dear fellow shareholders:

Fiscal 2006 was our third consecutive year of record financial performance. Revenue rose 35% year over year while expenses rose only 29%, which resulted in a net income increase of 67%. We continued to execute our global strategy to be the pre-eminent global investment dealer focused on the small to mid-cap market. Our team of private client and capital markets professionals has worked tirelessly to grow our business in fiscal 2006, creating value for our clients and a return for our shareholders in excess of 100%.

We have experienced exciting and unprecedented change over the past year: we completed a US acquisition, led the largest financing in our history, increased our assets under management and enhanced our talented global team, while offering innovative products and quality client services. Our idea focus continues to differentiate us from our peers, translating our entrepreneurial approach into positive results for our clients. Additionally, Canaccord’s market capitalization exceeded the $1 billion mark this fiscal year – a significant milestone in our growth.

RE-BRANDED capital markets operations

In January 2006, Canaccord closed the acquisition of Adams Harkness Financial Group, Inc., a privately held Boston, Massachusetts based institutional investment bank with 150 employees in Boston, New York and San Francisco. The US$20 million purchase price included US$8 million in cash and US$12 million in approximately 1.34 million of our common shares. We also established a US$10 million employee retention pool to be paid in Canaccord shares. The transaction should be accretive within 12 months and our newly created US geographic segment was neutral to earnings in the fourth quarter of fiscal 2006.

With its commitment to growth companies in the technology, life sciences and consumer industries and strong client relationships, Adams Harkness’ culture was an exceptional match for Canaccord’s: an idea based franchise featuring highly regarded, independent research, sales and trading, and investment banking activity.

Following this acquisition, Canaccord’s Global Capital Markets group (Canada, UK and US) was re-branded Canaccord Adams. Canaccord Capital (Europe) Limited has been renamed Canaccord Adams Limited and the operating subsidiary of Adams Harkness Financial Group, Inc. became Canaccord Adams Inc. Both of these companies are wholly owned subsidiaries of Canaccord Capital Inc. In addition, the division of Canaccord Capital Corporation that is engaged in capital markets activities in Canada has been branded as Canaccord Adams.

With 10 offices in three countries, Canaccord Adams brings together local market expertise with global perspective to generate ideas for our clients. Our enhanced scope allows for larger transactions, a broader distribution network, deeper sector focus and diversified revenue opportunities. Canaccord Adams’ global strategy is already producing significant success: the group’s revenue rose 39% to $334 million in fiscal 2006. In November 2005, we led the largest transaction in our history, a $504 million financing for UrAsia Energy (B.V.I.) Ltd. that was distributed in Canada, the UK and the US.

Our November 2005 purchase of Calgary, Alberta based Enermarket Solutions Ltd. involved the payment of 77,646 shares and the issuance of shares at $11.90 per share. The business operates as Canaccord Enermarket Ltd., part of Canaccord Adams, and should be accretive to net income in fiscal 2007. Canaccord Enermarket Ltd. provides technical evaluation and marketing services for buyers and sellers of oil and gas properties. This acquisition demonstrates our commitment to building depth of expertise in each of our focus sectors.

In May 2006, we announced the addition of Canaccord Adams’ Houston, Texas operations – our first step into the US domestic energy market. In establishing a full service team, we plan to concentrate on US-domiciled, small to mid-cap energy companies with international exposure. This new group, and the growth opportunities in this significant industry, will enhance our global energy practice, deepening the relevance and broadening the reach of our client services.

Integration will remain a priority for Canaccord Adams in fiscal 2007, as we aim to maximize our market potential, grow our operations and bring value-creating ideas to our clients from around the world.

Private Client Services posts strong growth

Private Client Services’ revenue climbed 26% to $225 million in fiscal 2006, an increase of $47 million year over year. Assets under management (AUM) were up 61% year over year at a record $613 million – while assets under administration (AUA) rose 44% to a record $14.3 billion. The achievements of our Private Client Services division reflect both internal growth and assets brought in by newly recruited Investment Advisors (IAs).

Our plans for Private Client Services involve recruiting exceptional IAs and intensifying training for both existing and newly hired IAs. Our fee-based business is currently in the 18-20% range; over time, we intend to raise this to the 20-25% range. We are pursuing a number of paths to growth and, in early fiscal 2007, we opened a new Private Client Services branch in London, Ontario.

Fostering leadership among talented professionals

This year, there were several important enhancements to our global team. We announced seven key hires in our European capital markets group, including Nick Clayton as Global Co-Head of Energy (Corporate Finance). Early in fiscal 2007, Jamie Brown, an eight-year veteran of our investment banking team, became Head of Corporate Finance for Canaccord Adams in the US. Michael Reynolds, who spearheaded the rapid growth of our Victoria office, became Branch Manager of our Toronto Private Client Services operations in April 2006. We look forward to the contributions of these highly regarded partners.

Brad Kotush was named Executive Vice President & Chief Financial Officer in January 2006, upon the retirement of Dennis Burdett, a valued partner for almost 20 years. Mr. Kotush has been with Canaccord for eight years, and brings extensive financial services experience to this role. He is an excellent addition to the global management team, as we continue to integrate and expand our operations.

Three new members were elected to our Board of Directors at the August 2005 annual general meeting: Arpad Busson is a founding member of both the EIM Group (a fund of funds company with over $10 billion in assets under management), and the Alternative Investment Management Association (AIMA), the largest hedge fund association in the world; he is also an international expert on hedge funds and the financial markets. Timothy Hoare, Chairman of Canaccord Adams Limited in Europe, and Paul Reynolds, Vice Chair and Global Head of Canaccord Adams, also joined our Board of Directors. Their contributions will be instrumental to our progress. We would like to thank our outgoing board member, Jim Pattison, for his involvement in our growth. Mr. Pattison is an outstanding partner and businessman, and we have benefited from his leadership over the past two years.

Setting the stage for enhanced performance

During the year, we made strategic organizational and infrastructure investments that set the stage for enhanced performance and future growth. We outgrew our Toronto and Calgary offices and moved to new premises. We substantially expanded our information technology capabilities, making key physical infrastructure and software enhancements. Canaccord remains committed to increasing operational efficiency and offering world-class technology solutions to our employees, partners and clients.

A milestone in our development was our June 2004 Initial Public Offering on the Toronto Stock Exchange. On June 22, 2005, our shares began trading on AIM in London. These listings further our growth objectives by giving us access to public markets, heightening our visibility and providing capital to support the growth in our existing operations and for potential acquisitions.

Canaccord changed its dividend policy at the outset of fiscal 2006, moving from a formula based on a percentage of annual net income to a fixed amount of $0.06 per share, to be paid quarterly. Given our financial results, the Board of Directors approved an increase to $0.08 per share, beginning with the third quarter of fiscal 2006.

The strength of our performance is due in part to higher volumes and the benefits of scalability. Revenue is increasing faster than expenses. In fiscal 2006, total compensation fell to 58.5% of revenue from 61.5% in the prior year.

Our Employee Stock Purchase Plan (ESPP) closely aligns the interests of employees and shareholders, with 45% of eligible personnel participating in the ESPP. In total we believe employees own about 53% of Canaccord’s shares.

Business outlook remains promising

The outlook for our business remains favourable. The forecast for Canadian GDP growth is 3.0% on average for 2006 and 2.8% for 2007. Canadian economic growth could be slowed by weakness in the US economy, competitive pressure from low-cost international producers, reduced Chinese demand for commodities or sluggish productivity. On the financial front, the US Federal Reserve and the Bank of Canada gradually raised interest rates in the first five months of 2006 in order to stem inflationary concerns; this could negatively affect North American capital markets, which experienced better than average performance in early calendar 2006. Nevertheless, we anticipate that prices for energy and mined resources will remain high – resulting in market returns and activity that could continue to exceed historical trends.

We believe that Canaccord has the right strategy to achieve long term growth in our industry and exceptional performance for our stakeholders. We are confident that our focus on ideas, our global reach and our drive to succeed position us to effectively maximize the opportunities that lie ahead.