Deans Knight Income Corporation Releases Interim Financial Statements and Management Report of Fund Performance for the Period Ended June 30, 2009

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 14, 2009) - Deans Knight Income Corporation (the "Company") (TSX:DNC) is pleased to release its interim financial statements and Management Report of Fund Performance for the six months ended June 30, 2009.

These documents can be found on SEDAR at www.sedar.com or the Company's website: www.dkincomecorp.com.

Forward-Looking Statements

This press release contains forward-looking statements. More particularly, this press release contains forward-looking statements concerning the Company's corporate objectives, the investment of the Company's remaining net proceeds from the Initial Public Offering, availability of tax losses and deductions, the anticipated total return to the Company's shareholders and the Company's intention to pay out earned income in the form of monthly dividends. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, undue reliance should not be placed on them because the Company can give no assurance that they will prove to be correct since forward-looking statements address future events and conditions and by their very nature, involve inherent risks and uncertainties. The forward-looking statements contained in this press release are made as of the date hereof and the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

/T/

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.)
Financial Statements
June 30, 2009
(Unaudited)

/T/

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Section 4.3(3)(a) of National Instrument 51-102, Continuous Disclosure Obligations, provides that if an auditor has not performed a review of the interim financial statements, the interim financial statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The Company's external auditors, PricewaterhouseCoopers LLP, have not performed a review of these interim financial statements of Deans Knight Income Corporation.

/T/

signed "Craig Langdown" signed "Mark Myles"

Craig Langdon Mark Myles
Chief Executive Officer Chief Financial Officer

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.) Statement of Net Assets
As at June 30, 2009
(Unaudited)
----------------------------------------------------------------------------
2009
$

Assets

Current assets
Investments -- at fair value (cost - $78,746,455) 87,219,244
Cash and short-term deposits 19,736,709
Accrued interest receivable 1,475,270
Prepaid expenses 174,153
Future income tax benefits (note 8) 2,000,000
-------------
110,605,376

Future income tax benefits (note 8) 9,065,000
-------------

119,670,376
-------------
-------------

Liabilities

Accounts payable and accrued liabilities (note 6) 498,831
-------------

Net assets 119,171,545
-------------

Shareholders' equity

Common shares (note 4) 97,735,007
Contributed surplus (note 4) 9,904,504
Retained earnings (note 5) 11,532,034
-------------

119,171,545
-------------
-------------

Number of common shares outstanding (note 4) 10,537,263
-------------
-------------

Net assets per common share 11.31
-------------
-------------

Contingency (note 2)

The accompanying notes are an integral part of these financial statements.

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.) Statement of Operations
For the six month period ended June 30, 2009
(Unaudited)
----------------------------------------------------------------------------
2009
$

Investment income
Interest and other 1,725,068
-------------

Expenses
Management fees (note 6) 424,864
Public company reporting costs 69,468
Directors' fees and expenses 53,260
Custodial fees 12,891
Foreign exchange gain (32,249)
Accretion on convertible debenture (note 2 and 4) 103,730
Interest on convertible debenture (note 2 and 4) 215,213
-------------
847,177
-------------

Net investment income 877,891
-------------

Realized and unrealized gains (losses) on investments
Net realized gain on investments sold (note 7) 4,890,066
Change in unrealized appreciation on investments 10,943,081
Unrealized depreciation on foreign currency contracts (2,470,292)
-------------

Net gain on investments 13,362,855
-------------

Increase in net assets from operations before tax 14,240,746

Recovery of future income tax 11,065,000
-------------

Increase in net assets from operations 25,305,746
-------------
-------------

Increase in net assets from operations per weighted average
common share (note 3) 4.15
-------------
-------------

The accompanying notes are an integral part of these financial statements.

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.) Statement of Changes in Net Assets
For the six month period ended June 30, 2009
(Unaudited)
----------------------------------------------------------------------------
2009
$

Increase in net assets from operations 25,305,746
-------------

Dividends to common shareholders from:
Net investment income (614,322)
-------------

Shareholder transactions (note 4)
Issuance of common shares on conversion of debenture 3,358,615
Conversion of equity component of convertible debenture (398,615)
Issuance of common shares for payment of interest on
convertible debenture 215,213
Issuance of common shares on initial public offering, net of
issuance costs 94,161,178
-------------
97,336,391
-------------

Increase in net assets during the period 122,027,815

Net liabilities - beginning of period (2,856,270)
-------------

Net assets - end of period 119,171,545
-------------
-------------

The accompanying notes are an integral part of these financial statements.

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.) Statement of Cash Flows
For the six month period ended June 30, 2009
(Unaudited)
----------------------------------------------------------------------------
2009
$

Operating activities
Increase in net assets from operations 25,305,746
Items not affecting cash
Net realized gain on investments sold (4,890,066)
Change in unrealized appreciation in value of investments (10,943,081)
Unrealized depreciation in foreign exchange contracts 2,470,292
Accretion on convertible debenture 103,730
Interest on convertible debenture 215,213
Future income tax recovery (11,065,000)
-------------
1,196,834

Cost of investments purchased (85,827,511)
Proceeds from investments sold 11,971,122
Net change in non-cash balances related to operations
Accrued interest receivable (1,475,270)
Prepaid expenses (174,153)
Accounts payable and accrued liabilities 498,831
-------------

Net cash flow used in operating activities (73,810,147)
-------------

Financing activities
Dividends paid to common shareholders (note 5) (614,322)
Issuance of common shares on initial public offering, net of
issuance costs (note 4) 94,161,178
-------------

Net cash flow provided by financing activities 93,546,856
-------------

Net increase in cash during the period 19,736,709

Cash and short-term deposits - beginning of period -

-------------
19,736,709
-------------
-------------

Cash and short-term deposits - end of period
Cash and short-term deposits are comprised of:
Cash 2,642,930
Short-term deposits 17,093,779
-------------

19,736,709
-------------
-------------

Supplemental cash flow information (note 10)

The accompanying notes are an integral part of these financial statements.

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.) Statement of Investments
As at June 30, 2009
(Unaudited)
----------------------------------------------------------------------------
Percentage
of total
Average Fair value fair value
Par value(1) cost(2) (2) (3)
$ $ $ %
----------------------------------------------------------------------------
Fixed Income
Canadian

Denominated in Canadian
dollars

Athabasca Oil Sands Corp.
13.0% 07-31-2011 7,600,000 6,213,000 7,258,000 8.3
Sherritt International Corp.
7.75% 10-15-2015 3,500,000 2,718,438 3,080,000 3.5
Sherritt International Corp.
7.88% 11-26-2012 1,200,000 903,000 1,104,000 1.3
-----------------------------------
9,834,438 11,442,000 13.1
-----------------------------------

Denominated in United States
dollars
Bombardier Inc. 8.00%
11-15-2014 3,828,000 3,483,772 4,183,047 4.8
CCS Inc. 11.0% 11-15-2015 7,750,000 3,879,423 5,675,906 6.5
CGA Mining Limited 12.0%
11-22-2012 1,000,000 1,028,565 1,104,375 1.3
Dollarama Group LP 8.88%
08-15-2012 4,100,000 4,520,510 4,587,516 5.3
Gibson Energy ULC 11.75%
05-27-2014 2,000,000 2,220,493 2,295,938 2.6
Harvest Operations 7.88%
10-15-2011 5,500,000 4,708,549 5,306,813 6.1
Methanex Corp. 6.0%
08-15-2015 1,000,000 879,586 892,219 1.0
Methanex Corp. 8.75%
08-15-2012 3,750,000 4,098,591 4,174,102 4.8
Opti Canada Inc. 7.88%
12-15-2014 2,000,000 1,257,971 1,499,625 1.7
Paramount Resources 8.5%
01-31-2013 6,250,000 6,653,783 6,738,867 7.7
Teck Resources Ltd. 10.75%
05-15-2019 5,500,000 6,297,137 6,873,281 7.9
West Fraser Timber 5.2%
10-15-2014 1,250,000 974,216 1,082,578 1.2
-----------------------------------
40,002,596 44,414,267 50.9
-----------------------------------

-----------------------------------
Total Canadian Fixed Income 49,837,034 55,856,267 64.0
-----------------------------------

Fixed Income
United States
Denominated in United States
dollars
Calfrac Holdings LP 7.75%
02-15-2015 2,750,000 2,152,126 2,749,313 3.2
Chesapeake Energy CO 7.5%
09-15-2013 4,500,000 4,987,710 4,995,844 5.7
Cott Beverages USA 8.0%
12-15-2011 6,837,000 5,754,777 7,391,652 8.5
-----------------------------------

Total United States fixed
income 12,894,613 15,136,809 17.4
-----------------------------------

Foreign
Denominated in United States
dollars

FMG FIN PTY LTD 10.63%
09-01-2016 1,750,000 1,834,705 1,953,000 2.2
-----------------------------------
Total fixed income 64,566,352 72,946,076 83.6
-----------------------------------

Convertible Debentures

Denominated in Canadian
dollars

Harvest Energy 7.25%
09- 20-2013 3,500,000 2,032,576 2,275,000 2.6
Pacific Rubiales Energy 8.0%
08- 29-2013 7,250,000 6,395,313 7,467,500 8.5
Provident Energy 6.5%
04- 30-2011 3,000,000 2,283,750 2,842,500 3.3
Trinidad Drilling 7.75%
07- 31-2012 4,620,000 3,468,464 4,158,460 4.8
-----------------------------------
14,180,103 16,743,460 19.2
-----------------------------------

-----------------------------------
Investments subtotal 78,746,455 89,689,536 102.8
-----------------------------------

Hedges

Denominated in United States
dollars

Foreign currency exchange
contracts (note 9) 54,000,000 - (2,470,292) -2.8
-----------------------------------
Portfolio Total 87,219,244 100.0
-----------------------------------
-----------------------------------

(1) Par values are presented in their source currency.
(2) All amounts are shown in Canadian dollars.
(3) Percentages are shown as a percentage of total investments.

Deans Knight Income Corporation
(formerly 3887685 Canada Inc.)
Notes to Financial Statements
June 30, 2009
(Unaudited)

/T/

1 Nature of operations and basis of presentation

Deans Knight Income Corporation (the "Company"), formerly 3887685 Canada Inc., Forbes Medi-Tech Operations Inc. and Forbes Medi-Tech Inc., is a corporation continued under the laws of Canada on April 11, 2001. The Company is a closed-end, non-redeemable investment company. It invests primarily, in corporate debt rated BBB or below by recognized credit rating organizations.

Prior to the Company completing its reorganization in May 2008, it was in the business of pharmaceutical research. In May 2008, the Company was reorganized and the pharmaceutical research operations and all assets and liabilities were transferred out of the Company (note 2). In March 2009, the Company completed an initial public offering, whereby it raised gross proceeds of $100,368,900 (note 4) and began operating its new business of investing in corporate debt.

Due to the change in the nature of the Company's business resulting from the corporate reorganization, as explained in note 2 and its subsequent initial public offering, the comparative statements of net assets, operations, changes in net assets and cash flows for the prior period would not be meaningful and have therefore not been presented. The Company had no significant activities, income or expenses during the period January 1, 2009 to March 17, 2009, other than in respect of the initial public offering.

The accompanying unaudited interim financial statements are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). All amounts are presented in Canadian dollars, unless otherwise noted.

2 Reorganization

On February 27, 2008, the Company reorganized its corporate structure pursuant to a plan of arrangement under the Canada Business Corporations Act (the "Arrangement"). Pursuant to the Arrangement, the Company changed its name from "Forbes Medi-Tech Inc." to "Forbes Medi-Tech Operations Inc." and all of the Company's then outstanding common shares, options and warrants were exchanged for common shares, options and warrants of Forbes, a newly formed entity. As a result of the exchange of shares, the Company became a wholly-owned subsidiary of Forbes and the common shares of Forbes began to trade on the TSX and NASDAQ in substitution for the common shares of the Company. On March 19, 2008, a third party, Forbes and the Company entered into an investment agreement pursuant to which the third party agreed to purchase a convertible debenture for $2,960,000 and the Company and Forbes agreed to reorganize the business of the Company (the "Reorganization"). On May 9, 2008 the Company changed its name to "3887685 Canada Inc." and the Company completed the reorganization pursuant to which it transferred all of its assets and operations, and their related liabilities to Forbes.

The Convertible Debenture was convertible into 20,683,685 voting common shares and 123,818,901 non-voting common shares at the option of the third party. On March 17, 2009, the third party opted to convert the full amount of the convertible debenture (note 4).

Prior to the Reorganization, the Company was a life sciences company involved in the research, development and commercialization of innovative products for the prevention and treatment of life-threatening diseases. The Company's infrastructure supported a portfolio of discovery and development stage pharmaceutical compounds and nutraceutical products. Forbes continues to carry on the prior business of the Company and in accordance with the asset purchase agreement between the Company and Forbes providing for the Reorganization, Forbes provided an indemnity to the Company with respect to liabilities relating to the Company's assets transferred to Forbes and the Company's prior business. In addition, Forbes obtained, on behalf of the Company, product liability insurance for certain claims that may arise in the future in connection with the Company's prior business. To date, no such claims or potential claims have arisen. There can be no assurance that the above noted guarantee will be sufficient to cover any future claims.

On February 6, 2009, the Company filed articles of amendment to change its name to "Deans Knight Income Corporation". In connection with the reorganization of the Company into an investment company, the Company amended its Articles to, among other things, consolidate the issued and outstanding voting and non-voting common shares on the basis of one voting and non-voting common share for every 382 voting and non-voting common shares held, respectively (note 4). Further, the amendments provided for the Investment Objectives and Investment Restrictions of the Company and for the redemption of the voting and non-voting common shares by the Company for a cash amount equal to 100% of Net Asset Value per Share on April 30, 2014.

3 Summary of significant accounting policies

These financial statements include estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses during the period. Actual results could differ from these estimates. The following is a summary of significant accounting policies followed by the Company.

Investments

Investments are recorded at fair values and are determined as follows:
Short-term deposits

Short-term deposits are valued at cost plus accrued interest, which approximates market value.

Fixed income investments

Fixed income investments traded on a public securities exchange or traded on an over-the-counter market are valued at the closing bid price. Where no closing bid price is available, the last sale or close price is used, where, in management's opinion, this provides the best estimate of fair value.

Unlisted or non-exchange traded investments, or investments where a last bid, sale or close price is unavailable or investments for which market quotations are, in the Company's opinion, inaccurate, unreliable, or not reflective of all available material information, are valued at their fair value as determined by the Company using appropriate and accepted industry valuation techniques including valuation models. The fair value determined using valuation models requires the use of inputs and assumptions based on observable market data including volatility and other applicable rates or prices. In limited circumstances, the fair value may be determined using valuation techniques that are not supported by observable market data.

The resulting values for investments not traded in an active market may differ from values that would be determined had a ready market existed.

Forward currency contracts

Forward currency contracts are recorded at fair value. The proceeds (payments) on contracts settled during the period are included in the net realized gain on investments sold (note 7). The Company's policy is to hedge 95% - 106% of the fair value of foreign denominated investments with foreign exchange forward sell contracts.

The impact of changes in fair value on net income of the Company arising from changes in estimated fair value for private and public company investments is detailed in the statement of operations.

The net change in the fair value from the total cost of the investments is reflected in the statement of operations as changes in unrealized appreciation/depreciation in value of investments.

Investment transactions

Investment transactions are recorded on the trade date. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. These costs are expensed and are included in the statements of operations.

Cash and short-term deposits

Cash and short-term deposits consists of cash and deposits with maturities at time of purchase of three months or less and are held with a Canadian chartered bank.

Income recognition

Income from investments is recognized on an accrual basis. Interest income is accrued based on the number of days the investment is held during the period. Gain or loss on the sale of investments, including foreign exchange gain or loss on such investments, are calculated on an average cost basis.

Forward foreign currency contracts

Forward foreign currency contracts (note 9) entered into by the Company are valued at an amount that is equal to the gain or loss that would be realized if the position were to be closed out, which is equivalent to the difference between the deliverable asset and the value of the asset to be received. Changes in the value of a forward contract or the assets deliverable under such a contract are included as unrealized appreciation/depreciation of foreign currency contracts in the statement of operations.

Foreign exchange

Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate applicable on the valuation date. Purchases and sales of investments, investment income and expenses are calculated at the exchange rates prevailing on the dates of the transactions.

Accretion in carrying value of convertible debenture

The carrying value of the liability component of the redeemable convertible debenture is accreted to the estimated redemption value using the effective yield method through charges to income over the period up to the redemption date.

Income taxes

The Company follows the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are measured using rates expected to apply to the taxable income in the years in which the temporary differences are expected to be settled.

A valuation allowance is recognized to the extent it is more likely than not that future income tax assets will not be realized. Management has estimated the income tax provision and future income tax balances taking into account its expectation of future income and an interpretation of the various income tax laws and regulations. It is possible, due to the complexity inherent in estimating income taxes, that the tax provision and future tax balances could change.

Future accounting standards

The Canadian Accounting Standards Board confirmed January 1, 2011 as the date international financial reporting standards (IFRS) will replace current Canadian standards and interpretations as GAAP for publicly accountable enterprises. Management has commenced activities to identify key issues and the likely impacts resulting from the adoption of IFRS.

Use of 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, liabilities, income and expenses during the reporting period. Actual results could differ from those reported and such differences could be material. Significant areas involving the use of estimates include determining the estimated fair value of private investments and future income tax assets. In calculating estimated fair value, the Portfolio Manager makes maximum use of publicly available market-based inputs.

Net assets per common share

The net assets per common share is computed by dividing the net assets of the Company by the total number of common shares outstanding on the valuation date.

Increase in net assets from operation per weighted average common share

The increase in net assets from operations per common share represents the increase in net assets from operations divided by the weighted average number of common shares outstanding during the period.

The weighted-average number of shares outstanding during the period ended June 30, 2009 was 6,097,337. This weighted average includes both the voting common shares and non-voting common shares of the company, and has been calculated assuming the consolidation of both voting common shares and non-voting common shares occurred at the beginning of the period.

4 Share capital

The company is authorized to issue an unlimited number of voting common shares without par value, an unlimited number of non-voting common shares with par value.

/T/

Voting Non-voting
common common
shares shares
--------------------------------------------------------
Number of Amount Number of Amount
shares $ shares $
---------------------------------------------------------
Balance - December
31, 2008 38,412,100 1 - -
Shares issued on
conversion of
debenture 20,683,685 480,742 123,818,901 2,877,873
Shares issued for
payment of interest
owed on convertible
debenture - - 8,227,260 215,213
Share
consolidation (58,941,083) - (131,700,490) -
---------------------------------------------------------
154,702 480,743 345,671 3,093,086
Shares issued in
initial public
offering 10,036,890 100,368,900 - -
Less: Offering
costs (6,207,722) - -
--------------------------------------------------------
--------------------------------------------------------
Balance - June 30,
2009 10,191,592 94,641,921 345,671 3,093,086
--------------------------------------------------------
--------------