**EXHIBIT
1**
 
 
 
 **FirstService
Corporation**
 
 
 **ANNUAL
INFORMATION FORM**
 **FOR
THE YEAR ENDED**
 **MARCH
31, 2005**
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 **JUNE
1, 2005**
  
  **TABLE
OF CONTENTS**
 
 Corporate
      structure
    
    
    1General
      development of the business
    
    
    1Business
      description
    
    
    2Business
      strategy
    
    
    9Seasonality
    
    
    12Trademarks
    
    
    12Employees
    
    
    12Minority
      interests
    
    
    12Dividend
      policy
    
    
    13Capital
      structure
    
    
    13Market
      for securities
    
    
    13Transfer
      agents and registrars
    
    
    13Directors
      and officers
    
    
    14Legal
      proceedings
    
    
    15Properties
    
    
    15Selected
      consolidated financial information
    
    
    16Risk
      and uncertainties
    
    
    18Management's
      discussion and analysis
    
    
    18Interest
      of management and others in material transactions
    
    
    18Material
      contracts
    
    
    18Cease
      trade orders, bankruptcies, penalties or sanctions
    
    
    19Conflicts
      of interest
    
    
    19Experts
    
    
    19Audit
      Committee
    
    
    19Additional
      information
    
    
    21Forward-looking
      statements
    
    
    22
  
 
  **FIRSTSERVICE
CORPORATION**
 
 **ANNUAL
INFORMATION FORM**
 
 **JUNE
1, 2005**
 
 *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, 2005 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.SV) 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")
    
    
    71.80
    %
    
    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
    %
    
    FloridaResolve
      MSS Inc.
    
    
    88.50
    %
    
    OntarioResolve
      BPO Inc.
    
    
    88.37
    %
    
    OntarioThe
      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, President and 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 Secured Notes due
June 29, 2011 with a group of US institutional investors. In October 2003, $50
million of 6.40% Senior Secured Notes due September 30, 2015 was issued. In
April 2005, we completed a further private placement of $100 million of 5.44%
Senior Secured 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 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.
 
 In June
2004 and December 2004, we acquired leading residential property managers in
Chicago and Las Vegas, respectively, marking a significant expansion of our
geographic footprint in the Residential Property Management
segment.
 
 Our
Property Improvement Services division (formerly Consumer Services) continued
its "branchising" strategy of selectively acquiring established California
Closets franchises with the acquisition of two franchises in Dallas and Phoenix,
in January and April 2005, respectively.
 
 On
April 1, 2004, we sold the assets of Greenspace Services Ltd., our company-owned
lawn care operation. In February 2005, we sold the assets of Aqua-Shield Corp.,
our South Florida concrete restoration operation, a non-strategic part of our
Residential Property Management business. In March 2005, we sold our shares of
Stained Glass Overlay, Inc., our decorative glass treatments franchise system, a
small component of our Property Improvement Services division. The combined
revenues of the disposed operations for the year ended March 31, 2004, the last
full year of ownership, were $39 million.
 
 **Business
description**
 FirstService
is a leader in the rapidly growing service sector, providing services in the
following areas: residential property management; commercial real estate;
integrated commercial security systems; property improvement; and business
services. 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;
California Closets, Paul Davis Restoration, Pillar to Post Home Inspection, and
CertaPro and College Pro Painters in property improvement; and Resolve
Corporation in business services.
 
 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.
    
 -2-
 
 
 Our
operations are conducted through five operating segments:
   
 
 **Revenues
      by operating segment**
    
    **Year
      ended March 31**(in
      thousands of US$)
    
    **2005**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**Residential
      Property Management
    
    $
    275,229
    
    $
    228,790
    
    $
    203,515
    
    $
    205,376
    
    $
    181,730Commercial
      Real Estate Services
    
    
    120,535
    
    
    -
    
    
    -
    
    
    -
    
    
    -Integrated
      Security Services
    
    
    143,160
    
    
    122,748
    
    
    107,548
    
    
    95,507
    
    
    81,007Property
      Improvement Services
    
    
    111,779
    
    
    89,361
    
    
    70,850
    
    
    64,826
    
    
    58,897Business
      Services
    
    
    160,914
    
    
    152,449
    
    
    126,373
    
    
    127,478
    
    
    82,346Corporate
    
    
    673
    
    
    4343
    
    
    389
    
    
    364
    
    
    253Total
    
    $
    812,290
    
    $
    593,782
    
    $
    508,675
    
    $
    493,551
    
    $
    404,233
 
 ***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, Dickinson and Sterling brands.
In the mid-Atlantic region, we operate under the Wentworth, Armstrong, Cooper
Square, Arco Wentworth and American Pool brands. Our Arizona operations are
conducted through Rossmar & Graham. In Illinois we operate as Wolin-Levin,
while 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
quarters.
  The aggregate budget of the community associations managed by FirstService is
approximately $2.0 billion. The aggregate budget of all the community
associations in the United
 -3-
 
 
 
 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 50 million Americans, representing approximately 20
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 250,000 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 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
3% of the nation's approximately 20 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,
through the acquisition of CMN in November 2004, 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 63% of total CMN revenues, while Australia and New Zealand
generate approximately 22%. We provide services to owners, investors and
tenants, including brokerage (sale and leasing), property management 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 2004, through a network of 1,200 brokers across 80
offices, CMN executed transactions valued at more than $11 billion across a
diverse client base,
 
 
 
 -4-
 
 
 including
chartered banks, insurance companies, corporations 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 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 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 247 offices generating over $1 billion
in revenues in 50 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 4 real
estate organizations combining for only about 5% of the estimated $78 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 fifteen branches - twelve
in the United States and three in Canada. We operate two security brands,
Intercon in Canada and Security Services and Technologies ("SST") in the United
States. The management team is responsible
 
 
 -5-
 
 for the combined Intercon and SST 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.
 
 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 been a key success factor in delivering growth 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. Of the top 100 systems integrators compiled by SDM
Magazine for 2004, only the largest five had revenues over $100 million and the
smallest 56 had revenues of less than $10 million. FirstService is the seventh
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
   -6-
   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 (formerly Consumer Services)***
 In
Property Improvement Services, we provide a variety of residential and
commercial services through our network of approximately 1,800 franchised and 8
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 year ended March 31, 2005, we sold our Company-owned
lawn care operations and our
decorative glass treatments franchise system.
 
 California
Closets is the largest provider of installed closet and home storage systems in
North America. Headquartered in San Rafael, California, California Closets has
96 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 219 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
approximately 280 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 665 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 450 franchises. Pillar to Post earns royalties
from its franchisees based on a percentage of revenues.
 
 Floorcoverings
International is a franchiser of "shop-at-home" flooring and window covering
solutions, with 72 franchises in the United States and Canada. Floorcoverings
International earns revenues 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.
   -7-
  We
currently own and operate eight California Closets franchises located in Boston,
Seattle, Chicago, Jacksonville, San Francisco, Toronto, Dallas and Phoenix.
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.
 
 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
Services***
 Through
Resolve Corporation ("Resolve"), we provide outsourced marketing support
services ("MSS") and business process outsourcing ("BPO") services to Fortune
1000 companies through 14 branch offices in Canada and the United States.
Effective May 2004, these operations were re-branded as Resolve and reorganized
under a single senior management team drawn from its predecessor businesses. The
formation of Resolve marked a significant milestone in our long-term plan to
integrate and realize synergies from our Business Services
operations.
 
 MSS
includes customer relationship management, order processing, inventory
management, warehousing, order assembly and shipping, coupon processing,
rebating and client profiling. We work with our clients to create fully
integrated marketing support and fulfillment solutions, which can include
ongoing technical service or product support, customized order processing,
inventory management and fulfillment. MSS services are provided from branches in
the United States and Canada, including facilities in Cleveland, Toronto,
Dallas, Philadelphia, Chicago, Los Angeles, Atlanta and Albuquerque. In
aggregate, the Company occupies 2.0 million square feet of dedicated fulfillment
and production capacity. We use advanced electronic inventory management and
tracking systems to manage materials on behalf of our clients.
 
 In our
BPO operations, we provide administrative functions that typically are not
strategic to an organization and can be more efficiently and cost-effectively
performed by third parties that specialize in such activities. The objective of
our BPO operation is to be recognized as the best strategic partner to
businesses and government agencies for the outsourcing of labor-intensive,
back-office functions. We have developed expertise in performing services that
require significant labor in coordination with technology, such as the
management of loan portfolios, credit card and affinity programs and the
processing of drug and dental claims. We are the second largest student loan
processor in Canada with typical contracts ranging from one to 10 years. In May
2005, Resolve entered into a contract to administer RBC Royal Bank's student
loan portfolio. The contract is for a term of 10 years and is expected to
generate approximately $100 million in revenues. This new contract is the
largest single non-government owned student loan portfolio in Canada. With this
contract, Resolve will be administering more than 800,000 student loans for
clients across North America.
   
 -8-
 Businesses
and governments are increasingly concerned with focusing scarce resources on
core operations that provide the greatest competitive advantage and best return
on investment. As a result, non-core functions are being outsourced to companies
that can perform them more productively, more efficiently, more quickly and with
higher precision.
 
 The
business services industry is diverse and comprised of distinct sectors,
including the areas in which FirstService participates. The estimated size of
the market for MSS services is $5 billion, and the estimated size of the market
for BPO services is $500 billion; both markets are experiencing annual growth in
excess of 10%. Competitors range from large, sophisticated companies to smaller
niche providers, with many possessing adequate size and technical capabilities.
Given the large size of the market, significant growth can be achieved without
significant market share. Our largest Business Services client represented
approximately 2% of fiscal 2005 consolidated revenues.
 
 The BPO
segment is occupied by some of the largest business services companies in the
world, leveraging their size to realize economies of scale on very large
outsourcing contracts. To compete, we tend to focus on certain niches, such as
loan processing and credit and loyalty card administration, where we can
capitalize on our specialized expertise. Low cost, high quality labor available
overseas has caused some market participants to shift production work away from
North America to off shore locations. We compete on the basis of providing
competitively priced value-added services, highly trained staff, all supported
by strong operating efficiencies.
 
 Technology
investment and the cost of labor are the most significant factors driving change
in the MSS and BPO sectors. Technological advances are changing business
processes, improving productivity, and reducing the importance of geographical
proximity. To support our service offering, we made a significant investment in
Voice Over Internet Protocol ("VOIP") technologies during the past
year.
 
 We
believe that we have sufficient size, expertise and financial resources to keep
pace with technological advances and remain competitive in the industry. We
believe that only a minority of the services offered to our clients could be
provided at off shore locations because of transportation and timely delivery
requirements for fulfillment materials, the political sensitivities of our
clients (especially government agencies), training requirements, and other
logistical reasons. However, the Company is currently processing selected work
through a supplier in India.
 
 We
provide call center and processing services from low-cost locations in Canada,
including Charlottetown and St. John, to several US clients. Legislation has
been proposed in several US states and federally aiming to protect and
repatriate US call center jobs. It is possible that such legislation, if passed,
could impair our clients' abilities to effectively use our
services.
 
 We
provide school textbook fulfillment services in several US states. State
governments are responsible for determining the amount of annual expenditure on
new textbooks and also the manner in which textbooks are distributed.
Unfavorable legislation, if passed, would impact the volume of textbook
fulfillment handled by us.
 
 **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,
 -9-
  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 EBITDA1. 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, 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 consolidated customer
lists and other 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 service 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.
  
 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 Canada, 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.
  -10-
 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 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.
  -11-
  
 **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. In addition, the majority of textbook fulfillment
activity (Business Services segment) occurs in the months of June to August.
These operations generate most of their annual revenues and earnings between
April and September and comprise approximately 7% of consolidated
revenues.
 
 The
recently acquired 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 operations comprise approximately 20% 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 16,000 full-time non-unionized employees, rising to a total
of approximately 18,000 with seasonal employees in the spring and summer
months.
 
 **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.
  
 -12-
 ****
 **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 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 June 1, 2005, there were 28,879,094 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 18, 2005 filed in connection with the Company's annual
meeting of shareholders to be held on June 27, 2005, 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, reflecting the stock split in all periods:
 
 **NASDAQ**
    
    **TSX****Month**
    
    **High
      price (US$)**
    
    **Low
      price (US$)**
    
    **Volume
      traded**
    
    **High
      price (C$)**
    
    **Low
      price (C$)**
    
    **Volume
      traded**April
      2004
    
    
    12.75
    
    
    11.00
    
    
    261,800
    
    
    16.75
    
    
    15.03
    
    
    296,152May
      2004
    
    
    11.95
    
    
    10.78
    
    
    138,800
    
    
    16.50
    
    
    14.96
    
    
    595,994June
      2004
    
    
    12.50
    
    
    11.44
    
    
    174,200
    
    
    17.35
    
    
    15.75
    
    
    599,143July
      2004
    
    
    12.50
    
    
    10.94
    
    
    124,200
    
    
    16.25
    
    
    14.50
    
    
    493,200August
      2004
    
    
    12.67
    
    
    11.13
    
    
    218,400
    
    
    16.50
    
    
    14.75
    
    
    547,574September
      2004
    
    
    12.50
    
    
    11.61
    
    
    213,800
    
    
    16.13
    
    
    15.05
    
    
    266,166October
      2004
    
    
    13.70
    
    
    11.83
    
    
    371,600
    
    
    16.88
    
    
    14.93
    
    
    585,564November
      2004
    
    
    16.50
    
    
    13.41
    
    
    241,800
    
    
    19.25
    
    
    16.43
    
    
    1,082,382December
      2004
    
    
    17.53
    
    
    14.69
    
    
    427,700
    
    
    19.80
    
    
    17.92
    
    
    1,032,296January
      2005
    
    
    18.75
    
    
    16.00
    
    
    311,700
    
    
    22.94
    
    
    19.57
    
    
    1,086,810February
      2005
    
    
    20.13
    
    
    17.84
    
    
    457,200
    
    
    23.70
    
    
    22.20
    
    
    1,683,000March
      2005
    
    
    21.00
    
    
    18.00
    
    
    656,900
    
    
    25.24
    
    
    21.89
    
    
    1,062,000
 
 **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 3C4. The transfer agent and registrar for the Multiple Voting Shares is the
Company at 1140 Bay Street, Suite 4000, Toronto, Ontario, M5S 4B4.
  
 -13-
 ****
 **Directors
and officers**
 ***Directors*** *-* The
following are the directors of the Company as at June 1, 2005:
 
 **Name
      and municipality of residence**
    **Age**
    **Present
      position and tenure**
    **Business
      experience during**
      **last
      five years**David
      R. Beatty2,3
      *Toronto,
      Ontario*
    63
    Director
      since May 2001
    Corporate
      Director; Chairman 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*
    58
    Director
      since June 1996
    Corporate
      Director;
      Effective
      Executive in Residence,
      Rotman
      School of Management,
      University
      of TorontoPeter
      F. Cohen1,2,3
      *Toronto,
      Ontario*
    52
    Director
      since March 1990; Chairman since May 2005
    President
      and CEO, Dawsco Capital Corp.
      (Ontario-based
      real estate and investment company)Bernard
      I. Ghert1
      *Toronto,
      Ontario*
    65
    Director
      since June 2004
    Founder
      and President,
      B.I.
      Ghert Family FoundationJay
      S. Hennick
      *Toronto,
      Ontario*
    48
    President,
      Chief Executive Officer and Director since May 1988
    President
      and Chief Executive Officer of the CompanySteven
      S. Rogers
      *Mississauga,
      Ontario*
    49
    Director
      since August 1989
    President
      and Chief Executive Officer,
      The
      Franchise Company, Inc.
      (subsidiary
      of the Company)
 
 1.
    Member
      of Audit Committee2.
    Member
      of Executive Compensation Committee3.
    Member
      of Nominating and Corporate Governance
Committee
 
 Each
director remains in office until the following annual shareholders' meeting or
until the election 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 - Board
Committees - Audit Committee" contained in the Circular, which sections are
hereby incorporated herein by reference.
 
 
 
  -14-
  
 ***Officers
-*** The
following are the executive officers of the Company as at June 1,
2005:
 
 **Name
      and municipality of residence**
    **Age**
    **Present
      position with the Company**
    **First
      became**
      **an
      officer**Jay
      S. Hennick
      *Toronto,
      Ontario*
    48
    President,
      Chief Executive Officer and Director
    1988D.
      Scott Patterson**
      *Toronto,
      Ontario*
    44
    Executive
      Vice President
    1995John
      B. Friedrichsen**
      *Toronto,
      Ontario*
    43
    Senior
      Vice President and Chief Financial Officer
    1998Roman
      Kocur**
      *Toronto,
      Ontario*
    44
    Vice
      President, Acquisitions
    2003Michael
      Natale
      *Toronto,
      Ontario*
    45
    Vice
      President, Performance & Risk Management
    2005Douglas
      G. Cooke
      *Toronto,
      Ontario*
    45
    Corporate
      Controller and Treasurer
    1995
 
 The
directors and executive officers of the Company, as a group, own or control
2,877,604 Subordinate Voting Shares (including vested stock options), which
represents 9.8% of the total Subordinate Voting Shares outstanding (including
vested stock options). The directors and officers, as a group, control 55.4% 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 1,572 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.
 
 **Properties**
 The
following chart provides a summary of the properties occupied by the Company and
its subsidiaries as at March 31, 2005:
 
 **(square
      feet)**
    
    **United
      States (leased)**
    
    **United
      States**
      **(owned)**
    
    **Canada**
      **(leased)**
    
    **Canada**
      **(owned)**
    
    **International**
      **(leased)**
    
    **International**
      **(owned)**Residential
      Property Management
    
    
    295,000
    
    
    73,000
    
    
    5,000
    
    
    -
    
    
    -
    
    
    -Commercial
      Real Estate Services
    
    
    147,000
    
    
    -
    
    
    184,000
    
    
    -
    
    
    259,000
    
    
    -Integrated
      Security Services
    
    
    40,000
    
    
    -
    
    
    80,000
    
    
    -
    
    
    -
    
    
    -Consumer
      Services
    
    
    60,000
    
    
    -
    
    
    150,000
    
    
    -
    
    
    -
    
    
    -Business
      Services
    
    
    1,735,000
    
    
    -
    
    
    590,000
    
    
    106,000
    
    
    -
    
    
    -Corporate
    
    
    -
    
    
    -
    
    
    -
    
    
    20,000
    
    
    -
    
    
    -
 
  -15-
  
 **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**
    
    **2005**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001****OPERATIONS**Revenues
    
    $
    812,290
    
    $
    593,782
    
    $
    508,675
    
    $
    493,551
    
    $
    404,233Operating
      earnings
    
    
    51,568
    
    
    39,485
    
    
    37,432
    
    
    43,287
    
    
    34,033Net
      earnings from continuing operations
    
    
    22,645
    
    
    19,662
    
    
    18,453
    
    
    16,482
    
    
    12,056Net
      earnings from discontinued operations, net of income taxes
    
    
    562
    
    
    (638
    )
    
    (13
    )
    
    547
    
    
    575Net
      earnings
    
    
    23,207
    
    
    19,024
    
    
    18,440
    
    
    17,029
    
    
    12,631**FINANCIAL
      POSITION**Total
      assets
    
    $
    626,728
    
    $
    437,553
    
    $
    389,031
    
    $
    365,929
    
    $
    305,137Long-term
      debt
    
    
    220,015
    
    
    163,888
    
    
    164,919
    
    
    165,611
    
    
    152,424Shareholders'
      equity
    
    
    185,871
    
    
    155,101
    
    
    123,406
    
    
    99,221
    
    
    79,220Book
      value per share
    
    
    6.15
    
    
    5.26
    
    
    4.36
    
    
    3.60
    
    
    3.01**OTHER
      DATA**EBITDA
      (note 1)
    
    $
    78,763
    
    $
    54,521
    
    $
    50,588
    
    $
    55,240
    
    $
    45,310Diluted
      earnings per share from continuing operations adjusted for brokerage
      backlog amortization (note 2)
    
    
    0.90
    
    
    0.67
    
    
    0.64
    
    
    0.56
    
    
    0.44**SHARE
      DATA**Net
      earnings per shareBasicContinuing
      operations
    
    $
    0.76
    
    $
    0.69
    
    $
    0.66
    
    $
    0.61
    
    $
    0.46Discontinued operations
    
    
    0.02
    
    
    (0.02
    )
    
    -
    
    
    0.02
    
    
    0.020.78
    
    
    0.67
    
    
    0.66
    
    
    0.63
    
    
    0.48DilutedContinuing operations
    
    
    0.72
    
    
    0.67
    
    
    0.64
    
    
    0.56
    
    
    0.44Discontinued operations
    
    
    0.02
    
    
    (0.02
    )
    
    -
    
    
    0.02
    
    
    0.020.74
    
    
    0.65
    
    
    0.64
    
    
    0.58
    
    
    0.46Weighted
      average shares (thousands)Basic
    
    
    29,777
    
    
    28,570
    
    
    27,842
    
    
    27,130
    
    
    26,148Diluted
    
    
    30,467
    
    
    29,192
    
    
    28,995
    
    
    29,200
    
    
    27,682Cash
      dividends per share
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
 
  -16-
  
 ***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
      2005**Revenues
    
    $
    167,044
    
    $
    180,700
    
    $
    218,184
    
    $
    246,362
    
    $
    812,290Operating
      earnings
    
    
    14,403
    
    
    18,707
    
    
    15,069
    
    
    3,389
    
    
    51,568Net
      earnings from continuing operations
    
    
    7,249
    
    
    9,681
    
    
    5,305
    
    
    410
    
    
    22,645Net
      earnings from discontinued operations
    
    
    2,143
    
    
    (153
    )
    
    (363
    )
    
    (1,065
    )
    
    562Net
      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
    
    
    0.31
    
    
    0.16
    
    
    (0.04
    )
    
    0.74**FISCAL
      2004**Revenues
    
    $
    144,337
    
    $
    152,974
    
    $
    144,661
    
    $
    151,810
    
    $
    593,782Operating
      earnings
    
    
    11,662
    
    
    15,530
    
    
    6,758
    
    
    5,535
    
    
    39,485Net
      earnings from continuing operations
    
    
    5,274
    
    
    7,364
    
    
    3,043
    
    
    3,981
    
    
    19,662Net
      earnings from discontinued operations
    
    
    1,137
    
    
    1,605
    
    
    (1,033
    )
    
    (2,347
    )
    
    (638
    )Net
      earnings
    
    
    6,411
    
    
    8,969
    
    
    2,010
    
    
    1,634
    
    
    19,024Net
      earnings per share:Basic
    
    
    0.23
    
    
    0.32
    
    
    0.07
    
    
    0.06
    
    
    0.67Diluted
    
    
    0.23
    
    
    0.31
    
    
    0.07
    
    
    0.05
    
    
    0.65**OTHER
      DATA**Diluted
      earnings per share from continuing operations adjusted for brokerage
      backlog amortization - Fiscal 2005 (note 2)
    
    $
    0.24
    
    $
    0.32
    
    $
    0.27
    
    $
    0.07
    
    $
    0.90Diluted
      earnings per share from continuing operations - Fiscal
2004
    
    
    0.19
    
    
    0.25
    
    
    0.10
    
    
    0.13
    
    
    0.67EBITDA
      - Fiscal 2005 (note 1)
    
    
    18,273
    
    
    22,797
    
    
    24,646
    
    
    13,047
    
    
    78,763EBITDA
      - Fiscal 2004 (note 1)
    
    
    15,322
    
    
    19,114
    
    
    10,573
    
    
    9,512
    
    
    54,521
 
 **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 Canada, 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**
    
    **2005**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**EBITDA
    
    **$**
    **78,763**
    
    $
    54,521
    
    $
    50,588
    
    $
    55,240
    
    $
    45,310Depreciation
      and amortization
    
    
    **(27,195**
    **)**
    
    (15,036
    )
    
    (13,156
    )
    
    (11,953
    )
    
    (11,277
    )Operating
      earnings
    
    **$**
    **51,568**
    
    $
    39,485
    
    $
    37,432
    
    $
    43,287
    
    $
    34,033
 
 
 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 the short-lived brokerage backlog
intangible asset acquired in connection with the CMN acquisition. 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 Canada, 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.
  -17-
  
 (in
      thousands of US$)**Year
      ended March 31**
    
    **2005**
    
    **2004**
    
    **2003**
    
    **2002**
    
    **2001**Adjusted
      diluted net earnings per share from continuing operations
    
    **$**
    **0.90**
    
    $
    0.67
    
    $
    0.64
    
    $
    0.56
    
    $
    0.44Amortization
      of brokerage backlog, net of deferred income taxes
    
    
    **(0.18**
    **)**
    
    -
    
    
    -
    
    
    -
    
    
    -Diluted
      net earnings per share from continuing operations
    
    **$**
    **0.72**
    
    $
    0.67
    
    $
    0.64
    
    $
    0.56
    
    $
    0.44
 
 
 **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 and business
      spending on customer relations and promotion.§
    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 student loans processing or textbook
      fulfillment activities.
 
 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 2005 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
  -18-
  Corp.
("Jayset") and Jay S. Hennick. Mr. Hennick is the sole officer, director and
shareholder of Jayset. The particulars of the Management Services Agreement are
set out in the sections entitled "Executive Compensation - Management Contract"
and "Long Term Incentive Plan" 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 a
mining company when it made an application under the *Companies'
Creditors Arrangement Act* on
January 7, 2005.
 
 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, 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, 2005 have been
audited by PricewaterhouseCoopers LLP, the Company's external
auditors.
 
 **Audit
Committee**
 The
Audit Committee of the Company is composed of three members who are
"independent" and "financially literate" as required by Multilateral Instrument
52-110 *Audit
Committees* (the
"CSA Audit Committee Rule"). The members of the Audit Committee during the year
ended March 31, 2005 were Messrs. Ghert, Calder and Cohen, Chairman. In May
2005, Mr. Ghert was appointed Chairman of the Audit Committee. The Audit
Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and it has direct access to the external
auditors as well as 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
  -19-
  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 financial statements intended for circulation
among shareholders and reports upon these to the Board of Directors of the
Company (the "Board"). 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 the Circular as Schedule "B", 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
      (M.B.A.). Mr. Ghert was previously 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.
      Mr. Cohen is currently the Chairman of the Board of the Corporation 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 Chairman 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 also
      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 CSA
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, 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 Corporation 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
Corporation may not engage the Corporation's external auditor to carry out
certain non-audit services that are deemed inconsistent with the independence of
auditors under U.S. and Canadian applicable laws. The Audit Committee must
pre-approve all audit services as well as permitted non-audit services. The
Audit
    -20-
    Committee has
delegated to the Chairman 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 Chairman 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**
    
    **2005**
    
    **2004**Audit
      fees (note 1)
    
    $
    913,000
    
    $
    496,800Audit-related
      fees (note 2)
    
    
    345,600
    
    
    172,000Tax
      fees (note 3)
    
    
    259,800
    
    
    467,700All
      other fees (note 4)
    
    
    3,300
    
    
    -**$**
    **1,521,700**
    
    **$**
    **1,136,500**
  **Notes:**
 1.
    Refers
      to the aggregate fees billed by the Company's external auditor for audit
      services.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 Corporation'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, 2005.
 
 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:(i)
    one
      copy of the 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;
   -21-
  (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.
 
 
   -22-