6-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2006                                                 Commission File Number: 1-31349

THE THOMSON CORPORATION
(Translation of registrant's name into English)

Metro Center, One Station Place
Stamford, Connecticut 06902, United States
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F o Form 40-F ý

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No ý

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-.

The information contained in Exhibit 99.1 of this Form 6-K (excluding those sections under the headings "Report on Executive Compensation," "Composition of the Human Resources Committee," "Performance Graph" and "Statement of Corporate Governance Practices") is incorporated by reference into, or as an additional exhibit to, as applicable, the following Registration Statements of the registrant: Form F-9 (File No. 333-128045); Form F-3 (File No. 333-97203); Form S-8 (File No. 333-12284); Form S-8 (File No. 333-105280); and Form S-8 (File No. 333-126782).

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE THOMSON CORPORATION
	By:	/s/  DEIRDRE STANLEY Name: Deirdre Stanley Title: Senior Vice President and General Counsel
Date: March 29, 2006

EXHIBIT INDEX

Exhibit Number	Description
99.1	Notice of Annual and Special Meeting of Shareholders and Management Information Circular (Proxy Statement)
99.2	Annual Report to Shareholders
99.3	Form of Proxy

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SIGNATURES
EXHIBIT INDEX

EX-99.1

Exhibit 99.1

NOTICE OF ANNUAL AND

SPECIAL MEETING OF SHAREHOLDERS

AND MANAGEMENT INFORMATION CIRCULAR

May 3, 2006

The Thomson Corporation

Notice of Annual and Special Meeting of Shareholders of The Thomson Corporation

Date

Wednesday, May 3, 2006

Time

12:00 p.m. (EDT)

Place

Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada

Business

The business of the meeting is to:

•receive the consolidated financial statements of the company for the year ended December 31, 2005 and the auditors’ report on those statements;

•elect directors;

•appoint auditors and authorize the directors to fix their remuneration;

•consider, and if thought fit, approve the Thomson deferred compensation plan; and

•transact any other business properly brought before the meeting.

At the meeting, you will have an opportunity to hear about our company’s 2005 performance and plans going forward. The management information circular included with this notice is your guide to the business to be considered at the meeting.

Record Date

You are entitled to vote if you were a holder of Thomson common shares as of 5:00 p.m. (EST) on Thursday, March 16, 2006.

Voting

Please vote by proxy on the matters to be considered at the meeting if it is not convenient for you to attend in person. The enclosed proxy form contains instructions on how to complete and send your voting instructions. Our transfer agent, Computershare Trust Company of Canada, must receive your proxy or voting instructions no later than 5:00 p.m. (EDT) on Monday, May 1, 2006 or, if the meeting is adjourned, no later than 48 hours (excluding Saturdays and holidays) before any adjourned meeting.

Please visit www.thomson.com for more information about Thomson.

By order of the Board,

David W. Binet

Secretary to the Board of Directors

March 17, 2006

Management Information Circular

Table of Contents

1	About this Circular and Related Proxy Materials
1	Voting Q&A
4	Receiving Annual and Quarterly Financial Statements and Related MD&A
4	Principal Shareholder
4	Business of the Meeting
	•	Financial Statements
	•	Election of Directors
	•	Appointment of Auditors
8	Special Business
	•	Approval of the Thomson Deferred Compensation Plan
11	Executive Compensation
17	Report on Executive Compensation
26	Performance Graph
26	Compensation of Directors
28	Indebtedness of Officers, Directors and Employees
28	Directors’ and Officers’ Indemnification and Insurance
28	Statement of Corporate Governance Practices
34	Share Repurchase Program
34	Additional Information
34	Directors’ Approval
A-1	Annex A: The Thomson Deferred Compensation Plan
B-1	Annex B: Corporate Governance Guidelines

ABOUT THIS CIRCULAR AND RELATED PROXY MATERIALS

We are providing this circular and proxy materials to you in connection with The Thomson Corporation’s annual and special meeting of shareholders on May 3, 2006. As a shareholder, you are invited to attend the meeting. If you are unable to attend, you may still vote.

This circular describes the items to be voted on at the meeting and the voting process, and provides information about executive compensation, our corporate governance practices and other matters.

Please see the “Voting Q&A” section below for an explanation of how you can vote on the matters to be considered at the meeting, whether or not you decide to attend the meeting.

Unless otherwise indicated, all amounts in this circular are in U.S. dollars and information is as of March 1, 2006.

VOTING Q&A

What is the business of the meeting?

At the meeting, shareholders are voting on three items: (1) the election of directors of the company; (2) the appointment of PricewaterhouseCoopers LLP as auditors of the company and the authorization of the directors to fix the auditors’ remuneration; and (3) approval of the Thomson deferred compensation plan. We are not aware of any other matters to be considered at the meeting. However, you may also vote on any other business that may properly come before the meeting.

Who can vote?

Holders of common shares as of 5:00 p.m. (EST) on March 16, 2006 are entitled to vote at the meeting. Each common share is entitled to one vote. On March 1, 2006, there were 646,793,581 common shares outstanding.

If you want to vote shares acquired after March 16, 2006 at the meeting, you must request Computershare in writing to include you on the list of shareholders entitled to vote at the meeting and you must produce properly endorsed share certificates or establish in some other way that you owned the shares before 5:00 p.m. (EDT) on April 21, 2006.

How many votes are required for approval?

A simple majority of votes cast, in person or by proxy, is required to approve each of the items specified in the notice of meeting which accompanies this circular.

How do I vote?

You should first determine whether you are a registered shareholder or a non-registered shareholder.

•You are a registered shareholder if your name appears on your share certificates or if you hold your shares in book-entry form on the records of our transfer agent, Computershare Trust Company of Canada. If you are a registered shareholder, you can vote either in person at the meeting or by submitting your voting instructions by proxy, which means that you give another person authority to vote on your behalf.

•You are a non-registered shareholder if your name does not appear on your share certificates or if you hold your shares in book-entry form through an intermediary. For example, you are a non-registered shareholder if your shares are held in the name of a bank, trust company, securities broker, trustee or custodian. If you are a non-registered shareholder, please see page 2 for information on how to vote your shares.

If I am a registered shareholder, how do I vote in person?

You do not need to do anything except attend the meeting. Do not complete or return the proxy form, as your vote will be taken at the meeting. You should register with representatives of Computershare when you arrive at the meeting. If you wish to vote shares registered in the name of a corporation, the corporation must submit a properly executed proxy to Computershare appointing you to vote the shares on behalf of the corporation.

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If I am a registered shareholder, how do I vote by proxy?

If it is not convenient for you to attend the meeting, you may vote by proxy on the matters to be considered at the meeting in one of two ways:

•You can authorize the directors of our company who are named on the enclosed proxy form to vote your shares as your proxyholder. If you choose this option, you can give voting instructions by mail, telephone or through the Internet. Please refer to your proxy form for instructions.

•You may appoint another person to attend the meeting on your behalf and vote your shares as your proxyholder. If you choose this option, you can appoint your proxy by mail or through the Internet. If you mail the proxy form, you must print that person’s name in the blank space provided on the back of the enclosed proxy form and you may indicate how you want your shares voted. Sign, date and return the proxy form in the envelope provided. If you vote through the Internet, you may also appoint another person to be your proxyholder. You may choose anyone to be your proxyholder; the person does not have to be another shareholder. The person you appoint must attend the meeting and vote on your behalf in order for your votes to be counted. Proxyholders should register with representatives of Computershare when they arrive at the meeting.

Please remember that your proxy or voting instructions must be received by 5:00 p.m. (EDT) on Monday, May 1, 2006.

If I am a non-registered shareholder, how do I vote my shares?

As mentioned above, you are a non-registered shareholder if your shares are held in the name of an intermediary (such as a bank, trust company, securities broker, trustee or custodian).

There are two ways that you can vote your shares:

•In person. If you wish to attend the meeting and vote in person, you should do one of the following:

•If you have received a proxy form from your intermediary, insert your own name in the blank space provided in the proxy form to appoint yourself as proxyholder. If the intermediary has not signed the form, you must sign and date it. Follow your intermediary’s instructions for returning the proxy form. Do not otherwise complete the form as your vote will be taken at the meeting; or

•If you have received a voting instruction form from your intermediary, follow your intermediary’s instructions for completing the form.

•By proxy. If it is not convenient for you to attend the meeting, you should do one of the following:

•If you received a proxy form from your intermediary, you may vote by authorizing the directors of our company named on the form to vote your shares as your proxyholder. If you choose this option, you may complete the proxy form by indicating how you want your shares to be voted. If the intermediary has not signed the proxy form, you must sign and date it. Return the completed proxy form as instructed on the form. Alternatively, you may appoint another person to attend the meeting on your behalf and vote your shares by printing that person’s name in the blank space on the form and indicating how you want your shares to be voted. The person you choose does not have to be another shareholder. The person named on the form must attend the meeting and vote on your behalf in order for your votes to be counted; or

•If you have received a voting instruction form from your intermediary, follow your intermediary’s instructions for completing the form.

How will my shares be voted if I appoint a proxyholder?

Your proxyholder must vote your shares on each matter according to your instructions if you have properly completed and returned a proxy. If you have not specified how to vote on a particular matter, then your proxyholder can vote your shares as he or she sees fit.

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If you have appointed the directors of our company named on the enclosed proxy form as your proxyholder, and you have not specified how you want to vote, your shares will be voted as follows:

•FOR the election as directors of the nominees set out in this circular;

•FOR the appointment of PricewaterhouseCoopers LLP as the auditors of the company and the authorization of the directors to fix their remuneration; and

•FOR the approval of the Thomson deferred compensation plan.

What happens if any amendments are made to these matters or if other matters are properly brought before the meeting?

Your proxyholder will have discretionary authority to vote your shares as he or she sees fit. As of the date of this circular, management knows of no such amendment, variation or other matter expected to come before the meeting.

If I change my mind, how do I revoke my proxy or voting instructions?

If you are a registered shareholder and you have returned a proxy form or have given voting instructions, you may revoke them in any of the following ways:

•By completing and signing a proxy form with a later date than the proxy form you previously returned, and delivering it to Computershare;

•By completing a written statement revoking your instructions, which is signed by you or your attorney authorized in writing, and delivering it:

•To the offices of Computershare at any time before 5:00 p.m. (EDT) on May 2, 2006, or, if the meeting is adjourned, the business day before any adjourned meeting; or

•To the Chairman of the meeting before the meeting starts; or

•In any other manner permitted by law.

If you are a non-registered shareholder, you may revoke a proxy or voting instruction (or a waiver of the right to receive meeting materials and to vote) given to your intermediary at any time by written notice to the intermediary, provided that the revocation is received by the intermediary at least seven days before the meeting. If your revocation is not received by that time, your intermediary is not required to act on it.

Who is soliciting my proxy?

Our company’s management is soliciting your proxy for use at the meeting and any adjourned meeting. We are soliciting proxies by mail and our employees may also solicit them personally. We are paying all costs of solicitation.

Is my vote confidential?

Yes. Computershare independently counts and tabulates the proxies to preserve the confidentiality of individual shareholder votes. Proxies are referred to us only in cases where a shareholder clearly intends to communicate with management, in the event of questions as to the validity of a proxy or where it is necessary to do so to meet applicable legal requirements.

Does Thomson provide electronic delivery of shareholder communications?

Yes. Electronic delivery is a voluntary program for our registered and non-registered shareholders. Under this program, an e-mail notification is sent advising you that documents (such as this circular and our annual report) that must be delivered under applicable securities law are available on our website. We believe that electronic delivery will benefit the environment and reduce our costs. If this approach is not suitable for you, we will continue to provide paper copies of documentation to you.

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How can I enroll for electronic delivery of shareholder communications?

If you are a registered shareholder, please go to www.computershare.com and click “Enroll for e-delivery” under the “Shareholder Services” menu. You will need your Holder Account Number and postal/zip code. You can find your Holder Account Number on the proxy form provided in your package.

If you are a non-registered shareholder, please go to www.investordelivery.com for more instructions and to register. You will need your Enrollment Number/Control Number. You can find this number on the proxy form provided in your package.

RECEIVING ANNUAL AND QUARTERLY FINANCIAL STATEMENTS AND RELATED MD&A

Quarterly financial statements and related MD&A. If you did not already make a request earlier this year and if you wish to receive (or continue to receive) quarterly financial statements and related management’s discussion and analysis (MD&A) by mail during 2006, you must mark the request box on your proxy or voting instruction form. If you have not made a request earlier this year and you do not mark the box, quarterly reports will not be sent to you. Non-registered shareholders who hold their interests through a U.S. intermediary must complete and return the enclosed request form in order to receive these reports.

Annual financial statements and related MD&A. If you are a non-registered shareholder and hold your interests through a Canadian intermediary and wish to receive future annual reports (which contain our annual financial statements and related MD&A), you must mark the request box on your voting instruction form. If you hold your shares in this manner and do not mark this box, future annual reports will not be sent to you. Registered Canadian shareholders may opt out of receiving annual reports by marking the appropriate box at the bottom of their forms of proxy. Shareholders who opt not to receive future annual reports will continue to receive our management information circular, form of proxy and other shareholder mailings unless they have declined to receive these materials.

Financial results are announced by news release and are available on the Thomson website at www.thomson.com.

PRINCIPAL SHAREHOLDER

The Woodbridge Company Limited, or Woodbridge, is our principal shareholder. On March 1, 2006, Woodbridge beneficially owned 419,658,230 of our common shares, or 64.88%.

Woodbridge is a private company that is the primary investment vehicle for Kenneth R. Thomson and other members of the family of the late first Lord Thomson of Fleet. Mr. Thomson, a director of our company, controls Woodbridge and other companies that beneficially owned an additional 29,082,763 of our common shares on March 1, 2006. Through Woodbridge and these other companies, Mr. Thomson controlled an aggregate of 448,740,993 of our common shares, or 69.38%.

Note 22 to our 2005 consolidated financial statements provides information on certain transactions that we entered into with Woodbridge and certain of its affiliates in 2004 and 2005.

To the knowledge of our company, no other person or company beneficially owns, directly or indirectly, 10% or more of our common shares.

BUSINESS OF THE MEETING

Financial Statements

Our consolidated financial statements for the year ended December 31, 2005 are included in our annual report. A copy of our annual report is also available in the “Investor Relations” section of our website, www.thomson.com.

Election of Directors

At the meeting, 15 directors are proposed to be elected. All of the nominees are currently directors of our company. David H. Shaffer, who is an Executive Vice President of our company, is currently a director but has decided not to stand for re-election. Mr. Shaffer has been a director since 1998. Each director elected will hold office until the next annual meeting of shareholders or until the

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director resigns or a successor is elected or appointed. Management does not believe that any of the nominees will be unable to serve as a director but, if this should occur for any reason before the meeting, the persons named in the enclosed proxy form may vote for another nominee at their discretion.

The following provides information regarding the nominees, including the number of shares beneficially owned directly or indirectly by them, or over which they exercised control or direction, and the number of restricted share units, deferred share units and options held by them on March 1, 2006. Information regarding common shares beneficially owned does not include common shares that may be obtained through the exercise or vesting of options, restricted share units or deferred share units. Information as to shares beneficially owned or under control or direction is not within the knowledge of our company and has been provided to us by each nominee.

David K. R. Thomson(1) Toronto, Ontario, Canada	Director since: 1988 Common shares: 6,070 Non-independent Member of the Finance Committee	David K. R. Thomson, 48, is Chairman of The Thomson Corporation and a Deputy Chairman of Woodbridge. Mr. Thomson was named Chairman of Thomson in May 2002.
W. Geoffrey Beattie Toronto, Ontario, Canada	Director since: 1998 Common shares: 200,500 Restricted share units: 15,259 Options: 200,000 Non-independent Chair of the Finance Committee Member of the Corporate Governance and Human Resources Committees	W. Geoffrey Beattie, 45, is Deputy Chairman of The Thomson Corporation and President of Woodbridge. Mr. Beattie has been Deputy Chairman of Thomson since 2000. Mr. Beattie is also a director of Royal Bank of Canada and is the Chairman of Bell Globemedia Inc.
Richard J. Harrington Westport, Connecticut, United States	Director since: 1993 Common shares: 15,100 Restricted share units: 50,000 Deferred share units: 357,087 Options: 2,280,000 Non-independent	Richard J. Harrington, 59, is President and Chief Executive Officer of Thomson. Mr. Harrington joined Thomson in 1982. He has held a number of key leadership positions during his Thomson career, including President and Chief Executive Officer of Thomson Newspapers. In October 1997, he became President and Chief Executive Officer of Thomson. Mr. Harrington also serves on the board of directors of Xerox Corporation.
Ron D. Barbaro Toronto, Ontario, Canada	Director since: 1993 Common shares: 25,000 Deferred share units: 13,514 Independent Member of the Audit and Corporate Governance Committees	Ron D. Barbaro, 74, is a corporate director. Prior to 2004, Mr. Barbaro was Chairman and CEO of the Ontario Lottery and Gaming Corporation. Mr. Barbaro is also Chairman of The Brick Group Income Fund, a director of Flow International Corp. and Chairman of Trans Global Life Insurance Company.
Mary Cirillo New York, New York, United States	Director since: 2005 Deferred share units: 1,556 Independent Member of the Corporate Governance Committee	Mary Cirillo, 58, is a corporate director. Ms. Cirillo was Chair and Chief Executive Officer of Opcenter, LLC, an Internet consulting firm, from 2000 to 2003. Prior to that, Ms. Cirillo was Chief Executive Officer of Global Institutional Services at Deutsche Bank. Ms. Cirillo is also a director of Healthcare Property Investors, Inc. and is the lead director of DealerTrack Holdings, Inc.

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Robert D. Daleo Alpine, New Jersey, United States	Director since: 2001 Common shares: 1,269 Restricted share units: 40,950 Deferred share units: 51,447 Options: 743,000 Non-independent	Robert D. Daleo, 56, is Executive Vice President and Chief Financial Officer of Thomson. Mr. Daleo began his career with Thomson in January 1994 when he joined Thomson Newspapers as Senior Vice President and Chief Financial Officer. In November 1998, Mr. Daleo became Chief Financial Officer of Thomson.
Steven A. Denning Greenwich, Connecticut, United States	Director since: 2000 Deferred share units: 10,515 Independent Chair of the Human Resources Committee	Steven A. Denning, 57, is Chairman of General Atlantic LLC, a private equity investment firm. Mr. Denning is a director of Hewitt Associates, Inc., IHS, Inc., Eclipsys Corporation, SRA International, Inc., Liberata plc and Genpact.
V. Maureen Kempston Darkes, O.C. Miramar, Florida, United States	Director since: 1996 Common shares: 500 Deferred share units: 12,392 Independent Member of the Corporate Governance and Human Resources Committees	V. Maureen Kempston Darkes, O.C., 57, is Group Vice President, General Motors Corporation and President of GM Latin America, Africa and the Middle East, an automobile manufacturer. Previously, Ms. Kempston Darkes was President and General Manager of General Motors of Canada Limited. Ms. Kempston Darkes is also a director of Canadian National Railway Company and Falconbridge Limited.
Roger L. Martin Toronto, Ontario, Canada	Director since: 1999 Common shares: 6,000 Deferred share units: 11,290 Independent Member of the Audit Committee	Roger L. Martin, 49, is Dean of the Joseph L. Rotman School of Management at the University of Toronto, a post-secondary educational institution. Mr. Martin is also Chairman of the Board of Workbrain Corporation.
Vance K. Opperman Minneapolis, Minnesota, United States	Director since: 1996 Common shares: 50,000 Deferred share units: 15,317 Independent Chair of the Audit Committee	Vance K. Opperman, 63, is President and Chief Executive Officer of Key Investment, Inc., a holding company. Previously, Mr. Opperman was President of West Publishing Company. He is also a director of Delta Dental Plans Association, BlueCross/BlueShield of Minnesota and Avenet LLC.
John M. Thompson Toronto, Ontario, Canada	Director since: 2003 Common shares: 1,500(2) Deferred share units: 6,366 Independent Chair of the Corporate Governance Committee Member of the Audit Committee	John M. Thompson, 63, is Chairman of the Board of The Toronto-Dominion Bank, a financial institution. Mr. Thompson was Vice Chairman of the Board of IBM from August 2000 to September 2002. Prior to that, he held various senior executive positions with IBM. Mr. Thompson is also a director of Royal Philips Electronics.
Kenneth R. Thomson(1) Toronto, Ontario, Canada	Director since: 1978 Common shares: 448,740,993(3) Non-independent	Kenneth R. Thomson, 82, is Chairman of Woodbridge. Mr. Thomson is our company’s controlling shareholder and was Chairman of Thomson from 1978 to 2002.

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Peter J. Thomson(1), (4) Toronto, Ontario, Canada	Director since: 1995 Non-independent	Peter J. Thomson, 40, is a Deputy Chairman of Woodbridge.
Richard M. Thomson, O.C.(1) Toronto, Ontario, Canada	Director since: 1984 Common shares: 31,700 Deferred share units: 16,023 Independent Member of the Audit and Human Resources Committees	Richard M. Thomson, O.C., 72, is a corporate director. Previously, Mr. Thomson was Chairman and Chief Executive Officer of The Toronto-Dominion Bank. He is a director of Trizec Properties Inc., Nexen Inc. and S.C. Johnson & Son, Inc.
John A. Tory Toronto, Ontario, Canada	Director since: 1978 Common shares: 501,670 Deferred share units: 1,111 Non-independent Member of the Finance and Human Resources Committees	John A. Tory, 75, is President of Thomson Investments Limited, a holding company that is an affiliate of Woodbridge. Mr. Tory was Deputy Chairman of Thomson from 1978 to 1997 and President of Woodbridge from 1973 to 1998. Mr. Tory is also a director of Abitibi-Consolidated Inc. and Rogers Communications Inc.

(1)   David K. R. Thomson and Peter J. Thomson are the sons of Kenneth R. Thomson. Richard M. Thomson is not related to the family of Kenneth R. Thomson.

(2)   In addition, Mrs. J. M. Thompson owned 300 common shares as of March 1, 2006.

(3)   In addition, Mrs. K. R. Thomson indirectly beneficially owned 262,558 common shares as of March 1, 2006.

(4)   Peter J. Thomson was a director of Exchange Resources, Inc. when it filed a petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code in September 1996.

For more information on deferred share units held by our non-management directors, please see “Compensation of Directors” on page 26 of this circular. Messrs. Harrington and Daleo hold their deferred share units under our deferred compensation plan. Options and restricted share units are issued under our stock incentive plan. For more information on our deferred compensation plan and stock incentive plan, please see the “Report on Executive Compensation” that begins on page 17 of this circular.

Appointment of Auditors

It is recommended that PricewaterhouseCoopers LLP be appointed as the auditors of the company to hold office until the next annual meeting of shareholders and that the directors be authorized to fix their remuneration. PricewaterhouseCoopers LLP have been the auditors of the company since its incorporation in 1977.

Fees payable to PricewaterhouseCoopers LLP for the years ended December 31, 2005 and 2004 were as follows:

(In millions of U.S. dollars)	2005		2004
Audit fees	$	12.1	$	11.4
Audit-related fees	3.0		3.0
Tax fees	6.9		6.9
All other fees	0.1		0.3
Total	$	22.1	$	21.6

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AUDIT FEES

These audit fees were for professional services rendered for the audits of our consolidated financial statements, reviews of interim financial statements included in our quarterly reports and services that generally only the independent auditors can reasonably provide, such as comfort letters, statutory audits, consents, and assistance and review of documents filed with the SEC and Canadian securities regulatory authorities.

AUDIT-RELATED FEES

These audit-related fees were for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the “audit fees” category above. These services included Sarbanes-Oxley Section 404 advisory services, audits of our various employee benefit plans, transaction due diligence, subsidiary audits, and other services related to acquisitions and dispositions.

TAX FEES

Tax fees were for tax compliance, tax advice and tax planning. These services included the preparation and review of corporate and expatriate tax returns, assistance with tax audits and transfer pricing matters, advisory services relating to federal, state, provincial and international tax compliance for customs and duties, common forms of domestic and international taxation (i.e., tax credits, income tax, VAT, GST and excise taxes) and restructurings, mergers and acquisitions.

ALL OTHER FEES

Fees disclosed in the table above under the item “all other fees” were for services other than the audit fees, audit-related fees and tax fees described above. These services included:

•Insurance, transaction and benefit plan advisory services; and

•French translations of financial statements, management’s discussion and analysis and financial information included in our annual information form, prospectuses and other offering documents.

PRE-APPROVAL POLICIES AND PROCEDURES

Our Audit Committee is responsible for overseeing the work of the independent auditors and has considered whether the provision of services other than audit services is compatible with maintaining the auditors’ independence. The Audit Committee has adopted a policy regarding its pre-approval of all audit and permissible non-audit services provided by the independent auditors. The policy gives detailed guidance to our management as to the specific types of services that have been pre-approved by the Audit Committee. The policy requires the Audit Committee’s specific pre-approval of all other permitted types of services that have not already been pre-approved. Our senior management periodically provides the Audit Committee with a summary of services provided by the independent auditors in accordance with the pre-approval policy. The Audit Committee’s charter delegates to its Chair the authority to evaluate and approve engagements in the event that the need arises for approval between Audit Committee meetings. If the Chair approves any such engagements, he reports his approval decisions to the full Audit Committee at its next meeting. For the year ended December 31, 2005, none of the audit-related, tax or all other fees described above made use of the de minimus exception to pre-approval provisions contained in Rule 2-01(c)(7)(i)(C) of SEC Regulation S-X or Section 2.4 of the Canadian Securities Administrators’ Multilateral Instrument 52-110 (Audit Committees).

SPECIAL BUSINESS

Approval of the Thomson Deferred Compensation Plan

You are being asked to consider, and if thought fit, approve the Thomson deferred compensation plan (the Plan). As described in more detail below, the Plan allows eligible employees the ability to defer a percentage of their base salary and bonus and to allocate portions of the deferred amount to, among other investment options, deferred share units (DSUs) of our company. The Plan originally became effective in 1993, and DSUs have been issued under the Plan since 2003. On February 24, 2006, our Board approved an amended version of the Plan, subject to shareholder approval, that permits us to satisfy our obligations in respect of DSUs by issuing common shares to participants from treasury. Previously, the Plan had only permitted DSU obligations to be satisfied through open

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market purchases. To date, no common shares have been issued under the Plan to satisfy these obligations. The following summary of the material features of the Plan is qualified in its entirety by the terms of the Plan, a copy of which is attached as Annex A.

PURPOSE. The purpose of the Plan is to provide specified benefits to a limited group of senior management who contribute materially to the continued growth, development and future business success of Thomson.

ELIGIBILITY. A limited group of U.S.-based senior executives are eligible to participate in the Plan. As of March 1, 2006, approximately 400 people were eligible to participate in the Plan and approximately 300 people were participating.

PARTICIPATION.On an annual basis, participants in the Plan may elect to defer a percentage of their base salary, annual incentive bonus and/or long-term incentive bonus. Elections are generally effective for one full calendar year and participants cannot change their elections during the year. Participants in the Plan may allocate their deferred amounts among a variety of investment options. Certain participants in the plan are eligible to convert deferred cash and common shares receivable upon the exercise of options into DSUs. We intend to amend the Plan later this year to permit participants to convert common shares receivable upon the vesting of restricted share units (RSUs) into DSUs. Deferred cash may be converted into DSUs on the basis of the closing price of our common shares on the New York Stock Exchange, or NYSE, on the day before the deferral or conversion. These DSUs generally vest immediately. If a participant elects to hold DSUs, his or her Plan account is also credited with a 10% DSU match, which matching units generally vest over a period of four years. The DSU match becomes fully vested on death or termination of employment for disability. On cessation of employment at or after age 55, a portion of the DSU match vests. On any other cessation of employment, the DSU match is forfeited. Additional DSUs are automatically credited to participants’ accounts representing dividends that are paid on our common shares. A wholly-owned U.S. subsidiary of our company has entered into a trust agreement with a trustee under an irrevocable trust, with the amounts allocated thereto and the earnings thereon being used to satisfy obligations under the Plan.

When a participant elects to defer pay into the Plan, he or she can choose whether to receive that year’s deferral amount plus credited investment returns (i) at retirement; or (ii) after the completion of a minimum of five Plan years, which is called a short-term payout. U.S. Internal Revenue Service (IRS) rules prohibit distributions of amounts deferred prior to 2005 to “key employees” (i.e., the 50 most highly compensated officers of our company) for six months following the employee’s separation from service (other than by reason of death or disability).

SHARES AVAILABLE. If the Plan is approved, there will be an aggregate of 6,000,000 common shares available for issuance under the Plan to satisfy obligations in respect of DSUs. This amount represented approximately 0.9% of our issued and outstanding common shares as of March 1, 2006. Approximately 634,000 common shares, representing less than 0.1% of our issued and outstanding common shares, are issuable pursuant to DSUs which have been granted as of March 1, 2006. Common shares may be issued only from treasury. The Plan does not specify a maximum percentage of common shares that may be issued to insiders of our company under the Plan. Further, the Plan does not specify a maximum number of common shares that any one person is entitled to receive under the Plan. However, under our stock incentive plan, the maximum number of common shares which may be issued under plan awards held by a participant granted under the stock incentive plan and under any other share compensation arrangement of our company (i) to all “insiders” may not exceed 10% of the number of outstanding common shares at such time determined on a non-diluted basis, and (ii) to an “insider” and such insider’s “associates” during any one year period may not exceed 5% of the number of outstanding common shares at such time determined on a non-diluted basis. If an outstanding DSU expires or is terminated pursuant to the Plan, the common shares allocable to the unexercised portion of the unit shall again be available for issuance under the Plan. For more information on DSUs, see the section entitled “Participation” above.

TERMINATION OF EMPLOYMENT. The following describes the effect of termination of employment for participants other than “key employees”.

•If a participant ceases employment at or after age 55, the vested portion of his or her Plan account will paid out according to the payment option elected. Payments begin as soon as practicable after the retirement date.

•If a participant’s employment terminates for any reason other than retirement, disability or death, he or she will receive his or her entire Plan account amounts as a lump sum payment as soon as practicable after the termination of employment. However, if a participant is involuntarily terminated without cause, and the vested value of the participant’s Plan account is at least $100,000 when employment terminates, the retirement distribution election will govern the distribution of the Plan account.

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•If a participant becomes disabled, he or she shall continue to be treated as an employee and shall be eligible to receive his or her benefits under the rules applicable to retirement. However, the committee administering the Plan may treat him or her as a terminated employee, in which case, the vested account balance will be distributed in a lump sum as soon as practicable.

•If a participant dies, his or her vested account balance will be paid to his or her designated beneficiary according to the payment option designated by the participant as soon as practicable.

NO RIGHTS AS SHAREHOLDERS. Other than the right to receive notional DSU dividends based on the amount of dividends that our company pays to our common shareholders, a participant who holds DSUs shall have no rights as a shareholder with respect to any DSUs credited to his or her account until such units are converted into common shares and distributed to participants.

ASSIGNABILITY. Neither a participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt the amounts, if any, payable under the Plan.

ADJUSTMENTS. In the event of any change in our company’s outstanding common shares by reason of a stock split, stock dividend, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change or in the event of any special distribution to our shareholders, the number of DSUs (including matching DSUs) credited to a participant’s account shall be adjusted as the committee administering the Plan determines is necessary and appropriate.

EFFECT OF CHANGE OF CONTROL. If a change of control of our company occurs, all benefits shall be distributed to participants in a lump sum. A change in control under the Plan includes the direct or indirect holdings of the Thomson family, in the voting power or fair market value of the stock of our company or any successor thereto, falling below 40%. A change of control would also occur if we sold substantially all of our assets to an unrelated third party at any time, or within a two year period.

ADMINISTRATION. The Plan is administered by Thomson Holdings Inc., a wholly-owned U.S. subsidiary of our company. Thomson Holdings Inc. may appoint agents as it deems necessary or appropriate to assist it with the operation and administration of the Plan.

AMENDMENT. To the extent required by law, regulations or stock exchange requirements, our company will obtain shareholder approval for amendments to the Plan. Subject to this limitation, Thomson Holdings Inc. may, at any time, amend or modify the Plan in whole or in part by action of its board of directors, a committee thereof, or a committee appointed to administer the Plan. However, no amendment or modification may operate to (i) decrease the value of a participant’s account balance computed as of the date the amendment or modification is approved; or (ii) effect the timing of a distribution of an account balance that is scheduled to commence on or before such date; provided, however, that Thomson Holdings Inc. may accelerate the distribution of installment payments by paying the account balance in a lump sum or in quarterly installments (annual installments in the case of DSUs).

TERMINATION. Thomson Holdings Inc. and any of its affiliates that participate in the Plan reserve the right to discontinue their respective sponsorship of the Plan and/or terminate the Plan at any time with respect to any or all of their participating employees, by action of its board of directors. The termination of the Plan shall not adversely affect any participant or beneficiary who has become entitled to any benefits under the Plan as of the date of termination; provided, however, that the participating employer of the participant shall have the right to accelerate installment payments without premium or prepayment penalty by distributing an amount equal to the participant’s account balance. Upon termination of the Plan, each participant shall become 100% vested in his or her matching DSU account.

SECTION 409A AMENDMENTS. In October 2004, the American Jobs Creation Act of 2004 was enacted which, among other things, added Section 409A to the U.S. Internal Revenue Code of 1986, as amended (the Code). Section 409A governs the taxation of nonqualified deferred compensation arrangements, including the Plan. Our Plan is structured so that Section 409A does not apply to amounts deferred and vested under the Plan prior to January 1, 2005. The attached version of the Plan applies to amounts deferred or vested through December 31, 2004. Later this year, after the U.S. Department of Treasury issues final regulations addressing Section 409A, Thomson Holdings Inc. plans to subsequently amend this Plan to bring it into compliance with Section 409A. These future amendments are solely intended to bring the Plan into compliance with applicable tax rules and will not have any effect on the issuance of common shares under the Plan.

A simple majority of votes cast, in person or by proxy, is required to approve this item.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” APPROVAL OF THE THOMSON DEFERRED COMPENSATION PLAN.

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EXECUTIVE COMPENSATION

Summary Compensation Table

The following table discloses compensation earned during the last three years by our President and Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers in 2005. In this section, these individuals are referred to as the named executive officers. All dollar amounts are in U.S. dollars unless otherwise indicated.

	Annual compensation					Long-term compensation
						Awards			Payouts
Name and principal position	Year	Salary ($)	Bonus ($)		Other annual compensation ($)(1)	Securities under options/SARs granted (#)		Restricted shares or restricted share units ($)(2)	Long-term incentive plan payouts ($)(3)	All other compensation ($)(4)
Richard J. Harrington	2005	1,372,000	1,413,160		262,422	—	(5)	—	1,200,259	224,306
President and	2004	1,325,000	1,446,503		222,751	325,000		—	679,905	420,910
Chief Executive Officer	2003	1,280,000	1,461,888		232,797	325,000		—	266,240	218,148
Robert D. Daleo	2005	810,000	834,300		150,663	125,000		—	706,212	124,125
Executive Vice President	2004	780,000	851,526		112,478	115,000		—	399,330	122,588
and Chief Financial Officer	2003	750,000	856,575		124,219	105,000		—	156,000	121,313
David H. Shaffer(6)	2005	1,080,000	1,699,500	(7)	562,985	50,000		—	941,616	65,047
Executive Vice President	2004	1,040,000	1,220,570		571,627	50,000		—	532,440	64,796
	2003	1,000,000	1,250,000		563,981	140,000		—	208,000	64,695
Brian H. Hall	2005	950,000	1,268,250		245,602	125,000		—	802,788	142,108
Executive Vice President of	2004	900,000	1,380,038		157,504	125,000		1,029,000	446,310	151,120
Thomson and President and Chief Executive Officer of Thomson Legal & Regulatory	2003	810,000	1,171,326		108,783	115,000		—	168,480	138,909
Ronald H. Schlosser(8)	2005	780,000	771,420		122,139	125,000		337,300	666,978	130,437
Executive Vice President of	2004	730,000	611,740		117,205	115,000		—	373,230	122,809
Thomson and President and Chief Executive Officer of Thomson Learning	2003	700,000	500,000		91,696	100,000		—	145,600	91,802

(1)Amounts include tax reimbursements to each named executive officer related to premiums paid by our company for life insurance policies maintained on behalf of each individual. Mr. Harrington received tax reimbursements of $114,807 in 2005, $117,093 in 2004 and $119,337 in 2003. Mr. Daleo received tax reimbursements of $64,326 in 2005, $65,659 in 2004 and $66,820 in 2003. Mr. Daleo also received $37,712 in 2005 for reimbursement of club dues. Mr. Shaffer received tax reimbursements of $53,650 in 2005 and $38,300 in both 2004 and 2003. Mr. Hall received tax reimbursements of $71,957 in 2005, $73,385 in 2004 and $74,787 in 2003. Mr. Hall’s 2005 amounts also include $107,863 for travel and commuting expenses, primarily associated with his use of leased corporate aircraft as a result of an operation on his knee. Mr. Schlosser received tax reimbursements of $49,004 in 2005, $50,018 in 2004 and $50,901 in 2003. Mr. Schlosser also received $39,791 in 2005 for reimbursement of travel and commuting expenses. The amounts for 2005, 2004 and 2003 also include $466,935, $457,178 and $449,482, respectively, paid to Mr. Shaffer as compensation for living, travel and related expenses incurred as a result of working a significant distance from his family’s principal residence. These amounts also include related tax reimbursements to Mr. Shaffer. Beginning with this year’s circular, for disclosure purposes, personal use of corporate aircraft for 2005 has been valued based on the incremental variable operating cost to our company. Because our leased corporate aircraft are used primarily for business purposes, fixed costs that do not change based on usage are excluded from this calculation. The applicable 2004 and 2003 amounts in this column were calculated using the Standard Industry Fare Level (SIFL) rates determined by the U.S. Department of Transportation and published by the U.S. Internal Revenue Service. SIFL rates are used to determine the amount of compensation income that is imputed to an executive for U.S. tax purposes for personal use of corporate aircraft.

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(2)Amounts represent the dollar value of restricted share units (RSUs) issued during 2004 and 2005, based on the closing price of our common shares on the New York Stock Exchange on the grant dates multiplied by the number of RSUs granted. In 2004, we granted 30,000 RSUs to Mr. Hall. 3,000 of Mr. Hall’s RSUs vested on December 31, 2004, 4,500 RSUs vested on December 31, 2005 and 7,500 RSUs will vest on each of December 31, 2006, 2007 and 2008. In 2005, we granted 10,000 RSUs to Mr. Schlosser. One third of Mr. Schlosser’s RSUs will vest on each of May 5, 2008, 2010 and 2012.

These RSUs vest if the named executive officer is employed by our company or one of our subsidiaries on a full-time basis on the vesting date. In addition, all RSUs will vest upon the named executive officer’s death, disability or if the company that employs him ceases to be one of our subsidiaries. RSUs also accumulate additional units based on notional equivalents of dividends paid on our common shares. Additional RSUs resulting from dividends vest to the same extent as the RSUs that resulted inthe crediting of such additional RSUs.

The following table sets forth the number and the value of the RSUs held by Messrs. Hall and Schlosser as of December 31, 2005, based on the closing price of our common shares on the New York Stock Exchange on December 30, 2005, which was the last trading day of the year. RSU amounts below include additional units received from notional dividend equivalents. In 2005, we granted 621 and 172 additional units from notional dividend equivalents to Mr. Hall and Mr. Schlosser, respectively.

Name	Aggregate number of RSUs held (#)	Value ($)
B. Hall	23,143	800,748
R. Schlosser	10,172	351,951

(3)LTIP payouts are with respect to performance periods ending on December 31 of the year shown. These payouts are typically made in the first quarter after the end of the performance period, following certification of the achievement of the performance goals. Amounts reflected in this column for 2005, 2004 and 2003 represent amounts paid pursuant to a three-year, two-year and a one-year transition performance period, respectively, in connection with the phase-in of our current LTIP. For more information on LTIP awards, please see “Long-Term Incentive Plans – Awards in 2005” on page 13 of this circular.

(4)Amounts for 2005, 2004 and 2003 include premiums that we paid for life insurance policies on behalf of our named executive officers. We will not recover premiums paid. Please see the discussion on page 16 under the caption “Insurance Policies” for more information. The amounts in this column also include our matching contributions under our company-sponsored 401(k) savings plan and deferred compensation plan on behalf of the named executive officers. Under our deferred compensation plan,if a participant elects to convert deferred cash into DSUs, our company credits his or her plan account with a 10% DSU match, which matching units generally vest over a period of four years. Matching contributions made by our company on behalf of our named executive officers are valued in U.S. dollars on the date that the officer converted deferred cash into DSUs. No DSU matching contributions were made in 2003.

The amounts for Mr. Harrington in 2005, 2004 and 2003 include payments of premiums of $217,096, $214,389 and $212,148, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Harrington under our 401(k) plan in 2005, 2004 and 2003 were $7,210, $6,150 and $6,000, respectively. In 2004, we granted 6,211 matching DSUs to Mr. Harrington with an aggregate value of $200,371 on the grant dates.

The amounts for Mr. Daleo in 2005, 2004 and 2003 include payments of premiums of $117,825, $116,438 and $115,313, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Daleo under our 401(k) plan in 2005, 2004 and 2003 were $6,300, $6,150 and $6,000, respectively.

The amounts for Mr. Shaffer in 2005, 2004 and 2003 include payments of premiums of $58,747, $58,646 and $58,695, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Shaffer under our 401(k) plan in 2005, 2004 and 2003 were $6,300, $6,150 and $6,000, respectively.

The amounts for Mr. Hall in 2005, 2004 and 2003 include payments of premiums of $135,682, $134,338 and $132,909, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Hall under our 401(k) plan in 2005, 2004 and 2003 were $6,426, $6,182 and $6,000, respectively. In 2004, we granted 351 matching DSUs to Mr. Hall with an aggregate value of $10,600 on the grant date.

The amounts for Mr. Schlosser in 2005, 2004 and 2003 include payments of premiums of $89,363, $88,907 and $87,989, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Schlosser under our 401(k) plan in 2005, 2004 and 2003 were $4,200, $3,900 and $3,813, respectively. In 2005 and 2004, we granted 1,108 and 970 matching DSUs to Mr. Schlosser with an aggregate value of $36,874 and $30,002, respectively, on the grant dates.

(5)On February 10, 2006, we granted Mr. Harrington 265,000 options. Mr. Harrington ordinarily would have received options in December 2005 as part of our annual grant, but the Human Resources Committee of the Board of Directors required additional time to formulate a new long-term incentive plan design. In addition to these options, Mr. Harrington also received 50,000 performance restricted share units (PRSUs) in February 2006. For more information on Mr. Harrington’s options and PRSUs, please see “Option/SAR Grants in 2005” on page 13 of this circular, as well as “Chief Executive Officer’s Compensation” beginning on page 24 of this circular.

(6)Mr. Shaffer was Executive Vice President of Thomson and Chief Executive Officer of Thomson Financial until 2005, when he relocated to our corporate center.

(7)Mr. Shaffer’s annual bonus amount for 2005 includes $309,000 paid as a result of a special bonus arrangement entered into in December 2004 in lieu of him receiving a greater number of stock options as part of our 2004 annual option grant. For more information on this bonus arrangement, please see “Annual Cash Incentive Bonus” on page 19 of this circular.

(8)Mr. Schlosser was Executive Vice President of Thomson and President and Chief Executive Officer of Thomson Scientific & Healthcare until November 2002.

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Long-Term Incentive Plans – Awards in 2005

The following table sets forth information regarding long-term incentive awards that we made in 2005 under our incentive bonus plan. For more information about our incentive bonus plan, please see page 19 of this circular.

Name	Securities, units or other rights (#)	Performance or other period until maturation or payout	Estimated future payouts under non-securities price-based plans
			Threshold ($)	Target ($)	Maximum ($)
Richard J. Harrington	—	2005–2007	41,160	823,200	1,646,400
Robert D. Daleo	—	2005–2007	24,300	486,000	972,000
David H. Shaffer	—	2005–2007	32,400	648,000	1,296,000
Brian H. Hall	—	2005–2007	28,500	570,000	1,140,000
Ronald H. Schlosser	—	2005–2007	23,400	468,000	936,000

Each named executive officer is eligible to receive a bonus equal to a percentage of his annual base salary based on our company meeting certain adjusted earnings per share (EPS) growth targets. For the 2005 through 2007 period, the target payout is 60% of the participant’s average earned base salary during the three-year period. Total bonuses cannot exceed 200% of the target award. Future payout amounts are estimated using 2005 base salaries.

Option/SAR Grants in 2005

The following table sets forth information concerning grants of options in 2005 under our stock incentive plan to our named executive officers. We did not grant any phantom stock units to our named executive officers in 2005. For more information about our stock incentive plan, please see pages 21 and 22 of this circular.

Name	Securities under options/SARs granted (#)	% of total options/SARs granted to employees in 2005		Exercise or base price ($/security)	Market value of securities underlying options/SARs on the date of grant ($/security)	Expiration date
Richard J. Harrington(1)	—	—		—	—	—
Robert D. Daleo	125,000	3.7	%	US$35.13	US$35.13	December 4, 2015
David H. Shaffer	50,000	1.5	%	US$35.13	US$35.13	December 4, 2015
Brian H. Hall	125,000	3.7	%	US$35.13	US$35.13	December 4, 2015
Ronald H. Schlosser	125,000	3.7	%	US$35.13	US$35.13	December 4, 2015

(1)On February 10, 2006, we granted Mr. Harrington 265,000 options with an exercise price of US$37.73 per option. The options expire on February 9, 2016. Mr. Harrington ordinarily would have received options in December 2005 as part of our annual grant, but the Human Resources Committee of the Board of Directors required additional time to formulate a new long-term incentive plan design. If Mr. Harrington’s 265,000 options had been awarded during 2005, the relevant percentages of all options/SARs granted to employees in 2005 would have been as follows for each named executive officer: Mr. Harrington – 7.3%; Messrs. Daleo, Hall and Schlosser – 3.4%; and Mr. Shaffer – 1.4%.

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Aggregated Option/SAR Exercises in 2005 and Financial Year-End Option/SAR Values

The following table provides information on option and stock appreciation right (SAR) exercises in 2005 by each of our named executive officers, and the value of each officer’s unexercised options and phantom stock units as of December 31, 2005. During 2005, Messrs. Harrington, Daleo and Hall exercised phantom stock units that were about to expire. None of our named executive officers exercised options in 2005. We have not repriced any options granted under our stock incentive plan or units allocated under our phantom stock plan. The value of unexercised in-the-money options and rights is the difference between the exercise price of the options and rights and the closing price of our common shares on December 31, 2005.

Name	Securities acquired on exercise (#)	Aggregate value realized ($)	Unexercised options/SARs at December 31, 2005 (#) exercisable/unexercisable	Value of unexercised in-the-money options/SARs at December 31, 2005($) exercisable/unexercisable
Richard J. Harrington	120,000	1,508,008	2,016,250/487,500	4,633,766/1,079,000
Robert D. Daleo	25,000	416,483	503,000/290,000	873,642/354,900
David H. Shaffer	—	—	960,500/192,500	1,174,808/408,100
Brian H. Hall	65,001	1,108,905	570,000/305,000	945,342/388,100
Ronald H. Schlosser	—	—	430,500/286,250	990,389/341,450

Equity Compensation Plan Information

The following table provides information as of December 31, 2005 regarding common shares of our company that may be issued under our existing equity compensation plans. Our stock incentive plan is currently the only compensation plan under which common shares of our company have been authorized for issuance. For more information about this plan, please see pages 21 and 22 of this circular.

Plan category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted average exercise price of outstanding options, warrants and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders:
Cdn$ stock options	5,451,664	Cdn$49.67		—
US$ stock options	10,469,989	US$32.62		—
US$ restricted share units	223,715	N/A	(1)	—
Total	16,145,368	—		22,991,887
Equity compensation plans not approved by security holders	—	—		—
Total	16,145,368	—		22,991,887

(1)Unlike stock options, restricted share units do not have an applicable exercise price.

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Pension and Other Retirement Benefits

We provide pension and other retirement benefits to our named executive officers, primarily under a pension plan, a retirement plus plan and supplemental executive retirement plans, or SERPs.

PENSION PLAN. The pension plan in which the named executive officers participate is a defined benefit plan funded by one of our wholly-owned U.S. subsidiaries that is qualified under U.S. federal income tax laws. Benefits under our U.S. qualified pension plan are subject to a maximum annual benefit based on eligible compensation limits set forth by the U.S. Internal Revenue Service. In 2005, the eligible compensation limit was US$210,000 and the maximum annual benefit that could be accrued under the pension plan was US$170,000.

RETIREMENT PLUS PLAN. Our retirement plus plan is an unfunded, non-qualified defined benefit plan that provides a supplemental benefit above the limits imposed by the U.S. Internal Revenue Service, with a maximum annual benefit based on an eligible compensation limit of US$300,000. Amounts under the retirement plus plan are paid from our company’s general assets.

SERPS. The SERPs are also unfunded, non-qualified defined benefit pension plans under which benefits are paid from our company’s general assets. SERP benefits supplement amounts received by the named executive officers under our other defined benefit plans (i.e., the pension plan and retirement plus plan) and our defined contribution plans, which are funded by company contributions and earnings attributable to such contributions. All of our named executive officers are currently eligible to receive SERP benefits as each of them is at least 55 years old and has at least 10 years of credited service.

The combined annual benefit for each named executive officer is a pension equal to a percentage of his final base salary, commencing on the later of the named executive officer reaching age 62 or his retirement or termination of employment. This percentage of final base salary is 60% for Messrs. Harrington, Daleo and Shaffer and 50% for Messrs. Hall and Schlosser. The benefit amount will be reduced by 5% for each year by which retirement precedes age 62. Given their ages and years of credited service with our company, if a named executive officer is terminated without cause, there would be no reduction to the benefitamount. In certain circumstances, a named executive officer will be entitled to his pension upon disability. The annual benefit is payable for life, with a spousal survivor pension of 50% of the named executive officer’s pension. Annual benefit amounts are not subject to reductions for social security benefits.

The table below sets forth the annual service cost and total accrued pension obligation, respectively, for each named executive officer for the plan year ended September 30, 2005 (our plans’ measurement date).

Name	Annual service cost ($)	Accrued pension obligation ($)
Richard J. Harrington	527,000	13,523,000
Robert D. Daleo	367,000	4,887,000
David H. Shaffer	1,102,000	8,815,000
Brian H. Hall	217,000	5,544,000
Ronald H. Schlosser	307,000	3,630,000

The annual service cost of these future benefits represents the actuarial value of the projected pension benefit earned throughout the plan year. The total accrued pension obligation represents the actuarial value of the projected pension benefit as of September 30, 2005, earned for all credited service to date. We determined these values using the same actuarial assumptions as those used to determine the 2005 service cost (which is a component of net periodic pension cost) and year-end pension plan obligations, respectively, in note 16 to our 2005 consolidated financial statements.

The following table shows the estimated annual retirement benefits that would be payable to our named executive officers under the SERPs on a single life annuity basis, based on normal retirement at 62 with 10 or more years of credited service. This table assumes no reduction under the SERPs for other company-funded retirement benefits (including the pension plan and the retirement plus plan). As of March 1, 2006, all of our named executive officers had at least at least 10 years of credited service.

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	Annual benefit
Base salary	50%(1)		60%(2)
$700,000	$	350,000	$	420,000
$800,000	$	400,000	$	480,000
$900,000	$	450,000	$	540,000
$1,000,000	$	500,000	$	600,000
$1,100,000	$	550,000	$	660,000
$1,200,000	$	600,000	$	720,000
$1,300,000	$	650,000	$	780,000
$1,400,000	$	700,000	$	840,000
$1,500,000	$	750,000	$	900,000

(1)Percentage of base salary applicable for Messrs. Hall and Schlosser.

(2)Percentage of base salary applicable for Messrs. Harrington, Daleo and Shaffer.

401(k) Savings Plan

We maintain a 401(k) savings plan that covers our U.S. employees, including substantially all of our senior executives and all of our named executive officers. This plan is a tax-qualified company-sponsored retirement savings plan under which participating employees may contribute up to 16% of their compensation on a before-tax basis. We also make a matching contribution to amounts contributed by participating employees. During 2005, the maximum before-tax contribution that could be made by a participating employee was $14,000 per year (or $18,000 per year for certain participants age 50 and over). For more information on matching contributions made to our named executive officers, please see pages 11 and 12 of this circular.

Insurance Policies

We have acquired life insurance policies for Messrs. Harrington, Daleo, Hall and Schlosser. Each policy has a death benefit of approximately five times the highest annual base salary payable to the named executive officer during the last five years of employment with our company. All premiums that we paid prior to the enactment of the Sarbanes-Oxley Act for the non-term life portion of the policies will be repaid to us following the retirement or death of the named executive officer. Because of the uncertainty created by provisions of the Sarbanes-Oxley Act prohibiting certain loans to executive officers, we modified our arrangements with our named executive officers. As a result of this, we will not recover premiums paid in 2003 and subsequent years. We have agreed to reimburse Messrs. Harrington, Daleo, Hall and Schlosser for imputed taxes on their policies. Mr. Shaffer has a separate life insurance arrangement on which we also pay premiums and reimburse him for related taxes.

We provide group life insurance to certain of our U.S. employees in the amount of their annual salary up to $400,000.

Messrs. Harrington, Daleo, Shaffer and Schlosser also participate in this plan.

Employment Agreements

Each named executive officer is a party to an employment agreement. Except as set forth below, if any of them is terminated without cause, he will receive a payment based on his final base salary. In the case of Mr. Harrington, the payment is the lesser of (i) three times his final base salary as of the effective date of termination and (ii) his final base salary as of the effective date of termination paid through age 62. For each of Messrs. Daleo, Hall and Schlosser, the payment is two times his final base salary. For Mr. Shaffer, the payment is two and one-half times his final base salary.

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Notwithstanding any terms in our plans to the contrary, if any named executive officer except for Mr. Hall is terminated without cause, 50% of all unvested awards granted to such executive under our stock incentive plan (such as stock options or RSUs) and units granted to the executive under the phantom stock plan would immediately vest and become exercisable and the balance would be forfeited. Such named executive officer would have six months following the effective date of termination to exercise all exercisable awards and units. Alternatively, our company may, at its discretion, determine that all such awards or units (whether or not vested) shall be deemed to have expired at the effective date of termination, in which case our company would pay the named executive officer an amount equal to the value of all vested units and awards and 50% of all unvested units and awards as of the effective date of termination. Please see page 22 of this circular for information on the extended option vesting arrangement that is contemplated for Mr. Hall.

If a named executive officer is terminated without cause, any management incentive to which the named executive officer would otherwise be entitled pursuant to any bonus plan in which he participated prior to the effective date of termination would be prorated through the effective date, except that any bonuses due under long-term incentive plans shall be payable in accordance with the terms of such plans.

If a named executive officer is terminated without cause, certain medical and dental benefits and insurance, automobile allowances and eligibility in the deferred compensation plan will continue during any severance period in which a named executive officer remains unemployed. Other employee benefits will end as of the effective date of termination. Please see the section of this circular entitled “Pension and Other Retirement Benefits” beginning on page 15 for more information on treatment of our named executive officers’ pension benefits in connection with a termination without cause. If a named executive officer is terminated without cause, his SERP benefits would be payable following the completion of any severance payments owed under his employment agreement. Each named executive officer has also agreed not to compete with our company or solicit employees to leave our company for a period of time following termination.

REPORT ON EXECUTIVE COMPENSATION

Overview

The Human Resources Committee of the Board is responsible for reviewing our company’s overall compensation policies and has furnished the following report on executive compensation for 2005.

Our executive compensation structure ensures that compensation is aligned with our company’s strategic and financial objectives and encourages executives to achieve exceptional performance. We reward both individual and corporate performance, primarily over the long term, but also in the short term. We expect to pay exceptional compensation for superior performance, and outstanding executives have the opportunity to achieve substantial earnings. Compensation for executives reflects:

•the functions they perform;

•their value and contribution to our company;

•their experience and the quality of their individual performance;

•their capacity to improve the financial performance of our company;

•their enthusiasm and loyalty; and

•above all, their ability to create value for our shareholders.

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The Human Resources Committee seeks to ensure that our company’s compensation and benefits policies attract, motivate and retain key employees needed to support our financial, operational and strategic growth and success. We believe that this principle also creates and sustains a competitive advantage in a labor market that translates to leadership and innovation in our key markets. We therefore believe it is important to provide an opportunity for our senior executives to be compensated in the top quartile of the compensation paid by our competitors when superior results are achieved, taking into account the nature of the position, responsibilities, skills and experience of the executive, and his or her performance.

In 2005, the Human Resources Committee engaged an independent consulting firm, Frederic W. Cook & Co., Inc., to analyze our executive compensation structure and its form to ensure our company is competitive in this regard. The Cook firm reviewed our executive compensation program and provided guidance and analysis on plan design and market trends and practices. The Cook firm concluded that our program generally provides executives with competitive compensation opportunities, links compensation to performance and value creation, and is efficient from an accounting standpoint. Utilizing guidance from the Cook firm, the Human Resources Committee made several changes to our company’s ongoing incentive plans, most notably the adoption of a share unit-based multi-year incentive plan and the introduction of a return on invested capital (ROIC) metric in this bonus program. In 2005, the Human Resources Committee also utilized and relied upon independent market survey data that Towers Perrin provided to our company regarding executive compensation for organizations of comparable size and scope with which our company is most likely to compete for executive talent. The Human Resources Committee then used this data as part of its due diligence in determining salary and target bonus amounts. As most of our company’s senior executives are based in the United States, the group of companies used for comparative purposes typically represents a mix of primarily U.S. media and general industry companies and includes other information companies with which we compete.

Total Compensation

A senior executive’s target total compensation typically comprises a base salary, annual and long-term incentive bonus payments based on performance, and grants of long-term equity-based incentives. In determining the mix and relative weighting of cash (base salary and bonus) versus equity-based incentives, we consider the appropriate proportion of compensation that should be at risk based on the executive’s ability to affect and influence our short and long-term results as well as the compensation mix for similar positions at comparable companies. As senior executives approach retirement age, there is generally less emphasis placed on long-term incentives. The Human Resources Committee believes this mix and weighting aligns the interests of executives with those of shareholders, provides significant cash incentives and assists in keeping our company competitive in the market for high-quality executives.

The table below shows the percentage that each component comprised of our named executive officers’ target total direct compensation during 2005.

	Percentage of target total direct compensation
			Annual cash		Long-term cash		Long-term equity
Name	Base salary		incentive bonus(1)		incentive bonus		incentives(2)		Total
Richard J. Harrington	25	%	25	%	15	%	35	%	100	%
Robert D. Daleo	27	%	27	%	16	%	30	%	100	%
David H. Shaffer	29	%	44	%	17	%	10	%	100	%
Brian H. Hall	27	%	33	%	16	%	24	%	100	%
Ronald H. Schlosser	27	%	27	%	16	%	30	%	100	%

(1)Reflects Mr. Shaffer’s special annual cash incentive bonus award in addition to his regular annual cash incentive bonus award. Please see “Annual Cash Incentive Bonus” on page 19 of this circular for more information.

(2)Reflects the 265,000 options granted to Mr. Harrington in February 2006, as if they were granted in December 2005 at the same time and at the same Black-Scholes value as the options awarded to the other named executive officers. Please see “Chief Executive Officer’s Compensation” beginning on page 24 of this circular for more information. Excludes the special grant of RSUs awarded to Mr. Schlosser in May 2005.

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Base Salary

Base salary is determined annually by reference to an executive’s performance and salaries prevailing in the relevant market. Generally, as in the past, increases in 2005 base salary were determined primarily by the performance of our company, of the market group in which the executive works, and of the executive. For an executive in one of our company’s market groups, the most heavily weighted factors were the performance of that executive and that group. For an executive with corporate-wide responsibilities, the most heavily weighted factors were the performance of that executive and the performance of our company as a whole. In the past few years, most of our executives have had annual salary increases in the 3–5% range.

The Human Resources Committee annually approves changes in base salary for senior executive officers, including the named executive officers. Salaries for our named executive officers (other than Mr. Harrington) are established in part on the basis of recommendations by Mr. Harrington and on the basis of the Board’s and Human Resources Committee’s assessments of the executives’ respective performance. Mr. Harrington’s salary is based on the Board’s and Human Resources Committee’s assessment of Mr. Harrington’s performance. The most recent salary reviews took place in December 2005 and January 2006.

Annual Cash Incentive Bonus

We use annual cash incentive bonus awards to motivate and reward senior executives for achievement of specified levels of financial and/or individual performance. Different types of bonus awards are often granted to compensate individual executives, but all focus on superior performance. Each market group establishes awards within parameters we set that take into account the market conditions of the particular group. The awards are typically designed to reward the individual executive for the direct contribution that he or she can make to our company or his or her market group. In 2005, at the most senior levels, these awards were related to increases in revenue, adjusted operating profit and/or return on invested capital (ROIC) meeting or exceeding specific predetermined targets set by the Board with reference to our company’s financial, strategic and operational plans and objectives. Specific minimum growth hurdles for both revenue and adjusted operating profit must be met in order for an executive to receive above-target payouts. Total bonuses cannot exceed 200% of the target award.

In 2005, the annual cash incentive bonuses for each of our named executive officers were weighted 35% based on revenue growth and 65% based on adjusted operating profit growth. Under the bonus terms, annual cash incentive bonuses could be increased or decreased by up to 20% based on ROIC performance.

In February 2006, in order to increase our focus on the importance of free cash flow, which we view as an important metric of our performance, we changed the design of future annual cash incentive bonus awards for each of our named executive officers to be weighted 45% based on revenue growth, 45% based on adjusted operating profit growth and 10% based on free cash flow growth.

In December 2004, in lieu of receiving a greater amount of stock options as part of our annual grant, Mr. Shaffer was granted a special annual cash incentive bonus award in addition to his regular annual cash incentive bonus award. Under the special award, Mr. Shaffer’s target bonus was $600,000 (payable in two installments) based on our revenue and adjusted operating profit growth for 2005. Performance was weighted in the same manner as described above for the regular annual bonus. The threshold amount for 2005 was met and Mr. Shaffer earned a bonus of $618,000. The first payout of $309,000 occurred in March 2006. The second payout of the same amount will be made to Mr. Shaffer in March 2007. Mr. Shaffer was granted a similar award in December 2005 in lieu of receiving a greater amount of stock options that month. Under the new award grant, Mr. Shaffer’s target bonus is $300,000 based on our revenue, adjusted operating profit and free cash flow growth for 2006. The maximum payout in 2007 to Mr. Shaffer for this award is $600,000.

The Human Resources Committee approved 2005 awards for senior executive officers. Mr. Harrington or the chief executive officer of the relevant market group generally approved 2005 awards for other executives, subject to the guidelines imposed by the Human Resources Committee.

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Long-Term Incentive Bonus

We have granted a number of cash-based long-term incentive bonus awards to our key senior executives. The performance periods for the awards are typically three years in duration, coinciding with our company’s operating planning cycles. Payments of long-term incentive awards are not made unless predetermined targets are met. Award opportunities established in 2005 were measured by the cumulative compound growth of our adjusted earnings per common share (EPS) for a three-year plan period beginning on January 1,2005 and ending on December 31, 2007. For our named executive officers, the target award for this performance period is 60% of average earned base salary during the three year period. Total bonuses cannot exceed 200% of the target award. Please see “Long-Term Incentive Plans – Awards in 2005” on page 13 for more information.

In February 2006, we modified the structure of our long-term incentive bonus awards in an effort to better align these awards with key drivers of total shareholder return. For new awards, we began issuing performance restricted share units (PRSUs) to certain senior executives who receive long-term incentives. PRSUs vest after approximately three years, and entitle the holder to receive Thomson common shares if performance goals are met. At the time that the PRSUs vest, the number of units to be redeemed for common shares may increase, decrease or remain the same depending on our company’s performance over the three-year period. The final number of PRSUs that vest will vary from 0% to 200% of the initial number awarded, based 50% on our company’s adjusted EPS growth and 50% on our company’s ROIC performance over the three-year performance period. For our named executive officers except for Mr. Harrington, the target award for this performance period is 60% of average earned base salary during the three year period. PRSUs will also accumulate additional units based on notional equivalents of dividends paid on our common shares.

Deferred Compensation Plan

A group of key executives is eligible to participate in our deferred compensation plan, which allows participants to voluntarily defer a percentage of annual base salary and annual and long-term cash incentive bonuses. Irrevocable elections to participate in this plan must be made before the beginning of the fiscal year. Certain participants in the plan are eligible to convert deferred cash into DSUs. Deferred cash may be converted into DSUs on the basis of the closing price of our common shares on the NYSE on the day before the deferral or conversion. If a participant elects to hold DSUs, our company credits his or her plan account with a 10% DSU match, which matching units generally vest over a period of four years. DSUs also accumulate additional units based on notional equivalents of dividends paid on our common shares. If our company is required to redeem DSUs for common shares, we are required to purchase the shares on the open market. If the item of special business related to the deferred compensation plan is approved at this meeting, we will be able to issue new common shares to satisfy our DSU obligations to participants. More information on the deferred compensation plan is available on pages 8 through 10 of this circular.

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Equity-Based Compensation Plans

Our equity-based compensation plans consist of a stock incentive plan and a phantom stock plan.

STOCK INCENTIVE PLAN. Our stock incentive plan provides for the grant of non-qualified stock options, incentive stock options (ISOs), stock appreciation rights (SARs) and awards of RSUs, common shares and other awards that are valued in whole or in part by reference to, or are otherwise based on, the fair market value of the common shares of our company at the date of the grant. To date, we have issued only stock options and RSUs under the plan. Any employee or officer of our company (as may be determined by the Human Resources Committee) may be a participant in the plan. Non-employee directors are not eligible to participate in the plan.

At its December 2005 meeting, the Human Resources Committee reviewed analyses and recommendations of our senior management regarding option grants. In 2005, we made annual option grants to approximately 260 employees in amounts based on their position with our company, as adjusted for performance. From time to time, we also grant options to new executives, in connection with promotions and to reward exceptional performance.

In 2005, we granted 3,112,846 options and 201,194 RSUs. This represented approximately 0.5% of our common shares outstanding as of December 31, 2005. As of December 31, 2005, total options and RSUs outstanding represented approximately 2.5% of our common shares outstanding.

All options granted in 2005 vest 25% per year over four years. The exercise prices for options granted in 2005 were based on the closing price of our common shares on the day before the grant. Since we amended the stock incentive plan in May 2005, we have been using the closing price of our shares on the NYSE. Options currently expire no later than 10 years from the grant date.

RSUs entitle executives to receive common shares of our company at a future date or dates upon satisfaction of certain terms and conditions, including, for example, continued full-time employment with our company or one of our subsidiaries on the vesting dates. In 2006, we began to issue RSUs that also have performance conditions, which we refer to in this circular as PRSUs. For moreinformation, see “Long-Term Incentive Bonus” on page 20. RSUs accumulate additional units based on notional equivalents of dividends paid on our common shares. Vesting dates for RSUs granted in 2005 ranged from three to seven years.

Options and RSUs are subject to early expiration or vesting in certain circumstances, including death, disability, retirement and termination.

•Options cease to be exercisable in the event that a participant ceases to be an employee or officer of our company or a subsidiary for any reason other than death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company. If the participant ceases to be an employee or officer of our company or a subsidiary for any of the reasons listed as exceptions immediately above, the options held by such participant become exercisable and remain exercisable for a period of between three months and one year after such date depending upon the circumstances and, in the case of early retirement, subject to a specified reduction in the number of common shares for which such option is exercisable.

•For time-based RSUs, in the event that a participant ceases to be an employee or officer as a result of early retirement or for any reason other than death, normal retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, all unvested time-based RSUs are forfeited effective immediately upon the occurrence of such event. If a participant ceases to be an employee or officer as a result of death, normal retirement, disability or by reason of the employer of the participant ceasing to be a subsidiary of our company, all unvested RSUs vest in full effective immediately upon the occurrence of such event.

•For PRSUs, in the event that a participant ceases to be an employee or officer for any reason other than death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, all PRSUs are forfeited immediately upon the occurrence of such event. If a participant ceases to be an employee or officer as a result of death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, PRSUs vest in proportion to the participant’s active service as an employee (measured in calendar days) during the period commencing on the grant date and ending on the vesting date, and the PRSUs become fully vested on the vesting date. For PRSUs awarded in 2006, the vesting date is approximately three years from the grant date.

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The stock incentive plan contains the following limitations:

•The maximum number of common shares that may be issued under the plan is 40,000,000 (provided that not more than 4,000,000 common shares may be issued under grants other than stock options, SARs or RSUs).

•The maximum number of common shares that may be issued under plan awards held by any one person under the plan cannot exceed 5% of our outstanding common shares determined on a non-diluted basis. The maximum number of common shares for which plan awards may be granted and which may be otherwise awarded under the stock incentive plan to any individual during any one year period is 2,000,000.

•The maximum number of common shares that may be issued under plan awards held by a participant granted under the plan and under any other share compensation arrangement of our company (i) to all “insiders” may not exceed 10% of the number of outstanding common shares at such time determined on a non-diluted basis, and (ii) to an “insider” and such insider’s “associates” during any one year period may not exceed 5% of the number of outstanding common shares at such time determined on a non-diluted basis.

•The maximum number of common shares that may be issued through ISOs under the stock incentive plan may not exceed 4,000,000.

In 2005, our shareholders approved an amendment to the plan which provides the Human Resources Committee with discretion to extend the period during which some plan participants would be entitled to exercise their options (other than ISOs), that are vested at the time of termination of employment for up to 36 months after ending their employment with our company. The Human Resources Committee will have the authority to extend the exercise period only if (1) the exercise period does not extend beyond the earlier of (x) 36 months after the participant ceases to be an employee of our company and (y) the stated termination or expiration date and (2) such extension of the exercise period could not reasonably be expected to cause adverse tax consequences to any participant under Section 409A of the U.S. Internal Revenue Code and the regulations and guidance issued by the Department of the Treasury thereunder. In the future, if the conditions described immediately above can be satisfied in the absolute discretion of the Human Resources Committee, the Human Resources Committee intends to provide Mr. Hall with such an arrangement with respect to all of his currently outstanding options.

The Board may amend or suspend the stock incentive plan or any portion thereof, subject to any required regulatory approval. To the extent required by law, regulations or stock exchange requirements, our company will obtain shareholder approval for amendments. However, no such amendment or suspension may materially and adversely affect any right granted under the plan without the consent of the affected participant, except as required by law.

We have been expensing stock incentive plan awards in our financial statements since 2003.

Information about grants under the stock incentive plan to our named executive officers is provided on page 13 under “Option/SAR Grants in 2005.”

PHANTOM STOCK PLAN. If tax or securities regulations make it impracticable to make grants under the stock incentive plan, we may allocate units under our phantom stock plan to executive officers and senior employees of our company and our subsidiaries. After being employed with our company for a prescribed length of time, a holder of units is entitled to a cash payment based on the number of units and the increase, if any, in the market price of our common shares from the date of grant. We did not grant any phantom stock units to our named executive officers in 2005. We did, however, grant phantom stock units to other employees of our company who are based outside of the United States.

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Allocations under both the stock incentive plan and the phantom stock plan utilize multi-year vesting schedules, which are intended to encourage executive retention and provide strong incentives for superior long-term future performance. A principal attraction of these plans is that they link compensation to shareholders’ interests because the value of the awards to our executives is directly linked to our stock price.

Generally, in determining whether and how many grants to make under the stock incentive plan and allocations under the phantom stock plan, the Human Resources Committee does not take into account the amount of previous allocations under the plans. Rather, the Human Resources Committee makes grants with a view to providing competitive total target compensation packages, in which long-term equity should be balanced against short-term compensation opportunities. The Human Resources Committee does not consider it relevant whether an executive has exercised options or units previously granted.

Employee Stock Purchase Plan

In the fourth quarter of 2005, we launched a new U.S. employee stock purchase plan, under which eligible employees may purchase common shares of our company at a 15% discount. Each of the named executive officers is eligible to participate in the plan. Employees who participate may contribute 1% to 10% of their eligible compensation through after-tax payroll deductions. On the last business day of each quarter, we use employees’ accumulated payroll deductions to purchase common shares for them. We plan to launch a similar employee stock purchase plan in Canada and the United Kingdom later this year. In the second half of 2005 and in early 2006, we made certain administrative amendments to these plans. These amendments were within the discretionary authority of the Board of Directors under the terms of the plans and did not require shareholder approval.

Share Ownership

We believe that the use of long-term equity-based incentive compensation programs further aligns the interests of our senior executives with those of our shareholders, and also enables them to share in the long-term growth and success of our company. In 2002, we approved share ownership guidelines for some of our senior executives that require them to maintain an equity interest in our company with a value equal to a multiple of their salary. In 2006, we increased the salary multiples of our guidelines. The highest current multiple is five times salary and the lowest is one times salary. The values of DSUs and common shares acquired pursuant to our deferred compensation plan, company-sponsored 401(k) retirement savings plan and employee stock purchase plans count toward meeting the share ownership requirement. Unvested RSUs and PRSUs do not count toward the guidelines. There is no longer a deadline for complying with the share ownership requirements. Under our current share ownership guidelines, each named executive officer is expected to retain a specified percentage of the shares that he acquires (after applicable tax withholdings) through option exercises and the vesting of RSUs and PRSUs until he has attained the share ownership requirements. Mr. Harrington is currently required to retain 100% of the common shares that he acquires, and the other named executive officers are currently required to retain 50% of the common shares that they acquire.

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Our named executive officers will be required to meet the following share ownership guidelines:

Name	Base salary multiple
Richard J. Harrington	5	x
Robert D. Daleo	3	x
David H. Shaffer	3	x
Brian H. Hall	3	x
Ronald H. Schlosser	3	x

Chief Executive Officer’s Compensation

The structure of Mr. Harrington’s compensation is similar to that of other senior executives of our company. In setting Mr. Harrington’s compensation, the Human Resources Committee uses the same philosophy and guiding principles described above and refers to publicly disclosed executive compensation information to ascertain that the amount is competitive with amounts paid to chief executive officers of businesses of comparable size and in comparable markets. As Mr. Harrington is based in the United States, the group of companies used for comparative purposes represents a mix of primarily U.S. media and general industry companies including other information companies with which we compete. For 2005, Mr. Harrington received an increase in his annual salary, based on merit, of 3.5%. His resulting annual salary in 2005 was $1,372,000.

Mr. Harrington’s compensation also includes equity-based compensation awards under our stock incentive plan and annual and long-term incentive bonus awards. Similar to those of our other named executive officers, Mr. Harrington’s annual incentive bonus for 2005 was weighted 35% based on our company’s revenue growth and 65% based on adjusted operating profit growth, subject to upto a 20% increase or decrease based on ROIC performance. Mr. Harrington’s long-term cash incentive bonus for 2005 related to the cumulative compound EPS growth of our company during 2004 and 2005. Based on our company’s performance, Mr. Harrington earned a 2005 annual cash incentive bonus of $1,413,160 and a long-term cash incentive bonus of $1,200,259.

Mr. Harrington ordinarily would have received options as part of our annual grant in December 2005, but the Human Resources Committee needed additional time to formulate his long-term equity-based incentive award. In February 2006, Mr. Harrington was granted 265,000 options and 50,000 PRSUs. As a result, Mr. Harrington’s long-term incentive opportunity is now split approximately 50% between options and PRSUs. Mr. Harrington’s options vest 25% per year over a four year period. Mr. Harrington’s PRSUs vest after approximately three years, and entitle him to receive Thomson common shares if performance goals are achieved. 50,000 PRSUs represents Mr. Harrington’s target award. At the time that these PRSUs vest in 2009, the number of units to be redeemed for common shares may increase, decrease or remain the same depending on our company’s performance over the three-year period ending December 31, 2008. The final number of PRSUs that vest will vary from 0% to 200% of the initial number awarded, based 50% on our company’s adjusted EPS growth and 50% on our company’s ROIC performance over the three-year performance period. Mr. Harrington’s PRSUs will also accumulate additional units based on notional equivalents of dividends paid on our common shares.

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The Human Resources Committee reviewed Mr. Harrington’s performance in 2005, considering strategic, financial and operational components. Under Mr. Harrington’s leadership in 2005:

•Thomson delivered another year of solid financial performance. In particular, our company achieved an 8% increase in revenues, a 40 basis point improvement in adjusted operating profit margin, and free cash flow continued to grow. In 2005, the company posted significantly higher organic growth, with each of the four market groups contributing to the increase. Our electronic, software and services businesses achieved 12% revenue growth in 2005, and now comprise nearly 70% of our total revenues. Our company continued to drive costs out of the business and improve operating efficiencies.

•Our company was successful in further developing and deploying innovative workflow solutions that meet our customers’ needs. In Thomson Legal & Regulatory, Westlaw Litigator further penetrated the corporate litigation market. Thomson Learning was successful in integrating a new platform which will be leveraged across its businesses to develop courseware, consolidate the production organization and establish standardized workflows. Thomson Financial completed the rollout of more than 24,000 workstations to Merrill Lynch brokerages across the United States and its TradeWeb business processed a record number of trades over its online fixed income trading network. Thomson Scientific & Healthcare successfully launched Thomson Pharma.

•Mr. Harrington also was instrumental in initiating important senior management changes and succession planning. The Human Resources Committee believes that these and other changes have strengthened our company’s senior management structure andhave led to the right team to ensure our continued success.

The Human Resources Committee believes that Mr. Harrington’s compensation structure is consistent with compensation programs offered by the company’s significant competitors, aligns Mr. Harrington’s interests with the interests of shareholders and appropriately compensates Mr. Harrington for the long-term success of the company.

Composition of the Human Resources Committee

The Human Resources Committee approves the compensation of the named executive officers and other senior executive officers of the company. This report on executive compensation is presented by the Human Resources Committee, the members of which are set out below.

Steven A. Denning (Chair)

W. Geoffrey Beattie

V. Maureen Kempston Darkes

Richard M. Thomson

John A. Tory

All of the Human Resources Committee members except for Messrs. Beattie and Tory have been determined by the Board of Directors to be independent. Messrs. Beattie and Tory are both executive officers of Woodbridge and its affiliates. Mr. Beattie is also the Deputy Chairman of our Board. Mr. Tory is a former Deputy Chairman of our Board and a former officer of some of our subsidiaries. Please see “Statement of Corporate Governance Practices – Independent Directors” on page 29 for more information.

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PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return, assuming reinvestment of dividends, on Cdn$100 invested in our shares on December 31, 2000 with the cumulative total return of the S&P/TSX Composite Index and the S&P 500 Composite Index over the same period. S&P 500 Composite Index values were translated into Canadian dollars using year-end exchange rates.

Cumulative Value of a Cdn$100 Investment

	Years ended December 31 (Cdn$)
	2000	2001	2002	2003	2004	2005
Thomson common shares	100	86	77	89	82	79
S&P/TSX Composite Index	100	87	77	97	111	138
S&P 500 Composite Index	100	94	72	76	78	80

COMPENSATION OF DIRECTORS

The table below sets forth the annual retainers and attendance fees paid to our non-management directors in 2005.

	2005 ($)
Annual director retainer	60,000
Annual retainer for Human Resources and Corporate Governance Committee Chairs	5,000
Annual retainer for Audit Committee Chair	10,000
Each Board or committee (excluding Audit Committee) meeting attended	1,000
Each Audit Committee meeting attended	2,000
Each shareholder meeting attended	1,000
Annual retainer for Chairman	1,070,000
Annual retainer for Deputy Chairman	590,000

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Director Compensation for 2005

The following table reflects compensation earned by our non-management directors in 2005. The amounts are actual amounts earned in respect of 2005 in DSUs and cash, as further discussed below. Neither the Chairman (David K. R. Thomson) nor the Deputy Chairman (W.G. Beattie) receives attendance fees. In 2005, neither Kenneth R. Thomson nor Peter J. Thomson received a retainer or attendance fees. Management directors do not receive compensation for their services as directors.

					Shareholder
		Committee	Board	Committee	meeting
	Board	Chair	attendance	attendance	attendance
Name	retainer ($)	retainer ($)	fees ($)	fees(3) ($)	fees ($)	Total fees ($)
D. K. R. Thomson	1,070,000	—	—	—	—	1,070,000
W. G. Beattie	590,000	—	—	—	—	590,000
R. D. Barbaro	60,000	—	12,000	17,000	1,000	90,000
M. Cirillo(1)	45,000	—	6,000	2,000	1,000	54,000
S. A. Denning	60,000	5,000	12,000	5,000	1,000	83,000
J. F. Fraser(2)	30,000	—	5,000	—	—	35,000
V. M. Kempston Darkes	60,000	—	10,000	6,000	1,000	77,000
R. L. Martin	60,000	—	11,000	14,000	1,000	86,000
V. K. Opperman	60,000	10,000	12,000	14,000	1,000	97,000
J. M. Thompson	60,000	5,000	11,000	17,000	1,000	94,000
R. M. Thomson	60,000	—	12,000	18,000	1,000	91,000
J. A. Tory	60,000	—	12,000	8,000	1,000	81,000
Total	2,215,000	20,000	103,000	101,000	9,000	2,448,000

(1)   Ms. Cirillo was elected to the Board in May 2005.

(2)   Mr. Fraser did not stand for re-election to the Board in May 2005.

(3)   Members of the Audit Committee were paid $4,000 each for one meeting in July that consolidated two previously scheduled committee meetings into one extended meeting. In connection with her appointment and orientation to the Board in May 2005, Ms. Cirillo was invited to participate in a Human Resources Committee meeting and was paid the relevant committee attendance fee (in addition to receiving a fee for attending a meeting of the Corporate Governance Committee, of which she is a member).

In late 2005, our Corporate Governance Committee undertook a review of the structure and amount of compensation of our directors. Effective January 1, 2006, our annual retainer for non-management directors is $80,000. The Chairman and Deputy Chairman requested that their compensation be reviewed at the same time and set at a level consistent with independent leadership of the boards of similarly sized corporations. Accordingly, their compensation was set at $500,000 and $250,000, respectively. The Corporate Governance Committee also recommended paying retainers to Kenneth R. Thomson and Peter J. Thomson, who had not received compensation for their services as directors in the past. Their compensation is now on the same basis as compensation paid to all of our other directors who are not members of management.

In March 2005, we issued 15,000 RSUs to Mr. Beattie. All of the RSUs will vest in March 2008 if Mr. Beattie is still a director or employee of our company on the vesting date. Mr. Beattie’s RSUs accumulate additional units based on notional equivalents of dividends paid on our common shares.

DEFERRED SHARE UNITS. Under our non-management director share plan, non-management directors (except for the Chairman and Deputy Chairman) must receive at least one third of their annual retainer in common shares or DSUs. In 2005, all but two of our directors who participate in the plan received 100% of their fees in DSUs. A DSU is a bookkeeping entry credited to an account maintained for each eligible director, and has the same value as one common share. If a director elects to receive shares, the amount (net of withholding taxes) is used to buy shares for the director in the open market. If a director elects to receive DSUs, units representing the value of our common shares are credited to the director’s account based on the market value of a share. DSUs are paid to the director within one year following termination of Board service. Payment is made in shares or cash (net of withholding

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taxes), based on the market value of the shares on the date of payment. DSUs accumulate additional units based on notional equivalents of dividends paid on our common shares. We believe this plan further aligns the interests of our directors with those of our shareholders.

SHARE OWNERSHIP GUIDELINES. Pursuant to our corporate governance guidelines, our directors are required to hold common shares or DSUs having a value equal to five times their annual retainer. Directors have until the later of January 20, 2008 or five years from the date of their election or appointment to the Board to comply with this requirement.

Directors are also reimbursed by the company for reasonable travel and out-of-pocket expenses incurred in connection with their duties as directors.

INDEBTEDNESS OF OFFICERS, DIRECTORS AND EMPLOYEES

As at March 15, 2006, there was no indebtedness (other than “routine indebtedness” under applicable Canadian securities laws) of the officers, directors, employees and former officers, directors and employees of our company and our subsidiaries owing to our company or any of our subsidiaries.

DIRECTORS’ AND OFFICERS’ INDEMNIFICATION AND INSURANCE

Our by-laws indemnify directors and officers against any liability and costs arising out of any action or suit against them from the execution of their duties. The indemnities are subject to the limitations described in the by-laws. We have in the past maintained insurance for the benefit of our directors and officers against any liability incurred by them in their capacity as directors or officers, except where the liability relates to a failure to act honestly and in good faith with a view to the best interests of our company. In June 2005, we amended our agreement with Woodbridge under which Woodbridge previously indemnified a third party insurer for certain liabilities under our directors’ and officers’ insurance policy. Under the new arrangements, Woodbridge will indemnify up to $100 million of liabilities incurred either by our current and former directors and officers or by our company in providing indemnification to these individuals substantially on the same terms and conditions as provided under our insurance. A third party administrator will manage any claims under the indemnity. We will pay Woodbridge an annual fee of $750,000, which is less than the premium that we would have paid for commercial insurance. This arrangement with Woodbridge was a related party transaction that was reviewed by our Corporate Governance Committee.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Our Governance

Our governance structure is designed to permit our Board to responsibly supervise the management of the business and affairs of our company. The Board’s principal responsibilities are strategic planning, risk identification and financial and human resources oversight.

We believe that sustainable value creation for all shareholders, including, in particular, shareholders other than the Thomson family, will be fostered through a Board that is informed and engaged and that functions independently of management.

Responsibility for our governance structure lies, in the first instance, with the Corporate Governance Committee, established in 1994, and more generally with our Board. Our Board practices are set out in our corporate governance guidelines which our Corporate Governance Committee reviews annually, together with our committee charters. Our corporate governance guidelines deal with issues such as Board duties and responsibilities, share ownership requirements and conflicts of interest and are analogous to a Board mandate. The guidelines and committee charters are posted in the “Investor Relations” section of our website at www.thomson.com. In addition, a copy of the guidelines is attached to this circular as Annex B.

Board and Committee Composition

The Board believes that its composition and procedures and those of its committees ensure that the Board functions independently of management. Position descriptions for the Chairman of the Board and for the chair of each committee have been approved by the Board and help ensure the independent operations of the Board and its committees.

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In 2005, the Board held 12 meetings, including seven meetings conducted by teleconference. In prior years, we devoted one meeting to our company’s current operating and strategic plan. Based upon feedback from directors, we changed that practice in 2005 to focus one meeting early in the year on the current year’s operating plan. In addition to addressing key initiatives, the operating plan addresses opportunities, risks, competitive position, financial projections and other key performance indicators for our company and our four market groups. A separate meeting later in the year is devoted solely to broader strategic considerations for our businesses. These strategy sessions allow our directors to discuss and shape our company’s priorities and objectives. Throughout the year, our directors are updated on our strategic progress as part of regular Board and committee meetings.

Our Board meetings are typically held in Toronto. The Board meets at least once a year at the offices of one of our company’s businesses in order to meet operating management and develop a deeper understanding of a particular business or market group. In 2005, the Board met in Stamford, Connecticut, where our corporate and operating management team is located, as well as the head offices of our Thomson Learning and Thomson Scientific & Healthcare market groups.

At the conclusion of all Board meetings, the non-management directors meet as a group. W. Geoffrey Beattie, the Deputy Chairman, chairs these sessions and informs management of the substance of the meetings to the extent that action is required by management.

Our independent directors meet at least once each year without management directors or directors affiliated with our controlling shareholder. These meetings, which follow a regularly scheduled Board meeting, are chaired by John M. Thompson, the Chair of the Corporate Governance Committee. An agenda is developed by Mr. Thompson, though the discussion need not be limited to the agenda. The agenda generally addresses any issues which might be specific to a public corporation with a controlling shareholder. Mr. Thompson reports on the substance of these meetings to the Chairman and the Deputy Chairman. One such meeting took place in 2005.

To assist the Board in operating independently from management, we also have a Secretary to the Board who reports to the Chairman and who also acts as secretary to each of the committees of the Board.

The Board periodically considers the principal financial, accounting, legal, operational and other risks facing our company and the steps that our management is taking to monitor and mitigate these risks. The Board also periodically receives reports on our company’s operating activities, as well as reports on certain non-operational matters, including corporate governance, taxation, pension and treasury matters. We have a secure intranet site for the Board that is used to distribute information and to foster communication among directors and between directors and senior management.

A director can retain an outside advisor with the approval of the Corporate Governance Committee. In 2005, the Human Resources Committee retained an independent consulting firm, Frederic W. Cook & Co., Inc., to advise it on compensation matters relating to senior management. The Cook firm reviewed our executive compensation program and provided guidance and analysis on plan design and market trends and practices. In 2005, the Human Resources Committee also utilized and relied upon independent market survey data that Towers Perrin provided to our company regarding executive compensation for organizations of comparable size and scope with which our company is most likely to compete for executive talent. In 2005, the Corporate Governance Committee retained Egon Zehnder International, an external search firm, to assist in the identification of appropriate candidates to be considered for nominationas a director of our company. Substantially all of the fees paid by our company to the Cook firm and Egon Zehnder International are for work requested by a committee of the Board.

Independent Directors

In February 2006, our Board conducted its annual assessment of the independence of each of its members. In determining independence, the Board examined and relied on the definition of “independent” in the NYSE listing standards and as referenced in National Instrument 58-101. The Board also reviewed the results of annual questionnaires completed by each director. After considering a wide variety of factors and information disclosed by each director, our Board has determined that of the 15 directors standing for election, eight are independent. At our meeting of shareholders in May 2005, 16 directors were elected, of whom eight are independent.

•Three of the directors, Messrs. Harrington, Daleo and Shaffer, are not independent because they are members of senior management of Thomson. Mr. Shaffer is not standing for re-election at the meeting.

•Five directors are executive officers of Woodbridge, the Thomson family’s principal holding company, or its affiliates other than our company (Kenneth R. Thomson, David K. R. Thomson, Peter J. Thomson, W. Geoffrey Beattie and John A. Tory). None of these individuals is a member of The Thomson Corporation’s management team. While the Board considers these directors’ interests

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to be fully aligned with the interests of minority shareholders, and although they do not act as part of our executive management, the NYSE listing standards suggest that they be considered not independent.

•The independent directors are Mary Cirillo, V. Maureen Kempston Darkes and Messrs. Barbaro, Denning, Martin, Opperman, Thompson and Richard M. Thomson. Richard M. Thomson is not related to the family of Kenneth R. Thomson. In determining that all of these directors are independent, the Board considered all relevant facts and circumstances, including that in the normal course of business, The Thomson Corporation provides services to, and receives services from, companies that some of our directors are affiliated with. For example, various in-house legal departments of a number of these companies subscribe to Thomson Legal &  Regulatory’s Westlaw service. The Board determined that these types of relationships were categorically immaterial. In particular, the Board also acknowledged that Messrs. Denning and Thompson were also directors of companies that our company has a relationship with, but determined that these relationships also were not material and did not preclude a finding of independence.

•Mr. Denning, one of our independent directors, is also a director of Hewitt Associates Inc. In February 2005, we entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improveoperating and cost efficiencies. Under the terms of the contract, we expect to pay Hewitt an aggregate of $115 million over five years. Mr. Denning did not participate in negotiations related to the contract and refrained from deliberating and voting on the matter at meetings of the Human Resources Committee and the Board.

•Mr. Thompson, another of our independent directors, is the non-executive independent Chairman of the Board of The Toronto-Dominion Bank. In the normal course of business, our company has a banking relationship with The Toronto-Dominion Bank and one of the bank’s affiliates has served as a dealer for our company’s recent offerings of debt securities in Canada.

Pursuant to applicable rules, the Chairman cannot be considered independent because he is an executive officer of Woodbridge. As Chairman, David Thomson directs the operations of the Board in such a way that it operates independently of management. The Chairman is responsible for establishing the agenda for meetings, ensuring that the Board has sufficient resources and information to carry out its functions and facilitating a constructive relationship between the Board and senior management.

Controlled Company

The NYSE listing standards require a listed company to have, among other things, a majority of independent directors on its Board and solely independent directors on its compensation committee and corporate governance committee. The rules permit a “controlled company” to be exempt from these requirements. A “controlled company” is a company of which more than 50% of the voting poweris held by an individual, group or another company. Controlled companies are not, however, exempt from the requirement that the audit committee must be comprised solely of independent directors.

Thomson is controlled by Kenneth R. Thomson, who directly and indirectly controlled approximately 69% of our common shares as of March 1, 2006. The Board has determined that it is appropriate for directors affiliated with the controlling shareholder to serve on the Board committees apart from the Audit Committee. Accordingly, the Board has approved the company’s reliance on the controlled company exemption. One-half of our current directors are independent of both management and the controlling shareholder with the result that 50% of the directors independently represent the 31% interest in our company held by shareholders other than the Thomson family. Mr. Shaffer, a non-independent director, is not standing for re-election at the meeting, with the result that a majority of the directors (eight of 15) standing for election are independent.

Committees

Each Board committee operates under a written charter. The charters are reviewed annually by the relevant committee and the Corporate Governance Committee, which may make recommendations to the Board for changes. The charters were last reviewed and approved in February 2006. All of these charters are available in the “Investor Relations” section of our website at www.thomson.com. Below is a brief description of the responsibilities of each committee.

AUDIT COMMITTEE. The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent auditor, the performance of our internal audit function and independent auditor, and any additional matters delegated to the Audit Committee by the Board.

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The Audit Committee is responsible for the hiring of the independent auditor, and communicates directly with the independent auditor and our internal audit department. The Audit Committee is also responsible for overseeing management reporting and internal control systems. The Audit Committee has adopted a policy regarding its pre-approval of all audit and permissible non-audit services to be performed by the independent auditors. For more information, please see “Appointment of Auditors” on pages 7 and 8.

The Audit Committee has adopted procedures for the receipt, retention and treatment of any complaints received by our company regarding accounting, internal accounting controls, or auditing matters, as well as the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. These procedures are set forth in our Code of Business Conduct and Ethics, which is discussed below.

The Board has determined that all members of the Audit Committee are financially literate in accordance with applicable Canadian and U.S. securities rules and as this term is defined in our corporate governance guidelines. In addition, the Board has concluded that Richard M. Thomson is qualified as an “audit committee financial expert” (within the meaning of applicable SEC rules) and that he has “accounting or related financial management expertise” (within the meaning of the NYSE listing standards and the Canadian Securities Administrators’ Multilateral Instrument 52-110).

A further description of matters relating to the Audit Committee, along with a copy of the written charter of the Audit Committee, is set forth in Section 8 (“Directors and Officers”) and Schedule A, respectively, of our company’s annual information form dated March 1, 2006.

The members of the Audit Committee are Vance K. Opperman (Chair), Ron D. Barbaro, Roger L. Martin, John M. Thompson and Richard M. Thomson. The Board has determined that all of the Audit Committee members are independent. The Audit Committee met six times in 2005.

CORPORATE GOVERNANCE COMMITTEE. The Corporate Governance Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the size, composition and structure of the Board and its committees including the nomination of directors, our overall approach to corporate governance, related party transactions and other matters involving conflicts of interest, orientation and continuing education for directors and director compensation. The Corporate Governance Committee has developed position descriptions for the Chairman of the Board and the Chair of each Board committee, and is also responsible for any additional matters delegated to it by the Board.

The members of the Corporate Governance Committee are John M. Thompson (Chair), Ron D. Barbaro, W. Geoffrey Beattie, Mary Cirillo and V. Maureen Kempston Darkes. The Board has determined that all of the Corporate Governance Committee members, except for Mr. Beattie, are independent. The Corporate Governance Committee met three times in 2005.

HUMAN RESOURCES COMMITTEE. The Human Resources Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the selection and retention of senior management, the compensation of senior management, professional development for senior management, the management of pension and benefit plans for employees, and any additional matters delegated to the Human Resources Committee by the Board. These responsibilities include considering policies and procedures for succession planning, including planning in the event of an emergency or retirement of our Chief Executive Officer and other key senior executives. The Human Resources Committee is also responsible for reviewing directors’ compensation to ensure that it is competitive and consistent with the responsibilities and risks associated with being an effective director.

The Human Resources Committee assists the Board in setting objectives each year for the President and Chief Executive Officer. The Human Resources Committee also evaluates the performance of the Chief Executive Officer against those objectives at year end. The Human Resources Committee reports to the full Board on the objectives for the forthcoming year and the performance against objectives in the preceding year. The Human Resources Committee has developed a written position description for the President and Chief Executive Officer.

The members of the Human Resources Committee are Steven A. Denning (Chair), W. Geoffrey Beattie, V. Maureen Kempston Darkes, Richard M. Thomson and John A. Tory. The Board has determined that all of the Human Resources Committee members, except for Messrs. Tory and Beattie, are independent. The Human Resources Committee met five times in 2005.

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FINANCE COMMITTEE. The Finance Committee is responsible for approving ordinary course matters of a banking or treasury nature within a limited scope, as well as appropriate matters that have been approved in principle by the Board and that require action between regularly scheduled meetings of the Board.

The members of the Finance Committee are W. Geoffrey Beattie (Chair), David K. R. Thomson and John A. Tory, all of whom are employed by corporations controlled by Kenneth R. Thomson. The Finance Committee met three times in 2005.

Board, Committee and Director Assessment Process

The Corporate Governance Committee undertakes an annual structured review of the operations of the Board and its committees. Questionnaires addressing the effectiveness of the Board and its committees are developed annually and given to directors. In 2004, the questionnaires addressed issues such as supervision of senior management, strategic planning, risk management, financial reporting, disclosure, governance and conduct meetings. The individual responses, which are confidential, were consolidated by the Secretary to the Board and reported to the Corporate Governance Committee and the Board. The process resulted in changes in some Board and committee practices, and a refinement of the annual agenda of matters the Board reviews. In 2005, the questionnaires were amended and abbreviated to focus on those matters raised in the 2004 review that directors indicated deserved greater attention.

In 2005, the Corporate Governance Committee established a process for a peer review of individual directors. The Chair of the Corporate Governance Committee interviews each director regarding his or her self assessment and peer assessment against a set of criteria. Feedback is provided in a second meeting held by the Chair of the Corporate Governance Committee with each director. The Chair of the Corporate Governance Committee is reviewed by the Deputy Chairman following a process similar to that used for the other peer reviews.

Director Qualifications and Board Size

The Corporate Governance Committee is responsible for assessing the skills and backgrounds of current directors and areas that could complement the operations of the Board, the need for new directors and their preferred experience and qualifications. The Corporate Governance Committee is also responsible for maintaining an understanding of the anticipated tenure of current directors, and the experience, needs and areas of expertise of the Board as a whole. The Corporate Governance Committee recommends candidates for initial Board membership and Board members for renomination. Recommendations are based on character, integrity, judgment, business experience, record of achievement and any other skills or talent that would enhance the Board and overall management of the business and affairs of our company. As necessary, the Corporate Governance Committee retains an executive search firm to identify and evaluate potential director candidates in light of the Corporate Governance Committee’s assessment of the Board’s composition.

The Board is currently of the view that its optimal size for effective decision-making and committee work is 14 to 16 members and that it may need to increase beyond that from time to time in anticipation of retirements from the Board.

Director Recruitment, Orientation and Education

Our Corporate Governance Committee maintains an ongoing assessment of the Board’s composition with respect to experience, qualifications and other factors. In May 2005, Mary Cirillo was elected to the Board. Ms. Cirillo was identified by an independent search firm as having skills and experience relevant to our Board. Ms. Cirillo then met with our Chairman, Deputy Chairman, the Chair of our Corporate Governance Committee and our Chief Executive Officer. After the Corporate Governance Committee and the full Board considered her experience and skills, Ms. Cirillo was asked if she would stand for election to the Board.

Our Corporate Governance Committee has retained Egon Zehnder International to identify individuals who would be appropriate additions to our Board. Potential director candidates are also identified through references from our directors and other sources.

We provide new directors with orientation materials describing the business of our company, its corporate governance structure and related policies and information. New directors also have meetings with our Chief Executive Officer, Chief Financial Officer and other senior executives, including the heads of our major business groups. Early in their tenure, opportunities are provided to new directors to visit some of our major facilities and meet with operations management. The Board’s secure website, monthly management reports and other means of communications provide our directors with information to ensure their knowledge and understanding of our business remain current.

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Directors are entitled to attend external continuing education opportunities at our expense. Internal continuing education initiatives are generally undertaken at the committee level. This approach was revisited and confirmed by the Corporate Governance Committee in 2005.

Director Attendance

Full attendance is expected from our directors at our Board and committee meetings and at the annual meeting of shareholders. In 2005, five of our 10 scheduled Board meetings were held in person. Two additional meetings were scheduled during the year. The following table sets forth the attendance of our directors at Board and committee meetings in 2005.

	Meetings attended
Director	Board		Committee
David K.R.Thomson	10 of 12		3 of 3
W. Geoffrey Beattie	12 of 12		4 of 4
Richard J. Harrington	12 of 12		—
Ron D. Barbaro	12 of 12		9 of 9
Mary Cirillo	6 of 7	(1)	1 of 2
Robert D. Daleo	11 of 12	(2)	—
Steven A. Denning	12 of 12		5 of 5
John F. Fraser	6 of 6	(3)	0 of 1
V. Maureen Kempston Darkes	10 of 12		6 of 8
Roger L. Martin	11 of 12		6 of 6
Vance K. Opperman	12 of 12		6 of 6
David H. Shaffer	11 of 12	(2)	—
John M. Thompson	11 of 12		9 of 9
Kenneth R. Thomson	12 of 12		—
Peter J. Thomson	11 of 12		—
Richard M. Thomson	12 of 12		10 of 11
John A.Tory	12 of 12		8 of 8

(1)   Ms. Cirillo was elected to the Board in May 2005.

(2)   Mr. Daleo and Mr. Shaffer were asked not to participate in one meeting of the Board, having regard to the human resources focus of the agenda.

(3)   Mr. Fraser did not stand for re-election to the Board in May 2005.

Transactions Involving Directors or Officers

In the case of any transaction or agreement in respect of which a director or executive officer of our company has a material interest, the director or officer is required to disclose his or her interest. Where applicable, he or she is also generally required to exclude him or herself from any deliberations or voting relating to such transaction or agreement. Related party transactions are considered by the Corporate Governance Committee or, where appropriate, a special committee of independent directors.

Code of Business Conduct and Ethics

In 2003, we adopted a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including our Chief Executive Officer, Chief Financial Officer and principal accounting officer/controller. All of our employees, directors and officers are required to submit an acknowledgement that they have received and read a copy of the Code and understand their obligations to comply with the principles and policies outlined in it. In 2005, in an effort to further promote a culture of ethical business conduct through the corporation, we launched a mandatory online training course related to the Code. The Corporate Governance Committee receives an annual report regarding the Code and our ethics hotline from our General Counsel. No material violations were reported in 2005. Also, no waivers under the Code were sought by or granted to our directors or executive officers in 2005. A copy of the Code is available on our website at www.thomson.com as well as at www.sedar.com and www.sec.gov.

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Corporate Communications

As part of our governance structure, the Board has ensured that an appropriate procedure is in place so that inquiries or other communications from shareholders, analysts and the media to management are answered by our investor relations and media relations professionals or referred to an appropriate person in the company. Senior executives meet regularly with financial analysts and institutional investors, and our earnings conference calls are broadcast live via webcast and are accessible to interested shareholders, the media and members of the public. Presentations given by senior executives at investor conferences are promptly made public on our website. The Board reviews and approves the contents of major disclosure documents, including our quarterly and annual financial statements and MD&A, annual information form/Form 40-F and this circular.

Communications with the Board

You may contact our Board or our non-management or independent directors as a group, or the directors who preside over their meetings, by writing to them c/o Secretary to the Board of Directors, The Thomson Corporation, Suite 2706, Toronto Dominion Bank Tower, P.O. Box 24, Toronto-Dominion Centre, Toronto, Ontario M5K 1A1 Canada or by e-mail at board.secretary@thomson.com.

SHARE REPURCHASE PROGRAM

Our company has filed a notice of intention to make a normal course issuer bid to enable us to purchase up to 15,000,000 common shares. The notice provides that our company may purchase these shares between May 5, 2005 and May 4, 2006 at prevailing market prices in amounts and at times to be determined by our company. We may make purchases through the Toronto Stock Exchange or the New York Stock Exchange. Common shares that we purchase under the bid are cancelled. In 2005, we repurchased 7,249,400 common shares. A copy of the notice is available at www.sedar.com or may be obtained without charge from our Investor Relations department at the address listed below.

ADDITIONAL INFORMATION

In addition to being available at www.thomson.com, our code of business conduct, corporate governance guidelines and committee charters are also available in print to any shareholder who requests a copy in writing to Investor Relations Department, The Thomson Corporation, Metro Center, One Station Place, Stamford, Connecticut 06902, United States. Requests may also be sent by e-mail to investor.relations@thomson.com.

Financial information about our company is provided in our comparative consolidated financial statements and management’s discussion and analysis (MD&A) for the year ended December 31, 2005. You can obtain copies of these financial statements and our MD&A by contacting our Investor Relations Department by mail or e-mail, as indicated in the paragraph immediately above. You will also find these financial statements and MD&A at www.thomson.com.

Additional information relating to our company, including our other continuous disclosure materials, are available on our website, www.thomson.com, the Canadian Securities Administrators’ website, www.sedar.com, and in the EDGAR section of the SEC’s website at www.sec.gov.

DIRECTORS’ APPROVAL

The contents and sending of this circular to shareholders of the company have been approved by the Board of Directors of the company.

David W. Binet

Secretary to the Board of Directors

Toronto, Ontario

March 17, 2006

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ANNEX A: THE THOMSON DEFERRED COMPENSATION PLAN

(Restatement as of December 1, 2002; Working copy reflecting all amendments through March 1, 2006)

Purpose

This is a restatement of The Thomson Deferred Compensation Plan. The purpose of the Plan is to provide specified benefits to a select group of senior management who contribute materially to the continued growth, development and future business success of Thomson Holdings Inc. (a Delaware corporation), its parent corporations, and any affiliate or subsidiary of Thomson Holdings Inc. or its parent corporations. This restatement shall be effective as of December 1, 2002.

Article 1. Definitions

Unless otherwise clearly apparent from the context, the following phrases and terms shall have the meanings indicated:

1.1“Account” shall mean, with respect to a Participant, any or all of a Participant’s Deferral Account, Matching Share Unit Account, Share Unit Account or Discretionary Contributions Account.

1.2“Annual Bonus” shall mean for any Plan Year any compensation, other than Base Salary and Long-Term Bonus, relating to services performed during such Plan Year, whether or not paid or included on the Federal income tax Form W-2 for such Plan Year, payable to a Participant as an Employee under any Employer’s annual bonus or incentive plans.

1.3“Annual Deferral Amount” shall mean for any Plan Year the portion of a Participant’s Base Salary, Annual Bonus, Long-Term Bonus, bonus attributable to Deferred Cash Bonus Units, and Share-based compensation attributable to the exercise of Options that is deferred pursuant to Article 3. In the event of a Participant’s Retirement, Disability (if deferrals cease pursuant to Section 11.1), death or Termination of Employment prior to the end of a Plan Year, such year’s Annual Deferral Amount shall be the actual amount withheld prior to such event.

1.4“Base Salary” shall mean for any Plan Year the annual cash compensation relating to services performed during such Plan Year, whether or not paid or included on the Federal income tax Form W-2 for such Plan Year, including severance payments to the extent that the Participant’s continued receipt of such payments is contingent upon his complying with noncompete, nonsolicitation and/or nondisclosure restrictions, but excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, director’s fees and other fees, and automobile and otherallowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Participant’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified and non-qualified plans of any Employer (including amounts not otherwise included in gross income under Code Sections 125, 132(f)(4), 402(c)(3), 402(h), or 403(b)); provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amountwould have been payable in cash to the Participant.

1.5“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 13, that are entitled to receive benefits under the Plan upon the death of a Participant.

1.6“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.7“Board” shall mean the board of directors of the Company.

1.8“Change in Control” shall mean the first to occur of any of the following events:

(a)The direct or indirect holdings of the Thomson family, in the voting power or fair market value of the stock of The Thomson Corporation or any successor thereto fall below 40 percent. The rules in Section 318(a) of the Code and the Treasury Regulations thereunder shall be used to determine stock ownership. For purposes of this Section 1.8(a), the Thomson family includes Lord Kenneth R. Thomson and the descendants and their spouses of the first Lord Thomson of Fleet.

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(b)The Thomson Corporation (or any successor thereto) sells to an unrelated third party or parties (at one time or within any two year period) in the aggregate all or substantially all of its assets and the assets of its wholly owned subsidiariesimmediately prior to the sale or sales.

1.9“Claimant” shall have the meaning set forth in Section 18.1.

1.10“Closed Period” shall mean any period during which Participants are prohibited, by law or pursuant to policies established by The Thomson Corporation, from acquiring or selling Shares.

1.11“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.12“Committee” shall mean the committee described in Article 16.

1.13“Company” shall mean Thomson Holdings Inc. and any successor to all or substantially all of the Company’s assets or business.

1.14“Death Benefit” shall mean the benefit described in Article 9.

1.15“Deduction Limitation” shall mean the following limitation on a benefit that may be distributed pursuant to the Plan. Except as otherwise provided, this limitation shall be applied to all distributions that are subject to the Deduction Limitation. If an Employer determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Employer would not be deductible by the Employer solely by reason of the application of the limitation under Code Section 162(m), then, to the extent deemed necessary by the Employer to ensure that the entire amount of any distribution to the Participant pursuant to the Plan is deductible, the Employer may defer all or any portion of such distribution. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Section 3.6, even if such amount is being paid out in installments. The amounts so deferred and amountscredited thereon shall be distributed to the Participant or his Beneficiary (in the event of the Participant’s death) at the earliest possible date, as determined by the Employer in good faith, on which the deductibility of compensation paid or payable to the Participant will not be limited by Code Section 162(m) or, if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, the Deduction Limitation shall not apply to any distributions made after a Change in Control.

1.16“Deferral Account” shall mean, with respect to any Participant, an account to which shall be credited the Participant’s Annual Deferral Amounts, plus amounts credited to such account pursuant to Section 3.6, less the following: (i) amounts credited to his Share Unit Account pursuant to Section 3.7; (ii) amounts distributed to the Participant or his Beneficiary that relate to his Deferral Account; and (iii) amounts converted from a Measurement Fund to Share Units pursuant to Section 4.1. The Deferral Account balance shall be a bookkeeping entry only and shall be utilized solely for the measurement and determination of the amounts to be paid to a Participant or his Beneficiary pursuant to the Plan.

1.17“Deferred Cash Bonus Unit” shall mean any vested units under The Thomson Corporation Phantom Stock Plan (also referred to as the Cash Bonus Plan) or a similar successor plan the receipt of which is deferred pursuant to Section 3.2.

1.18“Disability” or “Disabled” shall mean a permanent physical or mental incapacity resulting in a Participant being unable to engage in any gainful employment and which would entitle the Participant to begin receiving disability benefits under (i) the Federal Social Security Act or (ii) his Employer’s long-term disability plan, had the Participant been a participant in such a plan.

1.19“Disability Benefit” shall mean the benefit set forth in Article 11.

1.20“Discretionary Contributions” shall mean an amount credited by an Employer on behalf of a Participant to his Discretionary Contributions Account pursuant to Section 6.1.

1.21“Discretionary Contributions Account” shall mean, with respect to any Participant, an account to which shall be credited Discretionary Contributions pursuant to Section 6.1, less any amounts distributed in any form to the Participant or his Beneficiary that relate to his Discretionary Contributions Account. The Discretionary Contributions Account balance shall be a bookkeeping entry only and shall be utilized solely for the measurement and determination of the amounts to be paid to a Participant or his Beneficiary pursuant to the Plan.

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1.22“Domestic Partner” shall mean a person who has formed a domestic partnership with a Participant. A domestic partnership is: (i) a relationship between two adults of the same or opposite gender, which includes residing together and being jointlyresponsible for each other’s common welfare and financial obligations, where the Participant has attested to meeting certain criteria for domestic partnership as determined from time to time by the Committee in accordance with applicable law; or (ii) a domestic partnership that has been registered with a governmental entity pursuant to State or local law authorizing such registration.

1.23“Election Form” shall mean the form established from time to time by the Committee for Participants to make elections under the Plan.

1.24“Employee” shall mean a person who is an employee of any Employer.

1.25“Employer” shall mean the Company and any affiliate of the Company that has been selected by the Company to participate in the Plan.

1.26“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.27“Fair Market Value” means the closing price in U.S. dollars of a Share on the New York Stock Exchange, provided, however, that (i) if the Shares are not traded on the New York Stock Exchange or (ii) in the discretion of the Committee, such exchange does not reflect the fair market value of the Shares, then “Fair Market Value” shall mean the closing price of a Share on the other primary trading market for the Shares, which as of the date of this Plan is the Toronto Stock Exchange, such closing price to be converted into U.S. dollars at the U.S. Federal Reserve Bank’s noon exchange rate, in each case using such closing price reported in The Wall Street Journal or such other source as the Committee deems to be reliable. If the Shares are not traded on the New York Stock Exchange or the Toronto Stock Exchange, the value of a Share as of a particular date shall be determined by the Committee in its sole discretion in good faith.

1.28“Long-Term Bonus” shall mean any cash or equity-based compensation (other than Base Salary, Annual Bonus and Deferred Cash Bonus Units) paid to a Participant as an employee under any Employer’s long-term bonus and incentive plans, including, without limitation, long-term bonus awards granted pursuant to The Thomson Corporation Amended and Restated 2000 Stock Incentive Plan.

1.29“Matching Share Units” shall mean units representing Shares that are credited by an Employer on behalf of a Participant to his Matching Share Unit Account pursuant to Section 4.3.

1.30“Matching Share Unit Account” shall mean, with respect to any Participant, an account to which shall be credited the aggregate number of Matching Share Units credited to any such Participant’s Matching Share Unit Account pursuant to Section 4.3, less any Matching Share Units distributed to the Participant or his Beneficiary in Shares that relate to his Matching Share Unit Account. The Matching Share Unit Account balance shall be a bookkeeping entry only and shall be utilized solely as a device for determining the number of Shares to be distributed to a Participant or his Beneficiary.

1.31“Options” shall mean options to purchase Shares that are granted to a Participant under The Thomson Corporation Amended and Restated 2000 Stock Incentive Plan or a similar successor plan.

1.32“Participant” shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who submits a signed Election Form and Beneficiary Designation Form to the Committee, (iv) whose signed Election Form and Beneficiary Designation Form are accepted by the Committee, and (v) who commences participation in the Plan. A spouse, former spouse, Domestic Partner, or former Domestic Partner of a Participant shall not be treated as a Participant or have an Account balance, even if he has an interest in the Participant’s benefits under the Plan as a result of applicable law or propertysettlements resulting from legal separation, divorce or dissolution of the domestic partnership.

1.33“Plan” shall mean The Thomson Deferred Compensation Plan, which shall be evidenced by this instrument, as it may beamended from time to time.

1.34“Plan Agreement” shall mean a written agreement, which was entered into by and between an Employer and a Participant prior to January 1, 2001. The Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all

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previous Plan Agreements in their entirety and shall govern such entitlement. Plan Agreements may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant.

1.35“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.

1.36“Quarterly Installment Method” shall mean a method of distributing the balance in a Participant’s Deferral Account wherein such balance is distributed in 60, 120, or 180 monthly installments, as elected by the Participant (the “Installment Period”). The amount of each monthly installment attributable to the portion of a Deferral Account, with respect to which additional amounts are credited under Section 3.6(d), shall be computed as follows:

(a)The amount of each monthly installment during the calendar quarter in which the first monthly installment is paid shall equal: (i) the balance in the Deferral Account, as of the Measurement Date immediately preceding the first day of the month in which the first monthly installment is paid, divided by (ii) the number of months in the Installment Period.

(b)The amount of any subsequent monthly installment shall equal: (i) the balance in the Deferral Account as of the Measurement Date immediately preceding the first day of the calendar quarter in which any such monthly installment is paid, divided by (ii) the number of months remaining in the Installment Period as of the first day of any such calendar quarter.

For purposes hereof, “Measurement Date” shall mean the first day of the month next preceding the month in which a monthly installment is paid or such other date (determined by the Committee) as of which the balance in a Deferral Account is determined. Notwithstanding any other provision of the Plan to the contrary, in no event shall the amount of any monthly installment with respect to a Participant exceed the balance in the Participant’s Deferral Account as of the date on which any such installment is paid.

1.37“Retirement”, “Retire(s)”, “Retiring”, or “Retired” shall mean, with respect to an Employee, severance from employment from all Employers (for any reason other than a leave of absence, death or Disability) on or after the attainment of age fifty-five (55).

1.38“Retirement Benefit” shall mean the benefit set forth in Article 8.

1.39“Share Ownership Guidelines” shall mean The Thomson Corporation Executive Share Ownership Guidelines, as in effect from time to time.

1.40“Share Ownership Guideline Amount” for any Participant shall mean the number of Shares that the Participant is expected to own under the Share Ownership Guidelines.

1.41“Shares” shall mean common shares of The Thomson Corporation. Shares distributed in payment of a Participant’s Share Unit Account shall consist of newly issued Shares from treasury, and such Shares shall be distributed in accordance with and subject to applicable securities laws; provided, however, that no more than 6,000,000 Shares may be issued pursuant to this Plan.

1.42“Short-Term Payout” shall mean the benefit set forth in Sections 7.1 and 7.2.

1.43“Share Unit Account” shall mean, with respect to any Participant, an account to which shall be credited the aggregate number of Share Units credited to any such Participant’s Share Unit Account pursuant to Sections 3.7, 4.1 and 5.1, less any Share Units distributed to the Participant or his Beneficiary in Shares that relate to his Share Unit Account. The Share Unit Account balance shall be a bookkeeping entry only and shall be utilized solely as a device for determining the number of Shares to bedistributed to a Participant or his Beneficiary.

1.44“Share Units” shall mean units representing Shares that are credited to a Participant’s Share Unit Account.

1.45“Termination Benefit” shall mean the benefit set forth in Article 10.

1.46“Termination of Employment”, “Terminate Employment” or “Terminating Employment” shall mean the severing of employment with all Employers, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence.

1.47“Trust” shall mean one or more trusts established pursuant to that certain Master Trust Agreement, dated as of February 14, 1994, between the Company and the trustee named therein, as amended from time to time.

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1.48“Unforeseeable Financial Emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant’s property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee.

Article 2. Selection and Enrollment

2.1SELECTION OF PARTICIPANTS BY COMMITTEE. Participants shall be limited to a select group of senior management Employees, as determined by the Committee.

2.2ENROLLMENT REQUIREMENTS. As a condition to participation, each Participant shall complete, execute and return to the Committee an Election Form and a Beneficiary Designation Form, all within 30 days after being selected to participate in the Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines are necessary.

2.3TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee may, in its sole discretion, (i) terminate the Participant’s deferral election for the remainder of the Plan Year in which the Participant’s membership status changes, (ii) prevent the Participant from making future deferral elections, (iii) immediately distribute the value of the Participant’s Account as a Termination Benefit, and (iv) terminate the Participant’s participation in the Plan.

Article 3. Deferral of Compensation

3.1AMOUNT OF DEFERRAL. Subject to Section 3.2, for any Plan Year a Participant may elect to defer his Base Salary, Annual Bonus, and/or Long-Term Bonus in any amount up to the maximum percentages of such Salary or Bonus as shall be determined for each Participant by the Committee in its sole discretion. A Participant may elect to defer the receipt of (a) any cash bonus to which he is entitled as a result of exercising Deferred Cash Bonus Units and (b) subject to approval of the Committee, Shares that the Participant will be entitled to receive as a result of exercising Options. Any such election shall be irrevocable.

3.2ELECTION TO DEFER. Except as provided below, for any Plan Year a Participant may make an irrevocable deferral election, by timely delivering an Election Form to the Committee, in accordance with its rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made. If no such Election Form is timely delivered for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year. Notwithstanding any provision of The Thomson Corporation Phantom Stock Plan or The Thomson Corporation Amended and Restated 2000 Stock Incentive Plan to the contrary, Deferred Cash Bonus Units and Options with respect to which a deferral election is made under Section 3.1 shall not be exercisable during thesix-month period commencing on the date that the applicable Election Form is delivered to the Committee.

3.3WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for changes in Base Salary. The Annual Bonus and/or Long-Term Bonus portions of the Annual Deferral Amount shall be withheld at the time the Annual Bonus and/or Long-Term Bonus are or otherwise would be paid to the Participant. In the case of Deferred Cash Bonus Units and Options, any amounts deferred into the Plan shall be deferred at the time that the Deferred Cash Bonus Units or Options, as the case may be, are exercised.

3.4INVESTMENT OF TRUST ASSETS. The trustee of the Trust shall be authorized, upon written instructions received from the Committee or an investment manager appointed by the Committee, to invest and reinvest the assets of the Trust in accordance with the applicable Trust Agreement, including the disposition of stock and reinvestment of the proceeds in one or more investment vehicles designated by the Committee.

3.5VESTING OF DEFERRAL, SHARE UNIT ACCOUNT AND MATCHING SHARE UNIT ACCOUNTS. A Participant shall at all times be 100 percent vested in his Deferral Account and Share Unit Account. A Participant’s vested interest in his Matching Share Unit Account shall be determined under Section 4.4.

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3.6CREDITING/DEBITING OF ACCOUNT BALANCES. Subject to Section 3.7, amounts shall be credited or debited to a Participant’s Deferral Account in accordance with the following rules:

(a)ELECTION OF MEASUREMENT FUNDS. A Participant, in connection with his initial deferral election pursuant to Section 3.1, shall elect, on an Election Form, one or more Measurement Funds (defined in Section 3.6(c)) to be used to determine the additional amounts to be credited to his Deferral Account. Once each calendar month, a Participant may change the Measurement Fund(s) to be used to determine the additional amounts to be credited to his Deferral Account, or the portion of his Deferral Account allocated to each previously or newly elected Measurement Fund.

(b)PROPORTIONATE ALLOCATION. In making an election described in Section 3.6(a), the Participant shall specify on the Election Form, in increments of one percentage point (1%), the percentage of his Deferral Account to be allocated to a Measurement Fund (as if the Participant was making an investment in that Measurement Fund with that portion of his Deferral Account).

(c)MEASUREMENT FUNDS. The Participant may elect one or more of the measurement funds selected by the Committee (the “Measurement Funds”) for the purpose of crediting additional amounts to his Deferral Account. The Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund.

(d)CREDITING OR DEBITING METHOD. The performance of each Measurement Fund shall be determined by the Committee, in its reasonable discretion, based on the performance of the Measurement Funds themselves. A Participant’s Account balance shall be credited or debited on a daily basis based on the performance of each applicable Measurement Fund as though: (i) a Participant’s Deferral Account was invested in the Measurement Fund(s) selected by the Participant; (ii) the portion of the Annual Deferral Amount that was actually deferred during any calendar month was invested in such MeasurementFund(s) in the percentages applicable to such calendar month, no later than the close of business on the first business day of such calendar month, at the closing price on such date; and (iii) any distribution made to a Participant that decreases such Participant’s Deferral Account ceased being invested in the Measurement Fund(s) no earlier than three business days prior to the distribution, at the closing price on such date.

(e)NO ACTUAL INVESTMENT. Notwithstanding any other provision of the Plan to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation to his Deferral Account thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Deferral Account shall not be considered or construed in any manner as an actual investment of his Deferral Account in any such Measurement Fund. If the Company or the trustee of the Trust, in its own discretion, decides to investfunds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments. Withoutlimiting the foregoing, a Participant’s Deferral Account shall at all times be a bookkeeping entry only and shall notrepresent any investment made on his behalf by the Company or the trustee, and the Participant shall at all times remain an unsecured creditor of the Company.

3.7DEFERRALS INTO SHARE UNITS. Any Participant who is subject to the Share Ownership Guidelines or who is authorized by the Committee may elect to have all or a portion of his Annual Deferral Amount (other than amounts attributable to Base Salary) deferred into Share Units as of the date such amount is deferred or, in the event of a Closed Period, such later date as determined pursuant to the Insider Trading Policy of The Thomson Corporation, which Share Units shall be credited to a Share Unit Account established in the name of the Participant. Any such election shall be made in accordance with, and subject to, Section 3.2. The number of Share Units to be credited to a Participant’s Share Unit Account shall be determined pursuant to Section 4.2.

3.8FICA AND OTHER TAXES. For each Plan Year in which an Annual Deferral Amount is being withheld with respect to a Participant, the Participant’s Employer shall withhold from that portion of the Participant’s compensation that is not being deferred, in a manner determined by the Employer, the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 3.8.

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3.9WITHHOLDING ON DISTRIBUTIONS. The Employer, or the trustee of the Trust, shall withhold from any payments made to a Participant under the Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer or the trustee of the Trust, as the case may be.

Article 4. Conversion to Share Units and Matching Contributions

4.1CONVERSION OF DEFERRAL ACCOUNT TO SHARE UNITS. Not more frequently than once each calendar month, any Participant who is subject to the Share Ownership Guidelines or who is authorized by the Committee, may elect to convert to Share Units part or all of the amount credited to his Deferral Account, which Share Units shall be credited to a Share Unit Account established in the name of the Participant.

4.2NUMBER OF SHARE UNITS CREDITED. Except as otherwise provided in this Section 4.2, the number of Share Units to be credited to a Participant’s Share Unit Account in connection with an election pursuant to Sections 3.7 or 4.1 shall be determined on the basis of the Fair Market Value of a Share for the day before the deferral or exchange, as the case may be (the “Price Date”). If Share Units are to be credited to a Participant’s Share Unit Account during a Closed Period, the amount to be converted into Share Units shall be deemed to be invested in the money market Measurement Fund then available under the Plan. As soon as practicable following the end of the Closed Period, the amount credited to the Participant’s Account pursuant to the immediately preceding sentence and any earnings thereon, shall be converted to Share Units on the basis of the closing price of Shares on the day before the date of the conversion.

4.3MATCHING SHARE UNITS. Each Participant’s Matching Share Unit Account shall be credited with the number of Matching Share Units equal to ten percent (10%) of the number of Share Units (not including Share Units attributable to dividends) credited to each such Participant’s Share Unit Account pursuant to Sections 3.7, 4.1 and 5.1.

4.4VESTING OF MATCHING SHARE UNITS. One-fourth of the Matching Share Units credited to a Participant’s Matching Share Unit Account during any Plan Year shall become vested on each of the first four anniversaries of the date the underlying Share Units are credited, so long as the Participant has not Terminated Employment as of the respective anniversary date. Upon terminating employment on account of death or Disability, a Participant shall become fully vested in all Matching Share Unitscredited to his Matching Share Unit Account. Upon Terminating Employment, a Participant shall forfeit all unvested Matching Share Units credited to his Matching Share Unit Account. Upon Retiring, a Participant shall become vested in a percentage of the unvested Matching Share Units credited to his Matching Share Unit Account determined under the following schedule:

Age at retirement	55	56	57	58	59	60	61	62 or older
Percentage vested	65	70	75	80	85	90	95	100

4.4.1IMPACT OF REEMPLOYMENT ON VESTING. A Participant who is rehired by an Employer after his Retirement or Termination of Employment shall not be entitled to amounts forfeited under Section 4.4 prior to his reemployment.

4.5FICA AND OTHER TAXES ON MATCHING SHARE UNITS. For each Plan Year in which a Participant becomes vested in Matching Share Units credited to his Matching Share Unit Account, the Participant’s Employer shall withhold from that portion of the Participant’s Base Salary and Annual Bonus that is not being deferred, in a manner determined by the Employer, the Participant’s share of FICA and other employment taxes on the Matching Share Units vesting in such year. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with this Section 4.5.

4.6DIVIDENDS. If and when dividends are paid on Shares, the Share Unit Account of any Participant for whom a Share Unit Account is maintained shall be credited with the number of Share Units (including fractional Share Units) equal to the number obtained by dividing: (a) the amount of dividends that would be payable on the number of Shares equal to the number of Share Units credited to any such Participant’s Share Unit Account as of the appropriate dividend record date; by (b) the closing price of one Share on the dividend payment date, computed in the same manner as specified in Section 4.2.

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4.7ADJUSTMENT IN THE EVENT OF RECAPITALIZATION. In the event of any change in the outstanding Shares by reason of stock split, stock dividend, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change or in the event of any special distribution to the stockholders, the number of Share Units and Matching Share Units credited to a Participant’s Share Unit Account and Matching Share Unit Account shall be adjusted as the Committee determines is necessary and appropriate. Any such determination shall be conclusive and binding for all purposes of the Plan.

4.8FRACTIONAL INTERESTS. If any fractional Share Unit exists after a lump sum or last installment, as the case may be, of Shares is delivered to the Participant, such fractional Share Unit shall be paid to the Participant in cash. The value of such fractional Share Unit shall be determined by multiplying the fractional Share Unit by the Fair Market Value of a Share on the business day prior to the date on which the lump sum or last installment, as the case may be, of Shares is paid to the Participant.

4.9RIGHTS AS STOCKHOLDER. Except as otherwise provided in Section 4.6, a Participant for whom a Share Unit Account and/or an Matching Share Unit Account are maintained shall have no rights as a stockholder with respect to any Share Units credited to such Share Unit Account and Matching Share Units credited to such Matching Share Unit Account until such Share Units and Matching Share Units are converted to Shares and distributed to the Participant.

Article 5. Deferral of Stock Options

5.1DEFERRAL OF STOCK OPTIONS. If a Participant defers the receipt of Shares that he is entitled to receive as a result of exercising an Option pursuant to an election under Section 3.1, the Participant’s Share Unit Account shall be credited with a number of Share Units equal to the number of Shares, the receipt of which has been so deferred.

Article 6. Discretionary Contributions

6.1DISCRETIONARY CONTRIBUTIONS. The Company may, from time to time, make Discretionary Contributions to those Participants selected to receive such contributions in accordance with the terms and conditions specified in writing by the Company at the time such Discretionary Contributions are made. Notwithstanding the foregoing, eligibility for and the terms and conditions with respect to Discretionary Contributions for members of the Executive Committee of The Thomson Corporation shall be determined by the Human Resources Committee of the Board of Directors of The Thomson Corporation. Discretionary Contributions shall be allocated to the Discretionary Contributions Accounts of the respective Participants.

Article 7. Short-Term Payout, Unforeseeable Financial Emergencies, and Withdrawal Election

7.1SHORT-TERM PAYOUT OF ANNUAL DEFERRAL AMOUNTS. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive such Annual Deferral Amount as a “Short-Term Payout”. The Short-Term Payout shall be a lump sum payment in an amount equal to the Annual Deferral Amount plus amounts credited or debited pursuant to Sections 3.6 and 3.7 on that amount, determined as of the date the Short-Term Payout is distributed. Short-Term Payouts shall be distributed as soon as administratively possible after the first day of any Plan Year designated by the Participant that is at least five Plan Years after the Plan Year with respect to which the Annual Deferral Amount is actually deferred.

7.2ELECTION CHANGES. Any Participant who elects a Short-Term Payout may make another election, not later than one year prior to the date the Short-Term Payout is scheduled to be distributed, to further defer the distribution of such Short-Term Payout by submitting to the Committee either a new Election Form during the open enrollment period or a distribution re-election form at any time during the Plan Year.

7.3OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event occur that triggers the distribution of a benefit under Articles 8, 9, 10 or 11, any Annual Deferral Amount, plus amounts credited or debited thereon, and/or Share Units and Matching Share Units attributable thereto, that are subject to a Short-Term Payout election under Section 7.1 shall not be paid in accordance with such Article but shall be paid in accordance with the other applicable Article.

7.4WITHDRAWAL PAYOUT SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES. A Participant who experiences an Unforeseeable Financial Emergency may request the Committee to (i) suspend any deferrals required to be made by the Participant and/or (ii) receive a partial or full payout of his Deferral Account, and/or Shares representing the Share Units or then vested Matching Share Units (as applicable) held in his Share Unit Account and/or Matching Share Unit Account. The

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payout shall not exceed the lesser of the Participant’s vested interest in the Plan (i.e., the then aggregate balance in his Deferral, Stock, and vested Matching Share Unit Accounts) or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If the Committee, in its sole discretion, approves such request, suspension shall take effect upon the date of approval and any payout shall be made as soon as administratively possible after the date of approval. The payment of any amount under this Section 7.4 shall not be subject to the Deduction Limitation. Any distribution from a Participant’s Share Unit Account and/or vested Matching Share Unit Account pursuant to this Section 7.4 shall be in Shares. A Participant electing a withdrawal under this Section 7.4 may designate the Account or Accounts from which any amounts so distributed shall be taken. If no election is made, amounts distributed shall be taken first from the Participant’s Deferral Account and then from the Participant’s Share Unit Account and Matching Share Unit Account (to the extent vested).

7.5WITHDRAWAL ELECTION. A Participant (or, after a Participant’s death, his Beneficiary) may elect to withdraw all (but not less than all) of his Deferral Account and/or all (but not less than all) of the Shares representing the Share Units and vested Matching Share Units (as applicable) held in his Share Unit Account and Matching Share Unit Account, less a withdrawal penalty equal to ten percent (10%) of such amounts (the net amount shall be referred to as the “Withdrawal Amount”). This election may be made at any time, before or after Retirement, Disability, death or Termination of Employment, and whether or not such Deferral Account and/or Share Units and Matching Share Units are in the process of being distributed pursuant to an installment payment schedule. The Participant or Beneficiary shall make such an election by filing with the Committee a written election on a form determined from time to time by the Committee. The Withdrawal Amount shall be distributed as soon as administrativelypossible after the election. Once the Withdrawal Amount is paid, the Participant’s participation in the Plan shall terminate and the Participant shall not be eligible to participate in the Plan until the second Plan Year following the Plan Year in which the Withdrawal Amount is distributed. The payment of a Withdrawal Amount shall not be subject to the Deduction Limitation.

Article 8. Retirement Benefit

8.1RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who Retires shall receive the balance of his Account as a Retirement Benefit.

8.2PAYMENT OF RETIREMENT BENEFITS. In connection with commencing participation in the Plan, a Participant may elect on an Election Form to receive his Retirement Benefit in one of the forms set forth below. If a Participant does not make such an election, his Retirement Benefit shall be distributed in a lump sum. Payments of a Participant’s Retirement Benefit shall be made, or commence, in the case of installments, as soon as administratively possible after the Participant Retires. Any payment of a Participant’s Retirement Benefit hereunder shall be subject to the Deduction Limitation.

8.2.1DEFERRAL ACCOUNT. The portion of a Participant’s Retirement Benefit attributable to his Deferral Account may be received in (i) a lump sum or (ii) pursuant to the Quarterly Installment Method over a period of 60, 120 or 180 months in accordance with Section 1.36.

8.2.2SHARE UNIT ACCOUNT AND MATCHING SHARE UNIT ACCOUNT. The portion of a Participant’s Retirement Benefit attributable to his Share Unit Account and/or Matching Share Unit Account may be received in either (i) a lump sum or (ii) equal annual installments over a period of five, 10, or 15 years, provided there are at least 3,000 Share Units and vested Matching Share Units in such Accounts. However, if, after the payment of any such annual installment, the Participant’s Share Unit Account and Matching Share Unit Account have less than 3,000 Share Units and vested Matching Share Units, all remaining Share Units and vested Matching Share Units shall be distributed to the Participant in a lump sum on the date of the next scheduled installment. The distribution of the portion of a Participant’s Retirement Benefit attributable to his Share Unit Account and/or Matching Share Unit Account shall be in Shares.

8.2.3ELECTION CHANGES. The Participant may change his Retirement Benefit election annually to an allowable method of distribution by submitting to the Committee either a new Election Form (during open enrollment) or a Distribution Re-Election Form (at any point during the Plan Year), provided that any such Election or Distribution Re-Election Form is submitted at least one year prior to the Participant’s Retirement and is accepted by the Committee in its sole discretion. The Election Form or Distribution Re-Election Form most recently accepted by the Committee with respect to a Participant’s Deferral and Share Unit Accounts shall govern the distribution of the applicable portion of his Retirement Benefit. Notwithstanding the above to the contrary, any Participant who enters into a severance agreement with The

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Thomson Corporation during December 2005 and is scheduled to receive a Retirement Benefit in a lump sum in 2006 may elect on an Election Form, no later than December 31, 2005, to receive such Retirement Benefit in one of the forms set forth in this Section 8.2 commencing on or after the date such payment was scheduled to be made, provided such election complies with Section 409A of the Code.

8.3DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies after Retirement but before his Retirement Benefit is paid in full, any undistributed Retirement Benefit payments shall continue and shall be paid to the Participant’s Beneficiary (i) on the same schedule as the benefit would have been paid to the Participant had the Participant survived, or (ii) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee.

8.4REEMPLOYMENT PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant is rehired by an Employer after Retirement but before his Retirement Benefit is paid in full, any undistributed Retirement Benefit payments shall cease as soon as practicable following such reemployment. Undistributed Retirement Benefits shall commence upon the Participant’s subsequent Retirement in accordance with the Election Form or Distribution Re-Election Form most recently accepted by the Committee.

Article 9. Death Benefit

9.1DEATH BENEFIT. The Beneficiary of a Participant who dies before Retiring, Terminating Employment, or suffering a Disability shall receive a Death Benefit equal to the Participant’s Account balance.

9.2PAYMENT OF DEATH BENEFIT. In connection with commencing participation in the Plan, a Participant may elect on an Election Form to have his Death Benefit distributed in one of the forms set forth below. If a Participant does not make such an election, such benefit shall be distributed in a lump sum in accordance with Article 13. However, if the aggregate value of a Participant’s Account at the time of his death is less than $50,000, payment of his Death Benefit shall be made, in the sole discretion of the Committee, in a lump sum or in installments (with his Deferral Account being paid pursuant to the Quarterly Installment Method of not more than 60 months and his Share Unit Account and/or Matching Share Unit Account being paid in annual installments over a period of not more than five years). Payments of a Participant’s Death Benefit shall be made, or commence, in the case of installments, as soon as administratively possible after the date on which the Committee is provided with satisfactory proof of the Participant’s death. Any payments hereunder shall be subject to the Deduction Limitation.

9.2.1DEFERRAL ACCOUNT. The portion of a Participant’s Death Benefit attributable to his Deferral Account may be distributed in (i) a lump sum payment or (ii) pursuant to the Quarterly Installment Method over a period of 60, 120 or 180 months in accordance with Section 1.36.

9.2.2SHARE UNIT ACCOUNT AND MATCHING SHARE UNIT ACCOUNT. The portion of a Participant’s Death Benefit attributable to his Share Unit Account and/or Matching Share Unit Account may be distributed in either (i) a lump sum or (ii) in equal annual installments of Shares over a period of five, ten or 15 years. The distribution of the portion of a Participant’s Death Benefit attributable to his Share Unit Account and/or Matching Share Unit Accounts shall be in Shares.

9.2.3ELECTION CHANGES. Subject to the Committee’s consent, a Participant may annually change his Death Benefit election to an allowable payout method by submitting to the Committee either a new Election Form (during open enrollment) or a Distribution Re-Election Form (at any point during the Plan Year). The Election or Distribution Re-Election Form most recently accepted by the Committee prior to the Participant’s death with respect to his Deferral Account shall govern the distribution of the portion of the Participant’s Death Benefit attributable to Measurement Funds. The Election or Distribution Re-Election Form most recently accepted by the Committee prior to the Participant’s death with respect to deferrals or conversions into Share Units shall govern the distribution of Share Units credited to the Participant’s Account as a result of such deferral or conversion.

Article 10. Termination Benefit

10.1TERMINATION BENEFIT. A Participant who Terminates Employment prior to his Retirement, death or Disability shall receive a Termination Benefit, which shall be equal to the value of the Participant’s vested Account. Solely for purposes of Section 7.3 and this Article 10, a Participant who receives severance from an Employer shall be deemed to have Terminated Employment as of the last day of the period during which he is paid such severance.

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10.2PAYMENT OF TERMINATION BENEFIT. Termination Benefits shall be paid in a lump sum; provided, however, that if a Participant experiences an involuntary Termination of Employment without cause and the value of his Account at such time is equal to or greater than $100,000, the Termination Benefit shall be distributed either (a) in accordance with the payment method elected by the Participant for the distribution of his Retirement Benefit under Section 8.2 or (b) in a lump sum if no election is made. Payments of a Participant’s Termination Benefit shall be made, or commence, in the case of installments, as soon as administratively possible after the date of such Termination of Employment. Any payment hereunder shall be subject to the Deduction Limitation.

10.3REEMPLOYMENT PRIOR TO COMPLETION OF TERMINATION BENEFIT. If a Participant is rehired by an Employer after he Terminates Employment but before his Termination Benefit is paid in full, any undistributed Termination Benefit payments shall cease as soon as practicable following such reemployment. Undistributed Termination Benefits shall commence upon the Participant’s subsequent Termination of Employment in accordance with the Election Form or Distribution Re-Election Form most recently accepted by the Committee.

Article 11. Disability Waiver and Benefit

11.1DISABILITY WAIVER. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of his Annual Deferral Amount commitment that would otherwise have been withheld from the Participant’s Base Salary, Annual Bonus and/or Long-Term Bonus for the Plan Year during which he first suffers a Disability. While Disabled, the Participant may not make any additional deferral elections, but will continue to be considered a Participant for all other purposes. A Participant who returns to employment after his Disability ceases may elect to defer an Annual Deferral Amount for Plan Years following the Plan Year in which he so returns; provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.2.

11.2CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a Disability shall, for purposes of the Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 7, 8, 9 or 10 in accordance with such Articles. Notwithstanding the above, the Committee may, in its sole discretion, deem the Participant to have Terminated Employment at any time after such Participant is determined to be suffering a Disability, in which case the Participant shall receive a Disability Benefit equal to his Account balance, which benefit shall be paid in a lump sum as soon as administratively possible after the Committee makes such determination. Any such Participant who is otherwise eligible to Retire shall be deemed to have Retired as of the date he attains age 55, and shall receive his Account balance in accordance with Article 8. Any payment hereunder shall be subject to the Deduction Limitation.

11.2.1REEMPLOYMENT PRIOR TO COMPLETION OF DISABILITY BENEFITS. If a Participant recovers from his Disability and is subsequently rehired by an Employer before his Disability Benefit or Retirement Benefit is paid in full, any undistributed benefit payments shall cease as soon as practicable following such reemployment. Undistributed benefits shall commence upon the Participant’s subsequent Retirement or Termination of Employment in accordance with the Election Form or Distribution Re-Election Form most recently accepted by the Committee.

Article 12. Forfeiture

12.1FORFEITURE. Notwithstanding any other provisions of the Plan to the contrary, a Participant shall forfeit all vested and unvested Matching Share Units and Discretionary Contributions if he:

(a)engages in misconduct involving dishonesty, malicious destruction of property of the Company, or the commission of a felony arising out of employment, and such misconduct results in detriment or financial loss to the Company and the termination of the Participant’s employment;

(b)manages, operates, participates in, is employed by, performs consulting services for, or is otherwise connected with, any firm, person, corporation, or enterprise that is engaged in a business that is (i) the same type of business as the business engaged in by any subsidiary or division within the Company that employed Participant prior to the date of his termination of employment and (ii) competitive with the business of such subsidiary or division; or

(c)at any time improperly discloses to others any trade secrets or other confidential information, including customer lists, relating to the Company or to the business of the Company.

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Article 13. Beneficiary Designation

13.1BENEFICIARY. Each Participant shall have the right, at any time, to designate a Beneficiary to receive any benefits payable under the Plan upon his death.

13.2BENEFICIARY DESIGNATION. A Participant may designate a Beneficiary by completing a Beneficiary Designation Form, and returning it to the Committee. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his death. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee.

13.3NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 13.1 and 13.2 or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, the Participant’s surviving spouse or Domestic Partner, if any, shall be deemed the designated Beneficiary. If the Participant has no surviving spouse or Domestic Partner, the benefits remaining to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant’s estate.

13.4DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to the Plan, the Committee may cause the Participant’s Employer to withhold such payments until this matter is resolved to the Committee’s satisfaction.

13.5DISCHARGE OF OBLIGATION. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under the Plan with respect to the Participant, and the Participant’s Plan Agreement, if any, shall terminate upon such full payment of benefits.

Article 14. Leave of Absence

14.1PAID LEAVE OF ABSENCE. A Participant, who is authorized by his Employer to take a paid leave of absence, shall continue to be considered employed by the Employer, and the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.3.

14.2UNPAID LEAVE OF ABSENCE. Any Participant, who is authorized by his Employer to take an unpaid leave of absence, shall continue to be considered employed by the Employer and shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral shall be withheld.

Article 15. Termination, Amendment and Modification

15.1TERMINATION. Although the Company anticipates that it will continue the Plan indefinitely, there is no guarantee that the Company will continue the Plan or will not terminate the Plan. Each Employer reserves the right to discontinue its sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of its board of directors. Upon the termination of the Plan with respect to any Employer, the Plan Agreements, if any, of the affected Participants shall terminate and their Account balances shall be distributed as set forth below. Prior to a Change in Control, if the Plan is terminated with respect to all of its Participants, the Employer may, in its sole discretion and notwithstanding any elections made by any Participants, pay such benefits in a lump sum or pursuant to a Quarterly Installment Method (annual installments in the case of Share Units) of up to 15 years. If the Plan is terminated with respect to less than all of its Participants, the benefits of the affected Participants shall be distributed in a lump sum. With respect to a termination after a Change in Control, all benefits shall be distributed in a lump sum. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become entitled to any benefits under the Plan as of the date of termination; provided, however, that the Employer shall have the right to accelerate installment payments without premium or prepayment penalty by distributing an amount equal to the Account balance in a lump sum or pursuant to a Quarterly Installment Method (annual installments in the

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case of Share Units) using fewer years. Upon termination of the Plan, each Participant shall become one hundred percent (100%) vested in his Matching Share Unit Account.

15.2AMENDMENT. The Company may, at any time, amend or modify the Plan in whole or in part by action of its board of directors, a committee thereof, or the Committee. However, no such amendment or modification may operate to (a) decrease the value of a Participant’s Account balance computed as of the date the amendment or modification is approved, or (b) effect the timing of the distribution of an Account balance that is scheduled to commence on or before such date; provided, however, that the Company may accelerate the distribution of installment payments by paying the Account balance in a lump sum or pursuant to a Quarterly Installment Method (annual installments in the case of Share Units). Notwithstanding the foregoing, to the extent required by law, regulations or stock exchange requirements, the Company will obtain approval of shareholders of The ThomsonCorporation for amendments to the Plan.

15.3PLAN AGREEMENT. Notwithstanding Sections 15.1 and 15.2 to the contrary, if a Plan Agreement contains benefits or limitations that are not in the Plan document, the Employer may amend or terminate such provisions only with the consent of the Participant.

15.4EFFECT OF PAYMENT. The full payment of the applicable benefit under Articles 7, 8, 9, 10 or 11 shall completely discharge all obligations to a Participant and his designated Beneficiaries under the Plan, and the Participant’s Plan Agreement, if any, shall terminate.

Article 16. Administration

16.1COMMITTEE DUTIES. The Plan shall be administered by a Committee, which shall consist of the Board or such committee, as the Board shall appoint. Members of the Committee may be Participants. The Committee shall have the discretion and authority to (a) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and (b) decide or resolve any and all questions involving the interpretation of the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to him. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.

16.2AGENTS. In the administration of the Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.

16.3BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

16.4INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee, and any Employee to whom the duties of the Committee may be delegated, against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members or any such Employee.

16.5EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee may reasonably require.

Article 17. Other Benefits and Agreements

17.1COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant or Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program, except as may otherwise be provided.

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Article 18. Claims Procedures

18.1PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

18.2NOTIFICATION OF DECISION. The Committee shall consider a Claimant’s claim within a reasonable time, and shall notify the Claimant in writing that: (a) the Claimant’s requested determination has been made, and that the claim has been allowed in full; or (b) the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination. If any part of the claim is denied, such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part thereof; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 18.3.

18.3REVIEW OF DENIED CLAIM. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure commences, the Claimant (or the Claimant’s duly authorized representative) may: (a) review pertinent documents; (b) submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant.

18.4DECISION ON REVIEW. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee’s decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant.

18.5LEGAL ACTION. A Claimant’s compliance with the foregoing provisions of this Article 18 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.

Article 19. Trust

19.1ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and each Employer shall at least annually transfer over to the Trust such assets as the Employer determines, in its sole discretion, are necessary to provide, on a present value basis, for its respective future liabilities created with respect to the Annual Deferral Amounts for such Employer’s Participants for all periods prior to the transfer, as well as any debits and credits to the Participants’ Account balances for all periods prior to the transfer, taking into consideration the value of the assets in the trust at the time of the transfer.

19.2INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.

19.3DISTRIBUTIONS FROM THE TRUST. Each Employer’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer’s obligations under the Plan.

Article 20. Miscellaneous

20.1STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.

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20.2UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer’s assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money or distributeShares, as the case may be, in the future.

20.3EMPLOYER’S LIABILITY. An Employer’s liability for the payment of benefits shall be defined only by the Plan and related forms. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and related forms.

20.4NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. Subject to Section 20.14, no part of the amounts payable shall, prior to actual payment, be: (a) subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person; (b) transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency; or (c) transferable to a spouse or Domestic Partner as a result of a property settlement or otherwise.

20.5NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of the Plan shall not be deemed to constitute a contract of employment between any Employer and a Participant. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer as an Employee, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.

20.6FURNISHING INFORMATION. A Participant or his Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including, but not limited to, taking such physical examinations as the Committee may deem necessary.

20.7TERMS. Whenever any words are used herein in the masculine, they shall be constructed as though they were in the feminine in all cases where they would apply, and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases when they would so apply.

20.8CAPTIONS. The captions of the articles, sections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

20.9GOVERNING LAW. Subject to ERISA, the provisions of the Plan shall be construed and interpreted according to the laws of the State of Connecticut without regard to its conflicts of law principles.

20.10NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:

Thomson Holdings Inc.

Deferred Compensation Plan Committee

Metro Center, One Station Place

Stamford, Connecticut 06902

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

20.11SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns and the Participant and the Participant’s Beneficiaries.

20.12VALIDITY. If any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, and the Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

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20.13INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the case and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity, or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

20.14COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse, former spouse, Domestic Partner, or former Domestic Partner of a Participant has an interest in the Participant’s benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse’s, former spouse’s, Domestic Partner’s, or former Domestic Partner’s interest in the Participant’s benefits under the Plan to that spouse, former spouse, Domestic Partner, or former Domestic Partner.

20.15DISTRIBUTION IN THE EVENT OF TAXATION.

(a)IN GENERAL. If, for any reason, all or any portion of a Participant’s benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee before a Change in Control, or the trustee of the Trust after a Change in Control, for a distribution of that portion of his benefit that has become taxable. Upon the grant of such a petition, which grant shall not be unreasonably withheld (and, after a Change in Control, shall be granted), a Participant’s Employer shall distribute to the Participant immediately available funds or Shares (in the case of amounts attributable to Share Units or Matching Share Units) in an amount equal to the taxable portion of his benefit (which amount shall not exceed a Participant’s unpaid Account balance). If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant’s petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan.

(b)TRUST. If the Trust terminates in accordance with its terms and benefits are distributed from the Trust to a Participant in accordance with such terms, the Participant’s benefits under this Plan shall be reduced to the extent of such distributions.

20.16INSURANCE. The Employers, on their own behalf or on behalf of the trustee of the Trust, and, in their sole discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the trustee may choose. The Employers or the trustee of the Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance. The Participant shall have no interest whatsoever in any such policy or policies, and at the request of the Employers shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employers have applied for insurance.

20.17LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and each Employer is aware that upon the occurrence of a Change in Control, the Board or the board of directors of a Participant’s Employer (which might then be composed of new members) or a shareholder of the Company or the Participant’s Employer, or of any successor corporation might then cause or attempt to cause the Company, the Participant’s Employer or such successor to refuse to comply with its obligations under the Plan and may cause or attempt to cause the Company or the Participant’s Employer to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. Accordingly, if following a Change in Control, it should appear to any Participant that the Company, the Participant’s Employer or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Employer or any other person takes any action to declare the Plan void or unenforceable or institute any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company and the Participant’s Employer irrevocably authorize such Participant to retain counsel of his choice at the expense of the Company and the Participant’s Employer (who shall be jointly and severally liable) to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, the Participant’s Employer or any director, officer, shareholder or other person affiliated with the Company, the Participant’s Employer or any successor thereto in any jurisdiction.

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ANNEX B: CORPORATE GOVERNANCE GUIDELINES

(Approved by the Board of Directors on February 24, 2006)

1.General

The Board of Directors of The Thomson Corporation believes that sound corporate governance practices are essential to the well-being of the Corporation and the promotion and protection of its shareholders’ interests as owners of the Corporation. The Board oversees the functioning of the Corporation’s governance system, in part, through the work of the Corporate Governance Committee which it established in 1994.

The Board has adopted these guidelines, which reflect the Corporation’s commitment to high standards of corporate governance, to assist the Board in supervising the management of the business and affairs of the Corporation as required under applicable law and stock exchange rules and requirements.

The fundamental responsibility of the Board is to supervise the management of the business and affairs of the Corporation with a view to sustainable value creation for all shareholders. The Board promotes fair reporting, including financial reporting, to shareholders of the Corporation and other interested persons as well as ethical and legal corporate conduct through an appropriate system of corporate governance, internal controls and disclosure controls. The Board believes that the Corporation is best served by a board of directors that functions independently of management and that is informed and engaged.

The Corporate Governance Committee will review these guidelines annually, or more often if warranted, and recommend to the Board such changes as it deems necessary and appropriate in light of the Corporation’s needs and legal and regulatory developments.

2.Board Composition

(a)BOARD MEMBERSHIP CRITERIA

The Corporate Governance Committee is responsible for assessing the need for new directors, the preferred experience and qualifications for new directors, and the skills and competencies that the Board, its committees, individual directors and candidates should possess. The Committee recommends candidates for initial Board membership and Board members for renomination. Recommendations are based on character, integrity, judgment, business experience, record of achievement and any other skills and talents which would enhance the Board and overall management of the business and affairs of the Corporation. Each director must have an understanding of the Corporation’s principal operational and financial objectives, plans and strategies, financial position and performance and the performance of the Corporation relative to its principal competitors. Directors must be able to dedicate sufficient time to carry out their duties and not assume responsibilities that would materially interfere with or be incompatible with Board membership. Directors who change their principal occupation are expected to advise the Corporate Governance Committee and, if determined appropriate by the Corporate Governance Committee, resign from the Board.

(b)DIRECTOR INDEPENDENCE

The Board’s composition and procedures are designed to permit it to function independently from management and to promote and protect the interests of all shareholders, in particular shareholders other than the Thomson family. The Board believes that, except during periods of temporary vacancies, not less than half of its members should be independent.

The Board determines whether a director is independent. In determining independence, the Board relies on the definition of “independent” as referenced in National Instrument 58-101 “Disclosure of Corporate Governance Practices” and the New York Stock Exchange (NYSE) listing standards. Generally, an independent director means a director who has been affirmatively determined by the Board to have no material relationship with the Corporation, either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with the Corporation. A material relationship is a relationship which could, in the Board’s determination, reasonably interfere with the exercise of a director’s independent judgment.

The Board will review the independence of all directors on an annual basis and will publish its determinations in the management information circular for the Corporation’s annual meeting of shareholders. Directors have an ongoing obligation to inform the Board of any material changes in their circumstances or relationships that may affect the Board’s determination as to their independence.

B-1

Five of the directors of the Corporation are executive officers of The Woodbridge Company Limited, a private company that is the primary investment vehicle for Kenneth R. Thomson and other members of the family of the late first Lord Thomson of Fleet, or Woodbridge’s affiliates other than the Corporation (David K. R. Thomson, the current Chairman, W. Geoffrey Beattie, the current Deputy Chairman, Kenneth R. Thomson, Peter J. Thomson and John A. Tory). The NYSE listing standards suggest that directors in such a relationship with the Corporation be considered not independent. The Board believes that, given that there are no material relationships between any of them and the Corporation or between Woodbridge and the Corporation which affect their independence, other than Woodbridge’s ownership of common shares of the Corporation, Woodbridge’sinterests as a shareholder of the Corporation are fully aligned with those of the Corporation’s other shareholders. Nevertheless, the Board does not classify those directors as independent directors.

The NYSE listing standards require a listed company to have, among other things, a majority of independent directors on its Board. The listing standards permit a “controlled company” to be exempt from these requirements. A “controlled company” is a company of which more than 50% of the voting power is held by an individual, group or another company. The Corporation is controlled by Kenneth R. Thomson. The Board has approved the Corporation’s reliance on the controlled company exemption.

(c)BOARD SIZE

The Board is currently of the view that its optimal size for effective decision-making and committee work is 14 to 16 members, and that it may need to increase beyond that from time to time in anticipation of retirements from the Board.

(d)TERM

All directors are elected at the annual meeting of shareholders of the Corporation for a term of one year. The Board does not believe it should establish term limits or mandatory retirement ages for its members as such limits may deprive the Corporation and its shareholders of the contributions of members who have been able to develop, over time, valuable insights into the Corporation, its strategy and business operations.

(e)BOARD SUCCESSION

The Corporate Governance Committee is responsible for maintaining a Board succession plan that is responsive to the Corporation’s needs and the interests of its shareholders.

(f)SERVICE ON OTHER BOARDS AND AUDIT COMMITTEES

The Board does not believe that its members should be prohibited from serving on the boards of other public companies so long as these commitments do not materially interfere with and are not incompatible with their ability to fulfill their duties as a member of the Board. Directors must advise the Chairman or Deputy Chairman in advance of accepting an invitation to serve on the board of another public company and, as a general rule, directors are not allowed to join a board of another public company on which two or more other directors of the Corporation serve.

Members of the Audit Committee may not serve on the audit committees of more than two other public companies without the prior approval of the Board.

3.Board Duties and Responsibilities

The directors’ primary responsibility is to act in good faith and to exercise their business judgement in what they reasonably believe to be the best interests of the Corporation. In fulfilling its responsibilities, the Board is, among other matters, responsible for the following matters.

(a)APPOINTMENT AND SUPERVISION OF THE CHIEF EXECUTIVE OFFICER AND SENIOR MANAGEMENT

The Board appoints and supervises the Chief Executive Officer and other members of the Corporation’s senior management, approves their compensation and, as permitted by applicable law, delegates to senior management responsibility for the day-to-day operations of the Corporation.

B-2

The Board will satisfy itself that a process is in place to provide for the development, evaluation and succession of the Chief Executive Officer and other members of senior management. The Board will establish and maintain a position description for the Chief Executive Officer.

The Board will satisfy itself as to the integrity of the Chief Executive Officer and other members of senior management, including confirming that the Chief Executive Officer and other members of senior management create a culture of integrity throughout the Corporation.

For purposes of these guidelines, references to “senior management” mean executives of the Corporation or its business groups as determined by the Board from time to time.

(b)STRATEGIC PLANNING AND RISK MANAGEMENT

The Board will establish and maintain the Corporation’s mission, values, long-term strategic goals, performance objectives and operational policies. In this regard, the Board will:

•review and approve on an annual basis a business plan developed with management which includes rigorous but realistic goals;

•adopt a strategic planning process and review and approve, on an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the business;

•approve strategic and operational policies within which management will operate in relation to capital expenditures, acquisitions and dispositions, disclosure and communications, finance and investment, risk management, human resources, internal financial and disclosure controls and management information systems;

•set annual corporate and management performance targets;

•confirm that a system is in place to identify the principal risks facing the Corporation and its businesses and that appropriate procedures and systems are in place to monitor, mitigate and manage such risks; and

•confirm that processes are in place for the Corporation and its businesses to address and comply with applicable legal, regulatory, corporate, securities and other compliance matters.

(c)FINANCIAL REPORTING AND MANAGEMENT

The Board will:

•approve the Corporation’s annual and interim financial statements and related management’s discussion and analysis and review and oversee the integrity of the Corporation with regard to its compliance with applicable audit, accounting and financial reporting requirements;

•approve annual operating and capital budgets;

•confirm the integrity of the Corporation’s internal control and management information systems; and

•review operating and financial performance results relative to established strategies, plans, budgets and objectives.

(d)DISCLOSURE AND COMMUNICATIONS

The Board will satisfy itself that appropriate policies and procedures are in place regarding public disclosure and restricted trading by insiders. In this regard, the Board will approve a corporate disclosure policy for the Corporation and will confirm that a process is in place to disclose all material information in compliance with the Corporation’s timely disclosure obligations and to prevent selective disclosure of material information to analysts, institutional investors, market professionals and others.

B-3

(e)CORPORATE GOVERNANCE

The Board will:

•develop the Corporation’s approach to corporate governance, including establishing appropriate principles and guidelines relating to corporate governance that are specifically applicable to the Corporation and practices to facilitate the Board’s independence;

•establish committees and approve their respective charters and the limits of authority delegated to each committee;

•establish appropriate processes for the regular evaluation of the effectiveness of the Board and its committees;

•approve the nomination of directors;

•review the adequacy and form of directors’ compensation to confirm that it realistically reflects the responsibilities and risks involved in being a director;

•arrange for non-management directors to meet at least quarterly without management present and for independent directors to meet at least annually; and

•ensure that sufficient funds are available for its effective operation and that of its committees.

(f)APPROVAL OF CERTAIN OTHER MATTERS

The Board must approve those matters which may not be delegated by the Board under applicable corporate law including, among others, the issuance of securities of the Corporation (except in the manner and on terms authorized by the Board), the declaration of dividends, the repurchase or redemption of shares of the Corporation and the adoption, repeal or amendment of the by-laws of the Corporation. The Board may also reserve to itself the right to approve certain matters notwithstanding the delegation to senior management of the authority to manage the business of the Corporation.

4.Controlling Shareholder

As of the date hereof, Kenneth R. Thomson, in part through Woodbridge and its subsidiaries, controlled the Corporation through his shareholdings.

Woodbridge’s primary investment is its holding of common shares of the Corporation. In its involvement with the Corporation, Woodbridge focuses principally on the following matters:

•corporate governance, including the effectiveness of the Board;

•the appointment of the Chief Executive Officer and other members of senior management and related succession planning;

•the development of the long-term business strategy of the Corporation and assessment of its implementation; and

•capital strategy.

With its expertise in dealing with these matters and its substantial equity investment in the Corporation, Woodbridge monitors the Corporation as an owner to an extent that other shareholders cannot. Woodbridge considers that its interests as a shareholder are fully aligned with those of all other shareholders.

5.Chairman

The Board will in each year elect from among its members a Chairman who is not the Chief Executive Officer or otherwise a member of the Corporation’s management.

The Chairman is principally responsible for overseeing the operations and affairs of the Board.

6.Deputy Chairman

The Board may in each year elect from among its members a Deputy Chairman who is not the Chief Executive Officer or otherwise a member of management.

B-4

The Deputy Chairman is responsible for assisting the Chairman in fulfilling his duties and for performing additional duties requested by the Board.

7.Secretary to the Board of Directors

The Board will appoint an individual who is not a member of management to act as the Secretary to the Board.

The Secretary to the Board is responsible for assisting the Chairman and the Deputy Chairman in managing the operations and affairs of the Board and for performing additional duties requested by the Chairman, the Deputy Chairman or the Board or any of its committees. The Secretary to the Board reports directly to the Chairman and the Deputy Chairman.

8.Board Committees

(a)GENERAL

The Board carries out its responsibilities directly and through the following committees and such other committees as it may establish from time to time: the Audit Committee, the Corporate Governance Committee, the Human Resources Committee and the Finance Committee.

(b)COMPOSITION

All committees will be comprised solely of directors who are not members of management and who are selected by the Board on the recommendation of the Corporate Governance Committee. The Corporation relies on an exemption available to controlled companies from the NYSE listing standards requiring the Human Resources and Corporate Governance Committees to be composed entirely of independent directors. Members of the Audit Committee must be independent and are subject to the additional requirements that they may not (i) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Corporation or any of its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), or (ii) be an “affiliated person” of the Corporation or any of its subsidiaries (within the meaning of applicable law). Each member of the Audit Committee will be “financially literate” (within the meaning of applicable law).

(c)CHAIR

The Audit Committee, Corporate Governance Committee and the Human Resources Committee are each chaired by an independent director who is selected by the Board on the recommendation of the Corporate Governance Committee and is responsible for determining the agenda and the frequency and conduct of meetings.

(d)CHARTERS

Each committee has its own charter that sets out its responsibilities and duties, qualifications for membership, procedures for committee member removal and appointment and reporting to the Board. On an annual basis, each committee’s charter is reviewed by both the committee itself and the Corporate Governance Committee and is also reviewed and approved by the Board. Copies of each charter are posted on the Corporation’s website.

9.Board and committee meetings

(a)SCHEDULING

Board meetings are scheduled in advance at appropriate intervals throughout the year. In addition to regularly scheduled Board meetings, additional Board meetings may be called upon proper notice at any time to address specific needs of the Corporation. The Board may also take action from time to time by unanimous written consent. A Board meeting may be called by the Chairman, the Deputy Chairman, the Chief Executive Officer or any two directors.

Each committee meets as often as it determines is necessary to fulfill its responsibilities. A meeting of any committee may be called by the committee chair, the Chairman, the Deputy Chairman, the Chief Executive Officer or any committee member.

B-5

Board meetings are held at a location determined by the Chairman and meetings of each committee are held at a location determined by the committee chair. The Board meets at least once a year at the offices of one of the Corporation’s businesses so that directors may meet operating management and develop a deeper understanding of a particular business or market group.

(b)AGENDA

The Chairman establishes the agenda for each Board meeting in consultation with the Deputy Chairman, the other directors, the Secretary to the Board and the Corporation’s senior management. Any director may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any Board meeting raise subjects that are not on the agenda for that meeting.

Committee chairs establish the agenda for each committee meeting. Any committee member may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any committee meeting raise subjects that are not on the agenda for the meeting.

(c)MEETINGS OF NON-MANAGEMENT AND INDEPENDENT DIRECTORS

To facilitate the Board’s independence, non-management directors meet as a group after each Board meeting without management present. Non-management directors may also meet without management present at such other times as determined by the chairing or presiding director. The Deputy Chairman informs management of the substance of these meetings to the extent that action is required by them. At least annually, independent directors will meet separately. The Chair of the Corporate Governance Committee chairs these meetings and informs the Chairman and the Deputy Chairman of the substance of these meetings to the extent that action is required by them.

(d)DISTRIBUTION OF INFORMATION

Information that is important to the Board’s understanding of the business and its meeting agenda are distributed to the Board before it meets. Sensitive subject matters may be discussed at a meeting without written materials being distributed in advance or at the meeting. The Board periodically receives reports on the operating activities of the Corporation, as well as reports on certain non-operational matters, including corporate governance, insurance, pensions and treasury matters. The Corporation maintains a secure intranet site for directors, which is used to distribute information and to foster communication among directors and between directors and the Corporation’s senior management.

(e)PREPARATION, ATTENDANCE AND PARTICIPATION

Each director is expected to prepare adequately for and attend all meetings of the Board and any committee of which he or she is a member. A director who is unable to attend a Board or committee meeting in person may participate by telephone or teleconference.

(f)PROCEDURES

Procedures for Board meetings are determined by the Chairman unless otherwise determined by the by-laws of the Corporation or a resolution of the Board.

Procedures for committee meetings are determined by the chair of the committee unless otherwise determined by the by-laws of the Corporation or a resolution of the committee or the Board.

10.Director compensation

The Board believes that compensation for directors should be competitive with the compensation paid to directors of businesses of comparable size and in comparable markets. The Board reviews directors’ compensation annually with these criteria in mind.

Non-management directors (except for the Chairman and Deputy Chairman) must receive at least one-third and may receive up to 100% of their annual retainer in common shares of the Corporation or deferred share units. If a director elects to receive shares, the amount (net of withholding taxes) is used to buy shares for the director in the open market. If a director elects to receive deferred share units, units representing the value of the shares are credited to the director’s account based on the market value of a share. Deferred share units are paid to the director within one year following termination of Board service. Payment

B-6

will be made in shares or cash (net of withholding taxes), based on the market value of the shares on the date of payment. Deferred share units also accumulate additional units based on notional equivalents of dividends declared on the Corporation’s common shares. The Board believes that this plan further aligns the interests of directors with the interests of other shareholders.

Directors are reimbursed by the Corporation for reasonable travel and out-of-pocket expenses incurred in connection with their duties as directors.

Management directors do not receive compensation for their services as directors. Neither the Chairman nor the Deputy Chairman receives attendance fees.

11.Share ownership requirements

Directors are required to hold common shares or deferred share units of the Corporation having a value equal to at least five times the amount of their annual retainer for service as a director. Directors have from the later of January 20, 2008 or five years from the date of their election or appointment to the Board to comply with this requirement.

The Chief Executive Officer is required to acquire and hold common shares or deferred share units of the Corporation with a value equal to at least five times his or her annual base salary.

Each of the other executive officers of the Corporation is required to acquire and hold common shares or deferred share units of the Corporation with a value equal to at least his or her annual base salary or, in some instances, with a value equal to at least three times his or her annual base salary, depending on his or her position with the Corporation.

The Chief Executive Officer and the other executive officers of the Corporation do not have a deadline in which to comply with the share ownership requirements. Each of them is expected to retain a specified percentage of the common shares of the Corporation that he or she acquires (after applicable tax withholdings) through option exercises and the vesting of restricted share units until he or she has attained the share ownership requirements. The Chief Executive Officer is currently required to retain 100% of the common shares of the Corporation that he acquires and the other executive officers of the Corporation must retain 50% of the common shares of the Corporation that they acquire, until they attain the share ownership requirements.

12.Director orientation and continuing education

New directors receive orientation materials describing the Corporation’s business, its corporate governance structure and related policies and information. New directors also have meetings with the Corporation’s Chairman, Deputy Chairman, Chief Executive Officer and Chief Financial Officer and other senior executives, including heads of the Corporation’s major business groups. Early in their tenure, new directors are provided with the opportunity to visit major facilities and meet with operating management of the Corporation’s market groups.

The Corporate Governance Committee is responsible for confirming that procedures are in place and resources are made available to provide directors with appropriate continuing education opportunities. Directors may attend continuing education programs at the Corporation’s expense.

13.Board access to management and advisors

The Board has complete access to members of the Corporation’s management and directors are encouraged to raise any questions or concerns directly with management. The Board and its committees may invite any member of management, employee, outside advisor or other person to attend any of their meetings.

In carrying out their duties, the Board and any of its committees may retain an outside advisor at the expense of the Corporation at any time and have the authority to determine the advisor’s fees and other retention terms. Individual directors may retain an outside advisor at the expense of the Corporation with the approval of the Corporate Governance Committee.

B-7

14.Performance assessments of the Board, directors and committees

The Board, acting through the Corporate Governance Committee, annually reviews the effectiveness of the Board, each director and each Board committee in fulfilling their responsibilities and duties, including their effectiveness and contribution. The Corporate Governance Committee subsequently makes recommendations to the Board for appropriate action. The Corporate Governance Committee also evaluates individual directors to assess their suitability for nomination for re-election.

15.Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics. The Board expects all directors, officers and employees of the Corporation and its subsidiaries to conduct themselves in accordance with the highest ethical standards and adhere to the Code. Any waiver of the Code for directors or executive officers may only be made by the Board or one of its committees and will be disclosed by the Corporation to the extent required by law, regulation or stock exchange requirement.

16.Prohibition on personal loans

The Corporation will not extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any director or executive officer.

17.Indemnification and insurance

In accordance with the by-laws of the Corporation and applicable Ontario law, present and former directors and officers are each indemnified by the Corporation against all liability and costs arising out of any action or suit against them from the execution of their duties, provided that they have carried out their duties honestly and in good faith with a view to the best interests of the Corporation and have otherwise complied with the provisions of applicable corporate law.

The Corporation maintains insurance or comparable arrangements for the benefit of its directors and officers against any liability incurred by them for which they would be indemnified. The amount and terms of the insurance coverage or comparable arrangements are dependent upon prevailing market conditions and practices with the objective of adequately protecting directors and officers from such liability.

18.Conflicts of interest

Each director is required to inform the Board of any potential or actual conflict of interest he or she may have with the Corporation. If a director has a personal interest in a matter before the Board or a committee, he or she must not participate in any vote on the matter, except where the Board or the committee has expressly determined that it is appropriate for him or her to do so.

To avoid potential conflicts of interest, interlocking directorships will not be allowed. Interlocking directorships occur where a member of senior management of the Corporation serves on the board or as a trustee of a company or institution that employs a director of the Corporation.

19.To contact the Board and its committees

The Board welcomes input and comments from shareholders of the Corporation. You may contact one or more members of the Board or its committees by writing to the Secretary to the Board at:

Board of Directors of The Thomson Corporation

c/o David W. Binet, Secretary to the Board of Directors

The Thomson Corporation

65 Queen Street West, Suite 2400

Toronto, Ontario M5H 2M8

Canada

E-mail: board.secretary@thomson.com

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THE THOMSON CORPORATION
Metro Center, One Station Place	Suite 2706, Toronto Dominion Bank Tower
Stamford, Connecticut 06902 United States	P.O. Box 24, Toronto-Dominion Centre, Toronto, Ontario M5K 1A1 Canada
tel 203.539.8000	tel 416.360.8700
www.thomson.com

EX-99.2

Exhibit 99.2

CHANGE THE GAME

The Thomson Corporation Annual Report 2005

Attorneys manage their practices more productively, prepare their cases more effectively and bring greater insight to the business and practice of law.

Colleges gain access to deeper resources and, using digital technology, reach more students and teach them more efficiently.

Brokers and investment managers take advantage of a more robust flow of financial information to make better-informed decisions more quickly.

Healthcare professionals tap into a world of data, from drug interactions to health outcomes, and transform that information

2	Letter to Shareholders	10	Change the Game	112	Board of Directors
6	Financial Highlights	24	Management’s Discussion and Analysis	114		Senior Management
8	Growth Metrics	61	Financial Statements and Notes	115		Corporate Information

into knowledge without leaving the patient’s bedside.

Professionals like these spend more time with their clients and more time innovating – taking their game to new levels – when their workflow is enabled by Thomson.

AROUND THE WORLD, THOMSON HELPS CUSTOMERS CHANGE THE GAME.

To Our Shareholders:

2005 was another year of solid growth and strategic progress for The Thomson Corporation. It was also another year in which our customers had to sprint to keep up with changing demands in their markets. By building out workflow solutions such as Thomson ONE and Westlaw Litigator, and launching new solutions such as Thomson Pharma, Thomson helped its customers become more productive, and therefore more competitive, in a rapidly evolving marketplace.

GOING WHERE THE VALUE LIES

For the past several years, we have been building size and scale in our chosen markets. Today Thomson holds the #1 or #2 position in most of the markets and customer segments we have targeted. To keep growing, we will keep moving up our customers’ value chain. Our emphasis on workflow solutions reflects a major shift in the locus of value creation for the information industry, and it is key to our company’s sustained growth.

A simple way to think about the value chain is to imagine three sources, or levels, of value. The first is content, which – not many years ago – was the major source of value creation in our industry. We built our business on value-added content and, indeed, content still forms the foundation of our workflow solutions today.

Second, we add more value, and in turn increase revenues, when we deliver that content via sophisticated technology platforms that enable customers to access and apply our information at their point of decision.

The third and highest level of value consists of high-end analytics, decision support and transaction tools, services and consulting. These offerings help our customers increase their productivity, boost their performance and innovate to remain competitive in their changing markets.

Our workflow solutions combine content, technology and, increasingly, high-end analytical tools and services. When these solutions are integrated into our customers’ IT systems, they deliver a much higher level of value than content alone. Our role changes from content provider to business partner as we move up the value chain from informing our customers’ decisions to enabling their actions.

CREATING INNOVATIVE SOLUTIONS

2005 was a milestone year for innovation at Thomson, as we expanded or launched several workflow solutions to excellent reception in the marketplace.

Among the year’s highlights, Thomson Financial completed the rollout of more than 23,000 Thomson ONE workstations to more than 500 Merrill Lynch retail brokerage offices. And in the fixed income market, Thomson TradeWeb processed a record US$43 trillion in trades as it continued its aggressive expansion into new asset classes and new geographies.

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THOMSON VISION: Be the leading global provider of integrated information-based solutions to business and professional customers.

In 2003, Thomson Legal & Regulatory launched Westlaw Litigator, a workflow solution designed to support the distinctive needs of litigation attorneys. In 2005, Litigator generated almost US$80 million in revenues – a 77% increase over 2004. Learning from this success, we are currently developing Westlaw Transactor, a solution tailored for the equally distinctive needs of another large segment of the legal market. Likewise, Thomson Tax and Accounting continues to gain market share as it moves from a product-centric model to a solutions-based and customer-focused model, growing revenues more than 10% in 2005.

At the beginning of 2005, Thomson Scientific & Healthcare launched Thomson Pharma, the first integrated workflow solution for the huge pharmaceutical research market. By year’s end, Thomson Pharma had more than 100 customers. Our healthcare decision support business at Medstat achieved double-digit growth, and now counts America’s five largest corporations among its customers.

Thomson Learning has begun leveraging KnowledgeNet’s advanced technology platform across its businesses, as it seeks to drive migration from print to digital solutions in the higher education marketplace.

Thomson successfully integrated several sizable acquisitions made in 2004, including TradeWeb, IHI and KnowledgeNet. In doing so, we generated incremental revenue, reduced costs and, importantly, integrated new content and applications into our workflow solutions. Acquisitions remain an important part of our overall strategy. In 2005, we spent US$289 million primarily on fold-in acquisitions that will enable us to further enhance our workflow solutions and drive growth.

DELIVERING FINANCIAL RESULTS

Our strategy to move from being a content provider to developing state-of-the-art information-based solutions is producing strong financial results. 2005 revenues were up 8% to more than US$8.7 billion, consistent with our long-term goal of 7–9% revenue growth annually. Organic growth, which accelerated throughout the year, was 4%.

Revenue from electronic solutions, software and services increased 12%, accounting for nearly 70% of total revenues. Approximately half of the revenue from electronic products came from workflow solutions tailored to our customers’ needs. Workflow solutions are clearly becoming the engine of our long-term growth.

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THOMSON MISSION: Deliver superior shareholder value by empowering our people to provide indispensable information, insight, productivity tools and services that help our customers succeed.

Operating margins were up again in 2005 for the sixth consecutive year, and have increased by more than 500 basis points since 2001. Earnings per share (EPS) were US$1.42 in 2005, compared to US$1.54 in 2004. After adjusting for discontinued operations and one-time items, underlying EPS increased 17%, following a similar increase in 2004.

In 2005, we generated US$1.8 billion of cash from operations. And, over the past five years, our free cash flow has more than doubled, to US$1.2 billion in 2005. On the back of this strength, we returned more than US$760 million of cash to shareholders in the form of dividends and share repurchases in 2005 – an increase over 2004 of more than 50%.

The Thomson Corporation entered 2006 with a strong balance sheet and good growth momentum. In 2006, we expect to benefit from further acceleration of organic growth, as well as continued improvement in operating margins and free cash flow.

OPTIMIZING OUR RESOURCES

As we refine our strategies, we also constantly assess our business portfolio to ensure we are optimizing growth and returns. In 2005, we began a rigorous portfolio analysis to assess the contribution of every Thomson business. One outcome of this company-wide analysis was a decision, announced at the beginning of 2006, to divest four businesses: American Health Consultants, Peterson’s, K.G. Saur and the U.S. operations of Thomson Education Direct. Collectively, these businesses generated US$180 million of revenues in 2005, and they are all strong brands. However, they are not core to our workflow solutions strategy.

Portfolio optimization – with its heightened focus on investing resources in high-growth, high-return areas and divesting non-strategic assets – will be a continuous process in 2006 and beyond.

We have also identified new opportunities to leverage our global infrastructure to support growth and improve margins. Over the past few years we have successfully reduced costs within each of our market groups. Now we are looking across the groups to capture synergies, share services and implement best practices company wide. Our objective is to create a more agile and efficient company.

4

STRENGTHENING THE LEADERSHIP TEAM

As The Thomson Corporation implements a common business strategy across its market groups, the role of the corporate center is evolving. In 2005, we strengthened the corporate leadership team to provide oversight for new initiatives to accelerate growth, optimize our portfolio of businesses and leverage infrastructure.

Our board of directors continues to provide diligent oversight on strategic planning, risk identification, and financial and human resources issues. In 2005, we were delighted to welcome a new board member, Mary Cirillo, who brings fresh perspectives and new insights on the financial services and technology sectors to our board.

REAFFIRMING OUR MISSION, VISION AND VALUES

Throughout our company’s transformation over the past decade, our mission has not changed. The first words in our mission statement are “deliver superior shareholder value” and the final words are “help our customers succeed.” Building on the achievements of 2005, we feel we are better positioned than ever to carry out our mission – and with increased vigor.

Our vision is to “be the leading global provider of integrated information-based solutions to business and professional customers.” We see this as a journey, not a destination, because each new year and each new technology brings opportunities to enhance our solutions with high-value analytical and transaction tools and services.

Our core value has long been “commitment to our people.” While we are proud of the quality of our content and technology, we are proudest of the quality of Thomson people. The talent of our 40,500 Thomson colleagues around the world is the company’s deepest source of competitive advantage. We want to take this opportunity to extend our thanks to them – and to our shareholders – for their continued support.

Sincerely,

David K. R. Thomson		Richard J. Harrington
Chairman of the Board		President & Chief Executive Officer

5

Financial Highlights*

THE THOMSON CORPORATION

	2005		2004		Change
Revenues	8,703		8,057		+	8	%
Operating profit	1,464		1,330		+	10	%
Earnings attributable to common shares	930		1,008		-	8	%
Earnings per common share (EPS)	$	1.42	$	1.54	-	8	%
Adjusted earnings from continuing operations(1)	939		798		+	18	%
Adjusted EPS from continuing operations(1)	$	1.43	$	1.22	+	17	%
Shareholders’ equity	9,963		9,962
Net cash provided by operating activities	1,879		1,808		+	4	%
Free cash flow(2)	1,194		1,123		+	6	%

MARKET GROUPS

Legal & Regulatory

	2005			Change
Revenues	$	3,491		+	7	%
Adjusted operating profit(3)	$	982		+	9	%
Adjusted operating profit margin(3)	28.1		%	+	3	%

Learning

	2005			Change
Revenues	$	2,319		+	7	%
Adjusted operating profit(3)	$	350		+	7	%
Adjusted operating profit margin(3)	15.1		%	+	1	%

* Millions of U.S. dollars except per common share amounts. Adjusted earnings from continuing operations, adjusted EPS from continuing operations and free cash flow are non-GAAP financial measures, which are reconciled to the most directly comparable GAAP financial measures within the MD&A.

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Revenue by Market Group	Revenue by Media	Revenue by Geography

Financial

	2005			Change
Revenues	$	1,897		+	9	%
Adjusted operating profit(3)	$	334		+	14	%
Adjusted operating profit margin(3)	17.6		%	+	4	%

Scientific & Healthcare

	2005			Change
Revenues	$	1,018		+	14	%
Adjusted operating profit(3)	$	235		+	21	%
Adjusted operating profit margin(3)	23.1		%	+	6	%

(1)	Excludes one-time items. For a full reconciliation to reported earnings, see page 33.
(2)	Net cash provided by operating activities less net capital expenditures, other investing activities and dividends paid on preference shares.
(3)	Excludes amortization of identifiable intangible assets. For a reconciliation to operating profit and operating profit margin, see pages 57 and 58.

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Growth Metrics*

REVENUES	OPERATING PROFIT	OPERATING MARGIN
Revenues increased 8% in 2005 vs. 2004, to $8.7 billion, driven by 12% growth in electronic solutions, software and services.	Operating profit increased 10% in 2005 vs. 2004, as a result of higher revenues and improved efficiencies.	Operating profit margin increased to 16.8% in 2005, the sixth consecutive year of margin expansion.

* Millions of U.S. dollars except per common share amounts. Adjusted EPS from continuing operations and free cash flow are non-GAAP financial measures, which are reconciled to the most directly comparable GAAP financial measures on pages 109 and 111.

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EARNINGS PER COMMON SHARE		CASH FLOW		DIVIDENDS PER SHARE
	Earnings per common share		Net cash provided by operating activities
	Adjusted EPS from continued operations(1)		Free cash flow(2)
Strong operating performance drove adjusted earnings up 17% in 2005 to $1.43 per share.		Free cash flow, a key measure of financial strength, has more than doubled over the past five years.		Steadily increasing cash dividends have enhanced total returns to shareholders.

(1)	Excludes one-time items. For a full reconciliation to reported earnings, see the six-year summary on page 109.
(2)	Net cash provided by operating activities less net capital expenditures, other investing activities and dividends paid on preference shares.
(3)	Excludes a special dividend of $0.428 related to the sale of our 20% interest in Bell Globemedia Inc.

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IT’S NOT JUST THE INFORMATION.

An estimated 10 billion documents are available on the Internet, and that number is thought to double every year. But quantity of data doesn’t equal quality of knowledge. Knowledge workers need information that is relevant, reliable and comprehensive. Their careers depend on it.

Thomson Legal & Regulatory’s data centers store more than 100 terabytes of unique data – roughly five times the amount of information in the U.S. Library of Congress – constituting one of the world’s largest databases of legal information. Thomson employs more than 1,000 attorneys to ensure that our legal information is accurate, timely and useful. The information is delivered globally where and when needed to help prepare the case or close the deal.

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The Internet-enabled world is an increasingly intelligent, almost sentient extension of human capabilities.

A major breakthrough in healthcare is the ability to improve outcomes by integrating highly comprehensive medical databases with highly specific information about the individual patient. InfoButton, a hospital workflow solution from Thomson Scientific & Healthcare, gives doctors and nurses seamless access to comprehensive drug and disease information along with patient data from their medical facility’s records. Without leaving a patient’s bedside, a doctor can determine which drug and dosage to prescribe, not just for the particular illness but also for the specific patient.

THE NETWORK IS BECOMING A LIVING THING.

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The information revolution is not about the Internet; it’s about empowering the knowledge worker by making processes easier, faster and more accurate. It’s about improving performance by translating information into insight and action.

In the financial services industry, performance matters. Billions of dollars are at stake. Thomson Financial delivers integrated workflow solutions that drive performance when it matters most. With a few mouse clicks, traders can analyze and seamlessly execute trades. With more than $100 trillion already traded on Thomson Financial’s platforms, traders are driving greater performance and returns instead of spending time jostling and yelling on the trading floor.

WHAT WAS ONCE WORK IS NOW FLOW.

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LEARNING HAS LEFT THE BUILDING.

Thanks to distance learning and digital technology, education is no longer confined within classroom walls. Just as universal Internet access, telecommuting and wireless technologies are freeing businesses from the limitations of traditional infrastructure – so too, the home of learning needn’t be a brick and mortar lecture hall or corporate training center anymore.

From Scottsdale to Singapore, Thomson Learning provides online courseware, services and interactive digital learning tools – as well as textbooks – that help people learn more efficiently, wherever and whenever they need to expand their knowledge.

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WHETHER YOU WIN OR LOSE DEPENDS ON HOW YOU CHANGE THE GAME.

The world’s economy is fast becoming a knowledge economy. The market for knowledge and for talent is truly global. Expertise, like information, can be accessed from anywhere on earth.

One of the fastest growing offices at Thomson today is in Bangalore, where we are recruiting highly qualified young technologists and information specialists from one of the world’s great sources of emerging talent.

The competitive landscape is changing daily, but one thing’s clear – the winners will be those companies that make innovation and adaptability their core competencies. We at Thomson salute these game-changers, and will continue to support their success with solutions that help them be more productive, efficient and agile.

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Financial and Corporate Information

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Index to Financial and Corporate Information

24	Management’s Discussion and Analysis
24	Overview
29	Use of Non-GAAP Financial Measures
30	Results of Operations
42	Liquidity and Capital Resources
49	2006 Outlook
49	Related Party Transactions
50	Employee Future Benefits
51	Subsequent Events
52	Accounting Changes
52	Critical Accounting Policies
54	Recently Issued Accounting Standards
55	Additional Information
57	Reconciliations
60	Quarterly Information
61	Management Report
62	Auditors’ Report
63	Consolidated Statement of Earnings and Retained Earnings
64	Consolidated Balance Sheet
65	Consolidated Statement of Cash Flow

66	Notes to Consolidated Financial Statements
66	Note 1	Summary of Significant Accounting Policies
72	Note 2	Changes in Accounting Policies
72	Note 3	Net Other (Expense) Income
73	Note 4	Net Interest Expense and Other Financing Costs
73	Note 5	Income Taxes
76	Note 6	Discontinued Operations
77	Note 7	Earnings per Common Share
78	Note 8	Accounts Receivable Allowances
79	Note 9	Inventories
79	Note 10	Computer Hardware and Other Property
80	Note 11	Computer Software
80	Note 12	Identifiable Intangible Assets
81	Note 13	Goodwill
82	Note 14	Financial Instruments
86	Note 15	Capital
88	Note 16	Employee Future Benefits
92	Note 17	Contingencies, Commitments and Guarantees
94	Note 18	Acquisitions and Disposals
96	Note 19	Cumulative Translation Adjustment
96	Note 20	Stock-based Compensation
100	Note 21	Supplemental Cash Flow Information
100	Note 22	Related Party Transactions
101	Note 23	Business Interruption Insurance
101	Note 24	Segment Information
104	Note 25	Reconciliation of Canadian to U.S. Generally Accepted Accounting Principles
107	Note 26	Subsequent Events
108	Six-Year Summary

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Management’s Discussion and Analysis

The following management’s discussion and analysis is intended to assist you in understanding and evaluating changes in our financial condition and operations for the year ended December 31, 2005, compared to the preceding fiscal year. We recommend that you read this discussion and analysis in conjunction with our consolidated financial statements prepared in accordance with accounting principles generally accepted in Canada, or Canadian GAAP, and the related notes to those financial statements. All dollar amounts in this discussion are in U.S. dollars unless otherwise specified. Unless otherwise indicated, references in this discussion to “we,” “our” and “us” are to The Thomson Corporation and its subsidiaries. In addition to historical information, this management’s discussion and analysis contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Some of these factors include those identified in the section entitled “Forward-Looking Statements” on page 56 of this management’s discussion and analysis and in the “Risk Factors” section of our annual information form, which is also contained in our annual report on Form 40-F. This management’s discussion and analysis is dated as of February 23, 2006.

OVERVIEW

Our Business and Strategy

We are one of the world’s leading information services providers to business and professional customers. Our target customers are knowledge workers whose expertise in particular markets is critical to the success of economies throughout the world. As economies evolve and become more global, we believe that the needs of knowledge workers will continue to grow.

We generate revenues by supplying knowledge workers with business-critical information solutions and services. We make our information more valuable by adding expert analysis, insight and commentary, and couple it with software tools and applications that our customers can use to search, compare, synthesize and communicate the information. To further enhance our customers’ workflows, we increasingly deliver information and services electronically, integrate our solutions with our customers’ own data and tailor the delivery of information to meet specific customer needs. As we integrate critical information with analysis, tools and applications, we place greater focus on the way our customers use our content, rather than simply on selling the content itself, and are moving from just informing our customers to enabling their decisions. We believe our ability to embed our solutions into our customers’ workflows is a significant competitive advantage as it leads to strong customer retention and barriers to entry for competitors. Over time, we believe that these attributes translate into more pricing power, higher margins and better cash flow. Thus, our shift to workflow solutions is important to our growth and profitability.

As a global company that provides services in approximately 130 countries, we are affected by economic and market dynamics, governmental regulations and business conditions for each market and country in which we operate. We have traditionally encountered competition in each of our markets from both large information providers and smaller niche market businesses. However, we now face an evolving competitive landscape. Certain of our traditional competitors are implementing solutions strategies of their own. In the future, other competitors could come from outside our traditional competitive set. For instance, Internet service companies and search providers could pose a threat to some of our businesses by providing more in-depth offerings than are currently available from such services. In response to this, we are continuing to move forward aggressively in segmenting our markets and developing solutions that will allow us to remain embedded in our customers’ workflows.

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We strive for leadership positions in each market we serve in order to secure broad and deep market expertise. To maintain our leadership positions, we will continue to invest in our existing businesses and also to acquire new businesses. During the past few years, we have achieved efficiencies by leveraging resources within our various businesses, which has increased our profitability. We have had consistently strong cash flow generation, reflecting the strength of our businesses and the quality of our earnings, as well as contributions from operating efficiencies and improvements in our use of working capital.

We organize our operations into four market groups that are structured on the basis of the customers they serve:

•THOMSON LEGAL & REGULATORY is a leading provider of information solutions to legal, tax, accounting, intellectual property, compliance and other business professionals, as well as government agencies. Major brands include Westlaw, Aranzadi, BAR/BRI, Carswell, Checkpoint, Compu-Mark, Creative Solutions, Thomson Elite, FindLaw, Gee, IOB, Lawbook, LIVEDGAR, RIA, Sweet & Maxwell and Thomson & Thomson.

•THOMSON LEARNING is a leading provider of learning solutions to colleges, universities, professors, students, libraries, reference centers, government agencies, corporations and professionals. Major brands include Thomson Course Technology, Thomson Delmar Learning, Thomson Gale, Thomson Heinle, Thomson Nelson, Thomson NETg, Thomson Prometric, Thomson South-Western and Thomson Wadsworth.

•THOMSON FINANCIAL is a leading provider of products and integration services to financial and technology professionals in the corporate, investment banking, institutional, retail wealth management and fixed income sectors of the global financial community. Its flagship brand is Thomson ONE. Other major businesses and brands include AutEx, Baseline, BETA Systems, Datastream, First Call, I/B/E/S, Investext, IR Channel, SDC Platinum, StreetEvents and TradeWeb.

•THOMSON SCIENTIFIC & HEALTHCARE is a leading provider of information and services to researchers, physicians and other professionals in the healthcare, academic, scientific, corporate and government marketplaces. Major businesses and information solutions include Derwent World Patents Index, Gardiner-Caldwell, Medstat, Micromedex, MicroPatent, PDR (Physicians’ Desk Reference), Physicians World, Thomson Pharma, ISI Web of Science and Web of Knowledge.

We also report financial results for a corporate and other reporting category, as well as discontinued operations. The corporate and other category principally includes corporate expenses and costs associated with our stock-related compensation.

Effective January 1, 2005, we reorganized certain businesses within our market groups. Within Thomson Learning, the international operations within the Academic Publishing and Reference group were transferred to the Lifelong Learning group. In addition, Thomson Learning’s operations which produce textbook and print and electronic materials for information technology instruction (Thomson Course Technology) and textbook and learning materials for the technology, trade healthcare, professional and career education markets (Thomson Delmar Learning) were transferred from the Lifelong Learning group to the Academic Publishing and Reference group. Additionally, Thomson Legal & Regulatory transferred its Dialog DataStar operations, which provide scientific and intellectual property information, to Thomson Scientific & Healthcare. Thomson Legal & Regulatory retained its Dialog NewsEdge operations, which provide business news and information. Results for current and prior periods reflect these organizational changes.

PERCENTAGE OF TOTAL

2005 REVENUES

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The following table summarizes selected financial information for 2005, 2004 and 2003, including certain metrics that are non-GAAP financial measures. Please see the section below entitled “Use of Non-GAAP Financial Measures” for definitions of these terms and references to the reconciliations of these measures to the most directly comparable Canadian GAAP measures.

	Year ended December 31
(millions of U.S. dollars, except per share amounts)	2005			2004			2003(3)
Consolidated statement of earnings data
Revenues	8,703			8,057			7,391
Operating profit	1,464			1,330			1,162
Earnings from continuing operations(1)	926			856			826
Earnings from discontinued operations, net of tax	8			155			39
Net earnings(1)	934			1,011			865
Basic and diluted earnings per common share from continuing operations(1)	$	1.41		$	1.30		$	1.28
Basic and diluted earnings per common share(1)	$	1.42		$	1.54		$	1.34
Consolidated balance sheet data
Cash and cash equivalents	407			405			683
Total assets	19,436			19,645			18,687
Total long-term liabilities	6,366			6,600			6,349
Shareholders’ equity	9,963			9,962			9,193
Dividend data
Dividends per common share – ordinary (US$)	$	0.790		$	0.755		$	0.725
Dividends per common share – special (US$)	—			—			$	0.428
Dividends per Series II preferred share (Cdn$)	C$		0.77	C$		0.70	C$		0.82
Dividends per Series V preferred share (Cdn$)	—			—			C$		0.32
Other data(2)
Adjusted earnings from continuing operations	939			798			687
Adjusted earnings per common share from continuing operations	$	1.43		$	1.22		$	1.05
Net debt	3,683			3,718			3,373
Free cash flow	1,194			1,123			983

(1)   Results are not directly comparable due to certain one-time items. For more information, please see the “Results of Operations” section of this management’s discussion and analysis.

(2)   These are non-GAAP financial measures. See page 29 for definitions.

(3)   A full discussion of results for 2004 compared to 2003 is included in our management’s discussion and analysis for the year ended December 31, 2004. Significant trends and items affecting comparability over the three-year period are noted within this management’s discussion and analysis.

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Revenues

The following graphs show the percentage of our 2005 revenues by media, type and geography.

REVENUE BY MEDIA	REVENUE BY TYPE	REVENUE BY GEOGRAPHY

Our revenues are derived from a diverse customer base. In 2005, 2004 and 2003, no single customer accounted for more than 2% of our total revenues.

We use a variety of media to deliver our products and services to our customers. Increasingly, our customers are seeking products and services delivered electronically and are migrating away from print-based products. We deliver information electronically over the Internet, through dedicated transmission lines, CDs and, more recently, through handheld wireless devices. In 2005, electronic, software and services revenues as a percentage of our total revenues increased to 69% from 66% in 2004 and 64% in 2003 primarily due to the continued evolution of customers’ preferences towards electronic products and solutions. In the long-term, we expect that electronic, software and services revenues as a percentage of our total revenues will continue to increase as we continue to emphasize electronic delivery, add solution-based and software-based acquisitions to our portfolio, and as markets outside North America continue to incorporate technology into their workflows. Electronic delivery of our products and services improves our ability to provide additional products and services to our existing customers and to access new customers around the world.

For each year from 2003 to 2005, approximately 65% of our revenues were generated from subscription or similar contractual arrangements, which we refer to as recurring revenues. Subscription revenues are from sales of products and services that are delivered under a contract over a period of time. Our subscription arrangements are most often for a term of one year, after which they automatically renew or are renewable at our customers’ option, and the renewal dates are spread over the course of the year. Because a high proportion of our revenues come from subscription and similar arrangements where our customers contract with us for a period of time, our revenue patterns are generally more stable compared to other business models that sell products in discrete or one-off arrangements. In the case of some of our subscription arrangements, we realize additional fees based upon usage. We recognize revenues from sales of some products, primarily our textbooks, after we estimate customer returns. We sell our textbooks and related products to bookstores on terms that allow them to return the books to us if they are not sold.

We segment our revenues geographically by origin of sale in our financial statements. In 2005, 83% of our revenues were from our operations in North America, consistent with 2004 and 2003. In the long-term, we are striving to increase our revenues from outside North America as a percentage of our overall revenues. We can modify and offer internationally many of the products and services we developed originally for customers in North America without excessive customization or translation. This represents an opportunity for us to earn incremental revenues. For some of the products and services we sell internationally, we incur additional costs to customize

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our products and services for the local market and this can result in lower margins if we cannot achieve adequate scale. Development of additional products and services and expansion into new geographic markets are integral parts of our growth strategy. While development and expansion present an element of risk, particularly in foreign countries where local knowledge of our products may be lacking, we believe that the quality and brand recognition of our products and services help to mitigate that risk.

We routinely update a number of our key products and services by adding functionality or providing additional services to our existing offerings to make them more valuable and attractive to our customers and, thereby, increase our revenues from existing customers. Because of the dynamic nature of our products and services, management does not find it useful to analyze large portions of its revenue base using traditional price versus volume measurements. As it is difficult to assess our revenue changes from a pure price versus volume standpoint when products are continually evolving, we limit these measurements to our analysis of more static products and service offerings.

Expenses

As an information provider, our most significant expense is labor. Our labor costs include all costs related to our employees, including salaries, bonuses, commissions, benefits, payroll taxes and stock-related compensation. Labor represented approximately 59% of our cost of sales, selling, marketing, general and administrative expenses (operating costs) in 2005 compared to approximately 57% in 2004 and 58% in 2003. No other category of expenses accounted for more than 15% of our operating costs in 2005, 2004 or 2003.

Acquisitions and Dispositions

During 2005, we completed 35 acquisitions for an aggregate cost of less than $0.3 billion with no purchase price of any individual business greater than $75 million. In 2004 and 2003, we completed an aggregate of 84 acquisitions with total cash outlays of approximately $1.5 billion. The reduction in activity was primarily due to our focus in 2005 on integrating the prior year acquisitions. In 2006, we expect that the total amount of cash outlays for acquisitions will range from $0.2 billion to $0.5 billion, net of dispositions.

Our 2005 acquisitions were tactical in nature and primarily related to the purchase of information, products or services that we integrated into our operations to broaden the range of our product and service offerings to better serve our customers. This is the key principle that drives our overall acquisition strategy. As alternatives to the development of new products and services, tactical acquisitions often have the advantages of faster integration into our product and service offerings and cost efficiencies. In 2005, acquired businesses generated approximately half of our total growth in revenues and a lesser portion of the growth in operating profit. Generally, the businesses that we acquired have initially had lower margins than our existing businesses. In 2005, our largest acquisition was Global Securities Information (GSI), a provider of online securities and securities-related information and research services.

In 2004 and 2003, acquired businesses generated a significant portion of the growth in our total revenues and a lesser portion of the growth in our operating profit. In 2004, our largest acquisitions were Information Holdings Inc. (IHI), a provider of intellectual property and regulatory information, for $445 million, net of cash and cash equivalents received, and TradeWeb, an online trading platform for fixed income securities, for $361 million, net of cash received, plus contingent payments of up to $150 million over a three-year period ending in 2007 based upon the achievement of certain growth targets. In 2005, we paid $50 million in contingent consideration associated with the TradeWeb acquisition.

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When integrating acquired businesses, we focus on eliminating cost redundancies and combining the acquired products and services with our existing offerings. We may incur costs, such as severance payments to terminate employees and contract cancellation fees, when we integrate businesses.

In 2005, we decided to sell our scientific and healthcare group’s American Health Consultants business, a medical newsletter publisher and medical education provider. While this business possesses strong brand equity, a loyal customer base and talented employees, it does not provide the type of synergies that strengthen our core integrated information solutions. Results from this business unit have been reclassified to discontinued operations and prior periods have been restated. Other than certain minor investments, there were no dispositions in 2005. During 2003 and 2004, we completed 16 dispositions for aggregate consideration of approximately $1.0 billion. The more significant of these dispositions were the sale of our 20% interest in Bell Globemedia Inc. (BGM) in March 2003 for $279 million, the sale of our healthcare magazines in October 2003 for $135 million and the sale of Thomson Media group in October 2004 for gross proceeds of $350 million. For more information, see the section entitled “Discontinued Operations.”

Seasonality

We typically derive a much greater portion of our operating profit and operating cash flow in the second half of the year as customer buying patterns are concentrated in the second half of the year, particularly in the learning and regulatory markets. Costs are incurred more evenly throughout the year. As a result, our operating margins generally increase as the year progresses. For these reasons, it may not be possible to compare the performance of our businesses quarter to consecutive quarter, and our quarterly results should be considered on the basis of results for the whole year or by comparing results in a quarter with the results in the same quarter of the previous year. While we report results quarterly, we view and manage our company from a longer-term perspective.

USE OF NON-GAAP FINANCIAL MEASURES

In addition to our results reported in accordance with Canadian GAAP, we use non-GAAP financial measures as supplemental indicators of our operating performance and financial position. We use these non-GAAP financial measures internally for comparing actual results from one period to another, as well as for future planning purposes. We have historically reported non-GAAP financial results, as we believe their use provides more insight into our performance. The following discussion defines the measures that we currently use and explains why we believe they are useful measures of our performance, including our ability to generate cash flow:

•ADJUSTED OPERATING PROFIT. Adjusted operating profit is defined as operating profit before amortization of identifiable intangible assets. We use this measure for our segments because we do not consider amortization to be a controllable operating cost for purposes of assessing the current performance of our segments. We also use adjusted operating profit margin, which we define as adjusted operating profit as a percentage of revenues. See the reconciliation of this measure to the most directly comparable Canadian GAAP measure in the section entitled “Reconciliations.”

•ADJUSTED EARNINGS AND ADJUSTED EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS. We measure our earnings attributable to common shares and per share amounts to adjust for non-recurring items, discontinued operations and other items affecting comparability, which we refer to as adjusted earnings from continuing operations and adjusted earnings per common share from continuing operations. We use these measures to assist in comparisons from one period to another. Adjusted earnings per common share from continuing operations do not represent actual earnings per share attributable to shareholders.

In interim periods, we adjust our reported earnings and earnings per common share to reflect a normalized effective tax rate. Specifically, the normalized effective rate is computed as the estimated full-year effective tax rate applied to the consolidated pre-tax income of the interim period. The reported effective tax rate is based on separate annual effective income tax rates for each taxing jurisdiction that are applied to each interim period’s pre-tax income. Because the seasonality of our businesses impacts our geographical mix of profits in interim periods and therefore distorts the reported effective tax rate, we believe that using the

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expected full-year effective tax rate provides a more meaningful comparison among interim periods. The adjustment to normalize the effective tax rate reallocates estimated full-year income taxes between interim periods, but has no effect on full-year income taxes or on cash taxes paid. See the reconciliation of this measure to the most directly comparable Canadian GAAP measure on page 33 and page 41.

•NET DEBT. We measure our net debt, which we define as our total indebtedness, including associated hedging instruments (swaps) on our debt, less cash and cash equivalents. Given that we hedge some of our debt to reduce risk, we include hedging instruments as we believe it provides a better measure of the total obligation associated with our outstanding debt. We reduce gross indebtedness by cash and cash equivalents on the basis that they could be used to pay down debt. See the reconciliation of this measure to the most directly comparable Canadian GAAP measure on page 42.

•FREE CASH FLOW. We evaluate our operating performance based on free cash flow, which we define as net cash provided by operating activities less capital expenditures, other investing activities and dividends paid on our preference shares. We use free cash flow as a performance measure because it represents cash available to repay debt, pay common dividends and fund new acquisitions. See the conciliation of this measure to the most directly comparable Canadian GAAP measure on page 45.

These and related measures do not have any standardized meaning prescribed by Canadian GAAP and, therefore, are unlikely to be comparable with the calculation of similar measures used by other companies. You should not view these measures as alternatives to operating profit, cash flow from operations, net earnings, total debt or other measures of financial performance calculated in accordance with GAAP. We encourage you to review the reconciliations of these non-GAAP financial measures to the most directly comparable Canadian GAAP measure within this management’s discussion and analysis.

We no longer report adjusted EBITDA, but we do report depreciation for each of our market groups. See the section below entitled “Additional Information” for these depreciation amounts.

RESULTS OF OPERATIONS

The following discussion compares our results for the fiscal years ended December 31, 2005, 2004 and 2003 and for the three-month periods ended December 31, 2005 and 2004 and provides analyses of results from continuing operations and discontinued operations.

Basis of Analysis

Our results from continuing operations include the performance of acquired businesses from the date of their purchase and exclude results from operations classified as discontinued. Results from operations that qualify as discontinued operations have been reclassified to that category for all periods presented. Please see the section below entitled “Discontinued Operations” for a discussion of these operations. Segmented results now include the results of all operations in a segment. Previously, segmented results were presented on the basis of ongoing businesses, which excluded disposals. Disposals are businesses sold or held for sale, which did not qualify as discontinued operations. Prior years’ results were reclassified to present disposals within the appropriate market group. In analyzing the results of our operating segments, we measure the performance of existing business and the impact of acquired business and foreign currency translation.

The following table summarizes our consolidated results for the years indicated.

	Year ended December 31
(millions of U.S. dollars, except per share amounts)	2005			2004			2003
Revenues	8,703			8,057			7,391
Operating profit	1,464			1,330			1,162
Operating profit margin	16.8		%	16.5		%	15.7		%
Net earnings(1)	934			1,011			865
Earnings per share attributable to common shares(1)	$	1.42		$	1.54		$	1.34

(1) Results are not directly comparable due to certain one-time items.

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REVENUES. In 2005, revenues grew 8%, comprised almost evenly of contributions from acquired businesses and growth from existing businesses, as foreign currency translation had a minimal impact. Contributions from acquired businesses were primarily related to Information Holdings Inc. (IHI) in our scientific and healthcare group, Capstar and KnowledgeNet in our learning group, and TradeWeb in our financial group. For our existing businesses, revenue growth was exhibited in all four market groups, reflecting customer demand for our integrated solutions and overall growth in the markets we serve. See the analysis of our segment results for further discussions of our revenue growth.

In 2004, revenues grew 7% excluding foreign currency translation. This increase was attributable to both contributions from acquisitions and from growth in existing businesses. The most significant contributions from acquisitions were derived from CCBN and TradeWeb in our financial group and BIOSIS in our scientific and healthcare group.

OPERATING PROFIT. In 2005, the increase in operating profit reflected higher revenues due to contributions from existing and acquired businesses. The operating margin increased slightly as the impact of increased revenues more than offset higher pension and other defined benefit plans expenses, and severance and other charges associated with the outsourcing and reorganization of certain functions within our human resources department. Improvement in our operating margin was tempered by the inclusion in 2004 results of $19 million of insurance recoveries related to September 11, 2001.

Operating profit and related margin growth in 2004 reflected the previously mentioned insurance recoveries, as well as higher revenues from existing businesses. Additionally, operating profits benefited from continued efficiency efforts and, to a lesser extent, contributions from acquisitions and the favorable impact of foreign currency translation compared to 2003.

DEPRECIATION AND AMORTIZATION. Depreciation in 2005 approximated that of 2004 primarily due to the timing and limited growth of capital expenditures. Amortization increased $24 million, or 8%, due to the amortization of newly acquired assets in 2005 and the full-year effect of those acquired in 2004.

Depreciation in 2004 increased $33 million, or 6%, compared to 2003. This increase reflected recent acquisitions and capital expenditures. Amortization increased $7 million, or 3%, compared to 2003, as increases due to the amortization of newly acquired assets were partially offset by decreases arising from the completion of amortization for certain intangible assets acquired in previous years.

NET OTHER EXPENSE/INCOME. Net other expense in 2005 was $28 million, which primarily represented a loss associated with the early redemption of certain debt of $23 million (discussed in the section below entitled “Financial Position”) and a charge of $15 million to reduce the carrying value of one of our equity investments to its fair value, partially offset by income from equity investments and gains from the sale of certain other investments.

In 2004, net other income of $24 million primarily consisted of a $35 million gain on the sale of an investment, the receipt of the second settlement payment of $22 million from Skillsoft PLC and a $14 million gain on the sale of a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by Kenneth R. Thomson, our controlling shareholder (discussed under “Related Party Transactions”). These gains were partially offset by a $53 million loss associated with our early redemption of certain debt securities (discussed in the section entitled “Financial Position”). In 2003, net other income of $61 million primarily consisted of a gain on the sale of our 20% interest in BGM (discussed in the section entitled “Related Party Transactions”) and the receipt of the first $22 million settlement payment from Skillsoft.

NET INTEREST EXPENSE AND OTHER FINANCING COSTS. Our net interest expense and other financing costs in 2005 declined 5% primarily due to the refinancing of certain debt in 2005 and the full-year effect of an earlier refinancing of debt in 2004 (discussed in the section entitled “Financial Position”). Net interest expense and other financing costs in 2004 decreased 7% compared to 2003, which reflected lower average levels of outstanding net debt and lower interest rates.

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INCOME TAXES. Our income tax expense in 2005 represented 23.7% of our earnings from continuing operations before income taxes. This compares with equivalent effective rates of 23.5% in 2004 and 14.9% in 2003. Our effective income tax rate is lower than the Canadian corporate income tax rate of 36%, due principally to the lower tax rates and differing tax rules applicable to certain of our operating and financing subsidiaries outside Canada. Specifically, while we generate revenues in numerous jurisdictions, our tax provision on earnings is computed after taking account of inter company interest and other charges among our subsidiaries resulting from their capital structure and from the various jurisdictions in which operations, technology and content assets are owned. For these reasons, our effective tax rate differs substantially from the Canadian corporate tax rate.

There were certain one-time items that impacted our income tax expense in 2005. In the second quarter of 2005, we released $137 million of contingent income tax liabilities based upon the outcome of certain tax audits of prior year periods. Additionally, in the fourth quarter of 2005, we repatriated a substantial portion of certain of our subsidiaries’ accumulated profits. The repatriation was related to the recapitalization of these subsidiaries, which was effected through inter company financing arrangements. We incurred a one-time tax charge of $125 million in connection with this repatriation, which reduced our cash flow from operations and our net earnings in the fourth quarter by the same amount. Beginning in 2006, this recapitalization is expected to lower our effective tax rate and improve net earnings and cash flow from operations. We expect to fully recoup the one-time tax charge of $125 million by the end of 2007 through lower tax payments with continuing benefits beyond that period. The net effect of both of these one-time tax items was a $12 million reduction in the tax provision for the full year of 2005.

The 2004 income tax provision included a benefit resulting from the release of a valuation allowance of $41 million related to new legislation in the United Kingdom. In 2003, the income tax provision included a benefit of $64 million principally related to the release of tax contingencies in the United Kingdom associated with a favorable tax settlement.

The balance of our deferred tax assets at December 31, 2005 was $1,397 million compared to $1,313 million at December 31, 2004. Our deferred tax assets consist primarily of tax losses and other credit carry forwards, the majority of which can only be utilized against taxable income in Canada. In assessing the likelihood of using our deferred tax assets, we first offset them against deferred tax liabilities. We establish valuation losses for any remaining deferred tax assets that we do not expect to be able to use against deferred tax liabilities or future taxable income. Our valuation allowance against our deferred tax assets at December 31, 2005 was $462 million compared to $408 million at December 31, 2004. The net movement in the valuation allowance from 2004 to 2005 primarily relates to additional Canadian losses sustained in 2005 which we do not anticipate using because we expect to continue to incur losses in Canada.

In 2006, our businesses expect to continue with initiatives to consolidate the ownership of their technology platforms and content and we expect that a proportion of our profits will continue to be taxed at lower rates than the Canadian statutory tax rate. After giving effect to the 2005 recapitalization as well as our ongoing asset consolidation initiatives, we expect our effective tax rate in 2006 will be in the low 20% range. We believe our effective rate will be sustainable. However, our effective tax rate and our cash tax cost depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which we operate. Our ability to maintain a low effective tax rate will be dependent upon such laws and conventions remaining unchanged as well as the geographic mix of our profits. We are not aware of any significant changes in existing laws or conventions at this time that would cause our effective tax rate to increase.

See the section entitled “Contingencies” for further discussion of income tax liabilities.

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EARNINGS ATTRIBUTABLE TO COMMON SHARES AND EARNINGS PER COMMON SHARE. Earnings attributable to common shares were $930 million in 2005 compared to $1,008 million in 2004. Earnings per common share were $1.42 in 2005 compared to $1.54 in 2004. The decreases in reported earnings and earnings per common share were the result of gains on the sales of discontinued operations in 2004 and certain one-time items in both years, which more than offset increases in operating profit in 2005.

Earnings attributable to common shares were $1,008 million in 2004 compared to $877 million in 2003. Earnings per common share were $1.54 in 2004 compared to $1.34 in 2003. The increases in reported earnings and earnings per common share were largely the result of higher operating profit and gains on the sales of discontinued operations.

The results for each of these periods are not directly comparable because of certain one-time items, as well as the variability in discontinued operations due to the timing of dispositions. The following table presents a summary of our earnings and our earnings per common share from continuing operations for the periods indicated, after adjusting for items affecting comparability in each year.

	Year ended December 31
(millions of U.S. dollars, except per common share amounts)	2005			2004			2003
Earnings attributable to common shares	930			1,008			877
Adjustments for one-time items:
Net other expense (income)	28			(24		)	(74		)
Tax on above item	1			10			8
Release of tax credits	(137		)	(41		)	(64		)
Withholding tax on dividend	125			—			—
Net gain on redemption of Series V preference shares	—			—			(21		)
Discontinued operations	(8		)	(155		)	(39		)
Adjusted earnings from continuing operations attributable to common shares	939			798			687
Adjusted earnings per common share from continuing operations	$	1.43		$	1.22		$	1.05

Our adjusted earnings from continuing operations for 2005 increased 18% compared to 2004 largely as a result of higher operating profit stemming from higher revenues, which more than offset the impact of higher pension and other benefit plans expense. Our adjusted earnings in 2004 increased 16% compared to 2003 also as a result of higher operating profits, but additionally reflected benefits from insurance recoveries and stock appreciation rights offset by higher pension and other benefit plans expense and a higher effective tax rate.

Operating Results by Business Segment

See the “Reconciliations” section for a reconciliation of the non-GAAP financial measures to the most directly comparable Canadian GAAP measures.

Thomson Legal & Regulatory

	Year ended December 31
(millions of U.S. dollars)	2005		2004		2003
Revenues	3,491		3,276		3,012
Adjusted operating profit	982		897		809
Adjusted operating profit margin	28.1	%	27.4	%	26.9	%

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2005 v. 2004

Thomson Legal & Regulatory’s financial performance in 2005 reflected a continuation of significant trends from the prior year. Revenues increased 7% comprised of the following:

•approximately 4% due to higher revenues from existing businesses;

•almost 2% from contributions of newly acquired businesses; and

•less than 1% from the favorable impact of foreign currency translation.

Within our existing businesses, growth reflected the strong performance of online services, consisting primarily of Westlaw, Checkpoint and our international online services, which increased 11% over 2004. Revenue from sales of software and services increased 14% reflecting strong growth from FindLaw, tax and accounting software products and acquired companies. These increases were partially offset by a slight decline in CD product revenues as customers continued to migrate to our online offerings. Contributions from acquired businesses reflected the results from 18 acquisitions in 2005. Among our newly acquired businesses were Global Securities Information, Inc., a provider of securities and securities-related information and research services, which will further enhance our online offerings, and Tax Partners, LLC, a tax compliance service firm, which expands our service offerings in the outsourcing solutions market.

In 2005, North American Westlaw revenue experienced growth in all of its major market segments: law firm, corporate, government and academic. Within our North American tax and accounting group, our Checkpoint online service revenue also increased. The revenue increases for both North American Westlaw and Checkpoint were driven by new sales and higher retention. FindLaw revenue increased as a result of new sales performance, as well as the impact of recent acquisitions. Outside of North America, online revenues increased, particularly in Europe, driven by higher customer demand for our solutions.

The growth in adjusted operating profit and its corresponding margin in 2005 resulted primarily from the revenue growth described above. The operating margin increased as the effects of scale in our existing businesses more than offset the impact of lower initial margins for certain acquired businesses.

2004 v. 2003

In 2004, revenues for Thomson Legal & Regulatory increased primarily due to higher revenues from existing businesses, with strong performances by Westlaw, Checkpoint, our international online services, FindLaw and our legal education business. This revenue growth was offset, in part, by a decrease in print and CD products revenues as customers continue to migrate toward our online offerings. Revenue growth was also attributable to newly acquired businesses, principally Thomson Elite, and the favorable impact of foreign currency translation. The growth in adjusted operating profit and improvement in its corresponding margin in 2004 resulted from the higher revenues and impact of improved operating efficiencies.

OUTLOOK

Growth in the overall legal information market remains modest but steady. We expect that customer spending on print and CD products will continue to decline, but will be more than offset by growth in spending for online products and integrated information offerings such as Westlaw Litigator. Law firms are increasing expenditures on talent and practice development, while exploring outsourcing of managed services. Increasing compliance requirements, such as those stemming from the Sarbanes-Oxley Act, have significantly affected the accounting labor market, increasing the demand for compliance information and software and for labor saving and outsourcing solutions. In this environment, we anticipate continued strong demand for our tax and accounting compliance products and our outsourcing solutions.

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Thomson Learning

	Year ended December 31
(millions of U.S. dollars)	2005		2004		2003
Revenues	2,319		2,174		2,052
Adjusted operating profit	350		327		336
Adjusted operating profit margin	15.1	%	15.0	%	16.4	%

2005 v. 2004

Results in 2005 for Thomson Learning reflected the evolving education market and the intense competitive environment. Revenues increased 7% comprised of the following:

•4% from contributions of newly acquired businesses;

•about 2% from higher revenues of existing businesses; and

•less than 1% from the favorable impact of foreign currency translation.

The impact of acquired businesses was primarily due to Capstar and KnowledgeNet, both of which were acquired in the second half of 2004. Additionally, Thomson Learning completed eight acquisitions in 2005 that primarily supplemented its existing Academic offerings. None of the 2005 acquisitions were individually significant.

In the Academic group, higher sales of custom products and new textbook editions, particularly in business and economics, resulted in increased revenues within our domestic higher education businesses. Growth in these revenues was tempered by higher returns as students continued to seek alternate sources for their course materials to address pricing concerns. To minimize the impact of supply from alternate sources, our higher education businesses continued to focus on shifting demand for older editions to customized or specialized products and services only available from the original publisher. Revenues from our library reference business increased slightly compared to the prior year as increased sales of electronic products more than offset a decline in sales for print offerings. The migration of collections to electronic products reflected evolving customer preferences toward electronic versions and continuing government budget constraints, which limited the funds that libraries have to spend on multiple media formats of reference material. We are beginning to see more deferred revenue in our learning group arising from a change in our sales mix toward more electronic products, which results in the recognition of revenue over time rather than all at the time of sale.

Revenues for our Lifelong Learning group increased primarily due to the impact of acquired businesses, as well as growth in our English language training business and in the professional testing market. These increases were partially offset by the loss of revenues from a significant government testing contract in the United Kingdom that ended in September 2004 and lower revenues from the information technology testing market. The competitive environment and ongoing corporate budget constraints in the corporate e-training and IT markets continued to affect our businesses in these segments.

The increase in adjusted operating profit and the slight improvement in its corresponding margin largely reflected the increased revenues described above. Profit margins were impacted by the loss of the government testing contract in the United Kingdom discussed above and higher performance-related expenses compared to the prior year.

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2004 v. 2003

Revenues for Thomson Learning increased in 2004 compared to the prior year due to both acquired businesses and growth from existing businesses, as well as the favorable impact of foreign currency translation.

In the Academic group, revenues increased primarily due to higher sales in our vocational and career markets. In higher education, overall textbook sales increased largely as a result of custom product offerings. Lifelong Learning’s revenues increased primarily due to growth in government and professional testing offerings, sales in international markets, driven by growth in our English language training business, and the impact of acquired businesses. Growth was moderated by the expiration in September 2004 of the government testing contract in the United Kingdom discussed above.

In 2004, adjusted operating profit and the related margins were impacted by restructuring costs of $9 million which were recorded in the fourth quarter and were associated with consolidating operations of existing and acquired businesses. Additionally, comparisons with the prior year and the fourth quarter were affected by net credits of $11 million recorded in the fourth quarter of 2003. The net credits of $11 million were comprised of a $27 million benefit largely related to the reversal of incentive accruals, partially offset by $16 million of charges related to severance and lease termination costs. Excluding these items, the adjusted operating profit margin declined slightly due to additional product and market investments and the impact of acquired businesses that have lower initial margins.

OUTLOOK

The importance of lifelong education in a global knowledge-based economy is increasingly recognized, and we expect to benefit from this trend. We expect that the growing acceptance of blended (online and classroom) learning will transform the learning market and, given our content, technology and financial resources, place us in a strong position to deliver high-value solutions designed to meet customer needs. For example, we are currently collaborating with professors, students and institutions to design, build and deliver new instructional solutions that leverage our content, media assets, test banks, applications and expertise, which we expect will improve instructors’ productivity and students’ learning efficiency. However, in the short term, we anticipate that tough competition in the corporate training market will depress the prices of our offerings in that market. Our focus on custom publishing will become even more important as the Internet has changed the dynamics of the higher education market by creating transparency of the used book market and price sensitivity. Additionally, as electronic offerings continue to grow as a percentage of total revenues, we expect that, over time, the dramatic seasonal swings in our revenues from quarter to quarter will lessen. However, since revenues from electronic offerings are generally recognized in equal installments over a period of time, as opposed to all at once on the sale of a print product, our reported revenue growth may be tempered as this transition occurs.

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Thomson Financial

	Year ended December 31
(millions of U.S. dollars)	2005		2004		2003
Revenues	1,897		1,738		1,526
Adjusted operating profit	334		294		230
Adjusted operating profit margin	17.6	%	16.9	%	15.1	%

2005 v. 2004

Results in 2005 for Thomson Financial reflected improving underlying market conditions and continued success of key offerings. Revenues in 2005 increased 9% due equally to higher revenues from existing businesses and contributions from newly acquired businesses. The effect of foreign currency translation did not impact overall results.

Revenues from existing businesses increased as a result of higher usage and transaction revenues. In particular, TradeWeb revenues increased significantly due to higher volumes for its online fixed income marketplaces as a result of greater online trading activity and the introduction of new online markets, including tri-party repurchase agreements, Euro- and U.S. dollar-denominated interest rate swaps, and default swap index products. Thomson ONE workstations increased 45% in 2005 due to user migration from legacy products and new client sales. Increases in revenues from existing businesses were experienced in all geographic regions, including Europe, which was aided by improving market conditions. Contributions from acquired businesses primarily related to the full year effect of TradeWeb and CCBN, which were both acquired in the first half of 2004.

Adjusted operating profit increased due to the increase in revenues and lower depreciation expense due to lower capital spending. Included in adjusted operating profit in 2004 were insurance recoveries of $19 million related to September 11, 2001. Excluding these recoveries, the increase in adjusted operating profit and improvement in its corresponding margin would have been more pronounced.

2004 v. 2003

Revenues in 2004 for Thomson Financial increased primarily due to the impact of acquired businesses, including TradeWeb and CCBN, but also reflected growth from existing businesses and the favorable impact of foreign currency translation. Revenues from existing businesses in the United States increased in 2004 as a result of new sales and higher usage and transaction revenues. Thomson ONE workstations increased 56% in 2004, due to user migration from legacy products and new client sales. In 2004, European revenues from existing businesses declined compared with the prior year due to difficult market conditions. Many of our customers responded to these difficult market conditions by tightening their capital spending and budgets, which in turn led to some product cancellations and pressure on our pricing.

Adjusted operating profit increased due to the increase in revenues. Included in adjusted operating profit were insurance recoveries related to September 11, 2001 of $19 million in 2004 and $4 million in 2003. Excluding these insurance recoveries from both 2004 and 2003, the adjusted operating margin increased as a result of lower depreciation, as a percentage of revenues, due to the timing of capital spending.

OUTLOOK

The general trend towards privatization, market liberalization and the increasing sophistication of financial markets continues globally. In 2006, we anticipate that these trends will benefit Asia, in particular, followed by North America and Europe. In the financial services market, we continue to see increasingly complex investment and trading strategies, new types of investment instruments, and regulatory pressures. Given these expected market conditions and trends, we anticipate revenue growth for existing businesses to be driven by the continued rollout of the Thomson ONE platform and further asset class expansion for TradeWeb.

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Thomson Scientific & Healthcare

	Year ended December 31
(millions of U.S. dollars)	2005		2004		2003
Revenues	1,018		893		826
Adjusted operating profit	235		195		162
Adjusted operating profit margin	23.1	%	21.8	%	19.6	%

2005 v. 2004

The financial performance for Thomson Scientific & Healthcare in 2005 reflected contributions from prior year investments and further expansion of our information solutions. Revenues increased 14% comprised of the following:

•11% from contributions of newly acquired businesses;

•over 3% due to higher revenues from existing businesses; and

•no impact from foreign currency translation.

The increases in revenue attributable to acquired businesses primarily related to IHI, which was acquired in November 2004. Additionally, Thomson Scientific & Healthcare completed three small, tactical acquisitions in 2005 that further enhanced its Thomson Pharma and healthcare decision support offerings. Growth in revenues from existing businesses was primarily a result of higher customer spending for healthcare decision support products, which help customers manage healthcare costs. Additionally, there were higher subscription revenues for ISI Web of Science and the Micromedex electronic product portfolio due to new sales and strong retention rates. These increases were reflective of continuing customer demand for our workflow solutions. Revenues from existing businesses were tempered by the unfavorable effect of changes in foreign currency exchange rates on transactions involving U.S. dollar revenues within the group’s European businesses.

Adjusted operating profit and the corresponding margin increased in 2005 compared to 2004 due to higher revenues and the benefits from integration efforts. The majority of the integration benefits were derived from our IHI acquisition. During 2005, relative to IHI, we successfully completed the consolidation of several offices, integrated back office services, consolidated and optimized sales forces for certain businesses, and consolidated technology platforms. The efficiencies and cost savings resulting from these actions are expected to be reflected in our operating margin in future periods.

2004 v. 2003

Revenues for Thomson Scientific & Healthcare in 2004 increased due to higher revenues from existing businesses and contributions from acquired companies, primarily BIOSIS, a provider of databases and services for life sciences research acquired in January 2004. Revenues also benefited from a favorable impact from foreign currency translation. Revenue growth from existing business was primarily due to higher subscription revenues for the ISI Web of Science and the Micromedex electronic product portfolio, as well as increased customer spending for healthcare decision support products. The increases in adjusted operating profit and its corresponding margin compared to the prior year reflected the higher 2004 revenues and effective integration and cost management efforts.

OUTLOOK

We believe that demand for scientific and healthcare information solutions will continue to grow due to the ongoing investments in scientific research and development in many technology-driven sectors, especially life sciences. This demand is especially high for solutions that help manage costs and facilitate effective and efficient decision support at the point-of-care. We, therefore, anticipate continued growth in our electronic information solutions and decision support products.

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Corporate and Other

2005 v. 2004

Corporate and other expenses were $128 million in 2005 compared to $98 million in 2004. The increase was primarily due to higher pension and other defined benefit plans expense and severance and other charges associated with the outsourcing and reorganization of certain functions within our human resources department. See the section entitled “Employee Future Benefits” for further discussion of our pension and other defined benefit plans expense.

2004 v. 2003

Corporate and other expenses in 2004 were virtually unchanged from 2003. Increases in expenses for pensions and other defined benefit plans, as well as other corporate expenses, were offset by an accrual reversal related to insurance claims and a benefit associated with stock appreciation rights.

OUTLOOK

We anticipate corporate and other expenses to increase in 2006. Most notably, we expect to incur greater expense associated with our pension and defined benefit plans due to greater amortization of actuarial losses.

Discontinued Operations

The following businesses, along with one other small business from Thomson Learning, which was sold in June 2003, were classified as discontinued operations within the consolidated financial statements for the years ended December 31, 2005, 2004 and 2003. None of these businesses was considered fundamental to our integrated information offerings.

In December 2005, our board of directors approved our plan to dispose of American Health Consultants, a medical newsletter publisher and medical education provider. We have reclassified the results of this business to discontinued operations. Its results had previously been included within our Thomson Scientific & Healthcare segment.

In 2005, discontinued operations included adjustments to tax liabilities previously established for Thomson Newspapers, which we sold in 2000 and 2001, and Thomson Media which we sold in 2004.

In November 2004, we sold the Thomson Media group, a provider of largely print-based information products focused on the banking, financial services and related technology markets for gross proceeds of $350 million. We recorded a post-tax gain of $94 million in 2004.

In the second quarter of 2004, we sold Sheshunoff Information Services Inc., a provider of critical data, compliance and management tools to financial institutions, which had been managed within Thomson Media. Based on the status of negotiations at March 31, 2004, we recorded a pre-tax impairment charge of $6 million relating to identifiable intangible assets in the first quarter of 2004. We recorded a post-tax gain of $6 million in 2004 related to the completion of the sale.

In February 2004, we sold DBM, a provider of human resource solutions, which had been managed within Thomson Learning. We recorded a post-tax gain of $7 million in the first quarter of 2004 on this sale.

In October 2003, we sold our portfolio of healthcare magazines for $135 million and recorded the related post-tax gain of $63 million in the fourth quarter of 2003. The magazines had previously been managed within our scientific and healthcare group.

For more information on discontinued operations, see note 6 to our consolidated financial statements.

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Return on Invested Capital

We measure our return on invested capital (ROIC) to assess, over the long-term, our ability to create value for our shareholders. Our goal is to show continuous improvement in this return by efficiently and effectively utilizing our capital to invest in areas with high returns and realizing operating efficiencies to further enhance our profitability. ROIC is calculated as the ratio of our adjusted operating profit (including discontinued operations), less taxes paid, to our average invested capital (see the “Reconciliations” section for the calculation and a reconciliation to the most directly comparable Canadian GAAP measures). For 2005, our ROIC was 7.8%, a slight increase from 7.6% for 2004 and 7.4% for 2003. As assets acquired are recorded at their fair values, this has had the effect of increasing the recorded value of our asset base to be much closer to its fair value, thereby tempering our return. We continue to focus on driving efficiency, increasing our operating profit margin and, in particular, improving free cash flow. We believe that success in these areas is indicative of the long-term capability to improve our ROIC. Since 2001, we have increased our operating margin from 11.6% to 16.8% and grown free cash flow at a compounded rate of almost 20% to $1.2 billion in 2005.

Review of Fourth Quarter Results

The following table summarizes our consolidated results for the fourth quarter of 2005 and 2004.

	Quarter ended December 31
(millions of U.S. dollars)	2005			2004
Revenues	2,428			2,313
Operating profit	555			488
Operating profit margin	22.9		%	21.1		%
Net earnings	250			438
Earnings per share attributable to common shares	$	0.38		$	0.67

REVENUES. The 5% increase in revenues for the three-month period ended December 31, 2005 was comprised of the following:

•slightly more than 4% from growth of existing businesses;

•almost 2% from contributions of acquired businesses; and

•approximately 1% decrease due to the unfavorable impact of foreign currency translation.

The growth from existing businesses was contributed by all four market groups. Notably, the legal and regulatory group’s online products and the scientific and healthcare group’s hospital and decision support solutions exhibited continued strong performance. Our financial group benefited from increased transaction volumes. Increased revenues for our learning group were a result of higher international sales as domestic higher education revenues were consistent with that of 2004. Contributions from acquired businesses were primarily related to Information Holdings Inc. (IHI) in our scientific and healthcare group.

OPERATING PROFIT. Operating profit for the three months ended December 31, 2005 increased 14%. This increase was primarily due to the increase in revenues. The corresponding operating margin also increased as the benefits of scale were realized. Additionally, the operating margin benefited as there were certain restructuring costs incurred in the comparable 2004 period in our learning group that did not repeat in 2005.

DEPRECIATION AND AMORTIZATION. Depreciation for the three months ended December 31, 2005 decreased $6 million, or 4%, compared to the same period in 2004 due to the timing of capital expenditures. Amortization for the three months ended December 31, 2005 increased $1 million, or 1%, compared to the 2004 period reflecting the expense of newly acquired intangible assets.

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NET OTHER EXPENSE. Net other expense for the three-month period ended December 31, 2005 was $14 million. The expense primarily related to a charge to write down the carrying value of an equity investment to its fair value. The decline in fair value was reflective of our diminished expectations of future growth for our investee. In the fourth quarter of 2004, net other expense was $3 million. The 2004 amount comprised primarily a $35 million gain on the sale of an investment, as well as a $14 million gain on the sale of a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by Kenneth R. Thomson (see further discussion under “Related Party Transactions”). These gains were offset by a $53 million loss associated with the early redemption of certain debt (discussed in the section entitled “Financial Position”).

NET INTEREST EXPENSE AND OTHER FINANCING COSTS. Our net interest expense and other financing costs for the three-month period ended December 31, 2005 declined 8% compared to the same period in 2004 primarily as a result of lower interest rates on our debt due to our refinancings of certain debt in 2005 and 2004 (discussed in the section entitled “Financial Position”).

INCOME TAXES. Income taxes for the three-month period ended December 31, 2005 increased significantly compared to the same period due to our repatriation of a substantial portion of some of our subsidiaries’ accumulated profits. The repatriation was related to the recapitalization of these subsidiaries, which was affected through intercompany financing arrangements. We incurred a one-time tax charge of $125 million in connection with this repatriation. Income taxes for both periods in the current and prior year reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. Because the seasonality in our businesses impacts our geographic mix of pre-tax profits and losses in interim periods and, therefore, distorts our reported tax rate, our effective tax rate for interim periods is not indicative of our effective tax rate for the full-year.

EARNINGS ATTRIBUTABLE TO COMMON SHARES AND EARNINGS PER COMMON SHARE. Earnings attributable to common shares were $249 million for the three months ended December 31, 2005 compared to $437 million in the same period in 2004. Earnings per common share were $0.38 in the three months ended December 31, 2005 compared to $0.67 in the comparable period in 2004. The decreases in earnings and earnings per common share were primarily due to higher tax expense due to a one-time charge associated with the repatriation of certain earnings and the recognition of gains within discontinued operations in 2004. The results for the three months ended December 31, 2005 and 2004 are not directly comparable because of certain one-time items, the impacts from accounting for income taxes in interim periods, and the variability in discontinued operations due to the timing of dispositions.

The following table presents a summary of our earnings and our earnings per common share from continuing operations for the periods indicated, after adjusting for items affecting comparability in both years.

	Quarter ended December 31
(millions of U.S. dollars, except per common share amounts)	2005		2004
Earnings attributable to common shares	249		437
Adjustments for one-time items:
Net other expense	14		3
Tax on above item	—		(1		)
Release of tax credits	—		(6		)
Withholding tax on dividend	125		—
Interim period effective tax rate normalization	9		14
Discontinued operations	5		(129		)
Adjusted earnings from continuing operations attributable to common shares	402		318
Adjusted earnings per common share from continuing operations	$	0.62	$	0.49

On a comparable basis, our adjusted earnings from continuing operations for the fourth quarter of 2005 improved over 2004 due primarily to higher profits, lower interest expense and a lower effective tax rate resulting from the 2005 recapitalization of certain subsidiaries through intercompany financing arrangements.

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LIQUIDITY AND CAPITAL RESOURCES

Financial Position

At December 31, 2005, our total assets were $19,436 million, which represented a 1% decrease from the total of $19,645 million at December 31, 2004. This decrease was primarily due to the impact of foreign currency translation and the effect of depreciation and amortization, which more than offset increases in assets related to newly acquired intangible assets and capital expenditures.

Our total assets by market group as of December 31, 2005 and 2004 were as follows:

2005 ASSETS BY MARKET GROUP

	Year ended December 31
(millions of U.S. dollars)	2005	2004
Thomson Legal & Regulatory	7,388	7,316
Thomson Learning	5,477	5,549
Thomson Financial	3,346	3,518
Thomson Scientific & Healthcare	1,769	1,780
Corporate and other	1,440	1,464
Discontinued operations	16	18
Total assets	19,436	19,645

The following table presents comparative information related to net debt, shareholders’ equity and the ratio of net debt to shareholders’ equity:

	As at December 31
(millions of U.S. dollars)	2005		2004
Short-term indebtedness	202		7
Current portion of long-term debt	98		295
Long-term debt	3,983		4,013
Total debt	4,283		4,315
Swaps	(193	)	(192	)
Total debt after swaps	4,090		4,123
Less: cash and cash equivalents	(407	)	(405	)
Net debt	3,683		3,718
Shareholders’ equity	9,963		9,962
Net debt/equity ratio	0.37:1		0.37:1

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The following table displays the changes in our shareholders’ equity for the year ended December 31, 2005:

(millions of U.S. dollars)
Balance at December 31, 2004	9,962
Earnings attributable to common shares for the year ended December 31, 2005	930
Additions to paid in capital related to stock compensation plans	23
Common share issuances	22
Repurchases of common shares – normal course issuer bid	(256	)
Common share dividend payments	(505	)
Change in cumulative translation adjustment	(213	)
Balance at December 31, 2005	9,963

The following table sets forth the ratings that we have received from rating agencies in respect of our outstanding securities.

	Moody’s	Standard & Poor’s	Dominion Bond Rating Service
Long-term debt	A3	A-	A (low	)
Commercial paper	—	—	R-1 (low	)
Trend/Outlook	Stable	Stable	Stable

The maturity dates for our long-term debt are well balanced with no significant concentration in any one year. You should be aware that a rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organization. We cannot assure you that our credit ratings will not be lowered in the future or that rating agencies will not issue adverse commentaries regarding our securities.

At December 31, 2005, the carrying amounts of our total current liabilities exceeded the carrying amounts of our total current assets because current liabilities include deferred revenue. Deferred revenue does not represent a cash obligation, however, but rather an obligation to perform services or deliver products in the future. The costs to fulfill these obligations are included in our operating costs.

Normal Course Issuer Bid

In May 2005, we initiated a normal course issuer bid to repurchase up to 15 million of our common shares. The bid will terminate on the earlier of May 4, 2006 or the date that we complete our purchases. From time to time, when we do not possess material non-public information about ourselves or our securities, we may enter into a pre-defined plan with our broker to allow for the repurchase of shares at times when we ordinarily would not be active in the market due to our own internal trading blackout periods and insider trading rules. Any such plans entered into with our broker will be adopted in accordance with the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934 and applicable Canadian securities laws.

The following summarizes our repurchases through December 31, 2005.

Three-month period ended	Shares repurchased	Average price per share		Number of shares available for repurchase
June 30, 2005	1,350,000	$	33.58
September 30, 2005	2,250,000	$	37.01
December 31, 2005	3,649,400	$	34.97
Total	7,249,400	$	35.35	7,750,600

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Employee Stock Purchase Plan

In October 2005, our eligible U.S. employees began participating in our new employee stock purchase plan (ESPP). Under the ESPP, participating employees may authorize payroll deductions of between 1% and 10% of their eligible compensation during a quarter, with a maximum of $21,250 for a year, to purchase newly issued shares. Using accumulated payroll deductions, participating employees purchase our common shares at a 15% discount to the New York Stock Exchange closing price on the last business day of a quarter. The discount, which amounted to $1 million in 2005, represents compensation expense for our company. In January 2006, we issued 189,176 common shares in connection with the fourth quarter 2005 employee deductions.

Cash Flow

Our principal sources of liquidity are cash provided by our operations, borrowings under our revolving bank credit facilities and our commercial paper program and the issuance of public debt. Our principal uses of cash have been to finance working capital and debt servicing costs, repay debt, and finance dividend payments, capital expenditures and acquisitions. Additionally, as discussed in the section entitled “Normal Course Issuer Bid,” we also used our cash to repurchase outstanding common shares in open market transactions.

OPERATING ACTIVITIES. Cash provided by our operating activities in 2005 was $1,879 million compared to $1,808 million for 2004. The change primarily reflected the increase in operating profit from 2004 to 2005 and improvements in the use of working capital, which more than offset a $125 million withholding tax payment associated with the repatriation of certain earnings. The use of working capital improved primarily due to company-wide accounts receivable collection efforts and the favorable timing of payments for normal operating expenses. In order to maximize our cash flow, we continue to focus on limiting the days outstanding of our accounts receivable balance and lengthening the payment terms of our vendors.

INVESTING ACTIVITIES. Cash used in our investing activities in 2005 was $1,071 million compared to $1,463 million for 2004. The decreased use of cash in 2005 was attributable to reduced acquisition spending. In 2004, spending on acquisitions included Information Holdings Inc. for $445 million and TradeWeb for $361 million. These outlays in 2004 were partially offset by an increase in proceeds from the sale of discontinued operations, notably our sale of the Thomson Media group for gross proceeds of $350 million. Results for 2005 included tax payments of $105 million associated with our sale of Thomson Media in 2004.

Capital expenditures in 2005 increased 4% to $642 million from $619 million in 2004. This represented 7.4% and 7.7% of revenues in 2005 and 2004, respectively. Higher capital expenditures in 2005 were incurred primarily at our legal and regulatory and learning groups, and primarily related to initiatives to standardize technology platforms across businesses.

The majority of our capital expenditures is focused on technology-related investments. We make significant investments in technology because it is essential to providing integrated information solutions to our customers and because we intend to maintain the significant competitive advantage we believe we have in this area. Our technology expenditures include spending on computer hardware, software, electronic systems, telecommunications infrastructure and digitization of content. In 2005, approximately 68% of our total capital expenditures was for technology-related investments. Although we can give no assurance that investments in technology will result in an increase in our revenues or a decrease in our operating costs, we expect our technology-related investments to continue at a significant level. We also include spending to create the initial version of a textbook or other media (“pre-publication costs”) within capital expenditures. This spending declined from $120 million in 2004 to $110 million in 2005 as a result of targeted efficiency efforts.

We expect our capital expenditures to increase in 2006, but decline as a percentage of revenues as we focus on capital efficiency. We will continue to invest in product-related initiatives and to migrate certain online legal and regulatory, learning and financial services onto unified technology platforms.

FINANCING ACTIVITIES. Cash used in our financing activities was $798 million for the year ended December 31, 2005 compared to $629 million for the year ended December 31, 2004. The increased use of cash largely reflected our repurchase of common shares (see “Normal Course Issuer Bid” above) and higher dividend payments in 2005.

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The following table sets forth our common share dividend activity.

	Year ended December 31
(millions of U.S. dollars)	2005		2004
Dividends declared	517		495
Dividends reinvested	(12	)	(11	)
Dividends paid	505		484

The following describes our significant financing activities from each year.

In the third quarter of 2005, we completed the early redemption of US$75 million of 7.62% privately placed notes and Cdn$400 million of 6.90% medium-term notes and settled an associated currency swap. We recorded a loss of US$23 million as a result of these redemptions, primarily related to early redemption premiums and non-cash write-offs of deferred costs. We primarily financed these redemptions with the net proceeds of an offering of US$400 million of 5.50% debentures due 2035 that we completed in August 2005. Completing these transactions allowed us to lock in historically low interest rates for a 30 year period.

In addition to the early redemptions discussed above, in December and September 2005, we also repaid US$50 million and US$75 million, respectively, of privately placed notes. In March 2005, we repaid $125 million of floating rate notes.

In November 2004, we redeemed Cdn$1.2 billion (US$0.8 billion) of debt securities and settled all associated currency and interest rate swaps. A loss of $53 million was recorded as a result of these redemptions, primarily related to required premiums paid for early extinguishment and non-cash write-offs of deferred costs. These redemptions were principally financed with two debt offerings that we also completed in November 2004. The offerings included Cdn$300 million of 4.35% notes due December 1, 2009 and Cdn$600 million of 5.20% notes due December 1, 2014. We entered into a swap for the 4.35% notes that converted the obligation to US$246 million at a fixed interest rate of 3.92%. We also entered into three combination currency and interest rate swaps for the 5.20% notes to convert the obligation to US$492 million. The US$492 million obligation pays interest at a fixed rate of 4.88% on US$246 million, 4.75% on US$123 million and a floating rate of interest on the remaining US$123 million.

In July 2004, we repaid Cdn$250 million of 9.15% notes for US$182 million, and repaid US$150 million of private placement debt.

We completed two long-term debt offerings in the second quarter of 2004. In May 2004, we completed an offering of US$250 million of 4.75% global notes due 2010. In June 2004, we completed an offering of Cdn$250 million of 4.50% notes due 2009. We entered into currency swaps to convert the obligation to US$184 million at a floating rate of interest. The net proceeds of $432 million from these offerings were used to repay other indebtedness and for other general corporate purposes.

FREE CASH FLOW. The following table sets forth a calculation of our free cash flow for 2005 and 2004:

	Year ended December 31
(millions of U.S. dollars)	2005		2004
Net cash provided by operating activities	1,879		1,808
Capital expenditures	(642	)	(619	)
Other investing activities	(39	)	(60	)
Dividends paid on preference shares	(4	)	(3	)
Capital expenditures of discontinued operations	—		(3	)
Free cash flow	1,194		1,123

Our free cash flow for 2005 was reduced by a $125 million withholding tax payment associated with the repatriation of certain earnings, which was more than offset by benefits from increased operating profit and working capital improvements.

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CREDIT FACILITIES AND COMMERCIAL PAPER PROGRAM. As of December 31, 2005, we maintained revolving unsecured credit facilities of $1.6 billion and a commercial paper program authorized to issue up to Cdn$1.0 billion. Though not contractually required, we view our borrowings under our commercial paper program as a reduction of the amount available to us under our credit facilities. At December 31, 2005, our credit lines and related activity were as follows:

(millions of U.S. dollars)	Credit lines	Amount drawn		Commercial paper outstanding		Lines available
	1,600	(62	)	(167	)	1,371

In March 2005, we extended the multi-year facility maturities to March 2010, increased the aggregate amount of these facilities to $1.6 billion and terminated our 364-day facilities. Our facilities are structured such that, if our long-term debt rating was downgraded by Moody’s or Standard & Poor’s, our facility fee and borrowing costs under our existing multi-year credit facilities may increase, although availability would be unaffected. Conversely, an upgrade in our ratings may reduce our facility fees and borrowing costs.

For the foreseeable future, we believe that cash from our operations and available credit facilities are sufficient to fund our future cash dividends, debt service, projected capital expenditures, acquisitions that we pursue in the normal course of business and share repurchases.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The following table presents a summary of our long-term debt and related currency swap instruments, as well as our off-balance sheet contractual obligations as of December 31, 2005 for the years indicated:

(millions of U.S. dollars)	2006	2007		2008	2009		2010	Thereafter		Total
Long-term debt	98	278		436	674		385	2,210		4,081
Currency swap instruments	—	(36	)	—	(43	)	—	(114	)	(193	)
Hedged debt	98	242		436	631		385	2,096		3,888
Operating lease payments	193	160		119	97		81	303		953
Unconditional purchase obligations	120	87		19	14		12	1		253
Total	411	489		574	742		478	2,400		5,094

We have entered into operating leases in the ordinary course of business, primarily for real property and equipment. Payments for these leases are contractual obligations as scheduled per each agreement. With certain leases, we guarantee a portion of the residual value loss, if any, incurred by the lessors in disposing of the assets, or to restore a property to a specified condition after completion of the lease period. The liability associated with these restorations is recorded on our consolidated balance sheet. With certain real property leases, we guarantee the rental obligations of some of our subsidiaries that are tenants. We believe, based upon current facts and circumstances, that a material payment pursuant to such guarantees is remote.

We have various unconditional purchase obligations. These obligations are for materials, supplies and services incidental to the ordinary conduct of business.

We have obligations to pay additional consideration for prior acquisitions, typically based upon performance measures contractually agreed to at the time of purchase. In connection with the acquisition of TradeWeb in 2004, we are obligated for contingent consideration up to $100 million over the next two years if certain performance measures are achieved. The contingent consideration associated with TradeWeb is the largest for which we may become liable. We do not believe that additional payments in connection with other transactions would have a material impact on our financial statements.

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In certain disposition agreements, we guarantee to the purchaser the recoverability of certain assets or limits on certain liabilities. We believe, based upon current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

We guarantee certain obligations of our subsidiaries, including borrowings by our subsidiaries under our revolving credit facilities. These guarantees generally require that we maintain a minimum amount of share capital and retained earnings and that our net debt-to- equity ratio not exceed 2.0:1.

Other than as described above, we do not engage in any off-balance sheet financing arrangements. In particular, we do not have any interests in unconsolidated special-purpose or structured finance entities.

Contingencies

LAWSUITS AND LEGAL CLAIMS. We are a defendant in two separate class action lawsuits involving our BAR/BRI business, which is part of Thomson Legal & Regulatory. Each alleges violations of U.S. federal antitrust laws. The plaintiff in Park v. The Thomson Corporation and Thomson Legal & Regulatory Inc., which was filed in the U.S. District Court for the Southern District of New York, alleges that BAR/BRI has illegally leveraged its market position in state-specific bar examination preparation courses into multi-state courses and that an unlawful tying arrangement exists, which should be remedied, in part, by restructuring BAR/BRI’s review courses into separate state-specific courses and multi-state courses. The plaintiff in Rodriguez v. West Publishing Corp. and Kaplan Inc., which was filed in the U.S. District Court for the Central District of California, alleges, among other things, that our company and Kaplan Inc. (a subsidiary of The Washington Post Company) unlawfully agreed in 1997 to divide markets and not compete against one another. Discovery proceedings are underway in both lawsuits. We intend to defend ourselves vigorously in both cases.

As previously disclosed, in October 2004, Thomson Financial received a subpoena from the U.S. Securities and Exchange Commission (SEC) for certain documents related to the operations of its Capital Markets Intelligence (CMI) business. CMI is one of several companies providing market intelligence services. CMI collects stock ownership data solely as an appointed agent of its public company clients seeking a better understanding of their institutional shareholder base. We are cooperating fully with the SEC. In 2005, approximately $35 million of our financial group’s CMI revenues were related to the identification of institutional investors for its clients.

Also as previously disclosed, in January 2005, we became aware of an inquiry by the Serious Fraud Office in the United Kingdom regarding the refund practices relating to certain duplicate subscription payments made by some of our customers in our Sweet & Maxwell and Gee businesses in the United Kingdom. We are continuing to cooperate fully with the authorities in their inquiry.

In addition to the matters described above, our company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against our company, including those described above, is subject to future resolution, including the uncertainties of litigation. Based on information currently known by us and after consultation with outside legal counsel, our management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on our financial condition, taken as a whole.

TAXES. We maintain a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled and we regularly assess the adequacy of this liability. We record liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. We reverse contingencies to income in the period when management assesses that they are no longer required or when they become no longer required as a result of statute or resolution through the normal tax audit process. Our contingency reserves principally represent liabilities for the years 2000 to 2005. It is anticipated that these reserves will either result in a cash payment or be reversed to income between 2006 and 2009.

In the normal course of business, we enter into numerous intercompany transactions related to the sharing of data and technology. The tax rules governing such transactions are complex and depend on numerous assumptions. At this time, we believe that it is not probable that any such transactions will result in additional tax liabilities, and therefore we have not established contingencies related to these items. However, because of the volume and complexity of such transactions, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities.

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Market Risks

Our consolidated financial statements are expressed in U.S. dollars but a portion of our business is conducted in currencies other than U.S. dollars. Changes in the exchange rates for such currencies into U.S. dollars can increase or decrease our revenues, earnings and the carrying values of our assets and liabilities in our consolidated balance sheet. Changes in exchange rates between 2004 and 2005 increased our revenues by less than 1%. The translation effects of changes in exchange rates in our consolidated balance sheet are recorded within the cumulative translation adjustment component of our shareholders’ equity. In 2005, we recorded cumulative translation losses of $213 million, reflecting changes in exchange rates of various currencies compared to the U.S. dollar.

We use derivative instruments only to reduce our foreign currency and interest rate exposures. In particular, when we borrow money in currencies other than the U.S. dollar, we generally enter into currency swap arrangements to effectively convert our obligations into U.S. dollars. All such swap arrangements are entered into only with counterparties that are investment-grade financial institutions. At December 31, 2005, 97% of our indebtedness was denominated in U.S. dollars or had been swapped into U.S. dollar obligations.

At December 31, 2005, after taking into account swap agreements, 81% of our total debt was at fixed rates of interest and the remainder was at floating rates of interest. Based upon these levels, a 100 basis point change in floating interest rates would increase or decrease our full-year interest expense by approximately $8 million.

Set out below are the U.S. dollar equivalents of our local currency revenues and operating profit for the year ended December 31, 2005. Based on our 2005 results of operations, a 10% change in the average exchange rate for each of these currencies into U.S. dollars would increase or decrease our full-year revenues and operating profit by the following amounts:

(millions of U.S. dollars)

Currency	Revenues as reported	Impact on revenues	Operating profit as reported	Impact on operating profit
U.S. dollar	6,955	—	1,293	—
British pound sterling	718	72	37	4
Canadian dollar	299	30	34	3
Euro	256	26	54	5
Australian dollar	179	18	14	1
Other	296	30	32	3
Total	8,703	176	1,464	16

In addition to exposing us to changes in foreign currency exchange rates and interest rates, operating in foreign countries subjects us to inherent risks in doing business in certain jurisdictions outside North America. These include difficulties in penetrating new markets, exposure to varying legal standards in other jurisdictions and the potential instability of local economies and governments.

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2006 OUTLOOK

The information in this section is forward-looking and should be read in conjunction with the sections below entitled “Forward-Looking Statements” and “Material Assumptions.”

Operational

Among our key operational priorities for 2006 is to continue to focus on our front-end customer strategy and better understand our customers’ workflow needs.

We also will continue to focus on improving our return on invested capital. We will look to optimize our portfolio to ensure that we are investing in our parts of our business that offer the greatest opportunities to drive growth and returns. We will also look to optimize our internal infrastructure and assets by reducing redundant functions and systems across our company, increasing our presence in low-cost locations and deploying common platforms for content production and delivery.

Financial

We expect full-year 2006 revenue growth to be in line with our long-term target of 7% to 9%, excluding the effects of currency translation. Full-year 2006 revenue growth will continue to be driven by growth from existing businesses and supplemented by tactical acquisitions.

We expect continued improvement in our operating profit margin in 2006.

We also expect to continue to generate strong free cash flow in 2006.

RELATED PARTY TRANSACTIONS

As at February 23, 2006, Kenneth R. Thomson, through Woodbridge and its affiliates, controlled approximately 69% of our common shares. Mr. Thomson is a member of our board of directors.

From time to time, in the normal course of business, Woodbridge and its affiliates purchase some of our products and service offerings. These transactions are negotiated at arms length on standard terms, including price, and are not significant to our results of operations or financial condition individually or in the aggregate.

In the normal course of business, a Woodbridge-owned company rents office space from one of our subsidiaries. Additionally, a number of our subsidiaries charge a Woodbridge-owned company fees for various administrative services. In 2005 and 2004, the total amounts charged to Woodbridge for these rentals and services were approximately $2 million and $3 million, respectively. Additionally, in 2004 we paid one of our directors, Mr. J.A. Tory, $80,000 for advisory services in connection with our long-term tax and capital strategies.

The employees of Jane’s Information Group (Jane’s), a business we sold to Woodbridge in April 2001, continue to participate in our United States and United Kingdom pension plans as well as the defined contribution plan in the United States. Woodbridge assumed the pension liability associated with the active employees of Jane’s as of the date of sale as part of its purchase. Jane’s makes proportional contributions to these pension plans as required, and makes matching contributions in accordance with the provisions of the defined contribution plan.

We purchase property and casualty insurance from third party insurers and retain the first $500,000 of each and every claim under the programs via our captive insurance subsidiary. Woodbridge is included in these programs and pays us a premium commensurate with its exposures. In 2005 and 2004, these premiums were about $45,000, which would approximate the premium charged by a third party insurer for such coverage.

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In June 2005, we amended our agreement with Woodbridge under which Woodbridge previously indemnified a third party insurer for certain liabilities under our directors’ and officers’ insurance policy. Under the new arrangements, Woodbridge will indemnify up to $100 million of liabilities incurred either by our current and former directors and officers or by our company in providing indemnification to these individuals on substantially the same terms and conditions of our prior insurance arrangement. A third party administrator will manage any claims under the indemnity. We will pay Woodbridge an annual fee of $750,000, which is less than the premium that we would have paid for commercial insurance.

In February 2005, we entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improve operating and cost efficiencies. Under the terms of the contract, we expect to pay Hewitt an aggregate of $115 million over a five year period. In 2005, we paid Hewitt $5 million for its services. Mr. Denning, one of our directors and chairman of our Human Resources Committee, is also a director of Hewitt. Mr. Denning did not participate in negotiations related to the contract and refrained from deliberating and voting on the matter by the Human Resources Committee and the board of directors.

In November 2004, we sold our interest in a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by our controlling shareholder, Kenneth R. Thomson, for $14 million in cash. We had certain Canadian non-capital tax losses that we did not expect to be able to utilize prior to their expiry, and had established valuation allowances against the tax benefit of these losses in prior years. Under Canadian law, certain tax losses may only be transferred to related companies, such as those affiliated with Kenneth R. Thomson. The transaction was recorded at the exchange amount and a gain of $14 million was recorded within “Net other (expense) income” within the consolidated statement of earnings and retained earnings. In connection with this transaction, we obtained a tax ruling and Deloitte & Touche LLP, an independent accounting firm retained by our Corporate Governance Committee, provided an opinion based on their experience as professional business valuators that the sale price was not less than the fair market value of the tax losses and represented a reasonable negotiated price between us and the purchaser from a financial point of view. After receiving the recommendation of the Corporate Governance Committee, our board of directors approved the transaction. Directors who were not considered independent because of their positions with Woodbridge refrained from deliberating and voting on the matter at both the committee and board meetings.

EMPLOYEE FUTURE BENEFITS

We sponsor defined benefit plans providing pension and other post-retirement benefits to covered employees. The largest plan consists of a qualified defined benefit pension plan in the United States, which will be closed to new participants in March 2006. Other smaller plans exist primarily in the United Kingdom and Canada. We use a measurement date of September 30 for the majority of these plans.

Management currently estimates that the 2006 cost of employee future benefits will increase by approximately $39 million, which will be reflected in the results of our market groups and corporate and other expense. The determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, including an expected rate of return on assets and a discount rate to measure obligations. We consult with our actuary regarding the selection of these assumptions each year.

In determining our long-term rate of return assumption for our pension plans, we evaluated historical investment returns, as well as input from investment advisors. For our primary pension plan in the United States, we also consider our actuary’s simulation model of expected long-term rates of return assuming our targeted investment portfolio mix. We will reduce our 2006 assumption of the expected rate of return on assets available to fund obligations for our primary pension plan in the United States by 0.25% to 8.0%. While the actual return on plan assets of 15.7% exceeded the expected rate of return in 2005 due to higher than expected equity returns, management nevertheless decided to adopt a more conservative long-term return for this plan. Adjusting the expected rate of return on assets for this plan upward or downward by another 25 basis points would decrease or increase, respectively, pension expense by less than $3 million in 2006.

Our discount rate is selected based on a review of current market interest rates of high-quality, fixed-rate debt securities adjusted to reflect the duration of expected future cash outflows for pension benefit payments. In developing the discount rate assumption for our primary pension plan in the United States for 2006, we reviewed the high-grade bond indices published by Moody’s and Merrill Lynch as of September 30, 2005, which are based on debt securities with average durations of 10 to 15 years. Because we have a young workforce, the duration of our expected future cash outflows for our plan tends to be longer than the duration of the bond

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indices we reviewed. Therefore, our discount rate tends to be higher than the rates of these benchmarks. To appropriately reflect the timing and amounts of the plan’s expected future pension benefit payments, our actuary analyzed market data and constructed a hypothetical yield curve that represents yields on high quality zero-coupon bonds with durations that mirrored the duration of the expected payment stream of the benefit obligation. The discount rate determined on this basis was 5.70%, approximately 35 basis points less than that of the prior year. Adjusting the discount rate upward or downward by another 25 basis points would result in a decrease or increase, respectively, in pension expense of approximately $10 million in 2006.

As of December 31, 2005, we had cumulative unrecognized actuarial losses associated with all of our pension plans of $553 million, compared to $537 million at December 31, 2004. The large majority of these losses are a result of the decline in discount rates over the past few years reflecting the overall decline in interest rates, primarily in the United States. These amounts also include actuarial gains and losses associated with the difference between our expected and actual returns on plan assets. Actuarial gains and losses are included in the calculation of our annual pension expense subject to the following amortization methodology. Unrecognized actuarial gains or losses are netted with the difference between the market-related value and fair value of plan assets. To the extent this net figure exceeds 10% of the greater of the projected benefit obligation or market-related value of plan assets, it is amortized into pension expense on a straight-line basis over the expected average service life of active participants (approximately eight years at December 31, 2005). Unrecognized actuarial gains and losses below the 10% corridor are deferred. In applying this amortization method, the estimated pension expense for 2006 includes $57 million of the unrecognized actuarial losses at December 31, 2005.

As of December 31, 2005, the fair value of plan assets for our primary pension plan in the United States represented about 95% of the plan’s projected benefit obligation. In September 2005, we voluntarily contributed $11 million to this plan. We did not make any voluntary contributions in 2004. In the fourth quarter of 2005, we also voluntarily contributed $14 million to benefit plans in the United Kingdom. We voluntarily contributed $7 million to these plans in 2004. While none of these contributions were required under the applicable funding rules and regulations, we decided to make the voluntary contributions to further improve the funding of the plans.

We are not required to make contributions to our primary pension plan in the United States in 2006. However, from time to time, we may elect to voluntarily contribute to the plan in order to improve its funded status. Because the decision to voluntarily contribute is based on various market-related factors, including asset values and interest rates, which are used to determine the plan’s funded status, we cannot predict whether, or the amount, we may elect to voluntarily contribute in 2006.

We provide post-retirement healthcare benefits for certain retired employees. However, these liabilities are significantly less than those associated with our pension plans. Retired employees share a portion of the cost of these benefits. We fund the accrued costs of these plans as benefits are paid. Annual post-retirement expense for 2006 was calculated based upon a number of actuarial assumptions, including a healthcare cost trend rate of 10% that declines 50 basis points per year for ten years, and thereafter remains constant at 5%. The healthcare cost trend rate is based on our actual medical claims experience and future projections of medical costs. A 1% change in the trend rate would result in an increase or decrease in the benefit obligation for post-retirement benefits of approximately $16 million at December 31, 2005.

SUBSEQUENT EVENTS

In February 2006, our board of directors approved our plan to dispose of three separate businesses within our Thomson Learning segment. These businesses are Peterson’s, a college preparatory guide, the U.S. operations of Thomson Education Direct, a consumer based distance learning career school and K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic community. The results of these businesses will be classified as discontinued operations beginning with our interim financial statements to be filed for the first quarter of 2006 and prior periods will be restated to reflect this classification. The combined annual revenues of these businesses in 2005 were approximately $145 million.

In February 2006, our board of directors announced a 10%, or $0.08 per share, increase in the annualized rate of our common share dividend to $0.88 per share. Additionally, the Board announced it has moved the annual dividend review period from the second quarter to the first quarter of each year.

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ACCOUNTING CHANGES

Variable Interest Entities

Effective January 1, 2005, we adopted Accounting Guideline AcG-15, Consolidation of Variable Interest Entities, which requires the consolidation of certain entities that are subject to control on a basis other than the ownership of voting interest. This Guideline provides guidance for determining when an enterprise includes the assets, liabilities and results of operations of a variable interest entity in its consolidated financial statements. The adoption of this Guideline had no effect on our consolidated financial statements.

Business Combinations

In May 2005, the Emerging Issues Committee (EIC) issued Abstract 154, Accounting for Pre-existing Relationships between the Parties of a Business Combination. The Abstract harmonizes Canadian GAAP on the issue with standards previously issued in the United States. The key issue in the Abstract is whether a business combination between two parties that have a pre-existing relationship should also reflect a settlement of the pre-existing relationship. If a settlement has occurred, the acquirer must account for the settlement separately from the business combination. Additionally, the acquirer must establish a separate identifiable intangible asset apart from goodwill for reacquired rights that the acquirer had previously granted to the acquired entity. The consensus in the Abstract is effective for business combinations completed after May 31, 2005. It did not have a material impact on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

Our critical accounting policies are those that we believe are the most important in portraying our financial condition and results, and require the most subjective judgment and estimates on the part of management. A summary of our significant accounting policies, including the critical accounting policies discussed below, is set forth in note 1 to our consolidated financial statements.

Revenue Recognition

Revenues from subscription-based products, excluding software, generally are recognized ratably over the term of the subscription. Where applicable, we recognize usage fees as earned. Subscription payments received or receivable in advance of delivery of our products or services are included in our deferred revenue account on our consolidated balance sheet. As we deliver subscription-based products and services to subscribers, we recognize the proportionate share of deferred revenue in our consolidated statement of earnings and retained earnings and our deferred revenue account balance is reduced. Certain incremental costs that are directly related to the subscription revenue are deferred and amortized over the subscription period.

Revenues from sales of products such as books, that are separate and distinct from any other product and carry no further substantive performance obligations on our part after shipment, are recognized when delivery has occurred and significant risks and rewards of ownership have transferred to the customer, provided that the price is fixed or determinable and ultimate collection is reasonably assured. We recognize revenues from sales of discrete products net of estimated returns. Significant judgment is involved in estimating future returns. Estimates are made after taking into account historical experience and current market conditions. If future returns differ from our estimates, the impact would be recorded against future revenues and profits.

For all accounts receivable, we must make a judgment regarding the ability of our customers to pay and, accordingly, we establish an allowance for estimated losses arising from non-payment. We consider customer creditworthiness, current economic trends and our past experience when evaluating the adequacy of this allowance. If future collections differ from our estimates, our future earnings would be affected.

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At December 31, 2005, our combined reserve for returns and allowance for bad debts was $324 million, or 16% of our gross accounts receivable balance. A 1% increase in this percentage would have resulted in additional expense of approximately $20 million.

Capitalized Software

A significant portion of our expenditures relates to software that is developed as part of our electronic databases, delivery systems and internal infrastructures, and, to a lesser extent, software sold directly to our customers. During the software development process, our judgment is required to determine the expected period of benefit over which capitalized costs should be amortized. Due to rapidly changing technology and the uncertainty of the software development process itself, our future results could be affected if our current assessment of our various projects differs from actual performance. At December 31, 2005, we had $749 million of capitalized costs related to software on our consolidated balance sheet.

Identifiable Intangible Assets and Goodwill

We account for our business acquisitions using the purchase method of accounting. We allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, we must identify and attribute values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives, and therefore require considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods.

We review the carrying values of identifiable intangible assets with indefinite lives and goodwill at least annually to assess impairment because these assets are not amortized. Additionally, we review the carrying value of any intangible asset or goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Examples of such events or changes in circumstances include significant negative industry or economic trends, significant changes in the manner of our use of the acquired assets or our strategy, a significant decrease in the market value of the asset, or a significant change in legal factors or in the business climate that could affect the value of the asset.

We assess impairment by comparing the fair value of an identifiable intangible asset or goodwill with its carrying value. The determination of fair value involves significant management judgment. Impairments are expensed when incurred. Specifically, we test for impairment as follows:

IDENTIFIABLE INTANGIBLE ASSETS WITH FINITE LIVES

We compare the expected undiscounted future operating cash flows associated with the asset to its carrying value to determine if the asset is recoverable. If the expected future operating cash flows are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when the carrying value exceeds fair value.

IDENTIFIABLE INTANGIBLE ASSETS WITH INDEFINITE LIVES

Selected tradenames comprise the entire balance of our identifiable intangible assets with indefinite lives. We determine the fair values of our intangible assets with indefinite lives using an income approach, the relief from royalties method. Impairment is recognized when the carrying amount exceeds fair value.

GOODWILL

We test goodwill for impairment on a “reporting unit” level. A reporting unit is a group of businesses: (a) for which discrete financial information is available; and (b) that have similar economic characteristics. We test goodwill for impairment using the following two-step approach:

•In the first step, we determine the fair value of each reporting unit. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit might be impaired, which requires performance of the second step.

53

•In the second step, we allocate the fair value of the reporting unit to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. We then compare that implied fair value of the reporting unit’s goodwill to the carrying value of that goodwill. If the implied fair value is less than the carrying value, we recognize an impairment loss for that excess.

We determine the fair value of our reporting units based on a combination of various techniques, including the present value of future cash flows, earnings multiples of competitors and multiples from sales of like-businesses.

As the valuation of identifiable intangible assets and goodwill requires significant estimates and judgment about future performance and fair values, our future results could be affected if our current estimates of future performance and fair values change. At December 31, 2005, identifiable intangible assets and goodwill amounted to $13.5 billion, or 69% of our total assets on our consolidated balance sheet.

Income Taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate. For interim periods, we provide income taxes based on our estimate of how much we will earn in each jurisdiction for the full year. To the extent that our forecasts differ from actual results, we must true-up our estimates of income tax expense. Actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant authorities, which occur subsequent to the issuance of the financial statements. To the extent our estimates differ from the final tax return, our earnings would be affected in a subsequent period. For 2005, our effective tax rate was 23.7% of our earnings from continuing operations before income taxes. A 1% increase in our effective tax rate would have resulted in additional income tax expense of approximately $12 million.

Estimation of income taxes includes estimating a value for our existing net operating losses based on our assessment of our ability to utilize them against future taxable income before they expire. Our assessment is based upon existing tax laws and estimates of future taxable income. If our assessment of our ability to use our net operating losses proves inaccurate in the future, we might be required to recognize more or less of the net operating losses as assets, which would decrease or increase our income tax expense in the relevant year. This would affect our earnings in that year.

Our accounting for income taxes requires us to exercise judgment for issues relating to known matters under discussion with tax authorities and transactions yet to be settled. As a result, we maintain a tax liability for contingencies and regularly assess the adequacy of this tax liability. We record liabilities for known tax contingencies when, in our judgment, it is probable that a liability has been incurred. It is reasonably possible that actual amounts payable resulting from audits by tax authorities could be materially different from the liabilities we have recorded due to the complex nature of the tax legislation that affects us.

Employee Future Benefits

The determination of the cost and obligations associated with our employee future benefits requires the use of various assumptions. We must select assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and the expected healthcare cost trend rate. These assumptions are re-evaluated each year, and variations between the actual results and the results based on our assumptions for any period will affect reported amounts in future periods. We retain an independent actuarial expert to prepare the calculations and to advise us on the selection of assumptions. See further discussion under the section entitled “Employee Future Benefits” on page 50.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) and EIC have recently issued the following accounting standards that are applicable to our activities in future periods.

54

Financial Instruments and Comprehensive Income

In January 2005, the CICA approved the issuance of Handbook Section 1530, Comprehensive Income; Handbook Section 3855, Financial Instruments – Recognition and Measurement; and Handbook Section 3865, Hedges. The new Handbook Sections are effective for interim and annual financial statements relating to fiscal years beginning after October 1, 2006. Consequently, the mandatory effective date for us is January 1, 2007. Management is considering an early adoption of these Handbook Sections in the first quarter of 2006.

These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as comprehensive income. Under these new standards, all financial instruments are to be included on a company’s balance sheet (including derivatives) and are to be initially measured either at fair market value or, in limited circumstances, at cost or amortized cost. Additionally, companies will be required to disclose comprehensive income, which includes, in addition to net income, other comprehensive income primarily consisting of unrealized gains and losses that bypass the traditional earnings statement and are recorded directly into shareholders’ equity. The components of other comprehensive income consist of unrealized gains and losses related to the translation of foreign currency financial statements, certain deferred gains and losses from hedging activity, and unrealized gains and losses on certain investment securities.

For the most part, the new standards harmonize Canadian GAAP with standards previously issued by the U.S. Financial Accounting Standards Board. The adoption of these standards will not have a material impact on our consolidated financial statements.

Non-monetary Transactions

In June 2005, the CICA issued Handbook Section 3831, Non-monetary Transactions, which introduces new requirements for non-monetary transactions entered into after January 1, 2006. Adoption of this Handbook Section will not have a material impact on our consolidated financial statements.

Consideration Given to a Customer

In September 2005, the EIC issued EIC Abstract 156, Accounting by a Vendor for Consideration Given to a Customer (Including a Reseller of the Vendor’s Products). This Abstract, which essentially harmonizes Canadian GAAP with U.S. GAAP, requires that most consideration given by a vendor to a customer be treated as a reduction of revenue. The provisions of the Abstract are applicable for financial statements for fiscal years beginning after January 1, 2006. We had previously adopted the provisions of the analogous U.S. accounting standard and, therefore, adoption of the new Abstract will not have an impact on our consolidated financial statements.

ADDITIONAL INFORMATION

Depreciation by Market Group

The following table details depreciation expense by market group for 2005, 2004 and 2003.

	Year ended December 31
(millions of U.S. dollars)	2005	2004	2003
Legal & Regulatory	202	197	176
Learning	195	194	184
Financial	177	182	176
Scientific & Healthcare	38	35	37
Corporate and other	10	12	14
Total	622	620	587

55

Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in applicable U.S. and Canadian securities law) as of the end of the period covered by this management’s discussion and analysis, have concluded that our disclosure controls and procedures are effective to ensure that all information required to be disclosed by our company in reports that it files or furnishes under the U.S. Securities Exchange Act and applicable Canadian securities law is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission (SEC) and Canadian securities regulatory authorities and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There was no change in our company’s internal control over financial reporting that occurred during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Share Capital

As of February 23, 2006, we had outstanding 647,128,293 common shares, 6,000,000 Series II preference shares, 223,715 restricted share units and 15,853,431 stock options.

Public Securities Filings

You may access other information about our company, including our annual information form and our other disclosure documents, reports, statements or other information that we file with the Canadian securities regulatory authorities through SEDAR at www.sedar.com and in the United States with the SEC through EDGAR at www.sec.gov.

Forward-Looking Statements

Certain information in this management’s discussion and analysis, particularly under the heading “2006 Outlook,” are forward-looking statements that are not historical facts but reflect our current expectations regarding future results. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of the factors that could cause actual results or events to differ materially from current expectations are: actions of our competitors; failure to fully derive anticipated benefits from our acquisitions; failures or disruptions of our electronic delivery systems or the Internet; failure to meet the special challenges involved in expansion of our operations outside North America; failure of our significant investments in technology to increase our revenues or decrease our operating costs; failure to develop additional products and services to meet our customers’ needs, attract new customers or expand into new geographic markets; increased accessibility to free or relatively inexpensive information sources; failure to maintain the availability of information obtained through licensing arrangements and changes in the terms of our licensing arrangements; changes in the general economy; failure to recruit and retain high quality management and key employees; increased self-sufficiency of our customers; inadequate protection of our intellectual property rights; actions or potential actions that could be taken by our principal shareholder; an increase in our effective income tax rate; and impairment of goodwill and identifiable intangible assets. Additional factors are discussed in our materials filed with the securities regulatory authorities in Canada and the United States from time to time, including our annual information form, which is contained in our current annual report on Form 40-F. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Material Assumptions

In preparing our 2006 Outlook, our material assumptions were that worldwide macroeconomic conditions would be unchanged in 2006 relative to 2005, a portion of our anticipated 2006 revenue growth would come from $200–$500 million of tactical acquisitions (net of dispositions) made during the year, and that our operating profit margin would improve in 2006, despite an estimated $39 million increase in pension and other defined benefit plans expense.

56

RECONCILIATIONS

Reconciliation of Adjusted Operating Profit to Operating Profit

	For the year ended December 31, 2005
(millions of U.S. dollars) (unaudited)	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	982		350		334		235		(128	)	1,773
Less:
Amortization	(108	)	(66	)	(89	)	(46	)	—		(309	)
Operating profit	874		284		245		189		(128	)	1,464

	For the year ended December 31, 2004
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	897		327		294		195		(98	)	1,615
Less:
Amortization	(99	)	(69	)	(82	)	(35	)	—		(285	)
Operating profit	798		258		212		160		(98	)	1,330

	For the year ended December 31, 2003
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	809		336		230		162		(97	)	1,440
Less:
Amortization	(99	)	(83	)	(64	)	(32	)	—		(278	)
Operating profit	710		253		166		130		(97	)	1,162

	For the three months ended December 31, 2005
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	308		139		109		109		(33	)	632
Less:
Amortization	(28	)	(17	)	(21	)	(11	)	—		(77	)
Operating profit	280		122		88		98		(33	)	555

	For the three months ended December 31, 2004
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	279		133		91		99		(38	)	564
Less:
Amortization	(26	)	(17	)	(23	)	(10	)	—		(76	)
Operating profit	253		116		68		89		(38	)	488

57

Reconciliation of Adjusted Operating Profit Margin to Operating Profit Margin

	For the year ended December 31, 2005
(as a percentage of revenue) (unaudited)	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Adjusted operating profit margin	28.1	%	15.1	%	17.6	%	23.1	%	20.4	%
Less:
Amortization	(3.1	)%	(2.9	)%	(4.7	)%	(4.5	)%	(3.6	)%
Operating profit margin	25.0	%	12.2	%	12.9	%	18.6	%	16.8	%
	For the year ended December 31, 2004
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Adjusted operating profit margin	27.4	%	15.0	%	16.9	%	21.8	%	20.0	%
Less:
Amortization	(3.0	)%	(3.1	)%	(4.7	)%	(3.9	)%	(3.5	)%
Operating profit margin	24.4	%	11.9	%	12.2	%	17.9	%	16.5	%
	For the year ended December 31, 2003
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Adjusted operating profit margin	26.9	%	16.4	%	15.1	%	19.6	%	19.5	%
Less:
Amortization	(3.3	)%	(4.1	)%	(4.2	)%	(3.9	)%	(3.8	)%
Operating profit margin	23.6	%	12.3	%	10.9	%	15.7	%	15.7	%
	For the three months ended December 31, 2005
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Adjusted operating profit margin	31.6	%	21.3	%	22.1	%	34.9	%	26.0	%
Less:
Amortization	(2.9	)%	(2.6	)%	(4.3	)%	(3.5	)%	(3.1	)%
Operating profit margin	28.7	%	18.7	%	17.8	%	31.4	%	22.9	%
	For the three months ended December 31, 2004
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Adjusted operating profit margin	30.4	%	20.7	%	19.1	%	35.1	%	24.4	%
Less:
Amortization	(2.8	)%	(2.7	)%	(4.8	)%	(3.5	)%	(3.3	)%
Operating profit margin	27.6	%	18.0	%	14.3	%	31.6	%	21.1	%

58

Reconciliation of Return on Invested Capital (ROIC) to GAAP Measures

(millions of U.S. dollars)	For the year ended or as at December 31
(unaudited)	2005		2004		2003		2002
Calculation of Adjusted Operating Profit After Taxes
Operating profit	1,464		1,341		1,174
Add:
Amortization	309		286		279
Adjusted operating profit of discontinued operations	8		34		68
Adjusted operating profit – including discontinued operations	1,781		1,661		1,521
Taxes paid on operations	(326	)	(285	)	(237	)
Post-tax adjusted operating profit	1,455		1,376		1,284
Calculation of Adjusted Invested Capital
Equity	9,963		9,962		9,193		8,961
Total debt	4,283		4,315		4,255		4,121
Invested capital	14,246		14,277		13,448		13,082
Adjustments:
Cash and other investments(1)	(423	)	(420	)	(696	)	(724	)
Debt swaps(2)	(193	)	(192	)	(199	)	161
Current and long-term deferred taxes(1)	1,310		1,356		1,427		1,413
Accumulated amortization and non-cash goodwill(3)	1,885		1,586		1,336		990
Present value of operating leases(4)	754		832		879		819
Historical intangible asset write-downs(5)	162		147		248		336
Other(1)	821		1,125		1,072		1,151
Adjusted invested capital	18,562		18,711		17,515		17,228
Average invested capital	18,637		18,113		17,372
Return on invested capital	7.8	%	7.6	%	7.4	%

(1)Items excluded as not deemed components of invested capital; “Other” primarily consists of non-current liabilities.

(2)Excludes debt swaps as balances are financing rather than operating related.

(3)Excludes accumulated amortization as only gross identifiable intangible assets and goodwill cost is considered component of invested capital. Excludes goodwill arising from adoption of CICA 3465. This goodwill was created via deferred tax liability instead of cash purchase price.

(4)Present value of operating leases deemed component of invested capital.

(5)Adds back write-downs that were not cash transactions.

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QUARTERLY INFORMATION (UNAUDITED)

The following table presents a summary of our consolidated operating results for each of the eight quarters ended March 31, 2004 through December 31, 2005.

(millions of U.S. dollars, except	Quarter ended March 31						Quarter ended June 30						Quarter ended September 30					Quarter ended December 31
per common share amounts)	2005			2004			2005			2004			2005			2004		2005			2004
Revenues	1,845			1,674			2,047			1,854			2,383			2,216		2,428			2,313
Operating profit	113			97			274			253			522			492		555			488
Earnings from continuing operations	69			41			300			178			302			328		255			309
Discontinued operations, net of tax	4			(4		)	2			14			7			16		(5		)	129
Net earnings	73			37			302			192			309			344		250			438
Dividends declared on preference shares	(1		)	(1		)	(1		)	(1		)	(1		)	—		(1		)	(1		)
Earnings attributable to common shares	72			36			301			191			308			344		249			437
Basic and diluted earnings (loss) per common share
From continuing operations	$	0.10		$	0.06		$	0.46		$	0.27		$	0.46		$	0.50	$	0.39		$	0.47
From discontinued operations	0.01			(0.01		)	—			0.02			0.01			0.02		(0.01		)	0.20
	$	0.11		$	0.05		$	0.46		$	0.29		$	0.47		$	0.52	$	0.38		$	0.67

We typically derive a much greater portion of our operating profit in the second half of the year as customer buying patterns are concentrated in the second half of the year, particularly in the learning and regulatory markets. Costs are incurred more evenly throughout the year. As a result, our operating margins generally increase as the year progresses. In general, our year-over-year performance reflected increased operating profit driven by higher revenues from existing businesses and contributions from acquired businesses.

In the quarters ended September 30, 2004, December 31, 2004 and June 30, 2005, earnings from continuing operations and net earnings reflected the recognition of certain tax credits. In the quarter ended December 31, 2005, earnings from continuing operations and net earnings reflected a $125 million tax charge associated with repatriated profits.

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Management Report

The management of The Thomson Corporation is responsible for the accompanying consolidated financial statements and other information included in the annual report. The financial statements have been prepared in conformity with Canadian generally  accepted accounting principles using the best estimates and judgments of management, where appropriate. Information presented elsewhere in this annual report is consistent with that in the financial statements.

Management is also responsible for a system of internal control which is designed to provide reasonable assurance that assets are safeguarded, liabilities are recognized and that the accounting systems provide timely and accurate financial reports.

The board of directors is responsible for ensuring that management fulfills its responsibilities in respect of financial reporting and internal control. The Audit Committee of the board of directors meets periodically with management and the Corporation’s  independent auditors to discuss auditing matters and financial reporting issues. In addition, the Audit Committee recommends to the board of directors the approval of the interim and annual consolidated financial statements and the annual appointment of the independent auditors.

Richard J. Harrington	Robert D. Daleo
President &	Executive Vice President &
Chief Executive Officer	Chief Financial Officer
February 23, 2006

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Auditors’ Report

To the shareholders of The Thomson Corporation:

We have audited the consolidated balance sheet of The Thomson Corporation (the Corporation) as at December 31, 2005 and 2004, and the consolidated statements of earnings and retained earnings and of cash flow for each of the years in the two year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of the Corporation’s consolidated financial statements in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Toronto, Canada

February 23, 2006

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The Thomson Corporation

Consolidated Statement of Earnings and Retained Earnings

	Year ended December 31
(millions of U.S. dollars, except per common share amounts)	2005			2004
				(note 6)
Revenues	8,703			8,057
Cost of sales, selling, marketing, general and administrative expenses	(6,308		)	(5,822		)
Depreciation (note 21)	(622		)	(620		)
Amortization (note 12)	(309		)	(285		)
Operating profit	1,464			1,330
Net other (expense) income (note 3)	(28		)	24
Net interest expense and other financing costs (note 4)	(223		)	(235		)
Income taxes (note 5)	(287		)	(263		)
Earnings from continuing operations	926			856
Earnings from discontinued operations, net of tax (note 6)	8			155
Net earnings	934			1,011
Dividends declared on preference shares (note 15)	(4		)	(3		)
Earnings attributable to common shares	930			1,008
Retained earnings at beginning of year	6,808			6,295
Repurchase of common shares (note 15)	(229		)	—
Dividends declared on common shares (note 15)	(517		)	(495		)
Retained earnings at end of year	6,992			6,808
Basic and diluted earnings per common share (note 7):
From continuing operations	$	1.41		$	1.30
From discontinued operations	0.01			0.24
Basic and diluted earnings per common share	$	1.42		$	1.54

The related notes form an integral part of these consolidated financial statements.

63

The Thomson Corporation

Consolidated Balance Sheet

	December 31
(millions of U.S. dollars)	2005	2004
		(note 6)
Assets
Cash and cash equivalents	407	405
Accounts receivable, net of allowances of $324 million (2004 – $343 million) (note 8)	1,699	1,643
Inventories (note 9)	322	312
Prepaid expenses and other current assets	325	312
Deferred income taxes (note 5)	250	212
Current assets of discontinued operations (note 6)	6	8
Current assets	3,009	2,892
Computer hardware and other property, net (note 10)	781	749
Computer software, net (note 11)	749	769
Identifiable intangible assets, net (note 12)	4,482	4,719
Goodwill (note 13)	9,019	9,113
Other non-current assets	1,386	1,393
Non-current assets of discontinued operations (note 6)	10	10
Total assets	19,436	19,645
Liabilities and shareholders’ equity
LIABILITIES
Short-term indebtedness (note 14)	202	7
Accounts payable and accruals	1,730	1,734
Deferred revenue	1,058	1,030
Current portion of long-term debt (note 14)	98	295
Current liabilities of discontinued operations (note 6)	19	17
Current liabilities	3,107	3,083
Long-term debt (note 14)	3,983	4,013
Other non-current liabilities	823	1,015
Deferred income taxes (note 5)	1,560	1,572
Total liabilities	9,473	9,683
SHAREHOLDERS’ EQUITY
Capital (note 15)	2,726	2,696
Cumulative translation adjustment (note 19)	245	458
Retained earnings	6,992	6,808
Total shareholders’ equity	9,963	9,962
Total liabilities and shareholders’ equity	19,436	19,645

The related notes form an integral part of these consolidated financial statements.

Approved by the Board

David K.R. Thomson	Richard J. Harrington
Director	Director

64

The Thomson Corporation

Consolidated Statement of Cash Flow

	Year ended December 31
(millions of U.S. dollars)	2005		2004
			(note 6)
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings	934		1,011
Remove earnings from discontinued operations	(8	)	(155	)
Add back (deduct) items not involving cash:
Depreciation (note 21)	622		620
Amortization (note 12)	309		285
Net gains on disposals of businesses and investments (note 3)	(5	)	(53	)
Loss from redemption of bonds (notes 3 and 14)	23		53
Deferred income taxes (note 5)	(16	)	(3	)
Other, net	55		170
Voluntary pension contributions (note 16)	(25	)	(7	)
Changes in working capital and other items (note 21)	(20	)	(161	)
Cash provided by operating activities – discontinued operations (note 6)	10		48
Net cash provided by operating activities	1,879		1,808
INVESTING ACTIVITIES
Acquisitions, less cash therein of $8 million (2004 – $220 million) (note 18)	(289	)	(1,337	)
Proceeds from disposals (note 18)	4		87
Capital expenditures, less proceeds from disposals of $2 million (2004 – $10 million)	(642	)	(619	)
Other investing activities	(39	)	(60	)
Capital expenditures of discontinued operations (note 6)	—		(3	)
Net proceeds from (income taxes paid on) disposals of discontinued operations (note 6)	(105	)	474
Cash used in investing activities – discontinued operations (note 6)	—		(5	)
Net cash used in investing activities	(1,071	)	(1,463	)
FINANCING ACTIVITIES
Proceeds from debt (note 14)	401		1,174
Repayments of debt (note 14)	(621	)	(1,186	)
Net borrowings (repayments) under short-term loan facilities	191		(90	)
Premium on bond redemption (note 14)	(22	)	(41	)
Repurchase of common shares	(256	)	—
Dividends paid on preference shares (note 15)	(4	)	(3	)
Dividends paid on common shares (note 15)	(505	)	(484	)
Other financing activities, net	18		1
Net cash used in financing activities	(798	)	(629	)
	10		(284	)
Translation adjustments	(8	)	6
Increase (decrease) in cash and cash equivalents	2		(278	)
Cash and cash equivalents at beginning of period	405		683
Cash and cash equivalents at end of period	407		405

Supplemental cash flow information is provided in notes 4, 18 and 21.

The related notes form an integral part of these consolidated financial statements.

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The Thomson Corporation

Notes to Consolidated Financial Statements

(unless otherwise stated, all amounts are in millions of U.S. dollars)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of The Thomson Corporation (“Thomson” or the “Company”) include all controlled companies and are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). All intercompany transactions and balances are eliminated on consolidation.

Accounting Estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Foreign Currency

Assets and liabilities of self-sustaining subsidiaries denominated in currencies other than U.S. dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are accumulated in a separate component of shareholders’ equity. Other currency gains or losses are included in earnings.

Revenue Recognition

Revenues are recognized, net of estimated returns, when the following four criteria are met:

•persuasive evidence of an arrangement exists;

•delivery has occurred;

•the fee is fixed or determinable; and

•collectibility is probable.

In addition to the above general principles, the Company applies the following specific revenue recognition policies:

SUBSCRIPTION-BASED PRODUCTS (EXCLUDING SOFTWARE)

Revenues from sales of subscription-based products are primarily recognized ratably over the term of the subscription. Where applicable, usage fees above a base period fee are recognized as earned. Subscription revenue received or receivable in advance of the delivery of services or publications is included in deferred revenue. Incremental costs that are directly related to the subscription revenue are deferred and amortized over the subscription period.

MULTIPLE ELEMENT ARRANGEMENTS

When a sales arrangement requires the delivery of more than one product or service, the individual deliverables are accounted for separately, if applicable criteria are met. Specifically, the revenue is allocated to each deliverable if reliable and objective evidence of fair value for each deliverable is available. The amount allocated to each unit is then recognized when each unit is delivered, provided that all other relevant revenue recognition criteria are met with respect to that unit.

If, however, evidence of fair value is only available for undelivered elements, the revenue is allocated first to the undelivered items, with the remainder of the revenue being allocated to the delivered items, according to a calculation known as the residual method. Amounts allocated to delivered items are deferred if there are further obligations with respect to the delivered items.

If evidence of fair value is only available for the delivered items, but not the undelivered items, the arrangement is considered a single element arrangement and revenue is recognized as the relevant recognition criteria are met.

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SOFTWARE-RELATED PRODUCTS AND SERVICES

License fees are generally recognized ratably on a straight-line basis over the license period when the Company has an ongoing obligation over the license period. Alternatively, if there is neither an associated licensing period nor future obligations, revenues are recognized upon delivery.

Certain contracts specify separate fees for software and ongoing fees for maintenance and other support. If sufficient vendor specific objective evidence of the fair value of each element of the arrangement exists, the elements of the contract are unbundled and the revenue for each element is recognized as appropriate.

OTHER SERVICE CONTRACTS

For service or consulting arrangements, revenues are recognized as services are performed based on appropriate measures. For a substantial majority of these arrangements, a customer’s obligation to pay corresponds to the amount of work performed. In these circumstances, revenue is recognized as a percentage of completed work using the Company’s costs as the measurement factor.

Employee Future Benefits

Net periodic pension expense for employee future benefits is actuarially determined using the projected benefit method. Determination of benefit expense requires assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and the expected healthcare cost trend rate. For the purpose of calculating expected return on plan assets, the assets are valued at a market-related fair value. The market-related fair value recognizes changes in the fair value of plan assets over a five-year smoothing period. Actual results will differ from results which are estimated based on assumptions. When the cumulative difference between actual and estimated results exceeds 10% of the greater of the benefit obligation or the fair value of the plan assets, such difference is amortized into earnings over the average remaining service period of active employees. Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of active employees at the date of the amendment.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and investments with an original maturity at the date of purchase of three months or less.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined using either the average cost or the first-in, first-out method.

Long-lived Assets

Long-lived assets with finite lives are tested for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. When such a situation occurs, the expected future operating cash flows associated with the asset are compared to its carrying value to determine if the asset is recoverable. If the expected future operating cash flows are not sufficient to recover the asset, an estimate of the fair value of the asset is computed. Impairment of the carrying amount of a long-lived asset is recognized in operating profit of continuing or discontinued operations, as appropriate, when the carrying amount is not recoverable and is in excess of its fair value. The impairment loss recognized is equal to the excess of the carrying amount over the fair value.

Computer Hardware and Other Property

Computer hardware and other property are recorded at cost and depreciated on a straight-line basis over their estimated useful lives as follows:

Computer hardware	3–5 years
Buildings and building improvements	5–40 years
Furniture, fixtures and equipment	3–10 years

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Computer Software

CAPITALIZED SOFTWARE FOR INTERNAL USE

Certain costs incurred in connection with the development of software to be used internally are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of application development. Costs which qualify for capitalization include both internal and external costs, but are limited to those that are directly related to the specific project. The capitalized amounts, net of accumulated amortization, are included in “Computer software, net” in the consolidated balance sheet. These costs are amortized over their expected useful lives, which range from three to ten years. The amortization expense is included in “Depreciation” in the consolidated statement of earnings and retained earnings.

CAPITALIZED SOFTWARE TO BE MARKETED

In connection with the development of software that is intended to be marketed to customers, certain costs are capitalized once technological feasibility of the product is established and a market for the product has been identified. The capitalized amounts, net of accumulated amortization, are also included in “Computer software, net” in the consolidated balance sheet. The capitalized amounts are amortized over the expected period of benefit, not to exceed three years, and this amortization expense is included in “Cost of sales, selling, marketing, general and administrative expenses” in the consolidated statement of earnings and retained earnings.

Pre-publication Costs

Pre-publication costs, which are costs to create the initial version of a textbook or other media, are recorded at cost within “Other non-current assets” in the consolidated balance sheet. Pre-publication costs are depreciated over the period that the majority of sales relating to the content are expected to be generated, which is generally three to five years, within “Depreciation” in the consolidated statement of earnings and retained earnings. The depreciation period generally begins on the publication date.

Identifiable Intangible Assets and Goodwill

Upon acquisition, identifiable intangible assets are recorded at fair value. Goodwill represents the excess of the cost of the acquired businesses over fair values attributed to underlying net tangible assets and identifiable intangible assets. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of identifiable intangible assets with indefinite lives and goodwill are tested annually for impairment because they are not amortized. Impairment is determined by comparing the fair values of such assets with their carrying amounts.

IDENTIFIABLE INTANGIBLE ASSETS

Identifiable intangible assets with indefinite lives are not amortized. Identifiable intangible assets with finite lives are amortized over their estimated useful lives as follows:

Tradenames	1–30 years
Customer relationships	1–40 years
Databases and content	2–25 years
Publishing rights	30 years
Other	2–29 years

Identifiable intangible assets with finite lives are tested for impairment as described under “Long-lived Assets” above.

Selected tradenames comprise the entire balance of identifiable intangible assets with indefinite lives. For purposes of impairment testing, the fair value of tradenames is determined using an income approach, specifically the relief from royalties method.

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GOODWILL

Goodwill is tested for impairment on a “reporting unit” level. A reporting unit is a group of businesses: (a) for which discrete financial information is available; and (b) that have similar economic characteristics. Goodwill is tested for impairment using the following two-step approach:

•In the first step, the fair value of each reporting unit is determined. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit might be impaired, which requires performance of the second step.

•In the second step, the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the actual carrying value of goodwill. If the implied fair value is less than the carrying value, an impairment loss is recognized for that excess.

The fair values of the Company’s reporting units are determined based on a combination of various techniques, including the present value of future cash flows and earnings multiples of competitors.

Investments

The equity method of accounting is used to account for investments in businesses over which Thomson has the ability to exercise significant influence. Under the equity method, investments are initially recorded at cost and the carrying amounts are adjusted to reflect the Company’s share of net earnings or losses of the investee companies, and are reduced by dividends received. The cost method of accounting is used to account for investments in businesses over which Thomson does not have the ability to exercise significant influence. When the estimated fair values of investments fall below their carrying values, the investments are written down if such declines are considered to be other than temporary. Investments are included within “Other non-current assets” in the consolidated balance sheet.

Disposal of Long-lived Assets and Discontinued Operations

Long-lived assets are classified as held for sale once certain criteria are met. Such criteria include a firm decision by management or the board of directors to dispose of a business or a group of selected assets and the expectation that such disposal will be completed within a twelve month period. Assets held for sale are measured at the lower of their carrying amounts or fair values less costs to sell, and are no longer depreciated. Long-lived assets held for sale are classified as discontinued operations if the operations and cash flows will be eliminated from ongoing operations as a result of the disposal transaction and there will not be any significant continuing involvement in the operation of the disposed asset.

Deferred Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using the enacted or substantially enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. A valuation allowance is recorded against deferred income tax assets if management determines that it is more likely than not that such deferred income tax assets will not be realized. The income tax provision for the period is the tax payable for the period and the change during the period in deferred income tax assets and liabilities.

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Derivative Financial Instruments

In the ordinary course of business, Thomson enters into the following types of derivative financial instruments to manage foreign currency and interest rate exposures:

•foreign currency contracts to hedge currency exposures on non-U.S. dollar denominated debt;

•foreign currency contracts to hedge forecasted cash flows denominated in currencies other than the functional currency of a particular Thomson subsidiary; and

•interest rate contracts to manage the fixed versus floating interest rate mix of debt. Such contracts require periodic exchange of payments without the exchange of the notional principal amount upon which the payments are based.

The Company identifies a risk management objective for each transaction. All derivatives are linked to specific assets and liabilities or to specific firm commitments or forecasted transactions. For derivatives designated as hedges, periodic assessments of each derivative’s effectiveness are performed.

While the derivative financial instruments are subject to the risk of loss from changes in exchange and interest rates, these losses are offset by gains on the exposures being hedged. Gains and losses on foreign currency derivative instruments designated as hedges of existing assets and liabilities are accrued as exchange rates change, thereby offsetting gains and losses from the underlying assets and liabilities. Gains and losses on foreign exchange contracts designated as hedges for firm commitments or forecasted transactions are recorded in earnings when the related transaction is realized. The differential paid or received on interest rate swap agreements is recognized as part of net interest expense. Derivative financial instruments which do not qualify as hedges are measured at fair value with changes recognized in earnings.

Stock-based Compensation Plans

STOCK INCENTIVE PLAN

Under the stock incentive plan, Thomson may grant stock options, restricted share units (“RSUs”) and other equity-based awards to certain employees for a maximum of up to 40,000,000 common shares.

•STOCK OPTIONS: Options vest over a period of four to five years. The maximum term of an option is 10 years from the date of grant. Options under the plan are granted at the closing price of the Company’s common shares on the day prior to the grant date. Compensation expense related to stock options is recognized over the vesting period, based upon the estimated fair value of the options at issuance.

•RESTRICTED SHARE UNITS: RSUs vest over a period of up to seven years. Compensation expense related to RSUs is recognized over the vesting period, based upon the closing price of the Company’s common shares on the day prior to the grant date.

PHANTOM STOCK PLAN

Benefits under the phantom stock plan are issued in the form of stock appreciation rights (“SARs”). Such benefits are payable in cash, and compensation expense is recognized as the stock appreciation rights (“SARs”) change in value based on the fair market value of the Company’s common shares at the end of each reporting period.

EMPLOYEE STOCK PURCHASE PLAN

In the fourth quarter of 2005, the Company initiated an Employee Stock Purchase Plan whereby eligible U.S. employees can purchase Thomson common shares at a 15% discount up to a specified limit utilizing after-tax payroll deductions. The entire amount of the discount is expensed as incurred.

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Recently Issued Accounting Standards

The Accounting Standards Board and the Emerging Issues Committee (“EIC”) of the Canadian Institute of Chartered Accountants (“CICA”) have recently issued the following accounting standards that are applicable to the Company’s activities in future periods.

CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and CICA Handbook Section 3865, Hedges. In January 2005, the CICA approved the issuance of Handbook Section 1530, Handbook Section 3855, and Handbook Section 3865. The new Handbook Sections are effective for interim and annual financial statements relating to fiscal years beginning after October 1, 2006. Consequently, the mandatory effective date for Thomson is January 1, 2007. The Company is considering an early adoption of these Handbook Sections in the first quarter of 2006.

These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as comprehensive income. Under these new standards, all financial instruments are to be included on a company’s balance sheet (including derivatives) and are to be initially measured either at fair market value or, in limited circumstances, at cost or amortized cost. Additionally, companies will be required to disclose comprehensive income, which includes, in addition to net income, other comprehensive income primarily consisting of unrealized gains and losses that bypass the traditional earnings statement and are recorded directly into shareholders’ equity. The components of other comprehensive income consist of unrealized gains and losses related to the translation of foreign currency financial statements, certain deferred gains and losses from hedging activity, and unrealized gains and losses on certain investment securities.

For the most part, the new standards harmonize Canadian GAAP with standards previously issued by the U.S. Financial Accounting Standards Board. The adoption of these standards will not have a material impact on the Company’s consolidated financial statements.

In June 2005, the CICA issued Handbook Section 3831, Non-monetary Transactions, which introduces new requirements for non-monetary transactions entered into after January 1, 2006. Adoption of this Handbook Section will not have a material impact on the consolidated financial statements.

In September 2005, the EIC issued EIC Abstract 156, Accounting by a Vendor for Consideration Given to a Customer (Including a Reseller of the Vendor’s Products). This Abstract essentially harmonizes Canadian GAAP with U.S. GAAP and requires that most consideration given by a vendor to a customer be treated as a reduction of revenue. The provisions of the Abstract are applicable for financial statements for fiscal years beginning after January 1, 2006. Thomson had previously adopted the provisions of the analogous U.S. accounting standard and, therefore, adoption of the new Abstract will not have an impact on the Company’s consolidated financial statements.

Comparative Amounts

Prior periods have been restated for discontinued operations. Where necessary, certain amounts for 2004 have been reclassified to conform to the current year’s presentation. Specifically:

•The consolidated statement of earnings and retained earnings for prior periods reflects the reclassification of “Equity in net earnings (losses) of associates” to “Net other (expense) income.”

•The consolidated balance sheet for prior periods reflects the reclassification of certain non-current assets. Specifically, capitalized software developed for internal use and capitalized software to be marketed are now presented together in a single caption. Additionally, pre-publication costs are now included in “Other non-current assets.” Previously, capitalized software developed for internal use and pre-publication costs were included in “Property and equipment” which is no longer included on the balance sheet. Capitalized software to be marketed was previously included in “Other non-current assets.”

•Effective January 1, 2005, Thomson Legal & Regulatory transferred its Dialog DataStar operations, which provides scientific and intellectual property information, to Thomson Scientific & Healthcare. Thomson Legal & Regulatory retained its Dialog NewsEdge operations, which provides business news and information. Segment results for prior periods reflect this change.

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NOTE 2: CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2005, Thomson adopted Accounting Guideline AcG-15, Consolidation of Variable Interest Entities. AcG-15 requires the consolidation of certain entities that are subject to control on a basis other than the ownership of voting interest. This Guideline provides guidance for determining when an enterprise includes the assets, liabilities and results of operations of a variable interest entity in its consolidated financial statements. The adoption did not have an impact on the consolidated financial statements.

In May 2005, the EIC of the CICA issued Abstract 154, Accounting for Pre-existing Relationships between the Parties of a Business Combination. The Abstract harmonizes Canadian GAAP on the issue with standards previously issued in the United States. The key issue in the Abstract is whether a business combination between two parties that have a pre-existing relationship should also reflect a settlement of that pre-existing relationship. If a settlement has occurred, the acquirer must account for the settlement separately from the business combination. Additionally, the acquirer must establish a separate identifiable intangible asset apart from goodwill for reacquired rights that the acquirer had previously granted to the acquired entity. The consensus in the Abstract was effective for business combinations completed after May 31, 2005 and did not have a material effect on the consolidated financial statements.

NOTE 3: NET OTHER (EXPENSE) INCOME

The components of net other (expense) income include:

	Year ended December 31
	2005		2004
Net gains on disposals of businesses and investments	5		53
Loss from redemption of debt securities	(23	)	(53	)
Equity in net earnings of associates	5		—
Other (expense) income	(15	)	24
Net other (expense) income	(28	)	24

Net Gains on Disposals of Businesses and Investments

For the year ended December 31, 2004, this amount includes a gain of $35 million from the sale of an investment. Additionally, this amount includes $14 million from the sale of a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by Kenneth R. Thomson. See Note 22.

Loss from Redemption of Debt Securities

In August and September 2005, the Company redeemed two outstanding issuances of debt securities with an aggregate carrying value of approximately US$400 million. In November 2004, the Company redeemed four outstanding issuances of debt securities with an aggregate book value of approximately Cdn$1.2 billion (approximately US$0.8 billion). These losses primarily represent required premiums paid for early extinguishment and non-cash write-offs of deferred costs. See Note 14.

Other (Expense) Income

For the year ended December 31, 2005, other expense relates to a writedown of an investment to reflect current estimates of fair value. For the year ended December 31, 2004, other income primarily relates to a $22 million legal settlement from a competitor that was received in July 2004. In July 2003, Thomson reached a settlement with Skillsoft PLC, a competitor of Thomson Learning, regarding the Company’s claims of breach of fiduciary duty, appropriation of trade secrets and patent infringement. Under the terms of the settlement, Skillsoft PLC paid Thomson $44 million in two equal installments, the first of which was received in July 2003.

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NOTE 4: NET INTEREST EXPENSE AND OTHER FINANCING COSTS

The components of net interest expense and other financing costs include:

	Year ended December 31
	2005		2004
Interest income	16		10
Interest expense on short-term indebtedness	(9	)	(2	)
Interest expense on long-term debt	(230	)	(243	)
	(223	)	(235	)

Interest paid on short-term indebtedness and long-term debt during 2005 was $219 million (2004 – $250 million) and interest received during 2005 was $15 million (2004 – $10 million).

NOTE 5: INCOME TAXES

The components of earnings (loss) before taxes by jurisdiction are as follows:

	Year ended December 31
	2005		2004
Canada	(198	)	(215	)
U.S. and other jurisdictions	1,411		1,334
Total earnings before taxes(1)	1,213		1,119

(1)  Represents earnings from continuing operations before income taxes.

The provision for income taxes consisted of:

	Year ended December 31
	2005		2004
Canada:
Current	126		1
Deferred	—		—
Total Canadian	126		1
U.S. and other jurisdictions:
Current	177		265
Deferred	(16	)	(3	)
Total U.S. and other jurisdictions	161		262
Total worldwide	287		263

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The tax effects of the significant components of temporary differences giving rise to the Company’s deferred income tax assets and liabilities at December 31 are as follows:

	2005		2004
Accrued expenses	198		184
Deferred compensation and stock options	116		119
Accounts receivable allowances	100		94
Inventory	47		36
Tax loss and credit carryforwards	846		802
Other	90		78
Total deferred tax asset	1,397		1,313
Valuation allowance	(462	)	(408	)
Net deferred tax asset	935		905
Intangible assets	(1,583	)	(1,596	)
Other long-lived assets(1)	(246	)	(265	)
Financial instruments	(237	)	(214	)
Pension	(148	)	(154	)
Other	(31	)	(36	)
Total deferred tax liability	(2,245	)	(2,265	)
Net deferred tax liability	(1,310	)	(1,360	)

(1)Other long-lived assets include Computer hardware and other property, Computer software for internal use and Pre-publication costs.

The net deferred liability of $1,310 million (2004 – $1,360 million) was comprised of net current deferred tax assets of $250 million (2004 – $212 million) and net long-term deferred tax liabilities of $1,560 million (2004 – $1,572 million).

The Company records valuation allowances against deferred income tax assets when management determines that it is more likely than not that such deferred income tax assets will not be realized. The following details the movements in the valuation allowance for the years ended December 31, 2005 and 2004:

	2005		2004
Balance at beginning of year	408		440
Additional Canadian and other net operating losses with no benefit	82		77
Reduction due to change in deferred tax liability related to debt instruments(1)	(63	)	(132	)
Recognition of benefit of UK tax losses and credits due to tax law change(2)	—		(41	)
Increase due to tax loss incurred on sale of DBM	—		68
Sale of Canadian subsidiary(3)	—		(51	)
Exchange and other items	35		47
Balance at end of year	462		408

(1)Canadian losses are first offset by deferred tax liabilities before computing the required valuation allowance. The deferred tax liability increased in 2005 and 2004 from the revaluation of debt and currency swaps. As the deferred tax liability increased, the requirement for the valuation allowance decreased by the same amount.

(2)In 2004, the Company reversed valuation allowances related to UK losses and tax credit carryforwards which were considered more likely than not to be used due to changes in tax laws.

(3)In the fourth quarter of 2004, the Company sold a wholly-owned subsidiary, whose only asset consisted of Canadian tax loss carryforwards, to a company controlled by Kenneth R. Thomson. See Note 22.

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The following is a reconciliation of income taxes calculated at the Canadian corporate tax rate to the income tax provision:

	2005		2004
Earnings before taxes	1,213		1,119
Income taxes at the Canadian corporate tax rate (36.0%)	437		403
Differences attributable to:
Effect of income taxes recorded at rates different from the Canadian tax rate	(212	)	(176	)
Additions to valuation allowance due to losses with no benefit	82		77
Net change to contingent tax liabilities(1)	(133	)	14
Withholding tax on repatriation of accumulated profits(2)	125		—
Reversal of valuation allowance due to UK tax law change	—		(41	)
Other, net	(12	)	(14	)
Income tax provision on continuing operations	287		263

(1)     In 2005, this amount includes the recognition of a net tax benefit of $137 million from the release of contingent income tax liabilities. The liabilities were released upon completion of tax audits relating to prior year periods.

(2)During the fourth quarter of 2005, the Company repatriated a substantial portion of the accumulated profits of certain of its subsidiaries. The repatriation was related to the recapitalization of these subsidiaries. The Company incurred a one-time withholding tax of $125 million in connection with this repatriation, which reduced cash provided by operating activities and net earnings in the fourth quarter by the same amount.

The effective income tax rate in each year was lower than the Canadian corporate income tax rate due principally to the lower tax rates and differing tax rules applicable to certain of the Company’s operating and financing subsidiaries outside Canada. Specifically, while Thomson generates revenues in numerous jurisdictions, the tax provision on earnings is computed after taking account of intercompany interest and other charges among subsidiaries resulting from their capital structure and from the various jurisdictions in which operations, technology and content assets are owned. For these reasons, the effective tax rate differs substantially from the Canadian corporate tax rate. The Company’s effective tax rate and its cash tax cost depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which Thomson operates.

The Company maintains a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled and regularly assesses the adequacy of this liability. The Company records liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. Contingencies are reversed to income in the period in which management assesses that they are no longer required, or when they become no longer required by statute or resolution through the normal tax audit process. The Company’s contingency reserves represent liabilities for the years 2000 to 2005.

At December 31, 2005, the Company had Canadian tax loss carryforwards of $1,290 million, tax loss carryforwards in other jurisdictions of $901 million, and U.S. state tax loss carryforwards which, at current U.S. state rates, have an estimated value of $37 million. If not utilized, the majority of the Canadian tax loss carryforwards will expire between 2007 and 2015. The majority of the tax loss carryforwards from other jurisdictions may be carried forward indefinitely, while the U.S. state tax loss carryforwards expire between 2006 and 2025. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future profitability of operations in the jurisdictions in which the tax losses arose. Additionally, the Company had other tax credit carryforwards of $18 million, which may be carried forward indefinitely, and a tax benefit of $79 million related to capital loss carryforwards that may be used only in offsetting future capital gains.

The total amount of undistributed earnings of non-Canadian subsidiaries for income tax purposes was approximately $4.6 billion at December 31, 2005. A portion of such undistributed earnings can be remitted to Canada tax free. Where tax free remittance of undistributed earnings is not possible, it is the Company’s intention to reinvest such undistributed earnings and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for income taxes that may become payable if undistributed earnings from non-Canadian subsidiaries were distributed by those companies. The additional taxes on undistributed earnings are not practicably determinable.

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NOTE 6: DISCONTINUED OPERATIONS

The following businesses are classified as discontinued operations within the consolidated financial statements for all periods presented. None of the businesses are considered fundamental to the integrated offerings of Thomson.

In December 2005, the Company’s board of directors approved the sale of American Health Consultants (“AHC”). AHC is a provider of medical education and publisher of medical newsletters, and is managed within Thomson Scientific & Healthcare.

In November 2004, the Company sold the Thomson Media group, a provider of largely print-based information products focused on the banking, financial services and related technology markets for gross proceeds of $350 million. The Company recorded a post-tax gain of $94 million in 2004. The results of Thomson Media had previously been reported in the Corporate and other segment.

In the second quarter of 2004, Thomson sold Sheshunoff Information Services Inc. (“Sheshunoff”), a provider of critical data, compliance and management tools to financial institutions, which had been managed within Thomson Media. Based on the status of negotiations at March 31, 2004, the Company recorded a pre-tax impairment charge of $6 million relating to identifiable intangible assets in the first quarter of 2004. The Company recorded a post-tax gain of $6 million in 2004 related to the completion of the sale.

In February 2004, Thomson sold DBM, a provider of human resource solutions, which had been managed within Thomson Learning. The Company recorded a post-tax gain of $7 million in 2004 related to the completion of the sale.

The carrying amounts of assets and liabilities related to these discontinued businesses as of December 31, 2005 are as follows:

Balance Sheet

	December 31
AHC	2005	2004
Current assets
Accounts receivable, net of allowances	5	5
Prepaid expenses and other current assets	—	1
Current deferred income taxes	1	2
Total current assets	6	8
Non-current assets
Identifiable intangible assets	2	2
Goodwill	6	6
Deferred income taxes	2	2
Total non-current assets	10	10
Current liabilities
Accounts payable and accruals	5	4
Deferred revenue	14	13
Total current liabilities	19	17

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The earnings from discontinued operations for the years ended December 31, 2005 and 2004 are summarized below:

	Year ended December 31, 2005
	AHC		Other	Total 2005
Revenues from discontinued operations	35		—	35
Earnings from discontinued operations before income taxes	6		—	6
Gain on sale of discontinued operations	—		2	2
Income taxes	(3	)	3	—
Earnings from discontinued operations	3		5	8

	Year ended December 31, 2004
	Thomson Media		DBM		AHC		Sheshunoff		Other	Total 2004
Revenues from discontinued operations	152		28		41		11		—	232
Earnings (loss) from discontinued operations before income taxes	26		3		11		(4	)	—	36
Gain (loss) on sale of discontinued operations	163		(21	)	—		—		2	144
Income taxes	(77	)	28		(4	)	7		21	(25	)
Earnings from discontinued operations	112		10		7		3		23	155

The Company adjusts liabilities previously established for businesses that have been sold when actual results differ from estimates used in establishing such liabilities. Adjustments are made in conjunction with the expiration of representations and warranty periods or to reflect the refinement of earlier estimates. Due to the expiration of certain tax audit periods for Thomson Newspapers and other businesses, the Company adjusted its related tax liabilities, which resulted in a 2005 tax benefit of $11 million (2004 – $19 million). Offsetting the release of tax liabilities in 2005 was a $9 million tax charge related to the 2004 sale of Thomson Media. Additionally, in 2005 and 2004 the Company adjusted disposal liabilities related to Thomson Newspapers resulting in $2 million of earnings from discontinued operations for the years ended December 31, 2005 and 2004. These amounts are included in “Other” above.

“Net proceeds from (income taxes paid on) disposals of discontinued operations” in the consolidated statement of cash flow for the year ended December 31, 2005 represent taxes paid related to the 2004 sale of Thomson Media. For the year ended December 31, 2004, this amount includes taxes paid related to the 2003 sale of the portfolio of Healthcare Magazines.

NOTE 7: EARNINGS PER COMMON SHARE

Basic earnings per common share are calculated by dividing earnings attributable to common shares by the sum of the weighted-average number of common shares outstanding during the period plus vested deferred share units. Deferred share units represent the amount of common shares certain employees have elected to receive in the future in lieu of cash compensation. The holders of deferred share units have no voting rights, but are entitled to dividends at each dividend payment date, which are reinvested as additional deferred share units based upon the dividend reinvestment plan as described in Note 15.

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Diluted earnings per common share are calculated using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding stock options and other securities. The Company uses the treasury stock method to calculate diluted earnings per common share.

Earnings used in determining earnings per common share from continuing operations are presented below. Earnings used in determining earnings per common share from discontinued operations are the earnings from discontinued operations as reported within the consolidated statement of earnings and retained earnings.

	2005		2004
Earnings from continuing operations	926		856
Dividends declared on preference shares	(4	)	(3	)
Earnings from continuing operations attributable to common shares	922		853

The weighted-average number of common shares outstanding, as well as a reconciliation of the weighted-average number of common shares outstanding used in the basic earnings per common share computation to the weighted-average number of common shares outstanding used in the diluted earnings per common share computation, is presented below.

	2005	2004
Weighted-average number of common shares outstanding	653,862,363	654,827,909
Vested deferred share units	574,385	473,448
Basic	654,436,748	655,301,357
Effect of stock and other incentive plans	531,283	625,946
Diluted	654,968,031	655,927,303

NOTE 8: ACCOUNTS RECEIVABLE ALLOWANCES

The change in the valuation allowances for returns, billing adjustments and doubtful accounts related to accounts receivable is as follows:

	2005		2004
Balance at beginning of year	343		338
Charges	446		436
Write-offs	(458	)	(441	)
Other	(7	)	10
Balance at end of year	324		343

Other includes additions from acquisitions and the impact of foreign currency translation.

The Company is exposed to normal credit risk with respect to its accounts receivable. To mitigate this credit risk, the Company follows a program of customer credit evaluation and maintains provisions for potential credit losses. The Company has no significant exposure to any single customer.

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NOTE 9: INVENTORIES

Inventories consist of the following:

	2005	2004
Raw materials	22	23
Work in process	28	33
Finished goods	272	256
	322	312

NOTE 10: COMPUTER HARDWARE AND OTHER PROPERTY

Computer hardware and other property consists of the following:

As at December 31, 2005	Cost	Accumulated depreciation		Net computer hardware and other property
Computer hardware	1,184	(873	)	311
Land, buildings and building improvements	564	(223	)	341
Furniture, fixtures and equipment	411	(282	)	129
	2,159	(1,378	)	781

As at December 31, 2004	Cost	Accumulated depreciation		Net computer hardware and other property
Computer hardware	1,106	(814	)	292
Land, buildings and building improvements	541	(221	)	320
Furniture, fixtures and equipment	409	(272	)	137
	2,056	(1,307	)	749

Fully depreciated assets are retained in asset and accumulated depreciation accounts until such assets are removed from service. In the case of disposals, assets and related accumulated depreciation amounts are removed from the accounts, and the net amounts, less proceeds from disposals, are included in income. The depreciation charge in 2005 was $240 million (2004 – $249 million).

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NOTE 11: COMPUTER SOFTWARE

Computer software consists of the following:

As at December 31, 2005	Cost	Accumulated amortization		Net computer software
Capitalized software for internal use	1,925	(1,259	)	666
Capitalized software to be marketed	216	(133	)	83
	2,141	(1,392	)	749

As at December 31, 2004	Cost	Accumulated amortization		Net computer software
Capitalized software for internal use	1,711	(1,024	)	687
Capitalized software to be marketed	182	(100	)	82
	1,893	(1,124	)	769

The amortization charge for internal use computer software in 2005 was $276 million (2004 – $270 million) and is included in “Depreciation” in the consolidated statement of earnings and retained earnings. The amortization charge for software intended to be marketed was $38 million (2004 – $33 million) and is included in “Cost of sales, selling, marketing, general and administrative expenses” in the consolidated statement of earnings and retained earnings.

NOTE 12: IDENTIFIABLE INTANGIBLE ASSETS

The following table presents the details of identifiable intangible assets as at December 31, 2005 and 2004.

As at December 31, 2005	Gross identifiable intangible assets	Accumulated amortization		Net identifiable intangible assets
Finite useful lives:
Tradenames	432	(145	)	287
Customer relationships	2,271	(697	)	1,574
Databases and content	1,324	(518	)	806
Publishing rights	1,565	(635	)	930
Other	158	(82	)	76
	5,750	(2,077	)	3,673
Indefinite useful lives:
Tradenames	809			809
	6,559	(2,077	)	4,482

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As at December 31, 2004	Gross identifiable intangible assets	Accumulated amortization		Net identifiable intangible assets
Finite useful lives:
Tradenames	466	(120	)	346
Customer relationships	2,107	(572	)	1,535
Databases and content	1,377	(462	)	915
Publishing rights	1,592	(578	)	1,014
Other	166	(66	)	100
	5,708	(1,798	)	3,910
Indefinite useful lives:
Tradenames	809			809
	6,517	(1,798	)	4,719

The amortization charge for identifiable intangible assets in 2005 was $309 million (2004 – $285 million).

As at December 31, 2005, the average amortization life based upon the gross balance of the identifiable intangible assets with finite useful lives is approximately 19 years.

Publishing rights relate to certain historical acquisitions and are comprised of the cumulative value of tradenames, imprints and titles, databases and other intangible assets. These intangible assets are amortized over a weighted-average useful life, which approximates 30 years.

NOTE 13: GOODWILL

The following table presents goodwill by operating segment for the years ended December 31, 2005 and 2004.

	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Total
Balance at December 31, 2003	3,282		2,864		1,545		393		8,084
Acquisitions	30		225		332		349		936
Disposals	—		—		(1	)	—		(1	)
Adjusted purchase price allocations	(27	)	(2	)	(3	)	—		(32	)
Translation and other, net	41		40		33		12		126
Balance at December 31, 2004	3,326		3,127		1,906		754		9,113
Acquisitions	72		14		3		7		96
Adjusted purchase price allocations	(3	)	(42	)	10		17		(18	)
Translation and other, net	(47	)	(53	)	(46	)	(26	)	(172	)
Balance at December 31, 2005	3,348		3,046		1,873		752		9,019

The adjusted purchase price allocations primarily relate to updated valuations of identifiable intangible assets for certain acquisitions, which resulted in increases in goodwill of $35 million (2004 – decreases of $12 million) as well as to the adjustment of certain acquisition-related assets and liabilities, which resulted in decreases in goodwill of $53 million (2004 – $20 million).

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NOTE 14: FINANCIAL INSTRUMENTS

Carrying Amounts

Amounts recorded in the consolidated balance sheet are referred to as “carrying amounts” and are based on year end exchange rates, as applicable.

For non-U.S. dollar denominated debt, which is hedged into U.S. dollars by derivative contracts, the primary debt carrying amounts are reflected in “Long-term debt” and “Current portion of long-term debt” in the consolidated balance sheet. The related receivables and payables arising from the translation gains and losses on the derivative contracts, which effectively offset the losses and gains on translation of the primary debt, are included in “Other non-current assets” in the consolidated balance sheet, as appropriate.

Fair Values

The fair values of cash and cash equivalents, accounts receivable, short-term indebtedness and accounts payable approximate their carrying amounts because of the short-term maturity of these instruments. The fair value of long-term debt, including the current portion, is estimated based on either quoted market prices for similar issues or current rates offered to Thomson for debt of the same maturity. The fair values of interest rate swaps and forward contracts are estimated based upon discounted cash flows using applicable current market rates. The fair values of the foreign exchange contracts reflect the estimated amounts at which the Company would have to settle all outstanding contracts on December 31. The fair values of publicly traded long-term investments are based on quoted market prices. The fair values of privately held long-term investments are estimated by management. The fair values represent point-in-time estimates that may not be relevant in predicting the Company’s future earnings or cash flows.

Credit Risk

Thomson attempts to minimize its credit exposure on derivative contracts by entering into transactions only with counterparties that are major investment-grade international financial institutions.

The Company places its cash investments with high-quality financial institutions and limits the amount of exposure to any one institution. At December 31, 2005, a significant portion of the Company’s cash was on deposit with five such institutions.

Short-term Indebtedness

At December 31, 2005, short-term indebtedness was principally comprised of $167 million of commercial paper with an average interest rate of 4.2%. Such rate was 4.3% after taking into account hedging arrangements. At December 31, 2004, short-term indebtedness was principally comprised of bank overdrafts.

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Long-term Debt

The following is a summary of long-term debt:

	Carrying amount						Fair value
As at December 31, 2005	Primary debt instruments		Currency swap instruments		Hedged debt		Primary debt instruments	Currency swap instruments		Hedged debt
Bank and other	208		—		208		205	—		205
6.50% Debentures, due 2007	215		(36	)	179		223	(46	)	177
4.35% Notes, due 2009	258		(12	)	246		259	(22	)	237
4.50% Notes, due 2009	215		(31	)	184		217	(33	)	184
5.20% Notes, due 2014	516		(24	)	492		542	(57	)	485
6.85% Medium-term notes, due 2011	344		(90	)	254		386	(108	)	278
5.75% Notes, due 2008	400		—		400		406	—		406
4.25% Notes, due 2009	200		—		200		195	—		195
4.75% Notes, due 2010	250		—		250		247	—		247
6.20% Notes, due 2012	700		—		700		736	—		736
5.25% Notes, due 2013	250		—		250		249	—		249
5.50% Debentures, due 2035	400		—		400		387	—		387
Private placements, due 2006–2010	125		—		125		133	—		133
	4,081		(193	)	3,888		4,185	(266	)	3,919
Current portion	(98	)	—		(98	)
	3,983		(193	)	3,790

	Carrying amount						Fair value
As at December 31, 2004	Primary debt instruments		Currency swap instruments		Hedged debt		Primary debt instruments	Currency swap instruments		Hedged debt
Bank and other	250		—		250		250	—		250
6.50% Debentures, due 2007	205		(25	)	180		221	(45	)	176
4.35% Notes, due 2009	247		(1	)	246		250	(4	)	246
4.50% Notes, due 2009	205		(21	)	184		210	(26	)	184
5.20% Notes, due 2014	493		(1	)	492		504	(11	)	493
6.90% Medium-term notes, due 2008	329		(69	)	260		362	(78	)	284
6.85% Medium-term notes, due 2011	329		(75	)	254		372	(83	)	289
5.75% Notes, due 2008	400		—		400		423	—		423
4.25% Notes, due 2009	200		—		200		202	—		202
4.75% Notes, due 2010	250		—		250		258	—		258
6.20% Notes, due 2012	700		—		700		769	—		769
5.25% Notes, due 2013	250		—		250		260	—		260
Floating rate notes	125		—		125		125	—		125
Private placements, due 2005–2010	325		—		325		352	—		352
	4,308		(192	)	4,116		4,558	(247	)	4,311
Current portion	(295	)	—		(295	)
	4,013		(192	)	3,821

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The private placements, of which $50 million is due in 2006, have interest rates ranging from 6.76% to 7.74%, with a weighted-average rate of 7.35% at December 31, 2005.

Bank and other debt at December 31, 2005 and 2004 was primarily U.S. dollar denominated and comprised notes issued in connection with the Capstar acquisition (see Note 18), along with foreign currency denominated loans. The 6.50% Debentures, 4.35% Notes, 4.50% Notes, 5.20% Notes and medium-term notes are Canadian dollar denominated and are fully hedged into U.S. dollars. The 5.75% Notes, 4.25% Notes, 4.75% Notes, 6.20% Notes, 5.25% Notes, 5.50% Debentures, floating rate notes and private placements are U.S. dollar denominated. The carrying amount of long-term debt, all of which is unsecured, was denominated in the following currencies:

	Before hedging  arrangements		After hedging  arrangements
	2005	2004	2005	2004
Canadian dollar	1,548	1,808	—	—
U.S. dollar	2,461	2,418	3,816	4,034
Other currencies	72	82	72	82
	4,081	4,308	3,888	4,116

Maturities of long-term debt in each of the next five years and thereafter are as follows:

	2006	2007	2008	2009	2010	Thereafter	Total
Before hedging arrangements	98	278	436	674	385	2,210	4,081
After hedging arrangements	98	242	436	631	385	2,096	3,888

At December 31, 2005, undrawn and available bank facilities amounted to $1,371 million.

2005 ACTIVITY

In the third quarter of 2005, the Company completed the early redemption of US$75 million of 7.62% privately placed notes and Cdn$400 million of 6.90% Medium-term notes and settled an associated currency swap. A loss of US$23 million was recorded as a result of these redemptions in “Net other (expense) income” in the consolidated statement of earnings and retained earnings, primarily related to early redemption premiums and non-cash write-offs of deferred costs. These redemptions were principally financed by the August 2005 offering of US$400 million of 5.50% Debentures due 2035.

In addition to the early redemptions of debt, in December and September 2005, the Company also repaid US$50 million and US$75 million, respectively, of privately placed notes and in March 2005, Thomson repaid US$125 million of floating rate notes.

2004 ACTIVITY

In the fourth quarter of 2004, the Company redeemed, prior to their scheduled maturity dates, four outstanding issues of debt securities with an aggregate book value of Cdn$1.2 billion (approximately US$0.8 billion). The redeemed issuances were as follows:

Cdn$250 million of 7.95% Notes, due 2005

Cdn$250 million of 6.20% Notes, due 2006

Cdn$250 million of 7.15% Notes, due 2006

Cdn$450 million of 6.55% Notes, due 2007

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A loss of $53 million was recorded as a result of these redemptions in “Net other (expense) income” in the consolidated statement of earnings and retained earnings, primarily related to required premiums paid for early extinguishment and non-cash write-offs of deferred costs. These redemptions were principally financed with two offerings also completed in November 2004. The offerings included Cdn$300 million of 4.35% Notes due December 1, 2009 and Cdn$600 million of 5.20% Notes due December 1, 2014.

The Company entered into a swap for the 4.35% Notes that converted the obligation to US$246 million at a fixed interest rate of 3.92%. The Company also entered into three combination currency and interest rate swaps for the 5.20% Notes to convert the obligation to US$492 million. The US$492 million obligation pays interest at a fixed rate of 4.88% on US$246 million, 4.75% on US$123 million and a floating rate of interest on the remaining US$123 million. The net proceeds of $733 million were used to partially fund the redemption.

In July 2004, the Company repaid Cdn$250 million of 9.15% Notes for US$182 million. Additionally, in July 2004, the Company repaid US$150 million of private placement debt.

In May 2004, Thomson completed an offering of US$250 million, 4.75% global Notes due 2010. In June 2004, Thomson completed an offering of Cdn$250 million, 4.50% Notes due 2009. The Company entered into two currency swaps to convert the obligation to US$184 million at a floating rate of interest. The Company used the net proceeds of $432 million from these offerings to repay other existing indebtedness and for other general corporate purposes.

Interest Rate Risk Exposures

From time to time, Thomson may use interest rate swap agreements to manage the mix of fixed and floating interest rates in its debt portfolio, however, no interest rate swap agreements were outstanding at either December 31, 2005 or 2004.

After taking account of hedging arrangements, the fixed and floating rate mix of long-term debt is as follows:

	2005	Average interest rate		% Share		2004	Average interest rate		% Share
Total fixed	3,305	5.4	%	85	%	3,399	5.6	%	83	%
Total floating	583	4.6	%	15	%	717	2.6	%	17	%
	3,888	5.2	%	100	%	4,116	5.1	%	100	%

Including the effect of short-term indebtedness, the proportion of fixed to floating rate debt was 81% to 19%. Floating rate long-term debt is LIBOR-based and, consequently, interest rates are reset periodically.

Foreign Exchange Contracts

Thomson uses foreign exchange contracts to manage foreign exchange risk. Generally, foreign exchange contracts are designated for existing assets and liabilities, firm commitments or forecasted transactions that are expected to occur in less than one year. At December 31, 2005 and 2004, the fair value of foreign exchange contracts was not material.

Investments

At December 31, 2005 and 2004, investments accounted for using the cost and equity methods were not material. These investments are reported within “Other non-current assets” in the consolidated balance sheet.

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NOTE 15: CAPITAL

The change in capital, which includes stated capital and contributed surplus, was as follows:

	Common share capital				Series II, Cumulative Redeemable
	Number of shares		Stated capital		Preference share capital	Contributed surplus		Total capital
Balance, December 31, 2003	654,579,297		2,458		110	71		2,639
Common shares issued under Dividend Reinvestment Plan (“DRIP”)	326,068		11		—	—		11
Common shares issued from exercise of stock options and other employee programs	226,462		7		—	—		7
Record deferred share units within contributed surplus	—		—		—	16		16
Transfer of contributed surplus for exercised stock options	—		2		—	(2	)	—
Stock option expense	—		—		—	23		23
Balance, December 31, 2004	655,131,827		2,478		110	108		2,696
Common shares issued under DRIP	335,862		12		—	—		12
Common shares issued from exercise of stock options and other employee programs	730,703		22		—	—		22
Record deferred share units within contributed surplus	—		—		—	3		3
Transfer of contributed surplus for exercised stock options	—		4		—	(4	)	—
Repurchase of common shares	(7,249,400	)	(27	)	—	—		(27	)
Stock option expense	—		—		—	20		20
Balance, December 31, 2005	648,948,992		2,489		110	127		2,726

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Thomson Common Shares

Thomson common shares, which have no par value, are voting shares. The authorized common share capital of Thomson is an unlimited number of shares.

Registered holders of common shares may participate in the DRIP, under which cash dividends are automatically reinvested in new common shares having a value equal to the cash dividend. Such shares are valued at the weighted-average price at which the common shares traded on the Toronto Stock Exchange during the five trading days immediately preceding the record date for such dividend.

Dividends

Dividends on Thomson common shares are declared and payable in U.S. dollars. Shareholders also have the option of receiving dividends on common shares in equivalent Canadian dollars or pounds sterling. Dividends declared per common share in 2005 were $0.79 (2004 – $0.755).

In the consolidated statement of cash flow, dividends paid on common shares are shown net of $12 million (2004 – $11 million) reinvested in common shares issued under the DRIP.

Normal Course Issuer Bid

In May 2005, the Company initiated a normal course issuer bid to repurchase up to 15 million of its common shares. The bid will terminate on the earlier of May 4, 2006 or the date that the Company completes its purchases. Decisions regarding the timing of repurchases are based on market conditions, share price and other factors. Thomson may elect to suspend or discontinue the program at any time and may also seek renewal of the program. Shares repurchased under the program will be cancelled.

During 2005, the Company repurchased 7.2 million common shares for $256 million, representing an average cost per share of $35.35. Of the $256 million, $27 million was recorded as a reduction in capital based upon the historical average issuance price of the shares and $229 million was charged to retained earnings.

From time to time when the Company does not possess material non-public information about its activities or its securities, the Company may enter into a pre-defined plan with its broker to allow for the repurchase of shares at times when the Company ordinarily would not be active in the market due to its own internal trading blackout periods and insider trading rules. Any such plans entered into with the Company’s broker will be adopted in accordance with the requirement of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934 and applicable Canadian securities laws.

Series II, Cumulative Redeemable Preference Shares

The authorized preference share capital of Thomson is an unlimited number of preference shares without par value. The directors are authorized to issue preference shares without par value in one or more series, and to determine the number of shares in, and terms attaching to, each such series. As at December 31, 2005 and 2004, 6,000,000 shares of Series II, Cumulative Redeemable Preference shares were outstanding. The Series II preference shares are non-voting and are redeemable at the option of Thomson for Cdn$25.00 per share, together with accrued dividends. Dividends are payable quarterly at an annual rate of 70% of the Canadian bank prime rate applied to the stated capital of such shares. The total number of authorized Series II preference shares is 6,000,000.

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NOTE 16: EMPLOYEE FUTURE BENEFITS

Thomson sponsors both defined benefit and defined contribution employee future benefit plans covering substantially all employees. Costs for all future employee benefits are accrued over the periods in which employees earn the benefits.

Defined Benefit Plans

Thomson sponsors defined benefit plans providing pension and other post-retirement benefits to covered employees. Net periodic pension expense for employee future benefits is actuarially determined using the projected benefit method. The Company uses a measurement date of September 30 for the majority of its plans. For the Company’s largest plan, which is in the United States, an actuarial valuation is performed annually as of December 31.

The following significant weighted-average assumptions were employed to determine the net periodic pension and post-retirement plans’ expenses and the accrued benefit obligations:

	Pensions				Other post- retirement plans
	2005		2004		2005		2004
Assumptions used to determine net periodic pension expense:
Expected long-term rate of return on plan assets	7.5	%	7.6	%	N/A		N/A
Discount rate	5.8	%	5.8	%	6.1	%	6.1	%
Rate of compensation increase	4.3	%	4.3	%	N/A	*	N/A	*
Assumptions used to determine benefit obligation:
Discount rate	5.4	%	5.8	%	5.7	%	6.1	%
Rate of compensation increase	4.3	%	4.3	%	N/A	*	N/A	*

*At the end of 2005 and 2004, these plans consisted almost entirely of retired employees.

The Company uses multiple techniques to determine its expected long-term rate of return on plan assets. These include the use of statistical models and the examination of historical returns.

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The Company’s net defined benefit plan (income) expense is comprised of the following elements:

	Pensions								Other post- retirement plans
	Funded				Unfunded
	2005		2004		2005		2004		2005		2004
Components of net periodic benefit expense:
Current service cost	46		46		7		7		2		2
Interest cost	120		113		11		10		9		9
Plan amendments	—		—		1		—		—		(1	)
Actual return on plan assets	(285	)	(188	)	—		—		—		—
Actuarial losses (gains)	168		39		12		(2	)	9		(7	)
Subtotal	49		10		31		15		20		3
Adjustments(1):
Difference between expected and actual return on plan assets	130		32		—		—		—		—
Difference between actuarial loss (gain) recognized and actual actuarial loss (gain) on benefit obligation	(135	)	(15	)	(11	)	3		(7	)	10
Difference between amortization of past service costs for year and actual plan amendments for year	1		1		1		2		—		1
Amortization of transitional asset	(1	)	—		—		—		—		—
Subtotal adjustments	(5	)	18		(10	)	5		(7	)	11
Net defined benefit plan expense	44		28		21		20		13		14

(1)  Adjustments reflect the deferral and amortization of experience gains and losses over applicable periods.

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The following information summarizes activity in all of the pension and other post-retirement benefit plans for the Company:

	Pensions								Other post- retirement plans
	Funded				Unfunded
	2005		2004		2005		2004		2005		2004
Benefit obligation
Beginning benefit obligation	2,104		1,914		182		173		154		159
Current service cost	46		46		7		7		2		2
Interest cost	120		113		11		10		9		9
Plan participants’ contributions	4		5		—		—		—		1
Plan amendments	—		—		1		—		—		—
Actuarial losses (gains)	168		39		12		(2	)	9		(7	)
Non-routine events	(11	)	(4	)	—		—		—		(1	)
Acquisitions, net	9		6		1		—		—		2
Benefits paid	(88	)	(87	)	(8	)	(7	)	(9	)	(11	)
Translation adjustments	(84	)	72		1		1		—		—
Ending benefit obligation	2,268		2,104		207		182		165		154
Plan assets
Beginning fair value of plan assets	2,050		1,821		—		—		—		—
Actual return on plan assets	285		188		—		—		—		—
Employer contributions	15		44		8		7		9		10
Plan participants’ contributions	4		5		—		—		—		1
Benefits paid	(88	)	(87	)	(8	)	(7	)	(9	)	(11	)
Other, net	(2	)	7		—		—		—		—
Translation adjustments	(83	)	72		—		—		—		—
Ending fair value of plan assets	2,181		2,050		—		—		—		—
Funded status – deficit	(87	)	(54	)	(207	)	(182	)	(165	)	(154	)
Unamortized net actuarial loss	515		529		38		27		50		43
Unamortized past service costs	4		5		6		7		(1	)	(1	)
Unamortized net transitional asset	(5	)	(6	)	—		—		—		—
Post-measurement date activity*	14		1		2		2		2		2
Accrued benefit asset (liability)	441		475		(161	)	(146	)	(114	)	(110	)

* Consists primarily of contributions

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An accrued pension benefit asset of $477 million (2004 – $519 million) is included in “Other non-current assets” in the consolidated balance sheet. An accrued pension benefit liability of $197 million (2004 – $190 million) as well as the accrued liability for other post-retirement plans are included in “Other non-current liabilities” in the consolidated balance sheet.

The unfunded pension plans referred to above consist primarily of supplemental executive retirement plans (“SERPs”) for eligible employees. Thomson partially funds the liabilities of these plans through insurance contracts, which are excluded from plan assets in accordance with CICA Handbook Section 3461. The cash surrender values of insurance contracts used to fund the SERPs total $205 million at December 31, 2005 and are included in “Other non-current assets” in the consolidated balance sheet.

The benefit obligations of funded plans that had benefit obligations that exceeded plan assets at December 31, 2005 were $1,823 million (2004 – $1,761 million). These plans had related fair values of plan assets of $1,706 million (2004 – $1,674 million). While these plans are not considered fully funded for financial reporting purposes, they are adequately funded under the applicable statutory funding rules and regulations governing the particular plans.

As of December 31, 2005, the Company had cumulative unrecognized actuarial losses associated with all of its pension plans of $553 million, compared to $537 million at December 31, 2004. The large majority of these losses are a result of the decline in discount rates over the past few years reflecting the overall decline in interest rates, primarily in the United States. These amounts also include actuarial gains and losses associated with the difference between the expected and actual returns on plan assets. Actuarial gains and losses are included in the calculation of annual pension expense subject to the following amortization methodology. Unrecognized actuarial gains or losses are netted with the difference between the market-related value and fair value of plan assets. To the extent this net figure exceeds 10% of the greater of the projected benefit obligation or market-related value of plan assets, it is amortized into pension expense on a straight-line basis over the expected average service life of active participants (approximately eight years at December 31, 2005). Unrecognized actuarial gains and losses below the 10% corridor are deferred.

The average healthcare cost trend rate used was 10% for 2006, which is reduced ratably to 5% in 2016. A 1% change in the trend rate would result in an increase or decrease in the benefit obligation for post-retirement benefits of approximately $16 million at December 31, 2005.

The Company’s pension plans’ allocation of assets as of the plans’ measurement dates for 2005 and 2004 is as follows:

	Percentage of plans’ assets
Asset category	2005		2004
Equity securities	56	%	56	%
Debt securities	44	%	44	%
Total	100	%	100	%

As of December 31, 2005 and 2004 there were no Thomson securities held in the Company’s pension plans’ assets.

Plan assets are invested to satisfy the fiduciary obligation to adequately secure benefits and to minimize Thomson’s long-term contributions to the plans.

In September 2005, the Company contributed $11 million to its principal qualified defined benefit pension plan in the U.S. In the fourth quarter of 2005, the Company contributed $14 million to a combination of benefit plans in the UK. In the fourth quarter of 2004, the Company contributed $7 million to a benefit plan in the UK. While none of these contributions was required under the applicable funding rules and regulations governing each country, the Company decided to make the voluntary contributions to further improve the funding of these plans.

Based on regulatory requirements, the Company was not obligated to make contributions in 2005 to its major pension plan, which is in the U.S. However, from time to time, the Company may elect to voluntarily contribute to the plan in order to improve its funded status. Because the decision to voluntarily contribute is based on various market-related factors, including asset values and interest rates, which are used to determine the plan’s funded status, the Company cannot predict whether, nor the amount, it may elect to voluntarily contribute in 2006.

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The benefit payments for the years ended December 31, 2005 and 2004 and the estimated payments thereafter, as assumed in the calculation of the benefit obligation as of December 31, 2005, are as follows:

Benefit Payments

	Pensions		Other post- retirement plans
	Funded	Unfunded
2004	87	7	11
2005	88	8	9
Estimated future payments:
2006	90	7	10
2007	92	8	10
2008	95	9	11
2009	99	9	11
2010	103	9	12
2011 to 2015	579	62	67

Defined Contribution Plans

The Company and its subsidiaries sponsor various defined contribution savings plans that have provisions for company-matching contributions. Total expense related to defined contribution plans was $70 million in 2005 (2004 – $64 million), which approximates the cash outlays related to the plans.

NOTE 17: CONTINGENCIES, COMMITMENTS AND GUARANTEES

Lawsuits and Legal Claims

At December 31, 2005, the Company was a defendant in two separate class action lawsuits involving the BAR/BRI business, which is part of the Legal & Regulatory segment. Each alleges violations of U.S. federal antitrust laws. The plaintiff in Park v. The Thomson Corporation and Thomson Legal & Regulatory Inc., which was filed in the U.S. District Court for the Southern District of New York, alleges that BAR/BRI has illegally leveraged its market position in state-specific bar examination preparation courses into multi-state courses and that an unlawful tying arrangement exists, which should be remedied, in part, by restructuring BAR/BRI’s review courses into separate state-specific and multi-state courses. The plaintiff in Rodriguez v. West Publishing Corp. and Kaplan Inc., which was filed in the U.S. District Court for the Central District of California, alleges, among other things, that the Company and Kaplan Inc. (a subsidiary of The Washington Post Company) unlawfully agreed in 1997 to divide markets and not compete against one another. Discovery proceedings are underway in both lawsuits. The Company intends to defend itself vigorously in both cases.

In October 2004, the Company received a subpoena from the U.S. Securities and Exchange Commission (“SEC”) for certain documents related to the operations of its Capital Markets Intelligence (“CMI”) business. CMI is one of several companies providing market intelligence services. CMI collects stock ownership data solely as an appointed agent of its public company clients seeking a better understanding of their institutional shareholder base. We are cooperating fully with the SEC. In 2005, approximately $35 million of our financial group’s CMI revenues were related to the identification of institutional investors for its clients.

In January 2005, the Company became aware of an inquiry by the Serious Fraud Office in the United Kingdom regarding refund practices relating to certain duplicate subscription payments made by some of the Company’s customers in the Sweet & Maxwell and Gee businesses in the United Kingdom. Thomson is cooperating fully with the authorities in their inquiry.

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In addition to the matters described above, the Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company, including those described above, is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole.

Taxes

The Company maintains a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled, and regularly assesses the adequacy of this liability. The Company records liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. Contingencies are reversed to income in the period when management assesses that they are no longer required, or when they become no longer required by statute or resolution through the normal tax audit process. In the second quarter of 2005, the Company recognized a net tax benefit of $137 million from the release of contingent income tax liabilities upon completion of tax audits relating to prior year periods. The Company’s remaining contingency reserves principally represent liabilities for the years 2000 to 2005.

In the normal course of business, the Company enters into numerous intercompany transactions related to the sharing of data and technology. The tax rules governing such transactions are complex and depend on numerous assumptions. At this time, management believes that it is not probable that any such transactions will result in additional tax liabilities, and therefore has not established contingencies related to these items. However, because of the volume and complexity of such transactions, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities.

Leases

The Company enters into operating leases in the ordinary course of business, primarily for real property and equipment. Payments for these leases are contractual obligations as scheduled per each agreement. Operating lease payments in 2005 were $203 million (2004 – $196 million). The future minimum operating lease payments are $193 million in 2006, $160 million in 2007, $119 million in 2008, $97 million in 2009, $81 million in 2010 and $303 million thereafter.

With certain leases, the Company guarantees a portion of the residual value loss, if any, incurred by the lessors in disposing of the assets, or in restoring a property to a specified condition after completion of the lease period. The liability associated with these restorations is recorded within “Other non-current liabilities”. The Company believes, based upon current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

Business Combinations and Investments

The Company has obligations to pay additional consideration for prior acquisitions, typically based upon performance measures contractually agreed to at the time of purchase. In August 2005, the Company paid $50 million for contingent consideration associated with the 2004 acquisition of TradeWeb. Relative to TradeWeb, the Company is obligated for additional contingent consideration of up to $100 million through 2007, if certain performance measures are achieved. The $50 million payment in 2005, as well as any future payments under this agreement, will be considered additional purchase price. The contingent consideration associated with TradeWeb is the largest for which the Company may become liable. The Company does not believe that additional payments in connection with other transactions would have a material impact on the consolidated financial statements.

In certain disposition agreements, the Company guarantees to the purchaser the recoverability of certain assets or limits on certain liabilities. The Company believes, based upon current facts and circumstances, that a material payment pursuant to such guarantees is remote.

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NOTE 18: ACQUISITIONS AND DISPOSALS

Acquisitions

The number of transactions completed and related cash consideration during 2005 and 2004 were as follows:

	Year ended December 31
	2005		2004
	Number of transactions	Cash consideration	Number of transactions	Cash consideration
Businesses and identifiable intangible assets acquired	34	232	56	1,551
Contingent consideration payment – TradeWeb LLC	1	50	—	—
Investments in businesses	3	15	1	6
	38	297	57	1,557

All acquisitions have been accounted for using the purchase method and the results of acquired businesses are included in the consolidated financial statements from the dates of acquisition. For acquisitions made in 2005 and 2004, the majority of the acquired goodwill is not deductible for tax purposes.

The details of net assets acquired are as follows:

	2005		2004
Cash and cash equivalents	8		220
Accounts receivable	12		74
Inventories	4		2
Prepaid expenses and other current assets	12		15
Computer hardware and other property	2		13
Computer software	5		93
Identifiable intangible assets	157		616
Goodwill	96		936
Other non-current assets	2		10
Total assets	298		1,979
Accounts payable and accruals	(29	)	(137	)
Deferred revenue	(13	)	(106	)
Other non-current liabilities	(24	)	(25	)
Total liabilities	(66	)	(268	)
Net assets	232		1,711

Allocations related to certain acquisitions may be subject to adjustment pending final valuation.

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As part of the Capstar acquisition in 2004, Thomson issued promissory notes to the seller of $160 million. This is treated as a non-cash transaction and is therefore excluded from the consolidated statement of cash flow.

The following provides a brief description of major acquisitions completed during 2005 and 2004:

Date	Company	Acquiring market group	Description
July 2005	Global Securities Information, Inc.	Legal & Regulatory	A provider of online securities and securities-related information and research services
February 2005	Tax Partners, LLC	Legal & Regulatory	A provider of sales and use tax compliance services primarily servicing the telecommunications industry in the U.S.
November 2004	Information Holdings Inc.	Scientific & Healthcare	A provider of intellectual property and regulatory information
October 2004	Capstar	Learning	A provider of competency assessment, learning and measurement and testing solutions
September 2004	KnowledgeNet Inc.	Learning	A provider of a learning platform that offers a combination of self-paced, instructor-led and mobile learning
May 2004	TradeWeb LLC	Financial	An online global trading platform for fixed income securities
May 2004	Starquote	Financial	A provider of financial information to the Canadian retail equity market
March 2004	CCBN.com, Inc.	Financial	A provider of web-based communications solutions for the investment community
January 2004	BIOSIS	Scientific & Healthcare	A provider of custom and standard information resources for biological researchers

The identifiable intangible assets acquired are summarized as follows:

			Weighted-average amortization period (years)
	2005	2004	2005	2004
Finite useful lives:
Tradenames	15	77	10	8
Customer relationships	106	368	13	11
Databases and content	33	133	10	9
Other	3	38	3	6
	157	616

Disposals

In 2005, Thomson received $4 million (2004 – $87 million) cash consideration from the disposals of businesses and investments that did not qualify as discontinued operations. The disposals in 2004 were the sale of an investment, as well as the sale of a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by Kenneth R. Thomson. See Note 22.

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NOTE 19: CUMULATIVE TRANSLATION ADJUSTMENT

An analysis of the cumulative translation adjustment shown separately in shareholders’ equity in the consolidated balance sheet is as follows:

	2005		2004
Balance at beginning of year	458		259
Net translation (losses) gains	(213	)	199
Balance at end of year	245		458

NOTE 20: STOCK-BASED COMPENSATION

Phantom Stock Plan

Thomson has a Phantom Stock plan that provides for the granting of stock appreciation rights (“SAR”) to officers and key employees. The SAR provides the holder with the opportunity to earn a cash award equal to the fair market value of the Company’s common shares less the price at which the SAR was issued. Compensation expense is measured based on the market price of Thomson common shares at the end of the reporting period. The SARs outstanding under the plan have been granted at the closing price of the Company’s common shares on the day prior to the date of grant, vest over a four- to eight-year period, and expire five to eleven years after the grant date. The compensation expense is recognized over the applicable period. At December 31, 2005, the authorized number of SARs was 20,500,000 and there were 3,038,922 units available for grant. Thomson recognized a benefit of $1 million related to the SAR plan for the year ended December 31, 2005 (2004 – $6 million benefit) in the consolidated statement of earnings and retained earnings as a result of the change in the Company’s share price as compared to the prior year-end.

A summary of the status of the Thomson Phantom Stock plan as of December 31, 2005 and 2004, and changes during the years ended on those dates, is as follows:

	2005			2004
	SARs		Canadian $  weighted- average exercise price	SARs		Canadian $ weighted- average exercise price
Outstanding at beginning of year	2,451,224		37.28	2,611,168		36.51
Granted	252,154		40.77	219,467		41.74
Exercised	(382,335	)	28.72	(278,827	)	31.09
Forfeited	(111,540	)	47.16	(100,584	)	44.18
Outstanding at end of year	2,209,503		38.66	2,451,224		37.28
Exercisable at end of year	1,692,789		37.75	1,953,396		35.85

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The following table summarizes information on SARs outstanding at December 31, 2005:

	SARs outstanding			SARs exercisable
Canadian $ range of exercise prices	Number outstanding at 12/31/05	Weighted- average remaining contractual life	Canadian $  weighted- average exercise price	Number exercisable at 12/31/05	Canadian $ weighted- average exercise price
21.77–32.125	225,626	1.1	21.77	225,626	21.77
35.00–44.50	1,796,171	5.0	39.35	1,279,457	38.43
48.40–57.45	187,706	5.4	52.35	187,706	52.35

Stock Incentive Plan

In January 2000, the board of directors approved the adoption of a stock incentive plan. The plan authorizes the Company to grant officers and employees stock options and other equity-based awards. An amendment to the plan was approved by the Company’s shareholders in May 2005, which increased the number of common shares issuable under the plan to 40,000,000. As of December 31, 2005, there were 22,991,887 awards available for grant (2004 – 5,769,181).

STOCK OPTIONS

Under the plan, the exercise price of an option equals the closing market price of the Company’s stock on the New York Stock Exchange on the day prior to the date of the grant and the maximum term of an option is 10 years. In general, grants vest 25% per year from the date of issuance. Under the plan, options may be granted in either Canadian dollars or U.S. dollars.

A summary of the status of the options granted and exercised in Canadian dollars as of December 31, 2005 and 2004, and changes during the years ended on those dates, is as follows:

	2005			2004
	Options		Canadian $  weighted- average exercise price	Options		Canadian $ weighted- average exercise price
Outstanding at beginning of year	5,958,774		49.46	6,277,090		49.43
Granted	28,000		40.85	16,500		41.74
Exercised	(242,100	)	41.00	(48,400	)	41.00
Forfeited	(293,010	)	51.59	(286,416	)	49.77
Outstanding at end of year	5,451,664		49.67	5,958,774		49.46
Exercisable at end of year	5,384,539		49.77	4,952,559		50.16

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The following table summarizes information on Canadian dollar stock options outstanding at December 31, 2005:

	Options outstanding			Options exercisable
Canadian $ range of exercise prices	Number outstanding at 12/31/05	Weighted- average remaining contractual life	Canadian $  weighted- average exercise price	Number exercisable at 12/31/05	Canadian $ weighted- average exercise price
40.69–44.40	1,259,800	4.5	41.05	1,197,675	41.03
45.90–48.70	2,276,174	5.9	48.36	2,271,174	48.36
50.25–57.45	1,915,690	4.9	56.90	1,915,690	56.90

A summary of the status of the options granted and exercised in U.S. dollars as of December 31, 2005 and 2004, and changes during the years ended on those dates, is as follows:

	2005			2004
	Options		U.S. $  weighted- average exercise price	Options		U.S. $ weighted- average exercise price
Outstanding at beginning of year	7,956,303		31.38	5,240,395		29.96
Granted	3,084,846		35.11	2,934,033		33.71
Exercised	(330,285	)	27.77	(59,500	)	26.06
Forfeited	(240,875	)	30.50	(158,625	)	29.17
Outstanding at end of year	10,469,989		32.62	7,956,303		31.38
Exercisable at end of year	3,392,303		30.41	1,833,015		28.86

The following table summarizes information on U.S. dollar stock options outstanding at December 31, 2005:

	Options outstanding			Options exercisable
U.S. $ range of exercise prices	Number outstanding at 12/31/05	Weighted- average remaining contractual life	U.S. $  weighted- average exercise price	Number exercisable at 12/31/05	U.S. $ weighted- average exercise price
26.06–29.70	1,962,017	7.0	26.12	1,401,941	26.10
30.79–33.76	5,449,626	8.5	33.55	1,990,362	33.45
33.87–38.16	3,058,346	9.9	35.13	—	—

The Company expenses the fair value of all stock options using the Black-Scholes pricing model to calculate an estimate of fair value. Under this method, a fair value is determined for each option at the date of grant, and that amount is recognized as expense over the vesting period. For the year ended December 31, 2005, compensation expense recorded in connection with stock options was $20 million (2004 – $23 million).

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Using the Black-Scholes pricing model, the weighted-average fair value of options granted was estimated to be $7.27 and $7.56 for the years ended December 31, 2005 and 2004, respectively. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions. In addition, the model requires the use of subjective assumptions, including expected stock price volatility. The principal assumptions used in applying the Black-Scholes option-pricing model for the years ended December 31, 2005 and 2004 were as follows:

	2005		2004
Risk-free interest rate	4.4	%	3.8	%
Dividend yield	2.3	%	2.3	%
Volatility factor	18.8	%	22.9	%
Expected life (in years)	6		6

RESTRICTED SHARE UNITS

In 2004, the Company made its initial grant of RSUs. RSUs give the holder the right to receive a specified number of common shares at the specified vesting date or upon the achievement of certain performance goals. RSUs vest over a period of up to seven years. The holders of RSUs have no voting rights, but accumulate additional units based on notional dividends paid by the Company on its common shares at each dividend payment date, which are reinvested as additional restricted share units. Compensation expense related to RSUs is recognized over the vesting period, based upon the closing price of the Company’s common shares on the day prior to the date of grant. For the year ended December 31, 2005, compensation expense recorded in connection with RSUs was $1 million (2004 – nil).

A summary of the status of the restricted share units granted and vested as of December 31, 2005 and 2004, and changes during the years ended on those dates, is as follows:

	2005			2004
	RSUs		U.S. $  weighted- average value	RSUs		U.S. $ weighted- average value
Outstanding at beginning of year	27,150		34.68	—		—
Granted	201,194		33.77	30,167		34.68
Vested	(4,629	)	34.69	(3,017	)	34.68
Outstanding at end of year	223,715		33.86	27,150		34.68

During 2005, a total of 4,629 RSUs vested. In January 2006, 2,991 shares were issued in connection with the vesting of the RSUs after the withholding of applicable employee taxes. In 2004, 2,060 common shares were issued after the withholding of applicable employee taxes. No other outstanding RSUs vest until December 31, 2006.

Employee Stock Purchase Plan

In 2005, the Company initiated an Employee Stock Purchase Plan (“ESPP”) under which eligible U.S. employees may purchase a maximum of 6,000,000 common shares. Each quarter, employees may elect to withhold up to 10% of their eligible compensation, up to a maximum of $21,250 per year, to purchase Thomson common shares at a price equal to 85% of the closing price of the shares on the New York Stock Exchange as of the last business day of the quarter. The Company recognized an expense of $1 million in 2005 relating to the 15% discount of purchased shares.

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NOTE 21: SUPPLEMENTAL CASH FLOW INFORMATION

The following sets forth the components of depreciation expense:

	2005	2004
Computer hardware and other property	240	249
Capitalized software for internal use	276	270
Pre-publication costs	106	101
	622	620

Details of “Changes in working capital and other items” are:

	2005		2004
Accounts receivable	(74	)	(55	)
Inventories	(8	)	(5	)
Prepaid expenses and other current assets	(7	)	(38	)
Accounts payable and accruals	102		14
Deferred revenue	36		(24	)
Income taxes	(6	)	(18	)
Other	(63	)	(35	)
	(20	)	(161	)

Income taxes paid during 2005 were $556 million, which included $105 million relating to the 2004 sale of Thomson Media and $125 million for a withholding tax from the repatriation of earnings of its subsidiaries. For 2004, income taxes paid were $322 million, which included $36 million relating to the 2003 sale of Healthcare Magazines. Income tax refunds received during 2005 were $6 million (2004 – $16 million).

NOTE 22: RELATED PARTY TRANSACTIONS

As at December 31, 2005, through Woodbridge and its affiliates, Kenneth R. Thomson controlled approximately 69% of the Company’s common shares. Mr. Thomson is a member of the Company’s board of directors.

From time to time, in the normal course of business, Woodbridge and its affiliates purchase products and service offerings from the Company. These transactions are negotiated at arm’s length on standard terms, including price, and are not significant to the Company’s results of operations or financial condition either individually or in the aggregate.

In the normal course of business, a Woodbridge-owned company rents office space from one of the Company’s subsidiaries. Additionally, a number of the Company’s subsidiaries charge a Woodbridge-owned company fees for various administrative services. In 2005, the amounts charged for these rentals and services were approximately $2 million (2004 – $3 million). Additionally, in 2004, the Company paid a director, Mr. J.A. Tory, $80,000 for advisory services in connection with the Company’s long-term tax and capital strategies.

The employees of Jane’s Information Group (“Jane’s”), a business sold by the Company to Woodbridge in April 2001, continue to participate in the Company’s pension plans in the United States and United Kingdom, as well as the defined contribution plan in the United States. Woodbridge assumed the pension liability associated with the active employees of Jane’s as of the date of sale as part of its purchase. Jane’s makes proportional contributions to these pension plans as required, and makes matching contributions in accordance with the provisions of the defined contribution plan.

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Thomson purchases property and casualty insurance from third party insurers and retains the first $500,000 of each and every claim under the programs via the Company’s captive insurance subsidiary. Woodbridge is included in these programs and pays Thomson a premium commensurate with its exposures. In 2005 and 2004, these premiums were approximately $45,000, which would approximate the premium charged by a third party insurer for such coverage.

In June 2005, the Company amended its agreement with Woodbridge under which Woodbridge previously indemnified a third party insurer for certain liabilities under the Company’s directors’ and officers’ insurance policy. Under the new arrangements, Woodbridge will indemnify up to $100 million of liabilities incurred either by the Company’s current and former directors and officers or by Thomson in providing indemnification to these individuals on substantially the same terms and conditions of our prior insurance arrangement. A third party administrator will manage any claims under the indemnity. The Company will pay Woodbridge an annual fee of $750,000, which is less than the premium that would have been paid for commercial insurance.

In February 2005, the Company entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions. Under the terms of the contract, the Company expects to pay Hewitt an aggregate of $115 million through the five year period ending in 2010. In 2005, Thomson paid Hewitt $5 million. Mr. Denning, one of the Company’s directors and chairman of the Company’s Human Resources Committee, is also a director of Hewitt. Mr. Denning did not participate in negotiations related to the contract and refrained from deliberating and voting on the matter by the Human Resources Committee and the board of directors.

In November 2004, Thomson sold its interest in a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by the Company’s controlling shareholder, Kenneth R. Thomson, for $14 million in cash. Thomson had certain Canadian non-capital tax losses that management did not expect to be able to utilize prior to their expiry, and had established valuation allowances against the tax benefit of these losses in prior years. Under Canadian law, certain tax losses may only be transferred to related companies, such as those affiliated with Kenneth R. Thomson. The transaction was recorded at the exchange amount and a gain of $14 million was recorded in “Net other (expense) income” in the consolidated statement of earnings and retained earnings. In connection with this transaction, the Company obtained a tax ruling and an independent accounting firm retained by the board of directors’ Corporate Governance Committee provided an opinion based on their experience as professional business valuators that the sale price was not less than the fair market value of the tax losses and represented a reasonable negotiated price between Thomson and the purchaser from a financial point of view. After receiving the recommendation of the Corporate Governance Committee, the board of directors approved the transaction. Directors who were not considered independent because of their positions with Woodbridge refrained from deliberating and voting on the matter at both the committee and board meetings.

NOTE 23: BUSINESS INTERRUPTION INSURANCE

In 2004, the Company received a $19 million insurance recovery related to the events of September 11, 2001 in New York City. Of the claim received in 2004, $14 million related to a recovery of lost revenues due to business interruption, while the remaining $5 million was for a property claim. The $14 million business interruption portion, as well as the $5 million property claim, was recorded as a reduction of “Cost of sales, selling, marketing, general and administrative expenses” in the consolidated statement of earnings and retained earnings and is included in the financial group within the segmented information.

NOTE 24: SEGMENT INFORMATION

Thomson is a global provider of integrated information solutions for business and professional customers. Thomson operates in four reportable market segments worldwide. The reportable segments of Thomson are strategic business groups that offer products and services to target markets. The accounting policies applied by the segments are the same as those applied by the Company. The Company’s four reportable segments are:

Legal & Regulatory

Providing information solutions to legal, tax, accounting, intellectual property, compliance and other business professionals, as well as government agencies.

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Learning

Providing learning solutions to colleges, universities, professors, students, libraries, reference centers, government agencies, corporations and professionals.

Financial

Providing products and integration services to financial and technology professionals in the corporate, investment banking, institutional, retail wealth management and fixed income sectors of the global financial community.

Scientific & Healthcare

Providing information and services to researchers, physicians and other professionals in the healthcare, academic, scientific, corporate and government marketplaces.

Reportable Segments – 2005

(millions of U.S. dollars)	Revenues		Depreciation	Adjusted operating profit		Additions to capital assets(1) and goodwill	Total assets
Legal & Regulatory(2)	3,491		202	982		420	7,388
Learning	2,319		195	350		257	5,477
Financial	1,897		177	334		201	3,346
Scientific & Healthcare(2)	1,018		38	235		65	1,769
Segment totals	8,725		612	1,901		943	17,980
Corporate and other(3)	—		10	(128	)	12	1,440
Eliminations(2)	(22	)	—	—		—	—
Continuing operations	8,703		622	1,773		955	19,420
Discontinued operations							16
Total							19,436

Reportable Segments – 2004

(millions of U.S. dollars)	Revenues		Depreciation	Adjusted operating profit		Additions to capital assets(1) and goodwill	Total assets
Legal & Regulatory(2)	3,276		197	897		294	7,316
Learning	2,174		194	327		554	5,549
Financial	1,738		182	294		802	3,518
Scientific & Healthcare(2)	893		35	195		604	1,778
Segment totals	8,081		608	1,713		2,254	18,161
Corporate and other(3)	—		12	(98	)	5	1,466
Eliminations(2)	(24	)	—	—		—	—
Continuing operations	8,057		620	1,615		2,259	19,627
Discontinued operations							18
Total							19,645

102

Geographic Information – 2005

(by country of origin) (millions of U.S. dollars)	Revenues	Capital assets(1) and goodwill	Total assets
United States	6,890	12,373	15,690
Europe	1,058	2,127	2,738
Asia-Pacific	367	208	359
Canada	300	301	437
Other countries	88	132	212
Total	8,703	15,141	19,436

Geographic Information – 2004

(by country of origin) (millions of U.S. dollars)	Revenues	Capital assets(1) and goodwill	Total assets
United States	6,349	12,468	15,560
Europe	1,045	2,356	3,091
Asia-Pacific	329	215	375
Canada	261	293	423
Other countries	73	124	196
Total	8,057	15,456	19,645

(1)	Capital assets include computer hardware and other property, capitalized software for internal use, identifiable intangible assets and pre-publication costs.
(2)	Effective January 1, 2005, the Dialog DataStar operation was transferred from Legal & Regulatory to Scientific & Healthcare. Comparative periods’ results have been  reclassified to conform to the current period’s presentation.
(3)	Corporate and other includes corporate costs and costs associated with the Company’s stock-based compensation expense.

In accordance with CICA Handbook Section 1701, Segment Disclosures, the Company discloses information about its reportable segments based upon the measures used by management in assessing the performance of those reportable segments. The Company uses Adjusted operating profit, which is Operating profit before amortization of identifiable intangible assets, to measure the operating performance of its segments. Management uses this measure because amortization of identifiable intangible assets is not considered to be a controllable operating cost for purposes of assessing the current performance of the segments. Adjusted operating profit does not have any standardized meaning prescribed by Canadian GAAP.

103

The following table reconciles Adjusted operating profit per the business segment information to operating profit per the consolidated statement of earnings and retained earnings.

	For the year ended December 31
	2005		2004
Adjusted operating profit	1,773		1,615
Less: Amortization	(309	)	(285	)
Operating profit	1,464		1,330

NOTE 25: RECONCILIATION OF CANADIAN TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in some respects from U.S. GAAP. The following schedules present the material differences between Canadian and U.S. GAAP.

	For the year ended December 31
	2005			2004
Net earnings under Canadian GAAP	934			1,011
Differences in GAAP increasing (decreasing) reported earnings:
Asset retirement obligations	—			(11		)
Business combinations	15			36
Related party transactions (note 22)	—			(14		)
Derivative instruments and hedging activities	4			11
Income taxes	(6		)	(11		)
Net other (expense) income	—			(6		)
Net income under U.S. GAAP	947			1,016
Other comprehensive income:
Foreign currency translation	(211		)	198
Minimum pension liability (including tax benefits of $4 million (2004 – $1 million))	21			2
Net unrealized gains on cash flow hedges (net of taxes in 2005 and 2004 of nil)	26			40
Other comprehensive income	(164		)	240
Comprehensive income	783			1,256
Earnings under U.S. GAAP from continuing operations	939			848
Earnings under U.S. GAAP from discontinued operations	8			168
Net income under U.S. GAAP	947			1,016
Basic earnings per common share, under U.S. GAAP, from:
Continuing operations	$	1.43		$	1.29
Discontinued operations, net of tax	0.01			0.26
Basic earnings per common share(1)	$	1.44		$	1.55

(1) Earnings per common share is calculated after taking into account dividends declared on preference shares. For 2005, basic and diluted earnings per common share  were equivalent. For the year ended December 31, 2004, diluted earnings per common share for discontinued operations was $0.25, which resulted in total diluted earnings per common share of $1.54 for the year ended December 31, 2004.

104

	As at December 31
	2005		2004
Shareholders’ equity under Canadian GAAP	9,963		9,962
Differences in GAAP increasing (decreasing) reported Shareholders’ equity:
Business combinations	(605	)	(622	)
Employee future benefits	(33	)	(50	)
Derivative instruments and hedging activities	48		18
Income taxes	157		159
Shareholders’ equity under U.S. GAAP	9,530		9,467

Descriptions of the nature of the reconciling differences are provided below:

Asset Retirement Obligations

Under Canadian GAAP, effective January 1, 2004, the Company adopted CICA Handbook Section 3110, Asset Retirement Obligations, with restatement of prior periods. The equivalent U.S. GAAP standard was effective January 1, 2003. Because the Company did not consider the impact of this standard to be material for purposes of the reconciliation to U.S. GAAP, this item was not treated as a difference between Canadian and U.S. GAAP in prior periods. Under U.S. GAAP, the Company recognized this liability by recording it as a 2004 expense item, consisting of operating expenses of $11 million offset by a tax benefit of $4 million.

Business Combinations

Prior to January 1, 2001, various differences existed between Canadian and U.S. GAAP for the accounting for business combinations, including the establishment of acquisition related liabilities. The $15 million increase to income (2004 – $36 million) primarily relates to (i) costs that are required to be recorded as operating expenses under U.S. GAAP which, prior to January 1, 2001, were capitalized under Canadian GAAP; (ii) overall decreased amortization charges due to basis differences; and (iii) differences in gain or loss calculations on business disposals resulting from the above factors.

The $605 million decrease in shareholders’ equity as of December 31, 2005 (2004 – $622 million) primarily relates to basis differences in identifiable intangible assets and goodwill due to the factors discussed above, as well as a gain of $54 million recorded for U.S. GAAP resulting from a 1997 disposal mandated by the U.S. Department of Justice, which was required to be recorded as a reduction of goodwill under Canadian GAAP. On a U.S. GAAP basis, goodwill was $8,722 million at December 31, 2005 (2004 – $8,816 million). On the same basis, identifiable intangible assets, net of accumulated amortization, were $4,183 million at December 31, 2005 (2004 – $4,403 million).

Related Party Transactions

During 2004, in accordance with Canadian GAAP, the Company recognized gains on transactions with entities associated with its controlling shareholder in its net earnings. Under U.S. GAAP, such related party gains are not recognizable in net earnings but must be reflected as equity transactions. In 2004, the related party transaction was the sale of a wholly-owned subsidiary whose only asset was tax losses to a company controlled by Kenneth R. Thomson which resulted in a gain of $14 million.

In accordance with Canadian GAAP, within the consolidated statement of cash flow, these related party transactions were included in cash used in investing activities. Under U.S. GAAP, the cash received would have been classified as a financing activity. For the year ended December 31, 2004, cash used in investing activities would have been $14 million higher or $1,477 million and cash used in financing activities would have decreased by the same amount to $615 million.

105

Derivative Instruments and Hedging Activities

Under Canadian GAAP, the fair values of derivative instruments that are treated as hedges are disclosed in the notes to the consolidated financial statements as at and for the year ended December 31, 2004, but not recorded in the consolidated balance sheet. Under U.S. Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, all derivative instruments are recognized in the balance sheet at their fair values, and changes in fair value are recognized either immediately in earnings or, if the transaction qualifies for hedge accounting, when the transaction being hedged affects earnings. Accordingly, under U.S. GAAP as at December 31, 2005, prepaid expenses and other current assets were $3 million lower (2004 – $5 million lower), other non-current assets were $67 million higher (2004 – $46 million higher), accounts payable and accruals were unchanged (2004 – $1 million higher) and long-term debt was $16 million higher (2004 – $22 million higher) as compared to Canadian GAAP.

Income Taxes

The income tax adjustment for each period is comprised of the tax effect of the U.S. GAAP reconciling items. The adjustment to shareholders’ equity relates entirely to deferred tax liabilities.

Net Other (Expense) Income

Under Canadian GAAP, investments in joint ventures are proportionally consolidated. Impairments for long-lived joint venture assets are recognized when the assets are not recoverable. Under U.S. GAAP, investments in joint ventures are accounted for as an equity investment. Impairments for equity investments are recognized when the decline of their fair value below carrying value is considered to be other than temporary. The adjustment relates to a joint venture investment that has long-lived assets that are recoverable, but whose carrying value is greater than its fair value.

Employee Future Benefits

Certain of the Company’s defined benefit pension plans have accumulated benefit obligations in excess of the fair market value of assets available to fund such obligations as of the annual measurement date for those plans. With respect to those plans, U.S. accounting standards require the recognition of an “additional minimum liability” of $39 million (2004 – $55 million), with a corresponding reduction in shareholders’ equity. If, at a subsequent date, the fair market value of the pension assets exceeds the accumulated benefit obligations, the equity adjustment would be reversed. This adjustment has no impact on income or cash flow. Because the concept of an additional minimum liability does not exist in Canadian GAAP, the liability and the reduction in equity resulted in a reconciling item.

The accumulated benefit obligation of funded pension plans that had accumulated benefit obligations that exceeded plan assets at December 31, 2005 was $80 million (2004 – $168 million). These plans had related fair values of plan assets of $68 million (2004 – $161 million).

Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income, requires companies to disclose comprehensive income, which includes, in addition to net income, other comprehensive income consisting primarily of unrealized gains and losses which bypass the traditional income statement and are recorded directly in shareholders’ equity on a U.S. GAAP basis. In 2005 and 2004, the components of other comprehensive income consist of unrealized gains and losses relating to the translation of foreign currency financial statements, pension accounting, hedging activity and certain investment securities, as well as the realization of previously deferred gains and losses on certain derivatives. Accumulated other comprehensive income as at December 31, 2005 was a gain of $270 million (2004 – gain of $434 million).

106

Recently Issued Accounting Standards

In December 2004, the U.S. Financial Accounting Standards Board revised SFAS 123, Share Based Payment (“SFAS 123(R)”) which, most notably, requires the expensing of stock-based compensation. While this provision of SFAS 123(R) will not impact the Company as Canadian GAAP already requires the expensing of stock-based compensation, there are other provisions in the U.S. accounting standard related to stock appreciation rights (“SARs”) that will create a difference between the Company’s U.S. and Canadian GAAP results. Under SFAS 123(R), SARs must be accounted for at their fair value, while Canadian GAAP provides for these instruments to be accounted for at their intrinsic value. Given the Company’s limited issuances of SARs, it does not believe that this difference will be material. SFAS 123(R) is effective for years beginning after December 15, 2005.

NOTE 26: SUBSEQUENT EVENTS

In February 2006, the Company’s board of directors approved the plan to dispose of three separate businesses within the Learning segment. These businesses are Peterson’s, a college preparatory guide, the U.S. operations of Thomson Education Direct, a consumer-based distance learning career school and K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic community. The results of these businesses will be classified as discontinued operations beginning with the interim financial statements to be filed for the first quarter of 2006 and prior periods will be restated to reflect this classification. The combined annual revenues of these businesses in 2005 were approximately $145 million.

In February 2006, the Company’s board of directors announced a 10%, or $0.08 per share, increase in the annualized rate of the Company’s common share dividend to $0.88 per share. Additionally, the Board announced it has moved the annual dividend review period from the second quarter to the first quarter of each year.

107

The Thomson Corporation

Six-Year Summary

(unaudited)

The following table includes measurements for Adjusted operating profit that do not have any standardized meaning prescribed by Canadian generally accepted accounting principles. These measurements are used by management to evaluate performance. A further discussion of these performance measures is included in management’s discussion and analysis and a reconciliation of them to the consolidated statement of earnings and retained earnings is included on page 110.

(millions of U.S. dollars)	2005		2004		2003		2002		2001		2000
Revenues
Legal & Regulatory(1)	3,491		3,276		3,012		2,822		2,684		2,526
Learning	2,319		2,174		2,052		2,036		1,752		1,429
Financial	1,897		1,738		1,526		1,622		1,704		1,551
Scientific & Healthcare(1)	1,018		893		826		774		723		703
Eliminations(1)	(22	)	(24	)	(25	)	(25	)	(19	)	(16	)
	8,703		8,057		7,391		7,229		6,844		6,193
Adjusted operating profit(2)
Legal & Regulatory(1)	982		897		809		782		715		648
Learning	350		327		336		301		243		218
Financial	334		294		230		244		246		206
Scientific & Healthcare(1)	235		195		162		137		123		117
Corporate and other(3)	(128	)	(98	)	(97	)	(70	)	(75	)	(144	)
	1,773		1,615		1,440		1,394		1,252		1,045

(1)Effective January 1, 2005, the Dialog DataStar operation was transferred from Legal & Regulatory to Scientific & Healthcare. Comparative periods’ results have been reclassified to conform to the current period’s presentation.

(2)Adjusted operating profit excludes amortization and restructuring charges and, in 2000, Year 2000 costs.

(3)Corporate and other includes corporate costs, minority interests and costs associated with the Company’s stock-based compensation expense.

Prior year amounts have been restated for discontinued operations and reclassified to conform with the current year’s presentation.

108

The following table includes measurements for adjusted earnings and adjusted earnings per common share from continuing operations that do not have any standardized meanings prescribed by Canadian generally accepted accounting principles. These measurements are used by management to evaluate performance. A further discussion of these performance measures is included in management’s discussion and analysis.

(millions of U.S. dollars, except per common share amounts)	2005			2004			2003			2002			2001			2000
Earnings attributable to common shares	930			1,008			877			585			741			1,220
Basic and diluted earnings per common share	$	1.42		$	1.54		$	1.34		$	0.91		$	1.18		$	1.96
Supplemental information:
Earnings attributable to common shares as above	930			1,008			877			585			741			1,220
Adjust: one-time items, net of tax, resulting from other (income) expense, restructuring charges, Year 2000 costs, and redemption of Series V preference shares	29			(14		)	(87		)	39			(206		)	2
Proportionate share of goodwill impairment recognized by BGM	—			—			—			67			—			—
One-time tax benefits	(12		)	(41		)	(64		)	—			—			(105		)
Earnings from discontinued operations	(8		)	(155		)	(39		)	(70		)	(109		)	(687		)
Effect of new accounting standard(1)	—			—			—			—			188			143
Adjusted earnings from continuing operations	939			798			687			621			614			573
Adjusted basic and diluted earnings per common share from continuing operations	$	1.43		$	1.22		$	1.05		$	0.97		$	0.98		$	0.92

(1)Under CICA Handbook Section 3062, goodwill and identifiable intangible assets with indefinite useful lives are no longer amortized beginning in 2002. This adjustment removes the amortization related to these assets in prior periods.

109

The Thomson Corporation

Reconcilations

(unaudited)

Reconciliation of Adjusted Operating Profit to Operating Profit

	For the year ended December 31, 2005
(millions of U.S. dollars)	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	982		350		334		235		(128	)	1,773
Less: Amortization	(108	)	(66	)	(89	)	(46	)	—		(309	)
Operating profit	874		284		245		189		(128	)	1,464

	For the year ended December 31, 2004
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	897		327		294		195		(98	)	1,615
Less: Amortization	(99	)	(69	)	(82	)	(35	)	—		(285	)
Operating profit	798		258		212		160		(98	)	1,330

	For the year ended December 31, 2003
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	809		336		230		162		(97	)	1,440
Less: Amortization	(99	)	(83	)	(64	)	(32	)	—		(278	)
Operating profit	710		253		166		130		(97	)	1,162

	For the year ended December 31, 2002
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	782		301		244		137		(70	)	1,394
Less: Amortization	(83	)	(97	)	(65	)	(29	)	—		(274	)
Restructuring charges	(4	)	—		—		—		—		(4	)
Operating profit	695		204		179		108		(70	)	1,116

110

	For the year ended December 31, 2001
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	715		243		246		123		(75	)	1,252
Less: Amortization	(179	)	(103	)	(107	)	(38	)	—		(427	)
Restructuring charges	(7	)	—		(20	)	(3	)	—		(30	)
Operating profit	529		140		119		82		(75	)	795

	For the year ended December 31, 2000
	Legal & Regulatory		Learning		Financial		Scientific & Healthcare		Corporate and other		Total
Adjusted operating profit	648		218		206		117		(144	)	1,045
Less: Amortization	(167	)	(70	)	(36	)	(40	)	—		(313	)
Restructuring charges	(12	)	(16	)	(1	)	(4	)	(4	)	(37	)
Y2K costs	(1	)	(1	)	(1	)	(1	)	—		(4	)
Operating profit	468		131		168		72		(148	)	691

Reconciliation of Free Cash Flow

(millions of U.S. dollars)	2005		2004		2003		2002		2001
Net cash provided by operating activities	1,879		1,808		1,654		1,691		1,651
Capital expenditures, less proceeds from disposals (continuing operations)	(642	)	(619	)	(568	)	(515	)	(670	)
Capital expenditures, less proceeds from disposals (discontinued operations)	—		(3	)	(9	)	(8	)	(14	)
Other investing activities	(39	)	(60	)	(83	)	(166	)	(359	)
Dividends paid on preference shares	(4	)	(3	)	(11	)	(22	)	(28	)
Free cash flow	1,194		1,123		983		980		580

111

Board of Directors

	David K. R. Thomson Chairman, The Thomson Corporation; Deputy Chairman, The Woodbridge Company Limited Member of Finance Committee		W. Geoffrey Beattie Deputy Chairman, The Thomson Corporation; President, The Woodbridge Company Limited Chairman of Finance Committee; Member of Corporate Governance and Human Resources Committees
	Mary Cirillo Corporate Director Member of Corporate Governance Committee		Robert D. Daleo Executive Vice President & Chief Financial Officer, The Thomson Corporation
	Roger L. Martin Dean of the Joseph L. Rotman School of Management, University of Toronto Member of Audit Committee		Vance K. Opperman President & Chief Executive Officer, Key Investment, Inc. Chairman of Audit Committee
	Kenneth R. Thomson Chairman, The Woodbridge Company Limited		Peter J. Thomson Deputy Chairman, The Woodbridge Company Limited

CORPORATE GOVERNANCE

Principles

The Thomson Corporation is committed to maintaining strong corporate governance practices that allocate responsibilities between the company’s board of directors and management in a manner that benefits the long-term interests of the company’s shareholders. We believe that sustainable value creation for all shareholders is fostered through a board that is informed and engaged, and that functions independently of management.

Given our dual listing on the New York and Toronto stock exchanges, we comply with applicable U.S. and Canadian governance standards. Our corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide effective oversight of the company. Our board is committed to the highest standards of responsibility, ethics and integrity in fulfilling its responsibilities to shareholders and has adopted corporate governance guidelines in furtherance of these goals.

Board Committees

The board of directors currently has the following four standing committees:

• The Audit Committee assists the board in fulfilling its oversight responsibilities regarding the integrity of financial statements, regulatory compliance and the performance of our independent auditor and internal audit function.

• The Corporate Governance Committee focuses on board structure and composition; the nomination, orientation and compensation of directors; and our overall approach to corporate governance.

112

	Richard J. Harrington President & Chief Executive Officer, The Thomson Corporation		Ron D. Barbaro Corporate Director Member of Audit and Corporate Governance Committees
	Steven A. Denning Managing Partner, General Atlantic, LLC Chairman of Human Resources Committee		V. Maureen Kempston Darkes Group Vice President, General Motors Corporation & President, GM Latin America, Africa and Middle East Member of Corporate Governance and Human Resources Committees
	David H. Shaffer Executive Vice President, The Thomson Corporation		John M. Thompson Chairman of the Board, The Toronto-Dominion Bank Chairman of Corporate Governance Committee; Member of Audit Committee
	Richard M. Thomson Retired Chairman & Chief Executive Officer, The Toronto-Dominion Bank Member of Audit and Human Resources Committees		John A. Tory President, Thomson Investments Limited Member of Finance and Human Resources Committees

• The Human Resources Committee helps the board fulfill its oversight responsibilities concerning the selection, compensation and professional development of senior management; succession planning; and the management of employee pension and benefit plans.

• The Finance Committee focuses on ordinary course matters of a banking or treasury nature within a limited scope, as well as appropriate matters that have been approved in principle by the board and that require action between regularly scheduled board meetings.

Code of Conduct

In 2003, we adopted a code of business conduct and ethics that applies to all employees, officers and directors, all of whom are required to submit an acknowledgment that they have read the code and understand their obligation to comply with the principles and policies it outlines. In 2005, to further strengthen a culture of ethical business conduct throughout the company, we launched a mandatory online training course related to the code.

For Additional Information

A statement of our policy with respect to corporate governance is included in our management information circular. In addition, information on our corporate governance practices is available to the public in the Corporate Governance area of the Investor Relations section on www.thomson.com. Information available in this area of our website includes our corporate governance guidelines, board committee charters, code of conduct and a summary of the significant ways in which our corporate governance practices differ from those required to be followed by U.S. domestic companies under NYSE listing standards.

113

Senior Management

Richard J. Harrington

President & Chief Executive Officer,

The Thomson Corporation

Richard Benson-Armer

Senior Vice President &

Corporate Chief Strategy Officer,

The Thomson Corporation

Robert Bogart

Executive Vice President,

Human Resources,

The Thomson Corporation

Robert Cullen

President & Chief Executive Officer,

Thomson Scientific & Healthcare

Robert D. Daleo

Executive Vice President & Chief Financial Officer,

The Thomson Corporation

Brian Hall

President & Chief Executive Officer,

Thomson Legal & Regulatory

Brian Martin

Senior Vice President,

Corporate Affairs,

The Thomson Corporation

Sharon Rowlands

President & Chief Executive Officer,

Thomson Financial

Ronald Schlosser

President & Chief Executive Officer,

Thomson Learning

David H. Shaffer

Executive Vice President,

The Thomson Corporation

Deirdre Stanley

Senior Vice President & General Counsel,

The Thomson Corporation

Michael Wilens

Executive Vice President & Corporate

Chief Technology and Operations Officer,

The Thomson Corporation

114

Corporate Information

Corporate Headquarters

Metro Center
One Station Place
Stamford, Connecticut 06902
United States

tel 203.539.8000

generalinfo@thomson.com

Stock Exchange Listings

Common shares (symbol: TOC):

• Toronto Stock Exchange (TSX)

• New York Stock Exchange (NYSE)

Series II preference shares (symbol: TOC.PR.B):

• Toronto Stock Exchange (TSX)

Capital Stock

Shares outstanding as of December 31, 2005:

• Common: 648,948,992

• Series II preference: 6,000,000

Controlling shareholder: Kenneth R. Thomson

(approximately 69% of common shares)

2005 Financial Calendar

Year end: December 31

Quarterly results: announced on April 27 (Q1), July 27 (Q2)
and October 26 (Q3).

Common Share Dividends

At the discretion of the directors. Paid on March 15/ June 15/September 15/December 15 or on the first business day thereafter. Declared in U.S. dollars but can be paid in Canadian dollars or U.K. pounds sterling at the holder’s option (see also note 15, page 86).

Further information is available from the registrar.

Dividend Reinvestment Plan

Eligible common shareholders may elect to have cash dividends reinvested in common shares. Further information is available from the registrar.

Employees

As of December 31, 2005, we had approximately 40,500 employees.

Annual and Special Meeting of Shareholders

Wednesday, May 3, 2006, 12:00 p.m. at

Roy Thomson Hall
60 Simcoe Street
Toronto, Ontario, Canada

Transfer Agent and Registrar

Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Canada

tel 1.800.564.6253 (United States, Canada)

tel 514.982.7555 (outside North America)

www.computershare.com

Auditors

PricewaterhouseCoopers LLP
Suite 3000, Box 82
Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1G8
Canada

Further Information

Please visit www.thomson.com for corporate and management news and more detailed information on individual Thomson businesses, products and services.

For investor relations inquiries, call 1.800.969.9974 or e-mail investor.relations@thomson.com.

Any forward-looking statements about the company’s outlook and prospects contained in this annual report are subject to risks and uncertainties, as described in the “Risk Factors” section of the company’s most recent annual information form and annual report on Form 40-F.

115

Design: Aegis, Toronto
Photography: Antonin Kratochvil / Michael Persson / Craig Mayhew and Robert Simmon, NASA GSFC / Bill Gallery
Typesetting and prepress: Moveable Inc., Toronto
Printed in Canada

To experience an interactive version
of this annual report, go to
www.thomson.com

The Thomson Corporation
Metro Center, One Station Place,	Suite 2706, Toronto Dominion Bank Tower,
Stamford, Connecticut 06902 United States	P.O. Box 24, Toronto-Dominion Centre, Toronto, Ontario M5K 1A1 Canada
Tel 203.539.8000	Tel 416.360.8700

EX-99.3

Exhibit 99.3

9th Floor, 100 University Avenue
Toronto, Ontario M5J 2Y1
Facsimile 1-866-249-7775
416-263-9524
www.computershare.com

Security Class

Holder Account Number

Fold

Form of Proxy — Annual and Special Meeting of Shareholders to be held on Wednesday, May 3, 2006

Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada — 12:00 p.m., Eastern Daylight Time

Notes to Proxy

1.

Every holder has the right to appoint some other person of their choice, who need not be a holder, to attend and act on their behalf at the meeting. If you wish to appoint a person other than the persons whose names are printed herein, please insert the name of your chosen proxyholder in the space provided (see reverse).

2.

If the shares are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting on behalf of a corporation or another individual, you may be required to provide documentation evidencing your power to sign this proxy with signing capacity stated.

3.

This proxy should be signed in the exact manner as the name appears on the proxy.

4.

If this proxy is not dated, it will be deemed to bear the date on which it is mailed by Management to the holder.

5.

The shares represented by this proxy will be voted as directed by the holder. In the absence of such directions, shares represented by proxies received by Management will be voted FOR items 1-3 and in favor of Management's proposals generally.

6.

This proxy should be read in conjunction with the accompanying Notice of Annual and Special Meeting and Management Information Circular. Information contained in or otherwise accessible through the websites mentioned in this proxy does not form part hereof, and the references to the websites are inactive textual references only.

Proxies submitted must be received by Computershare by 5:00 p.m., Eastern Daylight Time, on May 1, 2006.

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VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS AWEEK!

•	Call the number listed BELOW from a touch tone telephone.	•	Go to the following web site:	•	You can enroll to receive future securityholder communications electronically by visiting www.computershare.com — click "Enroll for e-delivery" under the Shareholder Services menu.
If you vote by telephone or the Internet, DO NOT mail back this proxy.
Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual. Voting by mail or by Internet are the only methods by which a holder may appoint a person as proxyholder other than the individuals named on the reverse of this proxy. Instead of mailing this proxy, you may choose one of the two voting methods outlined above to vote this proxy.

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This Form of Proxy is solicited by and on behalf of Management.

Appointment of Proxyholder

I/We being holder(s) of common shares of The Thomson Corporation hereby appoint:
David K.R. Thomson, or failing him W. Geoffrey Beattie, or failing him Richard J. Harrington, all being directors of Thomson OR Print the name of the person you are appointing if it is someone else.

as my/our proxyholder with full power of substitution and to vote in accordance with the following direction (or if no directions have been given, as the proxyholder sees fit) and to vote at such proxyholder's discretion with respect to any amendments to matters referred to in the accompanying Notice of Annual and Special Meeting as well as all other matters that may properly come before the Annual and Special Meeting of Shareholders of Thomson to be held at Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada on May 3, 2006 at 12:00 p.m., Eastern Daylight Time, and at any adjournment thereof.

The Board of Directors and Management recommend that shareholders VOTE FOR items 1-3 below.

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1.    Election of Directors

		For	Withhold			For	Withhold			For	Withhold
01. David K.R. Thomson	Ø	o	o	06. Robert D. Daleo	Ø	o	o	11. John M. Thompson	Ø	o	o
02. W. Geoffrey Beattie	Ø	o	o	07. Steven A. Denning	Ø	o	o	12. Kenneth R. Thomson	Ø	o	o
03. Richard J. Harrington	Ø	o	o	08. V. Maureen Kempston Darkes, O.C.	Ø	o	o	13. Peter J. Thomson	Ø	o	o
04. Ron D. Barbaro	Ø	o	o	09. Roger L. Martin	Ø	o	o	14. Richard M. Thomson, O.C.	Ø	o	o
05. Mary Cirillo	Ø	o	o	10. Vance K. Opperman	Ø	o	o	15. John A. Tory	Ø	o	o
2.    Appointment of Auditors										For	Withhold
Appointment of PricewaterhouseCoopers LLP as auditors and authorization of the directors to fix their remuneration									Ø	o	o
3.    Approval of the Deferred Compensation Plan										For	Against
									Ø	o	o

Authorized Signature(s) — Sign Here — This section must be completed for your instructions to be executed.

I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby revoke any proxy previously given with respect to the Meeting. If no voting instructions are indicated above, this Proxy will be voted as recommended by Management.

Signature(s)
	Date

Quarterly Financial Statements and MD&A Request
Thomson's quarterly financial statements and related management's discussion and analysis (MD&A) are available at www.thomson.com. However, if you wish to receive them by mail, please mark this box. If you do not mark this box, or do not return this form, you will not receive our quarterly financial statements and MD&A by mail in 2006. You are required to complete this request on an annual basis.	o
You can also receive these documents electronically — see reverse for instructions to enroll for electronic delivery.
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