"A YEAR OF MANY ACCOMPLISHMENTS AIMED AT STRENGTHENING OUR VALUE EQUATION AND IMPROVING OPERATIONS."

The past year was a year of many accomplishments for Yellow Pages Group (YPG). We considerably improved our operations and reinforced our capital structure. Today, as a proven market leader, we remain focused on strengthening our business.

Our progress is evident in the Company's track record of performance. YPG has increased its revenues and cash flow every quarter since it became a stand-alone company in November 2002. In 2004, Adjusted Revenues increased to $667.4 million, representing 4.2% growth over the prior year, and Adjusted EBITDA increased by 4.4% to $388.8 million over the same period.

We consider this momentum in our results to be a reflection of both the unparalleled value that our print and online Yellow Pages™ directories offer, and management's success in executing our growth strategies. At the heart of this success lies a fundamental shift in our corporate culture. Since we became a stand-alone company, we have moved to an environment of greater accountability and transparency. Despite the many changes, our employees have embraced their new challenges and have proven that they can execute our corporate initiatives with excellence.

Enhancing Our Value Equation

A key objective of YPG is to grow the directories category as a whole. Our goal is to make the Yellow Pages™ directories seamless and ubiquitous; there should be no distinction between our print, online or wireless services. What is important is that when someone is looking for a product, service, business or person, he or she references one of our directories regardless of the format. This is in fact occurring given that online directory usage is growing at a rapid pace, while print directory usage remains strong and stable with seven out of ten Canadians referring to a print directory each month.

To ensure that this growth continues, we are focused on enhancing and better communicating the unique value that our directories offer to both users and advertisers. By expanding the content and distribution of our directories, we will continue to have strong retention and usage. This, combined with well-executed advertising and promotion, translates to a higher return on investment to our customers, and in turn to our unitholders.

For our print directories, we launched a new cover design in early 2004 which showcases our well-known brand. We also expanded our Yellow Pages™ directories in Montreal and Toronto to include the alphabetical business listings, and we added consumer buying guides and additional local information among many other features. Concurrent with the delivery of these new directories, we launched the “More” advertising campaign to communicate that our directories provide more complete local content than any other directory. Consumer feedback from this campaign has been highly positive, with campaign results exceeding the average of the industry.

In our online business, we significantly upgraded the search functionalities of YellowPages.ca™ to build traffic. In December 2004, YPG's Web sites were visited by 4.2 million unique visitors compared to 3.5 million in December 2003. We also expanded sales of Directory Plus, a bundle of print and Internet advertising, which was a significant factor behind the 47% growth in our online advertising revenues in 2004.

Another important accomplishment was the signing of a distribution agreement with Google, whereby YPG's listings are made available on Google Local Canada, a new local search service. This agreement, along with other agreements with Sympatico.MSN.ca, Cyberpresse.ca, and Canada.com, provide additional exposure for our advertisers and mark the next phase in local online search.

"SINCE WE BECAME A STANDALONE COMPANY, WE HAVE MOVED TO AN ENVIRONMENT OF GREATER ACCOUNTABILITY AND TRANSPARENCY."

Improving Our Operations

In addition to strengthening our value equation, we continue to improve the effectiveness and efficiency of our sales force and operations.

Sales force effectiveness is a key driver behind YPG's growth in revenues and profitability. This was the case in 2004 where new pricing models and improved sales coverage were major contributing factors to the increase in YPG's revenues. Our representatives continue to receive best-in-class training and we are constantly improving their tools to not only help them be more efficient but also enable them to provide more value to customers.

One of our most important accomplishments of the year is the much clearer, consistent message we are conveying to customers about the great value our directories provide over other media. We also established a sales performance tracking system that measures operating metrics right down to the individual sales representative level which, among other benefits, should help us strengthen our sales force's ability to drive the Company's financial performance.

Our publishing division also implemented a number of process improvements in 2004 that are contributing to the Company's performance. One example is the implementation of a new directory closing schedule that provides the sales force with more time to sell advertising.

Cash Distributions

YPG's strong performance has resulted in increased distributions to unitholders. Cash available for distributions was $337 million for the year-end December 31, 2004, up 23% from the time of the Initial Public Offering (IPO) completed August 1, 2003.  In 2004, Yellow Pages Income Fund increased the level of monthly cash distributions by 4.5% to $0.92 per unit on an annualized basis. Cash distributions paid to unitholders combined with the market price appreciation in our units resulted in a total return to unitholders of 23% for the year and 46% since our IPO. On a per-unit basis, cash available for distributions amounted to $0.98 at year-end 2004.

Strong Capital Structure

In less than two years, YPG and its affiliates have conducted close to $6 billion in capital market transactions with a clear underlying purpose: to achieve a strong capital structure for future growth. This has been achieved. We have significantly reduced our debt, diversified our funding sources and extended the term of our indebtedness. At year-end 2004, the Company's ratio of net debt to EBITDA was 2.6 times. These achievements provide a strong foundation for us to grow our business.

The capital market environment also offered the opportunity for two of three founding sponsors to fully monetize their investment. Following a public offering and a concurrent exchange of units in June 2004, Yellow Pages Group is now wholly owned by the Fund, resulting in a simplified corporate structure.

Strategic Priorities

Working from a solid base, management will remain focused on developing YPG's leading directory franchise in Canada. The Company has three strategic priorities for 2005:

• Continued improvement of our value proposition to users and advertisers;
• Focus on customer relationship management; and
• Extension of our directory business.

We intend to improve our value proposition by striving to offer the most complete and user-friendly directories available. We will also continue to use multi-media campaigns to promote our brand and deliver our message to the market about the value our directories offer. In addition, our marketing efforts will be directed to better meet customer needs through targeted offers and pricing. Further refinements to our customer segmentation model will support our strategies to attract and retain new customers.

As a customer-focused company, we are introducing processes that will allow us to provide higher-value added services to help customers maximize the return on their advertising dollars. These processes include the introduction of automation tools that will offer a single view of customers' information to sales representatives and other internal stakeholders. We will also implement a new content management system that will digitize the entire production process of our ads, which should result in significant efficiency gains. We are also developing a portal where customers will be able to obtain practical advice on how to optimize their ads, access general account information, as well as consult news about YPG and any new product offerings.

The expansion of our directory business also ranks high in our 2005 priorities. To expand our print directories, one possibility is the development of specialized directories. In terms of our online directories, we will continue to expand our distribution through agreements such as the one entered with Google. Internet advertising is expected to grow rapidly for the remainder of this decade and we believe that we are well-positioned to participate in this growth. For our wireless services, product innovation such as voice application is amongst initiatives that we will be developing over the course of the year.

External growth is another strategic area. Opportunities permitting, we intend to expand the geographic scope of our directory business through selected investments or business acquisitions. We may also consider expansion in related media that have a strategic fit with our core directory business, and that will be accretive.

Outlook

The nature of our business gives us a relatively high level of revenue predictability compared to most other media. These factors include stable cash flows and a high rate of customer renewals, which in the case of YPG is in excess of 90%. Given this visibility and continuing strong momentum in our results, we are confident in the Company's ability to achieve continued organic growth in 2005.

Marc L. Reisch
Chairman of the Board

Marc P. Tellier
President and Chief Executive Officer