HOME    MESSAGE TO UNITHOLDERS

CONSISTENT AND STABLE ORGANIC GROWTH

                          HAS BEEN THE HALLMARK OF YELLOW PAGES GROUP.

The year 2005 marked another important milestone for Yellow Pages Group (YPG). In addition to completing the strategic acquisition of Advertising Directory Solutions Holdings Inc. (ADS), we achieved the highest levels of organic growth since we became a stand-alone company in November 2002.

The ADS acquisition was completed on May 25, 2005 for a purchase price of approximately $2.55 billion. This acquisition is in line with our investment criteria which include three components: strategic fit, suitability for an income trust model, and immediate accretion to distributable cash.

From a strategic perspective, the transaction gave us the opportunity to expand our leading market position into Western Canada and thus create a strong national platform of print and online directories, offering new avenues for growth.

One such avenue is to improve our online offering now that we have comprehensive local content across Canada. We are also in a stronger position to develop new business with national and regional advertisers as a result of having a nation-wide platform.

The acquisition has also strengthened our online reach. The number of unique visitors to our sites reached 7 million in December 2005¹, representing more than one in three online Canadians. This strong online positioning provides greater visibility for our customers and is particularly important in securing our position as a leading participant in Canada's rapidly growing local online search market.

From an income trust perspective, the fit was also compelling. As an incumbent directory publisher, ADS is a business generating strong and stable cash flows.

ADS also met our investment criteria for immediate accretion. For the fiscal year 2005, which included approximately seven months of contribution from ADS, distributable cash increased by 10.2% to $1.08 per unit.

ADS INTEGRATION COMPLETED AHEAD OF SCHEDULE

The integration of the ADS business is essentially completed, well ahead of the time-frame that was originally anticipated. We have also achieved the expected cost savings and synergies from this integration. We are now focused on the optimization of ADS's supply chain and the integration of information technology systems which is expected to be completed by late 2007.

BEST-IN-CLASS METRICS

YPG has led the industry over the past three years in terms of overall performance. During this period, on a comparable basis, Adjusted Revenues grew at a compound annual growth rate of 4.9%, and Adjusted EBITDA by 6.5% . Furthermore, our comparable EBITDA margin continued to improve throughout this period from 55.6% in 2002 to 58.3% in 2005. These results are at the top end of our industry in North America and Europe, and are attributable to management's strong execution of organic growth initiatives.

This operational excellence is a tribute to our employees. Even during the major business integration of ADS this year, our people continued to excel and improve upon the strong momentum in the Company's financial and operating results.

2005 FINANCIAL PERFORMANCE

YPG's 2005 financial performance was its best ever since the Company's formation in November 2002. Consolidated Adjusted Revenues increased by 42.7% to $952.5 million compared to the prior year and consolidated Adjusted EBITDA grew by 41.1% to $548.0 million. These increases were due to the contribution from the ADS business which contributed $244.5 million to Adjusted Revenues and $135.4 million to Adjusted EBITDA in 2005 and strong organic growth.

Particularly gratifying was the record-level growth in the results of YPG's existing operations. Before taking into account the impact of the acquired business, YPG's core operations recorded a 6.1% increase in Adjusted Revenues and a 6.3% improvement in Adjusted EBITDA over the prior year.

One of the key drivers behind this strong organic growth is our online advertising revenues. Increased traffic to our sites and our emphasis on the sale of Directory Plus, a bundle of print and online advertising, have enticed many of our existing customers to begin advertising online with us. The percentage of customers now advertising in both our print and online products has increased to 45% in 2005, from 28% a year earlier. This increasing penetration has been the main factor behind our significant organic growth in online revenues. Before taking into account the contribution from ADS, online revenues increased by 72.5% to $36.7 million in 2005. Including ADS, these revenues were $46.2 million.

Our improved sales force productivity has also been an important contributor to organic growth. Some examples in this area include the implementation of better tools and training, changes to the market coverage model and compensation programs. As a result, our sales representatives are spending more time with customers, being more effective in communicating the superior value that our directories offer versus other media.

Our unitholders are being rewarded for this best-in-class performance. Distributable cash grew from $275 million at the time of the IPO to $454.2 million in 2005. This enabled us to increase cash distributions from $0.825 per unit at that time to $1.03 in February 2006.

MANAGEMENT OBJECTIVES FULFILLED

As we reflect on our last three years of progress, we see that YPG management has fulfilled its objectives established at the time of the buyout in November 2002, and at the time of the IPO of Yellow Pages Income Fund. We have:

• Achieved industry-leading levels of organic growth and operating margins, and we continue to have strong momentum in these metrics.
• Positioned the Company for external expansion and then met that objective with the acquisition of ADS.
• Created a strong national platform with opportunities for growth.
• Begun expansion into new related markets that build on our core competencies.

We have also improved our capital structure subsequent to the ADS acquisition by reducing our borrowings. At year-end, our ratio of net-debt-to-EBITDA of 3.1 times was ahead of our commitments. We are clearly well-positioned for the future.

The question now is “What's next for Yellow Pages Group?”

POSITIONED FOR FURTHER GROWTH

Our organic growth initiatives remain high priority. These include pursuing opportunities made possible as a result of the ADS acquisition, such as increasing our business with national and regional advertisers and extending our operational excellence into Western Canada.

We also see the potential to increase the penetration of existing offerings, namely Directory Plus and our premium advertising products such as tabs and cover ads. We intend to launch new products that should position us to not only grow our business, but also the directory category itself.

Externally, our investment criteria remain the same and our focus is unchanged. First, expand the geographic foot-print of our core directory business, both print and online, in contiguous geographies. Our second choice is to expand into related media.

In addition to financial considerations, any expansion must build upon our core competencies which include our strong brand, our comprehensive local content, our long-standing relationships with advertisers, and our growing online presence.

Subsequent to year-end, YPG took a major step in expanding into related media through the acquisition of Trader Media Corporation (TMC). This acquisition closed on February 14, 2006. TMC is Ontario's largest publisher of classified advertising and web sites. Management considers its business model to be an excellent fit given that it involves local advertising content, direct customer contact, and established print and online properties.

OUTLOOK

These are exciting times for YPG. Management expects that the opportunities created by our national platform will continue to benefit the Company and its unitholders for the next several years.

Usage of Yellow Pages™ print directories remains strong and stable while the number of visitors to our online properties continues to grow rapidly. Combined with the momentum in our operating and financial metrics, management believes that YPG is well positioned for 2006 and beyond.

¹ comScore Media Metrix, December 2005