $       -     $     704        4.815%
    January 5, 2011         22,000             -           260        1.980%
    June 15, 2011           20,000             -         1,239        4.685%
    June 15, 2011           25,000             -           991        4.685%
    December 18, 2014       25,000           198             -        2.720%
    March 18, 2015          25,000            24             -        2.940%
    March 20, 2017          25,000             -            61        3.350%
    March 20, 2017          20,000             -            68        3.366%
    -------------------------------------------------------------------------
                         $ 195,000     $     222     $   3,323
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The listed interest rates exclude bankers' acceptance fees
        currently in effect. Such fees could increase depending on the Fund's
        financial leverage as compared to certain levels specified in the
        Credit Agreement. As of March 31, 2010, $140 million of the Fund's
        debt was subject to bankers' acceptance fees of 1.00%, $5 million was
        subject to the prime rate, with the balance of $70 million subject to
        bankers' acceptance fees of 3.75%.
    

The Fund is a party to foreign exchange contracts. As these foreign exchange contracts do not qualify for hedge accounting, the unrealized gain or loss is recorded as mark-to-market on derivative instruments in the consolidated statements of income. The following table lists the foreign exchange contracts as at March 31, 2010:

    
    -------------------------------------------------------------------------
                                         Fair value of foreign
                                            exchange contracts
                                    ---------------------------     Exchange
    Maturity date  Notional Amount         Asset     Liability          rate
    -------------------------------------------------------------------------
    April 15, 2010       $     500     $      45     $       -        1.1057
    May 17, 2010               500            45             -        1.1057
    -------------------------------------------------------------------------
                         $   1,000     $      90     $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The following table presents a sensitivity analysis to changes in the foreign exchange between the Canadian and US dollar on the Fund for the three months ended March 31, 2010. As the sensitivity is hypothetical, it should be used with caution.

    
                                                   + $0.05 CAD    -$0.05 CAD
                                                       Per USD       Per USD
    -------------------------------------------------------------------------
    Increase (decrease) in net income                $     112     $    (112)
    Unrealized gain (loss) on mark-to-market on
     foreign exchange contracts                            (50)           50
    -------------------------------------------------------------------------

    Total increase (decrease) in net income          $     (62)    $      62
    -------------------------------------------------------------------------

    Increase (decrease) in total comprehensive
     income                                          $     (62)    $      62
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Liquidity Risk

The Fund has long-term indebtedness with maturity dates of January 2, 2011 and June 15, 2011. The degree to which the Fund is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to maintain and grow the current levels of cash flows from operations. The Fund may be unable to extend the maturity date of the credit facilities or to refinance outstanding indebtedness.

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

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

Fair Value Hierarchy

The Fund values instruments carried at fair value using quoted market prices, where available. Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Fund maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require a significant use of unobservable inputs are considered Level 3. The following table outlines the fair value hierarchy of instruments carried at fair value:

    
                                                              March 31, 2010
    -------------------------------------------------------------------------
                           Level 1       Level 2       Level 3         Total
    Assets:
      Derivative
       instruments       $       -     $     312     $       -     $     312
    -------------------------------------------------------------------------
                         $       -     $     312     $       -     $     312
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities:
      Derivative
       instruments       $       -     $   3,323     $       -     $   3,323
    -------------------------------------------------------------------------
                         $       -     $   3,323     $       -     $   3,323
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Level 2 financial instruments recorded in the Fund's balance sheet include interest-rate swaps and foreign exchange contracts.

Hedge Accounting

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

Effective January 1, 2007, the Fund ceased applying hedge accounting on the outstanding interest-rate swaps and foreign exchange contracts.

Derivative Financial Instruments

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

Accumulated Other Comprehensive Income (Loss)

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

    
    10. OTHER LONG-TERM LIABILITIES

                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Deferred compensation program                    $   1,339     $     845
    Employee future benefits                             4,970         4,987
    Contractual supplier obligation                      1,250         1,319
    Capital lease                                            -            10
    -------------------------------------------------------------------------
                                                     $   7,559     $   7,161
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The deferred compensation program, which commenced on January 1, 2009, is a long-term incentive plan that includes a cash award component and a cash-settled unit-based compensation component. Both the cash component and the cash-settled unit-based compensation component awarded at the grant date are subject to a three year target for compound annual growth in adjusted income.

An expense of $0.3 million was recorded in the consolidated statement of earnings for the three months ended March 31, 2010 relating to the deferred compensation program (Q1 2009 -$0.8 million).

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 non-pension post-retirement benefit plans are defined benefit plans funded on a cash basis by contributions from the Fund, which covers certain medical costs of a limited number of employees. The Fund measures its accrued benefit obligations and the fair value of the plan for accounting purposes as at December 31 of each year. The latest actuarial valuation of the post-retirement benefit plan was performed as at December 31, 2009. The next valuation will be performed in 2010.

The Fund's principal pension plans are defined contribution pension plans that provide pensions to substantially all eligible employees. Total expense for the Fund's defined contribution pension plan for the three months ended March 31, 2010 was $0.8 million (Q1 2009 - $0.5 million).

The contractual supplier obligation relates to payments to be made for a customized software package. The total liability is $1.3 million of which $0.4 million is recorded in current liabilities.

    
    11. INCOME TAXES
    

The Fund is a mutual fund trust for income tax purposes and will be a specified investment flow through trust ("SIFT") for years commencing after 2010. As such, the Fund is subject to current income taxes on any taxable income of its corporate subsidiaries, on any of its taxable income for its flow-through subsidiaries not distributed to unitholders prior to January 1, 2011 and on all taxable income subsequent to December 31, 2010. If the Fund's equity capital grows beyond certain dollar limits prior to January 1, 2011, the Fund would become a SIFT and would commence in that year being subject to tax on income distributed. The Fund expects that its income distributed will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on its temporary differences and those of its flow-through subsidiary trust and partnerships expected to reverse prior to 2011 as it is considered tax exempt for accounting purposes.

Taxable income distributed by the Fund to its unitholders will be taxable income of those unitholders.

Significant components of the Fund's future tax assets and liabilities with respect to differences between the consolidated carrying values and the related tax bases of the assets and liabilities within certain partnership, trust and corporate subsidiaries are as follows:

    
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Future income tax assets:
      Capital assets less than tax values            $   2,786     $   2,935
      Intangible assets less than tax values            10,559        10,284
      Tax losses available for future periods           18,209        19,289
      Accrued and other liabilities                      5,320         6,088
    -------------------------------------------------------------------------
                                                        36,874        38,596
      Valuation allowance                              (13,772)      (13,897)
    -------------------------------------------------------------------------
      Total future income tax asset                     23,102        24,699

    Future income tax liabilities:
      Capital assets greater than tax values             4,739         3,208
      Intangible assets greater than tax values         42,218        45,726
    -------------------------------------------------------------------------
      Total future income tax liabilities               46,958        48,934

    Net future income tax liabilities                $  23,856     $  24,235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Fund does not expect the temporary differences between the carrying amount and tax base of certain intangible assets to reverse in the foreseeable future and accordingly has reduced the related future income tax asset by a valuation allowance of $10,559.

The Fund also does not expect to realize the benefit of certain loss carryforwards of U.S. corporate subsidiaries in the foreseeable future and accordingly has not recognized a future income tax asset for such losses by recording a valuation allowance of $3,213.

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

The provision for future income taxes in the consolidated statement of income represents the change in the consolidated net future income tax liabilities, excluding amounts that were recorded as an adjustment to goodwill. The effective tax rate for the period differs from the expected tax rate due to the results of operations of its corporate subsidiaries; and the change in temporary differences expected to reverse after 2010 for the Fund, its flow-through trust and partnership subsidiaries.

As at March 31, 2010, certain corporate subsidiaries of the Fund had $65,728 of net operating losses for income tax purposes. These losses will begin to expire commencing in fiscal 2022. The deductibility of losses of a U.S. corporate subsidiary of $6,307 is subject to annual limitations.

    
    12. TRUST UNITS
    

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

    
                                                      March 31,  December 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Balance, beginning of period                     $ 595,859     $ 476,343
    Units issued                                             -       119,516
    -------------------------------------------------------------------------
    Balance, end of period                           $ 595,859     $ 595,859
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Units outstanding, end of period                53,233,373    53,233,373
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The weighted average number of units outstanding during the three months ended March 31, 2010 was 53,233,373 (Q1 2009 - 43,946,792).

    
    13. CAPITAL
    

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

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

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

The Fund's indebtedness is subject to a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests at a subsidiary level. One such ratio is the "Total Funded Debt / EBITDA Ratio" as defined in the Credit Agreement. The maximum ratio allowed for a 12-month trailing period is 2.50. For the 3-month trailing period ended March 31, 2010, this ratio was calculated at 1.23 (12-month trailing period ended March 31, 2009 - 1.25). Management also uses this ratio as a key indicator in managing the Fund's capital.

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

    
    14. COMMITMENTS
    

As at March 31, 2010, the Fund has annual lease obligations with respect to real estate, vehicles and equipment as follows:

    
     2010                                                             10,576
     2011                                                              8,849
     2012                                                              7,811
     2013                                                              7,180
     2014                                                              6,248
     Thereafter                                                        7,140
    -------------------------------------------------------------------------
                                                                      47,804
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    15. SIGNIFICANT CUSTOMERS
    

For the three months ended March 31, 2010, the Fund earned 64% of its consolidated revenue from its seven largest customers (Q1 2009 - 76%). For the three months ended March 31, 2010, three of these customers individually accounted for greater than 10%, but not more than 14% of the Fund's total revenue (for the three months ended March 31, 2009, four of these customers individually accounted for greater than 10%, but no more than 17% of the Fund's total revenue).

    
    16. SEGMENTED INFORMATION
    

The Fund had previously operated and reported upon two business segments, the "D+H Segment" and the "Filogix Segment". Subsequent to the completion of the Resolve acquisition, the Fund announced that it would move to a single integrated operation in order to better serve customers and maximize effectiveness. The business is now managed along functional lines and operating decisions and performance assessment is aligned with these functions. As such, the Fund will report its business as a single segment and prior year segment information has been restated to conform to the current year's presentation.

Revenue pertaining to major service areas for the three months ended March 31, 2010 and 2009 are as follows:

    
                                                 Three months ended March 31,
                                                          2010          2009
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing account               $  73,165     $  71,559
      Loan servicing                                    29,669             -
      Loan registration technology services             22,847           764
      Lending technology services                       17,090        14,202
      Other                                             15,648         2,004
    -------------------------------------------------------------------------
                                                     $ 158,419     $  88,529
    -------------------------------------------------------------------------


    17. COMPARATIVE FIGURES

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

    Supplementary Financial Information
    Consolidated Operating Results by Period

    -------------------------------------------------------------------------
                                      Three      Three
                           Three     months     months      Three      Three
                          months      ended      ended     months     months
    (in thousands of       ended   December  September      ended      ended
     Canadian dollars,  March 31,        31,        30,   June 30,  March 31,
     unaudited)             2010       2009       2009       2009       2009
    -------------------------------------------------------------------------
    Revenue            $ 158,419  $ 156,215  $ 142,463  $  94,557  $  88,529
    Expenses             120,957    119,671    104,879     62,080     60,091
    -------------------------------------------------------------------------
    EBITDA(1)             37,462     36,544     37,584     32,477     28,438

    Amortization of
     capital assets and
     non-acquisition
     intangibles           4,706      4,551      4,530      3,679      3,819
    Interest expense       3,374      3,326      2,681      1,787      1,747

    -------------------------------------------------------------------------
    Adjusted income(1)    29,382     28,667     30,373     27,011     22,872

    Amortization of
     mark-to-market
     adjustment of
     interest-rate
     swaps                   189        103        103        136        136
    Net unrealized
     loss (gain) on
     derivative
     instruments          (1,559)    (1,620)    (1,647)    (1,069)       191
    Future income tax
     expense (recovery)      587     (2,747)     1,018       (718)       (64)
    Amortization of
     intangibles from
     acquisition           7,097      7,330      5,942      3,441      3,374
    -------------------------------------------------------------------------

    Net income         $  23,068  $  25,601  $  24,957  $  25,221  $  19,235

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

    Cash flows from
     operating
     activities        $  20,981  $  40,575  $  38,959  $  27,173  $  13,015
    Changes in non-
     cash working
     capital other
     items(3)             13,107     (7,356)    (4,056)     3,517     13,676
    -------------------------------------------------------------------------
    Adjusted cash
     flows from
     operating
     activities           34,088     33,219     34,903     30,690     26,691

    Less:
      Capital
       expenditures
       and contract
       payments(4)         3,976      5,133      2,818      2,491      4,363

    -------------------------------------------------------------------------
    Adjusted cash
     flows after
     capital asset
     expenditures and
     contract payments    30,112     28,086     32,085     28,199     22,328

    Distributions paid
     to unitholders       24,482     24,482     23,058     20,211     20,211

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

                           5,630      3,604      9,027      7,988      2,117

    Cash flows provided
     by (used in) other
     financing
     activities            5,000     (6,000)    (5,569)    (2,000)         -
    Fair value of trust
     units issued              -          -    119,394          -          -
    Fair value of
     acquisitions              -     (1,449)  (129,682)       103         60
    Changes in non-cash
     working capital and
     other items(3)      (13,107)     7,356      4,056     (3,517)   (13,676)
    Distributions paid
     to minority
     interests
    -------------------------------------------------------------------------
    Increase (decrease)
     in cash and cash
     equivalents for
     the period        $  (2,477) $   3,511  $  (2,774) $   2,574  $ (11,499)

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



    Summary of Cash Flows Per Unit
    -------------------------------------------------------------------------
                                      Three      Three
                           Three     months     months      Three      Three
                          months      ended      ended     months     months
    (in Canadian           ended   December  September      ended      ended
     dollars,           March 31,        31,        30,   June 30,  March 31
     unaudited)             2010       2009       2009       2009       2009
    -------------------------------------------------------------------------
    Adjusted income
     per unit, basic
     and diluted       $  0.5519  $  0.5385  $  0.6002  $  0.6146  $  0.5204
    Net income per
     unit, basic and
     diluted           $  0.4333  $  0.4809  $  0.4931  $  0.5739  $  0.4377
    Adjusted cash
     flows from
     operating
     activities        $  0.6403  $  0.6240  $  0.6897  $  0.6983  $  0.6073
    Adjusted cash
     flows after
     capital asset
     expenditures and
     contract payments $  0.5657  $  0.5276  $  0.6340  $  0.6417  $  0.5081
    Distributions paid
     to unitholders    $  0.4599  $  0.4599  $  0.4599  $  0.4599  $  0.4599
    Distributions
     declared during
     period            $  0.4599  $  0.4599  $  0.4599  $  0.4599  $  0.4599
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
        Measures section for a more complete description of these terms.

    (2) The Business enters into derivative contracts to fix the interest
        rates and foreign exchange rates on a significant portion of its
        outstanding bank debt and foreign currency transactions,
        respectively. For accounting purposes, these derivative instruments
        do not qualify for hedge accounting treatment. Accordingly, any
        change in the fair value of these contracts is recorded through
        income. Provided the Business does not cancel its derivative
        contracts prior to maturity, the amounts represent a non-cash
        unrealized gain or loss that will subsequently reverse through
        income. The Company has historically held its derivative contracts to
        maturity.

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

    (4) Asset expenditures include expenditure on capital asset, contract
        payments and non-acquisition intangibles.



    Condensed Consolidated Balance Sheet

    -------------------------------------------------------------------------
    (in thousands of               December  September
     Canadian dollars,  March 31,        31,        30,   June 30,  March 31,
     unaudited)             2010       2009       2009       2009       2009
    -------------------------------------------------------------------------

    Cash and cash
     equivalents       $   1,401  $   3,878  $     367  $   3,141  $     567
    Other current
     assets               88,247     72,796     85,160     29,996     27,137
    Capital assets        52,848     55,259     61,204     24,203     23,854
    Intangible assets    279,663    289,774    293,623    136,905    140,902
    Goodwill             522,482    519,848    516,374    457,636    459,037

    -------------------------------------------------------------------------
                       $ 944,641  $ 941,555  $ 956,728  $ 651,881  $ 651,497
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and other
     current
     liabilities       $ 159,873  $  87,463  $  93,385  $  36,745  $  37,464
    Other long-term
     liabilities          66,942     70,338     75,165     15,691     17,804
    Bank indebtedness    143,760    208,463    214,109    145,470    147,400
    Unitholders'
     equity              574,066    575,291    574,069    453,975    448,829

    -------------------------------------------------------------------------
                       $ 944,641  $ 941,555  $ 956,728  $ 651,881  $ 651,497
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Distribution History

    -------------------------------------------------------------------------
                                                    Distributions per unit(1)
    Month                       2010      2009      2008      2007      2006
    -------------------------------------------------------------------------

    January                 $ 0.1533  $ 0.1533  $ 0.1430  $ 0.1280  $ 0.1220
    February                  0.1533    0.1533    0.1430    0.1280    0.1220
    March                     0.1533    0.1533    0.1430    0.1320    0.1250
    April                          -    0.1533    0.1430    0.1320    0.1250
    May                            -    0.1533    0.1533    0.1320    0.1250
    June                           -    0.1533    0.1533    0.1320    0.1250
    July                           -    0.1533    0.1533    0.1320    0.1250
    August                         -    0.1533    0.1533    0.1320    0.1250
    September                      -    0.1533    0.1533    0.1320    0.1250
    October                        -    0.1533    0.1533    0.1320    0.1250
    November(2)                    -    0.1533    0.1533    0.3430    0.1280
    December(3)                    -    0.1533    0.1933    0.1430    0.1280

    -------------------------------------------------------------------------
                            $ 0.4599  $ 1.8396  $ 1.8384  $ 1.7980  $ 1.5000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                    Distributions per unit(1)
    Month                       2005      2004      2003      2002      2001
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
                            $ 1.4500  $ 1.4044  $ 1.3599  $ 1.3200  $ 0.0427
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Monthly distributions are made to unitholders of record on the last
        business day of each month and are paid within 31 days following each
        month end.
    (2) November 2007 declared distributions included a special distribution
        of $0.20 for unitholders of record on November 15, 2007 and was paid
        on November 30, 2007.
    (3) Distributions in 2001 are in respect of the 12 calendar days from
        December 20, 2001 to December 31, 2001. December 2008 declared
        distributions included a non-cash special distribution of $0.04 for
        unitholders of record on December 31, 2008 and was paid  on December
        31, 2008.



    Tax Allocation of Distributions

    -------------------------------------------------------------------------
                                    2010     2009     2008     2007     2006

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

    Dividend income                 0.0%     0.0%     0.0%     0.0%     0.0%
    Other income                  100.0%   100.0%   100.0%   100.0%   100.0%
    Return of capital               0.0%     0.0%     0.0%     0.0%     0.0%

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


    -------------------------------------------------------------------------
                                             2005     2004     2003     2002

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

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

    -------------------------------------------------------------------------
                                           100.0%   100.0%   100.0%   100.0%
    -------------------------------------------------------------------------
    The above tax allocation of distributions for 2010 represents an estimate
    based on the total expected distributions for the year ended December 31,
    2010.

    Other Statistics
    (in thousands, except per unit amounts)

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

    2010 - Q1     18.00   15.59   17.71      161      53.233         942.763
    2009 - Q4     16.92   14.05   16.92      177      53.233         900.709
         - Q3     14.99   12.25   14.90      182      53.233         793.177
         - Q2     14.29   11.51   12.25      126      43.947         538.348
         - Q1     16.76   10.40   11.92      104      43.947         523.846
    2008 - Q4     17.15   10.30   16.79      117      43.947         737.867
         - Q3     16.40   13.50   15.47       93      43.947         679.857
         - Q2     17.85   15.53   15.58       83      43.947         684.691
         - Q1     21.75   15.77   17.19      107      43.947         755.445
    2007 - Q4     22.00   18.75   21.00       98      43.947         922.883
         - Q3     20.10   17.14   19.80       78      43.947         870.146
         - Q2     19.79   16.30   19.31       90      43.947         848.613
         - Q1     17.19   15.00   16.60       87      43.947         729.517
    2006 - Q4     19.80   13.80   15.46      143      43.947         679.417
         - Q3     19.49   17.21   19.19       96      43.947         843.339
         - Q2     21.99   16.99   17.70      100      43.947         777.858
         - Q1     23.18   19.50   21.50       61      37.921         815.297
    2005 - Q4     24.00   16.32   23.19       92      37.921         879.383
         - Q3     24.07   19.50   21.19       88      37.921         803.542
         - Q2     22.85   19.58   20.92       61      37.921         793.303
         - Q1     23.25   19.65   22.00       67      37.921         834.257
    2004 - Q4     23.25   18.80   22.70       81      37.921         860.802
         - Q3     19.62   16.75   19.45       58      37.921         737.559
         - Q2     19.34   15.05   18.00       93      37.921         682.574
         - Q1     19.40   16.71   19.40       92      37.921         735.663
    2003 - Q4     17.50   15.10   17.45       67      37.921         661.718
         - Q3     15.65   14.52   15.30       99      37.921         580.188
         - Q2     15.20   12.91   15.00       82      37.921         568.812
         - Q1     13.69   12.48   12.94       92      37.921         490.695
    2002 - Q4     13.25   11.22   12.86      139      37.921         487.661
         - Q3     12.13   10.45   12.10      165      37.921         458.842
         - Q2     11.25   10.00   10.95      176      37.921         415.233
         - Q1     11.20   10.11   10.51      149      18.955         199.217

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

About Davis + Henderson

Davis + Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Davis + Henderson Income Fund is listed on the Toronto Stock Exchange under the symbol DHF.UN. Further information can be found in the disclosure documents filed by Davis + Henderson Income Fund with the securities regulatory authorities, available at www.sedar.com.

%SEDAR: 00017092EF

SOURCE DH Corporation

For further information: For further information: Bob Cronin, Chief Executive Officer, Davis + Henderson, Limited Partnership, (416) 696-7700, extension 5301, bob.cronin@dhltd.com; Brian Kyle, Chief Financial Officer, Davis + Henderson, Limited Partnership, (416) 696-7700, extension 5690, brian.kyle@dhltd.com


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