FP Newspapers Income Fund

Q2 - 2003

Quarterly Report

June 30, 2003

TSX: FP.UN

Second Quarter ReportJune 30, 2003

Report to Unitholders

Dear Fellow Unitholders:

We are pleased to provide you with a report on the results of our operations and relateddistributions to unitholders of FP Newspapers Income Fund (the “Fund”) for the quarter endingJune 30, 2003. The Fund holds a 49 per cent interest in FP Canadian Newspapers LimitedPartnership (FPLP), which owns the Winnipeg Free Press and the Brandon Sun newspapers.

Total revenue for FPLP for the three months ended June 30, 2003 was $25.6 million, a $0.8million increase over the same period last year. Operating income before depreciation andamortization (“EBITDA”) of the newspapers in the second quarter was $6.5 million, a 1.5 percent increase compared to $6.4 million in 2002.

The Fund earned $2.0 million, or $0.29 per Unit during the three months ended June 30, 2003.Cash available for distribution attributable to the Fund was $0.35 per Unit for the second quarter,and distributions to unitholders were $0.30 per Unit.

Operations

Revenue growth in the second quarter was largely attributable to an increase in advertisingrevenues. Advertising revenue for the newspaper operations in the second quarter of 2003 was$18.7 million compared to $18.1 million in the prior year. Advertising flyer distributionrevenues continued to show strong growth and accounted for $0.4 million of this increase.Circulation revenue was $5.3 million in the second quarter of 2003, a 3.4 per cent increase over2002.

Overall, operating expenses excluding amortization were $19.1 million a 3.6 per cent increasecompared to $18.4 million in 2002. Newsprint expense accounted for $0.4 million of thisincrease resulting primarily from an 8.4% increase in newsprint prices compared to the secondquarter in 2002.

FPLP welcomed a new member of the executive team in late July. Murdoch Davis has joinedthe Winnipeg Free Press as Publisher. Mr. Davis has more than 20 years experience in variousnewspaper editorial positions and has held senior management roles with the CanWest andSoutham publishing groups. Rudy Redekop continues as President and will be focusing hisefforts on business development activities for FPLP.

NEWSPAPERS INCOME FUND

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Distributions

Distributable cash attributable to the Fund for the trailing twelve months ended June 30, 2003was $8.9 million, or $1.28 per Unit. During that same period, the Fund declared distributions of$1.24, resulting in a payout ratio of 96.3%. Available cash balances in FPLP will be used tomaintain stable monthly distributions during the third quarter when EBITDA and distributablecash are seasonably lower due to traditionally decreased advertising activity in July and August.

Outlook

We are pleased with the growth in flyer distribution revenue and expect this trend to continue.However, advertising revenue overall is very difficult to forecast since advertising activity isdriven by a number of factors, including general economic growth, consumer spending,employment trends and consumer confidence. Circulation revenue should continue to bemodestly higher for the balance of the year due to the effect of January 2003 rate increases. Weexpect cost of newsprint will increase in the second half of the year, as most producers haveannounced a 2.7% increase effective August 1, 2003. If newsprint prices increase by thispercentage in August and remain at that level for the balance of the year, year on year newsprintcosts will be approximately $0.4 million and $0.3 million higher in each of the third and fourthquarters respectively, compared to 2002.

Ronald N. Stern Rudy RedekopChairman & Trustee President

July 30, 2003

Management’s Discussion and AnalysisJune 30, 2003

Formation and Legal Entities

FP Newspapers Income Fund (the “Fund”) was created on May 15, 2002 and commenced operations on May 28,2002 when it completed an Initial Public Offering and purchased an interest in FP Canadian Newspapers LimitedPartnership (“FPLP”). The Fund owns securities entitling it to 49% of the distributable cash of FPLP.

FPLP is a limited partnership formed on August 9, 1999. FPLP acquired the business and assets and assumedcertain liabilities of the Winnipeg Free Press and Brandon Sun newspapers effective November 29, 2001.

FP Newspapers Income Fund

The Fund earned $2,057,000 in income from its investment in FPLP for the three months ended June 30, 2003. Ofthis amount $1,948,000 was earned as interest on the 11.5% subordinated notes issued by FPLP to the Fund, and$109,000 represents the Fund’s equity interest from its Class A limited partnership units. The Fund incurred$62,000 in operating expenses, resulting in net earnings for the period of $1,995,000.

The Fund’s share of distributions declared by FPLP for the three months ended June 30, 2003 comprising interest onsubordinated notes and distributions on Class A units was $2,550,000 or $0.369 per unit. The Fund declareddistributions to unitholders of $0.30 per unit for the three months ended June 30, 2003. Cash available fordistribution attributable to the Fund was $2,399,000 or $0.348 per unit for the quarter ended June 30, 2003.

Cash available for distribution attributable to the Fund for the trailing twelve months to June 30, 2003 is calculatedas follows:

$ThousandsDistributable cash of FPLP:Operating income before amortization 22,140Interest and sundry income 116Interest expense on term loan (3,058)Capital expenditures (622)

18,576

49% attributable to the Fund 9,102Administration expenses (233)Distributable cash attributable to the Fund 8,869

Distributable cash attributable to the Fund – per Unit $1.285

The Fund is dependant on the operations of FPLP, its sole investment.

FP Canadian Newspapers Limited Partnership

Results of Operations

Revenue: Three MonthsEnded June 30

Six MonthsEnded June 30

2003 2002 2003 2002$ Thousands $ Thousands

Advertising $18,663 $18,107 $35,620 $34,802Circulation 5,345 5,171 10,561 10,272Commercial Printing 1,291 1,261 2,572 2,585Promotions and Services 269 270 521 760

$25,568 $24,809 $49,274 $48,419

Revenue for the three months ended June 30, 2003 was $25.6 million an increase of $0.8 million or 3.1% over thesecond quarter of 2002. Advertising revenues increased by $0.6 million or 3.1% primarily the result of continuedgrowth in advertising flyer distribution revenue. Circulation revenue increased by $0.2 million or 3.4% resultingfrom circulation rate increases implemented during the first quarter partially offset by a 3.0 % decrease in averagecirculation unit sales.

Revenue for the six months ended June 30, 2003 was $49.3 million, an increase of $0.9 million or 1.8% over thesame period in 2002. Advertising revenues increased by $0.8 million primarily the result of increased advertisingflyer distribution revenue. Circulation revenue increased by $0.3 million or 2.8% in the first six months of 2003resulting from circulation rate increases implemented during the first quarter partially offset by a 2.6% decrease inaverage circulation unit sales. Promotions and services revenue decreased by $0.2 million or 31.4% in the first sixmonths of 2003 primarily due to the absence of on-line auction services revenue resulting from the sale of the10digit internet operation in July 2002.

Expenses before amortization and interest:Three MonthsEnded June 30

Six MonthsEnded June 30

2003 2002 2003 2002$ Thousands $ Thousands

Employee Compensation $9,337 $9,207 $18,476 $18,286Newsprint 3,902 3,492 7,522 6,941Delivery of Newspapers 2,188 2,282 4,252 4,343Other 3,640 3,425 7,319 7,307

$19,067 $18,406 $37,569 $36,877

Operating expenses excluding amortization in the three months ended June 30, 2003 were $19.1 million an increaseof $0.7 million or 3.6% over the second quarter of 2002. Employee remuneration, including pension and non-pension benefits costs and payroll taxes, increased by $0.1 million or 1.4%. Newsprint expense increased by $0.4million or 11.8 % due to an average increase of 8.4% in the price of newsprint combined with an increase in usage.Other expenses increased by $0.2 million, primarily resulting from a one time receipt in 2002 of an adjustmentrelating to the purchase of the newspaper operations from the Thompson Corporation in November of 2001.

Operating expenses excluding amortization in the six months ended June 30, 2003 were $37.6 million, an increaseof $0.7 million or 1.9% compared to the same period in 2002. Employee remuneration, including pension and non-pension benefits costs and payroll taxes, increased by $0.2 million or 1.0%. Newsprint expense increased by $0.6million or 8.4% due to an average increase of 5.2% in the price of newsprint combined with an increase in usage.

EBITDA for the three and six months ended June 30, 2003 was $6.5 million and $11.7 million, compared to $6.4million and $11.5 million for the same periods in 2002. EBITDA margin was 25.4% and 23.8% for the three and sixmonth periods ended June 30, 2003 compared to 25.8% and 23.8% in the same periods in 2002.

Amortization of deferred financing costs was $0.3 million and $0.7 million for the three and six months ended June30, 2003 compared to $0.3 million and $0.4 million for the same periods in 2002. The increase is related tofinancing expenses incurred in the second quarter of 2002 which are being amortized over ten years.

Interest expense on the term credit facility for the three and six months ended June 30, 2003 was $0.8 million and$1.5 million compared to $1.2 million and $2.4 million in 2002. The decrease is primarily due to the reduction inthe term loan by $40.4 million in May 2002, in connection with the creation of the Fund. The average interest rateapplicable to the term credit facility during the three and six months ending June 30, 2003 was 5.5% and 5.2%.Interest expense on the subordinated notes was $1.9 million and $3.9 million for the three and six months endedJune 30, 2003 compared to $0.7 million for both the three and six months ended June 30, 2002. The increase insubordinated note interest is due to these notes being issued on May 28, 2002 and therefore interest charges wereincurred for the entire second quarter in 2003 compared to a partial quarter in 2002.

Net income was $2.2 million and $3.3 million for the three and six months ending June 30, 2003 which represented8.8% and 6.7% of revenue compared to $3.1 million and $5.8 million representing 12.5% and 11.9% of revenue forthe same period in 2002. The decrease is primarily due to the introduction of interest expense on the subordinatednotes, partially offset by lower interest expense on the term credit facility, related to the new capital structureestablished with the creation of the Fund in May 2002.

Newspaper publishing is, to a certain extent, a seasonal business with a higher proportion of revenues and operatingincome occurring during the second and fourth quarters of the calendar year. Revenue and EBITDA of theManitoba newspapers operation for 2001 and of FPLP for 2002 and the first and second quarters of 2003 were asfollows:

Revenue 2003 2002 2001

$Thousands

Quarter 1 $ 23,706 $ 23,610 $ 23,026Quarter 2 25,568 24,809 25,135Quarter 3 22,677 22,981Quarter 4 23,544 26,197

$ 94,640 $ 97,339EBITDAQuarter 1 $ 5,204 $ 5,139 $ 4,521Quarter 2 6,501 6,403 6,210Quarter 3 4,977 4,858Quarter 4 5,458 7,368

$ 21,977 $ 22,957

The distribution policy of FPLP is to make distributions in approximately equal monthly amounts based on expectedoperating results for each fiscal year.

Liquidity and Capital Resources

Cash Flow from Operations

During the three months ended June 30, 2003, cash generated from operating activities was $3.3 million, comparedto $5.6 million for the second quarter of 2002. The overall increase in the interest expense on the term loans andsubordinated notes resulted in a decrease in cash generated from operating activities of $0.9 million. The net changein non-cash working capital in the second quarter of 2003 was $(0.5) million compared to $1.1 million for the sameperiod of 2002. Accrued interest at the end of the second quarter of 2002 on the subordinated notes which wereissued on May 28, 2002 was the largest factor contributing to this decrease.

During the six months ended June 30, 2003 cash generated from operating activities was $7.9 million compared to$9.2 million for the same period in 2002. The overall increase in interest expense on the term loan and subordinatednotes resulted in a decrease in operating cash of $2.3 million. The net change in non-cash working capital for thesix months ending June 30, 2003 was $1.6 million compared to $0.8 million in 2002. The largest item contributingto this increase was a reduction in prepaid interest on the term loan.

Capital Expenditures

Purchases of property plant and equipment for the three and six months ended June 30, 2003 were $0.1 million and$0.1 million compared to $0.2 million and $0.5 million for the same period in 2002. Capital spending in the thirdand fourth quarters is expected to increase given the 2003 full year plan of $1.0 million.

Financing Activities

Distributions to partners of FPLP for the three and six months ended June 30, 2003 totaled $3.0 million and $5.8million and have been determined in accordance with the Amended and Restated Agreement of Limited Partnershipdated May 24, 2002. Comparison with the same periods in 2002 is not meaningful because the distributions weregoverned by the partnership agreement in effect prior to the creation of the Fund.

Cash and cash equivalents at June 30, 2003 total $4.3 million. In addition, FPLP has an unused operating line of$10.0 million which may be used to fund working capital needs.

Business Risks and Uncertainties

Revenue

Advertising revenue, which accounts for greater than 70% of total revenue, is historically dependant upon generaleconomic conditions and the specific spending plans of high volume advertisers. A significant downturn in thenational or regional economy would likely decrease advertising revenue earned by our newspapers. Similarly, achange in promotional strategy by significant users of newspaper advertising, such as the automotive industry,financial services industry and national retailers, could reduce or increase revenue.

Employee Relations

The majority of FPLP’s employees are unionized and their employment is governed by the terms of collectiveagreements. A strike, like the one that occurred in October 2002 at the Winnipeg Free Press, could restrict oreliminate the ability of FPLP to earn revenue from its publishing business during a strike. Contracts are now inplace with unionized employees at the Winnipeg Free Press which run to October 2005. A collective agreementcovering 80 members of the CEP at the Brandon Sun expires December 31, 2005. A five-year contract with the 20members of the GCIU in Brandon expires December 31, 2005.

Expenses

Newspaper publishing is both capital and labour intensive, and as a result newspapers have relatively high fixed coststructures. During periods of declining revenue, significant portions of costs may remain fixed, resulting indecreased earnings. Newsprint is a significant cost for FPLP, accounting for $13.5 million of expenses in 2002.Newsprint costs vary widely from time to time. If newsprint costs rise rapidly, there is no assurance that advertisingand circulation revenues can be increased to offset the increased newsprint expense.

Outlook

The outlook for operations is described in the Report to Unitholders.

FP Newspapers Income FundConsolidated Balance Sheets(unaudited, in thousands of Canadian dollars)

As atJune 30,

2003

As at December 31,

2002ASSETSCurrent Assets: Cash $ 24 $ 60 Interest receivable 642 664 Other receivable - 1 Prepaid Expenses 32 17

698 742Investment in FP Canadian Newspapers Limited Partnership 66,686 67,546

$ 67,384 $ 68,288

LIABILITIES AND UNITHOLDERS’ EQUITYCurrent Liabilities: Accounts payable and accrued liabilities $ 24 $ 88 Distribution payable to unitholders (note 2) 690 690 Due to related parties - 100

714 878

Unitholders’ equity 66,670 67,410$ 67,384 $ 68,288

FP Newspapers Income FundConsolidated Statement of Earnings and Unitholders’ Equity(unaudited, in thousands of Canadian dollars except for per unit information)

Three monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Six monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Earnings from investment in FP Canadian Newspapers Limited Partnership

Interest income on subordinated notes $ 1,948 $ 708 $ 3,875 $ 708 Equity interest from Class A units (note 3) 109 158 (348) 158

2,057 866 3,527 866

Administrative costs (62) (18) (125) (18)Net earnings for the period $ 1,995 $ 848 $ 3,402 $ 848Unitholders' equity, beginning of period 66,746 - 67,410 -Net proceeds from issuance of trust units - 69,026 - 69,026Cash distributions declared during the period (2,071) (877) (4,142) (877)Unitholders' equity, end of period $ 66,670 $ 68,997 $ 66,670 $ 68,997

Number of Trust Units outstanding 6,902,592 6,902,592 6,902,592 6,902,592

Earnings per trust unit $ 0.289 $ 0.123 $ 0.493 $ 0.123

FP Newspapers Income FundConsolidated Statement of Cash Flows (unaudited, in thousands of Canadian dollars)

Three monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Six monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Cash from (used in):Operating activities: Net earnings for the period $ 1,995 $ 848 $ 3,402 $ 848 Item not affecting cash: Equity interest from Class A units of FP Canadian Newspapers Limited Partnership (note 3) (109) (158) 348 (158) Change in non-cash working capital (49) (690) (56) (690)

1,837 - 3,694 -Investing activities: Distributions received on Class A units of FP Canadian Newspapers Limited Partnership 490 - 512 - Subscription for Class A units in FP Canadian Newspapers Limited Partnership - (72) - (72) Subscription for subordinated notes - (68,954) - (68,954)

490 (69,026) 512 (69,026)Financing activities: Distributions to Unitholders (2,071) - (4,142) - Units Issued - 69,026 - 69,026 Proceeds of loan from Related Parties - - 190 - Repayment of loan from Related Parties (290) - (290) -

(2,361) 69,026 (4,242) 69,026

Change in cash balance (34) - (36) -Cash balance, beginning of period 58 - 60 -Cash balance, end of period $ 24 $ - $ 24 $ -

FP Newspapers Income FundNotes to the Consolidated Financial Statements as at June 30, 2003 (Unaudited)(tabular amounts in thousands of dollars except per unit information)

1. Basis of presentation

FP Newspapers Income Fund (the “Fund”) was created on May 15, 2002 and commenced operations on May 28,2002 when it completed an initial Public offering and purchased an interest in FP Canadian Newspapers LimitedPartnership (“FPLP”). The Fund owns securities entitling it to 49% of the distributable cash of FPLP.

FPLP is a limited partnership formed on August 9, 1999. FPLP acquired the business and assets, and assumedcertain liabilities, of the Winnipeg Free Press and Brandon Sun newspapers effective November 29, 2001.

These interim consolidated financial statements of the Fund have been prepared by management in accordance withaccounting principles generally accepted in Canada for interim financial statements and include the accounts of theFund and its wholly-owned subsidiary, FPCN Holdings Trust. However, these interim financial statements do notinclude all the information and disclosures required for annual financial statements. These statements have beenprepared following the same accounting policies and methods of computation as the consolidated financialstatements of the Fund as at December 31, 2002. These interim consolidated financial statements should be read inconjunction with the consolidated financial statements and the notes thereto and other financial informationcontained in the audited financial statements for the period ended December 31, 2002.

2. Distributions Payable

The Fund declared a distribution payable for June 30, 2003 of $0.10 per unit. The distribution is payable July 30,2003 to unitholders of record on June 30, 2003 and is in respect of the month of June 2003.

3. Equity interest from Class A Limited Partnership Units

FP Newspapers Income Fund owns securities entitling it to 49% of the distributable cash of FPLP. For accountingpurposes, the equity interest from the Fund’s investment in Class A limited partnership units of FPLP is calculatedas follows:

Three monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Six months ended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Net Income of FPLP $ 2,249 $ 1,059 $ 3,322 $ 1,059Interest on subordinated notes 1,948 708 3,875 708Net income before interest on subordinatednotes $ 4,197 $ 1,767 $ 7,197 $ 1,767

49% interest attributable to the fund 2,057 866 3,527 866Less: Interest from subordinated notes (1,948) (708) (3,875) (708)Equity interest from Class A limited partnershipunits $ 109 $ 158 $ (348) $ 158

4. Distributable cash of FPLP

FP Newspapers Income Fund owns securities entitling it to 49% of the distributable cash of FPLP. Distributablecash earned by FPLP is calculated as follows:

Three monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Six monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Operating income before amortization $ 6,501 $ 2,651 $ 11,705 $ 2,651Interest on term loan (813) (325) (1,535) (325)Interest income 28 4 49 4Capital expenditures (101) (100) (136) (100)Distributable cash of FPLP before interest onsubordinated notes

$ 5,615 $ 2,230 $ 10,083 $ 2,230

49% attributable to the Fund $ 2,751 $ 1,093 $ 4,941 $ 1,093

49% attributable to the Fund per unit of theFund $ 0.399 $ 0.158 $ 0.716 $ 0.158

Distributions declared by FPLP on securitiesheld by the Fund:

Interest on subordinated notes $ 1,948 $ 708 $ 3,875 $ 708Distributions on Class A limited partnership

units 602 185 633 185$ 2,550 $ 893 $ 4,508 $ 893

Per Fund unit $ 0.369 $ 0.129 $ 0.653 $ 0.129

The Distribution Policy of FPLP is to make distributions in approximately equal monthly amounts based onexpected operating results for each fiscal year.

5. Distributable cash attributable to FP Newspapers Income Fund

Distributable cash attributable to the Fund is calculated as follows:

Three monthsended June 30,

2003

Period fromMay 15, 2002

(date established)to June 30, 2002

Six monthsended June 30,

2003

Period fromMay 15, 2002

(date established) to June 30, 2002

49% of distributable cash of FPLP (note 4,above)

$ 2,751 $ 1,093 $ 4,941 $ 1,093

Loan from related parties (290) - (100) -Administration expenses (62) (18) (125) (18)Distributable cash attributable to the Fund $ 2,399 $ 1,075 $ 4,716 $ 1,075

Distributable cash attributable to the Fund – perUnit $ 0.348 $ 0.156 $ 0.683 $ 0.156

Distributions declared by the Fund – per Unit $ 0.300 $ 0.127 $ 0.600 $ 0.127

FP Canadian Newspapers Limited PartnershipBalance Sheets(unaudited, in thousands of Canadian dollars)

June 30,2003

December 31,2002

ASSETSCurrent Assets:Cash and cash equivalents $ 4,349 $ 2,314Accounts receivable 9,733 11,152Inventories 1,001 1,086Prepaid expenses 1,425 1,298

16,508 15,850

Property, plant and equipment 67,128 69,188

Other assets 5,451 6,142

Intangibles 9,512 9,693Goodwill 64,805 64,805

$ 163,404 $ 165,678

LIABILITIES AND PARTNERS’ CAPITALCurrent Liabilities:Accounts payable and accrued liabilities $ 8,016 $ 8,020Prepaid subscriptions and deferred revenue 2,855 2,661

10,871 10,681

Long-term liabilities:Term loan 59,600 59,600Subordinated notes 67,954 67,954

127,554 127,554

138,425 138,235

Partners’ capital 24,979 27,443

$ 163,404 $ 165,678

FP Canadian Newspapers Limited PartnershipStatements of Operations(unaudited, in thousands of Canadian dollars)

Three month periodended June 30,

Six month periodended June 30,

2003 2002 2003 2002

Revenue $ 25,568 $ 24,809 $ 49,274 $ 48,419

Operating expenses, including selling, general and administration expenses (19,067) (18,406) (37,569) (36,877)

Operating income before amortization 6,501 6,403 11,705 11,542

Amortization of property, plant and equipment (1,087) (1,068) (2,172) (2,117)Amortization of intangible assets (91) (91) (181) (181)

Operating income 5,323 5,244 9,352 9,244

Interest on term loan (813) (1,202) (1,535) (2,419)Interest on subordinated notes (1,948) (708) (3,875) (708)Amortization of deferred financing costs (345) (273) (691) (418)Interest income 28 43 49 51Sundry income 4 3 22 3

Net income for the period $ 2,249 $ 3,107 $ 3,322 $ 5,753

FP Canadian Newspapers Limited PartnershipStatement of Partners’ Capital(unaudited, in thousands of Canadian dollars)

Generalpartner units

Limitedpartner

Class Aunits Total

Partners’ capital – Dec. 31, 2002 $ 26,620 $ 823 $ 27,443Distributions (2,716) (22) (2,738)Net income for the period (note 4) 1,064 9 1,073

Partners’ capital – Mar. 31, 2003 $ 24,968 810 $ 25,778

Distributions (2,558) (490) (3,048)Net Income for the period (note 4) 1,965 284 2,249

Partners’ capital – June 30, 2003 $ 24,375 604 $ 24,979

FP Canadian Newspapers Limited PartnershipStatements of Cash Flows(unaudited, in thousands of Canadian dollars)

Three month periodended June 30,

Six month periodended June 30,

2003 2002 2003 2002

Cash provided by (used in)

Operating Activities:Net income for the period $ 2,249 $ 3,107 $ 3,322 $ 5,753Item not affecting cash

Amortization 1,523 1,432 3,044 2,7163,772 4,539 6,366 8,469

Net change in non-cash working

capital items (note 3) (502) 1,088 1,567 7633,270 5,627 7,933 9,232

Investing Activities:Other investment - - - 162Purchases of property, plant and equipment (101) (230) (136) (453)Proceeds from sale of property, plant and

equipment 8 - 24 -(93) (230) (112) (291)

Financing Activities:Proceeds from term loan - - - 100,000Contributions by partners - 72 - 82Distributions to partners (3,048) (8,900) (5,786) (8,900)Return of capital - (24,284) - (124,284)Redemption of partnership units - - - (152)Deferred financing costs - (4,250) - (4,384)Issuance of subordinated notes - 68,954 - 68,954Repayment of term loan - (40,400) - (40,400)

(3,048) (8,808) (5,786) (9,084)

Increase (decrease) in cash andcash equivalents 129 (3,411) 2,035 (143)

Cash and cash equivalents -Beginning of period 4,220 8,060 2,314 4,792

Cash and cash equivalents -End of period $ 4,349 $ 4,649 $ 4,349 $ 4,649

Notes to the Financial Statements as at June 30, 2003 (unaudited)(tabular amounts in thousands of dollars)

1. Nature of operations

FP Canadian Newspapers Limited Partnership ("FPLP") is a limited partnership formed on August 9, 1999 inaccordance with the laws of British Columbia.

Effective November 29, 2001, FPLP acquired the business and assets of the Winnipeg Free Press and theBrandon Sun and related businesses in exchange for cash and the assumption of certain liabilities. Thesefinancial statements include only the assets, liabilities, revenues and expenses of FPLP and do not include theother assets, liabilities, revenues and expenses, including income taxes, of the partners.

The managing general partner of FPLP is FPCN General Partner Inc.

The Partnership’s advertising revenues are seasonal. Revenue and accounts receivable are highest in thesecond and fourth quarters while expenses are relatively constant.

2. Summary of significant accounting policies

Basis of presentation

These financial statements are prepared in accordance with accounting principles generally accepted in Canadafor interim financial statements and reflect all adjustments which are, in the opinion of management, necessaryfor fair statement of the results of the interim period presented. However, these interim financial statements donot include all the information and disclosures required for annual financial statements. The accountingpolicies used in the preparation of these interim financial statements are the same as those used in the mostrecent annual financial statements. These interim statements should be read in conjunction with the mostrecent annual financial statements of FPLP.

3. Net change in non-cash working capital

Three month periodended June 30,

Six month periodended June 30,

2003 2002 2003 2002

Accounts receivable $ 104 $ 102 $ 1,419 $ 1,685Inventories 13 (30) 85 93Prepaid expenses (73) (157) (127) (847)Accounts payable and

accrued liabilities (429) 1,179 (4) (27)Prepaid subscriptions and

deferred revenue (117) (6) 194 (141)

$ (502) $ 1,088 $ 1,567 $ 763

4. Allocation of net income

The amended and restated Agreement of Limited Partnership dated May 24, 2002 sets out the method forallocating net income between the general and limited partner units. Net income is allocated to the generalpartner units and the Class A limited partner units in proportion to the distributions made to the partners over anannual basis ending December 31 each year. As the allocation is defined using an annual period, quarterlyallocations are determined by using a proportionate share of cumulative distributions and cumulative net incometo the end of each quarter.

Forward-looking statementsThis document may contain forward-looking statements, relating to the Fund’s operations or to the environment in which itoperates, which are based on the Fund’s operations, estimates, forecasts and projections. These statements are not guarantees offuture performance and involve risks and uncertainties that are difficult to predict, and/or are beyond the Fund’s control. Anumber of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include those set forth in other public filings. Consequently, readers should not place any unduereliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they aremade. FP Newspapers Income Fund disclaims any intention or obligation to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise.

Investor Relations:Kevin KarrVice President, Corporate Development & SecretaryPhone: (604) 646-3782Fax: (604) 681-8861e-mail: kkarr@estrellagroup.com

Web site:www.fpnewspapers.com

Listing:The units of FP Newspapers Income Fund are traded on the Toronto Stock Exchange under the symbol FP.UN

Transfer Agent:CIBC Mellon Trust Company

Auditors:PricewaterhouseCoopers LLP, Winnipeg