Davis + Henderson reports fourth quarter, year-end 2009 results

Stock Exchange Symbol: DHF.UN

Website: www.dhltd.com

TORONTO, March 2 /CNW/ - Davis + Henderson ("D+H" or the "Business") today reported solid financial results for the three and twelve months ended December 31, 2009. By way of a separate news release issued today, the Company announced it will seek unitholder approval to convert to a corporation from an Income Trust effective January 1, 2011 and indicated its intentions related to future unitholder distributions.

Financial Overview

On July 27, 2009, Davis + Henderson acquired Resolve Business Outsourcing Income Fund ("Resolve") and as a result, the Business experienced large increases in revenues and expenses as compared to prior periods. Overall, management considers the results of the Business for both the quarter and the year to be good in the context of the challenging economic environment that persisted throughout the year and is pleased with the business integration activity completed to date.

Fourth Quarter Highlights

    
    -   Revenue was $156.2 million, an increase of $66.9 million, or 74.8%
        compared to the same quarter in 2008.

    -   EBITDA(1) was $36.5 million, an increase of $9.6 million, or 35.6%
        compared to the same quarter in 2008. As expected, EBITDA increased
        at a lower rate than revenue growth due to the inclusion of service
        offerings within the former Resolve that contributed lower margins as
        a percentage of revenue compared to other D+H services.

    -   Adjusted income(1) was $28.7 million, an increase of $7.2 million or
        33.4% compared to the same quarter in 2008. Adjusted income per unit
        was $0.5385, up 10.1% compared to the same quarter in 2008.

    -   Net income was $25.6 million, an increase of $11.7 million, or 83.7%
        compared to the same quarter in 2008. Net income per unit was
        $0.4809, up 51.7% compared to the same quarter in 2008. Net income
        benefited from mark-to-market unrealized gains on derivative
        instruments and the recovery of future income taxes, both more fully
        described in the MD&A.

    -   Cash distributions paid for the quarter were $0.4599 per unit,
        unchanged from the same quarter in 2008.
    

2009 Highlights

    
    -   Revenue was $481.8 million for the year ended December 31, 2009, an
        increase of $114.5 million or 31.2% compared to 2008.

    -   EBITDA(1) was $135.0 million, an increase of $13.5 million or 11.1%
        compared to 2008. As expected, EBITDA increased at a lower rate than
        revenue due to the inclusion of service offerings within the former
        Resolve that contributed lower margins as a percentage of revenue
        compared to other D+H services.

    -   Adjusted income(1) was $108.9 million, an increase of $9.8 million or
        9.8% compared to 2008. Adjusted income(1) per unit was $2.2708 per
        unit, up 0.6% compared to 2008.

    -   Net income was $95.0 million, an increase of $16.6 million or 21.1%
        compared to 2008. Net income per unit was $1.9808, an 11.0% increase
        over 2008. Net income was positively impacted by growing operating
        results, mark-to-market unrealized gains on derivative instruments
        and changes in future income taxes, offset by an increase in
        amortization of intangibles from acquisitions.

    -   Cash distributions paid increased by 2.9% to $1.8396 per unit from
        $1.7881 per unit in 2008.
    

Management Commentary

Davis + Henderson had a solid year in a challenging economic environment, making good progress in advancing our vision of being a leading solutions provider to customers in the financial services marketplace.

With the acquisition of Resolve completed, the integration of the Business is now underway to allow us to better serve customers and improve our delivery effectiveness. This strategic acquisition added market-leading services, enhanced our capabilities and diversified our revenue and cash flow.

Financially, the Business delivered solid results for the year taken as a whole considering the economic environment. Compared to 2008, the Business experienced reduced revenues from our programs to the chequing account due to lower business cheque order volumes and to a lesser extent, lower mortgage origination services fees. In both service areas, the financial impact was partially offset by growth initiatives and continuing expense reduction activities. In the fourth quarter, we benefited from stronger origination services revenues and moderating declines in cheque order volumes that contributed to growth in earnings and cash flow over the comparable period in 2008.

Over the first half of 2010, we expect revenues will continue to show a substantial year-over-year increase as a result of the inclusion of the Resolve business. During 2010, we will remain focused on our organic growth initiatives and our integration activities.

For a more detailed discussion, please see the Management's Discussion and Analysis below.

    
    (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.
    

Caution Concerning Forward-looking Statements

This news release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Business, or developments in Davis + Henderson's industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that are based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. Davis + Henderson cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made.

Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund's financial objective; stability and growth in the real estate and mortgage markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

Conference Call

Davis + Henderson will discuss its financial results for the three and 12 months ended December 31, 2009 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, March 3, 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 56205637. The rebroadcast will be available until Wednesday, March 17, 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 fourth quarter of 2009 and year ended December 31, 2009 should be read in conjunction with MD&A in the Fund's Annual Report for the year ended December 31, 2008, dated February 24, 2009, the Short Form Prospectus, dated May 30, 2006, and the attached unaudited consolidated financial statements. External economic and industry factors remain substantially unchanged from the annual MD&A and the Short Form Prospectus, unless otherwise stated.

STRATEGY

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 Limited Partnership ("AVS" or "AVS L.P.") 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 acquisitions; (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.

As well, if the proposed conversion is approved, commencing in 2011, distributions to owners will be characterized as dividends rather than regular income. This provides the benefit of dividend tax credits for qualifying owners thereby reducing the after-tax impact on distributions.

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, is expected to be available by mid-May, 2010. In connection with a review of the proposed conversion, the Board of Trustees of Davis + Henderson have retained financial, legal and taxation advisors.

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. Had the Business been a corporation in 2009, pro forma taxes(1) would have been in the range of approximately $0.60 to $0.66 per unit.

It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. On a pro forma basis, had distributions been $1.20 per unit for 2009, the pro forma payout ratio would have been in the range of approximately 72% to 75%.

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.

Provided the conversion is approved, distributions made by Davis + Henderson beginning in 2011 will be taxed as dividends rather than regular income as they are today. Certain investors may be entitled to dividend tax credits which would enhance after-tax yield and significantly reduce the after-tax impact of the reduction in distributions.

For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly).

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

    
    --------------
    (1) Pro forma taxes have been estimated for 2009 on the assumption that
        the Business had been a corporation paying taxes at the applicable
        statutory corporate tax rates. Taxes have been estimated using
        Adjusted income as a proxy for taxable income. A range has been
        provided to reflect the fact that certain decisions may impact the
        utilization of timing differences and tax losses that would change
        the amount of taxes actually paid.
    (2) Pro forma payout ratio is calculated by dividing the intended
        distribution of $1.20 per unit by Adjusted income for 2009 after
        deducting taxes as described. Adjusted income is a non-GAAP term
        defined as net income after removing the non-cash impact of certain
        fair value and purchase accounting items and future tax recoveries or
        expenses. This term has limitations as an analytical tool and should
        not be considered in isolation or as a substitute for analysis of
        results as reported under GAAP. See the Fund's financial statements
        for a reconciliation of Adjusted income to net income.
    

FINANCIAL INFORMATION PRESENTATION

Between 2006 and 2009, the Business operated as 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 efficiencies. The Business is now managed along functional lines and operating decisions and performance assessment is aligned with these functions. As such, the Business now reports as a single segment. Revenue pertaining to major service areas and expenses pertaining to significant categories have been presented to reflect how management operates the Business.

OPERATING RESULTS FOR THE FOURTH QUARTER

Overview

D+H had solid operating performance in the fourth quarter of 2009. While the large year-over-year increases in the fourth quarter revenues and expenses were primarily due to the inclusion of the Resolve and Cyence results, the Business also benefited from stronger origination services revenue and moderating declines in cheque order volumes, both of which are more fully described below. Additionally, the Business continued its integration activities, including activities related to the attainment of cost synergies.

    
    Consolidated Operating and Financial Results(1)
    (in thousands of Canadian dollars, except per unit amounts, unaudited)

                                                   Quarter ended December 31,
                                                             2009       2008
    -------------------------------------------------------------------------
    Revenue                                             $ 156,215  $  89,357
    Expenses                                              119,671     62,413
    -------------------------------------------------------------------------

    EBITDA(2)                                              36,544     26,944

    Amortization of capital assets and
     non-acquisition intangibles                            4,551      3,800
    Interest expense                                        3,326      1,647
    -------------------------------------------------------------------------

    Adjusted income(2)                                     28,667     21,497

    Amortization of mark-to-market adjustment of
     interest-rate swaps                                      103        151
    Net unrealized loss (gain) on derivative
     instruments(3)                                        (1,620)     3,653
    Future income tax expense (recovery)                   (2,747)       399
    Amortization of intangibles from acquisitions           7,330      3,409
    -------------------------------------------------------------------------
    Income from continuing operations                      25,601     13,885
    Income from discontinued operations                         -         51
    -------------------------------------------------------------------------
    Net income                                          $  25,601  $  13,936
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted income per unit, basic and diluted(2)      $  0.5385  $  0.4892
    Net income per unit, basic and diluted              $  0.4809  $  0.3171
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                               Quarter ended
                                                                 December 31,
                                                               2009 vs. 2008
                                                                    % change
    -------------------------------------------------------------------------
    Revenue                                                            74.8%
    EBITDA(2)                                                          35.6%
    Adjusted income per unit(2)                                        10.1%
    Net income per unit                                                51.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The results of the quarter ended December 31, 2009 include the
        results of the Cyence and Resolve businesses effective from the dates
        of acquisition of December 19, 2008 and July 27, 2009, respectively.
    (2) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
        Measures section 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.
    

Revenue

Consolidated revenue for the fourth quarter was $156.2 million, an increase of $66.9 million, or 74.8%, compared to the same quarter in 2008. The increase in consolidated revenue is primarily attributable to the inclusion of revenues from acquisitions including Resolve since July 27, 2009 and Cyence since December 19, 2008. Reported revenue also benefited from the positive impact of annual cheque program changes and stronger mortgage origination service fees. Revenue was negatively impacted by the economic slow down which reduced demand for cheque orders, particularly from small business. Excluding the acquisition of the Resolve and Cyence businesses, consolidated revenue was approximately unchanged compared to the same quarter in 2008.

    
    (in thousands of Canadian dollars, unaudited)

                                                   Quarter ended December 31,
                                                             2009       2008
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing account                  $  71,787  $  71,913
      Loan servicing                                       29,554          -
      Loan registration technology services                21,729        948
      Lending technology services                          17,527     14,652
      Other                                                15,618      1,844

    -------------------------------------------------------------------------
                                                        $ 156,215  $  89,357
    -------------------------------------------------------------------------
    

Revenue for the fourth quarter from programs to the chequing account was $71.8 million, a decrease of $0.1 million, or 0.2%, compared to the same quarter in 2008. The modest decrease is primarily attributable to reduced demand for cheque orders, particularly from small business, partially offset by annual program changes and product and service enhancements, such as IDefence(R) and BizAssist(R), which positively impacted revenue in the fourth quarter of 2009. Management believes that cheque orders from small business consumers were negatively impacted by the economic downturn, which both reduced cheque usage by existing businesses and reduced the number of small business start-ups. During the fourth quarter of 2009, there was a moderating of cheque order volume decline compared to previous quarters. In general, notwithstanding the larger than anticipated decline in volumes during 2009, management 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.

Revenue for the fourth quarter of 2009 from loan servicing, which includes student loan administration services and credit card servicing was $29.6 million. There was no comparative revenue for 2008 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, are 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 fourth quarter of 2009 was $21.7 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 and commercial lending areas.

Revenue for the fourth quarter from lending technology services, which include services to the mortgage market and other credit markets was $17.5 million, an increase of $2.9 million, or 19.7%, compared to the same quarter in 2008. Revenue for the fourth quarter included the results of the Cyence business which was acquired in late 2008. Excluding the results of the Cyence business, revenue increased $0.7 million, or 5.0%, compared with the same period in 2008. This increase is primarily as a result of increased mortgage origination service fees, up 5.9% during the quarter compared to the same quarter in 2008, due to strong activity in the Canadian housing and mortgage markets. In addition, 2008 included a $1.4 million recovery related to a customer resolution. The more recent strength in these markets may not be expected to be sustained at these levels over future periods.

Other revenue for the fourth quarter of 2009 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 as compared to other D+H service areas.

Expenses

On a consolidated basis, expenses for the fourth quarter of 2009 of $119.7 million increased by $57.3 million, or 91.7%, compared to the same quarter in 2008. The net increase was due to the inclusion of the expense base of the Resolve and Cyence businesses and the ongoing current costs of integrating the businesses, partially offset by continued cost management activities undertaken in the context of the economic environment.

    
                                                   Quarter ended December 31,
    (in thousands of Canadian dollars, unaudited)            2009       2008
    -------------------------------------------------------------------------

    Employee compensation and benefits                  $  53,437  $  20,621
    Non-compensation direct expenses(1)                    42,234     30,199
    Other operating expenses(2)                            19,388     10,016
    Occupancy costs                                         4,612      1,577

    -------------------------------------------------------------------------
                                                        $ 119,671  $  62,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 $53.4 million for the fourth quarter of 2009 increased by $32.8 million, or 159.1%, compared to the same quarter in 2008, with the increase primarily due to the inclusion of Resolve and Cyence expenses. Resolve service offerings, such as loan servicing, contact centre services and other process outsourcing services are more employee intensive compared to other D+H service areas.

Non-compensation direct expenses were $42.2 million for the fourth quarter of 2009, an increase of $12.0 million, or 39.9%, compared to the same quarter in 2008 mainly due to inclusion of Resolve and Cyence expenses partially offset by reductions related to reduced costs associated with lower order volumes.

Other operating expenses were $19.4 million for the fourth quarter of 2009, an increase of $9.4 million, or 93.6%, compared to the same quarter in 2008 with increases attributed to the inclusion of Resolve and Cyence expenses and other net reductions related to reduced volumes and other cost containment activities.

Occupancy costs were $4.6 million for the fourth quarter of 2009, an increase of $3.0 million, or 192.5%, compared to the same quarter in 2008 mainly due to inclusion of Resolve and Cyence facilities, which as described above, are employee intensive service businesses.

EBITDA

EBITDA during the fourth quarter of 2009 was $36.5 million, an increase of $9.6 million, or 35.6%, compared to the same quarter in 2008. The increase in EBITDA (35.6%) relative to the increase in revenue (74.8%) during the fourth quarter of 2009 reflected the inclusion of service offerings within Resolve which contributed 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 for the fourth quarter of 2009 increased by $0.8 million, or 19.8%, compared to the fourth quarter of 2008. This increase related to the inclusion of amortization related to assets acquired from the Resolve and Cyence businesses, partially offset by the impact of certain capital and other assets having become fully amortized.

Other Expenses

Interest expense for the fourth quarter of 2009 increased by $1.7 million compared to the prior year, due to an increase in the level of outstanding debt related to the acquisition of Resolve in 2009 and Cyence in late 2008. Partially offsetting the increases was a reduction in the average interest rate on certain of the outstanding debt.

An unrealized gain on interest-rate swaps and foreign currency contracts of $1.6 million was recognized in the fourth quarter of 2009 (Q4 2008 - $3.7 million loss) reflecting mark-to-market adjustments related to changes in market interest rates at December 31, compared to September 30, and from currency fluctuations on foreign exchange contracts. These unrealized gains and losses for interest-rate swaps are recognized in income as these swaps are not designated as hedges for accounting purposes. In addition, unrealized gains and losses on foreign exchange contracts are recognized in income as 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 fourth quarter of 2009, the Fund recorded a future tax recovery of $2.7 million (Q4 2008 - $0.4 million expense) primarily due to the decrease in substantively enacted future tax rates.

Amortization of acquisition related intangibles for the fourth quarter of 2009 increased as compared to the same period in 2008 due to the incremental intangible assets from the acquisition of Resolve.

Net Income

Net income of $25.6 million for the fourth quarter of 2009 increased by $11.7 million, or 83.7%, compared to the same period in 2008 with increased EBITDA from the businesses acquired in the Resolve acquisition more than offsetting increased amortization and interest expense. On a per unit basis, net income increased by 51.7% to $0.4809 per unit, compared to the fourth quarter of 2008, with income benefiting from the change in the mark-to-market unrealized gains and losses of derivative instruments and change in future income taxes.

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 $28.7 million for the fourth quarter of 2009 increased by $7.2 million, or 33.4%, compared to the same period in 2008. On a per unit basis, Adjusted income per unit of $0.5385 increased by $0.0493, or 10.1%, compared to the fourth quarter of 2008.

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 the non-GAAP section for a discussion of non-GAAP terms used.

Summary of Cash Flows(1)

(in thousands of Canadian dollars, unaudited)

    
                                                   Quarter ended December 31,
                                                             2009       2008
    -------------------------------------------------------------------------

    Cash flows from operating activities                $  40,575  $  31,806

    Add:
      Changes in non-cash working capital and other
       items(2)                                            (7,356)    (6,380)
    -------------------------------------------------------------------------
    Adjusted cash flows from operating activities          33,219      25,426

    Less:
      Maintenance asset expenditures(3)                     4,809      2,791
      Growth asset expenditures(3)                            304      1,731
      Contract payments(4)                                     20        393
    -------------------------------------------------------------------------
    Adjusted cash flows after capital expenditures
     and contract payments                                 28,086     20,511

    Less:
      Distributions paid to unitholders                    24,482     20,211
    -------------------------------------------------------------------------
                                                            3,604        300

    Cash flows provided by (used in repayment) of
     long-term indebtedness                                (6,000)    28,000
    Cash flows used in issuance costs for long-term
     indebtedness                                               -          -
    Fair value of trust units issued                            -          -
    Fair value of acquisitions(5)                          (1,449)   (38,876)
    Changes in non-cash working capital and other
     items(2)                                               7,356      6,380
    -------------------------------------------------------------------------
    Increase (decrease) in cash and cash equivalents
     for the period                                     $   3,511  $  (4,196)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The subtotals in this table are not consistent with GAAP and
        accordingly are considered non-GAAP measures. See the Non-GAAP
        Measures section for a more complete description of these terms.
    (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) Maintenance asset expenditures 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 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.
    (5) For the quarter ended December 31, 2009, the fair value of
        acquisitions included updates to recording of net assets related to
        acquisitions of businesses and payments related to customer service
        contracts of $0.4 million.
    

Summary of Cash Flows per Unit

(in Canadian dollars, unaudited)

    
                                                   Quarter ended December 31,
                                                  2009       2008   % change
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                              $  0.6240  $  0.5786       7.8%
    Adjusted cash flows after capital
     expenditures and contract payments      $  0.5276  $  0.4667      13.0%
    Cash distributions paid to unitholders   $  0.4599  $  0.4599       0.0%
    Distributions declared during period(1)  $  0.4599  $  0.4999      -8.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes a special non-cash distribution in 2008 of $0.04 per unit.
    

Cash Flows, Income and Distributions Paid

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

    
                                                   Quarter ended December 31,
    (in thousands of Canadian dollars, unaudited)            2009       2008
    -------------------------------------------------------------------------

    Cash flows from operating activities                $  40,575  $  31,806

    Net income                                          $  25,601  $  13,936

    Adjusted income(1)                                  $  28,667  $  21,497

    Distributions paid during period                    $  24,482  $  20,211

    Excess (shortfall) of cash flows from operating
     activities over cash distributions paid            $  16,093  $  11,595

    Excess (shortfall) of net income over cash
     distributions paid                                 $   1,119  $  (6,275)

    Excess (shortfall) of Adjusted income over cash
     distributions paid                                 $   4,185  $   1,286

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted income is a non-GAAP term. See the Non-GAAP Measures section
        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 non-cash future income taxes. Since July 27, 2009 and over the next several quarters, the Company made and will continue to be making payments 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 fourth quarter of 2009 were $5.1 million, an increase of $0.6 million compared to the same period in 2008. However, fixed contract payments decreased $0.4 million in the fourth quarter of 2009 compared to 2008. While the Company expects to have larger capital expenditures going forward, given the increased size of operations, there were only modest changes to capital in the fourth quarter of 2009 compared to 2008 as the Company planned for further integration activities.

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

Distributions

The Fund paid cash distributions of $0.4599 per unit ($24.5 million) during the fourth quarter of 2009 and $0.4599 per unit ($20.2 million) in the same period in 2008. In connection with the Resolve acquisition, D+H issued 9,286,581 units on July 27, 2009, which increased the distributions paid by the Fund by $4.3 million in the fourth quarter of 2009.

On an annualized basis, the cash distribution rate for December 2009 was $1.84 per unit, unchanged compared to December 2008.

Changes in Non-Cash Working Capital and Other Items

(in thousands of Canadian dollars, unaudited)

    
                                                   Quarter ended December 31,
                                                             2009       2008
    -------------------------------------------------------------------------

    Decrease (increase) in non-cash working capital
     items                                              $   4,854  $   6,022
    Decrease (increase) in other operating assets and
     liabilities                                            2,502        358
    -------------------------------------------------------------------------
    Decrease (increase)  in non-cash working capital
     and other items                                    $   7,356  $   6,380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The decrease in non-cash working capital items for the fourth quarter of 2009 was primarily related to decrease in trade receivables due to timing and seasonality, partially offset by decrease in payables reflecting severance payments and other payments related to settlement of obligations in connection with the acquisition of Resolve.

We would expect to apply cash to fund increases in non-cash working capital during the first half of 2010 as timing differences relating to the reduction in non-cash working capital experienced in the fourth quarter of 2009 reverse, and as we make further payments related to the acquisition of Resolve.

2009 OPERATING RESULTS

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 section for a discussion of non-GAAP terms used. Effective July 27, 2009, the consolidated results include those of Resolve.

Operating and Financial Results(1)

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

    
                                                      Year ended December 31,
                                                  2009       2008       2007
    -------------------------------------------------------------------------
    Revenue                                  $ 481,764  $ 367,231  $ 369,726
    Expenses                                   346,721    245,678    250,237
    -------------------------------------------------------------------------
    EBITDA(2)                                  135,043    121,553    119,489

    Amortization of capital assets and
     non-acquisition intangibles                16,579     15,538     15,080
    Interest expense                             9,541      6,847      7,531
    Minority interest                                -          -        379
    -------------------------------------------------------------------------

    Adjusted income(2)                         108,923     99,168     96,499

    Amortization of mark-to-market
     adjustment of interest-rate swaps             478        561        678
    Net unrealized loss (gain) on
     derivative instruments(3)                  (4,145)     5,691       (740)
    Future income tax expense (recovery)        (2,511)     1,217      1,591
    Amortization of intangibles from
     acquisition                                20,087     13,716     13,298
    -------------------------------------------------------------------------

    Income from continuing operations           95,014     77,983     81,672
    Income from discontinued operations              -        465        567
    -------------------------------------------------------------------------

    Net income                               $  95,014  $  78,448  $  82,239

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

    Adjusted income per unit, basic and
     diluted(2)                              $  2.2708  $  2.2565  $  2.1958

    Net income per unit, basic and diluted   $  1.9808  $  1.7851  $  1.8713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          2009 vs.   2008 vs.
                                                             2008       2007
                                                         % change   % change
    -------------------------------------------------------------------------

    Revenue                                                 31.2%      -0.7%
    EBITDA(2)                                               11.1%       1.7%
    Adjusted income per unit(2)                              0.6%       2.8%
    Net income per unit                                     11.0%      -4.6%

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The results for 2009 include those of Resolve, effective from the
        date of acquisition of July 27, 2009.
    (2) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
        Measures section 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.
    

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenue

Total consolidated revenue for the year ended December 31, 2009 was $481.8 million, an increase of $114.5 million, or 31.2%, compared to 2008 with the increase primarily due to the inclusion of the Resolve and Cyence businesses and organic initiatives from other service areas. Offsetting this increase was the impact of the economic slow down, which negatively impacted business volumes in certain service areas. Excluding the acquisitions of Resolve and Cyence, total revenue decreased by approximately $10.0 million, or 2.7%, compared to 2008. Revenue by major service area is summarized in the table below.

    
                                                      Year ended December 31,
                                                             2009       2008
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing account                  $ 288,557  $ 294,358
      Lending technology services                          69,244     61,828
      Loan servicing                                       50,645          -
      Loan registration technology services                41,785      4,143
      Other                                                31,533      6,902
    -------------------------------------------------------------------------
                                                        $ 481,764  $ 367,231
    -------------------------------------------------------------------------
    

Revenue from programs to the chequing account for 2009 was $288.6 million, a decrease of $5.8 million, or 2.0%, compared to 2008. The decrease is primarily attributable to the economic slow down, which negatively impacted small business demand for cheque orders. This was partially offset by the positive impact of annual program changes and product and service enhancements, such as IDefence(R) and BizAssist(R).

Revenue for 2009 from lending technology services was $69.2 million, an increase of $7.4 million, or 12.0%, compared to 2008. Revenue for 2009 includes the results of the Cyence business which was acquired in late 2008. Excluding the results of the Cyence business, revenue within this service area decreased approximately 6.0%, compared to 2008, primarily as a result of reduced mortgage origination services revenue and decreases in revenue from project implementation services. For 2009, mortgage origination services revenue declined 4.7% compared to the previous year.

Revenue for 2009 from loan servicing, which includes student loan administration services and credit card servicing, was $50.6 million. There was no comparative revenue for 2008 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 revenue within this service area, are 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 2009 was $41.8 million, an increase of $37.6 million compared to 2008. 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. The majority of the increase in 2009 came from Resolve. Volumes in this area can be variable but in general would be expected to improve with an improving economic environment.

Increased revenues from the remaining service areas are primarily attributed to the inclusion of the results of Resolve as described earlier.

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

For 2009, consolidated expenses increased by $101.0 million, or 41.1%, to $346.7 million compared to 2008. The net increase was primarily due to the inclusion of the expense base of Resolve and Cyence and the ongoing current costs of integrating the businesses, partially offset by decreases related to lower cheque order volume, continued cost containment initiatives undertaken in the context of the economic environment and integration cost savings and synergies associated with business acquisitions.

    
                                                      Year ended December 31,
    (in thousands of Canadian dollars, unaudited)            2009       2008
    -------------------------------------------------------------------------

    Employee compensation and benefits                  $ 141,606  $  81,753
    Non-compensation direct expenses(1)                   144,256    123,937
    Other operating expenses(2)                            49,679     33,658
    Occupancy costs                                        11,180      6,330

    -------------------------------------------------------------------------
                                                        $ 346,721  $ 245,678
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 for 2009 were $141.6 million, an increase of $59.9 million, or 73.2%, compared to 2008. This increase reflected the inclusion of Resolve and Cyence expenses. Other expenses were relatively unchanged year over year as general annual increases were offset by personnel and other employee-related cost reductions.

Non-compensation direct expenses were $144.3 million for 2009, an increase of $20.3 million, or 16.4%, compared to 2008, with increases attributed to the inclusion of Resolve and Cyence expenses, partially offset by reduced costs associated with lower order volumes.

Other operating expenses were $49.7 million for 2009, an increase of $16.0 million, or 47.6%, compared to 2008 with increases attributed to the inclusion of Resolve and Cyence expenses, partially offset by other net reductions related to reduced volumes and other cost containment initiatives.

Occupancy costs were $11.2 million for 2009, an increase of $4.9 million, or 76.6%, compared to 2008 with increases primarily related to the inclusion of Resolve and Cyence facilities.

EBITDA

For 2009, EBITDA was $135.0 million, an increase of $13.5 million, or 11.1%, compared to 2008. The 2009 increase in EBITDA of 11.1% relative to the increase in revenue of 31.2% reflected the inclusion of service offerings within Resolve which contributed lower margins as a percentage of revenue compared to other D+H services.

Amortization of Capital and Non-acquisition Intangible Assets

On a consolidated basis, amortization of capital and non-acquisition intangible assets increased by $1.0 million, or 6.7%, in 2009 compared to 2008, due to the inclusion of amortization related to assets acquired from the Resolve and Cyence businesses, partially offset by the impact of certain capital and other assets having become fully amortized.

Other Expenses

For 2009, interest expense increased by $2.7 million, due to an increase in the level of outstanding debt related to the acquisitions of Resolve and Cyence. Partially offsetting this increase was a reduction in the average interest rate on portions of the outstanding debt.

Amortization of mark-to-market adjustment of interest-rate swaps refers to the amortization of net losses in fair market value of interest-rate swaps that were deferred prior to January 1, 2007. Commencing January 1, 2007, the Business no longer designated its interest-rate swaps as hedges for accounting purposes.

For 2009, an unrealized gain on interest-rate swaps and currency contracts of $4.1 million was recorded (2008 - unrealized loss of $5.7 million), reflecting mark-to-market adjustments related to changes in market interest rates at December 31, 2009 compared to December 31, 2008 (or on July 27, 2009 for swaps acquired on acquisition) and from currency fluctuations on foreign exchange contract changes since July 27, 2009. These unrealized gains and losses for interest-rate swaps are recognized in income as these swaps are not designated as hedges for accounting purposes. Unrealized gains and losses on foreign exchange contracts are recognized in income as 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.

A large portion of the income earned by the Business and distributed annually to unitholders is not subject to taxation in the Fund, but is taxed at the unitholder level. The Fund and its subsidiaries do not anticipate being subject to taxes until 2011, as long as all taxable income generated by the Fund is paid to unitholders in the form of distributions. In 2011 and subsequent years, it is anticipated that the Fund will have converted to a corporate entity and will be subject to corporate taxes on its taxable income at the statutory tax rate in effect. The Company remains focused on ensuring that tax effective structures are utilized to minimize the amount and timing of future taxes payable.

The Fund does recognize future income tax assets and liabilities, with a corresponding impact on future income tax expense or recovery based on temporary differences expected to reverse. For the parts of the organization structured as trusts and partnerships, future taxes are set up only for timing differences expected to reverse after December 31, 2010. For corporate entities, all timing differences are considered in establishing future tax balances. For 2009, the Fund recorded a future tax recovery of $2.5 million (2008 - $1.2 million expense) primarily due to the decrease in substantively enacted future tax rates.

The base upon which taxes are paid by the Business differs from reported net income before taxes as the Business records substantial amortization expense on intangibles that is not deductible for taxation purposes. While taxable income can vary from income for accounting purposes for several reasons, the Company considers Adjusted income as an approximate proxy for taxable income.

The Business has net operating losses for tax purposes of $68.2 million available to reduce taxable income in future periods.

Amortization of acquisition-related intangibles for 2009 increased compared to 2008. The increase in amortization related to the incremental intangible assets arising on the acquisitions of the Resolve and Cyence businesses will add annualized amortization of approximately $18.0 million. The intangible assets recorded on the acquisition of Resolve consisted of rights related to customer relationships and proprietary software and are amortized on a straight-line basis over periods ranging from 3 to 15 years. For more information on the acquisition, see Note 2 to the consolidated financial statements.

Income from Discontinued Operations

Effective December 31, 2008, the Fund ceased providing services under a U.S. cheque supply contract. As a result, the 2008 operating results from the U.S. operations related to the service of this contract have been classified as discontinued operations.

Net Income

For 2009, net income of $95.0 million increased by $16.6 million, or 21.1%, compared to 2008. On a per unit basis, net income per unit of $1.9808 increased by $0.1957 , or 11.0%, compared to 2008. Net income per unit for the year was positively impacted by growing operating results, mark-to-market unrealized gains on derivative instruments and changes in future income taxes as previously described, offset by an increase in amortization of intangibles from acquisitions.

For 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 $108.9 million, increased by $9.8 million, or 9.8%, compared to 2008. Adjusted income per unit of $2.2708 increased by 0.6% compared to 2008.

EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY

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

    
                                                                        2009
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------

    Revenue                       $ 156,215  $ 142,463  $  94,557  $  88,529
    Expenses                        119,671    104,879     62,080     60,091
    -------------------------------------------------------------------------
    EBITDA(1)                        36,544     37,584     32,477     28,438

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

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

    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              103        103        136        136
    Net unrealized loss (gain)
     on derivative instruments(2)    (1,620)    (1,647)    (1,069)       191
    Future income tax expense
     (recovery)                      (2,747)     1,018       (718)       (64)
    Amortization of intangibles
     from acquisition                 7,330      5,942      3,441      3,374
    -------------------------------------------------------------------------
    Income from continuing
     operations                      25,601     24,957     25,221     19,235
    Income from discontinued
     operations                           -          -          -          -

    -------------------------------------------------------------------------
    Net income                    $  25,601  $  24,957  $  25,221  $  19,235

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

    Adjusted income per unit,
     basic and diluted(1)         $  0.5385  $  0.6002  $  0.6146  $  0.5204

    Net income per unit, basic
     and diluted                  $  0.4809  $  0.4931  $  0.5739  $  0.4377
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                        2008
                                         Q4         Q3         Q2         Q1
    -------------------------------------------------------------------------

    Revenue                       $  89,357  $  95,055  $  95,407  $  87,412
    Expenses                         62,413     61,664     61,334     60,267
    -------------------------------------------------------------------------
    EBITDA(1)                        26,944     33,391     34,073     27,145

    Amortization of capital
     assets and non-acquisition
     intangibles                      3,800      4,219      3,771      3,748
    Interest expense                  1,647      1,690      1,754      1,756
    Minority interest                     -          -          -          -

    -------------------------------------------------------------------------
    Adjusted income(1)               21,497     27,482     28,548     21,641

    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              151        151        152        107
    Net unrealized loss (gain)
     on derivative instruments(2)     3,653        728     (1,034)     2,344
    Future income tax expense
     (recovery)                         399         52        766          -
    Amortization of intangibles
     from acquisition                 3,409      3,412      3,447      3,448
    -------------------------------------------------------------------------
    Income from continuing
     operations                      13,885     23,139     25,217     15,742
    Income from discontinued
     operations                          51        167        149         98

    -------------------------------------------------------------------------
    Net income                    $  13,936  $  23,306  $  25,366  $  15,840

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

    Adjusted income per unit,
     basic and diluted(1)         $  0.4892  $  0.6253  $  0.6496  $  0.4924

    Net income per unit, basic
     and diluted                  $  0.3172  $  0.5303  $  0.5772  $  0.3604
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.
    

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 in 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 the changes in non-cash items such as mark-to-market adjustments on interest-rate swap and foreign exchange contracts, amortization of intangibles from acquisition and by changes in future income tax provisions.

SELECTED BALANCE SHEET INFORMATION

(in thousands of Canadian dollars, unaudited)

    
                                                      Year ended December 31,
                                                  2009       2008       2007
    -------------------------------------------------------------------------
    Total assets                             $ 941,555  $ 663,906  $ 634,152
    -------------------------------------------------------------------------
    Total long-term liabilities              $ 278,801  $ 165,106  $ 135,143
    -------------------------------------------------------------------------
    

Total assets of $941.6 million at December 31, 2009 increased by $277.6 million compared with total assets at December 31, 2008, primarily as a result of the acquisition of Resolve. The increase in total assets between December 31, 2008 and December 31, 2007 was primarily a result of the acquisition of Cyence in 2008.

Long-term liabilities increased by $113.7 million and was principally due to the increase in credit facilities in order to assume the debt obligations within Resolve and adjustments to future tax liabilities. The increase in long-term liabilities between December 31, 2007 and December 31, 2008 was principally the result of debt drawn to fund the Cyence acquisition and adjustments to the fair value of interest-rate swaps and future tax liabilities.

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 the Non-GAAP Measures section for a discussion of non-GAAP terms used.

Summary of Cash Flows(1)

(in thousands of Canadian dollars, unaudited)

    
                                                      Year ended December 31,
                                                  2009       2008       2007
    -------------------------------------------------------------------------

    Cash flows from operating activities     $ 119,722  $ 116,062  $ 117,401

    Add (deduct):
      Changes in non-cash working capital
       and other items(2)                        5,780       (594)    (4,949)
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                                125,502    115,468    112,452

    Less:
      Maintenance asset expenditures(3)          8,391      6,852     11,753
      Growth asset expenditures(3)               3,277      3,366        251
      Contract payments(4)                       3,137      3,220      3,492
    -------------------------------------------------------------------------
    Adjusted cash flows after capital
     expenditures and contract payments(3)     110,697    102,030     96,956

    Distributions paid to unitholders           87,962     78,580     78,357
    -------------------------------------------------------------------------
    Adjusted cash flows after capital,
     contract payments and distributions
     paid                                       22,735     23,450     18,599

    Cash flows provided by (used in
     repayment) of long-term indebtedness      (11,948)    18,000    (15,000)
    Cash flows used in issuance costs for
     long-term indebtedness                     (1,621)         -          -
    Fair value of trust units issued           119,394          -          -
    Fair value of acquisitions(5)             (130,968)   (43,126)      (746)
    Changes in non-cash working capital and
     other items(2)                             (5,780)       594      4,949
    Distributions paid to minority interest          -          -       (442)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash
     equivalents for the year                $  (8,188) $  (1,082) $   7,360
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The subtotals in this table are not consistent with GAAP and
        accordingly are considered non-GAAP measures. See the Non-GAAP
        Measures section for a more complete discussion of non-GAAP terms and
        reconciliation to GAAP.
    (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) Maintenance asset expenditures 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 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.
    (5) For 2009 and 2007, fair value of acquisitions includes payments
        related to customer service contracts of $0.4 million and $0.8
        million respectively.
    

Summary of Cash Flows per Unit

(in Canadian dollars, unaudited)

    
                                                      Year ended December 31,
                                                  2009       2008       2007
    -------------------------------------------------------------------------
    Adjusted cash flows from operating
     activities                              $  2.6164  $  2.6275  $  2.5588
    Adjusted cash flows after capital
     expenditures and contract payments      $  2.3078  $  2.3217  $  2.2062
    Cash distributions paid to unitholders   $  1.8396  $  1.7881  $  1.7830
    Distributions declared during year(1)    $  1.8396  $  1.8384  $  1.7980
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes a special non-cash distribution in 2008 of $0.04 per unit.


    --------------------------------------------------------------------
                                                     2009 vs.   2008 vs.
                                                        2008       2007
                                                    % change   % change
    --------------------------------------------------------------------
    Adjusted cash flows from operating activities      -0.4%       2.7%
    Adjusted cash flows after capital expenditures
     and contract payments                             -0.6%       5.2%
    Cash distributions paid to unitholders              2.9%       0.3%
    Distributions declared during year(1)               0.1%       2.2%
    --------------------------------------------------------------------
    --------------------------------------------------------------------
    (1) Includes a special non-cash distribution in 2008 of $0.04 per unit.
    

Cash Flows, Income and Distributions Paid

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

    
    (in thousands of Canadian dollars,                Year ended December 31,
     unaudited)                                   2009       2008       2007
    -------------------------------------------------------------------------

    Cash flows from operating activities     $ 119,722  $ 116,062  $ 117,401
    Net income                               $  95,014  $  78,448  $  82,239
    Adjusted income(1)                       $ 108,923  $  99,168  $  96,499
    Distributions paid during year           $  87,962  $  78,580  $  78,357
    Excess (shortfall) of cash flows from
     operating activities over cash
     distributions paid                      $  31,760  $  37,482  $  39,044
    Excess (shortfall) of net income over
     cash distributions paid                 $   7,052  $    (132) $   3,882
    Excess (shortfall) of Adjusted income
     over cash distributions paid            $  20,961  $  20,588  $  18,142

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted income is a non-GAAP term. See the Non-GAAP Measures section
        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. Since July 27, 2009 and over the next several quarters, the Company has made and will continue to be making payments 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

For 2009, total capital expenditures increased by $1.5 million compared to 2008. Additionally, fixed contract payments decreased $0.1 million during 2009, as compared to 2008.

The year-over-year variance reflected the timing of capital project expenditures and the inclusion of capital expenditures made within the newly acquired Resolve business. 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 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 $1.8396 per unit ($88.0 million) in 2009 compared to $1.7881 per unit ($78.6 million) in 2008. In connection with the Resolve acquisition, D+H issued 9,286,581 units on July 27, 2009, which increased the distributions paid by the Fund by $7.1 million in 2009. For 2009, cash distributions per unit increased by 2.9%. On an annualized basis, the cash distribution rate for December 2009 was $1.84 per unit, unchanged compared to December 2008.

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 2009, these amounts were the same on a per unit basis. The holders of the new units of D+H issued for the purchase of Resolve were unitholders of record on July 31, 2009, and accordingly, these units were entitled to all distributions declared during the year subsequent to this date and were paid distributions during the year in respect of distributions declared from July to December.

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 tax allocation of distributions to be declared for 2009 is 100% "other income", as was the case for all of 2008.

The Fund may issue an unlimited number of trust units. Each trust unit is transferable and represents an equal, undivided beneficial interest in any distribution from the Fund and the net assets of the Fund. All units are of the same class with equal rights and privileges and are not subject to future calls or assessments. Each unit entitles the holder to one vote at all meetings of unitholders. As at December 31, 2009 and March 2, 2010, the total number of trust units outstanding was 53,233,373 compared to 43,946,792 trust units outstanding as at December 31, 2008. 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)

    
                                                      Year ended December 31,
                                                  2009       2008       2007
    -------------------------------------------------------------------------

    Minority interest                        $       -  $       -  $     379
    Decrease (increase) in non-cash working
     capital items                              (8,443)     1,933      4,256
    Decrease (increase) in other operating
     assets and liabilities                      2,663     (1,339)       314
    -------------------------------------------------------------------------
    Decrease (increase) in non-cash
     working capital and other items         $  (5,780) $     594  $   4,949
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The net increase in non-cash working capital items for 2009 was primarily a result of a decrease in payables reflecting normal course timing differences of when payments are made, payments made under certain multi-year compensation programs and severance payments made earlier in the year partially offset by a decrease in receivables due to normal course timing differences.

Acquisitions

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 the assumed debt) is expected to be approximately $130.0 million. Management has not yet completed its assessment of the valuation of the assets acquired and liabilities assumed for this acquisition and 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 Long-term Indebtedness

At December 31, 2009, cash and cash equivalents totaled $3.9 million, compared to $12.1 million at December 31, 2008. The balance of long-term indebtedness as at December 31, 2009, before deducting unamortized deferred finance fees, was $210.0 million compared to $148.0 million at December 31, 2008. During the third quarter of 2009, the Business increased its credit facilities in order to assume approximately $70.0 million of debt obligation within Resolve. The long-term indebtedness is recorded on the Balance Sheet, net of $1.5 million of unamortized deferred financing fees as at December 31, 2009.

Total credit facilities available at December 31, 2009 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 and the second revolving credit facility of $20.0 million matures January 2, 2011. As of December 31, 2009, the Business had drawn $190.0 million under the non-revolving term loans and $20.0 million under the revolving term credit facilities. The Business is permitted to draw on the revolving facilities' available balance of $50.0 million to fund capital expenditures or for other general purposes.

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, L.P. to the Fund during each rolling, four-quarter period. Davis + Henderson was in compliance with all of its financial covenants and financial condition tests as of the end of its latest quarterly period. A copy of the Credit Agreement is available at www.sedar.com.

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.

As of December 31, 2009, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 90.5% 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)
    -------------------------------------------------------------------------
      March 16, 2010              $  65,000  $       -  $     650     4.490%
      July 15, 2010                  33,000          -      1,064     4.815%
      January 5, 2011                22,000          -        338     1.980%
      June 15, 2011                  20,000          -      1,192     4.685%
      June 15, 2011                  25,000          -      1,489     4.685%
      December 18, 2014              25,000        109          -     2.720%
    -------------------------------------------------------------------------
                                  $ 190,000  $     109  $   4,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 December 31, 2009, $140 million of the Fund's debt
        was subject to bankers' acceptance fees of 1.00% with the balance of
        $70 million subject to bankers' acceptance fees of 3.75%.
    

As at December 31, 2009, the Fund would have to pay the fair value of $4.7 million if it were to close out five of the interest-rate swap contracts and would receive $0.1 million on the closing of the remaining contract 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 December 31, 2009 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 5.641% as at December 31, 2009.

As at December 31, 2009, the Fund had several foreign-exchange contracts in place with one of its lenders amounting to $2.5 million USD.

    
    -------------------------------------------------------------------------
                                    Fair value of foreign exchange contracts
                                    ----------------------------------------
                                   Notional                         Exchange
    Maturity Date                    Amount      Asset  Liability       Rate
    -------------------------------------------------------------------------
      January 19, 2010            $     500  $      93  $       -     1.2375
      February 16, 2010                 500         99          -     1.2500
      March 16, 2010                    500         99          -     1.2500
      April 15, 2010                    500         28          -     1.1057
      May 17, 2010                      500         28          -     1.1057
    -------------------------------------------------------------------------
                                  $   2,500  $     347  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 December 31, 2009, the fair value the Fund would have received if it were to have closed out the foreign exchange contracts was $0.3 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 current 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.

Contractual Obligations - Payments Due by Period

The table below presents the contractual obligations of the Business as at December 31, 2009 and the timing of the expected payments.

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

    Long-term
     indebtedness      $ 210,000  $       -  $ 210,000  $       -  $       -
    Operating leases      36,586     14,176     15,983      2,907      3,520
    Employee future
     benefits              4,987        316        839        598      3,235
    Contractual supplier
     obligation            1,319        330        989          -          -
    Obligations relating
     to deferred
     compensation
     program                 845          -        845          -          -
    -------------------------------------------------------------------------
                       $ 253,737  $  14,822  $ 228,656  $   3,505  $   6,755
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Long-term Indebtedness

As at December 31, 2009, the Fund had $260.0 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 $120.0 million, a second non-revolving term loan of $70.0 million maturing January 2, 2011, a revolving credit facility maturing June 15, 2011 of $50.0 million (of which $20.0 million was drawn at December 31, 2009) and a second revolving credit facility maturing January 2, 2011 of $20.0 million (of which nil was drawn at December 31, 2009). The credit facilities do not require the Fund to make any principal payments prior to their stated maturities.

Operating Leases

The Business rents facilities, equipment and vehicles under various operating leases. As of December 31, 2009, minimum payments under these operating leases totalled $36.5 million.

Employee Future Benefits

Obligations relating to employee future benefits relate to the Fund's non-pension post-retirement benefit plans. The latest actuarial valuation of the post-retirement benefit plans was performed as of December 31, 2009.

Contractual Supplier Obligation

The contractual supplier obligation relates to payments to be made for a customized software package.

Deferred Compensation Program

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. The units awarded will earn distributions through the three years equal to the actual per unit distributions declared on the units of Davis + Henderson during the fiscal periods that form the performance period. The cash-settled unit-based compensation is determined based on the average trading price for the units in the 30 days following the release of the results for the last fiscal year in the performance period, along with the annualized growth rate achieved and the distributions earned. The employee must remain an employee throughout the three-year performance period in order for the plan to vest, with limited exceptions. The first possible payment under this program is in 2012.

Cumulative Summary of Cash Flows(1)

The table below provides an analysis of cash flows of the Fund since inception (December 20, 2001) through to December 31, 2009, excluding the transactions pertaining to the purchase of the original Davis + Henderson business by the Fund.

    
                                                        December 20, 2001 to
    (in thousands of Canadian dollars, unaudited)          December 31, 2009
    -------------------------------------------------------------------------

    Cash flows from operating activities                           $ 738,223

    Less:
      Expenditures on capital assets and contract payments           100,067
    -------------------------------------------------------------------------
    Adjusted cash flows after capital expenditures and
     contract payments                                               638,156

    Less:
    Distributions paid to unitholders                                513,335
    -------------------------------------------------------------------------
    Adjusted cash flows after capital, contract payments
     and distributions paid                                          124,821

    Cash flows provided by (used in) other financing activities
      Net proceeds from issuance of trust units                      228,594
      Proceeds from long-term indebtedness net of issuance costs     120,980
      Distributions paid to minority interest                           (562)
      Repayments of long-term indebtedness                           (68,000)
    -------------------------------------------------------------------------
                                                                     281,012
    Acquisition of businesses and customer service contracts        (401,955)
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents for the period               3,878
    Cash and cash equivalents, beginning of period                         -
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period                       $   3,878
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cumulative distributions paid as a % of adjusted cash
     flows after capital expenditures and contract payments            80.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The subtotals in this table are not consistent with GAAP and
        accordingly are considered non-GAAP measures. See the Non-GAAP
        Measures section for a more complete description of these terms.
    

Adjusted cash flows after capital, contract payments and distributions paid of $124.8 million were retained by the Business and used to contribute to the funding of acquisitions and to pay down debt.

In general, mutual fund trusts, including the Fund, must distribute all their taxable income to their unitholders in order not to pay income taxes in the trust. Taxable income may be less than cash generated if the Business has excess tax deductions it can utilize to reduce taxable income.

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, revenue was substantially above this target due to the inclusion of the results of Resolve effective from the date of acquisition on July 27, 2009. 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.

We are continuing to integrate the previously separate business segments into a single operation. As part of this integration, we expect to achieve cost synergies by the end of 2010 in the amount of $8.0 million annually. To date, we believe that we have attained annualized savings in the range of $4.0 million to $6.0 million through the elimination of certain corporate costs and the reduction of duplicate senior management personnel. Future cost synergies are expected from additional organizational alignment and operational integration activities, of which most will occur in the later part of 2010. The cost to be incurred related to the attainment of these synergies is expected to be in the $8.0 million to $10.0 million range of which approximately $6.0 million has been paid to date. These restructuring cost estimates have been recorded as part of the acquisition costs of the Business.

The Business' 2009 capital program was $14.8 million. 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 acquisitions; (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.

As well, if the proposed conversion is approved, commencing in 2011, distributions to owners will be characterized as dividends rather than regular income. This provides the benefit of dividend tax credits for qualifying owners thereby reducing the after-tax impact on distributions.

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, is expected to be available by mid-May, 2010. In connection with a review of the proposed conversion, the Board of Trustees of Davis + Henderson have retained financial, legal and taxation advisors. The Business currently estimates the cost of the proposed conversion, including associated structuring and taxation advice and other advisors fees, to be approximately $1.5 million.

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. Had the Business been a corporation in 2009, pro forma taxes would have been in the range of approximately $0.60 to $0.66 per unit.

It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. On a pro forma basis, had distribution been $1.20 per unit for 2009, the pro forma payout ratio would have been in the range of 72% to 75%.

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.

Provided the conversion is approved, distributions made by Davis + Henderson will be taxed as dividends rather than regular income as they are today. Certain investors may be entitled to dividend tax credits which would enhance after-tax yield and significantly reduce the after-tax impact of the reduction in distributions.

For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly).

Notwithstanding the proposed structural changes and distribution changes attributed to the changes to the law, the strategies and objectives of the Business 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
    December 31, 2009 and 2008
    (in thousands of Canadian dollars)

                                                             2009       2008
    -------------------------------------------------------------------------

    ASSETS
    Current assets:
      Cash and cash equivalents                         $   3,878  $  12,066
      Accounts receivable (note 3)                         57,251     16,180
      Inventory (note 4)                                    6,197      4,475
      Prepaid expenses                                      6,074      2,813
      Future income tax asset - current (note 11)           3,274          -
    -------------------------------------------------------------------------
                                                           76,674     35,534

    Future income tax asset (note 11)                      21,425      3,162
    Capital assets (note 5)                                33,296     20,464
    Other assets                                               82      1,082
    Fair value of derivatives (note 9)                        456          -
    Intangible assets (note 6)                            289,774    144,675
    Goodwill (note 7)                                     519,848    458,989
    -------------------------------------------------------------------------
                                                        $ 941,555  $ 663,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities          $  72,274  $  41,617
      Distributions payable to unitholders                  8,161      6,737
      Deferred revenue - current                            7,028        777
    -------------------------------------------------------------------------
                                                           87,463     49,131

    Long-term indebtedness (note 8)                       208,463    147,331
    Fair value of derivatives (note 9)                      4,733      6,759
    Deferred revenue - non-current                          9,510          -
    Other long-term liabilities (note 10)                   7,161        812
    Future income tax liability (note 11)                  48,934     10,204
    -------------------------------------------------------------------------
                                                          366,264    214,237

    Unitholders' equity:
      Trust units (note 12)                               595,859    476,343
      Deficit                                             (20,086)   (25,714)
      Accumulated other comprehensive income (loss)          (482)      (960)
    -------------------------------------------------------------------------
                                                          575,291    449,669

    Commitments (note 14)
    -------------------------------------------------------------------------
                                                        $ 941,555  $ 663,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Revenue                       $ 156,215  $  89,357  $ 481,764  $ 367,231
    Cost of sales and operating
     expenses (note 4)              120,004     62,773    348,003    247,215
    Amortization of capital assets    1,829      1,169      6,105      4,689
    -------------------------------------------------------------------------
                                     34,382     25,415    127,656    115,327

    Interest expense                  3,429      1,798     10,019      7,408
    Net unrealized loss (gain) on
     derivative instruments          (1,620)     3,653     (4,145)     5,691
    Amortization of intangible
     assets (note 6)                  9,719      5,680     29,279     23,028
    -------------------------------------------------------------------------
    Income from continuing
     operations before income
     taxes                           22,854     14,284     92,503     79,200

    Future income tax expense
     (recovery) (note 11)            (2,747)       399     (2,511)     1,217
    -------------------------------------------------------------------------
    Income from continuing
     operations                      25,601     13,885     95,014     77,983

    Income from discontinued
     operations (note 17)                 -         51          -        465
    -------------------------------------------------------------------------
    Net income                    $  25,601  $  13,936  $  95,014  $  78,448
    -------------------------------------------------------------------------
    Net income per unit, basic
     and diluted                  $  0.4809  $  0.3171  $  1.9808  $  1.7851
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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



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

                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Net income                    $  25,601  $  13,936  $  95,014  $  78,448

    Other comprehensive income:
    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              103        151        478        561
    -------------------------------------------------------------------------
    Total comprehensive income    $  25,704  $  14,087  $  95,492  $  79,009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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)

                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Deficit
    Deficit, beginning of period  $ (21,205) $ (17,681) $ (25,714) $ (23,371)
    Net income                       25,601     13,936     95,014     78,448
    Distributions                   (24,482)   (21,969)   (89,386)   (80,791)
    -------------------------------------------------------------------------
    Deficit, end of period          (20,086)   (25,714)   (20,086)   (25,714)
    -------------------------------------------------------------------------

    Accumulated Other Comprehensive
     Income (Loss)
    Accumulated other comprehensive
     income (loss), beginning of
     period                            (585)    (1,111)      (960)    (1,521)
    Other comprehensive income:
    Amortization of mark-to-market
     adjustment of interest-rate
     swaps                              103        151        478        561
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (loss), end of period(1)   (482)      (960)      (482)      (960)
    -------------------------------------------------------------------------
    Deficit and accumulated other
     comprehensive income (loss),
     end of period                $ (20,568) $ (26,674) $ (20,568) $ (26,674)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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)

                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Cash and cash equivalents
     provided by (used in):

    OPERATING ACTIVITIES
    Net income                    $  25,601  $  13,936  $  95,014  $  78,448
    Add:
      Amortization of capital
       assets                         1,829      1,233      6,105      4,930
      Amortization of capital
       assets included in cost of
       sales                            333        360      1,282      1,537
      Amortization of intangible
       assets                         9,719      5,694     29,279     23,084
      Amortization of
       mark-to-market adjustment
       of interest-rate swaps           103        151        478        561
      Net unrealized loss (gain)
       on derivative instruments     (1,620)     3,653     (4,145)     5,691
      Future income tax expense
       (recovery)                    (2,747)       399     (2,511)     1,217
    -------------------------------------------------------------------------
                                     33,219     25,426    125,502    115,468

    Decrease (increase) in
     non-cash working capital
     items                            4,854      6,022     (8,443)     1,933
    Changes in other operating
     assets and liabilities           2,502        358      2,663     (1,339)
    -------------------------------------------------------------------------
                                     40,575     31,806    119,722    116,062
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Net proceeds from (repayment
     of) long-term indebtedness      (6,000)    28,000    (11,948)    18,000
    Issuance costs of long-term
     indebtedness                         -          -     (1,621)         -
    Issuance costs of trust units         -          -       (700)         -
    Distributions paid to
     unitholders                    (24,482)   (20,211)   (87,962)   (78,580)
    -------------------------------------------------------------------------
                                    (30,482)     7,789   (102,231)   (60,580)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Expenditures on capital assets,
     non-acquisition intangible
     assets and long-term contracts
     intangible assets and long
     term contracts                  (5,133)    (4,915)   (14,805)   (13,438)
    Acquisition of businesses
     (note 2)                        (1,011)   (38,876)   (10,436)   (43,126)
    Payments related to customer
     service contracts                 (438)         -       (438)         -
    -------------------------------------------------------------------------
                                     (6,582)   (43,791)   (25,679)   (56,564)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents for the
     period                           3,511     (4,196)    (8,188)    (1,082)
    Cash and cash equivalents,
     beginning of period                367     16,262     12,066     13,148
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $   3,878  $  12,066  $   3,878  $  12,066
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information:
    Cash interest paid            $   2,880  $   1,633  $   9,033  $   6,398
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these consolidated
    financial statements.
    

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2009 and 2008

(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"), Resolve Corporation ("Resolve") and Advanced Validation System Limited Partnership ("AVS L.P.").

1. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared using the following accounting policies generally accepted in Canada.

2. ACQUISITIONS

a. 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                                              164,996
      Future income tax asset                                         21,410
      Payables and other current liabilities                         (65,517)
      Future income tax liability                                    (45,100)
      Long-term indebtedness                                         (73,812)
      Other long-term liabilities                                     (6,800)

    -------------------------------------------------------------------------
                                                                      67,061
    Goodwill                                                          63,632

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

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.

b. Cyence Business

On December 19, 2008, the Fund completed an agreement to acquire a 100% interest in Cyence International Inc., a provider of credit lifecycle management software and service solutions to financial institutions in Canada and the United States. The net assets acquired and consideration given were as follows:

    
    Net assets acquired, at fair value:
      Current assets                                               $   3,868
      Capital other assets                                             1,025
      Intangible assets                                               24,999
      Future income tax asset                                          5,059
      Payables and other current liabilities                          (5,832)
      Future income tax liability                                     (6,785)
    -------------------------------------------------------------------------
                                                                      22,334
    Goodwill                                                          16,379
    -------------------------------------------------------------------------
    Total                                                          $  38,713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consideration for 100% ownership:
      Cash                                                         $  38,713
    -------------------------------------------------------------------------
    Total                                                          $  38,713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The purchase price and related transaction costs were financed with $28 million from the drawdown of the existing credit facility, and the balance from cash on hand.

c. AVS Business

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

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

Each step acquisition was made with available cash on hand.

3. ACCOUNTS RECEIVABLE

    
                                                             2009       2008
    -------------------------------------------------------------------------

    Trade receivables                                   $  56,073  $  15,608
    Other receivables                                       1,178        572

    -------------------------------------------------------------------------
                                                        $  57,251  $  16,180
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The amount for allowance for doubtful accounts recorded as at December 31, 2009 was $614 (2008 - $551). The amount of past due accounts as at December 31, 2009 was $919 (2008 - $945).

4. INVENTORY

    
                                                             2009       2008
    -------------------------------------------------------------------------
    Raw materials                                       $   2,457  $   1,988
    Work-in-process                                         1,322      1,503
    Finished goods                                          2,418        984
    -------------------------------------------------------------------------
                                                        $   6,197  $   4,475
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 year ended December 31, 2009 was $42,401 (2008 - $48,541). The amount of write-down of inventories recognized as an expense during the year ended December 31, 2009 was $189 (2008 - $222).

5. CAPITAL ASSETS

    
                                                                        2009
    -------------------------------------------------------------------------
                                                        Furniture,
                                                         fixtures
                                                              and
                                  Machinery             leasehold
                        Land and        and   Computer   improve-
                       buildings  equipment  equipment      ments      Total
    -------------------------------------------------------------------------
    Cost
    Balance at
     January 1, 2009   $       -  $  15,589  $  18,491  $   9,048  $  43,128
    Additions(1)           2,975      4,414      8,971      4,039     20,399
    Other movements(2)         -        (32)    (1,873)      (289)    (2,194)
    -------------------------------------------------------------------------
    Balance at
     December 31,
     2009              $   2,975  $  19,971  $  25,589  $  12,798  $  61,333
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     impairment losses
    Balance at
     January 1, 2009   $       -  $   8,609  $   7,438  $   6,617  $  22,664
    Amortization              45      1,421      4,879      1,042      7,387
    Other movements(2)         -        (32)    (1,700)      (282)    (2,014)
    -------------------------------------------------------------------------
    Balance at
     December 31,
     2009              $      45  $   9,998  $  10,617  $   7,377  $  28,037
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net carrying
     amount at
     December 31,
     2009              $   2,930  $   9,973  $  14,972  $   5,421  $  33,296
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                        2008
    -------------------------------------------------------------------------
                                                        Furniture,
                                                         fixtures
                                                              and
                                  Machinery             leasehold
                        Land and        and   Computer   improve-
                       buildings  equipment  equipment      ments      Total
    -------------------------------------------------------------------------
    Cost
    Balance at
     January 1, 2008   $       -  $  15,191  $  47,044  $   8,324  $  70,559
    Additions(1)               -        483     10,264        705     11,452
    Other movements(2)         -        (85)    (6,413)        19     (6,479)
    Reclass for
     Handbook Section
     3064                      -          -    (32,404)         -    (32,404)
    -------------------------------------------------------------------------
    Balance at
     December 31,
     2008              $       -  $  15,589  $  18,491  $   9,048  $  43,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     impairment losses
    Balance at
     January 1, 2008   $       -  $   7,679  $  24,887  $   5,794  $  38,360
    Amortization               -      1,015     10,531        825     12,371
    Other movements(2)         -        (85)    (6,392)        (2)    (6,479)
    Reclass for
     Handbook Section
     3064                      -          -    (21,588)         -    (21,588)
    -------------------------------------------------------------------------
    Balance at
     December 31,
     2008              $       -  $   8,609  $   7,438  $   6,617  $  22,664
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net carrying
     amount at
     December 31,
     2008              $       -  $   6,980  $  11,053  $   2,431  $  20,464
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes amounts added through acquisitions.
    (2) Other movements primarily relate to fully amortized assets removed
        from the accounts during the year.
    

6. INTANGIBLE ASSETS

    
                                                  2009
    ---------------------------------------------------
                       Contracts              Software
                      ---------- ----------------------
                                            Internally
                                  Purchased  developed
    ---------------------------------------------------
    Cost
    At January 1,
     2009              $   8,761  $  21,727  $  10,676
    Additions(1)           1,600     10,510      4,883
    Other movements(2)    (3,562)    (2,423)    (1,433)

    ---------------------------------------------------
    At December 31,
     2009              $   6,799  $  29,814  $  14,126
    ---------------------------------------------------
    ---------------------------------------------------

    Amortization and
     impairment loss
    At January 1,
     2009              $   5,414  $  17,393  $   4,194
    Amortization           2,841      4,368      1,983
    Other movements(2)    (3,562)    (2,500)    (1,503)

    ---------------------------------------------------
    At December 31,
     2009              $   4,693  $  19,261  $   4,674
    ---------------------------------------------------
    ---------------------------------------------------

    Net carrying amount
     At December 31,
     2009              $   2,106  $  10,553  $   9,452
    ---------------------------------------------------
    ---------------------------------------------------


                                                                        2009
    -------------------------------------------------------------------------
                                        Acquisition of businesses      Total
                      ------------------------------------------- -----------
                                                         Customer
                                Proprietary      Brand  relation-
                       Contracts   software      names      ships
    -------------------------------------------------------------------------
    Cost
    At January 1,
     2009              $   1,201  $  56,093  $  10,900  $ 107,064  $ 216,422
    Additions(1)             438     14,600          -    142,200    174,231
    Other movements(2)    (1,201)      (193)         -    (16,329)   (25,141)

    -------------------------------------------------------------------------
    At December 31,
     2009              $     438  $  70,500  $  10,900  $ 232,935  $ 365,512
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization and
     impairment loss
    At January 1,
     2009              $     864  $  11,017  $   1,452  $  31,413  $  71,747
    Amortization             374      6,325        728     12,660     29,279
    Other movements(2)    (1,201)      (193)         -    (16,329)   (25,288)

    -------------------------------------------------------------------------
    At December 31,
     2009              $      37  $  17,149  $   2,180  $  27,744  $  75,738
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net carrying amount
     At December 31,
     2009              $     401  $  53,351  $   8,720  $ 205,191  $ 289,774
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                  2008
    ---------------------------------------------------
                       Contracts              Software
                      ---------- ----------------------
                                            Internally
                                  Purchased  developed
    ---------------------------------------------------
    Cost
    At January 1,
     2008(4)           $  12,581  $  20,509  $  10,230
    Additions(1)           1,260      3,493      2,717
    Other movements(2)    (5,080)    (2,275)    (2,271)

    ---------------------------------------------------
    At December 31,
     2008              $   8,761  $  21,727  $  10,676
    ---------------------------------------------------
    ---------------------------------------------------

    Amortization and
     impairment loss
    At January 1,
     2008(4)           $   6,757  $  14,875  $   5,018
    Amortization(3)        3,464      4,261      1,647
    Other movements(2)    (4,807)    (1,743)    (2,471)

    ---------------------------------------------------
    At December 31,
     2008              $   5,414  $  17,393  $   4,194
    ---------------------------------------------------
    ---------------------------------------------------

    Net carrying amount
     At December 31,
     2008              $   3,347  $   4,334  $   6,482
    ---------------------------------------------------
    ---------------------------------------------------


                                                                        2008
    -------------------------------------------------------------------------
                                        Acquisition of businesses      Total
                      ------------------------------------------- -----------
                                                         Customer
                                Proprietary      Brand  relation-
                       Contracts   software      names      ships
    -------------------------------------------------------------------------
    Cost
    At January 1,
     2008(4)           $   1,201  $  41,993  $   8,400  $  97,521  $ 192,435
    Additions(1)               -     14,100      2,500      9,543     33,613
    Other movements(2)         -          -          -          -     (9,626)

    -------------------------------------------------------------------------
    At December 31,
     2008              $   1,201  $  56,093  $  10,900  $ 107,064  $ 216,422
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization and
     impairment loss
    At January 1,
     2008(4)           $     303  $   6,773  $     887  $  23,067  $  57,680
    Amortization(3)          560      4,208        561      8,327     23,028
    Other movements(2)         1         36          4         19     (8,961)

    -------------------------------------------------------------------------
    At December 31,
     2008              $     864  $  11,017  $   1,452  $  31,413  $  71,747
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net carrying amount
     At December 31,
     2008              $     337  $  45,076  $   9,448  $  75,651  $ 144,675
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Software additions other than proprietary software for the year ended
        December 31, 2009 and 2008 include software added through
        acquisitions.
    (2) Other movements primarily relate to fully amortized assets removed
        from the accounts during the year.
    (3) Amortization for the year ended December 31, 2008 does not include
        $56 of amortization that relates to discontinued operations.
    (4) Balances include amounts reclassified for Handbook Section 3064.
    

7. GOODWILL

    
                                                             2009       2008
    -------------------------------------------------------------------------

    Balance, beginning of year                          $ 458,989  $ 438,502
    Goodwill acquired during the year:
      AVS acquistion                                            -      2,691
      Cyence acquisition                                   (1,417)    17,796
      Resolve acquisition                                  63,632          -
      Filogix adjustment                                   (1,356)         -
    -------------------------------------------------------------------------
      Balance, end of year                              $ 519,848  $ 458,989
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Filogix adjustment relates to the recognition of future tax assets in respect of loss carryforwards that were available at the point of acquisition and for which a valuation allowance had been recorded as of the acquisition date in 2006.

8. LONG-TERM INDEBTEDNESS

    
                                                             2009       2008
    -------------------------------------------------------------------------

     Non-revolving term loan maturing June 15, 2011     $ 120,000  $ 120,000
     Non-revolving term loan maturing January 2, 2011      70,000          -
     Revolving credit facility maturing June 15, 2011      20,000     28,000
    -------------------------------------------------------------------------
                                                          210,000    148,000
     Deferred finance costs                                (1,537)      (669)
    -------------------------------------------------------------------------
                                                        $ 208,463  $ 147,331
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

As at December 31, 2009, 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 $20 million was drawn at December 31, 2009) and a second revolving credit facility maturing January 2, 2011 of $20 million (of which nil was drawn at December 31, 2009). The credit facilities do not require the Fund to make any principal payments prior to their stated maturities. 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.

The Fund also has obligations outstanding pursuant to letters of credit and performance guarantees aggregating to approximately $5 million, of which less than $0.1 million represents a drawing under the committed revolving credit facilities.

The Credit Agreement for the Fund contains a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests. As at December 31, 2009, 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 quarter ended December 31, 2009 was $354 (Q4 2008 - $69) and during the year ended December 31, 2009 was $753 (2008 - $277). 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 year ended December 31, 2009. As the sensitivity is hypothetical, it should be used with caution.

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

    Increase (decrease) in interest expense             $     200  $    (200)
    Change to net unrealized (gain) loss on interest-
     rate swaps                                            (2,400)     2,400
    -------------------------------------------------------------------------

    Increase (decrease) in net income                   $   2,200  $  (2,200)
    -------------------------------------------------------------------------

    Increase (decrease) in total comprehensive income   $   2,200  $  (2,200)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The Fund manages its interest-rate risks through the use of interest-rate swaps for some of its outstanding long-term indebtedness. As at December 31, 2009, the Fund has entered into interest-rate swap contracts with its lenders, such that the floating borrowing rates on $190.0 million, or 90.5%, of its outstanding term indebtedness are effectively fixed at interest rates and for periods shown in the following table:

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

      March 16, 2010              $  65,000  $       -  $     650      4.490%
      July 15, 2010                  33,000          -      1,064      4.815%
      January 5, 2011                22,000          -        338      1.980%
      June 15, 2011                  20,000          -      1,192      4.685%
      June 15, 2011                  25,000          -      1,489      4.685%
      December 18, 2014              25,000        109          -      2.720%
    -------------------------------------------------------------------------
                                  $ 190,000  $     109  $   4,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 December 31, 2009, $140 million of the Fund's debt
        was subject to bankers' acceptance fees of 1.00% 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 December 31, 2009:

    
    -------------------------------------------------------------------------
                                             Fair value of foreign
                                                exchange contracts
                                            -----------------------
                                   Notional                         Exchange
    Maturity date                    amount      Asset  Liability       rate
    -------------------------------------------------------------------------

      January 19, 2010            $     500  $      93  $       -     1.2375
      February 16, 2010                 500         99          -     1.2500
      March 16, 2010                    500         99          -     1.2500
      April 15, 2010                    500         28          -     1.1057
      May 17, 2010                      500         28          -     1.1057
    -------------------------------------------------------------------------
                                  $   2,500  $     347  $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The following table presents a sensitivity analysis to changes in the foreign exchange between the Canadian and US dollar on the Fund for the year ended December 31, 2009. 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                   $     (44) $      44
    Unrealized gain (loss) on mark-to-market on foreign
     exchange contracts                                      (125)       125
    -------------------------------------------------------------------------

    Total increase (decrease) in net income             $     169  $    (169)
    -------------------------------------------------------------------------

    Increase (decrease) in total comprehensive income   $     169  $    (169)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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:

    
                                                                        2009
    -------------------------------------------------------------------------
                                    Level 1    Level 2    Level 3      Total

    Assets:
      Derivative instruments      $       -  $     456  $       -  $     456
    -------------------------------------------------------------------------
                                  $       -  $     456  $       -  $     456
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities:
      Derivative instruments      $       -  $   4,733  $       -  $   4,733
    -------------------------------------------------------------------------
                                  $       -  $   4,733  $       -  $   4,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    
                                                             2009       2008
    -------------------------------------------------------------------------

    Deferred compensation program                       $     845  $       -
    Employee future benefits                                4,987        707
    Contractual supplier obligation                         1,319          -
    Capital lease                                              10        105

    -------------------------------------------------------------------------
                                                        $   7,161  $     812
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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. The units awarded will earn distributions through the three years equal to the actual per unit distributions declared on the units of Davis + Henderson during the fiscal periods that form the performance period. The cash-settled unit-based compensation is determined based on the average trading price for the units in the 30 days following the release of the results for the last fiscal year in the performance period, along with the annualized growth rate achieved and the distributions earned. The employee must remain an employee throughout the three year performance period in order for the plan to vest, with limited exceptions. The first possible payment under this program is in 2012. As at December 31, 2009, the estimated obligation has been recognized on the assumption that the grant will be fully earned. An expense of $0.8 million was recorded in the consolidated statement of earnings for the year ended December 31, 2009 relating to the deferred compensation program.

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 year ended December 31, 2009 was $2.2 million (2008 - $2 million).

The components of post-retirement benefit obligation recognized, including the acquisition of Resolve are as follows:

    
                                                                        2009
    -------------------------------------------------------------------------

    Change in post-retirement benefit obligation
      Balance at beginning of year                                 $     707
      Acquisition of Resolve                                           3,392
      Current service costs                                               89
      Interest cost                                                      248
      Plan amendments                                                    (71)
      Benefits paid                                                     (159)
      Actuarial loss (gain)                                             (256)
    -------------------------------------------------------------------------
      Balance at end of year                                           3,950
    -------------------------------------------------------------------------

    Funded status
      Balance of post retirement benefit obligation                    3,950
      Unamortized net actuarial loss                                     884
      Unamortized past service benefits                                  153
    -------------------------------------------------------------------------
      Accrued non-pension post-retirement benefit liability        $   4,987
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Actuarial assumptions:
      Accrued benefit obligation
        Discount rate                                                   7.25%
        Rate of compensation increase                                   3.04%
      Net benefit plan expense
        Discount rate                                                   6.50%
        Rate of compensation increase                                   2.00%
      The assumed health-care cost trend rates
        Initial weighted average health-care trend rate                 6.50%
        Ultimate weighted average health care trend rate                4.50%
        Year the rate reaches the ultimate trend rate                   2029
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Effects of change in assumed health cost trend rates:
    1% increase:
      Effect on total service and interest cost components         $      38
      Effect on post-retirement accrued benefit obligation               434
    1% decrease:
      Effect on total service and interest cost components               (31)
      Effect on post-retirement accrued benefit obligation               357

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

The contractual supplier obligation relates to payments to be made for a customized software package. The total liability is $1,928 of which $609 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:

    
                                                             2009       2008
    -------------------------------------------------------------------------
    Future income tax assets:
      Capital assets less than tax values               $   2,935  $   3,121
      Intangible assets less than tax values               10,284     10,979
      Tax losses available for future periods              19,289      1,677
      Accrued and other liabilities                         6,088          -
    -------------------------------------------------------------------------
                                                           38,596     15,777
      Valuation allowance                                 (13,897)   (12,615)
    -------------------------------------------------------------------------
      Total future tax asset                               24,699      3,162

    Future income tax liabilities:
      Capital assets greater than tax values                3,208      2,849
      Intangible assets greater than tax values            45,726      7,355
    -------------------------------------------------------------------------
      Total future tax liabilities                         48,934     10,204

    -------------------------------------------------------------------------
    Net future income tax liabilities                   $  24,235   $  7,042
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 $10,284.

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 $3,613.

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 the Fund's corporate subsidiaries and the change in temporary differences expected to reverse after 2010 for the Fund, its flow-through trust and partnership subsidiaries.

The provision for (recovery of) income taxes included in the consolidated statements differs from the provision computed at statutory rates for the years ended December 31, 2009 and 2008 as follows:

    
                                                             2009       2008
    -------------------------------------------------------------------------

    Income before income taxes                          $  92,503   $ 79,665
    Income taxes at statutory rates of 33% (2008 -33.5%)   30,526     26,688
    Increase (decrease) resulting from:
      Impact of income distributed to unitholders         (30,774)   (25,596)
      Change in future tax rates                           (2,225)         -
      Change in valuation allowance                           (82)       125
      Other Items                                              44          -
    -------------------------------------------------------------------------
    Future income tax (recovery) expense                $  (2,511)  $  1,217
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

As at December 31, 2009, certain corporate subsidiaries of the Fund had $68,194 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 $7,268 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:

    
                                                           2009         2008
    -------------------------------------------------------------------------

    Balance, beginning of year                      $   476,343  $   474,585
    Non-cash distribution                                     -        1,758
    Units issued                                        119,516            -
    -------------------------------------------------------------------------
    Balance, end of year                            $   595,859  $   476,343
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Units outstanding, end of year                   53,233,373   43,946,792
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

The weighted average number of units outstanding during the year ended December 31, 2009 was 47,966,736 (2008 - 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 12-month trailing period ended December 31, 2009, this ratio was calculated at 1.27 (12-month trailing period ended December 31, 2008 - 1.26). 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 December 31, 2009, the Fund has annual lease obligations with respect to real estate, vehicles and equipment as follows:

    
    2010                                                           $  14,176
    2011                                                               7,129
    2012                                                               4,815
    2013                                                               4,039
    2014                                                               2,907
    Thereafter                                                         3,520

    -------------------------------------------------------------------------
                                                                   $  36,586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

15. SIGNIFICANT CUSTOMERS

For the year ended December 31, 2009, the Fund earned 67% of its consolidated revenue from its seven largest customers (2008 - 78%). For the year ended December 31, 2009, three of these customers individually accounted for greater than 10%, but not more than 15% of the Fund's total revenue (for the year ended December 31, 2008, 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 quarter and year ended December 31, 2009 and 2008 are as follows:

    
                                         Quarter ended            Year ended
                                           December 31,          December 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenue
      Programs to the chequing
       account                    $  71,787  $  71,913  $ 288,557  $ 294,358
      Lending technology services    17,527     14,652     69,244     61,828
      Loan servicing                 29,554          -     50,645          -
      Loan registration technology
       services                      21,729        948     41,785      4,143
      Other                          15,618      1,844     31,533      6,902
    -------------------------------------------------------------------------
                                  $ 156,215  $  89,357  $ 481,764  $ 367,231
    -------------------------------------------------------------------------
    

17. DISCONTINUED OPERATIONS

Effective December 31, 2008, the Fund ceased servicing a U.S. cheque supply contract. As a result, the U.S. operations were classified as discontinued operations at December 31, 2008.

Revenue attributable to the discontinued operations during the quarter and the year ended December 31, 2009 was nil (Q4 2008 - $2,351; 2008 - $8,148). Income per unit information relating to the discontinued operations is as follows:

    
                                         Quarter ended            Year ended
                                           December 31,          December 31
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Income from discontinued
     operations, per unit, basic
     and diluted                  $       -  $  0.0012  $       -  $  0.0106
    Income from continuing
     operations, per unit, basic
     and diluted                     0.4809     0.3159     1.9808     1.7745

    -------------------------------------------------------------------------
    Net income per unit, basic
     and diluted                  $  0.4809  $  0.3171  $  1.9808  $  1.7851
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

18. COMPARATIVE FIGURES

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

SUPPLEMENTARY FINANCIAL INFORMATION

    
    Consolidated Operating Results by Period
    -------------------------------------------------------------------------
                                      Three      Three      Three      Three
                            Year     months     months     months     months
                           ended      ended      ended      ended      ended
    (in thousands of    December   December  September       June      March
     Canadian dollars,        31,        31,        30,        30,        31,
     unaudited)             2009       2009       2009       2009       2009
    -------------------------------------------------------------------------

    Revenue            $ 481,764  $ 156,215  $ 142,463  $  94,557  $  88,529
    Expenses             346,721    119,671    104,879     62,080     60,091
    -------------------------------------------------------------------------
    EBITDA(1)            135,043     36,544     37,584     32,477     28,438

    Amortization of
     capital assets and
     non-acquisition
     intangibles          16,579      4,551      4,530      3,679      3,819
    Interest expense       9,541      3,326      2,681      1,787      1,747
    Minority interest          -          -          -          -          -
    -------------------------------------------------------------------------
    Adjusted income(1)   108,923     28,667     30,373     27,011     22,872

    Amortization of
     mark-to-market
     adjustment of
     interest-rate swaps     478        103        103        136        136
    Net unrealized loss
     (gain) on derivative
     instruments(2)       (4,145)    (1,620)    (1,647)    (1,069)       191
    Future income tax
     expense (recovery)   (2,511)    (2,747)     1,018       (718)       (64)
    Amortization of
     intangibles from
     acquisition          20,087      7,330      5,942      3,441      3,374
    -------------------------------------------------------------------------

    Income from
     continuing
     operations           95,014     25,601     24,957     25,221     19,235
    Income (loss) from
     discontinued
     operations                -          -          -          -          -
    -------------------------------------------------------------------------

    Net income         $  95,014  $  25,601  $  24,957  $  25,221  $  19,235

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

    Cash flows from
     operating
     activities        $ 119,722  $  40,575  $  38,959  $  27,173  $  13,015
    Changes in non-cash
     working capital
     and other items(3)    5,781     (7,356)    (4,056)     3,517     13,676
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities          125,503     33,219     34,903     30,690     26,691

    Less:
      Asset expenditures
       and contract
       payments(4)        14,805      5,133      2,818      2,491      4,363

    -------------------------------------------------------------------------
    Adjusted cash flows
     after capital
     expenditures and
     contract payments   110,698     28,086     32,085     28,199     22,328

    Distributions paid
     to unitholders       87,962     24,482     23,058     20,211     20,211

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

                          22,736      3,604      9,027      7,988      2,117

    Cash flows provided
     by (used in) other
     financing
     activities          (13,569)    (6,000)    (5,569)    (2,000)         -
    Fair value of
     acquisitions       (130,968)    (1,449)  (129,682)       103         60
    Fair value of
     trust units
     issued              119,394          -    119,394          -          -
    Changes in non-cash
     working capital
     and other items(3)   (5,781)     7,356      4,056     (3,517)   (13,676)
    Distributions paid
     to minority
     interest                  -          -          -          -          -
    -------------------------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents for
     the period        $  (8,188) $   3,511  $  (2,774) $   2,574  $ (11,499)

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


    -------------------------------------------------------------------------
                                      Three      Three      Three      Three
                            Year     months     months     months     months
                           ended      ended      ended      ended      ended
    (in thousands of    December   December  September       June      March
     Canadian dollars,        31,        31,        30,        30,        31,
     unaudited)             2008       2008       2008       2008       2008
    -------------------------------------------------------------------------

    Revenue            $ 367,231  $  89,357  $  95,055  $  95,407  $  87,412
    Expenses             245,678     62,413     61,664     61,334     60,267
    -------------------------------------------------------------------------
    EBITDA(1)            121,553     26,944     33,391     34,073     27,145

    Amortization of
     capital assets and
     non-acquisition
     intangibles          15,538      3,800      4,219      3,771      3,748
    Interest expense       6,847      1,647      1,690      1,754      1,756
    Minority interest          -          -          -          -          -
    -------------------------------------------------------------------------
    Adjusted income(1)    99,168     21,497     27,482     28,548     21,641

    Amortization of
     mark-to-market
     adjustment of
     interest-rate swaps     561        151        151        152        107
    Net unrealized loss
     (gain) on derivative
     instruments(2)        5,691      3,653        728     (1,034)     2,344
    Future income tax
     expense (recovery)    1,217        399         52        766          -
    Amortization of
     intangibles from
     acquisition          13,716      3,409      3,412      3,447      3,448
    -------------------------------------------------------------------------

    Income from
     continuing
     operations           77,983     13,885     23,139     25,217     15,742
    Income (loss) from
     discontinued
     operations              465         51        167        149         98
    -------------------------------------------------------------------------

    Net income         $  78,448  $  13,936  $  23,306  $  25,366  $  15,840

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

    Cash flows from
     operating
     activities        $ 116,062  $  31,806  $  35,110  $  32,623  $  16,523
    Changes in non-cash
     working capital
     and other items(3)     (594)    (6,380)    (3,169)       (82)     9,037
    -------------------------------------------------------------------------
    Adjusted cash flows
     from operating
     activities          115,468     25,426     31,941     32,541     25,560

    Less:
      Asset expenditures
       and contract
       payments(4)        13,438      4,915      3,027      2,962      2,534

    -------------------------------------------------------------------------
    Adjusted cash flows
     after capital
     expenditures and
     contract payments   102,030     20,511     28,914     29,579     23,026

    Distributions paid
     to unitholders       78,580     20,211     20,211     19,305     18,853

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

                          23,450        300      8,703     10,274      4,173

    Cash flows provided
     by (used in) other
     financing
     activities           18,000     28,000     (5,000)    (5,000)         -
    Fair value of
     acquisitions        (43,126)   (38,876)         -          -     (4,250)
    Fair value of
     trust units
     issued                    -          -          -          -          -
    Changes in non-cash
     working capital
     and other items(3)      594      6,380      3,169         82     (9,037)
    Distributions paid
     to minority
     interest                  -          -          -          -          -
    -------------------------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents for
     the period        $  (1,082) $  (4,196) $   6,872  $   5,356  $  (9,114)

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


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

    Revenue            $ 369,726  $  88,641  $  92,724  $  99,250  $  89,111
    Expenses             250,237     62,075     61,695     64,450     62,017
    -------------------------------------------------------------------------
    EBITDA(1)            119,489     26,566     31,029     34,800     27,094

    Amortization of
     capital assets and
     non-acquisition
     intangibles          15,080      3,970      3,809      3,670      3,631
    Interest expense       7,531      1,713      1,819      1,945      2,054
    Minority interest        379       (139)       205        204        109
    -------------------------------------------------------------------------
    Adjusted income(1)    96,499     21,022     25,196     28,981     21,300

    Amortization of
     mark-to-market
     adjustment of
     interest-rate swaps     678        163        163        176        176
    Net unrealized loss
     (gain) on derivative
     instruments(2)         (740)       823        957     (2,196)      (324)
    Future income tax
     expense (recovery)    1,591        137          -      1,454          -
    Amortization of
     intangibles from
     acquisition          13,298      3,386      3,347      3,271      3,294
    -------------------------------------------------------------------------

    Income from
     continuing
     operations           81,672     16,513     20,729     26,276     18,154
    Income (loss) from
     discontinued
     operations              567        109        147        244         67
    -------------------------------------------------------------------------

    Net income         $  82,239  $  16,622  $  20,876  $  26,520  $  18,221

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

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

    Less:
      Asset expenditures
       and contract
       payments(4)        15,496      4,354      4,598      2,955      3,589

    -------------------------------------------------------------------------
    Adjusted cash flows
     after capital
     expenditures and
     contract payments    96,956     20,828     24,629     30,015     21,484

    Distributions paid
     to unitholders       78,357     26,676     17,403     17,403     16,875

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

                          18,599     (5,848)     7,226     12,612      4,609

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

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

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


    ----------------------------------------
                            Year       Year
                           ended      ended
    (in thousands of    December   December
     Canadian dollars,        31,        31,
     unaudited)             2006       2005
    ----------------------------------------

    Revenue            $ 317,967  $ 270,470
    Expenses             223,562    191,401
    ----------------------------------------
    EBITDA(1)             94,405     79,069

    Amortization of
     capital assets and
     non-acquisition
     intangibles          13,040     12,206
    Interest expense       6,016      3,301
    Minority interest        202          -
    ----------------------------------------
    Adjusted income(1)    75,147     63,562

    Amortization of
     mark-to-market
     adjustment of
     interest-rate swaps       -          -
    Net unrealized loss
     (gain) on derivative
     instruments(2)            -          -
    Future income tax
     expense (recovery)        -          -
    Amortization of
     intangibles from
     acquisition           8,236      2,422
    ----------------------------------------

    Income from
     continuing
     operations           66,911     61,140
    Income (loss) from
     discontinued
     operations             (382)      (389)
    ----------------------------------------

    Net income         $  66,529  $  60,751

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

    Cash flows from
     operating
     activities        $  89,753  $  76,844
    Changes in non-cash
     working capital
     and other items(3)   (1,048)      (564)
    ----------------------------------------
    Adjusted cash flows
     from operating
     activities           88,705     76,280

    Less:
      Asset expenditures
       and contract
       payments(4)         9,855     10,674

    ----------------------------------------
    Adjusted cash flows
     after capital
     expenditures and
     contract payments    78,850     65,606

    Distributions paid
     to unitholders       61,311     54,910

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

                          17,539     10,696

    Cash flows provided
     by (used in) other
     financing
     activities          202,749    (10,000)
    Fair value of
     acquisitions       (223,852)    (3,214)
    Fair value of
     trust units
     issued                    -          -
    Changes in non-cash
     working capital
     and other items(3)    1,048        564
    Distributions paid
     to minority
     interest                  -          -
    ----------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents for
     the period        $  (2,516) $  (1,954)

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



    Summary of Cash Flows Per Unit
    -------------------------------------------------------------------------
                                      Three      Three      Three      Three
                            Year     months     months     months     months
                           ended      ended      ended      ended      ended
    (in Canadian        December   December  September       June      March
     dollars,                 31,        31,        30,        30,        31,
     unaudited)             2009       2009       2009       2009       2009
    -------------------------------------------------------------------------
    Adjusted income
     per unit, basic
     and diluted       $  2.2708  $  0.5385  $  0.6002  $  0.6146  $  0.5204
    Net income per
     unit, basic and
     diluted           $  1.9808  $  0.4809  $  0.4931  $  0.5739  $  0.4377
    Adjusted cash
     flows from
     operating
     activities        $  2.6164  $  0.6240  $  0.6897  $  0.6983  $  0.6073
    Adjusted cash
     flows after asset
     expenditures and
     contract payments $  2.3078  $  0.5276  $  0.6340  $  0.6417  $  0.5081
    Cash distributions
     paid to
     unitholders       $  1.8396  $  0.4599  $  0.4599  $  0.4599  $  0.4599
    Distributions
     declared during
     period            $  1.8396  $  0.4599  $  0.4599  $  0.4599  $  0.4599
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                      Three      Three      Three      Three
                            Year     months     months     months     months
                           ended      ended      ended      ended      ended
    (in Canadian        December   December  September       June      March
     dollars,                 31,        31,        30,        30,        31,
     unaudited)             2008       2008       2008       2008       2008
    -------------------------------------------------------------------------
    Adjusted income
     per unit, basic
     and diluted       $  2.2565  $  0.4892  $  0.6253  $  0.6496  $  0.4924
    Net income per
     unit, basic and
     diluted           $  1.7851  $  0.3172  $  0.5303  $  0.5772  $  0.3604
    Adjusted cash
     flows from
     operating
     activities        $  2.6275  $  0.5786  $  0.7268  $  0.7405  $  0.5816
    Adjusted cash
     flows after asset
     expenditures and
     contract payments $  2.3217  $  0.4667  $  0.6579  $  0.6731  $  0.5240
    Cash distributions
     paid to
     unitholders       $  1.7881  $  0.4599  $  0.4599  $  0.4393  $  0.4290
    Distributions
     declared during
     period            $  1.8384  $  0.4999  $  0.4599  $  0.4496  $  0.4290
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                      Three      Three      Three      Three
                            Year     months     months     months     months
                           ended      ended      ended      ended      ended
    (in Canadian        December   December  September       June      March
     dollars,                 31,        31,        30,        30,        31,
     unaudited)             2007       2007       2007       2007       2007
    -------------------------------------------------------------------------
    Adjusted income
     per unit, basic
     and diluted       $  2.1959  $  0.4784  $  0.5733  $  0.6595  $  0.4847
    Net income per
     unit, basic and
     diluted           $  1.8713  $  0.3782  $  0.4750  $  0.6035  $  0.4146
    Adjusted cash
     flows from
     operating
     activities        $  2.5588  $  0.5730  $  0.6651  $  0.7502  $  0.5705
    Adjusted cash
     flows after asset
     expenditures and
     contract payments $  2.2062  $  0.4739  $  0.5604  $  0.6830  $  0.4889
    Cash distributions
     paid to
     unitholders       $  1.7830  $  0.6070  $  0.3960  $  0.3960  $  0.3840
    Distributions
     declared during
     period            $  1.7980  $  0.6180  $  0.3960  $  0.3960  $  0.3880
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ----------------------------------------
                            Year       Year
                           ended      ended
    (in Canadian        December   December
     dollars,                 31,        31,
     unaudited)             2006       2005
    ----------------------------------------
    Adjusted income
     per unit, basic
     and diluted       $  1.8164  $  1.6762
    Net income per
     unit, basic and
     diluted           $  1.6081  $  1.6020
    Adjusted cash
     flows from
     operating
     activities        $  2.1441  $  2.0116
    Adjusted cash
     flows after asset
     expenditures and
     contract payments $  1.9059  $  1.7301
    Cash distributions
     paid to
     unitholders       $  1.4940  $  1.4480
    Distributions
     declared during
     period            $  1.5000  $  1.4500
    ----------------------------------------
    ----------------------------------------

    (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 assets, contract
        payments and non-acquisition intangibles.



    Condensed Consolidated Balance Sheet

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

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

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

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

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


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

    Cash and cash equivalents     $  12,066  $  16,262  $   9,390  $   4,034
    Other current assets             23,468     25,604     26,847     25,382
    Capital and other assets         24,708     18,883     19,977     20,394
    Intangible assets               144,675    123,270    126,903    130,815
    Goodwill                        458,989    441,193    441,193    441,193

    -------------------------------------------------------------------------
                                  $ 663,906  $ 625,212  $ 624,310  $ 621,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Payables and other current
     liabilities                  $  49,101  $  44,119  $  42,427  $  38,491
    Other long-term liabilities      17,805      6,038      5,143      7,417
    Long-term indebtedness          147,331    119,262    124,193    129,123
    Unitholders' equity             449,669    455,793    452,547    446,787

    -------------------------------------------------------------------------
                                  $ 663,906  $ 625,212  $ 624,310  $ 621,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Cash and cash equivalents     $  13,148  $  12,224  $  11,515  $   7,089
    Other current assets             26,149     29,644     29,772     26,332
    Capital and other assets         21,597     16,897     21,454     20,938
    Intangible assets               134,756    142,623    141,830    145,846
    Goodwill                        438,502    438,502    438,502    438,502

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

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

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


    ---------------------------------------------------
    (in thousands of Canadian      December   December
     dollars, unaudited)           31, 2006   31, 2005
    ---------------------------------------------------
    Cash and cash equivalents     $   5,788  $   8,304
    Other current assets             27,457     17,076
    Capital and other assets         20,944     16,375
    Intangible assets               148,316     22,260
    Goodwill                        438,546    361,288

    ---------------------------------------------------
                                  $ 641,051  $ 425,303
    ---------------------------------------------------
    ---------------------------------------------------

    Payables and other current
     liabilities                  $  44,420  $  35,665
    Other long-term liabilities       4,978      5,302
    Long-term indebtedness          143,778     50,000
    Unitholders' equity             447,875    334,336

    ---------------------------------------------------
                                  $ 641,051  $ 425,303
    ---------------------------------------------------
    ---------------------------------------------------


    Distribution History
    -------------------------------------------------------------------------
                                                    Distributions per unit(1)
    Month               2009    2008    2007    2006    2005    2004    2003
    -------------------------------------------------------------------------

    January          $0.1533 $0.1430 $0.1280 $0.1220 $0.1200 $0.1150 $0.1117
    February          0.1533  0.1430  0.1280  0.1220  0.1200  0.1150  0.1117
    March             0.1533  0.1430  0.1320  0.1250  0.1200  0.1168  0.1117
    April             0.1533  0.1430  0.1320  0.1250  0.1200  0.1168  0.1133
    May               0.1533  0.1533  0.1320  0.1250  0.1200  0.1168  0.1133
    June              0.1533  0.1533  0.1320  0.1250  0.1200  0.1168  0.1133
    July              0.1533  0.1533  0.1320  0.1250  0.1200  0.1168  0.1133
    August            0.1533  0.1533  0.1320  0.1250  0.1220  0.1168  0.1133
    September         0.1533  0.1533  0.1320  0.1250  0.1220  0.1168  0.1133
    October           0.1533  0.1533  0.1320  0.1250  0.1220  0.1168  0.1150
    November(2)       0.1533  0.1533  0.3430  0.1280  0.1220  0.1200  0.1150
    December(3)       0.1533  0.1933  0.1430  0.1280  0.1220  0.1200  0.1150

    -------------------------------------------------------------------------
                     $1.8396 $1.8384 $1.7980 $1.5000 $1.4500 $1.4044 $1.3599
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    January          $0.1083 $     -
    February          0.1083       -
    March             0.1083       -
    April             0.1083       -
    May               0.1083       -
    June              0.1083       -
    July              0.1117       -
    August            0.1117       -
    September         0.1117       -
    October           0.1117       -
    November(2)       0.1117       -
    December(3)       0.1117  0.0427
    ---------------------------------
                     $1.3200 $0.0427
    ---------------------------------
    ---------------------------------
    (1) Monthly distributions are made to unitholders of record on the last
        business day of each month and are paid within 31 days following each
        month end.
    (2) November 2007 declared distributions include a special distribution
        of $0.20 for unitholders of record on November 15, 2007 and was paid
        on November 30, 2007.
    (3) December 2008 declared distributions include 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

    -------------------------------------------------------------------------
                       2009   2008   2007   2006   2005   2004   2003   2002

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

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

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

    The above tax allocation of distributions for 2009 represents an estimate
    based on the total expected distributions for the year ended December 31,
    2009.


    Other Statistics
    (in thousands, except per unit amounts)

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

    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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