**EXHIBIT
      1**











**FirstService
      Corporation**








**ANNUAL
      INFORMATION FORM**


**FOR
      THE
      YEAR ENDED**


**MARCH
      31,
      2006**



























































**MAY
      16, 2006**





**TABLE
      OF CONTENTS**




Corporate
                  structure
              1General
                  development of the business
              1Business
                  description
              2Business
                  strategy
              8Seasonality
              10Trademarks
              10Employees
              10Minority
                  interests
              11Dividend
                  policy
              11Capital
                  structure
              11Market
                  for securities
              11Transfer
                  agents and registrars
              12Directors
                  and officers
              12Legal
                  proceedings
              13Properties
              14Selected
                  consolidated financial information
              14Risk
                  and uncertainties
              16Management's
                  discussion and analysis
              16Interest
                  of management and others in material transactions
              16Material
                  contracts
              16Cease
                  trade orders, bankruptcies, penalties or sanctions
              17Conflicts
                  of interest
              17Experts
              17Audit
                  Committee
              17Additional
                  information
              19Forward-looking
                  statements
              20











**FIRSTSERVICE
      CORPORATION**





**ANNUAL
      INFORMATION FORM**





**MAY
      16, 2006**





*All
      amounts referred to in this Annual Information Form (“AIF”) are in United States
      dollars unless otherwise indicated. All financial and statistical data in this
      AIF is presented as at March 31, 2006 unless otherwise
      indicated.*





**Corporate
      structure**


FirstService
      Corporation (the “Company” or “FirstService”) was formed under the *Business
      Corporations Act* (Ontario) by Certificate of Incorporation dated February 25, 1988. The Company
      amalgamated with Coloma Resources Limited pursuant to a Certificate of
      Amalgamation dated July 31, 1988, and the amalgamated corporation continued
      under the name “FirstService Corporation”.





By
      Certificate of Amendment dated April 2, 1990, the Company: (i) consolidated
      each
      of its Class A Subordinate Voting Shares on a 30 to 1 basis and changed the
      designation of that class of shares to “Subordinate Voting Shares”, each such
      share carrying one vote; and (ii) consolidated each of its Class B shares on
      a
      30 to 1 basis and changed the designation of that class of shares to “Multiple
      Voting Shares”, each such share carrying 20 votes.





Our
      fiscal year-end is March 31. Our Subordinate Voting Shares are publicly traded
      on both the Toronto Stock Exchange ("TSX") (symbol: FSV) and the NASDAQ National
      Market ("NASDAQ") (symbol: FSRV). Our head and registered office is located
      at
      1140 Bay Street, Suite 4000, Toronto, Ontario, M5S 2B4.





The
      following chart sets out the significant subsidiaries of the Company. The voting
      securities of such subsidiaries not controlled by us are those owned by
      operating management of each respective subsidiary.





**Name
                of subsidiary**
            **Percentage
                of voting securities owned by
FirstService**
            **Jurisdiction
                of incorporation**American
                Pool Enterprises, Inc.
            88.21%
            DelawareBLW,
                Inc. (d/b/a Security Services and Technologies (“SST”))
            82.90%
            PennsylvaniaCMN
                Holdco Inc. (d/b/a “Colliers International”)
            83.10%
            OntarioFirstService
                (USA), Inc.
            100.00%
            DelawareFirstService
                Delaware, LLC
            100.00%
            DelawareFirstService
                Delaware, LP
            100.00%
            DelawareIntercon
                Security Ltd.
            100.00%
            OntarioPrime
                Management Group, Inc.
            93.78%
            FloridaThe
                Continental Group, Inc.
            85.85%
            FloridaThe
                Franchise Company, Inc.
            82.50%
            OntarioThe
                Wentworth Group, Inc.
            84.35%
            Pennsylvania





**General
      development of the business**


Our
      origins date back to 1972 when Jay S. Hennick, the CEO of the Company, started
      a
      Toronto swimming pool and recreational facility management business, which
      became the foundation of FirstService. In 1993, we completed our initial public
      offering on the TSX, raising C$20 million. In 1995 our shares were listed on
      NASDAQ. In 1997, a second stock offering was completed in Canada and the United
      States raising US$20 million. In December 2004, a stock dividend was declared
      effectively achieving a 2-for-1 stock split for all outstanding Subordinate
      and
      Multiple Voting Shares.









From
      1994 to present, we completed numerous acquisitions, developing and growing
      the
      service lines that exist today.





In
      1996, we obtained a revolving credit facility from a syndicate of banks, which
      has been amended and restated at various times to the present. In 2001, we
      completed a private placement of $100 million of 8.06% Senior Notes due June
      29,
      2011 with a group of US institutional investors. In October 2003, $50 million
      of
      6.40% Senior Notes due September 30, 2015 was issued. In April 2005, we
      completed a further private placement of $100 million of 5.44% Senior Notes
      due
      April 1, 2015.





In
      November 2004, we established a new commercial real estate services division
      under the “Colliers International” brand with the acquisition of CMN
      International Inc. (“CMN”). Generating revenues of $285 million in the year
      prior to acquisition and with 80 offices in twenty countries, CMN is the largest
      affiliate of the Colliers International commercial real estate services network.
      CMN’s real estate services offerings include brokerage (sale and leasing),
      property management, valuation and advisory services. A Business Acquisition
      Report filed with applicable Canadian securities regulatory authorities on
      February 11, 2005 in respect of the acquisition of CMN is hereby incorporated
      by
      reference herein.





During
      the fiscal year ended March 31, 2005, we sold the assets of Greenspace Services
      Ltd., our company-owned lawn care operation and two other non-strategic
      businesses. The combined revenues of the disposed operations for the fiscal
      year
      ended March 31, 2004, the last full year of ownership, were $39
      million.





In
      March 2006, we disposed of Resolve Corporation, our Business Services operation,
      in an initial public offering of trust units in Canada for consideration
      comprised of cash and a 7.3% interest in the trust. The disposal marked a
      significant milestone in our strategy of focusing on property services
      businesses for future growth.





**Business
      description**


FirstService
      is a leader in the rapidly growing property services sector, providing services
      in the following areas: residential property management; commercial real estate;
      integrated commercial security and property improvement. Market-leading brands
      include Continental, Wentworth and Prime Management in residential property
      management; Colliers International in commercial real estate; Intercon Security
      and SST in integrated security; and California Closets, Paul Davis Restoration,
      Pillar to Post Home Inspection, and CertaPro and College Pro Painters in
      property improvement.





Each
      service line provides near-essential services, generates a significant
      percentage of recurring revenues, has strong cash flows, generates strong
      returns on invested capital and can be leveraged through margin enhancement,
      cross-selling or consolidation.





Our
      operations are conducted through four operating segments:














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          2 -




**Revenues
                    by operating segment**
              
              **Year
                  ended
                  March 31**(in
                  thousands of US$)
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002**Residential
                  Property Management
              
              $
              346,133
              
              $
              275,229
              
              $
              228,790
              
              $
              203,515
              
              $
              196,298Commercial
                  Real Estate Services
              
              
              438,434
              
              
              120,535
              
              
              -
              
              
              -
              
              
              -Integrated
                  Security Services
              
              
              149,063
              
              
              143,160
              
              
              122,748
              
              
              107,548
              
              
              95,507Property
                  Improvement Services
              
              
              134,136
              
              
              111,779
              
              
              89,361
              
              
              70,850
              
              
              64,826Corporate
              
              
              368
              
              
              673
              
              
              434
              
              
              389
              
              
              364**Total**
              
              $
              1,068,134
              
              $
              651,376
              
              $
              441,333
              
              $
              382,302
              
              $
              356,995


***Residential
      Property Management***


FirstService
      is the largest manager of private residential communities in North America.
      Private residential communities include condominiums, cooperatives, gated
      communities and a variety of other residential developments governed by
      multi-unit residential community associations (collectively referred to as
      “community associations”). In total, we manage more than 550,000 residential
      units in 3,000 community associations in the states of Arizona, Delaware,
      Florida, Georgia, Illinois, Maryland, Nevada, New Jersey, New York, North
      Carolina Pennsylvania, Texas, Virginia and the District of Columbia.





In
      Florida, we operate under the Continental, Prime and Sterling brands. In the
      mid-Atlantic region, we operate under the Wentworth, Armstrong, Cooper Square,
      Arco Wentworth and American Pool brands. In Arizona, we operate as Rossmar
&
Graham, while in Illinois we operate as Wolin-Levin. In Nevada and Texas we
      operate as RMI.





In
      the
      residential property management industry, there are two types of professional
      property management companies: (i) traditional property managers, and (ii)
      full-service property managers. Traditional property managers primarily handle
      administrative property management functions such as collecting maintenance
      fees, sourcing and paying suppliers, preparing financial statements and
      contracting out support services. Full-service property managers provide the
      same services as traditional property managers but also provide a variety of
      other services under one exclusive contract.





FirstService
      is a full-service property manager and in many markets provides a full range
      of
      services including grounds maintenance, landscaping, painting, pest control,
      irrigation, real estate sales and leasing, heating, air conditioning, plumbing
      and swimming pool management and maintenance. Operations are somewhat seasonal
      in nature, as the majority of swimming pool and grounds maintenance revenues,
      outside the “sunbelt” states, are earned in the first and second fiscal
      quarters.





The
      aggregate budget of the community associations managed by FirstService is
      approximately $2 billion. The aggregate budget of all the community associations
      in the United States is estimated to be $35 billion. Currently, FirstService
      accesses approximately 20% of the aggregate budget of its communities through
      the various services that it offers. Our strategy is to continue to add
      communities under management while striving to earn a greater percentage of
      the
      aggregate budget by introducing additional services and products, thereby
      offering our clients a single point of accountability.





Based
      on recent industry data compiled by the Community Associations Institute, we
      estimate that: (i) more than 54 million Americans, representing approximately
      22
      million households, live in condominiums, cooperatives, planned communities
      and
      other residential developments governed by multiple unit residential community
      associations; (ii) more than 50% of new homes currently being built in and
      around major metropolitan areas in the United States are within these
      categories; (iii) there are approximately 274,000 community associations in
      the
      United States; and (iv) the total annual operating expenses for these community
      associations are estimated to be $35 billion. The market is growing at a rate
      of
      approximately 3% per year as a




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          3 -




result
      of the 6,000-8,000 new community associations formed each year. In addition,
      the
      growing trend from self-management to professional management, currently almost
      50% of the market, is believed to at least double the effective growth rate
      for
      professional property management companies.





Typically,
      owners of private residential units are required to pay quarterly or monthly
      fees to cover the expenses of managing the condominium or homeowner
      association’s business activities and maintaining community properties.
      Historically, decision making for communities was delegated to volunteer boards
      of directors elected by the owners. Increasingly, these volunteer boards have
      outsourced the responsibility to manage the day-to-day operation and maintenance
      of community property to professional property management
      companies.





The
      residential property management industry is extremely fragmented and dominated
      by numerous local and regional management companies. Only a small number of
      such
      companies, however, have the expertise and capital to provide both traditional
      property management services as well as the other support services provided
      by
      full-service property managers. FirstService is the largest full-service manager
      of private residential communities in the United States, managing approximately
      2.5% of the nation’s approximately 22 million units in community associations.
      We enjoy a competitive advantage because of our size, depth of financial and
      management resources, and operating expertise.





Our
      business is subject to regulation by the states in which we operate. In most
      states, laws require that property managers must be licensed, which involves
      certain examinations and continuing education. In addition, our residential
      real
      estate sales and leasing operations are subject to regulation as a real estate
      brokerage by the various states in which we operate.





***Commercial
      Real Estate Services***


FirstService
      is a leading international commercial real estate services provider offering
      a
      full range of commercial real estate services in the United States, Canada,
      Australia, New Zealand and several other countries. Operations in the United
      States and Canada generate approximately 65% of total revenues, while Australia
      and New Zealand generate approximately 22%. We provide services to owners,
      investors and tenants, including brokerage (sale and leasing), property
      management and maintenance services, valuation and corporate advisory
      services.





Commercial
      real estate brokers match buyers and sellers of real estate (investors,
      developers or owners-users) as well as owners and tenants of space for lease
      in
      return for a commission generally based on the value of the transaction. CMN’s
      brokerage activities focus primarily on office, industrial, retail and
      multi-unit residential properties. Brokerage activities represent 75% to 80%
      of
      CMN's revenues and provide opportunities for cross selling other real estate
      services. In calendar year 2005, through a network of 1,500 brokers across
      100
      offices, CMN executed transactions valued at more than $20 billion across a
      diverse client base, including corporations, financial institutions, governments
      and individuals. Typically, brokers earn a direct commission on individual
      transactions, which results in a highly variable cost structure.





Commercial
      property management focuses on the same client segments as brokerage; however,
      fees are typically multi-year fixed fee contracts that are largely recurring
      in
      nature.





CMN’s
      international corporate services group partners with large corporations in
      managing their overall portfolio and transactions. Professional staff combine
      proprietary technology with high level strategic planning, portfolio management,
      lease administration and facilities and project management. Fees in corporate
      services are derived from a combination of fixed fee services and transaction
      based brokerage fees.





Commercial
      real estate brokerage is cyclical and seasonal in nature, affected by external
      factors, including interest rates, investor and consumer confidence and other
      macroeconomic




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          4 -




factors
      and political risk in any specific region. CMN’s revenues are somewhat seasonal
      in nature, with approximately 70% of transactions occurring in our second and
      third fiscal quarters (July through December).





CMN
      is
      the largest affiliate within the Colliers International Property Consultants
      (“CIPC”) alliance. Each member of the CIPC alliance licenses the right to use
      the “Colliers International” brand in an exclusive territory. Colliers
      International is recognized as one of the top 3 commercial real estate services
      organizations worldwide with a network of 241 offices generating over $1.4
      billion in revenues in 54 countries. Membership in CIPC provides us with a
      global brand name and local market intelligence throughout the world to assist
      the international community of investors, owners and users of real estate.
      Members of CIPC are required, except in certain limited circumstances, to direct
      referrals for other regions to member firms.





Commercial
      real estate firms can be segmented into two tiers; (i) large global full-service
      firms with international research abilities, and (ii) regional and niche firms
      with strengths in their respective local markets. Recent industry trends have
      seen an increase in outsourcing from sophisticated clients with global needs,
      creating an opportunity for full-service global players such as CMN.





There
      has also been a recent trend amongst larger firms to further improve their
      market position through consolidation. However, the commercial real estate
      competitive landscape market remains highly fragmented with the top five real
      estate organizations combining for only about 10% of the estimated $90 billion
      global market.





CMN’s
      growth strategy is to expand the suite of complementary service offerings and
      geography where services are offered. This will be achieved both organically
      and
      through selective acquisitions. CMN also plans to enhance its brand and service
      delivery through increased broker training and continued development of its
      proprietary market tools and research resources.





CMN’s
      business is subject to regulation by the countries and regions in which it
      operates. In most countries or regions, laws require that brokers must be
      licensed and conform to a code of ethics, which involves certain examinations
      and continuing education. In addition, CMN’s property managers are subject to
      regulation in the various regions in which they operate.





***Integrated
      Security Services***


FirstService
      is one of North America’s largest providers of integrated security services,
      primarily to the commercial market, with operations in 25 branches in 13 US
      states and 7 Canadian provinces. Under the FirstService Security umbrella,
      we
      operate two security brands, Intercon in Canada and Security Services and
      Technologies (“SST”) in the United States. The FirstService Security management
      team is responsible for the combined North American operations, with the goal
      of
      enhancing customer service and realizing operating efficiencies.





We
      design, install, repair and maintain integrated electronic security systems
      including identification badging, access control and closed-circuit television
      for office buildings, commercial and industrial facilities, institutional
      campuses and multi-unit residential properties. Our customers include Fortune
      1000 corporations, property management companies, hospitals and universities
      and
      all levels of government. Revenues are derived from installation projects,
      ongoing service, branch and head office upgrades, central station monitoring
      and
      maintenance.





In
      executing our growth strategy to date, we have focused on the development of
      long-term customer relationships, providing complete enterprise-wide electronic
      security solutions for all of our customers’ facilities and operations. Going
      forward, this growth strategy will be augmented by acquisitions in key US
      markets enabling us to add strong regional operators that are leaders in their
      markets, establish national service capabilities and leverage our existing
      national account relationships and supplier base.





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          5 -




In
      Canada, we supplement our integrated electronic security service offerings
      with
      a premium security officer service, providing highly trained manpower on-site,
      via mobile patrol and in response to central station calls. This full-service
      approach of providing both security systems expertise and security officer
      services has historically been a key success factor in the Canadian market,
      where commercial security clients often express a desire for comprehensive
      security services.





According
      to industry sources, the US security systems integration is a $4 billion
      industry growing at an annual rate of approximately 10%. Factors driving growth
      include:





•
            The
                trend toward consolidation of security functions and reducing costs:
                Corporate and institutional security embodies a variety of independent
                functions (access control, physical security, employee/user security,
                surveillance, etc.) operating concurrently. Integrating these functions
                into one system is simpler, more efficient and requires fewer people
                and
                resources to operate. An integrated system may also replace a number
                of
                different legacy systems that were required to be managed independently,
                improving functionality and reducing operating and maintenance
                costs.





•
            Continued
                development of network and information technology: Security systems
                are
                highly reliant on computer and electronic technology and have benefited
                from advancements in these technologies, becoming increasingly more
                powerful, flexible and functional. Security systems and information
                for
                multiple sites can be readily integrated and controlled from a centralized
                location and administered remotely.





•
            Increased
                public awareness of security issues: Security has become a priority
                in the
                workplace, schools and other public
                facilities.





The
      security systems integration industry is highly fragmented but undergoing
      consolidation. The market is comprised of many small and medium-sized, and
      a few
      very large competitors. FirstService Security is the sixth largest integrated
      security services provider in North America.





Larger
      competitors are driving consolidation in response to customer demands for
      comprehensive solution providers with national service capabilities. Customers
      are moving away from developing and sourcing each of their security systems
      separately from several different suppliers. System integrators must be able
      to
      evaluate customer needs, design an integrated suite of systems and products
      that
      is simple and effective, and provide quality installation and service in
      multiple geographic locations. Critical mass and geographic reach have become
      increasingly important success factors in this industry.





Our
      strategy is to combine strong regional operators into a national network,
      focusing on long-term relationships with customers that have complex security
      needs. We differentiate ourselves through superior customer service and by
      designing and integrating open architecture systems (versus proprietary or
      closed systems).





***Property
      Improvement Services***


In
      Property Improvement Services, we provide a variety of residential and
      commercial services through our network of approximately 1,750 franchised and
      11
      Company-owned locations across North America. The principal brands in this
      division include California Closets, Paul Davis Restoration, CertaPro Painters,
      College Pro Painters, Pillar to Post Home Inspection and Floorcoverings
      International. During the years ended March 31, 2006 and 2005, we sold our
      Company-owned and franchised lawn care operations and our
      decorative glass treatments franchise system.




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          6 -




California
      Closets is the largest provider of installed closet and home storage systems
      in
      North America. Headquartered in San Rafael, California, California Closets
      has
      95 franchises in the United States and Canada as well as master franchises
      in
      other countries around the world. California Closets receives royalties from
      franchisees based on a percentage of the franchisees’ revenues.





Paul
      Davis Restoration is a Florida-based franchiser of residential and commercial
      restoration services serving the insurance restoration industry in the United
      States through 220 franchises. This company provides restoration services for
      property damaged by natural or man-made disasters. Paul Davis Restoration
      receives royalties from franchisees based on a percentage of the franchisees’
revenues.





CertaPro
      Painters is a residential and commercial painting franchise system with 251
      franchises operating in major markets across the United States and Canada as
      well as master franchises in other countries around the world. CertaPro Painters
      focuses on high-end residential and commercial painting and decorating work
      and
      other programs for property managers who have portfolios of condominium and
      commercial properties. Franchisees pay CertaPro Painters either a royalty based
      on a percentage of revenues or a fixed monthly fee, plus administrative fees
      for
      various ancillary services.





College
      Pro Painters is a seasonal exterior residential painting franchise system
      operating in 25 states and across Canada with approximately 750 franchises.
      It
      recruits students and trains them to operate the business, including price
      estimating, marketing, operating procedures, hiring, customer service and
      safety. College Pro Painters receives a royalty from each franchisee based
      on a
      percentage of revenue. College Pro Painters’ operations are seasonal with
      significant revenue and earnings in the Company’s first and second quarters
      followed by losses in the third and fourth quarters.





Pillar
      to Post is North America’s largest home inspection service provider. Services
      are provided through a network of 352 franchises. Pillar to Post earns royalties
      from its franchisees based on a percentage of revenues.





Franchise
      agreements are for terms of five or ten years, with the exception of College
      Pro
      Painters where the agreements are for a term of one year. All franchise
      agreements contain renewal provisions that can be invoked at little or no
      cost.




We
      currently own and operate 11 California Closets franchises located in Boston,
      Seattle, Chicago, Jacksonville, San Francisco, Toronto, Dallas, Phoenix,
      Hartford, Sacramento and Fresno. These operations are referred to as
“branchises”. The purpose of branchising is to reacquire well-established and
      profitable franchises located in large territories to accelerate growth in
      these
      territories in partnership with operating management. We intend to make several
      more branchising acquisitions as opportunities arise.





The
      franchised services industry is highly fragmented, consisting principally of
      a
      large number of smaller, single-service or single-concept companies. Due to
      the
      large size of the overall market for these services, dominant market share
      is
      not considered necessary for becoming a major player in the industry. However,
      because of the low barriers to entry in this segment, we believe that brand
      name
      recognition among consumers is a critical factor in achieving long-term success
      in the businesses we operate.





We
      believe that the largest franchise companies in North America have been
      successful because of their ability to realize economies of scale through the
      centralization and successful application of certain administrative functions
      such as finance, marketing, purchasing, training and support
      staffing.




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          7 -





Franchise
      businesses are subject to US Federal Trade Commission regulations and state
      and
      provincial laws that regulate the offering and sale of franchises. Presently,
      the Company is authorized to sell franchises in 40 states, in all Canadian
      provinces and in several other countries around the world. In all jurisdictions,
      we endeavor to have our franchisees meet or exceed regulatory
      standards.




**Business
      strategy**


***Operating
      strategy***


Our
      objective is to increase the revenues, profitability and market position of
      each
      operating unit and subsequently acquired business, while maintaining the highest
      level of service to our customers. Key elements of our operating strategy
      are:





*Senior
      management commitment:* We
      strongly believe that management ownership at each of our primary operating
      units has contributed significantly to our ability to grow our businesses.
      As a
      result, we expect to continue our practice of encouraging strong operators
      of
      newly acquired platform businesses to retain or acquire a significant equity
      stake in the businesses they operate, generally in the form of a
      non-transferable direct equity ownership position. In all cases, we retain
      the
      right to purchase the minority interest at a pre-determined formula price based
      on a multiple of trailing EBITDA 1 .
      These
      minority interests average approximately 20%. Management believes that its
      strategy of aligning the ownership interests of operating management with those
      of the Company provides a powerful incentive to deliver superior financial
      performance.





*Performance-based
      compensation:* We use
      performance-based compensation programs throughout each of our businesses to
      attract, retain and motivate our employees. In general, senior managers receive
      bonuses that are based on a percentage of the amount by which their results
      exceed budgeted or prior year EBITDA. Lower level managers’ incentives are also
      linked to EBITDA targets, but may include other measures deemed important for
      growing their business. We believe these programs are effective incentives
      to
      operating management and employees to deliver consistent, high-quality service
      in a cost-effective manner.





*Operating
      efficiencies:* We
      have been able to obtain significant operating efficiencies through the
      implementation of a variety of “best practices” and have achieved meaningful
      cost savings through certain economies of scale. We attempt to identify and
      refine our best practices across all of our businesses in order to benefit
      from
      the most innovative and effective management techniques. The implementation
      of
      best practices has resulted in improved labor management, customer service
      and
      service delivery routing. We also achieve significant savings through the volume
      purchasing of vehicles, insurance, group benefits, advertising and professional
      and financial services.





*Marketing
      penetration and joint marketing:* We
      capitalize on the complementary nature of our businesses by introducing new
      or
      additional services to customers with which we already have long-term
      contractual relationships. The complementary nature of our property services
      businesses also provides certain advantages when introducing a new service
      in a
      market where we have existing operations. These advantages include significant
      market knowledge,







1
            EBITDA
                is defined as net earnings before extraordinary items, discontinued
                operations, minority interest share of earnings, income taxes, interest,
                other income, depreciation and amortization. The Company uses EBITDA
                to
                evaluate operating performance and as a measure for debt covenants
                with
                its lenders. EBITDA is an integral part of the Company’s planning and
                reporting systems. Additionally, the Company uses multiples of current
                and
                projected EBITDA in conjunction with discounted cash flow models
                to
                determine its overall enterprise valuation and to evaluate acquisition
                targets. The Company believes EBITDA is a reasonable measure of operating
                performance because of the low capital intensity of its service
                operations. The Company believes EBITDA is a financial metric used
                by many
                investors to compare companies, especially in the services industry,
                on
                the basis of operating results and the ability to incur and service
                debt.
                EBITDA is not a recognized measure of financial performance under
                GAAP in
                the United States, and should not be considered as a substitute for
                operating earnings, net earnings or cash flows from operating activities,
                as determined in accordance with GAAP. The Company’s method of calculating
                EBITDA may differ from other issuers and accordingly, EBITDA may
                not be
                comparable to measures used by other
                issuers.




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          8 -




demographic
      information and the ability to share the established overhead of existing
      operations. Because we provide a number of property services, we are able to
      effectively utilize marketing data that is accumulated to conduct cost-efficient
      customer referral across our businesses.





***Acquisition
      strategy***


Our
      acquisition strategy has been developed to complement the internal growth
      strategies of our existing service lines and as a component of our overall
      growth strategy of building a significant, diversified property services
      business that generates recurring and predictable cash flows and earnings.
      The
      acquisition strategy entails the systematic acquisition of established, well
      managed, and profitable service companies operating in fragmented industries
      that will:




•
            Enhance
                the market position of an existing service line, provide an entry
                into a
                new geographic region/market, or introduce a new service line;
                and


•
            Provide
                a return on invested capital that exceeds our weighted average cost
                of
                capital.





Acquisitions
      are classified as “tuck-under” or “platform”. The majority of acquisitions that
      we target and complete are tuck-under acquisitions. These acquisitions are
      generally smaller transactions completed within an existing service line that
      strengthen its regional presence or competitive position through increased
      market share or the addition of a complementary service line. Platform
      acquisitions are larger transactions that either establish an existing service
      line in a new geographic region or provide a vehicle for FirstService to add
      a
      new service offering that can be leveraged through cross-selling of services,
      sharing of best practices or other synergies or through further consolidation.
      Each acquisition must meet strict criteria that include the
      following:




•
            Strong,
                experienced management teams in place that are interested in growing
                their
                businesses and in being rewarded through performance-based
                compensation;


•
            History
                of consistent profitability, supported by significant contractual
                revenues;


•
            Non-capital
                intensive operations with a variable cost
                structure;


•
            Leading
                positions in the markets served;
                and


•
            In
                the case of platform acquisitions, one or more senior managers who
                wish to
                retain a significant minority interest in the acquired company in
                order to
                participate directly in its future growth and development as part
                of
                FirstService.





In
      general, platform companies continue to operate on a stand-alone basis in
      accordance with our operating strategy, while drawing on the resources of
      FirstService to facilitate future growth. Most tuck-under acquisitions are
      fully
      integrated into the operations of the service line making the
      acquisition.





We
      have
      historically paid approximately 4.5 times normalized and sustainable EBITDA
      (“Valuation EBITDA”) for our acquisitions. Usually, consideration is paid with a
      combination of cash at closing and contingent note consideration. Contingent
      consideration is typically issuable over a three-year contingency period,
      subject to achievement of the Valuation EBITDA on an averaged basis over the
      three-year period subsequent to closing. In the event that the actual average
      EBITDA is less than the Valuation EBITDA, the purchase price and contingent
      consideration are reduced by a multiple of the deficiency in
      EBITDA.





In
      executing acquisitions, our acquisition team works closely with operating
      management of our service lines to identify, negotiate and complete
      acquisitions. A majority of acquisitions are negotiated on an exclusive basis,
      without the imposition of an intermediary-controlled auction process, thereby
      facilitating a focused effort by FirstService to build a relationship with
      its
      prospective partner and emphasize the appropriate balance of financial and
      non-financial, as well as long-term and short-term attributes of the acquisition
      to the vendor. Notwithstanding the varied acquisition opportunities available
      to
      FirstService, management remains committed to a disciplined approach to
      acquisitions, including a rigorous adherence to our strict acquisition




-
          9 -




criteria
      and transaction structure. As well, we only allocate our financial and human
      resources to existing service lines for acquisitions if the management team
      has
      the capacity to integrate the acquisition and the performance of current
      operations is meeting or exceeding expectations.





The
      integration process is a critical component of all acquisitions executed by
      FirstService. This process is initiated during due diligence, when opportunities
      for integration, operational improvements and the sharing of best practices
      are
      identified and an integration plan is drafted. Post-closing, the integration
      plan is reviewed with management of the acquired company to ensure that it
      accurately captures and prioritizes the issues to be addressed. Once a buy-in
      has been obtained, the integration plan is finalized and a timetable established
      for the execution of the plan by the management of the acquired company. This
      is
      a collaborative process with a high degree of involvement from our integration
      team in overseeing the implementation and in monitoring progress against the
      timetable.





**Seasonality**


Certain
      segments of the Company’s operations are subject to seasonal variations. The
      demand for exterior painting (Property Improvement Services segment) and
      swimming pool management in the northern United States (Residential Property
      Management segment) is highest during late spring, summer and early fall and
      very low during winter. These operations generate most of their annual revenues
      and earnings between April and September and comprise approximately 9% of
      consolidated revenues.





The
      Commercial Real Estate Services operation generates peak revenues and earnings
      in the month of December followed by a low in January and February as a result
      of the timing of closings on commercial real estate brokerage transactions.
      Revenues and earnings during the balance of the year are relatively even. These
      brokerage operations comprise approximately 30% of annualized consolidated
      revenues.





The
      seasonality of these service lines results in variations in quarterly revenues
      and operating margins. Variations can also be caused by acquisitions, which
      alter the consolidated service mix.





**Trademarks**


FirstService’s
      trademarks are important for the advertising and brand awareness of all of
      our
      businesses and franchises. We take precautions to defend the value of our
      trademarks by maintaining legal registrations and by litigating against alleged
      infringements, if necessary.





In
      our
      Property Improvement Services unit, three franchise systems - California Closet
      Company, Paul Davis Restoration and Pillar to Post Home Inspection - have
      trademarks to which value has been ascribed in the consolidated financial
      statements. These franchise systems have franchises in every significant
      population center in the United States. The value of these trademarks is derived
      from the recognition they enjoy among the target audiences for closet system
      installations, disaster restoration services and home inspections. These
      trademarks have been in existence for many years, and their prominence among
      consumers has grown over time through the addition of franchisees and the
      ongoing marketing programs conducted by both franchisees and the
      Company.





In
      our
      Commercial Real Estate Services unit, the Colliers International trademark
      was
      identified as an acquired intangible asset. The Colliers International trademark
      is highly recognized in the commercial real estate industry. We intend to
      continue to use the Colliers International trademark indefinitely.





**Employees**


We
      employ approximately 12,000 full-time non-unionized employees, rising to a
      total
      of approximately 14,000 with seasonal employees in the spring and summer
      months.





-
          10 -




**Minority
      interests**


FirstService
      owns a majority interest (on average 80% of the equity) in all of its
      subsidiaries, while operating management of each subsidiary owns the remaining
      shares. This structure was designed to maintain control at FirstService while
      providing significant risks and rewards of equity ownership to management at
      the
      operating companies. In all cases, the Company has the right to “call”
management’s shares, usually payable at the Company’s option with any
      combination of FirstService shares or cash. FirstService may also be obligated
      to acquire certain of these minority interests in the event of death, disability
      or cessation of employment of the employee or if the shares are “put” by the
      employee. These arrangements provide significant flexibility to FirstService
      in
      connection with management succession planning and shareholder liquidity
      matters.





**Dividend
      policy**


The
      Company does not currently pay dividends on any of its shares. The payment
      of
      dividends is at the discretion of the Board of Directors of the Company, which
      considers earnings, capital requirements and the financial condition of the
      Company, among other relevant factors. If dividends were declared, they would
      be
      payable in either US or Canadian dollars.





**Capital
      structure**


The
      authorized capital of the Company consists of an unlimited number of preference
      shares, issuable in series, an unlimited number of Subordinate Voting Shares
      and
      an unlimited number of Multiple Voting Shares. The holders of Subordinate Voting
      Shares are entitled to one (1) vote in respect of each Subordinate Voting Share
      held at all meetings of the shareholders of the Company. The holders of
      convertible Multiple Voting Shares are entitled to twenty (20) votes in respect
      of each Multiple Voting Share held at all meetings of the shareholders of the
      Company. Effective December 15, 2004, a stock dividend was declared, effectively
      achieving a 2-for-1 stock split for all outstanding Subordinate and Multiple
      Voting Shares. As of May 16, 2006, there were 28,790,094 Subordinate Voting
      Shares, 1,325,694 Multiple Voting Shares and no preference shares issued and
      outstanding.





A
      summary of certain rights attaching to the Company’s Subordinate Voting Shares
      is set out in the section entitled “Certain Rights of Holders of Subordinate
      Voting Shares” contained in the Company’s Management Information Circular (the
      "Circular") dated May 16, 2006 filed in connection with the Company’s annual and
      special meeting of shareholders to be held on June 26, 2006, which section
      is
      hereby incorporated herein by reference.





**Market
      for securities**


The
      Company’s Subordinate Voting Shares are listed for trading on the TSX and
      NASDAQ. The Company’s Multiple Voting Shares are not listed and do not trade on
      any public market or quotation system.





The
      table below details the price ranges and volumes traded of Subordinate Voting
      Shares on the NASDAQ in US dollars, and the TSX in Canadian dollars on a monthly
      basis during fiscal 2006:




****NASDAQ****
              
              **TSX****Month**
              
              **High
                  price (US$)**
              
              **Low
                  price (US$)**
              
              **Volume
                  traded**
              
              **High
                  price (C$)**
              
              **Low
                  price (C$)**
              
              **Volume
                  traded**April
                  2005
              
              
              20.60
              
              
              19.02
              
              
              617,200
              
              
              25.00
              
              
              23.65
              
              
              583,378May
                  2005
              
              
              19.50
              
              
              18.14
              
              
              430,300
              
              
              24.25
              
              
              22.78
              
              
              625,005June
                  2005
              
              
              21.15
              
              
              17.85
              
              
              432,500
              
              
              26.00
              
              
              22.43
              
              
              690,108July
                  2005
              
              
              24.05
              
              
              20.44
              
              
              195,600
              
              
              29.54
              
              
              25.20
              
              
              684,403August
                  2005
              
              
              24.68
              
              
              22.60
              
              
              414,700
              
              
              30.00
              
              
              26.91
              
              
              707,955September
                  2005
              
              
              22.95
              
              
              22.15
              
              
              230,000
              
              
              27.25
              
              
              26.01
              
              
              777,913October
                  2005
              
              
              23.39
              
              
              20.80
              
              
              336,900
              
              
              27.50
              
              
              24.50
              
              
              924,276November
                  2005
              
              
              24.79
              
              
              23.09
              
              
              282,200
              
              
              29.41
              
              
              27.21
              
              
              564,574December
                  2005
              
              
              25.69
              
              
              23.60
              
              
              389,200
              
              
              30.01
              
              
              27.55
              
              
              1,385,494January
                  2006
              
              
              26.73
              
              
              24.70
              
              
              357,800
              
              
              30.51
              
              
              28.24
              
              
              699,805February
                  2006
              
              
              26.96
              
              
              24.99
              
              
              438,800
              
              
              31.00
              
              
              28.50
              
              
              564,105March
                  2006
              
              
              26.19
              
              
              23.76
              
              
              836,200
              
              
              30.43
              
              
              27.25
              
              
              1,281,688





-
          11 -




**Transfer
      agents and registrars**


The
      transfer agent and registrar for the Subordinate Voting Shares is Equity
      Transfer Services Inc., 120 Adelaide Street West, Suite 420, Toronto, Ontario,
      M5H 4C3. The transfer agent and registrar for the Multiple Voting Shares is
      the
      Company at 1140 Bay Street, Suite 4000, Toronto, Ontario, M5S 2B4.





**Directors
      and officers**


***Directors*** *-* The
      following are the directors of the Company as at May 16, 2006:





**Name
                and municipality of residence**
            **Age**
            **Present
                position and tenure**
            **Business
                experience during**
              **Last
                five years**David
                R. Beatty2,3
              *Toronto,
                Ontario*
            64
            Director
                since May 2001
            Corporate
                Director; Chair and CEO, Beatinvest Limited (an investment company),
                Managing Director of the Canadian Coalition for Good Governance and
                Professor of Strategy and the Director of Clarkson Center for Business
                Ethics and Board Effectiveness and Professor of Strategic Management,
                Rotman School of Management, University of TorontoBrendan
                Calder1,2,3
              *Toronto,
                Ontario*
            59
            Director
                since June 1996
            Corporate
                Director;
              Professor,
              Rotman
                School of Management,
              University
                of TorontoPeter
                F. Cohen1,2,3
              *Toronto,
                Ontario*
            53
            Director
                since March 1990; Chair of the Board since May 2005
            President,
                Dawsco Capital Corp.
              (Ontario-based
                real estate and investment company)Bernard
                I. Ghert1
              *Toronto,
                Ontario*
            66
            Director
                since June 2004
            Corporate
                DirectorJay
                S. Hennick
              *Toronto,
                Ontario*
            49
            Chief
                Executive Officer and Director since May 1988
            Chief
                Executive Officer of the CompanySteven
                S. Rogers
              *Mississauga,
                Ontario*
            50
            Director
                since August 1989
            President
                and Chief Executive Officer,
              The
                Franchise Company, Inc.
              (subsidiary
                of the Company)






1.
              Member
                  of Audit Committee
 2.
              Member
                  of Executive Compensation Committee
 3.
              Member
                  of Nominating and Corporate Governance
                  Committee




Each
      director remains in office until the following annual shareholders’ meeting or
      until the election or appointment of his successor, unless he resigns or his
      office becomes vacant. All directors stand for election or re-election
      annually.





Further
      background information regarding the directors of the Company is set out in
      the
      sections entitled “Particulars of Matters to be Acted Upon at the Meeting -
      Election of Directors" and "Statement of Corporate Governance Practices"
      contained in the Circular, which sections are hereby incorporated herein by
      reference.


-
          12 -





***Officers
      -*** The
      following are the executive officers of the Company as at May 16,
      2006:





**Name
                and municipality of residence**
            **Age**
            **Present
                position with the Company**
            **First
                became**
              **an
                officer**Jay
                S. Hennick
              *Toronto,
                Ontario*
            49
            Chief
                Executive Officer
            1988D.
                Scott Patterson*Toronto,
                Ontario*
            45
            President
                and Chief Operating Officer
            1995John
                B. Friedrichsen*Toronto,
                Ontario*
            44
            Senior
                Vice President and Chief Financial Officer
            1998Roman
                Kocur*Toronto,
                Ontario*
            45
            Vice
                President, Acquisitions
            2003Michael
                Natale
              *Toronto,
                Ontario*
            46
            Vice
                President, Performance & Risk Management
            2005Douglas
                G. Cooke*Toronto,
                Ontario*
            46
            Vice
                President and Corporate Controller
            1995





The
      directors and executive officers of the Company, as a group, own or control
      2,519,182 Subordinate Voting Shares (including vested stock options), which
      represents 8.5% of the total Subordinate Voting Shares outstanding (including
      vested stock options). The directors and officers, as a group, control 54.9%
      of
      the total voting rights when all Multiple Voting Shares, Subordinate Voting
      Shares and vested stock options are considered. Pursuant to the deferred share
      unit plan of the Company, certain directors of the Company also hold an
      aggregate of 3,941 deferred share units. Mr. Hennick controls all of the
      Company’s Multiple Voting Shares.





Mr.
      Rogers controls a 9% voting interest in The Franchise Company Inc., a subsidiary
      of the Company.





**Legal
      proceedings**


In
      the
      normal course of operations, the Company is subject to routine claims and
      litigation incidental to its business. Litigation currently pending or
      threatened against the Company includes disputes with former employees and
      commercial liability claims related to services provided by the Company. The
      Company believes resolution of such proceedings, combined with amounts set
      aside, will not have a material impact on the Company’s financial condition or
      the results of operations.


-
          13 -





**Properties**


The
      following chart provides a summary of the properties occupied by the Company
      and
      its subsidiaries as at March 31, 2006:





**(square
                feet)**
            **United
                States (leased)**
            **United
                States**
              **(owned)**
            **Canada**
              **(leased)**
            **Canada**
              **(owned)**
            **International**
              **(leased)**
            **International**
              **(owned)**Residential
                PropertyManagement
            366,000
            73,000
            5,000
            -
            -
            -Commercial
                Real EstateServices
            235,000
            -
            148,000
            -
            194,000
            -Integrated
                Security Services
            58,000
            -
            56,000
            -
            -
            -Property
                ImprovementServices
            167,000
            -
            35,000
            -
            -
            -Corporate
            -
            -
            -
            20,000
            -
            -








**Selected
      consolidated financial information**


***Last
      five fiscal years***


**(in
      thousands of US$, except per share amounts) - in accordance with generally
      accepted accounting principles in the United States**





**Year
                ended March 31**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****OPERATIONS**Revenues
            
            $
            1,068,134
            
            $
            651,376
            
            $
            441,333
            
            $
            382,302
            
            $
            356,995Operating
                earnings
            
            
            65,226
            
            
            35,306
            
            
            27,633
            
            
            23,278
            
            
            25,859Net
                earnings from continuing operations
            
            
            28,034
            
            
            15,390
            
            
            14,649
            
            
            11,446
            
            
            11,066Net
                earnings from discontinued operations,net
                of income taxes
            
            
            41,463
            
            
            7,817
            
            
            4,375
            
            
            6,994
            
            
            5,963Net
                earnings
            
            
            69,497
            
            
            23,207
            
            
            19,024
            
            
            18,440
            
            
            17,029**FINANCIAL
                POSITION**Total
                assets
            
            $
            711,004
            
            $
            626,728
            
            $
            437,553
            
            $
            389,031
            
            $
            365,929Long-term
                debt
            
            
            248,686
            
            
            220,015
            
            
            163,888
            
            
            164,919
            
            
            165,611Shareholders’
                equity
            
            
            237,752
            
            
            185,871
            
            
            155,101
            
            
            123,406
            
            
            99,221Book
                value per share
            
            
            7.91
            
            
            6.15
            
            
            5.26
            
            
            4.36
            
            
            3.60**OTHER
                DATA**EBITDA
                (note 1)
            
            $
            88,804
            
            $
            56,413
            
            $
            36,219
            
            
            30,815
            
            
            32,727Diluted
                earnings per share from continuingoperations
                adjusted for brokeragebacklog
                amortization (note 2)
            
            
            1.01
            
            
            0.67
            
            
            0.50
            
            
            0.40
            
            
            0.38**SHARE
                DATA**Net
                earnings per shareBasicContinuing
                operations
            
            $
            0.93
            
            $
            0.52
            
            $
            0.51
            
            $
            0.41
            
            $
            0.41Discontinued
                operations
            
            
            1.37
            
            
            0.26
            
            
            0.16
            
            
            0.25
            
            
            0.222.30
            
            
            0.78
            
            
            0.67
            
            
            0.66
            
            
            0.63DilutedContinuing
                operations
            
            
            0.87
            
            
            0.49
            
            
            0.50
            
            
            0.40
            
            
            0.38Discontinued
                operations
            
            
            1.34
            
            
            0.25
            
            
            0.15
            
            
            0.24
            
            
            0.202.21
            
            
            0.74
            
            
            0.65
            
            
            0.64
            
            
            0.58Weighted
                average shares (thousands)Basic
            
            
            30,171
            
            
            29,777
            
            
            28,570
            
            
            27,842
            
            
            27,130Diluted
            
            
            30,896
            
            
            30,467
            
            
            29,192
            
            
            28,995
            
            
            29,200Cash
                dividends per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





-
          14 -





***Last
      eight quarters***


**(in
      thousands of US$, except per share amounts) - in accordance with generally
      accepted accounting principles in the United States**





**Period**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**
            
            **Year****FISCAL
                2006**Revenues
            
            $
            251,216
            
            $
            272,320
            
            $
            296,651
            
            $
            247,947
            
            $
            1,068,134Operating
                  earnings
            
            
            24,903
            
            
            24,430
            
            
            12,930
            
            
            2,963
            
            
            65,226Net
                  earnings from continuing operations
            
            
            10,964
            
            
            11,228
            
            
            5,371
            
            
            471
            
            
            28,034Net
                earnings from discontinued operations
            
            
            156
            
            
            2,564
            
            
            2,782
            
            
            35,961
            
            
            41,463Net
                earnings
            
            
            11,120
            
            
            13,792
            
            
            8,153
            
            
            36,432
            
            
            69,497Net
                earnings per share:Basic
            
            
            0.37
            
            
            0.46
            
            
            0.27
            
            
            1.21
            
            
            2.30Diluted
            
            
            0.35
            
            
            0.44
            
            
            0.26
            
            
            1.18
            
            
            2.21**FISCAL
                2005**Revenues
            
            $
            131,623
            
            $
            142,717
            
            $
            176,926
            
            $
            200,110
            
            $
            651,376Operating
                earnings
            
            
            12,416
            
            
            15,384
            
            
            10,344
            
            
            (2,838
            )
            
            35,306Net
                earnings from continuing operations
            
            
            6,536
            
            
            8,462
            
            
            3,266
            
            
            (2,874
            )
            
            15,390Net
                earnings from discontinued operations
            
            
            2,856
            
            
            1,066
            
            
            1,676
            
            
            2,219
            
            
            7,817Net
                earnings
            
            
            9,392
            
            
            9,528
            
            
            4,942
            
            
            (655
            )
            
            23,207Net
                earnings per share:Basic
            
            
            0.32
            
            
            0.32
            
            
            0.17
            
            
            (0.02
            )
            
            0.78Diluted
            
            
            0.31
            
            
            0.32
            
            
            0.16
            
            
            (0.04
            )
            
            0.74**OTHER
                DATA**EBITDA
                - Fiscal 2006 (note 1)
            
            
            29,343
            
            
            28,679
            
            
            20,663
            
            
            10,119
            
            
            88,804EBITDA
                - Fiscal 2005 (note 1)
            
            
            14,757
            
            
            17,955
            
            
            18,364
            
            
            5,337
            
            
            56,413




**Notes**


1. EBITDA
      is defined as net earnings before extraordinary items, discontinued operations,
      minority interest share of earnings, income taxes, interest, other income,
      depreciation and amortization. The Company uses EBITDA to evaluate operating
      performance and as a measure for debt covenants with its lenders. EBITDA is
      an
      integral part of the Company’s planning and reporting systems. Additionally, the
      Company uses multiples of current and projected EBITDA in conjunction with
      discounted cash flow models to determine its overall enterprise valuation and
      to
      evaluate acquisition targets. The Company believes EBITDA is a reasonable
      measure of operating performance because of the low capital intensity of its
      service operations. The Company believes EBITDA is a financial metric used
      by
      many investors to compare companies, especially in the services industry, on
      the
      basis of operating results and the ability to incur and service debt. EBITDA
      is
      not a recognized measure of financial performance under GAAP in the United
      States, and should not be considered as a substitute for operating earnings,
      net
      earnings or cash flows from operating activities, as determined in accordance
      with GAAP. The Company’s method of calculating EBITDA may differ from other
      issuers and accordingly, EBITDA may not be comparable to measures used by other
      issuers. A reconciliation of annual amounts appears below.





(in
                thousands of US$)**Year
                ended March 31**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**EBITDA
            
            **$**
            **88,804**
            
            $
            56,413
            
            $
            36,219
            
            $
            30,815
            
            $
            32,727Depreciation
                and amortization
            
            
            **(23,578**
            **)**
            
            (21,107
            )
            
            (8,586
            )
            
            (7,537
            )
            
            (6,868
            )Operating
                earnings
            
            **$**
            **65,226**
            
            $
            35,306
            
            $
            27,633
            
            $
            23,278
            
            $
            25,859








2.
      Adjusted diluted
      net earnings per share from continuing operations is defined as diluted net
      earnings per share from continuing operations plus the effect, after income
      taxes, of the amortization of short-lived intangible assets acquired in
      connection with recent commercial real estate services acquisitions. The Company
      believes this measure is useful because it isolates the impact of material
      non-recurring acquisition-related amortization expense. This is not a recognized
      measure of financial performance under GAAP in the United States, and should
      not
      be considered as a substitute for diluted net earnings per share from continuing
      operations, as determined in accordance with GAAP. The Company’s method of
      calculating this measure may differ from other issuers and accordingly, this
      measure may not be comparable to measures used by other issuers. A
      reconciliation of annual amounts appears below.




-
          15 -






(in
                thousands of US$)**Year
                ended March 31**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Adjusted
                diluted net earnings per share fromcontinuing
                operations
            
            **$**
            **1.01**
            
            $
            0.67
            
            $
            0.50
            
            $
            0.40
            
            $
            0.38Amortization
                of brokerage backlog, net ofdeferred
                income taxes
            
            
            **(0.14**
            **)**
            
            (0.18
            )
            
            -
            
            
            -
            
            
            -Diluted
                net earnings per share from continuingoperations
            
            **$**
            **0.87**
            
            $
            0.49
            
            $
            0.50
            
            $
            0.40
            
            $
            0.38





**Risk
      and uncertainties**


The
      Company is subject to various risks and uncertainties, which are described
      below
      in order of significance:


•
            Economic
                conditions, especially as they relate to consumer
                spending.


•
            Commercial
                real estate property values, vacancy rates and general conditions
                of
                financial liquidity for real estate
                transactions.


•
            Extreme
                weather conditions impacting demand for our services or our ability
                to
                perform those services.


•
            Political
                conditions, including any outbreak or escalation of terrorism or
                hostilities and the impact thereof on our
                business.


•
            Competition
                in the markets served by the
                Company.


•
            Labor
                shortages or increases in wage and benefit
                costs.


•
            The
                effects of changes in interest rates on our cost of
                borrowing.


•
            Unexpected
                increases in operating costs, such as insurance, workers’ compensation,
                health care and fuel prices.


•
            Changes
                in the frequency or severity of insurance incidents relative to our
                historical experience.


•
            The
                effects of changes in the Canadian dollar foreign exchange rate in
                relation to the US dollar on the Company’s Canadian dollar denominated
                revenues and expenses.


•
            Our
                ability to make acquisitions at reasonable prices and successfully
                integrate acquired operations.


•
            Changes
                in government policies at the federal, state/provincial or local
                level
                that may adversely impact our
                businesses.





Each
      of
      the above factors may have a material adverse affect on the Company’s business,
      operating results and financial condition.





**Management's
      discussion and analysis**


The
      section entitled “Management’s Discussion and Analysis of Results of Operations
      and Financial Condition” within the Company’s 2006 annual report is incorporated
      herein by reference.





**Interest
      of management and others in material transactions**


There
      are no material interests, direct or indirect, of directors or executive
      officers of the Company, any shareholder who beneficially owns, directly or
      indirectly, or exercises control or direction over more than 10% of the
      outstanding shares of the Company, or any known associate or affiliate of such
      persons in any transactions within the three most recently completed financial
      years of the Company or during the current financial year which has materially
      affected, or would materially affect, the Company.





**Material
      contracts**


On
      February 1, 2004, the Company, upon the review, report and recommendation of
      the
      Executive Compensation Committee of the Board of Directors of the Company,
      entered into a management services agreement (the "Management Services
      Agreement") with Jayset Capital Corp. (“Jayset”) and Jay S. Hennick. Mr. Hennick
      is the sole officer, director and shareholder of




-
          16 -




Jayset.
      The particulars of the Management Services Agreement are set out in the sections
      entitled "Executive Compensation - Management Contract" and "Sale of Control
      Agreement" contained in the Circular, which sections are hereby incorporated
      herein by reference.





**Cease
      trade orders, bankruptcies, penalties or sanctions**


No
      director or executive officer of the Company or shareholder holding a sufficient
      number of securities to materially affect the control the Company is, or within
      the ten years prior to the date hereof has been, a director or executive officer
      of any company (including the Company) that, while that person was acting in
      that capacity: (i) was the subject of a cease trade or similar order or an
      order
      that denied the relevant company access to any exemption under securities
      legislation for a period of more than 30 consecutive days; (ii) was subject
      to
      an event that resulted, after the director or executive officer ceased to be
      a
      director or executive officer, in the company being the subject of a cease
      trade
      or similar order or an order that denied the relevant company access to any
      exemption under securities legislation for a period of more than 30 consecutive
      days; or (iii) within a year of that person ceasing to act in that capacity,
      became bankrupt, made a proposal under any legislation relating to bankruptcy
      or
      insolvency or was subject to or instituted any proceedings, arrangement or
      compromise with creditors or had a receiver, receiver manager or trustee
      appointed to hold its assets, other than David R. Beatty who was a director
      of
      Thistle Mining Inc. (“Thistle”) when Thistle announced on December 21, 2004 that
      it intended to undertake a restructuring under the *Companies’
      Creditors Arrangement Act* .
      While
      Thistle completed its restructuring on June 30, 2005, its common shares were
      suspended from trading on public markets due to the restructuring until Thistle
      delisted in February 2006. Mr. Beatty is no longer a director of
      Thistle.





No
      director or executive officer of the Company or shareholder holding a sufficient
      number of securities to materially affect the control the Company has, within
      the last ten years: (a) become bankrupt, made a proposal under any legislation
      relating to bankruptcy or insolvency or become subject to or instituted any
      proceedings, arrangement or compromise with creditors, or had a receiver,
      receiver manager or trustee appointed to hold his assets; or (b) been subject
      to
      any penalties or sanctions imposed by a court or securities regulatory authority
      relating to trading in securities, promotion or management of a publicly traded
      issuer or theft or fraud.





**Conflicts
      of interest**


Certain
      directors and officers of the Company are engaged in and will continue to engage
      in activities outside the Company, and as a result, certain directors and
      officers of the Company may become subject to conflicts of interest. The *Business
      Corporations Act* (Ontario)
      provides that in the event that a director has an interest in a contract or
      proposed contract or agreement, the director shall disclose his interest in
      such
      contract or agreement and shall refrain from voting on any matter in respect
      of
      such contract or agreement unless otherwise provided under the *Business
      Corporations Act* (Ontario).
      To the extent that conflicts of interest arise, such conflicts will be resolved
      in accordance with the provisions of the *Business
      Corporations Act* (Ontario).





As
      at
      the date hereof, the Company is not aware of any existing or potential material
      conflicts of interest between the Company and a director or officer of the
      Company.




**Experts**


The
      financial statements for the financial year ended March 31, 2006 have been
      audited by PricewaterhouseCoopers LLP, the Company’s external
      auditors.





**Audit
      Committee**


The
      Audit Committee is comprised of three members who are each “independent” and
“financially literate” as required by Multilateral Instrument 52-110 *Audit
      Committees* (the
      “Audit Committee Rule”). The members of the Audit Committee during the year
      ended March 31, 2006 were Messrs. Ghert - Chair, Calder and Cohen. Mr. Ghert
      was
      appointed Chair of the Audit Committee in May 2005. The Audit Committee has
      the
      authority to conduct any investigation




-
          17 -




appropriate
      to fulfilling its responsibilities, and it has direct access to the external
      auditors as well as to anyone in the Company. The Audit Committee has the
      ability to retain, at the Company’s expense, special legal, accounting, or other
      consultants or experts it deems necessary in the performance of its duties.
      The
      Audit Committee meets at least four times annually, or more frequently as
      circumstances dictate.





The
      Audit Committee reviews the annual and interim financial statements intended
      for
      circulation among shareholders and reports upon these to the Board of Directors
      of the Company (the "Board") prior to their approval by the full Board. The
      Audit Committee is also responsible for the integrity of the Company’s internal
      accounting and control systems. The Audit Committee communicates directly with
      the Company’s external auditors in order to discuss audit and related matters
      whenever appropriate. In addition, the Board may defer to the Audit Committee
      on
      other matters and questions relating to the financial position of the Company
      and its affiliates. The Board has adopted an Audit Committee mandate, a copy
      of
      which is published on the Company’s website (www.firstservice.com) and is
      annexed to as Schedule “B” to the management information circular of the Company
      dated May 18, 2005, which schedule is hereby incorporated herein by reference.





The
      education and related experience of each of the members of the Audit Committee
      that is relevant to the performance by such members of their responsibilities
      on
      such committee is described below.





**Bernard
      I. Ghert** (Chair) - Mr. Ghert has a Masters degree in Business Administration (MBA).
      Mr.
      Ghert was President and Chief Executive Officer of The Cadillac Fairview
      Corporation Limited from 1981 to 1987 and President of Stelworth Investments
      Inc. from 1987 to 1992. Mr. Ghert has been a director of many organizations
      in
      the private and public sectors, including Cadillac Fairview, Stelworth, CT
      Financial and Canada Trust, Wellington Insurance, Canada Deposit Insurance
      Corporation, and has served as President of the Canadian Institute of Public
      Real Estate Companies. He is currently a director of several Middlefield Funds
      and is on the Advisory Board of the Office of the Superintendent of Financial
      Institutions. Mr. Ghert currently serves as President of the B.I. Ghert Family
      Foundation and as the Immediate Past Chair of the Mount Sinai Hospital Board
      of
      Directors.





**Peter
      F. Cohen -** Mr.
      Cohen is a Chartered Accountant and a former partner in an audit practice of
      a
      public accounting firm. Mr. Cohen is currently the Chair of the Board of the
      Company and President and Chief Executive Officer of the Dawsco Group, a private
      real estate and investment company owned by Mr. Cohen and his family. Mr. Cohen
      was a co-founder and Chair and Chief Executive Officer of Centrefund Realty
      Corporation, a publicly traded shopping center investment company until August
      2000 when control of the company was sold. Mr. Cohen is a member of the boards
      of a number of private companies and charities.





**Brendan
      Calder** - Mr.
      Calder has been the Effective Executive in Residence & Adjunct Professor of
      Strategic Management at the Rotman School of Management, University of Toronto,
      since 2001. Between 1998 and 2000, Mr. Calder was Chair of The Board of CIBC
      Mortgages, Inc., the mortgage banking subsidiary of a Canadian chartered bank,
      and he served as that company’s President, Chief Executive Officer, and director
      from 1995 to 1998. Mr. Calder is also past Chair of the Peter F. Drucker
      Canadian Foundation and is a director of Filogix Inc., Custom Direct Income
      Fund, and the Toronto International Film Festival Group.





The
      Audit Committee Rule requires the Company to disclose whether its Audit
      Committee has adopted specific policies and procedures for the engagement of
      non-audit services and to prepare a summary of these policies and procedures.
      The mandate of the Audit Committee provides that it is such committee’s
      responsibility to: (a) approve the appointment and,




-
          18 -




when
      circumstances warrant, discharge of the external auditor and monitor its
      qualifications, performance and independence; (b) approve and oversee the
      disclosure of all audit services provided by the external auditor to the Company
      or any of its subsidiaries, determining which non-audit services the external
      auditor are prohibited from providing and, exceptionally, pre-approve and
      oversee the disclosure of permitted non-audit services to be performed by the
      external auditor, in accordance with applicable laws and regulations; and (c)
      approve the basis and amount of the external auditor’s fees and other
      significant compensation. The Audit Committee has adopted a pre-approval policy
      pursuant to which the Company may not engage the Company’s external auditor to
      carry out certain non-audit services that are deemed inconsistent with the
      independence of auditors under US and Canadian applicable laws. The Audit
      Committee must pre-approve all audit services as well as permitted non-audit
      services. The Audit Committee has delegated to the Chair of the Audit Committee,
      who is independent, the authority to act on behalf of the Audit Committee with
      respect to the pre-approval of all audit and permitted non-audit services
      provided by its external auditors from time to time. Any approvals by the Chair
      are reported to the full Audit Committee at its next meeting.





In
      addition to performing the audit of the Company’s annual consolidated financial
      statements, PricewaterhouseCoopers LLP provided other services to the Company
      and they billed the Company the following fees for each of the Company’s two
      most recently completed fiscal years:





(in
                US$)
              **Year
                ended March 31**
            
            **2006**
            
            **2005**Audit
                fees (note 1)
            
            $
            1,477,900
            
            $
            913,000Audit-related
                fees (note 2)
            
            
            131,500
            
            
            345,600Tax
                fees (note 3)
            
            
            322,000
            
            
            259,800All
                other fees (note 4)
            
            
            4,600
            
            
            3,300**$**
            **1,936,000**
            
            **$**
            **1,521,700**


**Notes:**


1.
                Refers
                    to the aggregate fees billed by the Company’s external auditor for audit
                    services, including statutory and subsidiary audits. In 2006,
                    audit fees
                    included audits of Resolve Corporation and issuance of comfort
                    letters in
                    relation to the sale of Resolve Corporation.2.
                Refers
                    to the aggregate fees billed for assurance and related services
                    by the
                    Company’s external auditor that are reasonably related to the performance
                    of the audit or review of the Company’s financial statements and are not
                    reported under (1) above, including professional services rendered
                    by the
                    Company’s external auditor for accounting consultations on proposed
                    transactions and consultations related to accounting and reporting
                    standards. Such fees included fees incurred in respect of: compliance
                    with
                    the*Sarbanes-Oxley
                    Act*;
                    due diligence and other work related to the disposition and acquisition
                    of
                    businesses, such work being unrelated to the audit of the Company’s
                    financial statements; accounting consultations with respect to
                    proposed
                    transactions; as well as other audit-related services.3.
                Refers
                    to the aggregate fees billed for professional services rendered
                    by the
                    Company’s external auditor for tax compliance, tax advice and tax
                    planning.4.
                Refers
                    to fees for software product licensing billed by the Company’s external
                    auditor.







**Additional
      information**


Additional
      information, including the directors’ and officers’ remuneration and
      indebtedness, principal holders of the Company’s securities and options to
      purchase securities, where applicable, is contained in the
      Circular.





Copies
      of publicly filed documents of the Company, including those incorporated herein
      by reference, can be found through the SEDAR web site at www.sedar.com.
      Additional financial information is provided in the Company’s consolidated
      comparative financial statements and Management's Discussion and Analysis for
      the year ended March 31, 2006.





Upon
      request, the Secretary of the Company will provide to any person or
      company:





(a)
            when
                the securities of the Company are in the course of a distribution
                under a
                short form prospectus or a preliminary short form prospectus has
                been
                filed for a distribution of its
                securities:








-
          19 -




(i)
            one
                copy of the most recent Annual Information Form of the Company, together
                with one copy of any document, or the pertinent pages of any document,
                incorporated by reference in the Annual Information
                Form;


(ii)
            one
                copy of the comparative financial statements of the Company for its
                most
                recently completed financial year for which financial statements
                have been
                filed together with the accompanying report of the auditor and one
                copy of
                any interim financial statements of the Company for any period after
                the
                end of its most recently completed financial
                year;


(iii)
            one
                copy of the management information circular of the Company in respect
                of
                its most recent annual meeting of shareholders that involved the
                election
                of directors or one copy of any annual filing prepared instead of
                the
                management information circular, as appropriate;
                and


(iv)
            one
                copy of any other documents that are incorporated by reference into
                the
                preliminary short form prospectus or the short form prospectus and
                are not
                required to be provided under subparagraphs (i) to (iii);
                or





(b)
            at
                any other time, one copy of any document referred to in subparagraphs
                (a)(i), (ii) and (iii), provided that the Company may require the
                payment
                of a reasonable charge if the request is made by a person or company
                who
                is not a shareholder of the
                Company.





**Forward-looking
      statements**


This
      Annual Information Form contains or incorporates by reference certain
      forward-looking statements. Such forward-looking statements involve risks and
      uncertainties and include, but are not limited to, statements regarding future
      events and the Company’s plans, goals and objectives. Such statements are
      generally accompanied by words such as “intend”, “anticipate”, “believe”,
“estimate”, “expect” or similar statements. Our actual results may differ
      materially from such statements. Factors that could result in such differences,
      among others, are described in the section entitled “Risks and uncertainties”
above.





Although
      we believe that the assumptions underlying our forward-looking statements are
      reasonable, any of the assumptions could prove inaccurate and, therefore, there
      can be no assurance that the results contemplated in such forward-looking
      statements will be realized. The inclusion of such forward-looking statements
      should not be regarded as a representation by the Company or any other person
      that the future events, plans or expectations contemplated by the Company will
      be achieved. We note that past performance in operations and share price are
      not
      necessarily predictive of future performance.


-
        20 -