Golf Town Income Fund 2006 Earnings Rise 24.0%



    Sales Gain 14.8%

    2006 Comparative Store Sales Rise 2.9%

    Fourth Quarter Comp Store Sales Rise 4.0%

    Raises Distribution $0.05 to $1.25 Per Unit

    MARKHAM, ON, March 6 /CNW/ - Golf Town Income Fund (TSX GLF.UN), Canada's
leading golf retailer and operator of 28 golf superstores in five provinces,
today announced significant advances in revenues and earnings for 2006.
    "We have delivered very strong results for unitholders, for the year,"
said Stephen Bebis, President and Chief Executive Officer. "Looking ahead in
2007, we expect to open five new stores. 2007 should be an exciting year with
the introduction of new technology in drivers and woods. The new square shaped
drivers from Callaway Golf, Nike and others will help golfers hit the ball
straighter."
    For the year ended December 31, 2006, Golf Town's total sales advanced
sharply, moving from $191.7 million in 2005 to $220.1 million in 2006, an
increase of 14.8 per cent or $28.4 million. The increase was due to the
addition of three new stores in 2005 and four new stores in 2006 for a total
of 28 as at December 31, 2006 as well comp store sales growth of 2.9%.
    An additional stand out year-end measure for Golf Town was that gross
profit increased from $64.8 million in 2005 to $77.2 million in the year
ending December 31, 2006, an increase of 19.1 per cent or $12.4 million. Gross
profit as a percentage of sales also grew, from 33.8 per cent in 2005 to
35 per cent in 2006 due to better buying terms from our suppliers and lower
inventory shrinkage expense compared to 2005.
    In a strong advance for Golf Town, EBITDA increased 22.2 per cent, from
$20.3 million in 2005 to $24.8 million in 2006, an increase of $4.5 million,
and earnings increased 24.0% from $12.9 million to $16.0 million in 2006.
    Net income for the year - before taxes and minority interest - increased,
from $14.8 million in 2005, to $18 million in 2006, an increase of
21.6 per cent.
    Golf Town total sales for the fourth quarter ended December 31, 2006
advanced 16.4 per cent from $32.4 million in 2005 to $37.7 million in 2006, a
$5.3 million increase. Golf Town's fourth quarter gross profit jumped
32.7 per cent from $10.7 million last year to $14.2 million in 2006, an
increase of $3.5 million. As a percentage of sales, gross profit rose from
33 per cent in the fourth quarter of 2005 to 37.6 per cent in the quarter
ended December 31, 2006.
    In addition to advances in revenues and gross profit, Golf Town's EBITDA
also increased $1.4 million, from $0.1 million in the same quarter last year
to $1.5 million in the fourth quarter ending December 31, 2006. Strong
advances in EBITDA occurred as a result of higher gross margins on product;
particularly on golf clubs.
    The Board of Trustees have announced a $0.05 per share increase effective
for the March 2007 distribution. Annual distributions are now $1.25 per unit.
This is Golf Town's fourth increase since its IPO in November 2004. Golf Town
has raised distributions 19 per cent since its inception as a trust.
    "Golf Town's consistently strong performance since the public offering in
the fall of 2004 has enabled the Trustees to implement three increases to
unitholder distributions in 2006 alone, most recently for the month of
November 2006," added Bebis. "Even so, on the basis of the trailing 12 months,
Golf Town's payout ratio was 66.6 per cent or $1.20 per unit annualized, which
we believe is conservative."
    "Golf in Canada is a big business," added Bebis "and Golf Town is
uniquely positioned to serve this market and uniquely positioned to benefit
from it. There is a great deal of growth available to us."
    Bebis also commented, "Our mission is to serve golfers and capture their
investment in the game. As our 2006 results demonstrate, we continue to be
successful in this mission. As we have stated since our fall 2004 initial
public offering, our top priority is to balance growth with sustainability.
We are doing so."

    Golf Town was founded in 1998 and is now the largest golf retailer in
    Canada with 28 stores across the country. Golf Town Income Fund units are
    traded on the Toronto Stock Exchange under the symbol GLF.UN.

    Golf Town's year-end financial statements and MD&A follow.



    Golf Town Income Fund

    Management's Discussion and Analysis of Results and Financial Condition

    As of March 2, 2007

    For the Year Ended December 31, 2006

    This Management's Discussion and Analysis (MD&A) and the accompanying
consolidated financial statements of Golf Town Income Fund (the Fund) provide
an overview of the performance and the results of the Fund for the year ended
December 31, 2006.

    All amounts are in Canadian dollars.

    Overview of the Fund

    The Fund holds indirectly through its wholly-owned subsidiary, Golf Town
Limited Partnership, a 95% interest in the common shares and the unsecured
subordinated notes issued by the Golf Town Canada Inc., and pays monthly
distributions to unitholders from the interest and other income earned on the
notes and from dividends or return of capital on the common shares. Certain
former shareholders of the Golf Town Canada Inc. hold a 5% interest in Golf
Town Canada Inc. in the form of Exchangeable Class B Limited Partnership Units
of Golf Town Limited Partnership. These Exchangeable Units are exchangeable
into Fund units, on a one for one basis, and have the same rights and
conditions as Fund units, including participation in monthly distributions
from the Fund. Since the date of the initial public offering and subsequent
exercise of the over-allotment option, 538,963 Exchangeable Units have been
exchanged for Fund units. Effective April 1, 2006, the business of the Golf
Town Canada Inc. was transferred to and carried on through Golf Town Operating
Limited Partnership which is 100% owned by Golf Town Canada Inc.
(collectively, the "Company")
    The Fund's units trade on the Toronto Stock Exchange under the symbol
GLF.UN.

    Overview of the Company

    The Company is the largest retailer of golf merchandise in Canada and
believes that it is the third largest in the world. As at December 31, 2006,
the Company operated 28 retail stores in five provinces. Store sizes range
from 13,000 to 24,000 square feet and average about 18,000 square feet,
excluding the pro shop at a driving range in Surrey, British Columbia, which
is about 2,000 square feet.
    The Company generally opens its new stores in the spring of the year just
prior to the beginning of the golf season in Canada. In March 2006, stores
were opened in Kitchener, Ontario and Quebec City, Quebec. In early June 2006,
stores were opened in Calgary, Alberta and Victoria, British Columbia.


    
    Key Performance Drivers

    1.  Strong brand recognition

        The Company has invested significantly to create "top of mind" brand
        awareness through major advertising and promotional campaigns.
        Through a combination of radio, television and print advertising the
        Company has consistently marketed itself as the destination for
        Canadians to shop for all of their golfing needs.

    2.  Superior in-store customer experience

        Golf Town believes it distinguishes itself by creating a superior
        in-store experience for its customers.

        Most stores are located close to residential areas, in high traffic,
        highly visible locations with prominent signage and convenient
        highway access.

        Well-trained sales employees have completed a comprehensive training
        program focused on a low-pressure, informative sales approach. The
        Company's sales associates are not paid on a commission basis, which
        results in the same high quality service to all customers, whether
        they are purchasing a set of clubs or are just looking at the latest
        equipment.

        Customers are ensured a wide selection to choose from at each price
        point through a diverse product offering, including all of the top
        golf brands.

        Finally, we strive to take the worry out of purchasing by offering a
        30-day return policy coupled with a price guarantee.

    3.  Leading market position

        By creating a strong brand, the Company has become the largest
        retailer of golf equipment in Canada. This market position allows us
        to compete effectively through volume purchases, special offers from
        key suppliers and other economies of scale.
    


    Review of Operations

    This MD&A discusses the operating results of the Fund from October 1,
2006 to December 31, 2006 and compares them to operating results of the Fund
from October 1, 2005 to December 31, 2005. It also compares the year ended
December 31, 2006 with operating results of the Company for the year ended
December 31, 2005.
    Total sales increased by $5.4 million or 16.7%, to $37.8 million for the
three months ended December 31, 2006 (2006 quarter) from $32.4 million for the
three months ended December 31, 2005 (2005 quarter). The growth in sales was
due to the addition of two new stores in March 2006 as well as two new stores
in June 2006 resulting in a sales increase of $4.0 million. Same-store sales
growth of 4.0% or $1.3 million also contributed to the higher level of sales.
    Total sales increased by $28.4 million or 14.8%, to $220.1 million for
the year ended December 31, 2006 from $191.7 million for the year ended
December 31, 2005. The growth in sales was due to the addition of three new
stores in 2005, and four new stores in 2006 resulting in a sales increase of
$23.1 million. Same-store sales growth of 2.9% or $5.3 million also
contributed to the higher level of sales. The sales mix between golf apparel
and equipment remained relatively constant compared to the same period last
year.
    Cost of sales increased by $1.8 million, or 8.3% to $23.5 million in the
2006 quarter compared to $21.7 million in the prior year. This increase was
largely attributable to the growth in sales. Gross profit as a percentage of
sales increased to 37.6% compared to 33.0% for the same quarter a year ago.
The majority of the increase in gross profit as a percentage of sales was
attributable to the following three main reasons, in order of magnitude: 1)
higher rebates, coop advertising and discounts in the quarter compared to the
same quarter in the prior year; 2) a lower shrink expense resulting from the
November annual inventory count adjustment in the 2006 compared to 2005, and
3) continued higher gross margin rates on club sales as a result of special
buys and volume purchasing. Gross profit increased by $3.5 million or 32.7% to
$14.2 million in the fourth quarter compared to $10.7 million in the same
period last year.
    Cost of sales increased by $16.0 million, or 12.6% to $142.9 million in
2006 compared to $126.9 million in the prior year. This increase was largely
attributable to the growth in sales. Gross profit as a percentage of sales
increased to 35.0% compared to 33.8% for the same period a year ago. The
majority of the increase in gross profit as a percentage of sales was
attributable to the following three main reasons, in order of magnitude:
1) continued higher gross margin rates on club sales as a result of special
buys and volume purchasing; 2) higher rebates, coop advertising and discounts
in the year compared to the prior year; and 3) a lower shrink expense
resulting from the November annual inventory count adjustment in the 2006
compared to 2005. Gross profit increased by $12.4 million or 19.1% to $77.2
million for the year ended December 31, 2006 compared to $64.8 million in the
same period last year.
    Selling General and Administrative (SG&A) expenses increased by
$2.1 million, or 19.8%, to $12.7 million in the fourth quarter compared to
$10.6 million in the prior year. The increase was due to the addition of
stores in 2006 and additional store operational employees compared to the same
quarter in the prior year. Employee compensation, occupancy costs, credit card
processing fees and advertising costs together constituted 87.9% of total SG&A
in the fourth quarter compared to 86.6% in the prior year.
    SG&A expenses increased by $7.9 million, or 17.7%, to $52.4 million for
the year ended December 31, 2006 compared to $44.5 million in the prior year.
The increase was due to the addition of stores in 2005 and 2006; additional
store operational employees and incremental costs relating to one time
professional fees.

    EBITDA

    EBITDA (earnings before interest, taxes, depreciation and amortization)
is not a recognized measure under Canadian generally accepted accounting
principles (GAAP) and may not be comparable to similar measures used by other
companies. The Fund believes that in addition to GAAP measures, EBITDA is a
useful widely accepted financial indicator as it represents a useful measure
for evaluating the performance of the business. Unitholders should be
cautioned, however, that EBITDA should not be construed as an alternative to
net income as determined in accordance with GAAP. The following table
reconciles net income before income taxes and minority interest to EBITDA:

    
                                 For the     For the
                                   three       three     For the     For the
                                  months      months        year        year
                                   ended       ended       ended       ended
                                December    December    December    December
                                31, 2006    31, 2005    31, 2006    31, 2005
                                       $           $           $           $
                               ----------------------------------------------
    Income before income taxes
     and minority interest          (326)     (1,403)     18,007      14,769
    Add:
      Amortization of fixed
       assets                      1,006         899       3,917       3,510
      Amortization of deferred
       financing costs                29          29         117         117
      Amortization of
       pre-opening costs             152          67         488         197
      Amortization of intangible
       assets                        108         108         431         431
      Interest on long-term debt     238         202         910         766
      Other interest                 269         158         917         518
                               ----------------------  ----------------------
    EBITDA                         1,476          60      24,787      20,308
                               ----------------------  ----------------------
                               ----------------------  ----------------------
    

    EBITDA increased by $1.4 million to $1.5 million in the fourth quarter
compared to $0.1 million in the fourth quarter of 2005. The increase in EBITDA
was largely attributable to higher gross profit partially offset by normal
increases in SG&A associated with the growth of the Company.
    EBITDA increased by $4.5 million or 22.2%, to $24.8 million in the year
ended December 31, 2006 compared to $20.3 million in 2005. The increase in
EBITDA was largely attributable to higher gross profit partially offset by
normal expense increases associated with the growth of the Company combined
with additional store operational positions and one time costs relating to
professional services for tax planning.
    Income before taxes and minority interest for the year ended December 31,
2006 was $18.0 million compared to a net income of $14.8 million last year.

    Long Term Incentive Plan

    In March 2006, a trust (the "LTIP Trust") was formed to hold Units of the
Fund on behalf of the participants of the Fund's long-term incentive plan (the
"LTIP"). The Fund is neither a trustee nor a direct participant of the LTIP;
however, under certain circumstances it may be the beneficiary of forfeited
Units held by the LTIP Trust. Consequently, the LTIP Trust is considered a
variable interest entity for accounting purposes and the Fund will consolidate
the LTIP Trust. With respect to each grant under the LTIP Plan, one-third of
the Units held by the LTIP Trust will vest to the participants of the LTIP in
each year over a three-year period with the first one-third having already
vested on January 1, 2007. Compensation expense will be recorded by the Fund
over the vesting period.
    In accordance with the LTIP agreement and in connection with the
performance of the Fund in fiscal 2006, the Trustees of the Fund approved the
funding and transfer of $1.4 million (2005 - $0.7 million) of cash to the LTIP
Trust in March 2007 to fund the purchase of Units by the LTIP Trust. With
respect to the transfer relating to 2005, in March 2006, the LTIP Trust
purchased 56,828 Units of the Fund.
    In 2006, compensation expense totaling $229 was recorded by the Fund.
Distributions on unvested Units held by the LTIP Trust are paid to LTIP
participants. Unvested Units held by the LTIP Trust will be shown as a
reduction of unitholders' equity.
    Basic net income per unit reflects the impact of the LTIP Units vesting
evenly over the three year period. As at December 31, 2006, none of the Units
held by the LTIP Trust had vested.

    Distributable Cash and Distributable Cash per Unit
    (see calculation in the table below)

    Included in this MD&A are references to the Fund's distributable cash and
distributable cash per unit. Readers should be aware that distributable cash
is not a measure under Canadian GAAP, and there is no standardized measure for
it. Distributable cash as presented may not be comparable to similar measures
presented by other income funds. Management believes that this measure is a
widely accepted financial indicator used by investors to assess the
performance of income funds and their ability to generate cash through
operations. This is especially true of the Fund, which pays out the majority
of its cash in regular distributions.
    Distributable cash is calculated as cash flow from operating activities
adjusted for non-cash working capital items, income taxes, lease inducement
accounting, maintenance capital expenditures, and LTIP funding requirements.
Non-cash working capital items are not factored into the distributable cash
calculation as fluctuations in these items are generally short term in nature.
The Fund does not currently pay cash taxes and therefore changes in income tax
accounts do not reflect cash requirements of the Fund. Lease inducements do
not reflect run rate cash flows of the Fund and therefore have not been
included in the calculation of distributable cash. Cash flow from operating
activities includes the impact of the LTIP once the Fund has transferred the
cash to the LTIP Trust. For purposes of calculating distributable cash the
Fund deducts the LTIP funding requirement in the period in which it is earned
and therefore once the payment has been made to the Trust, it no longer
represents an adjustment in the calculation of distributable cash. The Company
generates a majority of its distributable cash in the second and third
quarters and therefore, once these quarters are complete and the golf season
is over, a trailing twelve month LTIP funding requirement is a reasonable
estimation of the requirement for the year ending December 31st. The actual
calculation of LTIP funding requirement will take place once the fiscal year
is complete.

    
                                             For the     For the
                                               three      twelve       Since
                                              months      months   inception
    Distributable cash                         ended       ended          to
    (000's except for unit amounts)        31-Dec-06   31-Dec-06   31-Dec-06
    -------------------------------------------------------------------------

    Cash flow provided by operating
     activities                                1,636      16,953      40,307

    Add/(subtract) short term changes
     in non-cash working capital items
     excluding income taxes: (1)
    Inventory                                  4,658      10,434      14,988
    Amounts receivable                        (1,097)      3,890       3,221
    Prepaids                                      20         123        (333)
    Accounts payable and accrued liabilities  (4,416)     (7,854)    (15,744)

    Deduct receipt of lease inducements(2)       225      (1,036)     (1,346)

    Net change in tax accounts(3)                 (1)          -       1,066

    Maintenance capital expenditures(4)         (102)       (790)     (1,331)

    Long term incentive plan funding
     requirement(5)                           (1,373)       (694)     (1,373)

                                          -----------------------------------
    Distributable cash                          (450)     21,026      39,455
                                          -----------------------------------
                                          -----------------------------------

    Distributions declared                     3,698      14,011      28,924

    Cash distributions payout ratio(6)       -821.8%       66.6%       73.3%

    Total Fund units and Exchangeable LP
     units outstanding                    12,500,952  12,500,952  12,500,952
    Distributable cash per Fund unit and
     Exchangeable LP unit                     (0.036)      1.682       3.156
    Distributions declared per Fund unit
     and Exchangeable LP unit                  0.296       1.121       2.314

    (1) Non-cash changes in working capital items have been excluded from
        this calculation as they fluctuate throughout the year. Management
        believes, that over the long term, working capital will remain
        relatively consistent. In addition, Golf Town uses its operating
        credit facility to finance inventory as it opens new stores. All
        available excess cash is used to pay down this facility on a daily
        basis.

    (2) The receipt of lease inducement amounts and their amortization for
        accounting purposes have been excluded from this calculation as they
        do not represent cash flows generated by the business of Golf Town.

    (3) Net change in tax accounts since inception relate to the business of
        Golf Town prior to it being acquired by the Fund.

    (4) Maintenance capital expenditures are defined as all capital
        expenditures except expenditures on new stores and expenditures on
        new incremental revenue generating initiatives within existing
        stores.

    (5) The Fund deducts the impact of LTIP amounts for distributable cash
        purposes in the year in which they are earned. For the twelve months
        ended December 31, 2006, the LTIP funding adjustment of $694 consists
        of the 2006 funding requirement of $1,373, net of the funding of the
        2005 amount in March of 2006 of $679 which has already been included
        as a use of cash in the cash flow provided by operating activities
        for the twelve month period.

    (6) Distributed cash has exceeded distributable cash with respect to the
        3 month period due to seasonality of the business, as Q2 and Q3
        represent our strongest quarters in terms of distributable cash. In
        terms of the twelve month and since inception calculations of
        distributable cash, the Board of Trustees approves the level of
        distributed cash based on its expectations of the business and the
        Fund's ability to sustain the level of distributions in the future.
    


    For the quarter ended December 31, 2006, the Fund distributed $0.296 per
unit compared with negative $0.036 per unit of distributable cash per unit per
the above calculation. This difference reflects the Fund's seasonal
fluctuations in earnings. On a rolling twelve month basis, the Fund has
distributed $1.121 compared with $1.682 per unit of distributable cash per
unit per the above calculation.

    Outstanding Unit information

    At March 2, 2007 the Fund had a total of 12,500,952 Units and
Exchangeable Units issued and outstanding. This consisted of 11,881,380 Units
and 619,572 Exchangeable Units. Of the 11,727,706 Units, 56,828 Units were
held by the LTIP Trust. During the first quarter there was an exchange of
300,000 Exchangeable Units for Units on a one-for-one basis. During the fourth
quarter, an additional 153,674 Exchangeable Units were exchanged for Fund
units on the same basis.


    
    Selected Financial Data

                                       As at and     As at and     As at and
                                         for the       for the   for the 376
    ($000's)                          year ended    year ended    days ended
                                         Dec. 31,      Dec. 31,      Dec. 31,
                                            2006          2005          2004
    -------------------------------------------------------------------------
    Sales                                220,099       191,725       166,523
    Cost of sales                        142,916       126,940       110,470
    Gross profit                          77,183        64,785        56,053
                                           35.07%        33.79%        33.66%

    S G & A                               52,396        44,477        39,212
    EBITDA                                24,787        20,308        16,841
    Income before tax and minority
     interest                             18,007        14,769         9,782
    Net income(1)                         16,052        12,945

    Total assets                         185,560       171,014       164,821
    Long term liabilities                 24,942        24,860        23,826

    Distributions declared per Unit      $1.1208       $1.0500       $0.1400

    Income before tax and minority
     interest per unit fully diluted     $1.4405       $1.1814       $0.7825
    Net income per unit fully
     diluted(1)                          $1.2841       $1.0355

    (1) Net income has not been presented for the period prior to
        December 31, 2004 as it is not comparable due to the changes to the
        capital structure of the Company on November 12, 2004.


    Quarterly Information

                                                                         Net
                                                                      income
                                                                        loss
                                                              Net   per unit
                                                           income      fully
    Quarter       Start                End         Sales    (loss)   diluted
    -------------------------------------------------------------------------
    Q4-2006  October 1, 2006   December 31, 2006   37,756      523   0.04184
    Q3-2006     July 1, 2006  September 30, 2006   70,205    6,285   0.50276
    Q2-2006    April 1, 2006       June 30, 2006   82,120   10,055   0.80434
    Q1-2006  January 1, 2006      March 31, 2006   30,018     (811) (0.06488)
    Q4-2005  October 1, 2005   December 31, 2005   32,388     (292) (0.02336)
    Q3-2005     July 1, 2005  September 30, 2005   60,891    5,491   0.43925
    Q2-2005    April 1, 2005       June 30, 2005   71,618    9,839   0.78706
    Q1-2005  January 1, 2005      March 31, 2005   26,828   (2,093) (0.16743)
    


    The Company's business is subject to seasonal fluctuations with the peak
occurring during the Canadian golf season from April to September each year.
We are able to limit the effects of this fluctuation on net income by, among
other things, keeping merchandise in stock in winter months, promoting golf
year round and controlling costs in the winter months by reducing the number
of employees and marketing activities. One of Golf Town's main competitors,
golf course pro shops, generally close in October and therefore begin to
reduce their inventory in August. Also, sporting goods stores in Canada
typically change their inventory positions in the fall to focus on winter
sports.

    Liquidity and Capital Resources

    At December 31, 2006, cash had increased by $0.3 million to $1.8 million
from $1.5 million on December 31, 2005. The Company has two principal sources
of liquidity: (i) cash provided by operations; and (ii) amounts available
under its $40 million revolving credit facility. Management believes that the
Company's liquidity will be sufficient in the short and long term to meet its
planned growth and distribution targets. At December 31, 2006, $7.8 million of
the Revolving Facility was drawn and, based on inventory levels at December
31, 2006 an additional $28.9 million was available.
    The Revolving Facility is a revolving operating credit facility with no
required principal payments prior to maturity. The Revolving Facility revolves
through the application of all funds received by the Company and the
re-advance of available loan amounts as requested by the Company. Repayments
are required if the allowed advance amount, which is based on inventory
levels, is exceeded. Interest is payable monthly in arrears on the first day
of each month at a variable rate of interest.
    In addition to the Revolving Facility, the Company has a $10.0 million
debenture payable at December 31, 2006. Interest on this debenture is payable
monthly in arrears on the fifteenth day of each month based on a variable rate
of interest. The principal amount of the debenture is due in November 2008.
    As a result of the seasonality of its business, the Company's working
capital requirement fluctuates throughout the year. Historically, a movement
of up $10.0 million is experienced during the year, depending on the timing of
inventory buys, vendor payments and receivable collections. Generally, working
capital remains flat as the Company grows, however the above noted timing
issues can create minor variances from one year to the next.

    Distributions

    The Fund's policy is to distribute to its unitholders all available cash
from operations after cash required for maintenance capital expenditures and
other reserves considered advisable by the Trustees of the Fund. The golf
equipment market experiences seasonality in sales volume, with its highest
sales occurring in the second and third quarters. However, occupancy related
expenses along with certain general and administrative expenses are fixed
throughout the year. Interest on long term debt is consistent throughout the
year while interest on the Company's operating line is higher in the slower
off-season. The Trustees have eliminated the impact of seasonal fluctuations
on monthly distributions by equalizing them. The Trustees consider this
seasonality in determining the levels of available cash at the end of the
year. Cash flow in the second and third quarters is expected to be
significantly higher than the distributions in those quarters and will
therefore offset the impact of lower cash flows in the first and fourth
quarters. The Fund anticipates maintaining at least the current level of
distributions based on performance and anticipated levels of available cash.
    The Fund makes monthly distributions of its available cash to unitholders
of record on the last business day of each month, payable on or about the 15th
day of the following month.


    
    2006 distributions

                                                                Distribution
    Period      Record Date     Payment Date         Per Unit         Amount
                                                            $              $
    -------------------------------------------------------------------------
    Jan-06        31-Jan-06        15-Feb-06        0.0875000          1,094
    Feb-06        28-Feb-06        15-Mar-06        0.0875000          1,094
    Mar-06        31-Mar-06        15-Apr-06        0.0916667          1,146
    Apr-06        30-Apr-06        15-May-06        0.0916667          1,146
    May-06        31-May-06        15-Jun-06        0.0916667          1,146
    Jun-06        30-Jun-06        15-Jul-06        0.0916667          1,146
    Jul-06        31-Jul-06        15-Aug-06        0.0916667          1,146
    Aug-06        31-Aug-06        15-Sep-06        0.0958333          1,198
    Sep-06        30-Sep-06        15-Oct-06        0.0958333          1,198
    Oct-06        31-Oct-06        15-Nov-06        0.0958333          1,198
    Nov-06        30-Nov-06        15-Dec-06        0.0100000          1,250
    Dec-06        31-Dec-06        15-Jan-07        0.0100000          1,250


    With respect to the distributions made during 2006, 59.66% is taxable as
income in the hands of the unitholders while 40.34% represents a return of
capital that reduces the adjusted cost base of the units.


    Contractual Obligations

    The following chart outlines the Company's contractual obligations:

                                          Payments Due by Period
                                               1 to 3     4 to 5      after
                           Total  Less than     years      years     5 years
    -------------------------------------------------------------------------

    Revolving Facility     7,842      7,842          -          -          -
    Debenture payable     10,000          -     10,000          -          -
    Operating leases      90,191      9,315     21,783     19,732     39,361
    Capital leases         1,309        716        593          -          -
    -------------------------------------------------------------------------

                         109,342     17,873     32,376     19,732     39,361
    -------------------------------------------------------------------------
    


    Operating leases are entered into for premises. In fiscal 2006, total
basic rent totaled $7.8 million and total occupancy costs totaled
$11.8 million.
    Capital lease obligations are for store computers, golf simulators and
telephone systems. Capital leases are for a term of three years or less.
    At the completion of the IPO, the Company refinanced an existing loan by
replacing it with the debenture payable to Roynat Inc. The debenture payable
has a four year term and requires interest to be paid monthly of 3.75% above
Roynat's floating base rate. The Company also has access to the Revolving
Facility. See "Liquidity and Capital Resources."
    The Company has issued a $92,000 letter of credit as a guarantee for
payment of future contractual obligations relating to product purchased for
resale.

    Investing activities

    The Company usually opens between three and five new stores each year. A
typical new store costs approximately $1.4 million to open, plus an additional
$2 million for inventory. New store cost and inventory is financed through the
Company's revolving operating credit facility as well as through capital
leases and lease inducement payments from landlords. All cash flows not
required by the Company for operations and distributions are used to reduce
the revolving operating credit facility.
    Maintenance capital expenditures for store equipment replacement, store
renovations and other initiatives are at the discretion of management. In the
fourth quarter of 2006 total maintenance capital expenditures were
$0.1 million. Maintenance capital expenditures for 2006 were $0.8 million.
Maintenance capital expenditures are also financed through the revolving
operating credit facility.

    Disclosure Controls

    Disclosure control and procedures are designed to provide reasonable
assurance that information required to be disclosed is recorded, processed,
summarized and reported within the time periods specified by securities
regulations. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures as of March 2, 2007 and have concluded that they are adequate and
effective to ensure accurate and complete disclosure. There has been no change
in the Fund's internal controls that occurred during 2006 that has materially
affected or is reasonably likely to materially affect the Fund's internal
controls over financial reporting.

    Critical Accounting Estimates

    The preparation of the Fund's financial statements requires the Fund to
estimate the effect of several variables that are inherently uncertain. These
estimates and assumptions can affect the reported amounts of assets,
liabilities, revenue and expenses. The Fund bases its estimates on historical
experience and other assumptions, which the Fund believes to be reasonable
under the circumstances. The Fund also evaluates its estimates on an ongoing
basis. The significant accounting policies of the Fund are described in note 3
of the Fund's audited financial statements for the year ended December 31,
2006. In addition, management believes that the following items represent the
Fund's critical accounting estimates:

    Provision for Gift Cards

    Revenue from the sale of gift cards is recognized when they are redeemed.
Not all gift cards will be redeemed by customers. As a result, for each
reporting period management estimates the expected usage of gift cards based
on industry standards and the Company's specific trends where available and
assesses the adequacy of the remaining gift card liability. At December 31,
2006, the gift card liability included in accounts payable was $7.6 million.

    Valuation of Goodwill

    Goodwill is not amortized but is assessed for impairment on an annual
basis. The Fund uses a market approach to determine the fair value of the
operations associated with the goodwill. This approach uses several factors
including normalized earnings and earnings multiples.

    Intangible Assets

    Intangible assets acquired are comprised of the Company's brand and
customer lists and relationships. Customer lists and relationships are
amortized on a straight-line basis over six years. The brand is not amortized
as it has an indefinite life.
    The Fund reviews the carrying value of its indefinite life intangible
asset annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The brand will be written down if
the carrying amount of the asset exceeds its fair value. The customer lists
and relationships are tested for recoverability whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable.
When the carrying values of customer lists or relationships are less than
their net recoverable value as determined on an undiscounted basis, an
impairment loss is recognized to the extent that fair values, measured as the
discounted cash flows over the life of the assets when quoted market prices
are not readily available, are below the assets' carrying values.

    Inventory Valuation

    Inventory is the largest tangible asset of the Company and is valued at
the lower of cost and net realizable value within the financial statements.
Cost represents the purchase price of the inventory, net of an allocation of
volume rebates and other payments received by the Company from its vendors.
The Company assesses the net realizable value of inventory at each reporting
period based on current and expected selling prices, sales patterns for
inventory, recent product introductions and the level of inventory on hand.
Any provisions are recorded as an increase in cost of goods sold.

    Recoverability of Deferred Pre-opening Costs

    The Company generally opens new stores in March. All incremental costs
incurred directly for the purpose of getting the store ready for opening are
capitalized and included in deferred start-up costs. These deferred costs are
amortized on a straight-line basis over two years. The net carrying amount is
assessed for impairment based on the expected cash flows of the respective
stores.

    Risks

    Competition

    The Company faces competition in all regions in which its operations are
located. The Company will compete locally and regionally with existing stores
that retail golf products and golf course pro shops and with stores that may
be opened in the future by existing or new competitors in its markets. Some of
the Company's competitors, or new market entrants, may have substantially
greater marketing and financial resources than the Company. The actions and
strategies of the Company's competitors could have a material adverse effect
on the Company's business, financial condition, liquidity and results of
operations. A smaller format national competitor has indicated its intent to
expand with various store sizes in markets across Canada.

    Seasonality

    Sales of the Company's products are subject to seasonal fluctuations in
demand. During fiscal 2006, about 69% of the Company's annual sales occurred
during the second and third quarters. Because of this seasonality, Golf Town's
performance can be affected by unusual or severe weather conditions.
Unfavourable weather conditions generally result in fewer golf rounds played,
which typically results in lower demand for golf equipment and golf
accessories. Consequently, sustained poor weather conditions, especially
during the second and third quarters, could adversely affect Company revenues.
As Golf Town builds inventory prior to the second and third quarters, poor
sales could also harm the Company's financial condition.
    In addition, the timing of new store openings, as well as the timing of
new product introductions by vendors, could result in unanticipated
fluctuations in quarterly results. Fluctuations in Company quarterly operating
results may reduce the market price of the Units.

    Sources of Supply

    In carrying out its operations, the Company relies on a stable and
consistent supply of golf equipment and golf accessories. Golf Town sources
its products from its suppliers at negotiated prices. An interruption in the
availability of these products, or significant increases in their prices could
affect sales and margins. The Company's top three suppliers, Callaway(R)/Top
Flite(R)/Ben Hogan(R), Taylor Made(R)/Adidas(R)/Max Fli and
Titleist(R)/Foot-Joy(R), accounted for 46% of purchases in fiscal 2006.

    Foreign Exchange Fluctuations

    The Company is subject to foreign exchange fluctuations. A decrease in
the value of the Canadian dollar would have a negative effect on product costs
and profitability of the Company. However, this risk is limited as less than
3% of the Company's product is paid for in foreign currency. Although 97% of
the Company's purchases are in Canadian dollars, most product originates in
the United States. A strong Canadian dollar creates downward pressure on
product costs and retail prices in order for the Company to remain competitive
with foreign shopping options that become more attractive to Canadians having
increased foreign buying power. As a result, significant movements in the
exchange rate between the Canadian and U.S. dollar will create inflationary or
deflationary pressure.

    Ability to Maintain Profitability and Manage Growth

    There can be no assurance that the Company's business and growth strategy
will enable the Company to sustain profitability in future periods. The
Company's future operating results will depend on a number of factors,
including (i) the Company's ability to continue to successfully execute its
strategic initiatives, (ii) the efficiency and effectiveness of the Company's
marketing programs in building product and brand awareness and in increasing
sales, (iii) the Company's ability to realize increased sales and greater
levels of profitability through its retail stores, (iv) the Company's ability
to hire, train, manage and retain qualified retail store management and sales
associates, (v) the Company's ability to continuously improve its service to
achieve new and enhanced customer benefits, better quality and reduced costs,
(vi) the Company's ability to successfully identify and respond to emerging
trends in the golf industry, (vii) the level of competition in the golf
industry and (viii) general economic conditions and consumer confidence.
    There can be no assurance that the Company will be successful in
achieving its strategic plan or that this strategic plan will enable the
Company to maintain its historical sales growth rates or to sustain
profitability. Failure to successfully execute any material part of the
Company's strategic plan could have a material adverse effect on the Company's
business, financial condition, liquidity and results of operations.
    There can be no assurance that the Company will be able to effectively
manage its growth, and any failure to do so could have a material adverse
effect on the Company's business, financial condition, liquidity and results
of operations.

    Same Store Sales

    The Company's success depends, in part, upon its ability to improve same
store sales. Various factors affect comparable store sales, including the
general retail sales environment, the Company's ability to efficiently source
and distribute products, changes in the Company's merchandise mix,
competition, current economic conditions, the timing of release of new
merchandise and promotional events, the success of marketing programs and
weather conditions. These factors may cause the Company's comparable store
sales results to differ materially from prior periods and from expectations.
Past same store sales are no indication of future results, and there can be no
assurance that the Company's same store sales will not decrease in the future.

    Expansion Through New Store Openings

    The success of the Company's planned expansion will be dependent upon
many factors, including the ability of the Company to (i) successfully open
additional retail stores in existing geographic markets, (ii) create brand
awareness in new markets, (iii) successfully enter new geographic markets and
store environments in which the Company has no previous retail experience,
(iv) negotiate acceptable lease terms for additional sites, and (v)
effectively hire, train, manage and retain qualified management and other
personnel. There can be no assurance that the Company will be able to grow at
historical rates or achieve its planned expansion, that new retail stores will
be effectively integrated into the Company's existing operations or that such
stores will be profitable. Such risks, if they materialize, could have a
material adverse effect on the Company's business, financial condition,
liquidity and results of operations.

    Industry Risk and Economic Sensitivity

    The Company's sales are impacted by the health of the economy in the
regional markets in which the Company operates and as such the Company's
financial results are sensitive to consumer confidence and the level of
unemployment, among other factors. Although the Company cannot specifically
correlate the impact of macro-economic conditions on its sales activities, the
Company believes that a decline in economic conditions in Canada or in any of
the regions in which the Company operates may result in decreased demand for
the products that it sells and, to the extent that this decline continues or
increases in severity, the Company's business, financial condition, liquidity
and results of operations could be materially adversely affected.

    Dependence on Key Personnel

    The Fund's success will be substantially dependent on the continued
services of senior management of the Company. The loss of the services of one
or more key members of senior management of the Company could adversely affect
the Company's financial results. In addition, the Company's continued growth
depends on the ability of the Company to attract and retain skilled managers
and employees and the ability of its personnel to manage the Company's growth.
The inability to attract and retain key personnel could have an adverse effect
on the Company's business, financial condition, liquidity and results of
operations.

    USGA/RA Changes to Rules Relating to Equipment

    The United States Golf Association (the "USGA"), in conjunction with the
Royal and Ancient Golf Club of St. Andrews (the "R&A"), writes, interprets and
maintains the Rules of Golf. The majority of golf equipment sold at Golf Town
is made to specifications which adhere to the Rules of Golf. In the event the
USGA/RA were to change the Rules of Golf such that the equipment sold at Golf
Town no longer meets the necessary specifications, Golf Town could experience
a reduction in the volume of product sales and the possibility of write downs.

    Technological Innovation in the Golf Industry

    Demand for golf equipment has typically been driven by the introduction
of innovative products coupled with substantial industry advertising and
promotion of these products. The Company's success depends on golf
manufacturers' development, marketing, and distribution of new models of golf
equipment to the retail sector. If golf manufacturers develop fewer new models
of golf equipment, reduce their promotion of golf equipment, or if there are
fewer technological innovations in the production of new golf equipment,
consumers may be less inclined to purchase new equipment. The inability of
golf manufacturers to develop and market new models of golf equipment could
have a material adverse effect on the Company's business, financial condition,
liquidity and results of operations.

    Continued Popularity of Golf

    The Company generates substantially all of its revenues from the sale of
golf-related equipment and golf accessories. The demand for golf products is
directly related to the popularity of golf, the number of golf participants
and the number of rounds of golf being played by these participants. If golf
participation decreases, revenues would be adversely affected. In addition,
the continued popularity of golf organizations, such as the Professional
Golfers' Association ("PGA"), further affects the sales of golf equipment and
golf-related apparel. Any significant reduction in television coverage of PGA
or other golf tournaments, or any other significant decreases in either
attendance at golf tournaments or viewership of golf tournaments, could have a
material adverse effect on the Company's business, financial condition,
liquidity and results of operations.

    Effectiveness and Efficiency of Advertising Expenditures

    The Company's future growth and profitability will be dependent in part
on the effectiveness and efficiency of the Company's advertising expenditures,
including the ability of the Company to (i) create greater awareness of the
Company's products and brand name, (ii) determine the appropriate creative
message and media mix for future advertising expenditures, and (iii)
effectively manage advertising costs in order to maintain acceptable operating
margins. There can be no assurance that the Company will experience benefits
from advertising expenditures in the future. In addition, no assurance can be
given that the Company's planned advertising expenditures will result in
increased sales, will generate sufficient levels of product and brand name
awareness or that the Company will be able to manage such advertising
expenditures on a cost-effective basis.

    Insurance

    The Company maintains insurance coverage in respect of its potential
liabilities, including theft and the accidental loss of value of its assets
from risks, in amounts, with such insurers, and on such terms as it considers
appropriate, taking into account all relevant factors. However, there are
certain types of losses, generally of a catastrophic nature, such as
earthquakes and floods, that may be uninsurable or not economically insurable.
The Company will use its discretion in determining amounts, coverage limits
and deductibility provisions of insurance, with a view to maintaining
appropriate insurance coverage on the Company's assets and the business at a
reasonable cost and on suitable terms. This may result in insurance coverage
that, in the event of a substantial loss, would not be sufficient to pay the
full current market value or current replacement cost of the Company's lost
investment. Certain factors also might make it unattractive to use insurance
proceeds to replace the property after such property has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by the
Company might not be adequate to restore its economic position with respect to
such property. There are no assurances that the Company's insurance coverage
will continue to be available to it on reasonable terms, including reasonable
premium, deductible and co-insurance requirements or that the Company's
insurer will not disclaim coverage of any future claim. The Company's
business, financial condition, liquidity and results of operations could be
materially adversely affected if any of the foregoing developments were to
occur.

    Store Closing Costs

    The Company will periodically evaluate the operations of its retail
locations. As a result of such evaluations, underperforming locations may be
closed, which may result in the Company being unable to recover certain costs.

    Labour Relations

    Currently the Company's approximately 1,200 employees are not unionized.
The maintenance of a productive and efficient labour environment and, in the
event of unionization, the successful negotiation of a collective bargaining
agreement, cannot be assured. Protracted and extensive work stoppages or
labour disruptions such as strikes or lockouts could have an adverse effect on
the Company's business, financial condition, liquidity and results of
operations.

    Intellectual Property

    The Company continually develops and improves its brand recognition,
which has been an important factor in maintaining its competitive position.
No assurance can be given that others will not independently develop
substantially similar branding. The Company relies on one or more of the
following to protect its proprietary rights: trademarks, copyrights, trade
secrets, confidentiality procedures, and contractual provisions. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to obtain and use information that the Company regards as proprietary.
Stopping unauthorized use of the Company's proprietary rights may be
difficult, time-consuming and costly. There can be no assurance that the
Company will be successful in protecting its proprietary rights and, if it is
not, its business, financial condition, liquidity and results of operations
could be materially adversely affected.

    Environmental Regulation

    The Company leases properties and operates stores which are subject to
certain federal, provincial and local laws and regulations relating to
environmental protection, including those governing past or present releases
of hazardous materials. Certain of these laws and regulations may impose
liability on certain classes of persons for the costs of investigation or
remediation of such contamination, regardless of fault or the legality of the
original disposal. These persons include the present or former owner or a
person in care or control of a contaminated property and companies that
generated, disposed of or arranged for the disposal of hazardous substances
found at the property. As a result, the Company may incur costs to clean up
contamination present on, at or under its leased properties, even if such
contamination was present prior to the commencement of the Company's
operations at the site and was not caused by its activities which could
materially affect its business, financial condition, liquidity and results of
operations.

    Risks Related to the Structure of the Fund

    Dependence of the Fund on the Operating Trust, the Limited Partnership
    and the Company

    The cash distributions to the Unitholders of the Fund will be entirely
dependent on the ability of the operating trust to pay its interest
obligations under the trust notes, and to make distributions on the trust
units. Payments by the trust will depend, in turn, on the ability of the
Company to satisfy its debt service obligations under its credit facilities
and the limited partnership's ability to pay distributions on its limited
partnership units.
    Distributions to the Unitholders of the Fund will be entirely dependent
on the ability of the Company to pay its operating expenses and to pay
dividends. The sole source of cash flow of the Company is the operation of the
business. In the conduct of business, the Company pays expenses and incurs
debt and obligations to third parties. These expenses, debts and obligations
could impact the ability of the Company to produce positive operating results.

    Credit Facilities and Restrictive Covenants

    The Company will have third party debt service obligations under its
credit facilities. The degree to which the Company is leveraged could have
important consequences to the holders of the Units, including: (i) a portion
of the Company's cash flow from operations will be dedicated to the payment of
the principal of and interest on the indebtedness, thereby reducing funds
available for future operations and distribution to the Fund; (ii) certain of
the Company's borrowings will be at variable rates of interest, which exposes
the Company to the risk of increased interest rates; and (iii) the Company's
ability to obtain additional financing for working capital, capital
expenditures or acquisitions in the future may be limited. The Company's
ability to make scheduled payments of principal and interest on, or to
refinance, its indebtedness will depend on its future operating performance
and cash flow, which are subject to prevailing economic conditions, prevailing
interest rate levels, and financial, competitive, business and other factors,
many of which are beyond its control. These factors might inhibit the Company
from refinancing the indebtedness at all or on favourable terms, which could
have a negative impact on the Fund's ability to make distributions on its
Units.
    The credit facilities contain numerous restrictive covenants that limit
the discretion of management with respect to certain business matters. These
covenants will place restrictions on, among other things, the ability of the
Partnership to incur additional indebtedness, to create liens or other
encumbrances, to pay distributions or make certain other payments,
investments, loans and guarantees and to sell or otherwise dispose of assets
and merge or consolidate with another entity. A failure to comply with the
obligations in the agreements in respect of the credit facilities could result
in an event of default which, if not cured or waived, could permit
acceleration of the relevant indebtedness. If the indebtedness under the
credit facilities were to be accelerated, there can be no assurance that the
Company's assets would be sufficient to repay in full that indebtedness.

    Cash Distributions are Not Guaranteed and Will Fluctuate with the
    Company's Performance

    Although the Fund intends to distribute the income earned by the Fund
less expenses of the Fund and amounts, if any, paid by the Fund in connection
with the redemption of Units, there can be no assurance regarding the amounts
of income to be generated by the Company's businesses or ultimately
distributed to the Fund. The actual amount distributed in respect of the Units
will depend upon numerous factors, including profitability, fluctuations in
working capital, obligations under applicable credit facilities, the
sustainability of margins, capital expenditures and upgrade and renovation
expenditures. The market value of the Units may deteriorate if the Fund is
unable to meet its distribution targets in the future, and that deterioration
may be significant. In addition, the composition of cash distributions for tax
purposes may change over time and may affect the after-tax return for
investors.

    Nature of Units

    Securities such as the Units are hybrids in that they share certain
attributes common to both equity securities and debt instruments. The Units do
not represent a direct investment in the operating trust, the limited
partnership or the Company and should not be viewed by investors as securities
in the trust, the limited partnership or the Company. As holders of Units,
Unitholders will not have the statutory rights normally associated with
ownership of shares of a corporation including, for example, the right to
bring "oppression" or "derivative" actions. The Units represent a fractional
interest in the Fund. The Fund's primary assets will be Series 1 Trust Notes
and the operating trust units. The price per Unit is a function of anticipated
distributable cash of the Fund. The Units are not "deposits" within the
meaning of the Canada Deposit Insurance Corporations Act (Canada) and are not
insured under the provisions of that Act or any other legislation.
Furthermore, the Fund is not a trust company and, accordingly, is not
registered under any trust and loan company legislation as it does not carry
on or intend to carry on the business of a trust company.

    Restrictions on Potential Growth

    The payout by the Company of substantially all of its operating cash flow
will make additional capital and operating expenditures dependent on increased
cash flow or additional financing in the future. Lack of such funds could
limit the future growth of the Company and the related cash flow to the Fund.

    Distribution of Securities on Redemption or Termination of the Fund

    It is anticipated that the redemption right will not be the primary
mechanism for Unitholders to liquidate their investments. Upon a redemption of
Units or termination of the Fund, the Trustees may distribute trust notes
directly to the Unitholders, subject to obtaining all required regulatory
approvals. There is currently no market for trust notes. In addition, the
trust notes are not freely tradable and are not currently listed on any stock
exchange and no established market is expected to develop in such trust notes.
Trust notes so distributed may not be qualified investments for trusts
governed by RRSP's, RRIF's, deferred profit sharing plans and RESP's,
depending upon the circumstances at the time.

    The Fund May Issue Additional Units Diluting Existing Unitholders'
    Interests

    The Fund Declaration of Trust authorizes the Fund to issue an unlimited
number of Units and Special Voting Units for such consideration and on such
terms and conditions as shall be established by the Trustees without the
approval of any Unitholders. The Unitholders will have no pre-emptive rights
in connection with such further issues. Additional Units will be issued by the
Fund upon the exchange of the Exchangeable LP Units.

    Future Sales of Units by the Retained Interest Shareholders

    The Retained Interest Shareholders currently hold in aggregate, directly
or indirectly, approximately 5% of the outstanding Units. If the Retained
Interest Shareholders sell substantial amounts of Units in the public market,
the market price of the Units could decrease. The perception among the public
that these sales will occur could also produce such effect.

    Increase in Interest Rates

    One of the factors that may influence the price of the Units in public
trading markets will be the annual cash-on-cash return from distributions by
the Fund on the Units as compared to cash-on-cash returns on other financial
instruments. Thus, an increase in market interest rates will result in higher
cash-on-cash returns on other financial instruments, which could adversely
affect the market price of the Units.

    Income Tax Matters

    Although the Fund is of the view that all expenses to be claimed by the
Fund, the Trust, the Partnership and the Company in the determination of their
respective incomes under the Tax Act will be reasonable and deductible in
accordance with the applicable provisions of the Tax Act and that the
allocations of income and losses to be made for purposes of the Tax Act will
be reasonable, there can be no assurance that the Tax Act or the
interpretation of the Tax Act will not change, or that CRA will agree with the
expenses claimed. If CRA successfully challenges the deductibility of expenses
or the allocation of income and losses, the Company's allocation of taxable
income and losses to the Trust, and indirectly the Fund and the Unitholders,
will increase or change.
    There can be no assurance that Canadian federal income tax law or the
interpretation thereof, respecting the treatment of mutual fund trusts will
not be changed in a manner which adversely affects the holders of Units. If
the Fund ceases to qualify as a "mutual fund trust" under the Tax Act, the
income tax treatment of the Fund and Unitholders would be materially and
adversely different in certain respects.
    The Fund Declaration of Trust provides that an amount equal to the
taxable income of the Fund will be payable each year to Unitholders in order
to reduce the Fund's taxable income to zero. Where in a particular year, the
Fund does not have sufficient distributable cash to distribute such an amount
to Unitholders, the Fund Declaration of Trust provides that additional Units
must be distributed to Unitholders in lieu of cash payments. Unitholders will
generally be required to include an amount equal to the fair market value of
those Units in their taxable income, notwithstanding that they do not directly
receive a cash payment.
    Series 2 Trust Notes received as a result of the redemption of Units are
not qualified investments for trusts governed by Plans and their acquisition
may give rise to adverse consequences to a Plan and/or an annuitant under the
Plan.
    Interest on the Trust Notes accrues at the Fund level for Canadian
federal income tax purposes, whether or not actually paid. The Fund
Declaration of Trust provides that a sufficient amount of the Fund's net
income and net realized capital gains will be distributed each year to
Unitholders in order to eliminate the Fund's liability for tax under Part I of
the Tax Act. Where such amount of net income (including interest on the Series
1 Trust Notes) and net realized capital gains of the Fund in a taxation year
exceeds the cash available for distribution in the year, such excess net
income and net realized capital gains will be distributed to Unitholders in
the form of additional Units. Unitholders will generally be required to
include an amount equal to the fair market value of those Units in their
income, in circumstances when they do not directly receive a cash
distribution.

    October 31, 2006 Tax Proposals

    On October 31, 2006, certain tax proposals (the "Tax Proposals") were
announced that would, if enacted as proposed, significantly impact the
taxation of the Fund and its investors.
    The Tax Proposals, if enacted, would impose a special tax on most if not
all of the distributions by the Fund. The special tax rate would be equal to
the federal general corporate tax rate (21% in 2006, going down to 18.5% in
2011), plus 13% in place of provincial taxation, for an aggregate of 34% in
2006, dropping to 31.5% in 2011.
    For investors receiving distributions from the Fund that have been
subject to the special tax the distributions will be deemed to be dividends
received from a taxable Canadian corporation. Thus, investors, if an
individual, will receive the benefit of the enhanced dividend tax credit
available for eligible dividends (the enhanced dividend tax credit rules have
not yet been enacted but will very likely be enacted in the form found in the
Notice of Ways and Means Motion dated October 16, 2006). Investors that are
corporations may be permitted to deduct the dividends but private or
closely-held corporations will be subject to a refundable tax.
    These Tax Proposals will apply to the Fund in its 2011 tax year. At this
time, the impact on cash distributions to unitholders in 2011 is not
determinable.

    Outlook

    Future performance can be affected by weather and economic conditions,
among other factors, and therefore is difficult to predict precisely. As with
any company, there are a number of risks that can affect performance at Golf
Town.
    Management expects that 2007 will see more new product introductions than
in 2006. Historically new product introductions stimulate consumer interest
and increase store traffic.
    Golf Town expects to continue to benefit from five new stores in 2007 -
St. Catharines, Ontario, Boisbriand, Quebec, Dartmouth, Nova Scotia and
Brampton, Ontario, will open in the spring of 2007. An Ottawa, Ontario store
will open in late fall of 2007. New stores usually become cash flow positive
during their first month of operation.
    Golf Town is also targeting continued growth in revenue and market share
from corporate promotional sales and through its website at www.golftown.com.

    Further Information

    Additional information relating to the Fund and the Company is filed on
SEDAR at www.sedar.com.

    This MD&A contains forward-looking statements relating to the future
performance of the Fund and the Company. Forward-looking statements,
specifically those concerning future performance, are subject to certain risks
and uncertainties, and actual results may differ materially. The Fund and the
Company, details these risks and uncertainties from time to time.
Consequently, readers should not place any undue reliance on such
forward-looking statements. In addition, these forward-looking statements
relate to the date on which they were made. The Fund and the Company disclaim
any intention or obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.

    
                               Auditors' Report

    To the Unitholders of
    Golf Town Income Fund

    We have audited the consolidated balance sheets of Golf Town Income Fund
as at December 31, 2006 and 2005, and the consolidated statements of income
and retained earnings (deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
    We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Fund as at December 31,
2006 and 2005, and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.


    Toronto, Canada                        "signed" Ernst + Young LLP
    March 1, 2007                               Chartered Accountants



    Consolidated Financial Statements

    Golf Town Income Fund
    CONSOLIDATED BALANCE SHEETS
    (in thousands of Canadian dollars)

    As at December 31,                                      2006        2005
                                                               $           $
    -------------------------------------------------------------------------
    ASSETS (notes 7 and 9)
    Current
    Cash                                                   1,801       1,505
    Inventory                                             54,022      43,588
    Amounts receivable                                     9,551       5,661
    Income taxes receivable                                   39           -
    Prepaid expenses                                         583         460
    Future tax assets (note 11)                                -       1,338
    -------------------------------------------------------------------------
    Total current assets                                  65,996      52,552
    -------------------------------------------------------------------------
    Deferred costs, net (note 5)                             899         769
    Fixed assets, net (note 4)                            19,696      18,293
    Intangible assets, net (note 6)                       27,914      28,345
    Goodwill                                              71,055      71,055
    -------------------------------------------------------------------------
                                                         185,560     171,014
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current
    Bank indebtedness (note 7)                             7,842       4,860
    Accounts payable and accrued liabilities              32,131      24,277
    Income taxes payable                                       -         917
    Distributions payable to unitholders (note 10)         1,250       1,094
    Future tax liabilities (note 11)                       2,552           -
    Current portion of deferred lease inducements            967         809
    Current portion of obligations under capital
     leases (note 8)                                         651         563
    -------------------------------------------------------------------------
    Total current liabilities                             45,393      32,520
    -------------------------------------------------------------------------
    Obligations under capital leases (note 8)                568         385
    Deferred lease inducements                             5,353       4,475
    Debenture payable (note 9)                            10,000      10,000
    Future tax liabilities (note 11)                       9,021      10,000
    -------------------------------------------------------------------------
    Total liabilities                                     70,335      57,380
    -------------------------------------------------------------------------
    Commitments (note 8)

    Unitholders' equity
    Trust units (note 12)                                114,830     114,830
    Trust units held by Long Term Incentive
     Plan (notes 13)                                        (450)          -
    Retained earnings (deficit)                              845      (1,196)
    -------------------------------------------------------------------------
    Total unitholders' equity                            115,225     113,634
    -------------------------------------------------------------------------
                                                         185,560     171,014
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes

    On behalf of the Trustees and the Board:

                    SIGNATURE                  SIGNATURE
                MICHAEL ROUSSEAU             STEPHEN BEBIS
                     Trustee                    Trustee



    Consolidated Financial Statements

    Golf Town Income Fund
    CONSOLIDATED STATEMENTS OF
    INCOME AND RETAINED EARNINGS (DEFICIT)
    (in thousands of Canadian dollars, except per unit amounts)

    For the year ended December 31,                         2006        2005
                                                               $           $
    -------------------------------------------------------------------------

    Sales                                                220,099     191,725
    Cost of sales                                        142,916     126,940
    -------------------------------------------------------------------------
    Gross profit                                          77,183      64,785
    Expenses
    Selling, general and administrative                   52,396      44,477
    -------------------------------------------------------------------------
    Income before amortization, interest and taxes        24,787      20,308
    Amortization of fixed assets                           3,917       3,510
    Amortization of deferred financing costs                 117         117
    Amortization of pre-opening costs                        488         197
    Amortization of intangible assets                        431         431
    Interest on long-term debt                               910         766
    Other interest                                           917         518
    -------------------------------------------------------------------------
    Income before income taxes and minority interest      18,007      14,769
    Provision for (recovery of) income taxes -
     current (note 11)                                      (956)      1,107
    Provision for income taxes - future (note 11)          2,911         931
    -------------------------------------------------------------------------
    Income before minority interest                       16,052      12,731
    Minority interest recovery                                 -        (214)
    -------------------------------------------------------------------------
    Net income for the year                               16,052      12,945
    Deficit, beginning of year                            (1,196)     (1,318)
    Distributions declared in the year (note 10)         (14,011)    (12,823)
    -------------------------------------------------------------------------
    Retained earnings (deficit), end of year                 845      (1,196)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income per trust unit
    -------------------------------------------------------------------------
      Basic (note 12)                                       1.29        1.06
      Diluted (note 12)                                     1.28        1.02
    -------------------------------------------------------------------------
    Weighted average number of units
     outstanding (in thousands)
    -------------------------------------------------------------------------
      Basic                                               12,453      12,215
      Diluted                                             12,501      12,501
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Consolidated Financial Statements

    Golf Town Income Fund
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands of Canadian dollars)

    For the year ended December 31,                         2006        2005
                                                               $           $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income for the period                             16,052      12,945
    Add (deduct) items not involving cash
      Amortization of fixed assets                         3,917       3,510
      Amortization of deferred financing costs               117         117
      Amortization of deferred pre-opening costs             488         197
      Amortization of intangible assets                      431         431
      Amortization of deferred lease inducements            (907)       (781)
      Long term incentive plan compensation expense          229           -
      Future income tax provision                          2,911         931
      Minority interest                                        -        (214)
    Receipt of lease inducements                           1,943       1,183
    Purchase of Fund units held in trust by long
     term incentive plan                                    (679)          -
    Changes in non-cash working capital balances
     related to operations:
      Amounts receivable                                  (3,890)     (1,758)
      Inventory                                          (10,434)     (6,119)
      Prepaid expenses                                      (123)        100
      Accounts payable and accrued liabilities             7,854       6,136
      Income taxes payable                                  (956)         41
    -------------------------------------------------------------------------
    Cash provided by operating activities                 16,953      16,719
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
    Deferred pre-opening costs                              (735)       (545)
    Purchase of fixed assets                              (4,273)     (3,461)
    -------------------------------------------------------------------------
    Cash used in investing activities                     (5,008)     (4,006)
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
    Distributions paid to unitholders                    (13,855)    (13,350)
    Distributions paid to minority interest                    -        (470)
    Increase (decrease) in bank indebtedness               2,982         (73)
    Financing costs incurred                                   -          (8)
    Repayment of obligations under capital leases           (776)       (644)
    Repayment of other long term debt                          -         (54)
    -------------------------------------------------------------------------
    Cash used in financing activities                    (11,649)    (14,599)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash for the year             296      (1,886)
    Cash, beginning of year                                1,505       3,391
    -------------------------------------------------------------------------
    Cash, end of year                                      1,801       1,505
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information
    -------------------------------------------------------------------------
    Interest paid                                          1,748       1,267
    Interest received                                         87          30
    Income taxes paid                                          -           -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Notes to Consolidated Financial Statements
    (in thousands of Canadian dollars, except per unit amounts)

    Golf Town Income Fund

    1.  NATURE OF THE BUSINESS

    Golf Town Income Fund (the "Fund") is an unincorporated open-ended
    limited purpose trust established under the laws of Ontario pursuant to a
    Declaration of Trust dated October 1, 2004. The Fund remained inactive
    until it acquired all of the shares of Golf Town Canada Inc. on
    November 12, 2004. Effective April 1, 2006, the business of Golf Town
    Canada Inc. was transferred to and carried on through Golf Town Operating
    Limited Partnership (the "Company" or "Golf Town") which is 100% owned by
    Golf Town Canada Inc.

    The Fund operates, within the Canadian marketplace, a retail "big-box"
    chain specializing in golf apparel and equipment. As at December 31,
    2006, the Company had twenty-eight locations open for business. Four new
    stores opened in 2006, two in early March and two in early June.

    2.  BASIS OF PRESENTATION

    The accompanying audited consolidated financial statements have been
    prepared by the Fund in accordance with Canadian generally accepted
    accounting principles.

    3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Principles of consolidation

    The consolidated financial statements include the accounts of the Fund
    and all of its subsidiaries. All significant inter-company transactions
    and balances have been eliminated on consolidation.

    Use of estimates

    The preparation of consolidated financial statements in conformity with
    Canadian generally accepted accounting principles requires management to
    make estimates and assumptions that affect the reported amounts of assets
    and liabilities and disclosure of contingent assets and liabilities at
    the date of the consolidated financial statements and the reported
    amounts of revenue and expenses during the reporting period. Actual
    results could differ from those estimates.

    Inventory

    Inventory is valued at the lower of cost, which is determined on an
    average cost basis, and net realizable value. Cost represents the
    purchase price of the inventory, net of an allocation of volume rebates
    and other payments received by Golf Town from its suppliers.

    Fixed assets

    Fixed assets are recorded at cost less accumulated amortization.
    Amortization is provided for using the straight-line method over the
    estimated useful lives of the assets as follows:

    Computer equipment                          3 years
    Store fixtures                              10 years
    Office furniture and golf simulators        5 years
    Leasehold improvements                      over the terms of the leases


    Deferred financing costs

    Financing costs related to loans and bank indebtedness are capitalized
    and amortized on a straight-line basis over the term of the debt.

    Deferred pre-opening costs

    Costs incurred to develop and start up store locations have been
    capitalized and are amortized over a 24-month period beginning on the
    date of the related store opening.

    Goodwill

    In accordance with recommendations of The Canadian Institute of Chartered
    Accountants' Handbook Section 3062, goodwill is not amortized and is
    subject to an annual impairment test. Goodwill impairment is evaluated
    between annual tests upon the occurrence of certain events or
    circumstances. Goodwill impairment is assessed based on a comparison to
    the fair value of a reporting unit's net assets including goodwill. When
    the carrying amount of the reporting unit exceeds its fair value, the
    fair value of the reporting unit's goodwill is compared with its carrying
    amount to measure the amount of impairment loss, if any. For the year
    ended December 31, 2006 there was no impairment of goodwill.

    Intangible assets

    Intangible assets are assets acquired that lack physical substance and
    that meet the specified criteria for recognition apart from goodwill.
    Intangible assets acquired comprise the Golf Town brand and customer
    lists and relationships. The brand is not amortized as it has an
    indefinite life. Customer lists and relationships are amortized on a
    straight-line basis over six years.

    The Fund reviews the carrying value of its indefinite life intangible
    asset annually, or more frequently if events or changes in circumstances
    indicate that the asset might be impaired. The brand will be written down
    if the carrying amount of the asset exceeds its fair value. The customer
    lists and relationships are tested for recoverability whenever events or
    changes in circumstances indicate that their carrying amounts may not be
    recoverable. When the carrying values of customer lists or relationships
    are less than their net recoverable value as determined on an
    undiscounted basis, an impairment loss is recognized to the extent that
    fair values, measured as the discounted cash flows over the life of the
    assets when quoted market prices are not readily available, are below the
    assets' carrying values.

    Deferred lease inducements

    Deferred lease inducements are amortized on a straight-line basis over
    the terms of the leases.

    Revenue recognition

    Product sales and services to retail and corporate customers are
    recognized at the point of sale or when the service is provided.
    Provisions for discounts to customers and estimates of returns for
    product sales are provided for in the same period the related sales are
    recorded. Revenue from the gift card program is recognized as gift cards
    are redeemed.

    Financial instruments

    The fair values of the Fund's bank indebtedness, amounts receivable,
    accounts payable and accrued liabilities, distributions payable to
    unitholders and income taxes payable/receivable approximate their
    carrying values due to their short-term maturity. The fair values of
    obligations under capital lease, debenture payable and other long-term
    debt approximate their carrying values based on market rates available to
    the Fund for financial instruments with similar risks, terms and
    maturities.

    Foreign exchange translation

    Foreign currency denominated monetary assets and liabilities are
    translated at the prevailing year-end rate of exchange. Non-monetary
    assets and liabilities and revenues and expenses denominated in a foreign
    currency are translated into Canadian dollars at the appropriate rate of
    exchange in effect when the transactions occur. Exchange gains and losses
    are recorded in income.

    Long-term incentive plan

    In March 2006, a trust (the "LTIP Trust") was formed to hold Units of the
    Fund on behalf of the participants of the Fund's long-term incentive plan
    (the "LTIP"). The Fund is neither a trustee nor a direct participant of
    the LTIP; however, under certain circumstances the Fund may be the
    beneficiary of forfeited Units held by the LTIP Trust. Consequently, the
    LTIP Trust is considered a variable interest entity for accounting
    purposes and the Fund consolidates the LTIP Trust. With respect to each
    grant under the LTIP Plan, one-third of the Units held by the LTIP Trust
    will vest to the participants of the LTIP on each of the first, second
    and third anniversaries of the day following the end of the fiscal year
    in which the respective grant was made. Compensation expense will be
    recorded by the Fund over the vesting period. Distributions made by the
    Fund with respect to unvested Units held by the LTIP Trust are paid to
    LTIP participants. Unvested units held by the LTIP Trust are shown as a
    reduction of unitholders' equity.

    Basic net income per unit calculation reflects the impact of the LTIP
    Units once vested. As at December 31, 2006, none of the Units held by the
    LTIP Trust have vested.

    Income taxes

    The Fund follows the liability method of tax allocation, whereby future
    tax assets and liabilities are determined based on differences between
    the financial reporting and tax bases of assets and liabilities and are
    measured using the substantively enacted tax rates and laws that will be
    in effect when the differences are expected to reverse.

    Under the terms of the Income Tax Act (Canada), the Fund is not subject
    to income taxes to the extent that its taxable income in a year is paid
    or payable to a Unitholder. Accordingly, no provision for current income
    taxes for the Fund is made. In addition, the Fund is not required to
    apply the recommendations of the Canadian Institute of Chartered
    Accountants Handbook ("CICA"), section 3465, as the Fund is contractually
    committed to distribute to its Unitholders all or virtually all of its
    taxable income and taxable capital gains that would otherwise be taxable
    in the Fund. The Fund intends to continue to meet the requirements under
    the Income Tax Act applicable to such trusts, and there is no indication
    that the Fund will fail to meet those requirements.

    Certain of the Fund's subsidiaries are subject to CICA section 3465 and
    to corporate income taxes as computed under the Income Tax Act.

    4.  FIXED ASSETS

    Fixed assets consist of the following:

                              December 31, 2006          December 31, 2005
                             Accumulated      Net       Accumulated      Net
                                    Cost     book              Cost     book
                            amortization    value      amortization    value
                              $        $        $        $        $        $
    -------------------------------------------------------------------------

    Computer equipment    2,599    1,599    1,000    1,862      829    1,033
    Store fixtures       10,203    2,299    7,904    8,200    1,125    7,075
    Office furniture         22       14        8       22        8       14
    Golf simulators       2,034      927    1,107    1,414      469      945
    Leasehold
     improvements        12,715    3,038    9,677   10,755    1,529    9,226
    -------------------------------------------------------------------------
                         27,573    7,877   19,696   22,253    3,960   18,293
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Fixed assets include assets held under capital leases with a cost of
    $2,500 and accumulated amortization of $1,023. During the year, the Fund
    acquired $1,047 (2005 - $499) of fixed assets under capital lease.


    5.  DEFERRED COSTS

    Deferred costs consist of the following:

                              December 31, 2006          December 31, 2005
                             Accumulated      Net       Accumulated      Net
                                    Cost     book              Cost     book
                            amortization    value      amortization    value
                              $        $        $        $        $        $
    -------------------------------------------------------------------------

    Deferred financing
     costs                  539      247      292      539      130      409
    Deferred pre-opening
     costs                1,292      685      607      557      197      360
    -------------------------------------------------------------------------
                          1,831      932      899    1,096      327      769
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    6.  INTANGIBLE ASSETS

    Intangible assets consist of the following:

                              December 31, 2006          December 31, 2005
                             Accumulated      Net       Accumulated      Net
                                    Cost     book              Cost     book
                            amortization    value      amortization    value
                              $        $        $        $        $        $
    -------------------------------------------------------------------------

    Brand                26,250        -   26,250   26,250        -   26,250
    Customer lists and
     relationships        2,585      921    1,664    2,585      490    2,095
    -------------------------------------------------------------------------
                         28,835      921   27,914   28,835      490   28,345
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    7.  BANK INDEBTEDNESS

    The Fund has a line of credit of $40,000 expiring November 12, 2009. The
    amount drawn on the line of credit bears interest at the Royal Bank of
    Canada's rate for one month banker's acceptances plus between 175 and
    250 basis points per annum depending on the level of borrowing (effective
    rate at December 31 2006 - 6.59%, 2005 -5.48%) and is collateralized by a
    general security agreement covering all assets of the Fund. The amount
    available for borrowing under this facility throughout the year is
    determined by inventory levels. At December 31, 2006, the Fund had drawn
    $7,842 on this facility.

    8.  COMMITMENTS

    The Fund has a letter of credit facility for $1,000 of which $92 is
    outstanding at December 31, 2006. The amount outstanding relates to
    product orders to be delivered in 2007.

    The following are the future minimum annual lease payments under capital
    and operating leases inclusive of the leases for five stores and one
    warehouse location to be opened in fiscal 2007 as well as six leases for
    stores to be opened subsequent to fiscal 2007:

                                                          Operating  Capital
                                                             leases   leases
                                                                  $        $
    -------------------------------------------------------------------------

    2007                                                      9,315      716
    2008                                                     10,804      452
    2009                                                     10,979      141
    2010                                                     10,561        -
    2011                                                      9,171        -
    Thereafter                                               39,361        -
    -------------------------------------------------------------------------
    Total minimum lease payments                             90,191    1,309
    Less amounts representing interest at
     various rates from 5.88% to 7.52%                                    90
    -------------------------------------------------------------------------
    Present value of minimum lease payments                            1,219
    Less current portion                                                 651
    -------------------------------------------------------------------------
                                                                         568
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    9.  DEBENTURE PAYABLE

    On November 12, 2004, the Fund issued a $10,000 subordinated debenture to
    Roynat Capital Inc. ("Roynat"), a unitholder of the Fund, in order to
    refinance existing subordinated debt and to provide funds for future
    growth. The debenture, which matures on December 15, 2008, has an annual
    interest rate of Roynat's floating base rate plus 3.75% which is paid
    monthly. The effective rate of interest at December 31, 2006 was 8.59%
    (2005 - 7.59%). The debenture is collateralized by the assets of the
    Company and is subordinate to the security granted pursuant to the Fund's
    line of credit as described in note 7.

    10. DISTRIBUTIONS

    The Fund makes regular distributions to unitholders of record as of the
    last business day each month. Distributions to unitholders are calculated
    and recorded on an accrual basis. Distributions for the year ended
    December 31, 2006 are as follows:

                                                                Distribution
    Period      Record Date      Payment Date      Per Unit           Amount
                                                          $                $
    -------------------------------------------------------------------------
    Jan-06        31-Jan-06         15-Feb-06     0.0875000            1,094
    Feb-06        28-Feb-06         15-Mar-06     0.0875000            1,094
    Mar-06        31-Mar-06         15-Apr-06     0.0916667            1,146
    Apr-06        30-Apr-06         15-May-06     0.0916667            1,146
    May-06        31-May-06         15-Jun-06     0.0916667            1,146
    Jun-06        30-Jun-06         15-Jul-06     0.0916667            1,146
    Jul-06        31-Jul-06         15-Aug-06     0.0916667            1,146
    Aug-06        31-Aug-06         15-Sep-06     0.0958333            1,198
    Sep-06        30-Sep-06         15-Oct-06     0.0958333            1,198
    Oct-06        31-Oct-06         15-Nov-06     0.0958333            1,198
    Nov-06        30-Nov-06         15-Dec-06     0.1000000            1,250
    Dec-06        31-Dec-06         15-Jan-07     0.1000000            1,250


    11. INCOME TAXES

    Current future income tax asset (liabilities) consist of the following:

                                                    December 31, December 31,
                                                           2006         2005
                                                              $            $
    -------------------------------------------------------------------------

    Deferred leasehold inducements                          325          283
    Deferred financing costs                                 41          432
    Deferred vendor funding                                 519          426
    Obligations under capital lease                         225          197
    -------------------------------------------------------------------------
    Future income tax assets                              1,110        1,338
    -------------------------------------------------------------------------

    Deferred income                                      (5,950)           -
    Loss carry-forward                                    2,288            -
    -------------------------------------------------------------------------
    Future income tax liabilities                        (3,662)           -
    -------------------------------------------------------------------------
                                                         (2,552)       1,338
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Non-current future income tax liabilites (assets) consist of the
    following:

                                                    December 31, December 31,
                                                           2006         2005
                                                              $            $
    -------------------------------------------------------------------------

    Deferred leasehold inducements                       (1,715)      (1,567)
    Deferred financing costs                               (250)        (265)
    Obligations under capital lease                        (188)        (135)
    Cumulative eligible capital                            (554)        (595)
    Deferred pre-opening costs                              205          126
    Long term incentive plan                                (77)           -
    Fixed assets                                          2,647        2,472
    Intangible assets                                     8,915        9,964
    Other                                                    38            -
    -------------------------------------------------------------------------
    Net future income tax liabilities                     9,021       10,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    The provision for income taxes differs from the expense that would be
    obtained by applying Canadian statutory tax rates as a result of the
    following:

                                                        For the      For the
                                                     year ended   year ended
                                                    December 31, December 31,
                                                           2006         2005
                                                              $            $
    -------------------------------------------------------------------------

    Combined federal and provincial income taxes at
     statutory rate of 34.6% (35% - 2005)                 6,230        5,169
    Income of Fund distributed to Unitholders            (3,321)      (3,360)
    Effect of changes in tax rates                         (836)           -
    Other                                                  (118)         229
    -------------------------------------------------------------------------
    Provision for income taxes                            1,955        2,038
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    October 31, 2006 Tax Proposals

    On October 31, 2006, certain tax proposals (the "Tax Proposals") were
    announced that would, if enacted as proposed, significantly impact the
    taxation of the Fund and its investors.

    The Tax Proposals, if enacted, would impose a special tax on most if not
    all of the distributions by the Fund. The special tax rate would be equal
    to the federal general corporate tax rate (21% in 2006, going down to
    18.5% in 2011), plus 13% in place of provincial taxation, for an
    aggregate of 34% in 2006, dropping to 31.5% in 2011.

    For investors receiving distributions from the Fund that have been
    subject to the special tax the distributions will be deemed to be
    dividends received from a taxable Canadian corporation. Thus, investors,
    if an individual, will receive the benefit of the enhanced dividend tax
    credit available for eligible dividends (the enhanced dividend tax credit
    rules have not yet been enacted but will very likely be enacted in the
    form found in the Notice of Ways and Means Motion dated October 16,
    2006). Investors that are corporations may be permitted to deduct the
    dividends but private or closely-held corporations will be subject to a
    refundable tax.

    These Tax Proposals will apply to the Fund in its 2011 tax year. At this
    time, the impact on cash distributions to unitholders in 2011 is not
    determinable.

    12. UNITHOLDERS' EQUITY

    Units

    The Declaration of Trust provides that an unlimited number of Units of
    the Fund may be issued. Each Unit is transferable and represents an equal
    undivided beneficial interest in any distributions of the Fund and in the
    net assets of the Fund. All Units have equal rights and privileges. Each
    Unit entitles the holder to participate equally in all allocations and
    distributions and to one vote at all meetings of unitholders for each
    whole Unit held. The Units issued are not subject to future calls or
    assessments. Units are redeemable at any time at the option of the holder
    at amounts related to market prices at the time, subject to certain
    factors including a maximum of $50 in cash redemptions by the Fund in any
    particular month. This limitation may be waived at the discretion of the
    Trustees of the Fund. Redemptions in excess of this amount, assuming no
    waiving of the limitation, shall be paid by way of a distribution in
    specie of a pro rata number of Company securities held by the Fund.

    Exchangeable Units

    As part of the formation of the Fund, 2,181,340 Exchangeable Units were
    issued from a subsidiary of the Fund as partial consideration for the
    acquisition of Golf Town. The Exchangeable Units are classified in equity
    in the consolidated financial statements of the Fund as they are
    economically equivalent to Units of the Fund and the holders of the
    Exchangeable Units must exchange them for Units prior to their disposal.

    Units and Exchangeable Units are included in trust units on the
    consolidated balance sheet as follows:


                              For the year ended        For the year ended
                               December 31, 2006         December 31, 2005
                          ------------------------- -------------------------
                               Number       Amount       Number       Amount
                                   No.           $           No.           $
    -------------------------------------------------------------------------
    Trust units
    Units, beginning
     of year               11,427,706      105,520   11,342,417      104,780
    Exchange of
     Exchangeable Units
     for Units                453,674        3,935       85,289          740
    -------------------------------------------------------------------------
                           11,881,380      109,455   11,427,706      105,520
    -------------------------------------------------------------------------

    Exchangeable Units,
     beginning of year      1,073,246        9,310    1,158,535       10,050
    Exchange of
     Exchangeable Units
     for Units               (453,674)      (3,935)     (85,289)        (740)
    -------------------------------------------------------------------------
                              619,572        5,375    1,073,246        9,310
    -------------------------------------------------------------------------
    Balance, end of year   12,500,952      114,830   12,500,952      114,830
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Exchangeable Units were exchanged for Units on the following dates:


                                                Date          2006      2005
                                          -----------------------------------

                                           22-Mar-06       200,000
                                           29-Mar-06       100,000
                                            1-Oct-06       153,674
                                            8-Sep-05                  85,289
                                          -----------------------------------
                                                           453,674    85,289
                                          -----------------------------------
                                          -----------------------------------


    13. LONG-TERM INCENTIVE PLAN

    The Fund has adopted a long-term incentive plan ("LTIP") to enhance the
    ability of the Fund to attract, retain and motivate key personnel and
    reward these key employees for significant performance and associated per
    unit cash flow growth. Compensation under the LTIP will be provided to
    eligible employees annually where distributable cash generated by the
    Fund exceeds certain threshold amounts.

    If distributable cash per unit exceeds threshold amounts, a percentage of
    the excess distributable cash (the participation rate) is contributed by
    the Fund into a separate trust (the "LTIP Trust"). The LTIP Trust will
    use the funds to purchase Units in the open market, and such Units will
    vest to the eligible employees over a three-year period.

    The participation rates are as follows:

    Percentage by which distributable
     cash per Unit exceeds the threshold                  Participation rate
    -------------------------------------------------------------------------
    5% or less                                                            10%
    between 5% and 10% 15%                   of any excess between 5% and 10%
    greater than 10%                               20% of any excess over 10%


    For the years ended December 31, 2005 and December 31, 2006, the
    distributable cash per unit of the Fund exceeded the threshold amount.
    Thus, in 2006, the Fund transfered $679 to the LTIP Trust and in 2007,
    the Fund will transfer $1,373 to the LTIP Trust under this plan.
    Compensation expense will be recorded in the years in which vesting
    occurs. For the year ended December 31, 2006, $229 of compensation
    expense was recorded under the plan. For the year ended December 31,
    2005, no compensation expense was recorded under the plan.

    In March 2006, the LTIP Trust purchased 56,828 Units of the Fund. The
    first one-third of these units will vest to the participants on
    January 1st, 2007.

    14. SEGMENTED INFORMATION

    The Company operates in one business segment specializing in the
    retailing of golf apparel and equipment.
    

    %SEDAR: 00021322E




For further information:

For further information: Golf Town Income Fund, Stephen Bebis, President
& CEO, (905) 479-0343

Organization Profile

GOLF TOWN INCOME FUND

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